<PAGE>
As filed with the Securities and Exchange Commission on August 19, 1999
Registration No. 333-________
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
INTERWEST BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 6711 91-1691216
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
275 S.E. PIONEER WAY, OAK HARBOR, WASHINGTON 98277 (360) 679-4181
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------
STEPHEN M. WALDEN
President and Chief Executive Officer
275 S.E. Pioneer Way
Oak Harbor, Washington 98277
(360) 679-4181
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
-----------
Copies of communications to:
STEPHEN M. KLEIN, ESQ. DANIEL B. RITTER, ESQ.
WILLIAM E. BARTHOLDT, ESQ. ERIC A. DEJONG, ESQ.
Graham & Dunn P.C. Davis Wright Tremaine LLP
1420 Fifth Avenue, 33rd Floor 1501 Fourth Avenue, Suite 2600
Seattle, Washington 98101 Seattle, Washington 98101
-----------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
The date of mailing of the enclosed Prospectus/Proxy
Statement to stockholders of NBT Bancorp
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==============================================================================================================================
Title of Each Proposed Maximum Proposed Maximum Amount of
Class of Securities Amount Being Offering Price Aggregate Registration
Being Registered Registered(1) Per Share(2)(3) Offering Price(3) Fee(3)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock,
No Par Value 681,608 $7.875 $5,367,695 $1,493
==============================================================================================================================
</TABLE>
(1) Represents the estimated maximum number of shares of InterWest Bancorp,
Inc.'s common stock, no par value ("InterWest Common Stock"), issuable in
exchange for the 774,554 shares of NBT Northwest Bancorp's common stock,
$1.00 par value ("NBT Common Stock"), that are either outstanding or
subject to outstanding options, under the terms of the Agreement and Plan
of Merger described in this Registration Statement.
(2) Represents the maximum price per share of InterWest Common Stock issuable
in exchange for NBT Common Stock, based on the merger exchange ratio.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2) under the Securities Act of 1933, as amended
("1933 Act"), on the basis of the per-share book value of the NBT Common
Stock as of June 30, 1999.
---------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT FILES A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE 1933 ACT, OR UNTIL THIS REGISTRATION STATEMENT BECOMES
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
[ON LETTERHEAD OF NBT NORTHWEST BANCORP]
August ___, 1999
Dear Fellow Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of NBT Northwest Bancorp ("NBT"), a Washington corporation and the bank holding
company for National Bank of Tukwila ("Tukwila Bank"). The Special Meeting will
be held on September 28, 1999, at 7:00 p.m. local time, at Doubletree Suites
Hotel, 16500 Southcenter Parkway, Tukwila, Washington.
The attached Notice of Special Meeting and Proxy Statement/Prospectus
describe the formal business to be transacted at the Special Meeting. At the
Special Meeting, you will be asked to consider and vote upon a proposal to
approve the Agreement and Plan of Merger, dated as of June 11, 1999, between NBT
and InterWest Bancorp, Inc. ("InterWest"), a Washington corporation and bank
holding company. The complete text of the merger agreement appears as Appendix A
to the Proxy Statement/Prospectus. The merger agreement provides for the merger
of NBT with and into InterWest, with InterWest as the surviving corporation.
Consequently, NBT's shareholders will become shareholders of InterWest, and
Tukwila Bank will become a separate subsidiary of InterWest.
The merger is subject to various conditions described in the merger
agreement and summarized in the attached Proxy Statement/Prospectus, which
also serves as InterWest's Prospectus for its common stock ("InterWest Common
Stock") to be issued in the Merger. If the Merger is completed, NBT
shareholders will receive shares of InterWest common stock in exchange for
their shares of NBT common stock based on an exchange formula detailed in the
Proxy Statement/Prospectus.
THE BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF NBT AND ITS SHAREHOLDERS, AND HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
MERGER.
