As filed with the Securities and Exchange Commission on September 14, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
First Washington Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Washington 6035 91-1632900
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(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
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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)
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John F. Breyer, Jr., Esq.
Aaron M. Kaslow, Esq.
Breyer & Aguggia LLP
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:
Glen Garrison, Esq.
Keller Rohrback
1201 Third Avenue, Suite 3200
Seattle, Washington 90101
(206) 632-1900
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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
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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)
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Common Stock, $.01
par value 547,320 $10.58 $5,789,963 $1,708.04
(1) Represents the estimated maximum number of shares of common stock,
par value $.01 per share, issuable by First Washington Bancorp, Inc.
("FWWB") upon consummation of the acquisition of Whatcom State
Bancorp, Inc. ("Whatcom") 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 Whatcom common stock, $1.00
par value per share, on June 30, 1998 ($5,789,963) and computed based
on the estimated maximum number of such shares (713,493), 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.
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, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Whatcom State Bancorp, Inc. ("Whatcom"), to be held at 1600 Cornwall Avenue,
Bellingham, Washington, on ____________, ____________, 1998 at __:00 _.m.,
local time.
The Notice of Special Meeting of Shareholders and Prospectus/Proxy
Statement that appear on the following pages describe the formal business to
be transacted at the meeting. At the meeting, you will be asked to consider
and vote upon a proposal to approve the Agreement and Plan of Mergers dated as
of June 15, 1998 (the "Merger Agreement") by and among First Washington
Bancorp, Inc. ("FWWB"), First Savings Bank of Washington ("First Savings"),
Whatcom and Whatcom State Bank. The Merger Agreement provides that Whatcom
will be merged with FWWB and that, thereafter, Whatcom State Bank will be
merged with First Savings. After the consummation of the transaction, Whatcom
State Bank will operate as a division of First Savings.
Upon consummation of the merger, each share of Whatcom common stock will
be converted into the right to receive 0.7671 shares of FWWB common stock.
The last reported sale price of FWWB common stock on the Nasdaq National
Market (symbol: FWWB) 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.
The Board of Directors of Whatcom has unanimously approved the Merger
Agreement and recommends that you vote FOR the approval of the Merger
Agreement. Approval of the Merger Agreement requires the affirmative vote of
two-thirds of the outstanding shares of Whatcom 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,
Phillip V. Stephenson
President
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WHATCOM STATE BANCORP, INC.
1600 Cornwall Avenue
Bellingham, Washington 98225
(360) 738-8090
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Whatcom
State Bancorp, Inc. ("Whatcom") will be held at 1600 Cornwall Avenue,
Bellingham, Washington, on ____________, ____________, 1998, at __:00 _.m.,
for the following purposes:
1. To consider and vote upon a proposal to approve the
Agreement and Plan of Mergers dated as of June 15, 1998 (the
"Merger Agreement") by and among First Washington Bancorp,
Inc. ("FWWB"), First Savings Bank of Washington, Whatcom,
and Whatcom State Bank pursuant to which Whatcom would merge
into FWWB and each outstanding share of Whatcom common stock
would be converted into the right to receive 0.7671 shares
of FWWB common stock, all on and subject to the terms and
conditions contained therein.
2. To consider and act upon such other matters as may properly
come before the meeting or any adjournments thereof.
Only those shareholders of record at the close of business on
____________, 1998 shall be entitled to notice of, and to vote at, the meeting
or any adjournments thereof. The affirmative vote of the holders of
two-thirds of the outstanding shares of Whatcom common stock is required for
approval of the Merger Agreement.
Whatcom shareholders have the right to dissent from the merger and obtain
payment of the fair value of their shares of Whatcom common stock under the
applicable provisions of Washington law. In order to perfect dissenters'
rights, Whatcom shareholders must send a notice to Whatcom before the Special
Meeting on ____________, 1998 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 Whatcom unanimously recommends that shareholders
vote "FOR" approval of the Merger Agreement.
Bellingham, Washington By Order of the Board of Directors
, 1998
Marilyn Brink
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>
WHATCOM STATE BANCORP, INC.
PROXY STATEMENT
FIRST WASHINGTON BANCORP, INC.
PROSPECTUS
Up to 547,320 shares of Common Stock
This Prospectus/Proxy Statement is being furnished by Whatcom State
Bancorp, Inc. ("Whatcom") to the holders of Whatcom common stock, par value
$1.00 per share ("Whatcom Common Stock"), in connection with the solicitation
of proxies by the Board of Directors of Whatcom (the "Whatcom Board") for use
at a special meeting of Whatcom 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 Whatcom will consider and vote
upon a proposal to approve the Agreement and Plan of Mergers dated as of June
15, 1998 (the "Merger Agreement"), by and among First Washington Bancorp, Inc.
(formerly known as First Savings Bank of Washington Bancorp, Inc.) ("FWWB"),
First Savings Bank of Washington ("First Savings"), Whatcom and Whatcom State
Bank pursuant to which Whatcom would be merged with and into FWWB (the
"Merger"). Upon consummation of the Merger, shareholders of Whatcom will
receive 0.7671 shares of FWWB common stock, par value $.01 per share ("FWWB
Common Stock"), in exchange for their shares of Whatcom Common Stock. For a
more detailed description of the terms of the Merger, see "THE MERGER."
The last reported sale price of FWWB Common Stock on the Nasdaq National
Market (symbol: FWWB) on __________, 1998 was $_______ per share.
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 547,320 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.
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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 Whatcom 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>
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TABLE OF CONTENTS
Page
Where You Can Find More Information iii
Summary
Selected Historical Financial Data 4
Comparative Per Share Data 7
Comparative Market Price Data 8
The Special Meeting 9
Place, Time and Date 9
Purpose 9
Record Date; Shares Entitled to Vote 9
Vote Required 9
Proxies 9
The Merger 10
General 10
Merger Consideration 10
Effective Date of the Merger 10
Exchange of Whatcom Stock Certificates 11
Background and Reasons for the Merger 11
Opinion of Financial Advisor 12
Interests of Certain Persons in the Merger 14
Certain Federal Income Tax Consequences 15
Conduct of Business Pending the Merger 16
Conditions to Consummation of the Merger 17
Regulatory Requirements 17
No Solicitation 18
Dissenters' Rights 18
Amendment; Waiver; Termination 19
Termination Fee 20
Resale of FWWB Common Stock 20
Accounting Treatment 21
Expenses 21
Business of the Parties to the Merger 21
FWWB 21
Whatcom 22
Voting Securities of Whatcom and Principal
Holders Thereof 23
Description of FWWB Capital Stock 23
Common Stock 23
Preferred Stock 24
Comparison of Shareholders' Rights 24
Payment of Dividends 24
Size of Board of Directors 25
Classified Board of Directors 25
Cumulative Voting 25
Removal of Directors 25
Vacancies on the Board of Directors 25
Special Meetings of Shareholders and
Action Without a Meeting 26
Advance Notice Requirements for Nominations
of Directors and Presentation of New
Business at Meetings of Shareholders 26
Approval of Mergers, Consolidations, Sale of
Substantially All Assets and Dissolution 26
Limitation on Acquisitions of Common Stock 27
Indemnification of Officers and Directors and
Limitation of Liability 28
Amendment of Articles of Incorporation and
Bylaws 28
Certain Information Concerning FWWB 28
Legal Opinions 29
Experts 29
Change in Whatcom's Accountants 29
Other Matters 29
Appendix A - Agreement and Plan of Mergers
Appendix B - Chapter 13 of the Washington Business
Corporation Act
Appendix C - Fairness Opinion of Columbia Financial
Advisors, Inc.
Appendix D - Financial Information for Whatcom State
Bancorp, Inc.
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You should rely only on the information contained or incorporated by
reference in this Prospectus/Proxy Statement to vote your shares at the
Special Meeting. FWWB and Whatcom have not authorized anyone to provide you
with information that is different from what is contained in this
Prospectus/Proxy Statement. This Prospectus/Proxy Statement is dated
________, 1998. You should not assume that the information contained in the
Prospectus/Proxy Statement is accurate as of any date other than that date,
and neither the mailing of this Prospectus/Proxy Statement to shareholders nor
the issuance of FWWB's securities in the Merger shall create any implication
to the contrary.
WHERE YOU CAN FIND MORE INFORMATION
FWWB files annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission (the "SEC"
or the "Commission"). You may read and copy such reports, statements and
information at the SEC's public reference room in Washington, D.C. You can
request copies of these documents, upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. In addition,
materials filed by 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.
FWWB has filed a Registration Statement on Form S-4 (File No.
333-_____) to register with the SEC the shares of FWWB to be issued to Whatcom
stockholders in the Merger. This Prospectus/Proxy Statement is part of the
Registration Statement and constitutes a prospectus of FWWB and a proxy
statement for Whatcom for the Special Meeting. As allowed by the SEC, this
Prospectus/Proxy Statement does not contain all the information that
shareholders can find in the Registration Statement or the exhibits to the
Registration Statement.
The SEC allows FWWB to "incorporate by reference" information into
this Prospectus/Proxy Statement, which means that FWWB can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be a part of
this Prospectus/Proxy Statement, except for any information superseded by
information contained directly in the Prospectus/Proxy Statement. This
Prospectus incorporates by reference the following documents that FWWB has
filed with the SEC:
1. FWWB's Annual Report on Form 10-K for the year ended March 31,
1998;
2. FWWB's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998; and
3. FWWB's Current Reports on Form 8-K dated April 1, 1998, June 15,
1998 and July 24, 1998.
FWWB incorporates by reference additional documents that it may file
with the SEC between the date of this Prospectus/Proxy Statement and the date
of the Special Meeting. These include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, as well as proxy statements.
Documents incorporated by reference are available from FWWB without
charge, excluding all exhibits unless specifically incorporated by reference
as an exhibit to this Prospectus/Proxy Statement. Shareholders of Whatcom may
obtain documents incorporated by reference in this Prospectus/Proxy Statement
by requesting them in writing or by telephone from D. Allan Roth, Corporate
Secretary, First 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.
FWWB has supplied all information contained or incorporated by
reference in this Prospectus/Proxy Statement relating to FWWB and Whatcom has
supplied all information contained in this Prospectus/Proxy Statement relating
to Whatcom.
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SUMMARY
The following summary explains the significant aspects of the Merger.
For additional information about the Merger, please refer to the more detailed
information appearing elsewhere in this Prospectus/Proxy Statement, including
the Appendices hereto, and the documents incorporated herein by reference.
The Companies
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,
Inland Empire Bank, and Towne Bank. At June 30, 1998, FWWB had total assets
of $1.36 billion, total deposits of $745.13 million and stockholders' equity
of $171.12 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
sixteen 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. Towne Bank is a Washington-chartered commercial bank
headquartered in Woodinville, Washington. Towne Bank, which operates out of
five offices in western Washington, is a community-oriented business bank.
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 "WHERE YOU CAN FIND MORE
INFORMATION."
Whatcom. Whatcom is a bank holding company registered with the
Federal Reserve. The business of Whatcom consists primarily of holding 100%
of the capital stock of Whatcom State Bank. Whatcom State Bank is a
Washington-chartered commercial bank regulated by the Washington Department of
Financial Institutions ("Department of Financial Institutions") and the
Federal Deposit Insurance Corporation ("FDIC"). At June 30, 1998, Whatcom had
total assets of $91.0 million, total deposits of $78.0 million, and total
stockholders' equity of $5.8 million. Whatcom State Bank operates out of its
main office in Bellingham, Washington, its branch offices in Blaine,
Ferndale, Lynden and Point Roberts, Washington and its loan production centers
in Oak Harbor and Bellingham, Washington. Whatcom State Bank is primarily
engaged in providing a full range of banking services to individual and
corporate customers in the area surrounding its offices. Whatcom State Bank
originates commercial, real estate and consumer loans. The principal
executive offices of Whatcom are located at 1600 Cornwall Avenue, Bellingham,
Washington 98225 and its telephone number is (360) 738-8090.
See "SELECTED HISTORICAL FINANCIAL DATA," "BUSINESS OF THE PARTIES TO
THE MERGER -- Whatcom" and Appendix D.
The Special Meeting
Place, Time and Date; Purpose. The Special Meeting will be held on
____________, ____________, 1998 at ________ __.m., local time, at 1600
Cornwall Avenue, Bellingham, Washington, for the purpose of considering and
voting upon a proposal to approve the Merger Agreement attached hereto as
Appendix A. See "THE SPECIAL MEETING -- Place, Time and Date" and "--
Purpose."
Record Date; Shares Entitled to Vote. The Whatcom 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 Whatcom Common Stock of
record on the Record Date will be entitled to notice of and to vote at the
Special Meeting. Each share of Whatcom Common Stock will be entitled to one
vote.
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Shareholders of record who execute proxies retain the right to revoke them at
any time prior to being voted at the Special Meeting. At the Record Date,
there were __________ shares of Whatcom Common Stock outstanding and entitled
to be voted at the Special Meeting. See "THE SPECIAL MEETING -- Record Date;
Shares Entitled to Vote."
Vote Required. Approval of the Merger Agreement requires the
affirmative vote of the holders of two-thirds of the outstanding shares of
Whatcom Common Stock. At the Record Date, the directors and executive
officers of Whatcom and their affiliates beneficially owned 42,701 shares of
Whatcom Common Stock, which represents 6.7% of the shares entitled to be voted
at the Special Meeting. Mr. Ken Kellar beneficially owns 465,089 shares of
Whatcom Common Stock. Simultaneous with the execution of the Merger
Agreement, Mr. Kellar and all of the executive officers and directors of
Whatcom entered into an agreement with FWWB pursuant to which each individual
agreed to vote his or her shares for the approval of the Merger Agreement.
See "THE SPECIAL MEETING -- Vote Required."
A failure to vote, either by not returning the enclosed proxy or by
checking the "Abstain" box thereon, will have the same effect as a vote
against approval of the Merger Agreement.
The Merger; Exchange Ratio
The Merger Agreement provides for the merger of Whatcom with and into
FWWB. As soon as practicable thereafter, Whatcom State Bank will be merged
into First Savings. As a result of the mergers, Whatcom and Whatcom State
Bank will cease to exist. After consummation of the transaction, Whatcom
State Bank will operate as a division of First Savings.
Upon consummation of the Merger, Whatcom shareholders will receive
0.7671 shares of FWWB Common Stock (the "Exchange Ratio") for each share of
Whatcom Common Stock they own. FWWB will not issue fractional shares.
Instead, Whatcom shareholders will receive cash for any fractional share of
FWWB Common Stock owed to them calculated by multiplying such fraction by
$22.712. Upon completion of the Merger, shareholders of Whatcom will no
longer own any stock in Whatcom.
You should note that because the market price of FWWB Common Stock is
subject to fluctuation and the Exchange Ratio in the Merger is fixed, the
value of the shares of FWWB Common stock that Whatcom shareholders will
receive in the Merger may materially increase or decrease prior to the
consummation of the Merger. See "THE MERGER."
Recommendation of the Whatcom Board
The Whatcom Board has unanimously approved the Merger Agreement as
advisable and in the best interests of Whatcom and Whatcom's shareholders and
recommends that you vote FOR approval of the Merger Agreement.
For a discussion of the circumstances surrounding the Merger and the
factors considered by the Whatcom Board in making its recommendation, see "THE
MERGER -- Background and Reasons for the Merger." Approval of the Merger
Agreement by Whatcom 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 Whatcom may be deemed to have in the Merger, see "THE MERGER --
Interests of Certain Persons in the Merger."
Opinion of Financial Advisor
Columbia Financial Advisors, Inc. ("Columbia Financial"), Whatcom's
financial advisor, has delivered a written opinion to the Whatcom Board, dated
June 10, 1998 and updated as of the date of this Prospectus/Proxy Statement,
to the effect that the Exchange Ratio is fair to Whatcom shareholders from a
financial point of view. A copy of Columbia Financial's opinion, dated the
date of this Prospectus/Proxy Statement, setting forth the assumptions made,
matters considered, procedures followed and limits of its review, is attached
hereto as Appendix C and should be read by shareholders in its entirety. See
"THE MERGER -- Opinion of Financial Advisor."
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Interests of Certain Persons in the Merger
Certain members of Whatcom's management and the Whatcom Board may be
deemed to have interests in the Merger in addition to their interests as
shareholders of Whatcom generally. Pursuant to existing employment agreements
between Whatcom and certain executive officers of Whatcom, such officers will
be entitled to a "change in control" payment. In addition, following
consummation of the Merger, certain executive officers will enter into
employment agreements with FWWB and First Savings. FWWB has also agreed to
assume existing options to purchase shares of Whatcom Common Stock and to
continue all rights to indemnification now existing in Whatcom's Articles of
Incorporation and Bylaws in favor of the directors and officers of Whatcom.
Certain executive officers of Whatcom who elected to receive a
performance-related bonus in hypothetical shares of Whatcom Common Stock will
benefit from the increased value of their hypothetical shares due to the
exchange of the hypothetical shares of Whatcom Common Stock into shares of
FWWB Common Stock. See "THE MERGER -- Interests of Certain Persons in the
Merger."
Effective Date of the Merger
Subject to the conditions to the obligations of the parties to
complete the Merger as set forth in the Merger Agreement, the "Effective Date"
of the Merger will occur as soon as practicable after such conditions have
been satisfied or waived. The "Effective Time" of the Merger is the time on
the Effective Date at which the Merger becomes effective. Either FWWB or
Whatcom may terminate the Merger Agreement if the closing of the Merger does
not occur on or before March 31, 1999.
Conditions to Consummation of the Merger
Consummation of the Merger is subject to, among other things: (i)
approval of the Merger Agreement by the holders of not less than two-thirds of
the outstanding shares of Whatcom Common Stock; (ii) receipt of all applicable
regulatory approvals; (iii) receipt by FWWB and Whatcom of the opinion of
Breyer & Aguggia LLP, dated as of the Effective Date, as to certain federal
income tax consequences of the Merger; (iv) certain executive officers of
Whatcom State Bank having entered into employment agreements with FWWB and
First Savings; (v) the absence of any material adverse change in the financial
condition or results of operations of Whatcom; and (vi) the number of shares
for which dissenters' rights are exercised not exceeding 5% of the outstanding
shares of Whatcom Common Stock. See "THE MERGER -- Conditions to Consummation
of the Merger."
Accounting Treatment
FWWB anticipates that it will account for the Merger as a purchase
under generally accepted accounting principles. See "THE MERGER-- 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. FWWB filed
an application for approval of the Merger with the Federal Reserve and the
Department of Financial Institutions on _______________, 1998. The merger of
First Savings and Whatcom State Bank is subject to the receipt of certain
prior approvals from the FDIC and the Department of Financial Institutions.
FWWB filed an application for approval of such merger with the FDIC and the
Department of Financial Institutions on ______________, 1998. FWWB cannot
guarantee that such approvals will be obtained. See "THE MERGER -- Regulatory
Requirements."
Certain Federal Income Tax Consequences
Consummation of the Merger is conditioned, among other things, on
receipt by FWWB and Whatcom of an opinion of Breyer & Aguggia LLP, 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, holders of
Whatcom Common Stock who receive solely FWWB Common Stock in exchange for
their shares will recognize no gain or loss on such exchange. See "THE MERGER
- -- Certain Federal Income Tax Consequences."
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Because certain tax consequences of the Merger may vary depending on
the particular circumstances of each shareholder, each Whatcom 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
Whatcom shareholders have the right to dissent from the Merger and
obtain payment of the fair value of their shares of Whatcom Common Stock under
the provisions of Chapter 13 of the Washington Business Corporation Act
("WBCA"). Your failure to follow exactly the procedures specified in Chapter
13 of the WBCA will result in the loss of your dissenters' rights.
Accordingly, Whatcom shareholders wishing to dissent from the Merger are urged
to read carefully "THE MERGER -- Dissenters' Rights" and the copy of Chapter
13 of the WBCA set forth in Appendix B to this Prospectus/Proxy Statement, and
to consult with their own legal advisors. If Whatcom shareholders perfect
dissenters' rights with respect to more than 5% of the outstanding shares of
Whatcom 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 Whatcom shareholders are currently determined by
reference to the WBCA and Whatcom's Articles of Incorporation and Bylaws. On
the Effective Date, shareholders of Whatcom will become shareholders of FWWB,
and their rights as shareholders of FWWB will be determined by reference to
the WBCA and FWWB's Articles of Incorporation and Bylaws. For a discussion of
certain material differences in the rights of shareholders of FWWB and Whatcom
and an explanation of certain possible antitakeover effects of certain
provisions in FWWB's Articles of Incorporation and Bylaws, see "COMPARISON OF
SHAREHOLDERS' RIGHTS."
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth selected historical consolidated
financial data for FWWB and Whatcom. This information should be read in
conjunction with the historical financial statements of FWWB and Whatcom,
including the respective notes thereto, appearing elsewhere in this
Prospectus/Proxy Statement and in the other documents incorporated by
reference herein. See "WHERE YOU CAN FIND MORE INFORMATION" and Appendix D.
The FWWB historical consolidated financial data as of and for the
three months ended June 30, 1998 and 1997 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 Whatcom historical consolidated financial
data as of and for the six months ended June 30, 1998 and 1997 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.
4
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First Washington Bancorp, Inc.
Selected Consolidated and Other Financial Data
At or For
the Three At or For the
Months Ended Years Ended
June 30, March 31,
-------------- --------------------------------
1998 1997 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except for per share data)
Operating Data:
Interest income $25,799 $20,062 $85,147 $67,292 $41,409 $33,652 $31,342
Interest expense 13,940 10,721 46,651 36,372 23,287 18,230 15,707
------- ------- ------- ------- ------- ------- -------
Net interest income 11,859 9,341 38,496 30,920 18,122 15,422 15,635
Provision for loan
losses 667 355 1,628 1,423 524 391 440
------- ------- ------- ------- ------- ------- -------
Net interest income
after provision
for loan losses 11,192 8,986 36,868 29,497 17,598 15,031 15,195
Gains (losses) from
sale of loans
and securities 528 192 1,377 676 387 (121) 3,390
Other operating income 1,065 764 3,343 2,394 1,202 1,180 2,045
Other operating expense 7,073 4,912 21,020 19,330 10,304 9,983 8,610
------- ------- ------- ------- ------- ------- -------
Income before
provision for
income taxes and
cumulative effect
of change in
accounting 5,712 5,030 20,568 13,237 8,883 6,107 12,020
Provision for income
taxes 2,164 1,785 7,446 3,923 2,631 1,335 2,635
------- ------- ------- ------- ------- ------- -------
Income before
cumulative effect
of change in
accounting 3,548 3,245 13,122 9,314 6,252 4,772 9,385
Cumulative effect
of change
in accounting (1) -- -- -- -- -- 396 --
------- ------- ------- ------- ------- ------- -------
Net income $ 3,548 $ 3,245 $13,122 $ 9,314 $ 6,252 $ 5,168 $ 9,385
======= ======= ======= ======= ======= ======= =======
Historical Per
Share Data (2):
Net income:
Basic $ 0.33 $ 0.32 $ 1.30 $ 0.88 $ 0.56 N/A N/A
Diluted 0.32 0.30 1.25 0.87 0.56
Stockholder's
equity (3) 15.67 14.25 14.78 13.86 13.91
Cash dividends 0.08 0.06 0.27 0.20 0.09
Dividend payout ratio 25.00% 20.00% 21.60% 22.99% 16.07%
Selected Ratios:
Return on average
equity 8.26% 8.66% 8.70% 6.30% 6.62% 10.85% 23.73%
Return on average assets 1.08 1.27 1.21 1.04 1.11 1.12 2.32
Net interest margin 3.84 3.80 3.68 3.59 3.33 3.47 4.02
Average equity as a
percentage of
average assets 13.12 14.65 13.86 16.58 16.75 10.34 9.77
Non-performing assets
as a percentage of
total assets 0.41 0.27 0.20 0.31 0.17 0.19 0.34
Financial Condition
Data:
Total
assets $1,362,063 $1,074,166 $1,154,072 $1,007,633 $743,176 $491,368 $425,936
Loans
receivable,
net 930,923 704,836 756,917 645,881 415,295 299,403 246,264
Cash,
interest-
bearing
deposits
and
secure-
ties 355,226 316,174 345,142 312,991 302,772 175,505 165,065
Deposits 745,125 558,523 591,571 544,967 374,064 360,352 352,547
Borrowings 434,595 354,035 389,272 293,700 199,071 70,338 17,655
Equity 171,122 152,907 150,184 148,636 154,142 50,251 44,931
__________
(1) Adjustment net of taxes of $204,000 due to the adoption of Statement
of Financial Accounting Standard No. 115, Accounting for Certain
Investments in Debt and Equity Securities.
(2) First Savings Bank converted from mutual to stock ownership on
October 31, 1995. Per share data for fiscal 1996 represent
pro forma calculations. Amounts have been adjusted to reflect the
10% stock dividend paid on August 17, 1998.
(3) Excludes unearned shares held by Employee Stock Ownership Plan.
5
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<PAGE>
Whatcom State Bancorp, Inc.
Selected Consolidated and Other Financial Data
At or For
the Six At or For the
Months Ended Years Ended
June 30, December 31,
------------ ------------
1998 1997 1997 1996
---- ---- ---- ----
(Dollars in thousands, except for per share data)
Operating Data:
Interest income $3,823 $3,424 $7,188 $6,204
Interest expense 1,738 1,542 3,241 2,693
------ ------ ------ -----
Net interest income 2,085 1,882 3,947 3,511
Provision for loan
losses 90 90 180 784
------ ------ ------ -----
Net interest income
after provision
for loan losses 1,995 1,792 3,767 2,727
Other income 970 525 1,016 821
Non-interest expense 2,847 2,031 4,051 3,608
Income tax expense
(benefit) 32 91 237 20
------ ------ ------ -----
Net income (loss) $ 86 $ 195 $ 495 $ (40)
====== ====== ====== =====
Historical Per Share
Data:
Net income:
Basic $0.14 $0.31 $0.78 $(0.06)
Diluted 0.13 0.30 0.76 (0.06)
Stockholders' equity 9.07 8.51 8.96 8.15
Dividends -- -- -- --
Selected Ratios:
Return on
average equity 2.97% 7.34% 9.16% (0.75)%
Return on
average assets 0.19 0.49 0.60 (0.06)
Financial Condition
Data:
Assets $91,027 $85,034 $86,402 $73,277
Loans receivable,
net 69,667 58,863 64,352 53,715
Investment
securities 11,920 14,090 13,090 8,876
Deposits 77,952 70,608 73,863 62,690
Stockholders' equity 5,790 5,427 5,711 5,199
6
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<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 Whatcom
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 Whatcom,
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 0.7671 shares of FWWB Common Stock for each share of Whatcom 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
Three Months Ended Year Ended
June 30, 1998 March 31, 1998
------------------ --------------
Book value per share(1):
FWWB historical $15.67 $14.78
Whatcom historical 9.07 9.11
Pro forma combined 15.71 16.09
Whatcom pro forma equivalent 12.05 12.34
Cash dividends declared per share(2):
FWWB historical $0.08 $0.27
Whatcom historical 0.00 0.00
Pro forma combined 0.08 0.27
Whatcom pro forma equivalent 0.06 0.21
Diluted earnings per share(3):
FWWB historical $0.32 $1.25
Whatcom historical (0.04) 0.87
Pro forma combined 0.30 1.23
Whatcom pro forma equivalent 0.23 0.94
- -------------
(1) The pro forma combined book value per share of FWWB Common Stock is
based upon the historical total common stockholders' equity for FWWB,
the additional stockholders' equity resulting from FWWB's acquisition
of Towne Bank and the additional stockholders' equity resulting from
the Merger divided by total pro forma common shares of the combined
entities, excluding unearned shares held by FWWB's Employee Stock
Ownership Plan. The pro forma equivalent book value per share of
Whatcom Common Stock represents the pro forma combined book value of
FWWB Common Stock multiplied by the 0.7671 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 Whatcom Common Stock represent the pro forma
combined cash dividends declared per share of FWWB Common Stock
multiplied by the 0.7671 Exchange Ratio.