Approval of the merger requires the affirmative vote of the holders of
two-thirds of the outstanding shares of NBT Common Stock. We urge you to review
the attached Proxy Statement/Prospectus and to consider your vote carefully. If
you have any questions regarding this material in advance of the Special
Meeting, please call Mike Fotheringill, NBT's President, at (253) 395-9199.
IT IS VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL
MEETING, REGARDLESS OF THE SIZE OF YOUR HOLDINGS, AND WHETHER OR NOT YOU PLAN TO
ATTEND THE SPECIAL MEETING IN PERSON. A FAILURE TO VOTE, EITHER BY NOT RETURNING
THE ENCLOSED PROXY OR BY CHECKING THE "ABSTAIN" BOX ON THE PROXY, 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 FORM IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. IF YOU DO ATTEND, YOU
MAY (IF YOU WISH), REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON AT THE
SPECIAL MEETING.
On behalf of your Board of Directors, we recommend that you vote FOR
approval of the merger agreement.
Very truly yours,
Michael H. Fotheringill Mark Milkovich
President Chairman of the Board
PLEASE COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED PROXY FORM
<PAGE>
NBT NORTHWEST BANCORP
505 INDUSTRY DRIVE
P. O. BOX 58690
TUKWILA, WASHINGTON 98138
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 28, 1999
TO THE SHAREHOLDERS OF NBT NORTHWEST BANCORP:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of NBT
Northwest Bancorp ("NBT"), a Washington corporation and bank holding company,
will be held on September 28, 1999, at 7:00 p.m. local time, at Doubletree
Suites Hotel, 16500 Southcenter Parkway, Tukwila, Washington. The Special
Meeting is for the following purposes:
1. MERGER AGREEMENT. To consider and vote upon a proposal to approve the
Agreement and Plan of Merger, dated as of June 11, 1999, between NBT
and InterWest Bancorp, Inc. ("InterWest"), a Washington corporation and
bank holding company, under the terms of which NBT will merge with and
into InterWest, as more fully described in the accompanying Proxy
Statement/Prospectus. The merger agreement is attached as Appendix A to
the Proxy Statement/Prospectus which accompanies this notice.
2. OTHER MATTERS. To act upon any other matters as may properly come
before the Special Meeting (or any postponement or adjournment of it).
Only holders of record of NBT common stock, at 5:00 p.m. on August 23,
1999 (the record date for the Special Meeting), are entitled to notice of, and
to vote at, the Special Meeting (or any adjournments or postponements of it).
The affirmative vote of the holders of two-thirds or more of the outstanding
shares of NBT Common Stock is required for approval of the merger agreement. As
of July 31, 1999, there were 746,514 shares of NBT common stock outstanding.
NBT shareholders desiring to do so may dissent from the Merger and
obtain payment for their shares in accordance with the provisions of the
Washington Business Corporation Act, Chapter 23B.13, a copy of which is included
in the Proxy Statement/Prospectus. See "THE MERGER - Dissenters' Rights of
Appraisal" and Appendix C.
All shareholders are cordially invited to attend the Special Meeting
personally. Whether or not you are able to do so, it is important that you
complete, sign, date, and promptly return the accompanying proxy in the enclosed
postage-paid envelope in order to vote your shares of NBT common stock.
Shareholders may revoke proxies previously submitted by completing a later-dated
proxy, by written revocation delivered to NBT's Secretary at or before the
Special Meeting, or by appearing and voting at the Special Meeting in person.
Attendance at the Special Meeting will not of itself revoke a previously
submitted proxy.
By Order of the Board of Directors,
Gregory F. Cromwell,
Secretary
Tukwila, Washington
August ___, 1999
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN, AND WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. APPROVAL OF THE MERGER REQUIRES
THE AFFIRMATIVE VOTE OF HOLDERS OF TWO-THIRDS OF THE OUTSTANDING SHARES OF NBT
COMMON STOCK. IN ORDER TO ENSURE THAT THE REQUISITE VOTES ARE OBTAINED AND A
QUORUM IS ATTAINED, WE URGE YOU TO SIGN, DATE, AND RETURN THE ENCLOSED PROXY
FORM.
<PAGE>
PRELIMINARY PROXY STATEMENT
NBT NORTHWEST BANCORP
PROSPECTUS
INTERWEST BANCORP, INC.
The boards of directors of InterWest Bancorp, Inc. ("InterWest") and
NBT Northwest Bancorp ("NBT") have agreed that NBT will merge with and into
InterWest. When the merger occurs, the separate existence of NBT will cease and
National Bank of Tukwila ("Tukwila Bank"), which is now a subsidiary of NBT,
will become a subsidiary of InterWest. InterWest and NBT anticipate that
following the merger of InterWest and NBT, Tukwila Bank will merge with Pacific
Northwest Bank, a subsidiary of InterWest.
In the merger, NBT shareholders will receive shares of InterWest common
stock in exchange for their shares of NBT common stock. If the merger is
completed, NBT shareholders will receive between 0.84 and 0.88 shares of
InterWest common stock for each share of NBT stock that they own, depending upon
the price of InterWest common stock during a brief period prior to closing. This
range of possible exchange ratios assumes that the price of InterWest common
stock, calculated pursuant to the merger agreement between InterWest and NBT, is
between $21.00 and $25.00. See "THE MERGER - Basic Terms of the Merger."
InterWest common stock trades on the Nasdaq National Market under the
symbol "IWBK". The last reported sales price for InterWest common stock was
$______ on August ___, 1999, the most recent date for which it was practicable
to obtain information prior to the printing of this proxy statement/prospectus.
Because NBT common stock does not trade on any market, no current market price
is available.
THE MERGER CANNOT BE COMPLETED UNLESS NBT SHAREHOLDERS APPROVE IT. NBT
has scheduled a special shareholders meeting, to vote on the merger, for
September 28, 1999. See "NBT SPECIAL SHAREHOLDER MEETING."
This document also serves as the prospectus of InterWest, filed as a
part of a registration statement on Form S-4 with the Securities and Exchange
Commission (the "SEC"). The registration statement registers the shares of
InterWest common stock that will be issued to NBT shareholders in the merger.
This proxy statement/prospectus provides you with detailed information about the
merger, and we urge you to read it carefully. In addition, you may obtain
additional information about InterWest from documents that it has filed with the
SEC. See "WHERE YOU CAN FIND MORE INFORMATION."
---------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENCE.
THE SHARES OF InterWest COMMON STOCK TO BE ISSUED IN THE MERGER ARE NOT
SAVINGS OR DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED
BY A BANK INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY OR INSTRUMENTALITY.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT COVER ANY RESALE OF THE
SECURITIES TO BE RECEIVED BY NBT SHAREHOLDERS IN THE MERGER, AND NO PERSON IS
AUTHORIZED TO MAKE USE OF THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH ANY
SUCH RESALE.
---------------------------
This proxy statement/prospectus is dated August ___, 1999, and is first
being mailed to NBT shareholders on August ___, 1999.
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT INTERWEST FROM DOCUMENTS THAT ARE NOT INCLUDED IN OR
DELIVERED WITH THIS DOCUMENT. YOU CAN OBTAIN DOCUMENTS INCORPORATED BY REFERENCE
INTO THIS PROXY STATEMENT/PROSPECTUS BY REQUESTING THEM IN WRITING OR BY
TELEPHONE FROM INTERWEST AT THE FOLLOWING ADDRESS:
InterWest Bancorp, Inc.
275 S.E. Pioneer Way
Oak Harbor, Washington 98227
ATTN: Margaret Mordhorst, Corporate Secretary
Telephone: (360) 679-4181
You will not be charged for these documents that you request. If you
would like to request documents, please do so by September 21, 1999 in order to
receive them before the NBT special shareholders meeting.