(3) The pro forma combined earnings per share of FWWB Common Stock (based
on diluted earnings per share and weighted average shares
outstanding) is based upon the combined pro forma net income for
FWWB, Towne Bank and Whatcom divided by the weighted average diluted
pro forma common shares of the combined entities. The pro forma
equivalent earnings per share of Whatcom Common Stock represents the
pro forma combined earnings per share multiplied by the 0.7671
Exchange Ratio.
7
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<PAGE>
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 Whatcom 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. Amounts have been adjusted to reflect the 10% stock dividend paid on
August 17, 1998. Whatcom has not paid any dividends. The market for shares
of Whatcom Common Stock is highly illiquid and the shares are neither traded
on an established exchange nor listed on the Nasdaq Stock Market.
FWWB
Common Stock
----------------------------
High Low Dividends
---- --- ---------
Year Ended March 31, 1997:
First Quarter 14.20 12.16 0.045
Second Quarter 15.69 13.19 0.045
Third Quarter 17.27 15.06 0.045
Fourth Quarter 20.11 16.36 0.064
Year Ended March 31, 1998:
First Quarter 20.23 17.05 0.064
Second Quarter 22.61 19.66 0.064
Third Quarter 25.97 21.14 0.064
Fourth Quarter 25.11 21.36 0.082
Year Ended March 31, 1999
First Quarter 25.34 21.81 0.082
Second Quarter
(through ________)
As of ____________, 1998, the ___________ outstanding shares of FWWB
Common Stock were held by approximately _____ holders of record and the
_________ outstanding shares of Whatcom Common Stock were held by _____
holders of record.
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 Whatcom Common Stock on June 15, 1998, 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 Whatcom Common Stock are urged to
obtain current market quotations for shares of FWWB Common Stock.
June 15, 1998 , 1998
------------- ---------------
Closing price per share:
FWWB . . . . . . 21.93(1)
Equivalent pro forma per share
of Whatcom Common Stock 16.82(2)
- -------------
(1) Amount has been adjusted to reflect the 10% stock dividend paid on
August 17, 1998.
(2) Computed by multiplying the closing price per share of FWWB Common
Stock by the 0.7671 Exchange Ratio.
8
<PAGE>
THE SPECIAL MEETING
Place, Time and Date
The Special Meeting will be held on ____________, ____________, 1998 at
__:00 _.m., local time, at 1600 Cornwall Avenue, Bellingham, Washington. This
Prospectus/Proxy Statement is being sent to holders of Whatcom Common Stock
and is accompanied by a form of proxy that is being solicited by the Whatcom
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 Whatcom 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 Whatcom Common Stock of record
on the Record Date will be entitled to notice of and to vote at the Special
Meeting. Each share of Whatcom Common Stock will be entitled to one vote. At
the Record Date, there were _________ shares of Whatcom 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 Whatcom shareholders at the Special
Meeting. Valid proxies that are marked "Abstain," including proxies submitted
by brokers that are the record owners of shares (so-called "broker
non-votes"), will be considered present for purposes of determining whether a
quorum exists. Approval of the Merger Agreement requires the affirmative vote
of the holders of two-thirds of the outstanding shares of Whatcom 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 Whatcom and
their affiliates beneficially owned an aggregate of 42,701 shares of Whatcom
Common Stock, which represents 6.7% of the shares entitled to be voted at the
Special Meeting. In addition, Mr. Ken Kellar beneficially owns 465,089 shares
of Whatcom Common Stock. Mr. Kellar and all of the directors and executive
officers of Whatcom have entered into agreements with FWWB pursuant to which
each individual has agreed to vote his or her shares for approval of the
Merger Agreement.
Proxies
Holders of Whatcom Common Stock may vote either in person or by properly
executed proxy. Shares of Whatcom 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 Whatcom 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 Whatcom Board knows of no such other matters.
Any proxy given pursuant to this solicitation or otherwise may be revoked
by the record holder of the shares at any time before it is voted by
delivering to the Secretary of Whatcom, 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
9
<PAGE>
<PAGE>
same shares of Whatcom 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
Whatcom Board. The expense of soliciting proxies for the Special Meeting will
be borne by Whatcom. 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 Whatcom 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 Whatcom Common Stock on behalf of another will be
asked to forward proxy material and related documents to the beneficial owners
of such stock, and Whatcom 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 Whatcom with and into FWWB
followed by the merger of Whatcom State Bank with and into First Savings. The
separate existence of Whatcom and Whatcom State Bank will cease upon
completion of the mergers. After consummation of the transaction, Whatcom
State Bank will operate as a division of First Savings. While FWWB and
Whatcom 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 Whatcom Common
Stock will be converted into the right to receive 0.7671 shares of FWWB Common
Stock. Each holder of Whatcom 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 $22.712.
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 $_________. Whatcom shareholders should note,
however, that because the market price of the FWWB Common Stock is subject to
market fluctuations and the Exchange Ratio in the Merger is fixed, the value
of the shares of FWWB Common Stock that Whatcom shareholders will receive in
the Merger may materially increase or decrease prior to consummation of the
Merger.
The 0.7671 Exchange Ratio has been adjusted to reflect the 10% stock
dividend paid by FWWB on August 17, 1998 and is subject to further
proportional adjustment as a result of a stock split, stock dividend, reverse
stock split or similar transaction by FWWB.
Effective Date of the Merger
Subject to the conditions to the obligations of the parties to complete
the Merger as set forth in the Merger Agreement, the Effective Date of the
Merger will occur as soon as practicable after such conditions have been
satisfied or waived. Subject to the foregoing, it is currently anticipated
that the Merger will be consummated by the end of 1998. Either FWWB or
Whatcom may terminate the Merger Agreement if the Effective Date does not
occur on or before March 31, 1999.
10
<PAGE>
<PAGE>
Exchange of Whatcom Stock Certificates
As promptly as practicable after the Effective Date, FWWB will send to
each holder of record of Whatcom Common Stock transmittal materials for use in
exchanging all of such holder's certificates representing Whatcom Common Stock
for a certificate or certificates representing the FWWB Common Stock to which
such holder is entitled and a check or checks for such holder's fractional
share interests, as appropriate. The transmittal materials will contain
information and instructions with respect to the surrender and exchange of
such certificates.
Because the Effective Date of the Merger is not expected to occur for
several weeks after the Whatcom Special Meeting, depending on the receipt of
regulatory approval, Whatcom shareholders will not be able to obtain their
shares of FWWB Common Stock for several weeks after the Whatcom Special
Meeting.
DO NOT SEND IN YOUR WHATCOM CERTIFICATES UNTIL YOU RECEIVE THE LETTER OF
TRANSMITTAL FORM AND INSTRUCTIONS.
Upon surrender of all of the certificates for Whatcom Common Stock
registered in the name of a holder of such certificates (or indemnity
satisfactory to FWWB and the exchange agent selected by FWWB, if any of such
certificates are lost, stolen or destroyed), together with a properly
completed letter of transmittal, such exchange agent will mail to such holder
a certificate or certificates representing the number of shares of FWWB Common
Stock to which such holder is entitled, and, where applicable, a check for any
fractional share interest (without interest).
All shares of FWWB Common Stock issued to the holders of Whatcom 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 Whatcom Common Stock certificates until such holder physically
surrenders all such certificates as described above. Promptly after such
surrender, all undelivered dividends and other distributions and, where
applicable, a check for any fractional share interest, will be delivered to
such holder, in each case without interest. After the Effective Date, the
stock transfer books of Whatcom will be closed, and there will be no transfers
on the transfer books of Whatcom of the shares of Whatcom Common Stock that
were outstanding immediately prior to the Effective Date.
Background and Reasons for the Merger
In April, 1998, Ken Kellar, the majority owner (72.8%) of the Whatcom
Common Stock, notified the Whatcom Board that he was interested in selling his
stake in Whatcom. To this end, he had retained a representative to market his
stake to other community banks. In light of the foregoing, the Board met with
Columbia Financial, an investment banking firm, and its legal counsel
regarding the effect any such sale might have on the remaining shareholders of
Whatcom, as well as its customers and employees. Based on these discussions,
it was determined that it would be in the best interest of all involved to
seek a buyer for the entire institution.
Following this meeting, Phil Stephenson, President and Chief Executive
Officer of Whatcom, was authorized to formally engage Columbia Financial to
contact several regional banks (including FWWB) which were most likely to be
interested in, and financially and otherwise capable of, engaging in a
business combination transaction with Whatcom. During the next week, such
companies were contacted, and several expressed interest in considering a
strategic business combination transaction with Whatcom (the "Interested
Parties"). Each of the Interested Parties received a package of financial
information on Whatcom and a Confidentiality Agreement.
As offers were received from Interested Parties, they were analyzed by the
Whatcom Board and senior management of Whatcom, together with its financial
advisors. On May 27, 1998, a Special Meeting of the Board of Directors of
Whatcom was held to consider the proposals received by Whatcom. After
considering all these offers carefully, the Board elected to accept the FWWB
offer, subject to clarification of some of the terms. The parties and their
respective legal and financial advisors then discussed the terms of the
proposed transaction and began the process of scheduling and conducting due
diligence and drafting and negotiating definitive agreements reflecting the
terms of the proposed transaction.
11
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<PAGE>
At a Special Meeting of the Board of Directors of Whatcom held on June 10,
1998, Mr. Stephenson and a representative of Columbia Financial updated the
Whatcom Board on the process that had taken place since the prior meeting and
reviewed with the Board the proposed Merger Agreement. Columbia Financial
provided its opinion that the consideration was fair from a financial
perspective to the shareholders of Whatcom. Following the presentation, the
Board unanimously approved the merger. Listed below are the material factors
the Whatcom Board considered in its decision.
The Board determined that a merger with FWWB would be a better
alternative plan than expanding independently through internal
growth or through acquisition.
The ability to continue operations under the name "Whatcom State
Bank" while accessing the financial, technological and human
resource strength of FWWB would greatly enhance Whatcom's ability
to compete in an ever-changing marketplace.
Confronted with changing shareholder demographics and desires, the
Whatcom Board determined that combining with a larger,
publicly-traded company would result in improved liquidity for
Whatcom shareholders.
Combining the management resources of the new company would result
in a greater depth of management, which would strengthen both
companies.
Because of FWWB's relative size and resources, Whatcom's employees
would benefit from enhanced technology and training which in turn
would provide substantially improved career opportunities for
Whatcom employees.
The Board considered the financial condition and operating results
of FWWB, and the fact that the transaction would be a tax-free
reorganization to the Whatcom shareholders.
The Whatcom Board did not assign any specific or relative weight to
any of the factors discussed above in their considerations.
For the reasons set forth above, the Whatcom Board has unanimously
approved the Merger Agreement as advisable and in the best interests of
Whatcom and its shareholders and recommends that the shareholders of Whatcom
vote FOR the approval of the Merger Agreement.
Opinion of Financial Advisor
Columbia Financial has delivered a written opinion to the Whatcom Board to
the effect that, as of the date of this Proxy Statement/Prospectus, the
consideration to be received by Whatcom shareholders pursuant to the terms of
the Merger Agreement is fair to such shareholders from a financial point of
view. In connection with its engagement, Columbia Financial evaluated the
financial terms of the Merger, but was not asked to, and did not, recommend
the specific ratio of exchange for Whatcom Common Stock. The Exchange Ratio
of 0.7671 shares of FWWB common stock for each share of Whatcom has been
determined by Whatcom and FWWB through arm's length negotiations. Columbia
Financial's opinion is directed only to the fairness, from a financial point
of view, of the consideration to be received and does not constitute a
recommendation to any Whatcom shareholder as to how such shareholder should
vote at the Special Meeting.
Whatcom retained Columbia Financial as its exclusive financial advisor
pursuant to an engagement letter dated May 6, 1998 in connection with the
Merger. Columbia Financial is a regionally recognized investment banking firm
that is regularly engaged in the valuation of businesses and securities in
connection with mergers and acquisitions. The Whatcom Board selected Columbia
Financial to act as Whatcom's exclusive financial advisor based on Columbia
Financial's experience in mergers and acquisitions and in securities valuation
generally.
On June 10, 1998, Columbia Financial issued its opinion to the Whatcom
Board that, in its opinion as investment bankers, the consideration to be
received by Whatcom shareholders pursuant to the Merger Agreement is fair,
from a financial view point, to the shareholders of Whatcom. The full text of
Columbia Financial's opinion,
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<PAGE>
which sets forth the assumptions made, matters considered, and limits on its
review, is attached hereto as Appendix C. The summary of the Columbia
Financial opinion in this Proxy Statement/Prospectus is qualified in its
entirety by reference to the full text of such opinion. WHATCOM SHAREHOLDERS
ARE URGED TO READ THE ENTIRE COLUMBIA FINANCIAL OPINION.
In rendering its opinion to Whatcom, Columbia Financial reviewed, among
other things, historical financial data of Whatcom, certain internal financial
data and assumptions of Whatcom prepared for financial planning and budgeting
purposes furnished by the management of Whatcom and, to the extent publicly
available, the financial terms of certain change of control transactions
involving Northwest community banks. Columbia Financial discussed with
Whatcom's management the financial condition, current operating results, and
business outlook for Whatcom. Columbia Financial also reviewed certain
publicly available information concerning FWWB and certain financial and
securities data of FWWB and companies deemed similar to FWWB. Columbia
Financial discussed with FWWB's management the financial condition, current
operating results, and business outlook for FWWB and FWWB's plans relating to
Whatcom. In rendering its opinion, Columbia Financial relied, without
independent verification, on the accuracy and completeness of all financial
and other information reviewed by it and did not attempt to verify or to make
any independent evaluation or appraisal of the assets of Whatcom or FWWB nor
was it furnished any such appraisals. Whatcom did not impose any limitations
on the scope of the Columbia Financial investigation in arriving at its
opinion. Columbia Financial analyzed the total transaction value on a cash
equivalent fair market value basis using standard evaluation techniques (as
discussed below) including comparable sales multiples, net present value
analysis, and net asset value based on certain assumption of projected growth,
earnings and dividends and a range of discount rates from 16% to 18%.
Net Asset Value is the value of the net equity of a bank, including every
kind of property and value. This approach normally assumes the liquidation on
the date of appraisal with the recognition of the investment securities gains
or losses, real estate appreciation or depreciation, adjustments to the loan
loss reserve, discounts to the loan portfolio and changes in the net value of
other assets. As such, it is not the best evaluation approach when valuing a
going concern because it is based on historical costs and varying accounting
methods. Even if the assets and liabilities are adjusted to reflect
prevailing market prices and yields (which is often of limited accuracy due to
the lack of readily available data), it still results in a liquidation value.
In addition, since this approach fails to account for the values attributable
to the going concern such as the interrelationship among Whatcom's assets and
liabilities, customer relations, market presence, image and reputation, staff
expertise and depth, little weight is given by Columbia Financial to the net
asset value approach to valuation.
Market Value is generally defined as the price, established on an
"arms-length" basis, at which knowledgeable, unrelated buyers and sellers
would agree. The "hypothetical" market value for a small bank with a thin
market for its common stock is normally determined by comparison to the
average price to stockholders equity, price to earnings, and price to total
assets, adjusting for significant differences in financial performance
criteria and for any lack of marketability or liquidity of the buyer. The
market value in connection with the evaluation of sale of control of a bank is
determined by the previous sales of small banks in the state or region. In
valuing a business enterprise, when sufficient comparable trade data are
available, the market value approach deserves greater weighting than the net
asset value approach and similar weight as the investment value approach as
discussed below.
Columbia Financial maintains a comprehensive data base concerning prices
paid for banking institutions in the Northwest, particularly Western
Washington and Western Oregon banking institutions, during 1988 through 1998.
This data base provides comparable pricing and financial performance data for
banking institutions sold or acquired. Organized by different peer groups,
these data present medians of financial performance and purchase price levels,
thereby facilitating a valid comparative purchase price analysis. In
analyzing the transaction value of Whatcom, Columbia Financial has considered
the market approach and has evaluated price to stockholders equity and price
to earnings multiples and the price to total assets percentage for
transactions involving Washington and Oregon banking organizations with total
assets greater than $100 million that sold for 100% common stock from January
1988 to June 1998.
Comparable Sales Multiples. Columbia Financial calculated a "Merger
Consideration-Adjusted Book Value" for Whatcom's March 31, 1998 stockholders
equity and the estimated December 31, 1998 stockholders' equity adjusted
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for the price to stockholders equity ratios for a sample of Northwest banking
institutions with assets of below $150 million which sold between January 1,
1992 through June 1, 1998 and a sample of Northwest banking institutions with
total assets of below $150 million which sold between January 1, 1995 and June
1, 1998. The calculations are $15.60 and $16.64 per share, respectively, for
the March 31, 1998 stockholders' equity for the two samples. For the
estimated December 31, 1998 stockholders' equity, the calculations are $15.64
and $16.68, respectively. For Whatcom's 1997 net income twelve months prior
to June 30, 1998, the calculations are $11.92 and $12.09, respectively.
Transaction Value as a Percentage of Total Assets. Columbia Financial
calculated the percentage of total assets which the transaction represents as
a price level indicator. The transaction value as a percentage of total
assets facilitates a truer price level comparison with comparable banking
organizations, regardless of the differing levels of stockholders equity and
earnings. In this instance, a transaction value of $18.04 per Whatcom share
results in a transaction value as a percentage of total assets of 14.40%. The
median price as a percentage of total assets for a sample of Northwest banking
institutions with assets of below $150 million which sold between January 1,
1993 through June 1, 1998 and a sample of Northwest banking institutions with
total assets of below $150 million which sold between January 1, 1995 and June
1, 1998 was 17.37% and 19.97%, respectively.
Investment Value is sometimes referred to as the income or earnings value.
One investment value method frequented used estimates the present value of an
institution's future earnings or cash flow which is discussed below.
Net Present Value Analysis. The investment or earnings value of any
banking organization's stock is an estimate of the present value of future
benefits, usually earnings, dividends, or cash flow, which will accrue to the
stock. An earnings value is calculated using an annual future earnings stream
over a period of time of not less than five years and the residual or terminal
value of the earnings stream after five years, using Whatcom's estimates of
future growth and an appropriate capitalization or discount rate. Columbia
Financial's calculations were based on an analysis of the banking industry,
Whatcom's earnings estimates for 1998-2002, historical levels of growth and
earnings, and the competitive situation in Whatcom's market area. Using
discount rates of 16% and 18%, acceptable discount rates considering the
risk-return relationship most investors would demand for an investment of this
type as of the valuation date, the "Net Present Value of Future Earnings"
provided a range of $17.67 to $16.38 per share.
When the net asset value, market value and investment value approaches are
subjectively weighed, using the appraiser's experience and judgment, it is
Columbia Financial's opinion that the consideration to be received by Whatcom
shareholders is fair, from a financial point of view to the Whatcom
shareholders.
Pursuant to the terms of the Engagement Letter, Whatcom has paid a $10,000
retainer and a fee of $20,000 for the delivery of the fairness opinion.
Whatcom will also pay Columbia Financial a success fee of 4.5% of the
aggregate merger consideration above $12,000,000, less the $10,000 retainer.
The balance of the success fee, which is payable upon consummation of the
Merger, is approximately $49,000. In addition, Whatcom has agreed to
reimburse Columbia Financial for its reasonable out-of-pocket expenses,
including the fees and disbursements of its counsel, and to indemnify Columbia
Financial against certain liabilities.
Interests of Certain Persons in the Merger
The directors and executive officers of Whatcom, together with their
affiliates, beneficially owned a total of 42,701 shares of Whatcom Common
Stock (representing 6.7% of all outstanding shares of Whatcom 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
Whatcom. Certain members of Whatcom's management and the Whatcom Board have
certain interests in the Merger as described below that are in addition to
their interests as shareholders of Whatcom generally. The Whatcom Board was
aware of these interests and considered them, among other matters, in
approving the Merger Agreement and the transactions contemplated thereby.
Change of Control Payments. Whatcom State Bank has entered into employment
agreements with Mr. Stephenson, Mr. Frydenburg, Ms. Brink and Mr. Logghe that
provide for a payment in the event of a change of control of Whatcom or
Whatcom State Bank. Such payments will equal 200% of annual salary for Mr.
Stephenson and 150% of annual salary for Mr. Frydenburg, Ms. Brink and Mr.
Logghe. The Merger will constitute a change of control of
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Whatcom and, therefore, will entitle such officers to the change of control
payment. Based on 1998 compensation levels, the payments that will be due
under the terms of the agreements will aggregate approximately $517,000.
Employment Agreements. Following the Merger, FWWB and First Savings will
enter into employment agreements with Mr. Stephenson, Mr. Frydenburg, Ms.
Brink and Mr. Logghe. The initial base salary for each executive under the
agreements will be equal to their current base salary. Pursuant to the
employment agreements, Mr. Stephenson will serve as an Executive Vice
President of First Savings, Mr. Frydenburg will serve as a Senior Vice
President of First Savings and Ms. Brink and Mr. Logghe will serve as Vice
Presidents of First Savings. Mr. Stephenson's agreement will be for a term of
three years and the other officers' agreements will be for terms of two years.
Each of the employment agreements 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. Pursuant to the
agreements, on the Effective Date, Mr. Stephenson, Mr. Frydenburg and Ms.
Brink will be granted options to acquire 11,000 shares of FWWB Common Stock
and Mr. Logghe will be granted options to acquire 5,500 shares of FWWB Common
Stock.
Conversion of Stock Options. At the Effective Time of the Merger, FWWB
will assume each outstanding option to purchase shares of Whatcom 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 Whatcom Common
Stock for which such option was exercisable multiplied by 0.7671, and the
exercise price of such Whatcom option will be equal to the exercise price of
such option divided by 0.7671. As of the date of this Prospectus/Proxy
Statement, the officers and directors of Whatcom held options to acquire an
aggregate of 72,184 shares of Whatcom Common Stock.
Indemnification. FWWB has agreed that all rights to indemnification
existing in favor of the directors and officers of Whatcom as provided in
Whatcom'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 Whatcom for a period of two years, subject
to certain limitations.
Deferred Compensation Arrangements. FWWB has agreed to assume certain
deferred compensation arrangements entered into between Whatcom and Mr.
Stephenson, Mr. Frydenburg, Ms. Brink and Mr. Logghe. The arrangements
provided the officers with the option of investing deferrals in hypothetical
shares of Whatcom Common Stock. At present, approximately 34,523 hypothetical
shares of Whatcom Common Stock are credited to the officers' accounts. Upon
consummation of the Merger, each officer may elect to continue the investment
of their deferrals in shares of FWWB common stock by multiplying the number
of hypothetical shares of Whatcom Common Stock credited to their account by
0.7671 or to convert their deferrals to a cash balance equal to market value
of 0.7671 shares of FWWB Common Stock multiplied by the number of hypothetical
shares of Whatcom Common Stock credited to their account.
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 Whatcom
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
Whatcom of an opinion of Breyer & Aguggia LLP, 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 Whatcom shareholders to the extent they receive shares
of FWWB Common Stock in exchange for their shares of Whatcom Common Stock.
FWWB and Whatcom may waive receipt of such tax opinion as a condition to
consummating the Merger; provided, however, that if the anticipated
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material federal income tax consequences of the Merger are significantly
different than those described herein, Whatcom will resolicit the approval of
its shareholders.
Receipt of FWWB Common Stock in Exchange for Whatcom 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 Whatcom 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 Whatcom Common Stock surrendered in exchange therefor. The holding period
of the FWWB Common Stock received will include the holding period of shares of
Whatcom 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.
Cash in Lieu of Fractional Shares. A holder who holds Whatcom 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.
The opinion of counsel, which will be delivered on the Effective Date, is
filed as an exhibit to the Registration Statement, and the foregoing is only a
summary of such tax consequences as described in the opinion. An opinion of
counsel only represents counsel's best legal judgment, and has no binding
effect or official status of any kind, and no assurance can be given that
contrary positions may not be taken by the Internal Revenue Service (the
"IRS") or a court considering the issues. Neither FWWB nor Whatcom has
requested or will request a ruling from the IRS with regard to the federal
income tax consequences of the Merger.
The foregoing is a general summary of all of the material federal income
tax consequences of the Merger to Whatcom 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 Whatcom
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
Whatcom 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 Whatcom and Whatcom State 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 Whatcom 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 Whatcom's or Whatcom State Bank's
fiduciary capacity; (v) issue or sell any Whatcom Common Stock or sell or
otherwise dispose of a substantial part of Whatcom's or Whatcom State 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 Whatcom 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 $50,000 in the
aggregate; (xiii) dispose of any of its properties, leases or assets or
cancel, release or assign any indebtedness of any person other than in the
ordinary course of business; (xiv) enter into, renew or terminate any material
contract or agreement or make any changes in any material lease or contract;
(xv) settle any claim for money damages in excess of $25,000; (xvi) change its
method of accounting except as required by generally accepted, or regulatory,
accounting principles; (xvii) enter into any new activities or lines of
business, cease any material activities or lines of business or conduct any
material business activity not consistent with past practice; (xviii) make,
alter or purchase any extension of credit except in the ordinary
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course of business; (xix) enter into, renew or purchase any derivatives
contract; (xx) purchase any investment securities other than in the ordinary
course of business consistent with past practice; (xxi) enter into any
transactions other than in the ordinary course of business; or (xxii) extend
credit (or commit to extend credit) to any officer, director or holder of 2%
or more of Whatcom Common Stock if such extension of credit would exceed 2% of
the capital of Whatcom or Whatcom State Bank, or amend the terms of any such
credit. Moreover, Whatcom is required, among other things, to operate its
businesses in the usual, regular and ordinary course and to use its best
efforts to preserve its business relationships and to retain key employees.
Conditions to Consummation of the Merger
The obligations of Whatcom 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 Whatcom 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 Whatcom of the opinion of Breyer & Aguggia LLP,
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 Whatcom 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 Whatcom; (iii) certain executive officers of Whatcom having
entered into employment agreements with First Savings and FWWB; (iv) the
absence of any material adverse change in the financial position or results of
operations of Whatcom; and (v) the number of Dissenting Shares not exceeding
5% of the outstanding shares of Whatcom Common Stock.
The obligations of Whatcom 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; and (ii) the accuracy of the
representations and warranties, and compliance with the agreements and
covenants of FWWB.
FWWB and Whatcom 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 merger of First Savings and
Whatcom State Bank is subject to the receipt of certain prior approvals from
the FDIC and the Department of Financial Institutions. An application for
such merger was filed with the FDIC 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 transaction from the
standpoint of the adequacy of the consideration to be received by, or fairness
to, shareholders. Regulatory approvals do not constitute an endorsement or
recommendation of the proposed transaction.
FWWB and Whatcom are not aware of any governmental approvals or compliance
with banking laws and regulations that are required for consummation of the
transactions contemplated by the Merger Agreement other than as described
above. Should any other approval or action be required, it is presently
contemplated that such approval or action would be sought. There can be no
assurance that any such approval or action, if needed, could be obtained and,
if such approvals or actions are obtained, there can be no assurance as to the
timing thereof. The Merger cannot proceed in the absence of all requisite
regulatory approvals. See "-- Effective Date of the Merger," "-- Conditions
to Consummation of the Merger," and "-- Amendment; Waiver; Termination."
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The Merger Agreement provides that if the Merger has not been consummated
by March 31, 1999, the Merger Agreement may be terminated by FWWB or Whatcom.
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
Whatcom's shareholders, there can be no assurance that the Merger will be
consummated by March 31, 1999. 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.
No Solicitation
Whatcom has agreed in the Merger Agreement that it will not institute,
solicit, 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, Whatcom or any merger or other business combination with
Whatcom.
Dissenters' Rights
In accordance with Chapter 13 of the WBCA (Chapter 23B.13 of the Revised
Code of Washington), Whatcom's shareholders have the right to dissent from the
Merger and to receive payment in cash for the "fair value" of their Whatcom
Common Stock.
If Whatcom shareholders perfect dissenters' rights with respect to more
than 5% of the outstanding shares of Whatcom Common Stock, FWWB may elect not
to consummate the Merger. Whatcom shareholders electing to exercise
dissenters' rights must comply with the provisions of Chapter 13 in order to
perfect their rights. Whatcom 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 Whatcom 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
Whatcom before the vote is taken by Whatcom 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 Whatcom at the following address:
Whatcom State Bancorp, Inc.
1600 Cornwall Avenue
Bellingham, Washington 98225
Attn: Marilyn Brink, 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 Whatcom 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 Whatcom 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 Whatcom prior to the vote being
taken by Whatcom 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
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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.
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 Whatcom 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 Whatcom Common Stock to be $__________ per share, which represents
the price paid for Whatcom Common Stock in the last transaction for which a
price is known to Whatcom 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
Whatcom 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
Whatcom shareholders are entitled to receive or adversely affects the intended
tax-free treatment to Whatcom shareholders as a result of receiving such
consideration. 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 Whatcom.
After approval of the Merger Agreement by the shareholders of Whatcom, the
Merger Agreement will not, without further approval of such shareholders, be
amended in any manner that would decrease the consideration to be received by
Whatcom shareholders in exchange for their Whatcom Common Stock or that would
adversely affect the intended tax-free treatment to Whatcom shareholders.
The Merger Agreement may be terminated at any time prior to the Effective
Date of the Merger, either before or after approval by the Whatcom
shareholders, as follows: (i) by the mutual consent of the parties; (ii) by
FWWB if Whatcom fails to conduct its business pursuant to the covenants made
in the Merger Agreement; (iii) by either party if the Merger is not
consummated by March 31, 1999; (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 Whatcom if its
conditions to consummate the Merger are not satisfied as of the closing date;
(vi) 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; (vii) by FWWB if Whatcom enters any agreement with a view toward being
acquired or effecting a business combination with any other person; or (viii)
by FWWB if Whatcom 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 Whatcom, 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.
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Termination Fee
As a condition and inducement to FWWB's entering into the Merger Agreement
and in consideration thereof, Whatcom 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 Whatcom and
Whatcom State Bank do not use their best efforts to consummate the Merger in
accordance with the terms of the Merger Agreement; (ii) Whatcom terminates the
Merger Agreement for any reason other than the grounds for termination set
forth in the Merger Agreement; or (iii) the Whatcom shareholders do not
approve the Merger Agreement. FWWB has agreed to pay to Whatcom 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, Whatcom has agreed to pay to FWWB a termination fee of
$625,000 under certain circumstances. Such fee may be demanded by FWWB in the
event that the Merger is not completed by December 15, 1999 and any of the
following occurs: (i) a third party acquires beneficial ownership of 25% or
more of the then outstanding Whatcom Common Stock; (ii) Whatcom, without the
written consent of FWWB, enters into or recommends to Whatcom shareholders an
agreement with a third party providing for certain actions (each an
"Acquisition Transaction"), including a merger or similar transaction
involving Whatcom, the purchase, acquisition or lease of substantially all of
the assets of Whatcom or the purchase or other acquisition of securities
representing 10% or more of the voting power of Whatcom; or (iii) a bona fide
proposal to engage in an Acquisition Transaction is made to Whatcom by a third
party, and after such proposal is made either Whatcom willfully breaches the
Merger Agreement and such breach entitles FWWB to terminate the Merger
Agreement, Whatcom shareholders fail to approve the Merger Agreement at the
Special Meeting, the Special Meeting is cancelled without the fault of FWWB,
or the Whatcom Board withdraws or modifies in a manner adverse to FWWB its
recommendation to shareholders to approve the Merger Agreement.
Whatcom will not be required to pay the termination fee if, prior to the
occurrence of any of the events described above, FWWB terminates the Merger
Agreement other than because of a material breach by Whatcom or Whatcom
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 Whatcom exercises its right to terminate the Merger Agreement FWWB is
not entitled to terminate the Merger Agreement either because of a material
breach by Whatcom, because the Merger has not been consummated by March 31,
1999 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 Whatcom from potential
third party acquirors because the termination fee could increase the cost of
such acquisition. To the best of Whatcom'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 Whatcom
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 Whatcom or FWWB as that term is defined in
the rules under the Securities Act. FWWB Common Stock received by those
shareholders of Whatcom who are deemed to be "affiliates" of Whatcom 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 Whatcom
generally include individuals or entities that control, are controlled by or
are under common control with, Whatcom, and may include the executive officers
and directors of Whatcom and certain of their affiliates as well as certain
principal shareholders of Whatcom. In the Merger Agreement, Whatcom has
agreed to use its best efforts to cause each person who may be deemed to be an
affiliate of Whatcom 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
regulations
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promulgated thereunder. This Prospectus/Proxy Statement does not cover any
resales of FWWB Common Stock received by affiliates of Whatcom.
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 Whatcom 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 Whatcom 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, Inland Empire Bank and Towne Bank. First Savings conducts business
from its main office in Walla Walla, Washington and its sixteen branch offices
and three loan production offices located in southeast, central, north central
and western Washington. Inland Empire Bank, which is an Oregon-chartered
commercial bank, conducts business from its main office in Hermiston, Oregon
and its five branch offices and two loan production offices located in
northeast Oregon. Towne Bank is a Washington-chartered commercial bank and
conducts business from its main office in Woodinville and five branch offices
in western Washington. FWWB acquired Towne Bank on April 1, 1998.
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.
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 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.
Towne Bank, founded in 1991, is a community oriented commercial bank which
provides a full array of financial products and services to commercial and
consumer customers. Its business emphasis is in providing a full range of
banking services to business and commercial customers. Towne Bank grants
commercial installment
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and real estate loans to customers principally located in the King
County/Seattle and southern Snohomish County area. Towne Bank has
historically maintained the major portion of its assets in loans with a
relatively small portion invested in marketable securities and
interest-bearing deposits for liquidity purposes.
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, 1998, and Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998, copies of which may
be obtained from FWWB as indicated under "WHERE YOU CAN FIND MORE INFORMATION"
on page (iii) hereof.
Whatcom
Whatcom, a Washington corporation, was organized in 1994 for the purpose
of becoming the holding company for Whatcom State Bank. Whatcom engages in no
significant activity other than holding the stock of Whatcom State Bank.
Whatcom State Bank was incorporated in 1980 as a state chartered bank
under the laws of Washington. Whatcom State Bank primarily serves individuals
and small to medium-sized businesses located in northwest Washington. Whatcom
State Bank offers its customers a full range of deposit services that are
typically available in most financial institutions, including checking
accounts, savings accounts and other time deposits of various types, ranging
from money market accounts to longer term certificates of deposit. The
transaction accounts and time certificates are tailored to the principal
market areas at rates competitive in the area. In addition, retirement
accounts such as IRAs (Individual Retirement Accounts) are available. Whatcom
State Bank's deposits are attracted primarily from individuals, merchants,
small and medium-sized businesses and professionals. All deposit accounts are
insured by the FDIC up to the maximum amount. Whatcom State Bank's lending
activity consists of short-to-medium-term commercial and consumer loans,
including operating loans and lines, equipment loans, automobile loans,
recreational vehicle and truck loans, personal loans or lines of credit, home
improvement and rehabilitation loans and VISA national credit cards. Whatcom
State Bank also offers cash management services, merchant credit card
processing, safe deposit boxes, wire transfers, direct deposit or payroll and
social security checks, automated teller machine access, and automatic drafts
for various accounts. As of June 30, 1998, on a consolidated basis, Whatcom
had a total of $70.7 million of loans outstanding, an allowance for loan
losses of $1.0 million, total deposits of $78.0 million and total
stockholders' equity of $5.8 million.
Financial and other information relating to Whatcom is set forth in
Appendix D.
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VOTING SECURITIES OF WHATCOM AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of the Record Date, information as to
the shares of Whatcom Common Stock beneficially owned by each person who, to
the knowledge of Whatcom, is the owner of more than 5% of the outstanding
shares of Whatcom Common Stock, by each director of Whatcom, by the Chief
Executive Officer of Whatcom, and by all executive officers and directors of
Whatcom as a group.
Number of Shares Percent of Shares
Name Beneficially Owned (1) Outstanding
---------------------- -----------------
Beneficial Owners of More Than 5%
Ken Kellar 465,089 (2) 72.9%
Directors
Dick Campbell 3,000 *
Paul Hanson 8,500 1.3
Karen Morse 3,000 *
Mark Packer 3,000 *
Kathy Pennylegion 6,600 1.0
Fred Sjoholm 6,000 *
Phil Stephenson 14,366 2.0
Leonard Sund 26,078 4.1
Jim Wells 4,862 *
All directors and executive
officers as a group (12 persons) 111,885 15.8
___________
* Less than 1%.
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed
to be the beneficial owner, for purposes of this table, of any share of
Whatcom 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 Whatcom Common
Stock which the indicated individuals have the right to acquire within 60 days
of the Whatcom Record Date through the exercise of stock options granted
pursuant to Whatcom's stock option plans: Mr. Campbell, 3,000 shares; Mr.
Hanson, 3,000 shares; Ms. Morse, 3,000 shares; Mr. Packer, 3,000 shares; Ms.
Pennylegion, 6,000 shares; Mr. Sjoholm, 0 shares; Mr. Stephenson, 13,184
shares; Mr. Sund, 6,000 shares; Mr. Wells, 3,000 shares; and all directors and
executive officers as a group, 69,184 shares.
(2) Includes 76,366 shares owned by Mr. Kellar's children.
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 Articles of Incorporation and Bylaws or of applicable
statutory or other law, and is qualified in its entirety by reference thereto.
See "WHERE YOU CAN FIND MORE INFORMATION."
Common Stock
Voting Rights. The holders of 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
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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.
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 Articles of Incorporation authorize 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 Washington and,
accordingly, the rights of FWWB's shareholders are governed by FWWB's Articles
of Incorporation, Bylaws and the WBCA. Whatcom is incorporated under the
laws of the State of Washington and, accordingly, the rights of Whatcom's
shareholders are governed by Whatcom's Articles of Incorporation, Bylaws, the
WBCA.
Upon consummation of the Merger, shareholders of Whatcom will become
shareholders of FWWB and, as such, their rights will be governed by FWWB's
Articles of Incorporation, Bylaws and the WBCA. The following is a summary of
material differences between the rights of a FWWB shareholder under FWWB's
Articles of Incorporation and Bylaws, on the one hand, and the rights of a
Whatcom shareholder under Whatcom's Articles of Incorporation and Bylaws, 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 Washington law, dividends may be paid only if, after giving
effect to the dividend, FWWB will be able to pay its debts as they become due
in the ordinary course of business and FWWB's total assets will not be less
than the sum of its total liabilities plus the amount that would be needed, if
FWWB 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.
Whatcom. Under Washington law, dividends may be paid only if, after
giving effect to the dividend, Whatcom will be able to pay its debts as they
become due in the ordinary course of business and Whatcom's total assets will
not
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be less than the sum of its total liabilities plus the amount that would be
needed, if Whatcom 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 Articles of Incorporation provide 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 Articles of Incorporation, which must be
approved by at least a majority of the outstanding shares entitled to vote.
Whatcom. Whatcom's Articles of Incorporation provide that its Board of
Directors shall consist of not less than five nor more than 25 members. The
Bylaws of Whatcom 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 amendment to Whatcom's Articles of Incorporation.
The current number of directors is set at ten.
Classified Board of Directors
FWWB. FWWB'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. 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 Articles of Incorporation
classifying the Board, all of the directors would be elected each year.
Whatcom. Whatcom'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 Articles of Incorporation eliminate 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.
Whatcom. Whatcom's Articles of Incorporation eliminate cumulative voting.
Removal of Directors
FWWB. FWWB's Articles of Incorporation provide 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.
Whatcom. Whatcom's Articles of Incorporation provide that directors may
be removed from office with or without cause by the affirmative vote of the
holders of 75% or more of the shares entitled to vote at a special meeting
called for that purpose.
Vacancies on the Board of Directors
FWWB. The Articles of Incorporation of FWWB provide 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
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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.
Whatcom. Whatcom's Articles of Incorporation provide that any vacancy on
the Board of Directors may be filled by the affirmative vote of a majority of
the remaining directors.
Special Meetings of Shareholders and Action Without a Meeting
FWWB. The Articles of Incorporation of FWWB provide that special meetings
of shareholders may be called only by the board of directors or by an
authorized committee of 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 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.
Whatcom. The Bylaws of Whatcom provide that special meetings of
shareholders may be called by the President, the Board of Directors or
shareholders holding not less than 10% of the shares entitled to vote at the
meeting.
Advance Notice Requirements for Nominations of Directors and Presentation of
New Business at Meetings of Shareholders
FWWB. The Articles of Incorporation of FWWB generally provide 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.
Whatcom. Whatcom's Articles of Incorporation provide that nominations for
the election of directors made by a shareholder must be made by notice in
writing delivered or mailed not less than 60 days prior to the first
anniversary of the date of the last meeting of shareholders called for the
election of directors. Such notice must include certain information regarding
the nominee.
Approval of Mergers, Consolidations, Sale of Substantially All Assets and
Dissolution
FWWB. FWWB's Articles of Incorporation require 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 Washington law or the Articles of Incorporation
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
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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 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.
Pursuant to FWWB's Articles of Incorporation, mergers, consolidations and
sales of substantially all of the assets of FWWB must, subject to certain
exceptions, be approved by the vote of the holders of a majority of the
outstanding shares of common stock of FWWB and any other affected class of
stock.
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.
Whatcom. 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.
Whatcom's Articles of Incorporation require the Whatcom 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
and on Whatcom's depositors, borrowers, employees, suppliers and other
constituents.
Limitation on Acquisitions of Common Stock
FWWB. FWWB's Articles of Incorporation provide 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 Articles 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 Articles of Incorporation
provide 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 Articles of Incorporation provide 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 Articles 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.
Whatcom. Whatcom's Articles of Incorporation do not contain any
limitation on the acquisition of Whatcom Common Stock.
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Indemnification of Officers and Directors and Limitation of Liability
FWWB. Pursuant to FWWB's Articles of Incorporation, FWWB will, to the
fullest extent permitted by the WBCA, indemnify the directors, officers and
agents of FWWB for expenses, judgments, fines and amounts paid in settlement
incurred by such person in connection with any action, suit or proceeding by
reason of the fact that such person is or was an agent of FWWB. In addition,
FWWB's Articles of Incorporation provide that the directors of FWWB shall not
be personally liable for monetary damages to FWWB for conduct as directors,
except for liabilities that involve intentional misconduct by the director, a
knowing violation of law by the director, conduct violating provisions of the
WBCA relating to unlawful distributions by FWWB, or any transaction from which
the director will personally receive a benefit in money, property or services
to which the director is not legally entitled. This provision might, in
certain instances, discourage or deter shareholders or management from
bringing a lawsuit against directors for a breach of their duties even though
such an action, if successful, might have benefitted FWWB.
Whatcom. Whatcom's Articles of Incorporation provide that Whatcom will
indemnify its directors for all liability, damage or expense resulting from
the fact that such person is or was a director, to the maximum extent
permitted by law, except that Whatcom will not indemnify a director against
liability, damage or expense resulting from the director's gross negligence.
Whatcom's Bylaws provide that Whatcom will indemnify each officer and director
of Whatcom for all losses resulting from the fact that such person is or was
an officer or director of Whatcom, except for losses arising out of (i) acts
or omissions finally adjudged to be intentional misconduct or a knowing
violation of law, (ii) approval of certain distributions or loans which are
finally adjudged to be in violation of the WCBA, or (iii) any transaction in
which it is finally adjudged that the officer or director personally received
a benefit to which he or she was not legally entitled.
Amendment of Articles of Incorporation and Bylaws
FWWB. FWWB's Articles 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 Articles of Incorporation governing (i) removal of
directors, (ii) notice requirements for nominations and proposals, (iii)
approval of certain business combinations, (iv) evaluation of business
combinations, (v) elimination of directors' liability, (vi) indemnification of
officers and directors, (vi) acquisition of FWWB Common Stock, (viii) calling
special meetings of shareholders, (ix) amendments to bylaws, and (x) the
manner of amending the Articles 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 Washington law for the
repeal or amendment of any provision of the Articles 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 Articles 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 Articles of Incorporation
or Bylaws even if they were favored by the holders of a majority of the voting
stock.
Whatcom. Whatcom's Articles of Incorporation may be amended by a
two-thirds vote of the outstanding shares of Whatcom Common Stock, except for
any amendment to Article XI of the Articles dealing with directors. Any
amendment to Article XI requires an 80% vote of the shareholders. Whatcom's
Bylaws may be amended, altered or repealed by the Whatcom 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, 1998. See "WHERE YOU CAN
FIND MORE INFORMATION."
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LEGAL OPINIONS
The validity of the FWWB Common Stock to be issued in the Merger is being
passed upon for FWWB by Breyer & Aguggia LLP, Washington, D.C. Breyer &
Aguggia LLP 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, 1998 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 consolidated financial statements of Whatcom as of December 31, 1997
and for the yearended December 31, 1997, have been included in this
Prospectus/Proxy Statement in reliance upon the report of Dodd Wing &
Co.,P.C., independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Whatcom as of December 31, 1996
and for the year 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.
CHANGE IN WHATCOM'S ACCOUNTANTS
Whatcom's former independent public accountants were dismissed by Whatcom
on June 18, 1997. The former accountants' report on the financial statements
of Whatcom for the past two years did not contain an adverse opinion, and was
not qualified or modified as to uncertainty, audit scope or accounting
principles. The decision to change accountants was recommended by Whatcom's
examining committee and approved by Whatcom's Board of Directors. The Whatcom
Board of Directors approved the engagement of Dodd Wing & Co., P.C. on June
18, 1997. In connection with the audits of the two most recent fiscal years
preceding the engagement of Dodd Wing & Co., P.C., there were no disagreements
with the former accountants on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure
which, if not resolved to the satisfaction of the former accountants, would
have caused it to make reference to the subject matter of the disagreement in
connection with its report.
OTHER MATTERS
The Whatcom Board is not aware of any business to come before the Whatcom
Special Meeting other than those matters described above in this
Prospectus/Proxy Statement. However, if any other matters should properly
come before the Whatcom 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.
29
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<PAGE>
Appendix A
AGREEMENT AND PLAN OF MERGERS
dated as of June 15, 1998
by and among
FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC.
and
FIRST SAVINGS BANK OF WASHINGTON
and
WHATCOM STATE BANCORP, INC.
and
WHATCOM STATE BANK
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
AGREEMENT AND PLAN OF MERGERS A-1
RECITALS A-1
AGREEMENT A-1
ARTICLE 1
DEFINITIONS
1.1 Definitions A-1
ARTICLE 2
THE MERGERS AND RELATED MATTERS
2.1 Corporate Merger
(a) Surviving Corporation A-6
(b) Certificate of Incorporation and Bylaws A-6
(c) Effects of the Corporate Merger A-6
(d) Transfer of Assets A-6
(e) Assumption of Liabilities A-6
2.2 The Bank Merger
(a) The Continuing Bank A-6
(b) Rights, Etc. A-6
(c) Liabilities A-6
(d) Charter; Bylaws; Directors; Officers A-7
2.3 Effective Time A-7
2.4 Conversion of Whatcom Common Stock A-7
2.5 Acquiror Common Stock A-7
2.6 Dissenting Shares A-7
2.7 Fractional Shares A-7
2.8 Anti-Dilution Provisions A-8
2.9 Options A-8
2.10 Major Shareholder A-8
2.11 Exchange of Whatcom Common Stock A-8
2.12 Closing A-9
2.13 Reservation of Right to Revise Transaction A-9
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
3.1 Organization and Corporate Authority of Acquiror . A-10
3.2 Organization and Qualification of First Savings. . A-10
3.3 Authorization, Execution and Delivery; Merger
Agreement Not in Breach A-10
3.4 No Legal Bar A-11
3.5 Government Approvals A-11
3.6 Acquiror Financial Statements A-11
3.7 Absence of Certain Changes A-11
A-(i)
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<PAGE>
3.8 Capitalization of Acquiror A-11
3.9 Capitalization of First Savings A-12
3.10 Disclosure A-12
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF WHATCOM AND THE BANK
4.1 Organization and Qualification of Whatcom and
Subsidiaries A-12
4.2 Organization and Qualification of the Bank A-12
4.3 Authorization, Execution and Delivery; Merger
Agreement Not in Breach A-13
4.4 No Legal Bar A-13
4.5 Government and Other Approvals A-13
4.6 Compliance With Law A-14
4.7 Charter Documents A-14
4.8 Financial Statements A-14
4.9 Absence of Certain Changes A-15
4.10 Deposits A-16
4.11 Properties A-16
4.12 Whatcom Subsidiaries A-16
4.13 Condition of Fixed Assets and Equipment A-16
4.14 Tax Matters A-16
4.15 Litigation A-17
4.16 Hazardous Materials A-17
4.17 Insurance A-19
4.18 Labor and Employment Matters A-19
4.19 Records and Documents A-20
4.20 Capitalization of Whatcom. A-20
4.21 Capitalization of the Bank A-20
4.22 Sole Agreement A-21
4.23 Disclosure A-21
4.24 Absence of Undisclosed Liabilities A-21
4.25 Allowance for Loan Losses A-21
4.26 Compliance with Laws A-22
4.27 Absence of Regulatory Actions A-22
4.28 Employee Benefit Plans A-22
4.29 Material Contracts A-26
4.30 Material Contract Defaults A-28
4.31 Reports A-28
4.32 Statements True and Correct A-28
4.33 Brokers and Finders A-28
4.34 Derivatives Contracts; Structured Notes, Etc. A-28
4.35 Year 2000 Issues A-29
4.36 Loans A-29
ARTICLE 5
COVENANTS OF ACQUIROR
5.1 Regulatory Approvals A-29
5.2 Preparation of Registration Statement A-29
5.3 Registration Statement Effectiveness A-29
5.4 Employees A-30
A-(ii)
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5.5 Reasonable Efforts to Close A-31
5.6 Indemnification and Insurance A-31
5.7 Access A-31
ARTICLE 6
COVENANTS OF WHATCOM AND THE BANK
6.1 Shareholders Meeting A-31
6.2 Conduct of Business -- Affirmative Covenants A-32
6.3 Conduct of Business -- Negative Covenants A-33
6.4 Conduct of Business -- Certain Actions A-36
6.5 Accruals and Reserves A-36
6.6 Access; Information A-36
6.7 Affiliate Agreements A-36
ARTICLE 7
CONDITIONS TO CLOSING
7.1 Conditions to the Obligations of Whatcom and
the Bank A-37
(a) Performance A-37
(b) Representations and Warranties A-37
(c) Documents A-37
(d) Opinion of Acquiror's and First Savings's
Counsel A-37
7.2 Conditions to the Obligations of Acquiror and
First Savings A-38
(a) Performance A-38
(b) Representations and Warranties A-38
(c) Documents A-39
(d) Destruction of Property A-39
(e) Inspections Permitted A-39
(f) No Material Adverse Change A-39
(g) Opinion of Whatcom's and the Bank's Counsel A-40
(h) Other Business Combinations, Etc. A-41
(i) Maintenance of Certain Covenants, Etc. A-41
(j) Dissenting Shares A-41
(k) Accruals and Reserves A-41
(l) Employment Agreements A-41
(m) Receipt of Affiliate Agreements A-41
(n) Major Shareholders and Directors A-41
7.3 Conditions to Obligations of All Parties . . . . . A-41
(a) No Pending or Threatened Claims A-42
(b) Government Approvals and Acquiescence
Obtained A-42
(c) Effective Registration Statement A-42
(d) Tax Opinion A-42
(e) Shareholder Vote A-42
A-(iii)
<PAGE>
<PAGE>
ARTICLE 8
TERMINATION
8.1 Termination A-42
8.2 Effect of Termination A-43
8.3 Termination Fee A-44
8.4 Acquiror Fee A-44
ARTICLE 9
GENERAL PROVISIONS
9.1 Notices A-45
9.2 Assignability and Parties in Interest A-45
9.3 Governing Law A-45
9.4 Counterparts A-45
9.5 Best Efforts A-45
9.6 Publicity A-45
9.7 Entire Agreement A-45
9.8 Severability A-45
9.9 Modifications, Amendments and Waivers A-46
9.10 Interpretation A-46
9.11 Payment of Expenses A-46
9.12 Equitable Remedies A-46
9.13 Attorneys' Fees A-46
9.14 No Waiver A-48
9.15 Remedies Cumulative A-48
9.16 Non-Survival of Representations and Warranties A-48
Exhibit A Plan of Merger
Exhibit B Plan of Merger
Exhibit C Voting Agreement
Exhibit D Affiliate Agreement
Exhibit E Employment Agreements
A-(iv)
<PAGE>
<PAGE>
AGREEMENT AND PLAN OF MERGERS
THIS AGREEMENT AND PLAN OF MERGERS (the "Merger Agreement") is made and
entered into this 15th day of June 1998, by and between FIRST SAVINGS BANK OF
WASHINGTON BANCORP, INC. ("Acquiror"), a corporation chartered and existing
under the laws of the State of Delaware, WHATCOM STATE BANCORP, INC., a
corporation chartered and existing under the laws of the State of Washington
("Whatcom"), FIRST SAVINGS BANK OF WASHINGTON, a state chartered savings bank
existing under the laws of the State of Washington ("First Savings") and
WHATCOM STATE BANK (the "Bank"), a commercial bank chartered and existing
under the laws of the State of Washington.
RECITALS
A. Acquiror, Whatcom, First Savings 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 Whatcom 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 2.4(a) hereof.
B. To effect the acquisition, Whatcom shall be merged with and into
Acquiror (the "Corporate 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 Corporate Merger (the "Surviving Corporation"). The
Bank shall be merged with and into First Savings (the "Bank Merger") pursuant
to the Plan of Merger substantially in the form attached hereto as Exhibit B.
First Savings will be the continuing financial institution (the "Continuing
Bank").
C. The parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with the Corporate Merger
and also to prescribe various conditions to the Corporate 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 Whatcom and each
Major Shareholder of Whatcom (as hereinafter defined) 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, Whatcom, First
Savings 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:
A-1
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"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.
"Acquiror" shall mean First Savings Bank of Washington Bancorp,
Inc., a bank holding company having its principal place of business in Walla
Walla, Washington, that is currently incorporated under the laws of the State
of Delaware and is in the process of changing its state of incorporation to
the State of 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 Whatcom State Bank, 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 Merger" shall, as described in Section 2.2 of this Merger
Agreement, mean the merger of the Bank with and into First Savings, which
shall survive the Bank Merger as the Continuing Bank.
"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 2.11 of this Merger Agreement.
"Closing" shall have the meaning assigned to such term in Section
2.12 of this Merger Agreement.
"Closing Date" shall have the meaning assigned to such term in
Section 2.12 of this Merger Agreement.
A-2
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"Continuing Bank" shall mean First Savings as the financial
institution resulting from the consummation of the Bank Merger as set forth in
Section 2.2 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.