See "WHERE YOU CAN FIND MORE INFORMATION" and "INFORMATION INCORPORATED
BY REFERENCE."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY...........................................................................................................1
THE MERGER AT A GLANCE.......................................................................................1
INITIAL QUESTIONS AND ANSWERS ABOUT THE MERGER...............................................................1
ADDITIONAL IMPORTANT INFORMATION ABOUT THE MERGER............................................................3
NBT Special Shareholders Meeting....................................................................3
Conditions to the Merger............................................................................4
Stock Option Agreement..............................................................................4
Amendment or Termination of the Merger Agreement....................................................4
Ownership of InterWest After the Merger.............................................................4
Tukwila Bank Directors and Officers After the Merger................................................5
Accounting Treatment of the Merger..................................................................5
Dissenters' Rights of Appraisal.....................................................................5
Interests of Certain Persons in the Merger..........................................................5
Comparison of Shareholders' Rights..................................................................5
Trading Markets.....................................................................................5
Stock Price and Dividend Information................................................................6
Recent Stock Price Data.............................................................................7
EQUIVALENT PER COMMON SHARE DATA..................................................................................8
INTERWEST SELECTED HISTORICAL FINANCIAL DATA.....................................................................10
NBT SPECIAL SHAREHOLDERS MEETING.................................................................................11
Date, Time, Place and Purpose......................................................................11
Record Date; Shares Outstanding and Entitled to Vote...............................................11
Right to Dissent from Merger.......................................................................11
Vote Required......................................................................................11
Voting, Solicitation, and Revocation of Proxies....................................................11
BACKGROUND OF AND REASONS FOR THE MERGER.........................................................................12
Background of the Merger...........................................................................12
Reasons For The Merger -NBT........................................................................13
Recommendation for the NBT Board of Directors......................................................13
NBT Share Repurchases..............................................................................13
Reasons For The Merger -InterWest..................................................................14
THE MERGER.......................................................................................................15
Basic Terms of the Merger..........................................................................15
Cash for Fractional Shares.........................................................................16
Exchange of NBT Stock Certificates.................................................................16
NBT Stock Option Agreement.........................................................................17
Voting Agreement...................................................................................17
Amendment or Termination of the Merger Agreement...................................................18
Conditions to Consummation of the Merger...........................................................19
Conduct of Business Pending the Merger.............................................................20
Directors and Executive Officers After the Merger..................................................20
<PAGE>
Employee Benefit Plans.............................................................................21
Interests of Certain Persons in the Merger.........................................................21
Federal Income Tax Consequences of the Merger......................................................22
Accounting Treatment of the Merger.................................................................23
Dissenters' Rights of Appraisal....................................................................23
Resale of InterWest Common Stock...................................................................25
No Solicitation....................................................................................25
BUSINESSES OF THE PARTIES TO THE MERGER..........................................................................25
NBT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...................................................................................28
General............................................................................................28
Six months ended June 30, 1999 and 1998............................................................28
Financial Condition and Results of Operation for the Years ended December 31, 1998 and 1997........29
Loan Quality, Liquidity and Capital................................................................29
Liquidity..........................................................................................29
Capital............................................................................................30
Lending............................................................................................30
Summary of Loan Loss Experience....................................................................31
MANAGEMENT AND DIRECTORS OF NBT..................................................................................32
Directors and Executive Officers...................................................................32
Security Ownership of Management and Certain Beneficial Owners.....................................33
MANAGEMENT OF INTERWEST..........................................................................................35
SUPERVISION AND REGULATION.......................................................................................35
DESCRIPTION OF INTERWEST CAPITAL STOCK...........................................................................39
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF INTERWEST AND NBT COMMON STOCK........................................40
CERTAIN LEGAL MATTERS............................................................................................46
EXPERTS..........................................................................................................47
WHERE YOU CAN FIND MORE INFORMATION..............................................................................47
INFORMATION INCORPORATED BY REFERENCE............................................................................47
OTHER MATTERS....................................................................................................48
FINANCIAL STATEMENTS OF NBT NORTHWEST BANCORP...................................................................F-1
APPENDIX A - Agreement and Plan of Merger
APPENDIX B - Stock Option Agreement between InterWest and NBT
APPENDIX C - RCW 23B.13 of the Revised Code of Washington (Dissenters' Rights of
Appraisal under Washington law)
</TABLE>
ii
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY
NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE DOCUMENTS WE HAVE
REFERRED YOU TO. SEE "WHERE YOU CAN FIND MORE INFORMATION."