"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 2.6 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 2.3 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 Whatcom Common
Stock for the consideration described in Section 2.4.
"FDIC" means the Federal Deposit Insurance Corporation, or any
successor thereto.
"First Savings" shall mean First Savings Bank of Washington, a state
chartered savings bank existing under the laws of the State of Washington.
"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 3.5 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.
"Corporate Merger" shall, as described in Section 2.1 of this Merger
Agreement, mean the merger of Whatcom with and into Acquiror, which shall
survive the Corporate Merger as the Surviving Corporation.
"Major Shareholder" shall have the meaning assigned to such term in
Section 2.10 of this Merger Agreement.
A-3
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<PAGE>
"Merger Agreement" means this Agreement and Plan of Mergers together
with the Plans of Merger (Exhibit A and Exhibit B) 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 Whatcom, the Bank, Acquiror and First Savings
collectively; Whatcom or the Bank on the one hand, or Acquiror and First
Savings 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.
"Person" shall mean any natural person, fiduciary, corporation,
partnership, joint venture, association, business trust or any other entity of
any kind.
"Plans of Merger" shall mean the Plans of Merger substantially in
the form of Exhibit A hereto to be executed by authorized representatives of
Whatcom 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 or Washington law and
providing for the Corporate Merger of Whatcom with and into Acquiror as
contemplated by Section 2.1 of this Merger Agreement and the Plan of Merger
substantially in the form of Exhibit B hereto to be executed by authorized
representatives of the Bank and First Savings providing for the merger of the
Bank into First Savings as contemplated by Section 2.2 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 Whatcom to solicit proxies with a view to securing the approval of the
Whatcom Shareholders of this Merger Agreement and the Plans of Merger, which
shall also serve as the prospectus for the shares of Acquiror Common Stock to
be issued to the Whatcom 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 Whatcom and the Bank,
original instruments and other documentation, pertaining to Whatcom and the
Bank, Whatcom's and the Bank's assets (including plans and specifications
relating to the Realty), and liabilities, the Whatcom 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 Whatcom'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.
A-4
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<PAGE>
"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.
"SEC Documents" shall mean all reports, proxy statements and
registration statements filed, or required to be filed, by a Party or any of
its Subsidiaries pursuant to the Securities Laws, whether filed, or required
to be filed, with the SEC, the FDIC, or with any other Regulatory Authority
pursuant to the Securities Laws.
"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 Whatcom
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 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 Corporate Merger as set forth in
Section 2.1 of this Merger Agreement.
"WBCA" shall mean the Washington Business Corporation Act.
"Washington Department" shall mean the Department of Financial
Institutions of the State of Washington.
"Whatcom" shall mean Whatcom Bancorp, Inc., a Washington-chartered
bank holding company having its principal place of business in Bellingham,
Washington.
"Whatcom Common Stock" has the meaning assigned to such terms in
Section 2.4(a) of this Merger Agreement.
"Whatcom Financial Statements" shall have the meaning assigned to
such term in Section 4.8 of this Merger Agreement.
"Whatcom Option" shall mean an option granted by Whatcom to purchase
shares of Whatcom Common Stock.
"Whatcom Shareholders" shall mean the holders of the Whatcom Common
Stock.
A-5
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<PAGE>
ARTICLE 2
THE MERGERS AND RELATED MATTERS
2.1 Corporate 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. Whatcom 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 Corporate Merger, the separate existence of Whatcom 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 Corporate Merger. The separate existence
of Whatcom shall cease, and Whatcom 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 Whatcom.
(d) Transfer of Assets. All rights, assets, licenses,
permits, franchises and interests of Acquiror and Whatcom 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 Corporate Merger becoming effective and without any deed or
other instrument or act of transfer whatsoever.
(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 Whatcom, 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 Whatcom.
2.2. The Bank Merger. As soon as practicable following the
Effective Time:
(a) The Continuing Bank. The Bank shall be merged into First
Savings pursuant to the terms and conditions set forth herein and pursuant to
the Plan of Merger attached hereto as Exhibit B. Upon consummation of the
Bank Merger, the separate existence of the Bank shall cease and First Savings
shall survive as the Continuing Bank.
(b) Rights, Etc. The Continuing Bank shall thereupon and
thereafter possess all of the rights, privileges, immunities and franchises,
of a public as well as of a private nature, of each of the institutions so
merged; and all property, real, personal and mixed, and all debts due on
whatever account, and all and every other interest, of or belonging to or due
to each of the institutions so merged, shall be deemed to be vested in the
Continuing Bank without further act or deed; and the title to any real estate
or any interest therein, vested in each of such institutions, shall not revert
or be in any way impaired by reason of the Bank Merger.
(c) Liabilities. The Continuing Bank shall thenceforth be
responsible and liable for all the liabilities, obligations and penalties of
each of the institutions so merged, in accordance with applicable law.
A-6
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(d) Charter; Bylaws; Directors; Officers. The Charter and
Bylaws of the Continuing Bank shall be those of First Savings, as in effect
immediately prior to the Bank Merger becoming effective. The directors and
officers of First Savings in office immediately prior to the Bank Merger
becoming effective shall be the directors and officers of the Continuing Bank,
together with such additional directors and officers as may thereafter be
elected, who shall hold office until such time as their successors are elected
and qualified.
2.3 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 Corporate 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 Corporate Merger shall become effective at such
time as may be specified in such articles of merger and certificate of merger
(the "Effective Time"). The Bank Merger will be consummated as soon as
practicable after the Corporate Merger at the discretion of the Acquiror.
2.4 Conversion of Whatcom Common Stock. At the Effective Time:
(a) Each share of common stock of Whatcom, $1.00 par value per
share ("Whatcom Common Stock"), issued and outstanding immediately prior to
the Effective Time (except for Dissenting Shares, as defined herein) shall, by
virtue of the Corporate Merger and without any action on the part of the
holder thereof, be converted into the right to receive from Acquiror .6974
shares of Acquiror Common Stock (the "Exchange Ratio").
Notwithstanding any other provision of this Merger Agreement, any shares of
Whatcom Common Stock issued and outstanding immediately prior to the Effective
Time which are then owned beneficially or of record by Acquiror, Whatcom or by
any direct or indirect Subsidiary of any of them or are held in the treasury
of Whatcom shall, by virtue of the Corporate Merger, be canceled without
payment of any consideration therefor and without any conversion thereof.
(b) The holders of certificates representing shares of Whatcom
Common Stock shall cease to have any rights as stockholders of Whatcom, except
such rights, if any, as they may have pursuant to the WBCA. Except as
provided above, until certificates representing shares of Whatcom 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 Whatcom Common Stock shall have been
converted by the Corporate Merger as provided above.
(c) The stock transfer books of Whatcom shall be closed and no
transfer of shares of Whatcom Common Stock shall be made thereafter.
2.5 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.
2.6 Dissenting Shares. Any shares of Whatcom Common Stock held by
a holder who dissents from the Corporate Merger in accordance with the WBCA
and becomes entitled to obtain payment for the fair value of such shares of
Whatcom 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.
2.7 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 in
A-7
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the Corporate Merger; instead, Acquiror shall pay to each holder of Whatcom
Common Stock who would otherwise be entitled to a fractional share an amount
in cash determined by multiplying such fraction by $24.983.
2.8 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 Whatcom Common Stock
may be converted shall be proportionately adjusted.
2.9 Options. At the Effective Time, by virtue of the Corporate
Merger, and without any action on the part of any holder of an option, each
Whatcom 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 Whatcom Option immediately prior to the Effective
Time, except that (i) each such Whatcom Option assumed may be exercised solely
for shares of Acquiror Common Stock, (ii) the number of shares of Acquiror
Common Stock subject to such Whatcom Option shall be equal to the number of
shares of Whatcom Common Stock subject to such Whatcom 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 Whatcom 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 Whatcom
Stock Option that is an incentive stock option. The number of shares of
Whatcom Common Stock which are issuable upon exercise of Whatcom Options as of
the date hereof is set forth on Schedule 2.9.
2.10 Major Shareholder. As used in this Merger Agreement, the term
"Major Shareholders" shall mean any person who as of the date hereof owns or
controls more than five percent of the issued and outstanding shares of
Whatcom Common Stock. Simultaneous with the execution and delivery of this
Merger Agreement, each Major Shareholder and director of Whatcom will execute
and deliver to Acquiror a Voting Agreement in the form attached hereto as
Exhibit C.
2.11 Exchange of Whatcom Common Stock.
(a) As soon as practicable after the Effective Time, each
holder of record of certificates formerly representing shares of Whatcom
Common Stock (the "Certificates") 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.
(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.
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(e) After the Effective Time, holders of Certificates shall
cease to have rights with respect to Whatcom 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. After the Effective Time, there
shall be no further transfer on the records of Whatcom of Certificates, and if
such Certificates are presented to Whatcom for transfer, they shall be
canceled against delivery of the consideration. Acquiror shall not be
obligated to deliver the consideration to any holder of Whatcom Common Stock
until such holder surrenders the Certificates as provided herein. Any
shareholders of Whatcom who have not theretofore complied with this Section
2.11 shall thereafter look only to Acquiror for payment of their consideration
deliverable in respect of each share of Whatcom 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 Whatcom 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
Whatcom 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.
2.12 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 Whatcom. At the Closing
the Parties shall use their respective best efforts to deliver the
certificates, letters and opinions which constitute conditions to effecting
the Corporate Merger and the Bank 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 Corporate Merger and the
Bank 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 Plans 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 Corporate 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 Bank Merger will be consummated as soon as practicable
after the Corporate Merger at the discretion of the Acquiror and pursuant to
the terms of the Plan of Merger which is attached hereto as Exhibit B. 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."
2.13 Reservation of Right to Revise Transaction. Acquiror shall
have the unilateral right to revise the method of effecting either the
Corporate Merger, the Bank Merger or both 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 Whatcom, and, if required, the approval of the
Whatcom Shareholders, to make any revision to the structure of the Corporate
Merger which (i) changes the amount or kind of the consideration which the
Whatcom Shareholders are entitled to receive (determined in the manner
provided in Section 2.4 of this Merger Agreement) or (ii) adversely affects
the intended tax-free treatment to the Whatcom Shareholders as a result of
receiveing such consideration. Acquiror may exercise this right of revision
by giving written notice thereof to Whatcom in the manner provided in Section
9.1 of this Merger Agreement.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND FIRST SAVINGS
Each of Acquiror and First Savings hereby represents and warrants to
Whatcom and the Bank as follows:
3.1 Organization and Corporate Authority of Acquiror. Acquiror is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and is in the process of changing its state of
incorporation to the State of Washington subject to shareholder approval.
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 Organization and Qualification of First Savings. First Savings
is a Washington-chartered savings 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. First Savings (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 First Savings and all Acquiror Subsidiaries,
taken as a whole. First Savings's deposit accounts are insured by the Savings
Association Insurance Fund as administered by the FDIC to the fullest extent
permitted under applicable law.
3.3 Authorization, Execution and Delivery; Merger Agreement Not in
Breach.
(a) Acquiror and First Savings have 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 and First Savings, have been (or upon execution will have
been) duly executed and delivered by Acquiror and First Savings, 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 and First Savings 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 and First Savings, 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 and First Savings are a party or by which Acquiror or First
Savings or their respective property or any of their respective assets are
bound,
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(ii) the Certificate of Incorporation or Bylaws of Acquiror and First Savings,
(iii) any material judgment, decree, order or award of any court, governmental
body or arbitrator by which Acquiror and First Savings are bound, or (iv) any
material permit, concession, grant, franchise, license, law, statute,
ordinance, rule or regulation applicable to Acquiror and First Savings or
their respective 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 and First
Savings, except that the Government Approvals shall be required in order for
Acquiror and First Savings to consummate the Corporate Merger.
3.4 No Legal Bar. Neither Acquiror nor First Savings is 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 or First Savings, its delivery to Whatcom 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 or First Savings 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.
3.5 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 or First Savings in connection with the execution and delivery of
this Merger Agreement or the consummation of the transactions contemplated
hereby by Acquiror or First Savings, 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 and First
Savings are 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.
3.6 Acquiror Financial Statements. The consolidated balance sheets
of Acquiror as of March 31, 1998 and 1997, and the related consolidated
statements of income and changes in stockholders' equity and cash flows of
Acquiror for the years ended March 31, 1998, 1997 and 1996 which will be
included in Acquiror's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998 as filed with the SEC and the comparative interim financial
statements for any subsequent quarter ending after March 31, 1998 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.
3.7 Absence of Certain Changes. Since March 31, 1998 there has not
been any material adverse change in the financial condition or results of
operations of Acquiror, First Savings and their respective subsidiaries taken
as a whole.
3.8 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 March 31, 1998, 9,952,953 shares of Acquiror Common Stock
were issued and outstanding,
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957,672 shares of Acquiror Common Stock were held by Acquiror as treasury
stock and no shares of the preferred stock were issued and outstanding.
3.9 Capitalization of First Savings. The authorized capital stock
of First Savings consists of 5,000,000 shares of common stock having a par
value of $1.00 per share . As of the date of this Merger Agreement, 1,000
shares of First Savings's common stock were issued and outstanding and no
shares of the common stock were held by First Savings as treasury stock. All
of the outstanding common stock of First Savings is held beneficially and of
record by the Acquiror, free and clear of any lien, claim, security interest,
encumbrance, charge, restriction or right of any third party of any kind
whatsoever.
3.10 Disclosure. The information concerning, and the
representations or warranties made by Acquiror and First Savings as set forth
in this Merger Agreement, or in any document, statement, certificate or other
writing furnished or to be furnished by Acquiror and First Savings to Whatcom
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 or are made, not false or misleading. Copies of all documents heretofore
or hereafter delivered or made available to Whatcom and the Bank by Acquiror
and First Savings pursuant hereto were complete and accurate copies of such
documents.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF WHATCOM AND THE BANK
Each of Whatcom and the Bank hereby represents and warrants to Acquiror
as follows:
4.1 Organization and Qualification of Whatcom and Subsidiaries.
Whatcom is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Washington. Whatcom 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.
Whatcom (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 Whatcom, the Bank and all Whatcom
Subsidiaries, taken as a whole. Each Whatcom 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 Whatcom, the Bank and the
Whatcom Subsidiaries taken as a whole. The activities of the Whatcom
Subsidiaries are permitted for subsidiaries of bank holding companies pursuant
to the BHCA.
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
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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
Whatcom 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) Whatcom and the Bank have all requisite corporate power
and authority to execute and deliver this Merger Agreement and the Plans of
Merger and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Merger Agreement and the Plans of Merger
and the consummation of the proposed transaction have been duly authorized by
the Boards of Directors of Whatcom and the Bank and, except for the approval
of the Whatcom Shareholders, no other corporate proceedings on the part of
Whatcom and the Bank are necessary to authorize the execution and delivery of
this Merger Agreement and the Plans 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 Whatcom and the Bank have been (or upon execution and delivery
will have been) duly executed and delivered by Whatcom 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 Whatcom 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 Whatcom, the Bank or any Whatcom Subsidiary is a
party or by which Whatcom, the Bank or any Whatcom Subsidiary is bound, (ii)
the Articles of Incorporation or Bylaws of Whatcom 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 Whatcom,
the Bank or any Whatcom 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 Whatcom, the Bank or any Whatcom Subsidiary.
4.4 No Legal Bar. Neither Whatcom 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 Plans of Merger by Whatcom or the Bank, the
delivery thereof to Acquiror and First Savings, or (upon receipt of Government
Approvals) the consummation of the transactions contemplated hereby and
thereby, and no action or proceeding is pending against Whatcom 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.
4.5 Government and Other Approvals. Except for the Government
Approvals described in Section 3.5 and the approvals and consents listed on
Schedule 4.5 hereto, 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 Whatcom 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 Whatcom or the Bank in
order to avoid forfeiture or impairment of such rights. Neither Whatcom 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.
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4.6 Compliance With Law. Whatcom, the Bank and all Whatcom
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 Whatcom 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 Whatcom and the Bank's
properties or over any other part of Whatcom'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 Whatcom and the Bank, may continue to be enjoyed by Whatcom and
the Bank subsequent to the Closing of the transactions contemplated herein
without any consent or approval. Neither Whatcom, the Bank nor any Whatcom
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 Whatcom and
the Bank. The Articles of Incorporation and Bylaws of Whatcom 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 Whatcom as of December 31, 1997 and 1996, and
the related consolidated statements of income and changes in stockholders'
equity and cash flows of Whatcom for the years ended December 31, 1997, 1996
and 1995 ("Whatcom Financial Statements"). Such financial statements (i) were
prepared from the books and records of Whatcom, 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 Whatcom'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 Whatcom's
consolidated financial condition and the consolidated results of Whatcom's
operations and cash flows for the periods covered by the Whatcom 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) Whatcom 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 Whatcom, each for any quarter ending after December
31, 1997. Such reports (i) were (or will be) prepared from the books and
records of Whatcom 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) Whatcom'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 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 Whatcom's or the Bank's consolidated financial condition and the
consolidated results of Whatcom'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.
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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, 1997 (the "Balance Sheet Date") there has not been:
(a) any material transaction by Whatcom 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 Whatcom 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 Whatcom and the Bank or their future use
and operation by Whatcom and the Bank;
(d) any acquisition or disposition by Whatcom or the Bank of
any property or asset of Whatcom 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
Whatcom 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 Whatcom or the Bank, to which Whatcom or the Bank is
a party which would have a material adverse effect upon the financial
condition or operations of Whatcom 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 Whatcom 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 Whatcom
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
(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
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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 in excess of $50,000 by any Affiliate or Major Shareholder of the
Bank.
4.11 Properties. Except as described in Schedule 4.11 hereto or
adequately reserved against in the Whatcom Financial Statements, Whatcom, the
Bank and each Whatcom 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 Whatcom Financial Statements. All
buildings, and all fixtures, equipment, and other property and assets that are
material to the business of Whatcom, the Bank and the Whatcom Subsidiaries,
taken as a whole, held under leases or subleases by Whatcom, the Bank or any
Whatcom 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 Whatcom Subsidiaries. Schedule 4.12 hereto lists all of the
active and inactive Whatcom Subsidiaries as of the date of this Merger
Agreement and describes generally the business activities conducted, or
permitted to be conducted, by each Whatcom Subsidiary. No equity securities
of any of the Whatcom 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 Whatcom Subsidiary, and there are no contracts,
commitments, understandings, or arrangements by which any Whatcom 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 Whatcom Subsidiary held by the Bank or by any Whatcom Subsidiary are
fully paid and nonassessable and are owned by the Bank or such Whatcom
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 Whatcom 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 Whatcom's, the Bank's and the Whatcom
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 Whatcom, the Bank or any Whatcom
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 Whatcom, the Bank
and each Whatcom 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 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 Whatcom, the Bank or any
Whatcom Subsidiary except as fully reserved for in the Whatcom 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 Whatcom, the Bank nor any Whatcom 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.
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(c) Adequate provision for any federal, state, local, or
foreign taxes due or to become due for Whatcom, the Bank and all Whatcom
Subsidiaries for all periods through and including December 31, 1997, has been
made and is reflected on the December 31, 1997 financial statements included
in the Whatcom Financial Statements and has been and will continue to be made
with respect to periods ending after December 31, 1997 and subsequent periods.
(d) Deferred taxes of Whatcom, the Bank and each Whatcom
Subsidiary have been and will be provided for in accordance with GAAP.
(e) To the best knowledge of Whatcom 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 Whatcom, the Bank
or any Whatcom 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
Whatcom 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 Whatcom, the Bank or any Whatcom
Subsidiary, either have been paid in full, or have been properly accrued and
reflected in the Whatcom 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
Whatcom and the Bank, threatened against Whatcom, the Bank or any Whatcom
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 Whatcom, the Bank or any Whatcom 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 Whatcom and the Bank,
threatened against any officers or directors of Whatcom, the Bank or any
Whatcom Subsidiary by any stockholder of Whatcom, the Bank or any Whatcom
Subsidiary (or by any former stockholder of Whatcom, the Bank or any Whatcom
Subsidiary) relating to or arising out of such person's status as a
stockholder.
4.16 Hazardous Materials.
(a) To the best knowledge of Whatcom and the Bank, Whatcom,
the Bank and all the Whatcom 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
Whatcom, the Bank or any Whatcom Subsidiary is in compliance with the terms
and conditions of all of such permits, licenses and authorizations, and, to
the best of knowledge of Whatcom 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:
"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
Harbours Act of
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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 Whatcom, the Bank or any Whatcom 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 Whatcom, the
Bank or a Whatcom Subsidiary holds a security interest.
"Property" means any real property owned, controlled,
leased or held by Whatcom, the Bank or a Whatcom 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 Whatcom or the
Bank, no complaint has been filed and served on the Bank, no penalty has been
assessed and to the best knowledge of Whatcom and the Bank no investigation or
review is pending by any governmental or other entity with respect to any
alleged failure by Whatcom, the Bank or any Whatcom Subsidiary to have any
permit, license or authorization required in connection with the conduct of
the business of Whatcom, the Bank or any Whatcom 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 knowledge of Whatcom 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 Whatcom's,
the Bank's or any Whatcom Subsidiary's occupancy thereof, or during or prior
to the occupancy thereof by any assignee or sublessee of the Bank or any
Whatcom Subsidiary, except in compliance with all Applicable Environmental
Laws;
(iii) To the best knowledge of Whatcom 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 or Loan Property; and, to the best knowledge of Whatcom 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 Whatcom 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.
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(c) Neither Whatcom, the Bank nor any Affiliate of Whatcom
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, Whatcom, the Bank or
any Affiliate of Whatcom 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 Whatcom, the Bank or any
Affiliate of Whatcom 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 Whatcom 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 Whatcom 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 Whatcom, the Bank or any Affiliate of Whatcom and the Bank in
relation to any Property, which have not been made available to Acquiror.
(h) Neither Whatcom nor the Bank is aware of any facts which
might suggest that Whatcom, the Bank or any Whatcom Subsidiary has engaged in
any management practice with respect to any of its past or existing borrowers
which could reasonably be expected to subject Whatcom, the Bank or any Whatcom
Subsidiary or any Property or Loan Property to any liability under any
Applicable Environmental Laws.
4.17 Insurance. Whatcom, the Bank and all of Whatcom'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 believed by Whatcom and the Bank to be 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 Whatcom, the Bank or any of the Whatcom Subsidiaries or their
respective directors, officers, employees or agents. All such insurance
policies are in full force and effect. Each of Whatcom, the Bank and the
Whatcom 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
Whatcom or the Bank. Neither Whatcom, the Bank nor any of the Whatcom
Subsidiaries has had an insurance policy canceled or been denied insurance
coverage for which any of such companies has applied. The fidelity bonds in
effect as to which the Bank is a named insured are believed by Whatcom 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 Whatcom, the Bank or any Whatcom Subsidiary is a party or
by which any of them is bound; (ii) employment, profit sharing, deferred
compensation, bonus, stock
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option, purchase, retainer, consulting, retirement, welfare or incentive plan
or contract to which Whatcom, the Bank or any Whatcom 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
Whatcom, the Bank or any Whatcom Subsidiary. Neither Whatcom 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 Whatcom, the Bank nor any
Whatcom 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. Whatcom, the Bank and each Whatcom 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 Whatcom, the Bank and each Whatcom 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 Whatcom, the Bank and each Whatcom
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
Whatcom, the Bank or any Whatcom Subsidiary pending before the National Labor
Relations Board or any state or local agency; pending labor strike or, to the
best of knowledge of Whatcom and the Bank, other labor trouble affecting
Whatcom, the Bank or any Whatcom Subsidiary; labor grievance pending against
Whatcom, the Bank or any Whatcom Subsidiary; to the best knowledge of Whatcom
and the Bank, pending representation question respecting the employees of
Whatcom, the Bank or any Whatcom Subsidiary; pending arbitration proceedings
arising out of or under any collective bargaining agreement to which Whatcom,
the Bank or any Whatcom Subsidiary is a party, or to the best knowledge of
Whatcom and the Bank, any basis for which a claim may be made under any
collective bargaining agreement to which Whatcom, the Bank or any Whatcom
Subsidiary is a party.
4.19 Records and Documents. The Records of Whatcom and the Bank are
and will be sufficient to enable the Bank to continue conducting its business
under similar standards as Whatcom and the Bank has heretofore conducted such
business.
4.20 Capitalization of Whatcom. The authorized capital stock of
Whatcom consists of 2,000,000 shares of Whatcom Common Stock. As of the date
of this Merger Agreement, 638,209 shares of the Whatcom Common Stock were
issued and outstanding and no shares of the Whatcom Common Stock were held by
Whatcom as treasury stock. All of the outstanding Whatcom Common Stock is
validly issued, fully-paid and nonassessable and has not been issued in
violation of any preemptive rights of any Whatcom 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 Whatcom
Common Stock or into any other equity or debt security of Whatcom, 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 Whatcom Common Stock or any other equity or
debt security of Whatcom. Accordingly, immediately prior to the Effective
Time, there will be not more than 713,493 shares of Whatcom Common Stock
issued and outstanding.
4.21 Capitalization of the Bank. The authorized capital stock of
the Bank consists of 750,000 shares of common stock having a par value of
$1.00 per share (the "Bank Common Stock"). As of the date of this Merger
Agreement, 626,329 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 beneficially and of record by
Whatcom, 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
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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 Whatcom, the Bank nor any Whatcom 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 Whatcom, the Bank or any
Whatcom Subsidiary of either (or any of their assets) in any business
combination of any kind; or any agreement obligating Whatcom 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 Whatcom
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 Whatcom or any Whatcom Subsidiary is or may be bound to transfer or
issue to any third party any shares of the capital stock of any Whatcom
Subsidiary, and there are no (nor will there be at the Effective Time any)
contracts, agreements, understandings or commitments relating to the right of
Whatcom or the Bank to vote or to dispose of any such shares.
4.23 Disclosure. The information concerning, and representations
and warranties made by, Whatcom and the Bank set forth in this Merger
Agreement, or in the Schedules of Whatcom and the Bank hereto, or in any
document, statement, certificate or other writing furnished or to be furnished
by Whatcom 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 Whatcom 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 Whatcom, the Bank nor any Whatcom Subsidiary has
any obligation or liability (contingent or otherwise) that is material to the
financial condition or operations of Whatcom, the Bank or any Whatcom
Subsidiary, or that, when combined with all similar obligations or
liabilities, would be material to the financial condition or operations of
Whatcom, the Bank or any Whatcom Subsidiary (i) except as disclosed in the
Whatcom 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, 1997, neither
Whatcom, the Bank nor any Whatcom Subsidiary has incurred or paid any
obligation or liability which would be material to the financial condition or
operations of Whatcom, the Bank or such Whatcom 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 Whatcom Subsidiary.
4.25 Allowance for Loan Losses. The allowance for loan losses shown
on the Whatcom Financial Statements is (with respect to periods ended on or
before December 31, 1997) or will be (with respect to periods ending
subsequent to December 31, 1997) 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 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."
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The allowance for possible losses on other real estate owned ("OREO")
shown on the Whatcom Financial Statements is (with respect to periods ended on
or before December 31, 1997) or will be (with respect to periods ending
subsequent to December 31, 1997) adequate in all respects to provide for
anticipated losses inherent in OREO or held by the Bank or any Whatcom
Subsidiary and the net book value of OREO on the Balance Sheet of the Whatcom
Financial Statements is the fair value of the OREO in accordance with
Statement of Position 92-3.
4.26 Compliance with Laws. Whatcom, the Bank and each Whatcom
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 Whatcom, the Bank
or any Whatcom Subsidiary, or which would or could reasonably be expected to
subject Whatcom, the Bank or any Whatcom 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 Whatcom, the
Bank or any Whatcom 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 Whatcom, the Bank or any Whatcom
Subsidiary, (ii) threatening to revoke any license, franchise, permit, or
governmental authorization which is material to the financial condition or
operations of Whatcom, the Bank or any Whatcom Subsidiary, or (iii) requiring
Whatcom, the Bank or any Whatcom 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 Whatcom 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 Whatcom, the Bank nor
any of the Whatcom 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) Whatcom and the Bank have previously provided to Acquiror
and First Savings 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
Whatcom and the Bank, is subject to any provision of ERISA and covers any
employee, whether active or retired, of Whatcom, the Bank or any Whatcom
Subsidiary or any other entity which is a member of a controlled group or is
under common control with Whatcom, the Bank or any Whatcom 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
the "Employee Pension Benefit Plans", and each such Employee Pension Benefit
Plan is listed in Schedule 4.28(a) hereto. Whatcom and the Bank have also
provided to Acquiror and First Savings true and complete
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copies of all trust agreements, collective bargaining agreements, and
insurance contracts related to such Employee Pension Benefit Plans.
To the best knowledge of Whatcom 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 and First Savings. 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 Whatcom, the Bank and the Whatcom
Subsidiaries. Requests for determination letters relating to any subsequent
amendments to such plans which are currently pending have been provided to
Acquiror and First Savings. 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 First Savings 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 4.28(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 and First Savings. 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 and First Savings.
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 and First Savings. 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 Whatcom, the Bank or any Whatcom 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.
Except as disclosed in Schedule 4.28(a) hereto, 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
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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, which could subject such Employee Pension Benefit Plan, any such trust
or any such disqualified person (other than a person for whom neither Whatcom,
the Bank nor any Whatcom 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 Whatcom, the
Bank or any Whatcom 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
1997. 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 1997 for each such
Employee Pension Benefit Plan.
Whatcom and the Bank have provided to Acquiror and First
Savings 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 and First Savings.
Whatcom and the Bank have provided to Acquiror and First
Savings 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) Whatcom and the Bank have furnished to Acquiror and First
Savings true and complete copies of each "Employee Welfare Benefit Plan" as
defined in Section 3(1) of ERISA, which, to the best knowledge of Whatcom and
the Bank, is subject to any provision of ERISA and covers any employee,
whether active or retired, of Whatcom, the Bank or any Whatcom Subsidiary or
members of a controlled group or entities under common control with Whatcom,
the Bank or the Whatcom 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.
Whatcom and the Bank have also provided to Acquiror and First
Savings 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
First Savings 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. Whatcom and the Bank have provided any notification
required by law to any participant covered under any Employee Welfare Benefit
Plan which has failed
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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.
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 and First Savings. 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 and First Savings.
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 1997. 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, 1998.
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 Whatcom, the Bank nor any Whatcom 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 Whatcom, the Bank or any
Whatcom Subsidiary that such a penalty may be imposed upon any Employee
Welfare Benefit Plan.
Neither Whatcom, the Bank nor any Whatcom Subsidiary has failed
to make any contribution to, or pay any amount due and owing by Whatcom, the
Bank or a Whatcom 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 Whatcom and the Bank, constitute a liability for Whatcom,
the Bank or any Whatcom 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 Whatcom and the Bank, no condition exists that could subject any
Employee Welfare Benefit Plan or any person (other than a person for whom
neither Whatcom, the Bank nor any Whatcom 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 Whatcom, the
Bank or any Whatcom Subsidiary, or the beneficiaries of such employee.
(c) Whatcom and the Bank have furnished to Acquiror and First
Savings true and complete copies and/or descriptions of each plan or
arrangement maintained or otherwise contributed to by Whatcom, the Bank or any
Whatcom 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 Whatcom, the Bank or any Whatcom Subsidiary. Such plans and
arrangements shall collectively be referred to herein as "Benefit
Arrangements" and all such Benefit Arrangements of Whatcom, the Bank and the
Whatcom 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 Whatcom and the Bank and all Benefit Arrangements which are in effect were
in effect
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for substantially all of calendar year 1997. 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, 1998. There has been no
material increase in the base salary and wage levels of Whatcom, the Bank or
any Whatcom Subsidiary and, except in the ordinary course of business, no
change in the terms or conditions of employment (including severance benefits)
compared, in each case, to those prevailing for substantially all of calendar
year 1997. 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 Whatcom, the Bank or any Whatcom Subsidiary on or after
January 1, 1998 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, 1998.
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 and First Savings.
(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 Whatcom, the Bank or any Whatcom 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 Whatcom, the
Bank or any Whatcom 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 Whatcom 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 Whatcom, the Bank or any
Whatcom 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
Whatcom, the Bank nor any Whatcom 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 Whatcom 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 Whatcom, the Bank nor any Whatcom
Subsidiary is a party or subject to any of the following (whether written or
oral, express or implied):
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(i) any agreement, arrangement or commitment (A) not
made in the ordinary course of business or (B) pursuant to which Whatcom, the
Bank or any Whatcom Subsidiary is or may become obligated to invest in or
contribute capital to any Whatcom Subsidiary or any other entity;
(ii) any agreement, indenture or other instrument not
disclosed in the Whatcom Financial Statements relating to the borrowing of
money by Whatcom, the Bank or any Whatcom Subsidiary or the guarantee by
Whatcom, the Bank or any Whatcom Subsidiary of any such obligation (other than
trade payables or instruments related to transactions entered into in the
ordinary course of business by any Whatcom 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 Whatcom, the Bank or any Whatcom 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, Whatcom, the Bank or any
Whatcom 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 Whatcom, the Bank or any Whatcom 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 Whatcom, the Bank or any of the Whatcom Subsidiaries of the nature
contemplated by this Merger Agreement;
(ix) any agreement with respect of any executive
officer of Whatcom, the Bank or any Whatcom 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 Whatcom, the Bank or any Whatcom 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 Whatcom, 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
Whatcom, the Bank or any of the Whatcom Subsidiaries.
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4.30 Material Contract Defaults. Neither Whatcom, the Bank nor any
Whatcom 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 Whatcom, the Bank or any Whatcom 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.
4.31 Reports. Since January 1, 1995, Whatcom 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. Whatcom and the Bank have previously provided to Acquiror and
First Savings true and correct copies of all such reports and any amendments
thereto filed by Whatcom or the Bank after January 1, 1995.
4.32 Statements True and Correct. None of the information prepared
by, or on behalf of, Whatcom, the Bank or any Whatcom Subsidiary regarding
Whatcom, the Bank or any Whatcom Subsidiary included in the Proxy
Statement/Prospectus mailed to Whatcom'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 Whatcom, 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. Except as set forth in the agreement with
Columbia Financial Advisors, Inc. dated May 6 1998, which has not been amended
since such date, neither Whatcom, the Bank nor any Whatcom Subsidiary nor any
of their respective officers, directors or employees has employed any broker
or finder, or agreed to pay any fees to any director or former director or
incurred any liability for any financial advisory fees, brokerage fees,
commissions or finder's fees, and no broker or finder, or director or former
director of Whatcom and the Bank, has acted directly or indirectly for
Whatcom, the Bank or any Whatcom Subsidiary, in connection with this Merger
Agreement or the transactions contemplated hereby.
4.34 Derivatives Contracts; Structured Notes; Etc. Neither Whatcom,
the Bank nor any Whatcom 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, structured
notes 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.
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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 Whatcom or the Bank, nor are
Year 2000 technology issues expected to have a material adverse effect on the
operations of Whatcom or the Bank.
4.36 Loans. To the best knowledge of Whatcom, with respect to each
loan owned by Whatcom in whole or in part: (i) the note and any related
mortgage are each legal, valid and binding obligations of the maker or obligor
thereof, enforceable against such maker or obligor in accordance with their
terms; (ii) neither Whatcom nor any prior holder of a loan has modified the
related documents in any material respect or satisfied, canceled or
subordinated such mortgage or note except as otherwise disclosed by documents
in the applicable loan file; (iii) Whatcom is the sole holder of legal and
beneficial title to each loan (or Whatcom's applicable participation
interest), as applicable and there has not been any assignment or pledge of
any loan; and (iv) the note, mortgage and any other collateral documents,
copies of which are included in the loan files, are true and correct copies of
the documents they purport to be and have not been superseded, amended,
modified, canceled or otherwise changed except as disclosed by documents in
the applicable loan file.
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 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 Plans 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 Whatcom, 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 Corporate Merger ("Registration Statement"). Such
Registration Statement shall contain a Proxy Statement/Prospectus which shall
serve as the proxy statement of Whatcom for the Shareholders Meeting and as
the prospectus of Acquiror for the shares of Acquiror Common Stock to be
issued in the Corporate Merger. Acquiror shall use its best efforts to cause
the Registration Statement to become effective.
5.3 Registration Statement Effectiveness. Acquiror will advise
Whatcom, 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.
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5.4 Employees. Upon consummation of the Corporate Merger, all
employees of Whatcom, the Bank and the Whatcom Subsidiaries shall be deemed to
be at-will employees except for those employees who are parties to a written
employment agreement.
(a) As soon as administratively practicable after the Effective
Time, employees of Whatcom and the Bank who continue as employees of the
Acquiror and First Savings shall be entitled to participate on an equitable
basis in the same benefit plans, programs or policies as are generally
available to Acquiror's and First Savings's employees of similar rank and
status. For purposes of eligibility and vesting (but not for the accrual of
benefits) under such plans, programs or policies, employees of Whatcom and the
Bank who continue as Acquiror's or First Savings's employees will be credited
for prior years of service with Whatcom and the Bank, and there shall be no
exclusion from coverage under the Acquiror's or First Savings'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 Whatcom
prior to the Effective Time.
(b) Prior to the Effective Time, the Bank shall terminate the
Whatcom State Bank Employee Stock Ownership Plan ("ESOP") by proper action of
the Board of Directors of the Bank. At or as soon as administratively
practicable after the Effective Time, the ESOP shall convert to cash a
sufficient number of shares of Acquiror Common Stock as may be received by the
ESOP with respect to unallocated shares of Whatcom Common Stock held by the
ESOP at the Effective Time to the repayment in full of the outstanding ESOP
indebtedness to Key Bank. Any surplus of cash and/or Acquiror Common Stock
remaining after repayment of such indebtedness shall be allocated as
investment earnings of the ESOP to the accounts of ESOP participants (and, if
required, to the accounts of former participants or their beneficiaries) in
proportion to their account balances at the Effective Time (except to the
extent that such allocations would be subject to the limitations of Section
415 of the Internal Revenue Code for that year). In connection with the
termination of the ESOP, the ESOP shall be submitted to the Internal Revenue
Service for a determination regarding its qualification, including the
proposed allocation of unallocated surplus, and, upon receipt of a favorable
determination, distributions shall be made to ESOP participants or
beneficiaries in accordance with ERISA and the Internal Revenue Code. In the
event that any portion of the surplus is only allocable subject to the
limitations of Section 415 of the Internal Revenue Code, such amount shall be
allocated to the greatest extent possible subject to Section 415 and, in the
event the combined benefits allocable under the ESOP and any tax-qualified
plan of the Acquiror in the year of allocation exceed the limitations of
Section 415, any required reduction in such allocations shall be made first to
benefits allocable under the Acquiror's plans.
(c) Prior to the Effective Time, Whatcom and the Bank shall
terminate the Whatcom State Bank 401(k) Profit Sharing Plan (the "401(k)
Plan") by proper action of the Board of Directors of Whatcom and the Bank;
provided, however, that, in the event such action is not taken prior to the
Effective Time, the 401(k) Plan shall thereafter be merged with and into a
comparable plan of the Acquiror. In connection with such termination, the
401(k) Plan shall be submitted to the Internal Revenue Service for a
determination regarding its qualification and, upon receipt of a favorable
determination, distributions shall be made to participants in accordance with
ERISA and the Internal Revenue Code. Neither the Acquiror nor First Savings
shall have any obligation to make contributions to the 401(k) Plan after the
Effective Time.
(d) The Acquiror agrees to honor the terms of the Whatcom
employment and deferred compensation agreements set forth in Schedule 4.28;
provided, however, in no event shall the Acquiror or First Savings be
obligated to make any payment or provide any benefits whatsoever to any
officer or employee of Whatcom under any circumstance in which such payments
or benefits, whether due under such agreements or otherwise, is or will not be
deductible by the Acquiror or First Savings by reason of Section 280G of the
Internal Revenue Code.
(e) If any employee of Whatcom who is not a party to an employment,
severance or similar agreement with Whatcom is terminated by the Acquiror or
First Savings without cause within six months after the Effective Time (as
determined in the reasonable discretion of the Board of Directors of the
Company), such employee shall be paid a severance payment by the Company or
First Savings equal to one week's compensation for each full year's employment
at Whatcom and First Savings, not to exceed a maximum of 12 weeks
compensation.
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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.
5.6 Indemnification and Insurance.
(a) Acquiror agrees that all rights to indemnification or
exculpation now existing in favor of the directors and officers of Whatcom 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
Corporate 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 5.6.
(b) Acquiror, or Whatcom with the consent of Acquiror, shall
use its best efforts to cause the persons serving as officers and directors of
Whatcom 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 Whatcom 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
Whatcom for such insurance. The provision of this Section 5.6 are intended to
be for the benefit of, and shall be enforceable by, each of the present and
former officers and directors of Whatcom and the Bank and each such person's
respective heirs and representatives.
5.7 Access. Upon notice of at least 48 hours, Acquiror shall
afford Whatcom 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 5.7
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 WHATCOM AND THE BANK
6.1 Shareholders Meeting. Whatcom shall call a special meeting of
the holders of Whatcom Common Stock to be held as soon as practicable for
purposes of voting upon the transactions contemplated hereby and Whatcom shall
use its best efforts to solicit and obtain the votes of the holders of Whatcom
Common Stock in favor of the transactions contemplated hereby and, subject to
the exercise of its fiduciary duties, the Board of Directors of Whatcom shall
recommend approval of such transactions by such holders. In connection with
the Shareholders Meeting, the Acquiror and Whatcom shall cooperate in the
preparation of the Proxy Statement/Prospectus and, with the approval
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of each of the Acquiror and Whatcom, which approvals will not be unreasonably
withheld, the Proxy Statement/Prospectus will be mailed to the shareholders of
Whatcom.
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) Whatcom and the Bank shall, and shall cause each Whatcom
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 Whatcom, Bank or such Whatcom 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 Whatcom 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) Whatcom and the Bank agree to use their best efforts to
assist Acquiror and First Savings in obtaining the Government Approvals
necessary to complete the transactions contemplated hereby, and Whatcom and
the Bank shall provide to Acquiror and First Savings or to the appropriate
governmental authorities all information reasonably required to be submitted
in connection with obtaining such approvals;
(c) Whatcom 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,
Whatcom and the Bank shall inform Acquiror and First Savings 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
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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 and First Savings shall have agreed in writing to each
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,
Whatcom and the Bank shall give such further assistance to Acquiror and First
Savings and shall execute, acknowledge and deliver all such documents and
instruments as Acquiror and First Savings 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) Between the date of this Merger Agreement and the Closing
Date, Whatcom and the Bank shall afford Acquiror and First Savings 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 Whatcom and the Bank.
Whatcom and the Bank shall provide reasonable assistance to Acquiror and First
Savings in its investigation of matters relating to Whatcom and the Bank;
(g) Whatcom 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 Whatcom and the Bank,
including without limitation any provisions of the Articles of Incorporation
of Whatcom restricting the ownership or acquisition of Whatcom's capital stock
or imposing any "fair price" or supermajority director or stockholder vote
requirements;
(h) Subject to the terms and conditions of this Merger
Agreement, Whatcom 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 Whatcom and the Bank.
(i) At the request of Acquiror and First Savings, Whatcom
and the Bank shall hire an outside consultant reasonably acceptable to
Acquiror and First Savings 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 Toxics
Control Act, CERCLA or any other applicable Environmental Laws, present at or
on any of the "other real estate owned" of Whatcom, the Bank or any Whatcom
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 Whatcom, the Bank or any Whatcom Subsidiary. Such
investigation shall be conducted in a manner reasonably satisfactory to
Acquiror and First Savings, and the results of such investigation shall be set
forth in a written report delivered to Acquiror and First Savings prior to
Closing. The scope and detail of such report shall be reasonably satisfactory
to Acquiror and First Savings. It is understood that the investigation shall
be a "Phase I." In the event the Corporate Merger is not consummated and the
failure to consummate the Corporate Merger is not due to an adverse
environmental assessment or other actions on the part of Whatcom or the Bank,
Acquiror will reimburse Whatcom and the Bank 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, Whatcom and the Bank covenant and agree
they will neither do, nor agree or commit to do, nor permit any Whatcom
Subsidiary to do or commit or agree to
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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 Plans 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 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 Plans 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 Whatcom Common Stock; or (v) pay or declare a cash dividend or
make or declare any other type of distribution on the Whatcom 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 Plans of Merger, to (i) issue, sell, agree to sell, or otherwise dispose
of or otherwise permit to become outstanding any additional shares of Whatcom
Common Stock or any other capital stock of Whatcom, the Bank or of any Whatcom
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 Whatcom, the Bank or
any Whatcom Subsidiary, or (ii) sell, agree to sell, or otherwise dispose of
any substantial part of the assets or earning power of Whatcom, the Bank or of
any Whatcom Subsidiary; or (iii) sell, agree to sell, or otherwise dispose of
any asset of Whatcom, the Bank or any Whatcom 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 Whatcom Subsidiary to incur, any
additional debt obligation or other obligation for borrowed money except in
the ordinary course of the business of Whatcom, the Bank or such Whatcom
Subsidiary consistent with past practices; or
(g) 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 Whatcom, the
Bank or of any Whatcom 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 Whatcom 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
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(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 Whatcom, the Bank or any
Whatcom 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 $50,000 in the aggregate; or
(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 Whatcom, the Bank or any Whatcom Subsidiaries for money damages
in excess of $25,000 or agree in connection with any such settlement to
material restrictions upon the operations of Whatcom, the Bank or any Whatcom
Subsidiaries; or
(o) Change its method of accounting in effect at December 31,
1997, except as required by changes in GAAP as concurred in by Whatcom'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 Whatcom
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
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(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) Whatcom 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 Whatcom 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). Whatcom and the Bank shall notify
Acquiror and First Savings immediately if any Acquisition Proposal has been or
should hereafter be received by Whatcom 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 Whatcom'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, First Savings or of their respective Subsidiaries, would directly or
indirectly (i) acquire or participate in a merger, share exchange,
consolidation or any other business combination involving Whatcom or the Bank;
(ii) acquire the right to vote ten percent (10%) or more of the outstanding
Whatcom 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 Whatcom Common Stock.
(b) Whatcom and the Bank shall immediately terminate all
negotiations or discussions concerning any Acquisition Proposal with parties
other than Acquiror and First Savings and enforce the terms of all
confidentiality agreements with such other parties.
6.5 Accruals and Reserves. At the request of Acquiror and First
Savings, Whatcom and the Bank shall establish such additional accruals and
reserves as may be necessary to conform Whatcom's and the Bank's accounting
and credit loss reserve practices and methods to those of Acquiror and First
Savings; provided, however, that Whatcom and the Bank shall not be required to
take such action prior to the receipt of all Government Approvals as
contemplated by Section 7.3(b).
6.6 Access; Information. Upon reasonable notice, Whatcom and the
Bank shall afford Acquiror and First Savings and each of their 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
Whatcom, the Bank and the Whatcom Subsidiaries and, during such period,
Whatcom and the Bank shall furnish promptly to Acquiror and First Savings (i)
a copy of each material report, schedule and other document filed by Whatcom,
the Bank and the Whatcom Subsidiaries with any Regulatory Authority and (ii)
all other information concerning the business, properties and personnel of
Whatcom, the Bank and the Whatcom Subsidiaries as Acquiror and First Savings
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 Whatcom and the Bank in this Merger Agreement or the
conditions to the obligations of Whatcom and the Bank to consummate the
transactions contemplated by this Merger Agreement.
6.7 Affiliate Agreements. Whatcom will cause each person who is an
affiliate of Whatcom for purposes of Rule 145 under the 1933 Act to execute
and deliver to Acquiror and First Savings on or before the mailing
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of the Proxy Statement/Prospectus for the Shareholders Meeting an agreement in
the form attached hereto as Exhibit D restricting the disposition of the
shares of Acquiror Common Stock to be received by such person in exchange for
such person's shares of Whatcom Common Stock. Schedule 6.7 hereto lists the
affiliates of Whatcom as of the date hereof.
ARTICLE 7
CONDITIONS TO CLOSING
7.1 Conditions to the Obligations of Whatcom and the Bank. Unless
waived in writing by Whatcom and the Bank, the obligations of Whatcom 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 and First Savings 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 and First Savings 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 and First Savings described elsewhere in this Merger Agreement,
Whatcom and the Bank shall have received the following documents and
instruments:
(i) a certificate signed by the Secretary or an assistant
secretary of Acquiror and First Savings dated as of the Closing Date
certifying that:
(A) Acquiror's and First Savings's Boards of
Directors have duly adopted resolutions (copies of which shall be attached to
such certificate) approving the substantive terms of this Merger Agreement
(including the Plans 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 and First Savings is an officer of Acquiror and First
Savings 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 Corporate Merger and the Bank 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 and First
Savings attached to such certificate remain in full force and effect.
(ii) a certificate signed by a duly authorized officer of
Acquiror and First Savings stating that the conditions set forth in Section
7.1(a) and Section 7.1(b) of this Merger Agreement have been fulfilled;
(d) Opinion of Acquiror's and First Savings's Counsel.
Whatcom and the Bank shall have been furnished with an opinion of counsel to
Acquiror and First Savings, dated as of the Closing Date, addressed to and in
form and substance satisfactory to Whatcom and the Bank, to the effect that:
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(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) First Savings is a bank duly organized, validly
existing and in good standing under the laws of the State of Washington.
(iii) The execution and delivery of the Merger Agreement
by Acquiror, and the consummation by Acquiror and First Savings of the
transactions provided for therein, have been duly authorized by all requisite
corporate action on the part of Acquiror and First Savings.
(iv) The Merger Agreement has been duly executed and
delivered by Acquiror and First Savings and is a valid and binding obligation
of Acquiror and First Savings 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.
(v) 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 or First Savings,
other than such consents and approvals as have been obtained, is required for
Acquiror and First Savings to consummate the transactions provided for in the
Merger Agreement.
(vi) 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.
(vii) The shares of Acquiror Common Stock to be issued in
exchange for shares of Whatcom 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.
Such opinion may (i) expressly rely as to matters of fact upon certificates
furnished by appropriate officers of Acquiror and First Savings 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
7.2 Conditions to the Obligations of Acquiror and First Savings.
Unless waived in writing by Acquiror and First Savings, the obligation of
Acquiror and First Savings 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 Whatcom 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 Whatcom 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;
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(c) Documents. In addition to the documents described
elsewhere in this Merger Agreement, Acquiror and First Savings shall have
received the following documents and instruments:
(i) a certificate signed by the Secretary or an assistant
secretary of Whatcom and the Bank dated as of the Closing Date certifying
that:
(A) Whatcom'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 Plans 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 Whatcom and the Bank, is an officer of Whatcom 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 Whatcom 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 Whatcom 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 Whatcom 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 Whatcom, the Bank and the Whatcom 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 and First Savings 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, Whatcom and the Bank shall have afforded
Acquiror and First Savings and their authorized agents and representatives
reasonable access during normal business hours to the properties, operations,
books, records, contracts, documents, loan files and other information of or
relating to Whatcom and the Bank. Whatcom and the Bank shall have caused all
Whatcom and Bank personnel to provide reasonable assistance to Acquiror and
First Savings in its investigation of matters relating to Whatcom 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 Whatcom 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 Whatcom and the Bank, Acquiror and
First Savings 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;
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(g) Opinion of Whatcom's and the Bank's Counsel. Acquiror and
First Savings shall have been furnished with an opinion of legal counsel to
Whatcom and the Bank, dated the Closing Date, addressed to and in form and
substance satisfactory to Acquiror and First Savings, to the effect that:
(i) Whatcom 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 Whatcom 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
Whatcom and the Bank, and the consummation by Whatcom and the Bank of the
transactions provided for therein, have been duly authorized by all requisite
corporate action on the part of Whatcom and the Bank.
(vi) The Merger Agreement has been duly executed and
delivered by Whatcom and the Bank and is a valid and binding obligation of
Whatcom 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 Whatcom and the Bank did not, and the consummation of the
transactions contemplated thereby by Whatcom and the Bank does not and will
not (i) violate any statutory law or regulation applicable to Whatcom, the
Bank or any of the Whatcom Subsidiaries or any judgment, decree or order that
specifically names Whatcom 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 Whatcom, the Bank and the
Whatcom Subsidiaries, taken as a whole; (ii) constitute a breach of or default
under any agreement or other arrangement that is listed on Schedule 4.28_ 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 Whatcom, the Bank and the
Whatcom Subsidiaries, taken as a whole; (iii) violate the Articles of
Incorporation, Charter or Bylaws of Whatcom, the Bank or any of the Whatcom
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.
(viii) To the best of such counsel's knowledge: (i) there
is no litigation or proceeding against Whatcom, the Bank or any Whatcom
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 Whatcom, the Bank and the
Whatcom 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
Community Reinvestment Act and the Home Mortgage Disclosure Act, and no such
litigation or proceeding has been threatened; (ii) neither Whatcom, the Bank
nor any Whatcom 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
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or similar arrangement with, or a commitment letter or similar submission to,
any Regulatory Authority; and (iii) neither Whatcom, the Bank nor any Whatcom
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 Corporate Merger has been duly approved by the
Whatcom Shareholders.
Such opinion may (i) expressly rely as to matters of fact upon certificates
furnished by appropriate officers of Whatcom 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 Whatcom nor the Bank shall have entered into any agreement, letter of
intent, understanding or other arrangement pursuant to which Whatcom or the
Bank would merge; consolidate with; effect a business combination with; sell
any substantial part of Whatcom'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 Whatcom and the Bank or the benefits of acquiring the Whatcom Common Stock;
(i) Maintenance of Certain Covenants, Etc. At the time of
Closing (i) neither Whatcom 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 713,493 shares of Whatcom Common Stock validly issued and outstanding at
the Effective Time); and (ii) from December 31, 1997, there shall have been no
extraordinary sale of assets.
(j) Dissenting Shares. Whatcom Shareholders holding or
controlling no more than five percent (5%) of the shares of the Whatcom 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. Whatcom 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 Phillip V. Stephenson, Cliff Frydenburg, Marilyn Brink
and Jim Logghe substantially in the form attached as Exhibit E 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 Whatcom the agreements referred to in Section
6.7; and
(n) Major Shareholders and Directors. Simultaneous with the
execution and delivery of this Merger Agreement, each of the Major
Shareholders and directors of the Bank shall have executed and delivered to
Acquiror a Voting Agreement in the form attached hereto as Exhibit C.
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:
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(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 Whatcom shall have received an
opinion from Breyer & Aguggia LLP to the effect that (i) the Corporate Merger
constitutes a reorganization under Section 368 of the Code, and (ii) no gain
or loss will be recognized by Whatcom Shareholders to the extent they receive
shares of the Acquiror Common Stock in exchange for their shares of Whatcom
Common Stock, and, in rendering their opinion, Breyer & Aguggia LLP may
require and rely upon representations contained in certificates of officers of
the Company, Whatcom and others.
(e) Shareholder Vote. The Whatcom Shareholders shall have
approved of the transactions contemplated hereby by the requisite vote.