THE MERGER AT A GLANCE
THE PARTIES - InterWest Bancorp, Inc., a multi-bank holding company
based in Oak Harbor, Washington, and NBT Northwest
Bancorp, a bank holding company based in Tukwila,
Washington.
- Pacific Northwest Bank, which is a subsidiary of
InterWest, and National Bank of Tukwila, which is a
subsidiary of NBT, are also parties to the merger
agreement, because it is anticipated that these two
banks will merge with each other after the merger of
InterWest and NBT.
TRANSACTION - A merger between InterWest and NBT.
EFFECT - NBT will cease to exist; its current subsidiary,
Tukwila Bank, will become a subsidiary of InterWest.
- NBT shareholders will become InterWest shareholders.
CONSIDERATION - NBT shareholders will receive between 0.84 and 0.88
shares of InterWest stock for each share of NBT
common stock, depending on the price of InterWest
common stock during a short period prior to closing.
(This range of possible exchange ratios assumes that
the InterWest common stock price will be between
$21.00 and $25.00. If it is higher or lower than
these amounts, the exchange ratio may be adjusted).
CONDITIONS - There are a number of conditions that must be
satisfied before the merger can occur, INCLUDING
APPROVAL BY NBT SHAREHOLDERS AND REGULATORY
AUTHORITIES.
INITIAL QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHO ARE THE PARTIES TO THE MERGER?
A: InterWest. InterWest is a multi-bank holding company headquartered in
Oak Harbor, Washington. InterWest owns three banks:
- InterWest Bank, a Washington state-chartered savings bank;
- Pacific Northwest Bank, a Washington state-chartered bank; and
- Kittitas Valley Bank, N.A., a national bank.
InterWest conducts its business through the 54 branch offices of its
banking subsidiaries, located in communities throughout western and
central Washington. At June 30, 1999, InterWest and its subsidiaries
had consolidated assets of approximately $2.5 billion, total loans of
approximately $1.4 billion, total deposits of approximately $1.5
billion and shareholders' equity of approximately $176.5
1
<PAGE>
million. InterWest's principal executive offices are located at 275
S.E. Pioneer Way, Oak Harbor, Washington 98277 and its telephone
number is (360) 679-4181.
InterWest Financial Services Inc., which offers a full range of
non-traditional financial services, and InterWest Insurance Agency,
Inc., which provides insurance products, are InterWest Bank
subsidiaries.
See "BUSINESSES OF THE PARTIES TO THE MERGER - Information Concerning
InterWest." Additional information concerning InterWest is included in
the InterWest documents incorporated by reference in this proxy
statement/prospectus. See "INFORMATION INCORPORATED BY REFERENCE."
NBT. NBT is a bank holding company headquartered in Tukwila,
Washington. Tukwila Bank, also located in Tukwila, Washington, is the
sole subsidiary of NBT. At June 30, 1999, NBT had consolidated assets
of approximately $47.9 million, net loans of approximately $37.6
million and deposits of approximately $40.5 million. See "BUSINESSES OF
THE PARTIES TO THE MERGER - Information Concerning NBT."