ARTICLE 8
TERMINATION
8.1 Termination. This Merger Agreement and the Plans 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 and First Savings, should Whatcom, the Bank or
any Whatcom Subsidiary fail to conduct its business pursuant to the covenants
made in Article 6;
(c) By Acquiror or Whatcom in the event the Closing shall not
have occurred by March 31, 1999, 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 and First Savings 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 Whatcom and the Bank shall, upon Acquiror's and First
Savings's written request, extend the Closing Date until such time as all
Government Approvals have been obtained and any stipulated waiting periods
have expired.
(d) By either Acquiror or Whatcom, upon written notice to the
other Party, upon denial of any Governmental Approval necessary for the
consummation of the Corporate Merger or the Bank Merger (or should such
approval be conditioned upon a substantial deviation from the transactions
contemplated); provided, however, that either Acquiror or Whatcom 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;
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(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 Whatcom 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 or Whatcom 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;
(g) By Acquiror should Whatcom, the Bank or any Whatcom
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
(h) By Acquiror should Whatcom, the Bank or any Whatcom
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.
(i) 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 Whatcom 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 Whatcom and the Bank, or (C) is a material deviation
from the Whatcom Financial Statements, and (ii) Acquiror notifies Whatcom 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 Whatcom and the Bank. For purposes of this Section, (i)
"Acquiror Due Diligence Review" shall mean a review by Acquiror of Whatcom'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 Whatcom 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 Whatcom and the Bank
under this Merger Agreement.
If a Party should elect to terminate this Merger Agreement pursuant to
subsections (b), (c), (d), (e), (f), (g), (h), or (i) 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.
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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,
Acquiror and First Savings have incurred and will incur direct and indirect
monetary and other costs (including without limitation attorneys' fees and
costs of Acquiror's and First Savings's employee and management time) and will
forego discussions with respect to other potential acquisitions.
(a) To compensate Acquiror and First Savings for such costs
and to induce it to forego initiating discussions regarding other
acquisitions, if (i) this Merger Agreement terminates because Whatcom 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
nonsatisfaction has not been the result of the failure of Whatcom and the Bank
to use their best efforts to consummate this Merger Agreement in accordance to
the terms of this Merger Agreement); (ii) Whatcom 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(f) or (iii) the Whatcom
Shareholders do not approve the Corporate Merger, then Whatcom 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
Thousand 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 Whatcom and the Bank
complying with their fiduciary duties.
(b) To compensate Whatcom 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 nonsatisfaction 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 Whatcom 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. Whatcom and the Bank hereby agree to pay
Acquiror and First Savings on demand (and in no event more than three days
after such demand) in immediately available funds $625,000 (the "Acquiror
Fee") if within 18 months after the date hereof the Corporate 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 First Savings or an affiliate
of Acquiror or First Savings acquires beneficial ownership of 25% or more of
the then-outstanding Whatcom Common Stock;
(b) Whatcom or the Bank, without having received Acquiror's and
First Savings's prior written consent, enters into an agreement to engage in
an Acquisition Transaction (as defined below) with any person (the term
"person" for 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 and First Savings or any of their respective
Subsidiaries, or Whatcom's Board of Directors recommends that the Whatcom
Shareholders approve or accept any Acquisition Transaction with any person
other than Acquiror and First Savings or any of their respective Subsidiaries.
For purposes of this section, "Acquisition Transaction" shall mean (a) a
merger or consolidation, or any similar transaction, involving Whatcom or the
Bank, (b) a purchase, lease or other acquisition of all or substantially all
of the assets of Whatcom 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 Whatcom or the
Bank; or
(c) A bona fide proposal is made by a third party to Whatcom or the
Bank to engage in an Acquisition Transaction and after such proposal is made
any of the following events occurs: Whatcom or the Bank willfully breaches
this Merger Agreement and such breach entitles Acquiror and First Savings to
terminate this Merger
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Agreement; the Whatcom 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 and First Savings; or Whatcom's Board of Directors modifies in a
manner adverse to Acquiror and First Savings its recommendation with respect
to this Merger Agreement.
Notwithstanding the foregoing, Whatcom and the Bank shall not be
obligated to pay to Acquiror and First Savings the Acquiror Fee if, prior to
the occurrence of any of the events specified in 8.4(a), (b), or (c), either
(i) Acquiror terminates the Merger Agreement in accordance with the terms
hereof other than pursuant to Section 8.1(f) hereof as a result of a willful
breach of any obligation of Whatcom or the Bank hereunder or (ii) Whatcom
validly terminates this Merger Agreement pursuant to Section 8.1(a) or 8.1(f)
(but only in the event that Acquiror or First Savings materially breaches a
representation, warranty or covenant contained herein and, as a result
thereof, Whatcom exercises its right to terminate this Merger Agreement under
Section 8.1(f) at a time when Acquiror and First Savings were not entitled to
terminate this Merger Agreement under Section 8.1(c), 8.1(f)) 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 Whatcom and the Bank: Whatcom State Bancorp, Inc.
Whatcom State Bank
1600 Cornwall Avenue
Bellingham, Washington 98225
Fax: (360) 738-8095
Attn: Phil Stephenson, President and
Chief Executive Officer
With a copy to: Keller Rohrback
1201 Third Avenue
Suite 3200
Seattle, Washington 98101
Fax: (206) 623-3384
Attn: Glen P. Garrison, Esq.
If to Acquiror and
First Savings: 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
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With a copy to: Breyer & Aguggia LLP
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 and First Savings may assign, set over and transfer all, or any part
of their rights and obligations under this Merger Agreement to any one or more
of their 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. Whatcom, the Bank, Acquiror and First Savings
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 and First Savings shall not obligate Acquiror and First Savings to
obtain or to provide Whatcom 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 and First
Savings 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
Plans of Merger which are attached as Exhibit A and Exhibit B 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 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
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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 Plans 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,
First Savings and Whatcom 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 Whatcom and the Bank, Acquiror
and First Savings will be without an adequate remedy at law by reason of the
unique nature of Whatcom 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 Whatcom or
the Bank or (ii) if applicable, to receive the payment described in Section
8.3 hereof. Whatcom and the Bank covenant that they shall not contend in any
such proceeding that Acquiror and First Savings are not entitled to a decree
of specific performance by reason of having an adequate remedy at law.
Notwithstanding the foregoing, if Whatcom and the Bank accept an Acquisition
Proposal from a third party and Acquiror and First Savings receive an opinion
of counsel from Whatcom and the Bank that the failure of the Boards of
Directors of Whatcom and the Bank to accept such Acquisition Proposal would
constitute a breach of such directors' fiduciary duty to the shareholders of
Whatcom, Acquiror and First Savings shall not be entitled to the equitable
remedy of specific performance. No attempt on the part of Acquiror and First
Savings 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 they would otherwise be entitled.
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).
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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 Whatcom's and the
Bank's or Acquiror's and First Saving'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.
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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.
WHATCOM STATE BANCORP, INC.
By: /s/ Phil Stephenson
---------------------------
Phil Stephenson
Its: President and Chief Executive Officer
ATTEST:
/s/ Marilyn Brink
- ---------------------------
Secretary
WHATCOM STATE BANK
By: /s/ Phil Stephenson
---------------------------
Phil Stephenson
Its: President and Chief Executive Officer
ATTEST:
/s/ Marilyn Brink
- ---------------------------
Secretary
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
FIRST SAVINGS BANK OF WASHINGTON
By: /s/ Gary Sirmon
---------------------------
Gary Sirmon
Its: President and Chief Executive Officer
ATTEST:
/s/ D. Allan Roth
- ---------------------------
D. Allan Roth, Secretary
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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
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(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.
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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) An explanation of how the corporation estimated the fair value
of the shares;
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(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.
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(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.
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Appendix C
____________, 1998
Board of Directors
Whatcom State Bancorp
1600 Cornwall
Bellingham, WA 98226
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the shareholders of Whatcom State Bancorp and its wholly
owned subsidiary, Whatcom State Bank ("WSB") of the consideration to be
received by such shareholders pursuant to the terms of the Merger Agreement
and Plan of Merger, dated June 10, 1998, (the "Agreement") between WSB and
First Savings Bank of Washington Bancorp, Inc. ("FWWB").
In connection with the proposed merger transaction (the "Merger")
whereby WSB will merge into FWWB, each issued and outstanding share and option
of WSB common stock (along with its associated rights) at the effective time
of the Merger (other than (i) shares of holders of which are exercising
appraisal rights pursuant to applicable law and (ii) shares held directly by
or indirectly by the Bank, its parent company or any subsidiary thereof other
than shares held in a fiduciary capacity or in satisfaction of a debt
previously contracted) shall be converted into the right to receive .7671 of
FWWB shares, except for fractional shares which will receive a proportional
amount of cash (the "Merger Consideration").
Columbia Financial Advisors, Inc. ("CFAI") as a part of its investment
banking services, is periodically engaged in the valuation of banks and
advises the directors, officers and shareholders of both public and private
banks and thrift institutions with respect to the fairness, from a financial
point of view, of the consideration to be received in transactions such as
that proposed by the Agreement. With particular regard to our qualifications
for rendering an opinion as to the fairness, from a financial point of view,
of the Consideration to be received by holders of the shares from FWWB
pursuant to the Merger, CFAI has advised Washington and Oregon community banks
regarding fairness of capital transactions. WSB has agreed to pay CFAI a fee
for this opinion letter.
In connection with rendering this opinion, we have, among other things:
(I) reviewed the Agreement; (ii) reviewed WSB's financial information for the
twelve months ended December 31, 1997 and the six months ended June 30, 1998;
(iii) reviewed certain internal financial analyses and certain other
forecasts for WSB prepared by and reviewed with the management of WSB; (iv)
conducted interviews with senior management of WSB regarding the past and
current business operations, results thereof, financial condition and future
prospects of WSB; (v) reviewed the current market environment generally and
the banking environment in particular; (vi) reviewed the prices paid in
certain recent mergers and acquisitions in the banking industry on a regional
basis; (vii) reviewed FWWB's audited financial information for the fiscal year
ended March 31, 1998 including the Form 10-KSB filed with the U.S. Securities
and Exchange Commission; (ix) reviewed the price ranges and dividend history
for FWWB common stock; (x) and reviewed
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Board of Directors
Whatcom State Bancorp
Page 2
such other information, studies and analyses and performed such other
investigations and took into account such other matters as we deemed
appropriate.
In conducting our review and arriving at our opinion, we have relied on
the accuracy and completeness of all information supplied or otherwise made
available to us, and we have not independently verified such information nor
have we undertaken an independent appraisal of the assets or liabilities of
the WSB or FWWB. With respect to the financial forecasts referred to above,
we have assumed that they have been reasonably prepared on bases reflecting
the best currently available estimates and judgment of the senior management
of WSB. This opinion is necessarily based upon circumstances and conditions
as they exist and can be evaluated as of the date of this letter. We have not
been authorized to solicit and did not solicit other entities for purposes of
a business combination with WSB.
This opinion is based upon the information available to us and facts
and circumstances as they exist and are subject to evaluation on the date
hereof. We are not expressing any opinion herein as to the prices at which
shares of FWWB Common Stock have traded or may trade at any future date.
This opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote with
respect to the merger.
In reliance upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Merger Consideration to be received by the
shareholders of WSB pursuant to the Agreement is fair, from a financial point
of view, to the shareholders of WSB.
We hereby consent to the reference to our firm in the proxy statement
or prospectus related to the merger transaction and to the inclusion of our
opinion as an exhibit to the proxy statement or prospectus related to the
merger transaction.
Very truly yours,
COLUMBIA FINANCIAL ADVISORS, INC.
By: ____________________________
Robert J. Rogowski
Principal
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Appendix D
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF WHATCOM STATE BANCORP, INC.
The discussion presented below analyzes major factors and trends regarding
the financial condition of Whatcom State Bancorp, Inc. ("WSB") and its
wholly-owned subsidiary, Whatcom State Bank as of June 30, 1998 and 1997, and
as of December 31, 1997 and 1996, and regarding the results of its operations
for the six months ended June 30, 1998 and 1997, and for the years ended
December 31, 1997 and 1996. For a more complete understanding of the
following discussion, reference should be made to WSB's consolidated financial
statements and related notes included herewith.
In June 1995, Whatcom State Bank's shareholders approved a plan of
reorganization whereby Whatcom State Bancorp, Inc. was formed and became the
sole shareholder of Whatcom State Bank. Concurrently, the shareholders of
Whatcom State Bank became the shareholders of Whatcom State Bancorp, Inc.
Balance Sheet Analysis
Financial Condition. The total assets of WSB increased by $13,124,417 or
17.91% between December 31, 1997 and 1996. At June 30, 1998, assets were
$91,027,491 compared to the December 31, 1997 level of $86,401,575. The
increase in net assets resulted from increases in loans and securities
available for sale, which were funded by an increase in deposits and short
term and long term borrowings. WSB receives a major portion of its income
from earning assets which consist of interest-bearing deposits with other
banks, 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, 1997 and 1996.
Whatcom State 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 WSB operates are dependent upon small to medium size
commercial business and real estate loans. As the economy of this market has
improved over the past several years, in conjunction with an increase in
market share, there has been an increase in loan volume and related income.
Inherent in WSB's loan portfolio is credit risk. WSB 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 Tables 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 volume of investment securities has increased for the years ended
December 31, 1997 and 1996 by $4,295,445 or 43.38% and has decreased
$1,126,919 over the six month period ended June 30, 1998. See Tables 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
$11,173,310 or 17.82% between December 31, 1997 and 1996. This increase was
due to an increase in both savings and time deposits. Deposits have increased
by $4,088,984 or 5.54% over the six month period ended June 30, 1998. See
Table 10 for a maturity analysis of deposits as of December 31, 1997.
WSB's primary borrowings source is arranged through the Federal Home Loan Bank
of Seattle (FHLB). Borrowings increased by $1,328,000 or by 26.56 % from the
year ending December 1997 and 1996 and increased by $72,000 or 1.14% for the
six month period ended June 1998.
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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
funding requirements, WSB anticipates its liquidity requirements will be met
in the foreseeable future. WSB's management is of the opinion that the
traditional funding sources of maturing loans and investment securities, the
base of core deposits, and the borrowing lines of credit with the Federal Home
Loan Bank of Seattle 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 FDIC 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 June 30, 1998, WSB'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 WSB's capital ratios.
Earnings Analysis
Net income for the six months ended June 30, 1998 was $86,454, a decrease
of $108,192 or 55.58%, over the same period in 1997. The decrease was due
primarily to one time expenses which are discussed further in "Noninterest
Expense" below. The annualized return on average assets and return on average
equity for the first six months of 1998 were 0.19% and 2.97%. Net income for
the year ended 1997 was $495,363 compared to a loss of $40,361 for December
31, 1996.
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 six months of 1998
was $2,084,848, an increase of $203,324, or 10.81%, over the same period in
1997. The primary reason for the increase was the increase of $10,771,412 in
net loans from June 1997 to June 1998. Total net interest income for the year
ended December 31, 1997 was $3,946,770 as compared to $3,510,706 in 1996.
Provision for Loan Losses. For the first six months of 1998 and 1997, WSB
provided $90,000 for loan losses. For the years ended December 31, 1997 and
1996, the provision for loan losses was $180,000 and $783,658, respectively.
Noninterest Income. Total noninterest income for the six months ended June
30, 1998, and 1997 was $970,106 and $525,147, respectively. The increase was
due primarily to mortgage banking activity and the sale of WSB's Ferndale
location which resulted in a gain on sale totaling $193,006. Total
noninterest income for the year ended December 31, 1997 was $1,016,018 as
compared to $820,487 in 1996.
Noninterest Expense. Total noninterest expense for the six months ended
June 30, 1998, and 1997 was $2,847,000 and $2,031,125, respectively.
Increases in salaries and benefits including one time incentive compensation
totaling $384,566 and the write down of real estate owned for $80,000
contributed to the increase. Total noninterest expense for the year ended
December 31, 1997 was $4,050,925 as compared to $3,607,896 in 1996.
Provision for Income Taxes. Income tax expense for the six months ended
June 30, 1998 was $31,500. The income tax expense for the prior year ended
December 31, 1997 was $236,500. See Note 8 of Notes to the Financial
Statements for further details of the applicable income tax expense for 1997
and 1996.
D-2
<PAGE>
<PAGE>
Year 2000
Management is in the process of assessing Year 2000 technology issues.
WSB's system critical functions are out-sourced to third-party vendors which
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 WSB or Whatcom State Bank.
Competition
WSB competes primarily in Whatcom County, Washington and has a home loan
center in Island County, Washington. WSB 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. Whatcom State Bank 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 WSB is a party.
Offices
WSB's executive offices are located at 1600 Cornwall Avenue, Bellingham,
Washington 98225. This address also serves as the main office of Whatcom
State Bank. Whatcom State Bank has full service branch facilities at 1815
Main Street, Ferndale, Washington 98248; 8130B Guide Meridian, Lynden,
Washington 98264; 435 Martin Street, Blaine, Washington 98231; 480 Tyee, Point
Roberts, Washington 98281. Whatcom State Bank also has a home loan center at
785 S.E. Bayshore Drive, Suite 103, Oak Harbor, Washington 98277 and a loan
center across the street from its main offices at 1605 Cornwall Avenue,
Bellingham, Washington 98225. Whatcom State Bank owns the land and building
at 1600 Cornwall Avenue, while the other offices are operated pursuant to
long-term leases with third parties at prevailing market rental rates.
Employees
As of June 30, 1998, Whatcom State Bank had 68 employees.
D-3
<PAGE>
<PAGE>
Table 1 - Comparative Average Balances - Yields and Rates
The table below shows the average balances of the assets and liabilities of
WSB, 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.
1997 1996
---------------------- -----------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- ----- ------- -------- ----
(In thousands)
Interest-earning assets:
Interest-bearing balance due $ 3,284 $ 173 5.33% $ 3,067 $ 155 5.05%
Loans 58,465 6,131 10.49 53,696 5,588 10.37
Investment securities:
Taxable 12,701 849 6.68 6,482 425 6.56
Tax-exempt 755 35 4.64 756 37 4.89
------ ----- ----- ------ ----- -----
Total interest-earning assets 75,169 7,188 9.56 64,201 6,205 9.66
Noninterest-earnings assets 7,784 7,865
Allowance for loan losses (1,039) (1,229)
-------- --------
Total $81,914 $70,837
======== ========
Interest-bearing liabilities:
Savings and interest-
bearing deposits $33,342 272 3.82 $27,536 1,055 3.83
Time deposits 27,291 1,630 5.97 24,654 1,459 5.92
Long-term borrowings 5,575 339 6.08 2,949 160 6.10
------ ----- ---- ------ ----- ----
Total interest-bearing
liabilities: 66,208 3,241 4.90 55,139 2,694 4.69
----- -----
Noninterest-bearing liabilities
Demand deposits 9,912 9,976
Other 383 456
Shareholders' equity 5,411 5,266
------- -------
Total $81,914 $70,837
======== ========
Net interest earnings $ 3,947 $ 3,511
Net yield on
interest-earning assets 5.25% 5.47%
Interest rate spread 4.66% 4.97%
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 $792,287 in 1997 and $565,775 in 1996. Tax-exempt investments
have not been reported on a tax equivalent basis.
D-4
<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. Changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
1997 Compared to 1996 Change Due To:
------------------------------------
Volume Rate Net
------ ---- ---
(In thousands)
Interest earned on:
Interest-bearing balances due $ 9 $ 9 $ 18
Loans 474 59 543
Investment securities:
Taxable 407 (17) 424
Tax-exempt -- (2) (2)
------ ----- -----
Total interest-earning assets 890 93 993
Interest Paid on:
Savings and
interest-bearing deposits 223 (6) 217
Time deposits 156 15 171
Other 162 (3) 159
Total interest-bearing liabilities: 541 6 547
---- --- ---
$ 349 $ 87 $ 436
====== ====== ======
Table 3 - Investment Portfolio
The table below indicates the amortized cost of investment securities by
type at year-end for each of the last two years:
December 31,
-------------------------------------
1997 1996
---- ----
Held-to-Maturity
- ----------------
Obligations of states
and political subdivisions $753,692 $755,177
Available-for-Sale
- ------------------
U.S. Treasury and
U.S. Government Agencies $7,661,762 $8,092,390
Mortgage-backed securities 4,644,720 --
---------- ----------
Total available-for-sale
investment securities $12,306,482 $8,092,390
=========== ==========
Federal Home Loan Bank Stock $1,107,800 $1,026,800
D-5
<PAGE>
<PAGE>
<TABLE>
Table 4 - Maturity Distribution and Yields of Investment Portfolio
The following table details the maturities of investment securities at December 31, 1997 and the
weighted average yield for each range of maturities. Yields are not stated on a tax-equivalent basis.
Maturing
---------------------------------------------------------------------
After After
One But Five But
Within Within Within After
One Five Ten Ten
Year Yield Years Yield Years Yield Years Yield Total
---- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-
Maturity
- ----------------
Obligations
of states
and political
subdivisions -- -- $753,692 4.87% -- -- -- -- $753,692
Available-for-
Sale
- ---------
U.S. Treasury
and
U.S. Government
Agencies $1,599,719 5.11% $4,050,000 6.71% $2,012,043 6.37% $ -- -- $7,661,762
Mortgage-backed
securities -- -- 402,873 6.72% -- -- 4,241,847 6.77% 4,644,720
---------- ---------- ---------- --------- ---------
Total
available-
for-sale
investment
securities $1,599,719 $4,452,873 $2,012,043 $4,241,847 $12,306,482
========== ========== ========== ========== ===========
</TABLE>
Table 5 - Composition of the Loan Portfolio
December 31,
----------------------------
1997 1996
---- ----
Commercial $31,779,501 $26,458,845
Real estate - Construction 7,779,133 5,991,419
Real estate - Mortgage 20,184,789 13,177,607
Consumer loans 5,913,515 9,477,721
----------- -----------
Total Loans $65,656,938 $55,105,592
=========== ===========
D-6
<PAGE>
<PAGE>
Table 6 - Loan Maturities and Sensitivity to Changes in Interest Rates
The following table sets forth certain information at December 31, 1997
regarding the dollar amount of loans in WSB's loan portfolio. Demand loans,
loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as due within one year. Variable rate loans are
included in the period in which interest rates are scheduled to adjust rather
than in which they contractually mature. Maturity information by loan types
is not available.
Maturing or Repricing
-------------------------------------------------------
Maturing
One Year
Within One Through After
Year or Less Five Years Five Years Total
------------ ---------- ---------- -----
Fixed Rate Loans $14,812,588 $ 7,261,838 $ 5,444,207 $27,518,633
Variable Rate Loans 35,004,416 2,580,006 553,883 38,138,305
---------- ----------- ----------- -----------
Total $49,817,004 $ 9,841,844 $ 5,998,090 $65,656,938
=========== =========== =========== ===========
Table 7 - Nonperforming Loans and Past Due Loans
The accrual of interest on 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
against current income. Interest income is subsequently recognized only to
the extent payments are received.
Nonaccrual loans totaled $1,466,000 and $478,000 at December 31, 1997 and
1996, respectively. At December 31, 1997 and 1996, WSB had loans amounting to
$2,046,167 and $1,834,612 that were specifically classified as impaired.
During 1997 and 1996 impaired loans had average balances of $1,067,973 and
$1,335,570 respectively. The allowance for credit losses related to these
loans was $148,354 and $288,471 respectively. No allocation of the allowance
for possible loan losses was considered necessary for the remaining impaired
loans. Interest collected on these loans in cash and included in income
totaled $146,782 and $58,785 in 1997 and 1996. At December 31, 1997 and 1996,
there were no commitments to lend additional funds to borrowers whose loans
were classified as impaired. Loans 90 days and over past due still accruing
interest were $1,000 and $806,000 at December 31, 1997 and 1996.
D-7
<PAGE>
<PAGE>
Table 8 - Analysis of the Allowance for Loan Losses
The table below summarizes WSB's loan loss experience for each of the
last two years.
Year Ended
December 31,
--------------------------
1997 1996
---- ----
Amount of loan loss reserve
at beginning of period $1,058,117 $1,227,676
Charge-offs
Real estate 35,800 74,790
Consumer 115,597 156,684
Commercial and industrial 264,967 791,883
---------- ----------
Total charge-offs 416,364 1,023,357
Recoveries on loans previously
charged off
Real estate 19,328 --
Consumer 50,770 22,430
Commercial and industrial 103,173 47,710
---------- --------
Total recoveries 173,271 70,140
---------- --------
Net charge-offs 243,093 953,217
Additions to allowance charged
to operating expense (1) 180,000 783,658
--------- ---------
Amount of loan loss reserve
at end of period $ 995,024 $ 1,058,117
========== ============
Percentage of net charge-offs
during period to average
loans outstanding during
the period .45% 1.78%
______________
(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.
Table 9 - Allocation of the Allowance for Loan Losses
The following table is a summary by allocation category of WSB's
allowance for loan losses:
December 31,
----------------------------------------
% Loans % Loans
in each in each
1997 Category 1996 Category
------- -------- ---- --------
Commercial $148,354 48.40% $ 288,471 48.01%
Real estate - Construction -- 11.85% -- 10.87%
Real estate - Mortgage -- 30.74% -- 23.91%
Consumer -- 9.01% -- 17.21%
Unallocated 846,670 769,646
-------- -----------
$995,024 $1,058,117
======== ==========
D-8
<PAGE>
<PAGE>
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, 1997:
3 months or less $3,154,000
Over 3 months through 12 months 5,074,000
Over 12 months 1,690,000
----------
$9,918,000
==========
Table 11 - Return on Equity and Assets
The following table shows operating and equity ratios of WSB for each of
the last two years:
Year Ended
December 31,
----------------------
1997 1996
---- ----
Return on average assets 0.60% (0.06)%
Return on average equity 9.16% (0.75)%
Equity to assets ratio 6.53% 7.28 %
Table 12 - Comparison of Capital Ratios with Regulatory Requirements (1)
Regulatory
Requirements
Whatcom For Capital
As of June 30, 1998 State Bank Consolidated Adequacy Purposes
- ------------------- ---------- ------------ -----------------
Total Capital /
Risk Weighted Assets 10.56% 10.54% 8.00%
Tier 1 Capital /
Risk Weighted Assets 9.31% 9.28% 4.00%
Tier 1 Capital /
Average Assets 6.47% 6.45% 4.00%
(1) Excludes unrealized gains and losses on securities available-for-sale.
D-9
<PAGE>
<PAGE>
Independent Auditors' Report
Board of Directors
Whatcom State Bancorp and Subsidiary
Bellingham, Washington
We have audited the accompanying consolidated balance sheet of Whatcom State
Bancorp and Subsidiary (the Company) as of December 31, 1997, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Whatcom
State Bancorp and Subsidiary as of December 31, 1997, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
/s/ Dodd Wing & Company, P.C.
Kirkland, Washington
February 5, 1998
D-10
<PAGE>
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
Whatcom State Bancorp and Subsidiary
We have audited the consolidated balance sheet of Whatcom State Bancorp and
Subsidiary (the "Corporation") as of December 31, 1996, and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Whatcom State
Bancorp and Subsidiary as of December 31, 1996, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Moss Adams LLP
Bellingham, Washington
January, 24, 1997
D-11
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Consolidated Balance Sheets
- -----------------------------------------------------------------------------
December 31,
1997 1996
------- -------
Assets
Cash and due from banks $ 3,303,079 $ 3,999,812
Interest bearing deposits in banks 98,174 1,118,392
Securities available for sale 12,336,485 8,120,555
Securities held to maturity 753,692 755,177
Federal Home Loan Bank stock 1,107,800 1,026,800
Loans 65,346,576 54,773,009
Allowance for loan losses (995,024) (1,058,117)
Net loans 64,351,552 53,714,892
Premises and equipment 3,133,078 3,077,910
Foreclosed real estate 189,599 284,853
Interest receivable 593,473 465,746
Other assets 534,643 713,021
Total assets $86,401,575 $73,277,158
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Demand $10,443,131 $ 9,937,622
Savings and interest-bearing demand 32,617,323 27,192,894
Time 30,802,915 25,559,543
Total deposits 73,863,369 62,690,059
Interest payable 69,341 147,304
Short-term borrowings 628,000 --
Long-term borrowings 5,700,000 5,000,000
Other liabilities 429,806 240,492
Total liabilities 80,690,516 68,077,855
Shareholders' Equity
Common stock (par value: $1);
authorized 2,000,000 shares;
issued: 1997 - 637,209 shares;
1996 - 637,593 shares 637,209 637,593
Surplus 3,857,165 3,860,397
ESOP loan guarantee (74,790) (93,580)
Retained earnings 1,271,673 776,310
Net unrealized gains on securities
available for sale,
net of tax of $10,201 and $9,573 19,802 18,583
Total shareholders' equity 5,711,059 5,199,303
Total liabilities
and shareholders' equity $86,401,575 $73,277,158
See notes to consolidated financial statements.
D-12
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Consolidated Statements of Operations
---------------------------------------------------------------------------
Year Ended December 31,
1997 1996
------ ------
Interest Income
Loans $6,131,355 $5,588,136
Deposits in banks and
Federal Home Loan Bank
stock dividends 254,300 228,902
Securities available for sale 767,356 350,665
Securities held to maturity 34,801 36,642
Total interest income 7,187,812 6,204,345
Interest Expense
Deposits 2,684,526 2,210,416
Brokered deposits 217,272 303,680
Federal Home Loan Bank 339,244 178,004
Federal funds purchased -- 1,539
Total interest expense 3,241,042 2,693,639
Net interest income 3,946,770 3,510,706
Provision for Loan Losses 180,000 783,658
Net interest income
after provision for loan losses 3,766,770 2,727,048
Noninterest Income
Service charges on deposit accounts 487,721 520,953
Fees on real estate loans sold 262,278 141,500
Loan servicing income (loss) 74,454 (25,512)
Net gains (losses) from sales of loans (16,619) 71,846
Net gains (losses) on sales
of securities available for sale 28,464 12,880
Foreign currency exchange 70,812 89,151
Other 108,908 9,669
Total noninterest income 1,016,018 820,487
Noninterest Expense
Salaries 1,616,062 1,325,390
Employee benefits 329,543 304,197
Occupancy 778,234 754,344
Other 1,327,086 1,223,965
Total noninterest expense 4,050,925 3,607,896
Income/(loss) before income taxes 731,863 (60,361)
Income Tax Benefit/(Provision) (236,500) 20,000
Net income/(loss) $ 495,363 $ (40,361)
Net income (loss) per common share $ .78 $ (.06)
Diluted net income (loss)
per common share .76 (.06)
See notes to consolidated financial statements.
D-13
<PAGE>
<PAGE>
<TABLE>
Whatcom State Bancorp and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
- -----------------------------------------------------------------------------
Net
Unrealized
ESOP Gain (Loss)
Common Retained Loan On Securities,
Stock Surplus Earnings Guarantee Net of Tax Total
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1995 $637,019 $3,859,319 $816,671 $(179,910) $ (1,229) $5,131,870
Net loss -- -- (40,361) -- -- (40,361)
New stock issued - net 574 1,078 -- -- -- 1,652
Reduction in ESOP
loan guarantee -- -- -- 86,330 -- 86,330
Valuation adjustments,
net of tax -- -- -- -- 19,812 19,812
Balance,
December 31, 1996 637,593 3,860,397 776,310 (93,580) 18,583 5,199,303
Net income -- -- 495,363 -- -- 495,363
New stock issued 300 1,614 -- -- -- 1,914
Stock purchased (684) (4,846) -- -- -- (5,530)
Reduction in ESOP
loan guarantee -- -- -- 18,790 -- 18,790
Valuation adjustments,
net of tax -- -- -- -- 1,219 1,219
Balance,
December 31, 1997 $637,209 $3,857,165 $1,271,673 $ (74,790) $ 19,802 $5,711,059
See notes to consolidated financial statements.
</TABLE>
D-14
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Consolidated Statements of Cash Flows
---------------------------------------------------------------------------
Year Ended December 31,
1997 1996
--------- --------
Operating Activities
Net income (loss) $ 495,363 $ (40,361)
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities:
Provision for loan losses 180,000 783,658
Depreciation and amortization 443,740 402,298
Investment amortization - net 31,362 10,282
Deferred income tax (98,969) 28,000
(Gain) loss on sale of loans 16,619 (71,846)
Loss on sale of fixed assets 17,774 2,542
Gain on sale of foreclosed real estate (27,598) --
(Gain) loss on sale of securities (28,564) (12,880)
Stock dividends received (81,000) (76,400)
Decrease in interest receivable and other assets 70,699 138,112
(Decrease) increase in interest payable
and other liabilities 209,062 (578,541)
Net cash provided by operating activities 1,228,488 584,864
Investing Activities
Proceeds from sales of securities
available for sale 8,968,299 5,405,020
Purchases of securities available for sale (13,184,323) (10,506,902)
Net decrease in interest bearing
deposits in banks 1,020,218 193,400
Increase in loans made to customers,
net of principal collections (11,075,697) (1,903,543)
Purchases of premises and equipment (516,682) (441,189)
Proceeds from sale of equipment and
foreclosed real estate 506,215 --
Additions to other real estate owned (140,945) --
Net cash used in investing activities (14,422,915) (7,253,214)
Financing Activities
Net increase (decrease) in demand, savings,
and interest bearing demand deposits 5,929,938 (153,975)
Net increase in time deposit accounts 5,243,372 3,466,090
Net decrease in federal funds purchased -- --
Net increase in long-term borrowings 1,328,000 3,000,000
Purchase of common stock (5,530) --
Sale of common stock 1,914 1,652
Net cash provided by financing activities 12,497,694 6,313,767
Net decrease in cash and due from banks (696,733) (354,583)
Cash and Due from Banks, beginning of year 3,999,812 4,354,395
Cash and Due from Banks, end of year $ 3,303,079 $ 3,999,812
Supplemental Disclosures
of Cash Flow Information
Interest paid $ 3,319,005 $ 2,643,786
Income taxes paid 20,000 --
Supplemental Disclosures of
Non-Cash Investing Activities
Fair value adjustment of assets
available for sale $ 1,847 $ 30,018
Income tax effect related to
fair value adjustment (628) (10,206)
Transfer of loans to foreclosed real estate 242,417 284,852
ESOP loan guarantee (18,790) (86,330)
See notes to consolidated financial statements.
D-15
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ---------------------------------------------------------------------------
Note 1 - Significant Accounting Policies
Nature of Operations
The consolidated financial statements include the accounts of Whatcom State
Bancorp (the Company) and its wholly-owned subsidiary, Whatcom State Bank
(the Bank). During 1995, the Company's shareholders approved a plan of
reorganization whereby Whatcom State Bancorp was formed and became the sole
shareholder of Whatcom State Bank. Concurrently, the stockholders became the
owners of Whatcom State Bancorp. The Company is a holding company which
operates primarily through its major subsidiary, the Bank. The Bank operates
five branches and its primary source of revenue is providing loans to
customers. The Bank's lending and other activities are concentrated in
Whatcom County. The following is a description of significant accounting
policies.
Financial Statement Presentation
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and practices within the banking
industry. The consolidation eliminates all significant intercompany accounts
and transactions. Certain items in prior periods have been reclassified to
conform to the current presentation.
The preparation of 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.
Securities Available for Sale
Securities available for sale consist of debt and certain equity securities
not classified as trading but may be sold before maturity in response to
change in interest rates, prepayment risk, and funding sources or terms, or to
meet liquidity needs. They are reported at fair value with unrealized gains
and losses, net of the related deferred tax effect, reported as a separate
component of shareholders' equity. Realized gains and losses on securities
available for sale, determined using the specific identification method, are
included in earnings. Amortization of premiums and accretion of discounts are
recognized in interest income over the period to maturity.
Securities Held to Maturity
Debt securities for which the Company has the positive intent and ability to
hold to maturity are reported at cost, adjusted for amortization of premiums
and accretion of discounts, which are recognized in interest income over the
period to maturity.
Loans
Loans are stated at the amount of unpaid principal, reduced by deferred loan
fees and an allowance for loan losses. Interest on loans is accrued daily
based on the principal amount outstanding.
Generally the accrual of interest on loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due or when they are past due 90 days as to either principal or
interest. When interest accrual is discontinued, all unpaid accrued interest
is reversed against current income. If management determines that the
ultimate collectibility of principal is in doubt, cash receipts on nonaccrual
loans are applied to reduce the principal income.
The Bank's policy is to defer loan origination and commitment fees, and
certain direct loan origination costs are deferred and amortized as an
adjustment of the yield of the related loan.
(continued)
D-16
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -----------------------------------------------------------------------------
Note 1 - Significant Accounting Policies (continued)
Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered adequate to
provide for losses that can be reasonably anticipated. The allowance is
increased by provisions charged to operations and reduced by loans charged
off, net of recoveries. The allowance is based on management's periodic
evaluation of potential losses in the loan portfolio after consideration of
historical loss experience, adverse situations that may affect the borrowers'
ability to repay, the estimated value of any underlying collateral, economic
conditions, the results of examination of individual loans, the evaluation of
the overall portfolio by senior credit personnel and federal and state
regulatory agencies, and other risks inherent in the portfolio. This
evaluation requires the use of current estimates, which may vary from the
ultimate collectibility experienced in the future. The estimates used are
reviewed periodically, and, as adjustments become necessary, they are charged
to operations in the period in which they become known.
When management determines that it is possible that a borrower will be unable
to repay all amounts due according to the terms of the loan agreement,
including scheduled interest payments, the loan is considered impaired. The
amount of impairment is measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate, or when the
primary source of repayment is provided by real estate collateral, at the fair
value of the collateral less estimated selling costs. The amount of
impairment and any subsequent charges are recorded through the provision for
loan losses as an adjustment to the allowance for loan losses.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation, which
is computed on a straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the term of the lease or
the estimated useful life of the improvement, whichever is less.
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, foreclosure are to be
sold and are initially recorded at fair value of the properties less estimated
costs of disposal. Any write-down to fair value at the time of transfer to
foreclosed real estate is charged to the allowance for loan losses.
Properties are evaluated regularly to ensure that the recorded amounts are
supported by their current fair values, and that valuation allowances to
reduce the carrying amounts to fair value less estimated costs to dispose are
recorded as necessary. Additions to or reductions from valuation allowances
are recorded in income.
Income Taxes
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets 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. The Bank provides for income taxes on a
separate return basis.
Cash Equivalents
The Company considers all amounts included in the balance sheets caption "Cash
and due from banks" to be cash equivalents.
(continued)
D-17
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- -----------------------------------------------------------------------------
Note 1 - Significant Accounting Policies (concluded)
Stock-Based Compensation
The Company accounts for stock-based awards to employees using the intrinsic
value method, in accordance with APB No. 25, Accounting for Stock Issued to
Employees. Accordingly, no compensation expense has been recognized in the
financial statements for employee stock arrangements. However, the required
pro forma disclosures have been provided in accordance with SFAS No. 123,
Accounting for Stock-Based Compensation.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128),
which the Company adopted in the fourth quarter of 1997. SFAS No. 128
replaces current earnings per share requirements and requires a dual
presentation of basic and diluted earnings per share. Basic earnings per
share excludes dilution and is computed by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share
reflect the potential dilution that could occur if common shares were issued
pursuant to the exercise of options under the Company's stock option plans.
Earnings per share for 1997 and 1996 have been restated to conform to the
presentation required by SFAS No. 128.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statements of
Accounting Standards Nos. 130 and 131, both of which are effective for years
beginning after December 31, 1997. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. All items that are required to be
recognized under accounting standards as components of comprehensive income
will have to be reported in a financial statement that is displayed with the
same prominence as other financial statements. Also, the accumulated balance
of other comprehensive income will have to be displayed separately from
retained earnings and additional paid-in capital in the equity section of the
balance sheet. SFAS No. 131 requires that public enterprises report financial
and descriptive information about its reportable operating segments. Both of
these pronouncements provide additional disclosures about the Company's
operations and are not anticipated to have any effect of financial position or
results of operations.
Note 2 - Restricted Assets
Federal Reserve Board regulations require that the Bank subsidiary maintain
certain minimum reserve balances on deposit with the Federal Reserve Bank.
The amounts of such balances for the years ended December 31, 1997 and 1996
were approximately $373,000 and $352,000, respectively.
(continued)
D-18
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
Note 3 - Securities
Securities have been classified according to management's intent. The
carrying amount of securities and their approximate fair values were as
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
Securities Available
for Sale
December 31, 1997
U.S. Government
and agency securities:
Agency securities $ 7,661,762 $14,976 $(1,541) $ 7,675,197
Mortgage backed
securities 4,644,720 17,816 (1,248) 4,661,288
Total $12,306,482 $32,792 $(2,789) $12,336,485
December 31, 1996
U.S. Government
and agency securities $ 8,092,399 $36,300 $(8,144) $ 8,120,555
Securities Held to Maturity
December 31, 1997
State and
municipal securities $ 753,692 $22,693 $ -- $ 776,385
December 31, 1996
State and
municipal securities $ 755,177 $14,653 $(4,525) $ 765,305
The scheduled maturities of securities held to maturity and available for sale
at December 31, 1997 are as follows:
Held to Maturity Available for Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
Due in one year or less $ -- $ -- $1,599,719 $1,598,183
Due from one year
to five years 753,692 776,385 4,452,873 4,469,168
Due from five to ten years -- -- 2,012,043 2,015,625
Due after ten years -- -- 4,241,847 4,253,509
Total $753,692 $776,385 $12,306,482 $12,336,485
Gross realized gains on sales of securities available for sale were $28,454
and $18,774 in 1997 and 1996, respectively. There were no gross unrealized
losses on sales of securities available for sale in 1997. Gross unrealized
losses on sales of securities available for sale totaled $5,894 in 1996.
Securities, carried at approximately $500,240 at December 31, 1997 and
$503,154 at December 31, 1996, were pledged to secure public deposits and for
other purposes required or permitted by law.
(continued)
D-19
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
- ------------------------------------------------------------------------------
Note 4 - Loans
Loans at December 31 consist
of the following:
1997 1996
Commercial $31,779,501 $26,458,845
Real estate construction 7,779,133 5,991,419
Real estate mortgage 20,184,789 13,177,607
Consumer 5,913,515 9,477,721
65,656,938 55,105,592
Less unearned income and deferred fees (310,362) (332,583)
Total loans $65,346,576 $54,773,009
Changes in the allowance for loan losses for the years ended December 31 are
as follows:
1997 1996
Balance at beginning of year $ 1,058,117 $ 1,227,676
Provision for credit losses 180,000 783,658
Charge-offs (416,364) (1,023,357)
Recoveries 173,271 70,140
Net charge-offs (243,093) (953,217)
Balance at end of year $ 995,024 $ 1,058,117
Nonaccrual loans totaled $1,466,000 and $478,000 at December 31, 1997 and
1996, respectively. At December 31, 1997 and 1996 the Company had $2,046,167
and $1,834,612, respectively, in loans considered impaired. At December 31,
1997 and 1996, specific allocations of $148,354 and $257,158, respectively, of
the allowance for loan losses were made for $740,519 and $411,323 of these
impaired loans. No allocation of the allowance for loan losses was considered
necessary for the remaining impaired loans. The average recorded investment
in impaired loans during the years ended December 31, 1997 and 1996 was
$1,067,973 and $1,335,570, respectively. Interest income recognized on
impaired loans, which was collected in cash, totaled $146,782 in 1997 and
$58,785 in 1996.
At December 31, 1996, there were no commitments to lend additional funds to
borrowers whose loans have been modified. Loans 90 days and over past due
still accruing interest were $1,000 and $806,000 at December 31, 1997 and
1996, respectively.
Maturity and repricing for the Bank's loan portfolio at December 31, 1997
are as follows:
0 - 90 days $30,062,000
91 - 365 days 15,915,000
1 year or more 19,369,576
$65,346,576
Certain related parties of the Bank, principally Bank Directors and their
associates, were loan customers of the Bank in the ordinary course of business
during 1997 and 1996. Total loans outstanding at December 31, 1997 and 1996
to key officers and Directors were $495,993 and $202,015, respectively.
During 1997, loan advances totaled $297,000 and loan repayments totaled $3,022
on these loans.
(continued)
D-20
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Notes to Financial Statements
December 31, 1997 and 1996
- -----------------------------------------------------------------------------
Note 5 - Premises and Equipment
The components of premises and equipment at December 31 are as follows:
1997 1996
Land $ 616,042 $ 616,042
Buildings 1,362,595 1,362,595
Leasehold improvements 631,268 554,938
Furniture and fixtures 2,530,439 2,148,392
Construction in progress 18,805 --
Total cost 5,159,149 4,681,967
Less accumulated depreciation
and amortization (2,026,072) (1,604,057)
Total premises and equipment $ 3,133,077 $ 3,077,910
The Bank leases its branch office in Blaine, Washington from the majority
stockholder of the Company. The lease term is for ten years, expiring in
2001, with an option to renew for three periods of ten years. The Bank is
responsible for an allocable share of utilities, common area maintenance,
taxes and insurance.
Total lease expense for the years ended December 31, 1997 and 1996 was
$129,953 and $122,378, respectively. Amounts paid to the majority stockholder
were $48,020 in 1997 and $42,560 in 1996.
Future minimum payments under operating leases with original terms in excess
of one year are as follows:
1998 $ 215,960
1999 215,960
2000 210,470
2001 174,257
2002 135,840
Total $ 952,487
Certain leases contain renewal options from five to ten years and escalation
clauses based on increases in property taxes and other costs.
Note 6 - Deposits
The aggregate amount of certificates of deposit and brokered deposits, with
balances in excess of $100,000, was approximately $9,918,000 and $9,123,651 at
December 31, 1997 and 1996, respectively.
At December 31, 1997, the scheduled maturities of certificates of deposit are
as follows:
1998 $24,001,256
1999 5,178,847
2000 1,622,812
(continued)
D-21
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Notes to Financial Statements
December 31, 1997 and 1996
- -----------------------------------------------------------------------------
Note 7 - Short-term Borrowings
Short-term borrowings include a cash management advance line with Federal Home
Loan Bank with a balance $628,000 at December 31, 1997, due December 8, 1998
with interest at 6.825%. The total available credit on this line is
$8,503,500.
Note 8 - Long-Term Borrowings
Long-term borrowings at December 31, 1997 represent advances from the Federal
Home Loan Bank bearing interest at 6.08% to 6.23% and maturing as follows:
1998 $2,000,000
1999 1,000,000
2000 1,700,000
2001 1,000,000
The Bank has pledged securities and loans as collateral for these borrowings.
Note 9 Benefit Plans
Employee Stock Ownership Plan Effective January 1, 1994, the Company
established an employee stock ownership plan with 401(k) provisions (the
"Plan"). The Plan covers substantially all employees who have attained the
age of twenty-one and completed ninety days of service in a Plan year.
The Plan has a note payable to a regional bank with interest payable monthly
at prime (8.50% and 9.5% at December 31, 1997 and 1996), due in December 2001.
Employer contributions to the Plan are determined annually by the Company's
Board of Directors and are generally equal to the amount of principal and
interest due on the note. Participants' accrued benefit derived from employer
contributions vest at the rate of 33 percent per year, and are fully vested
after three years. Employer contributions totaled $27,805 and $29,045 in 1997
and 1996, respectively.
Defined Contribution Plan In 1997 the Company adopted a 401(k) covering
substantially all employees of the Bank subsidiary who meet eligibility
requirements set forth in the Plan. Contributions to the 401(k) profit
sharing plan consist of matching contributions, which match 25% of employee
contributions (up to a maximum of 6% of employee salaries). Additional
discretionary employer contributions may be made annually as determined by the
Company's Board of Directors. Contributions to the Plan in 1997 were $16,216.
Executive Bonus and Deferred Compensation Plan In 1997 the Bank adopted an
executive bonus and deferred compensation plan covering executive employees.
In 1997 those goals were not achieved and no bonuses were paid. In addition,
executive employees will receive profit sharing bonuses based on pre-tax
income formulas. No profit sharing bonuses were paid in 1997.
(continued)
D-22
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Notes to Financial Statements
December 31, 1997 and 1996
- -----------------------------------------------------------------------------
Note 10 - Income Taxes
Income taxes are comprised of the following for the years ended December 31:
1997 1996
Current $ (55,332) $ (48,000)
Deferred tax (benefit) 291,832 28,000
Total income taxes $ 236,500 $ (20,000)
The tax effect of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31 are:
1997 1996
Deferred Tax Assets
Allowance for credit losses $ 174,691 $ 218,134
Net operating loss carryforward 67,079 297,693
Alternative minimum tax credits 57,467 33,821
Other -- 7,976
Total deferred tax assets 299,237 557,624
Deferred Tax Liabilities
Accumulated depreciation 102,486 116,601
Stock dividends 111,216 83,912
Deferred income loan fees 147,116 107,970
Cash basis reporting 19,936 27,314
Excess servicing rights 17,452 28,964
Unrealized gain on securities
available for sale 10,201 9,573
Total deferred tax liabilities 408,407 374,334
Net deferred tax assets (liabilities) $(109,170) $ 183,290
The Bank has net operating losses available to offset future federal tax
liabilities. The change in control which resulted from the sale of a large
block of stock to a single investor in 1990 established certain limitations on
the availability of a certain portion of those losses. The Bank estimates
that all of the net operating losses will be used in the normal course of
business.
A schedule of net operating loss carryforwards with their expiration dates is
as follows:
Year of Expiration Loss Carryforward
2003 $ 118,791
2004 52,000
2005 20,500
2007 6,000
$ 197,291
(continued)
D-23
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Notes to Financial Statements
December 31, 1997 and 1996
- -----------------------------------------------------------------------------
Note 11 - Commitments and Contingencies
The Company 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.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument 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 the Company's commitments at December 31 is as follows:
1997 1996
Commitments to extend credit:
Real estate secured $5,467,000 $5,482,000
Credit card lines 1,105,000 734,000
Other 2,652,000 2,165,000
Total commitments to extended credit $9,224,000 $8,381,000
Standby letters of credit $ 231,000 $ 97,000
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. Since
many of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Company's experience has been that approximately 85% of
loan commitments are drawn upon by customers. The Company evaluates each
customer's creditworthiness on a case-by- case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the party. Collateral
held varies, but may include accounts receivable, inventory, property and
equipment, residential real estate, and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by the Company 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
varies as specified above, and is required in instances where the Company
deems necessary.
The Company has agreements with commercial banks for lines of credit totaling
$2,200,000, none of which was used at December 31, 1997, and a credit line
with the Federal Home Loan Bank totaling 20% of total assets, $5,700,000 of
which was used at December 31, 1997.
Employment Agreements The Bank subsidiary has employment agreements with
four employees which are for a term of three years with the option to renew
for successive one year periods. These agreements provide for severance
payments upon termination which vary depending on the length of employment.
Other Commitments The Company has a long-term data processing services
contract which expires in June 2000. The annual data processing expense is
dependent in part on the volume of transactions processed on behalf of the
Company. Costs associated with data processing contracts amounted to $342,343
and $355,159 for the years ended December 31, 1997 and 1996, respectively.
Because of the nature of its activities, the Company is subject to various
pending and threatened legal actions which arise in the ordinary course of
business. In the opinion of management, liabilities arising from these
claims, if any, will not have a material effect on the financial position of
the Company.
(continued)
D-24
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Notes to Financial Statements
December 31, 1997 and 1996
- -----------------------------------------------------------------------------
Note 12 - Significant Concentrations of Credit Risk
Most of the Company's business activity is with customers located in the State
of Washington. Investments in state and municipal securities involve
governmental entities primarily within the State. Standby letters of credit
were granted primarily to commercial borrowers.
Note 13 Loan Servicing
Loans serviced for others are not included on the accompanying consolidated
balance sheets. The unpaid principal balances of these loans are summarized
at December 31 as follows:
1997 1996
Mortgage loans sold to FHLMC $12,960,704 $ 3,664,950
SBA loans 3,825,806 6,311,287
Capitalized mortgage servicing rights:
Beginning balance $ 29,125 $ --
Additions for new loans 122,477 30,552
Amortization (12,385) (1,427)
Mortgage servicing rights $ 139,217 $ 29,125
There was no valuation allowance for impairment of mortgage servicing rights
required at December 31, 1997 or 1996.
Note 14 - Stock Options
The Company may award options for a maximum of 120,000 shares of common stock
to certain officers, employees and to nonemployee directors under two 1991
Stock Option Plans ("Plans"). The Plans are intended to provide for the
granting of both incentive and nonincentive stock options. Options are
generally granted at the then fair market valueand vest evenly over three to
six years. Options are excersizable from six months to ten years from date of
grant, subject to certain limitations, and expire after ten years.
Pro forma information regarding net income is required by Statement of
Financial Accounting Standards No. 123 Accounting for Stock-Based
Compensation. The pro forma information recognizes, as compensation, the
value of stock options granted using an option valuation model known as the
Black Scholes model. The fair value for options issued in 1997 is estimated
at $13,558. The fair value of options issued in 1996 is estimated at $20,856.
The following assumptions were used to estimate the fair value of the options:
1997 1996
Risk-free interest rate 5.80% 6.12%
Dividend yield rate 0.00% 0.00%
Price volatility 0.00% 0.00%
Weighted average expected life of options 3 years 5 years
(continued)
D-25
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Notes to Financial Statements
December 31, 1997 and 1996
- -----------------------------------------------------------------------------
Note 14 - Stock Options (concluded)
Management believes that the assumptions used in the option pricing model are
highly subjective and represent only one estimate of possible value, as there
is no active market for the options granted. The fair value of the options
granted in 1997 and 1996 will be allocated to pro forma earnings over the
vesting period of the options. Accordingly, until the provisions for SFAS 123
are recognized for all years for which options have been granted, pro forma
earnings will likely reflect an increasing amount of compensation expense
resulting from the stock options.
1997 1996
Net income (loss):
As reported $495,363 $(40,361)
Pro forma (20,947) (20,136)
$474,416 $(60,497)
Earnings (loss) per share:
Basic:
As reported $ .78 $ (.06)
Pro forma .74 (.09)
Diluted:
As reported .76 (.06)
Pro forma .72 (.09)
A summary of the status of the Company's stock option plan as of December 31,
1997 and 1996, and changes during the years ending on those dates, is
presented below:
1997 1996
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
Outstanding at
beginning of year 69,200 $7.93 66,700 $7.30
Granted 9,684 1.00 14,500 8.87
Exercised (300) 6.83 (2,300) 6.48
Forfeited -- -- (9,700) 7.76
Outstanding at end of year 78,584 $7.33 69,200 $7.93
The following summarizes information about stock options outstanding and
exercisable at December 31, 1997:
Weighted
Average Weighted Weighted
Range of Remaining Average Weighted Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
$1.00 9,684 9.0 years $1.00 -- $1.00
6.38-6.77 26,400 5.0 years 6.44 15,732 6.43
8.87 42,500 7.8 years 8.87 14,414 8.87
(continued)
D-26
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Notes to Financial Statements
December 31, 1997 and 1996
- -----------------------------------------------------------------------------
Note 15 - Regulatory Matters
The Company 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 Company's consolidated financial statements. Under capital adequacy
guidelines on the regulatory framework for prompt corrective action, the
Company must meet specific capital adequacy guidelines that involve
quantitative measures of the Company's consolidated assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Company'sconsolidated capital classification is also subject
to qualitative judgments by the regulators about components, risk weightings
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of Tier 1 capital (as defined in the regulations) to total
average assets (as defined), and minimum ratios of Tier 1 and total capital
(as defined) to risk-weighted assets (as defined). Under the regulatory
framework for prompt corrective action, the Bank must maintain minimum Tier 1
leverage, Tier 1 risk-based, and total risk-based ratios as set forth in the
table.
As of December 31, 1997, the most recent notification from the Bank's
regulator 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 1
risk-based, and Tier 1 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.
Actual capital amounts and ratios are also presented in the table. Management
believes, as of December 31, 1997, that the Bank meets all capital
requirements to which it is subject.
To be Well
Capitalized
Under Prompt
Capital Corrective
Adequacy Action
Actual Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
December 31, 1997
Tier 1 capital
(to average
assets)
Consolidated $5,766,047 6.627% $3,480,305 4.000% N/A N/A
Bank 5,697,557 6.588% 3,480,305 4.000% $4,350,381 5.000%
Tier 1 capital
(to risk-
weighted
assets)
Consolidated 5,766,047 9.760% 2,363,216 4.000% N/A N/A
Bank 5,697,557 9.644% 2,363,216 4.000% 3,544,824 6.000%
Total capital
(to risk
-weighted
assets)
Consolidated 6,507,719 11.015% 4,726,432 8.000% N/A N/A
Bank 6,439,229 10.899% 4,726,432 8.000% 5,908,040 10.000%
(continued)
D-27
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Notes to Financial Statements
December 31, 1997 and 1996
- -----------------------------------------------------------------------------
Note 15 - Regulatory Matters (concluded)
To be Well
Capitalized
Under Prompt
Capital Corrective
Adequacy Action
Actual Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
December 31, 1996
Tier 1 capital
(to average
assets)
Consolidated $5,274,300 7.298% $2,891,015 4.000% N/A N/A
Bank 5,124,325 7.090% 2,891,015 4.000% $3,613,769 5.000%
Tier 1 capital
(to risk-
weighted
assets)
Consolidated 5,274,300 9.510% 2,218,323 4.000% N/A N/A
Bank 5,124,325 9.240% 2,218,323 4.000% 3,327,483 6.000%
Total capital
(to risk
-weighted
assets)
Consolidated 5,972,021 10.768% 4,436,518 8.000% N/A N/A
Bank 5,822,046 10.498% 4,436,518 8.000% 5,545,862 10.000%
Certain provisions of Washington State Law can limit cash dividend payments to
the Company from the Bank without prior regulatory approval. At December 31,
1997, the Bank was not subject to any such restrictions.
Under federal regulations, the Bank is limited, unless previously approved, as
to the amount it may loan to the Company and any one affiliate to 10 percent
of its capital stock and surplus, and the combined total of loans to the
Company and affiliates must not exceed 20 percent of capital and surplus.
Further, all loans must be fully collateralized.
Note 16 - Earnings Per Share Disclosures
Following is information regarding the calculation of basic and diluted
earnings per share for the years indicated.
Net
Income Shares Per Share
(Numerator) (Denominator) Amount
Year Ended December 31, 1997
Basic earnings per share:
Net income $495,363 637,401 $.78
Effect of dilutive securities:
Options -- 17,931
Diluted earnings per share:
Net income $495,363 655,332 $.76
Year Ended December 31, 1996
Basic earnings per share:
Net loss $ (40,361) 637,306 $(.06)
Effect of dilutive securities:
Options -- 7,333
Diluted earnings per share:
Net loss $ (40,361) 644,639 $(.06)
(continued)
D-28
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Notes to Financial Statements
December 31, 1997 and 1996
- -----------------------------------------------------------------------------
Note 16 Earnings Per Share Disclosures (concluded)
The number of shares shown above for "options" is the number of incremental
shares that would result from exercise of options and use of the proceeds to
repurchase shares at the average market price during the year.
Note 17 Parent Company (Only) Financial Information
Condensed balance sheets at December 31:
1997 1996
Assets
Cash $ 64,490 $ 80,571
Federal income tax receivable 4,000 --
Investment in bank 5,718,359 5,212,313
Due from bank subsidiary -- --
Total assets $ 5,786,849 $ 5,292,884
Liabilities and shareholders' equity
Long-term debt $ 74,790 $ 93,580
Shareholders' equity 5,712,059 5,199,304
Total liabilities and shareholders' equity $ 5,786,849 $ 5,292,884
Condensed statements of operations for the years ended December 31:
1997 1996
Dividend from Bank subsidiary $ -- $ --
Other income 90 115
Other expenses 12,554 1,165
Gain (loss) before income taxes
and equity in undistributed
income (loss) of subsidiary (12,464) (1,050)
Income tax benefit 4,000 --
Equity in undistributed income
(loss) of subsidiary 503,827 (39,311)
Net income (loss) $ 495,363 $ (40,361)
Condensed statements of cash flows for the years ended December 31:
1997 1996
Operating Activities
Net income (loss) $ 495,363 $ (40,361)
Adjustments to reconcile net loss
to net cash flow provided
by (used in) operating activities
Equity in undistributed
(income) loss of subsidiary (503,827) 39,311
Other operating activities (4,000) 68,055
Net cash flows provided by
(used in) operating activities (12,646) 67,005
Financing Activities
Proceeds from sale of common stock 1,914 1,652
Purchase of common stock (5,530) --
Net cash flows provided by
(used in) financing activities (3,616) 1,652
Cash, beginning of year 80,571 11,914
Cash, end of year $ 64,490 $ 80,571
D-29
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Consolidated Balance Sheets
- -----------------------------------------------------------------------------
June 30, December 31,
1998 1997
----------- -------------
(unaudited)
Assets
Cash and due from banks $ 3,102,891 $ 3,303,079
Interest bearing deposits in banks 1,116,302 98,174
Securities available for sale 10,937,408 12,336,485
Securities held to maturity 982,950 753,692
Federal Home Loan Bank stock 1,150,700 1,107,800
Loans 70,711,759 65,346,576
Allowance for loan losses (1,044,765) (995,024)
Net loans 69,666,994 64,351,552
Premises and equipment 2,806,650 3,133,078
Foreclosed real estate 109,599 189,599
Interest receivable 521,510 593,473
Other assets 632,487 534,643
Total assets $91,027,491 $86,401,575
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Demand $11,746,283 $10,443,131
Savings and interest-bearing demand 35,610,465 32,617,323
Time 30,595,605 30,802,915
Total deposits 77,952,353 73,863,369
Interest payable 86,904 69,341
Short-term borrowings -- 628,000
Long-term borrowings 6,400,000 5,700,000
Other liabilities 798,271 429,806
Total liabilities 85,237,528 80,690,516
Shareholders' Equity
Common stock (par value: $1);
authorized 2,000,000 shares;
issued: 1998 - 638,209 shares;
1997 - 637,209 shares 638,209 637,209
Surplus 3,865,035 3,857,165
ESOP loan guarantee (74,790) (74,790)
Retained earnings 1,358,127 1,271,673
Cumulative other comprehensive income 3,382 19,802
Total shareholders' equity 5,789,963 5,711,059
Total liabilities and shareholders'
equity $91,027,491 $86,401,575
See notes to consolidated financial statements.
D-30
<PAGE>
Whatcom State Bancorp and Subsidiary
Consolidated Statements of Income
Six Months Ended June 30,
1998 1997
---------- ---------
(unaudited)
Interest Income
Loans $3,346,794 $2,904,790
Deposits in banks and Federal Home Loan Bank 113,485 148,007
stock dividends
Securities available for sale 343,492 352,740
Securities held to maturity 18,952 18,322
Total interest income 3,822,723 3,423,859
Interest Expense
Deposits 1,499,230 1,233,804
Brokered deposits 50,165 144,917
Federal Home Loan Bank 188,480 163,614
Total interest expense 1,737,875 1,542,335
Net interest income 2,084,848 1,881,524
Provision for Loan Losses 90,000 90,000
Net interest income after provision for
loan losses 1,994,848 1,791,524
Noninterest Income
Service charges on deposit accounts 222,612 245,033
Fees on real estate loans sold 341,056 108,934
Loan servicing income 74,783 62,412
Net gains from sales of loans 40,553 --
Net gains on sales of securities available
for sale 8,437 25,682
Foreign currency exchange 32,243 30,155
Gain on sale of bank premises 193,006 --
Other 57,416 52,931
Total noninterest income 970,106 525,147
Noninterest Expense
Salaries 1,428,743 760,757
Employee benefits 210,798 187,172
Occupancy 461,996 372,918
Other 745,463 710,278
Total noninterest expense 2,847,000 2,031,125
Income before income taxes 117,954 285,546
Income Tax Provision (31,500) (90,900)
Net income $ 86,454 $ 194,646
Net Income Per Share Data
Basic earnings per common share $ .14 $ .31
Diluted earnings per common share .13 .30
See notes to consolidated financial statements.
D-31
<PAGE>
<TABLE>
Whatcom State Bancorp and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
- ------------------------------------------------------------------------------
Six Months Ended June 30, 1998 (Unaudited)
Accumulated
ESOP Other
Common Retained Loan Comprehensive
Stock Surplus Earnings Guarantee Income Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $637,209 $3,857,165 $1,271,673 $(74,790) $ 19,802 $5,711,059
Net income -- -- 86,454 -- -- 86,454
New stock issued 1,000 7,870 -- -- -- 8,870
Unrealized gain on securities,
net of tax -- -- -- -- (16,420) (16,420)
Balance, June 30, 1998 $638,209 $3,865,035 $1,358,127 $(74,790) $ 3,382 $5,789,963
See notes to consolidated financial statements.
</TABLE>
D-32
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Consolidated Statements of Cash Flows
- ------------------------------------------------------------------------------
Six Months Ended June 30,
1998 1997
---------- ----------
(unaudited)
Operating Activities
Net income $ 86,454 $ 194,646
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 90,000 90,000
Depreciation and amortization 259,309 226,797
Investment amortization - net 43,227 (21,695)
Write down of foreclosed assets 80,000 --
Gain on sale of loans 40,553 --
Loss on sale of premises (193,006) --
Gain on sale of securities (8,437) (25,682)
Stock dividends received (42,900) (37,800)
Decrease in interest receivable and other
assets 7,578 81,277
Increase in interest payable and other
liabilities 386,028 285,090
Net cash provided by operating activities 748,806 792,633
Investing Activities
Proceeds from sales of and payments from
securities available for sale 7,340,150 5,025,682
Purchases of securities available for sale (6,000,000) (10,140,890)
Purchases of securities held to maturity (230,000) --
Net (increase) decrease in interest bearing
deposits in banks (1,018,128) 1,456,000
Increase in loans made to customers,
net of principal collections (5,445,995) (5,480,506)
Purchases of premises and equipment (439,875) (39,380)
Proceeds from sale of premises and equipment 675,000 175,836
Additions to other real estate owned -- (140,945)
Net cash used in investing activities (5,118,848) (12,056,203)
Financing Activities
Net increase in deposit accounts 4,088,984 10,527,265
Payment of short-term borrowings (628,000) --
Increase in long-term borrowings 700,000 700,000
Purchase of common stock -- (3,160)
Sale of common stock 8,870 1,914
Net cash provided by financing activities 4,169,854 11,226,019
Net decrease in cash and due from banks (200,188) (37,551)
Cash and Due from Banks, beginning of period 3,303,079 3,999,812
Cash and Due from Banks, end of period $ 3,102,891 $ 3,962,261
Supplemental Disclosures of Cash Flow Information
Interest paid $ 1,720,312 $ 1,534,895
Income taxes paid 70,000 20,000
Supplemental Disclosures of Non-Cash Investing
Activities
Fair value adjustment of assets available
for sale $ (24,879) $ 51,403
Income tax effect related to fair value
adjustment 8,459 (17,477)
Transfer of loans to foreclosed real estate -- 242,417
See notes to consolidated financial statements.
D-33
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Notes to Consolidated Financial Statements
June 30, 1998 and 1997
- ------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
practices for interim financial information within the banking industry.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. For
additional information refer to the consolidated financial statements and
footnotes thereto included in Whatcom State Bancorp's annual report for the
year ended December 31, 1997.
2. FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of Whatcom State
Bancorp and Whatcom State Bank the Company. All significant inter-company
balances and transactions have been eliminated in consolidation.
The preparation of 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.
3. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128),
which the Company adopted in the fourth quarter of 1997. SFAS No. 128
replaces current earnings per share requirements and requires a dual
presentation of basic and diluted earnings per share. Basic earnings per
share excludes dilution and is computed by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share
reflect the potential dilution that could occur if common shares were issued
pursuant to the exercise of options under the Company's stock option plans.
Following is information regarding the calculation of basic and diluted
earnings per share for the six months ended as indicated:
Net
Income Shares Per Share
(Numerator) (Denominator) Amount
Six Months Ended June 30, 1998
Basic earnings per share:
Net income $ 86,454 637,709 $ .14
Effect of dilutive securities:
Options -- 35,935
Diluted earnings per share:
Net income $ 86,454 673,644 $ .13
Six Months Ended June 30, 1997
Basic earnings per share:
Net loss $194,646 637,460 $ .31
Effect of dilutive securities:
Options -- 16,206
Diluted earnings per share:
Net loss $194,646 653,666 $ .30
(continued)
D-34
<PAGE>
<PAGE>
Whatcom State Bancorp and Subsidiary
Notes to Consolidated Financial Statements
June 30, 1998 and 1997
- ------------------------------------------------------------------------------
4. ACCOUNTING CHANGES
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income, as of the first quarter of 1998. SFAS
No. 130 establishes standards for reporting and displaying comprehensive
income and its components in the financial statements. With regard to the
Company, currently the only items of comprehensive income are changes in the
fair value of its available-for- sale securities. Cumulative other
comprehensive income is displayed separately in the equity section of the
balance sheet and the consolidated statements of changes in shareholders'
equity.
5. ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective for fiscal years beginning after
June 15, 1999. The new standard requires that all companies record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivatives and
whether it qualifies for hedge accounting. Management is currently assessing
the impact of SFAS No. 133 on the financial statements of the Company.
6. INCENTIVE COMPENSATION
Pursuant to the Company's executive bonus and deferred compensation plan,
executive bonuses totaling $419,645 were included in operations for the six
months ended June 30, 1998. No bonuses were paid for the six months ended
June 30, 1997.
7. PENDING MERGER
On June 15, 1998, the Company and its subsidiary bank entered into an
agreement and plan of merger with First Washington Bancorp, Inc., Walla Walla,
Washington, and its subsidiary, First Savings Bank of Washington, pursuant to
which the Company will be merged into First Washington Bancorp, Inc. The
merger agreement provides that the Company's common stock will be exchanged
for shares of First Washington Bancorp, Inc. common stock pursuant to a
specified exchange ratio. Consummation of the acquisition is subject to
several conditions, including receipt of applicable regulatory and stockholder
approval.
D-35
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Sections 23B.08.500 through 28B.08.600 of the WBCA contain specific
provisions relating to indemnification of directors and officers of
Washington corporations. In general, the statute provides that (i) a
corporation must indemnify a director or officer who is wholly successful in
his defense of a proceeding to which he is a party because of his status as
such, unless limited by the articles of incorporation, and (ii) a corporation
may indemnify a director or officer if he is not wholly successful in such
defense, if it is determined as provided in the statute that the director
meets a certain standard of conduct, provided when a director is liable to the
corporation, the corporation may not indemnify him. The statute also permits
a director or officer of a corporation who is a party to a proceeding to apply
to the courts for indemnification or advance of expenses, unless the articles
of incorporation provide otherwise, and the court may order indemnification or
advance of expenses under certain circumstances set forth in the statute. The
statute further provides that a corporation may in its articles of
incorporation or bylaws or by resolution provide indemnification in addition
to that provided by the statute, subject to certain conditions set forth in
the statute.
Pursuant to First Washington Bancorp's Articles of Incorporation, First
Washington Bancorp will indemnify the officers, directors, agents and
employees of First Washington Bancorp with respect to expenses, settlements,
judgments and fines in suits in which such person has made a party by reason
of the fact that he or she is or was an agent of First Washington Bancorp. No
such indemnification may be given if the acts or omissions of the person are
adjudged to be in violation of law, if such person is liable to the
corporation for an unlawful distribution, or if such person personally
received a benefit to which he or she was not entitled.
First Washington Bancorp's Articles of Incorporation provide that the
directors of First Washington Bancorp shall not be personally liable for
monetary damages to First Washington Bancorp for certain breaches of their
fiduciary duty as directors, except for liabilities that involve intentional
misconduct by the director, the authorization or illegal distributions or
receipt of an improper personal benefit from their actions as directors.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
Number Description of Document
- ------ -----------------------
2 Agreement and Plan of Merger dated June 15, 1998 by and between
First Savings Bank of Washington Bancorp, Inc., First Savings
Bank of Washington, Whatcom State Bancorp, Inc. and Whatcom
State Bank (incorporated by reference to Appendix A to the
Prospectus/Proxy Statement contained in this Registration
Statement).
5 Opinion of Breyer & Aguggia LLP regarding legality of
securities.
8 Form of opinion of Breyer & Aguggia LLP regarding federal income
tax consequences.
23.1 Consent of Breyer & Aguggia LLP (contained in its opinion filed
as Exhibit 5).
23.2 Consent of Breyer & Aguggia LLP as to its tax opinion.
II-1
<PAGE>
<PAGE>
23.3 Consent of Deloitte & Touche LLP, First Washington Bancorp,
Inc.'s independent auditors.
23.4 Consent of Dodd, Wing & Co., P.C., Whatcom State Bancorp, Inc.'s
independent auditors.
23.5 Consent of Moss Adams LLP, Whatcom State Bancorp, Inc.'s former
independent auditors.
23.6 Consent of Columbia Financial Advisors, Inc.
24 Power of Attorney (contained in the signature page of the
Registration Statement).
99.1 Form of proxy to be mailed to shareholders of Whatcom State
Bancorp, Inc.
(b) Financial Statement Schedules
Not applicable.
(c) Reports, Opinions or Appraisals
1. Opinion of Columbia Financial Advisors, Inc. (incorporated by
reference to Appendix C to the Prospectus/Proxy Statement).
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
II-2
<PAGE>
<PAGE>
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
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-3
<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 September 14, 1998.
FIRST 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 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 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 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 September 14, 1998
- ---------------------- Chief Financial Officer
D. Allan Roth (Principal Financial and
Accounting Officer)
/s/ Wilber Pribilisky Director September 14, 1998
- ----------------------
Wilber Pribilisky
/s/ Robert D. Adams Director September 14, 1998
- ----------------------
Robert D. Adams
/s/ David Casper Director September 14, 1998
- ----------------------
David Casper
/s/ Morris Ganguet Director September 14, 1998
- ----------------------
Morris Ganguet
/s/ Dean W. Mitchell Director September 14, 1998
- ----------------------
Dean W. Mitchell
/s/ R.R. "Pete" Reid Director September 14, 1998
- ----------------------
R. R. "Pete" Reid
/s/ Marvin Sundquist Director September 14, 1998
- ----------------------
Marvin Sundquist
/s/ Jesse G. Foster Director September 14, 1998
- ----------------------
Jesse G. Foster
/s/ S. Rick Meikle Director September 14, 1998
- ----------------------
S. Rick Meikle
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------ -----------------------
2 Agreement and Plan of Merger dated June 15, 1998 by and between
First Savings Bank of Washington Bancorp, Inc., First Savings
Bank of Washington, Whatcom State Bancorp, Inc. and Whatcom
State Bank (incorporated by reference to Appendix A to the
Prospectus/Proxy Statement contained in this Registration
Statement).
5 Opinion of Breyer & Aguggia LLP regarding legality of
securities.
8 Form of opinion of Breyer & Aguggia LLP regarding federal income
tax consequences.
23.1 Consent of Breyer & Aguggia LLP (contained in its opinion filed
as Exhibit 5).
23.2 Consent of Breyer & Aguggia LLP as to its tax opinion.
23.3 Consent of Deloitte & Touche LLP, First Washington Bancorp,
Inc.'s independent auditors.
23.4 Consent of Dodd, Wing & Co., P.C., Whatcom State Bancorp, Inc.'s
independent auditors.
23.5 Consent of Moss Adams LLP, Whatcom State Bancorp, Inc.'s former
independent auditors.
23.6 Consent of Columbia Financial Advisors, Inc.
24 Power of Attorney (contained in the signature page of the
Registration Statement).
99.1 Form of proxy to be mailed to shareholders of Whatcom State
Bancorp, Inc.
<PAGE>
<PAGE>
Exhibit 5
Opinion of Breyer & Aguggia LLP
Regarding Legality of Securities
<PAGE>
<PAGE>
[Letterhead of Breyer & Aguggia]
September 14, 1998
Board of Directors
First Washington Bancorp, Inc.
10 South First Avenue
Walla Walla, Washington 99362
RE: First Washington Bancorp, Inc.
Registration Statement on Form S-4
To the Board of Directors:
You have requested our opinion as special counsel for First Washington
Bancorp, Inc. (the "Corporation"), a Washington 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 LLP
BREYER & AGUGGIA LLP
Washington, D.C.
<PAGE>
<PAGE>
Exhibit 8
Form of Opinion of Breyer & Aguggia LLP
Regarding Federal Income Tax Consequences
<PAGE>
<PAGE>
Form of Federal Tax Opinion
Board of Directors
First Washington Bancorp, Inc.
10 S. First Avenue
Walla Walla, Washington 99362
Board of Directors
Whatcom State Bancorp, Inc.
1600 Cornwall Avenue
Bellingham, Washington 98227
Re: Proposed Merger of Whatcom State Bancorp, Inc. with and
into First 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 Whatcom State Bancorp, Inc., a Washington corporation ("Whatcom"),
with and into First Washington Bancorp, Inc., a Washington corporation
("FWWB"). The proposed Holding Company Merger will be effected pursuant to
the Agreement and Plan of Mergers, dated as of June 15, 1998 (the
"Agreement"), by and among FWWB, First Savings Bank of Washington, Whatcom,
and Whatcom State 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) Whatcom will merge with and into FWWB.
(ii) Each outstanding shares of Whatcom Common Stock will be
converted into the right to receive FWWB Common Stock
with cash being paid in lieu of fractional share
interests.
* * * * *
<PAGE>
<PAGE>
Board of Directors
First Washington Bancorp, Inc.
Whatcom State Bancorp, Inc.
_________, 1998
Page 2
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 on __________, 1998 (the "Registration Statement"), and such other
documents as we have deemed necessary or appropriate as a basis for
ouropinion. In addition, we have relied upon certain representation letters
furnished to us by FWWB and Whatcom. 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 the 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
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. Whatcom 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 Whatcom
shareholder upon the exchange of Whatcom Common
Stock solely for FWWB Common Stock.
(iii)The basis of the FWWB Common Stock received by a
Whatcom shareholder pursuant to the Holding
Company Merger will be the same as the basis of
the Whatcom Common Stock exchanged therefor.
(iv) The holding period of the FWWB Common Stock
received by a Whatcom shareholder pursuant to the
Holding Company Merger will include the holding
period of the Whatcom Common Stock exchanged
<PAGE>
<PAGE>
Boards of Directors
First Washington Bancorp, Inc.
Whatcom State Bancorp. Inc.
_________, 1998
Page 3
therefor; provided the Whatcom Common Stock is held
as a capital asset by the shareholder at the
Effective Time of the Holding Company Merger.
(v) A Whatcom 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 fractional
share would have been a capital asset in the hands
of the shareholder.
* * * * *
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 LLP
<PAGE>
<PAGE>
Exhibit 23.2
Consent of Breyer & Aguggia LLP
as to its Tax Opinion
<PAGE>
<PAGE>
[Letterhead of Breyer & Aguggia LLP]
September 14, 1998
Board of Directors
First Washington Bancorp, Inc.
10 South First Avenue
Walla Walla, Washington 99362
RE: First 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 LLP
BREYER & AGUGGIA LLP
Washington, D.C.
<PAGE>
<PAGE>
Exhibit 23.3
Consent of Deloitte & Touche LLP,
First Washington Bancorp, Inc.'s Independent Auditors
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
First Washington Bancorp, Inc. on Form S-4 of our report dated May 22, 1998,
appearing in the Annual Report on Form 10-K of First Washington Bancorp, Inc.
for the year ended March 31, 1998, and to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
September 14, 1998
<PAGE>
<PAGE>
Exhibit 23.4
Consent of Dodd Wing & Co., P.C.,
Whatcom State Bancorp, Inc.'s Independent Auditors
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Prospectus/Proxy Statement of our report,
dated February 5, 1998, related to the consolidated financials statements of
Whatcom State Bancorp and Subsidiary as of and for the year ended December 31,
1997, and to the reference to our firm under the caption "EXPERTS" in this
Prospectus.
/s/Dodd Wing & Co., P.C.
DODD WING & Co., P.C.
Kirkland, Washington
September 11, 1998
<PAGE>
<PAGE>
Exhibit 23.5
Consent of Moss Adams LLP,
Whatcom State Bancorp, Inc.'s Former Independent Auditors
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT
First Washington Bancorp, Inc.
We consent to the use in this Registration Statement of First Washington
Bancorp, Inc. on Form S-4, of our report on the consolidated balance sheets of
Whatcom State Bancorp and Subsidiary as of December 31, 1996 and 1995 and the
related consolidated statements of operations, changes in stockholders equity
and cash flows for the years then ended, dated January 24, 1997, appearing in
the Prospectus/Proxy Statement which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Moss Adams LLP
Bellingham, Washington
September 10, 1998
<PAGE>
<PAGE>
Exhibit 23.6
Consent of Columbia Financial Advisors, Inc.
<PAGE>
<PAGE>
September 11, 1998
Board of Directors
Whatcom State Bancorp
1600 Cornwall
Bellingham, WA 98226
Members of the Board:
We hereby consent to the reference to our firm in the proxy statement or
prospectus related to the merger transaction and to the inclusion of our
opinion as an exhibit to the proxy statement or prospectus related to the
merger transaction.
Very truly yours,
COLUMBIA FINANCIAL ADVISORS, INC.
/s/ Robert J. Rogowski
Robert J. Rogowski
Principal
<PAGE>
<PAGE>
Exhibit 99.1
Form of Proxy to Be Mailed
to Shareholders of Whatcom State Bancorp, Inc.
<PAGE>
<PAGE>
REVOCABLE PROXY
WHATCOM STATE BANCORP, INC.
SPECIAL MEETING OF SHAREHOLDERS
- ------------------------------------------------------------------------------
, 1998
- ------------------------------------------------------------------------------
The undersigned hereby appoints __________________ with full powers of
substitution, as attorney and proxy for the undersigned, to vote all shares of
common stock of Whatcom State Bancorp, Inc. ("Whatcom") which the undersigned
is entitled to vote at the Special Meeting of Shareholders, to be held at 1600
Cornwall Avenue, Bellingham, Washington 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 Mergers, dated as of June 15, 1998, by and
among First Washington Bancorp, Inc. ("FWWB"),
First Savings Bank of Washington, Whatcom and
Whatcom State Bank pursuant to which Whatcom
would merge into FWWB and each outstanding
share of Whatcom common stock would be converted
into the right to receive 0.7671 shares of FWWB
common stock, all on and subject to the terms
and conditions contained therein.
2. To consider and act upon such other matters
as may properly come before the Special Meeting
or any adjournments thereof.
The Board of Directors recommends a vote "FOR" the above proposal.
Should the undersigned be present and elect to vote at the Special Meeting
or at any adjournment thereof and after notification to the Secretary of
Whatcom 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 Whatcom 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 should sign.
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.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
<PAGE>