Q. WHAT IS THE EFFECT OF THE MERGER?
A. If the merger occurs, NBT will merge with and into InterWest, and its
separate existence will cease. Tukwila Bank, which is currently a
subsidiary of NBT, will become a subsidiary of InterWest. InterWest
anticipates that after the merger, Tukwila Bank will merge with Pacific
Northwest Bank, a commercial bank which is an InterWest subsidiary.
Unless you dissent from the merger, you will receive shares of
InterWest common stock in exchange for the shares of NBT that you now
own, and you will become an InterWest shareholder. See "THE MERGER -
Basic Terms of the Merger."
The terms of the merger, which are summarized in this proxy
statement/prospectus, are contained in the Agreement and Plan of Merger
dated June 11, 1999, a copy of which is attached as APPENDIX A.
Q: WHY ARE THE COMPANIES PROPOSING TO ENTER INTO THE MERGER?
A: Because InterWest and NBT believe that the merger will benefit both
companies, and will allow Tukwila Bank to better serve its customers.
Because of InterWest's financial and technology resources, Tukwila Bank
will be able to offer additional products and services, while
maintaining continuity of services to its current customers. InterWest
common stock is actively traded on the NASDAQ National Market, and NBT
shareholders can expect to benefit from the increased liquidity in
owning InterWest common stock. For a more complete discussion of the
reasons that the boards of directors of InterWest and NBT approved the
merger, see "BACKGROUND OF AND REASONS FOR THE MERGER."
THE BOARD OF DIRECTORS OF NBT RECOMMENDS THAT NBT SHAREHOLDERS VOTE IN
FAVOR OF THE PROPOSED MERGER.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is completed, you will receive between 0.84 and 0.88
shares of InterWest common stock for each share of NBT common stock
that you own, depending upon the price of InterWest common stock during
a brief period prior to closing. The range of possible exchange ratios
of 0.84 to 0.88 assumes that the InterWest common stock price in the
period prior to closing, as determined under the merger agreement, is
between $21.00 and $25.00; if it is higher or lower than these amounts,
the exchange ratio may be adjusted.
2
<PAGE>
By way of example only, if the InterWest "average closing price"
determined under the merger agreement was $___ (the average of the bid
and ask prices on August _, 1999, the most recent date that was
practicable to use prior to the printing of this document), for each
share of NBT common stock that you own you would receive __ shares of
InterWest common stock (cash will be paid for fractional share). See
"THE MERGER - Basic Terms of the Merger."
Q: WHAT DO I NEED TO DO NOW?
A: Just read this proxy statement/prospectus and mail your signed proxy
form in the enclosed return envelope as soon as possible, so that your
shares can be represented at the NBT special shareholders meeting. The
NBT special meeting will take place on September 28, 1999 at 7:00 p.m.
local time. See "NBT SPECIAL SHAREHOLDERS MEETING."
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at
the special meeting. You can do this in one of three ways:
- You can send a written notice to NBT stating that you would like
to revoke your proxy;
- You can complete and submit a new proxy card to NBT;
- You can attend the special meeting and vote in person. Simply
attending the meeting, however, will not revoke your proxy.
See "NBT SPECIAL SHAREHOLDERS MEETING - Voting, Solicitation and
Revocation of Proxies."
Q: SHOULD I SEND MY STOCK CERTIFICATES IN NOW?
A: No. After the merger is completed, InterWest will send you written
instructions for exchanging your stock certificates. See "THE MERGER -
Exchange of Stock Certificates."
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: InterWest and NBT are working towards completing the merger as quickly
as possible. In addition to NBT shareholder approval, certain
regulatory approvals must be obtained, and there are other conditions
to completing the merger. InterWest and NBT expect the merger to be
completed by as early as September 30, 1999. See "THE MERGER - Basic
Terms of the Merger."
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER?
A: The merger generally will be tax-free to you for federal income tax
purposes. A summary of the material tax consequences of the merger is
set forth at "THE MERGER - Certain Federal Income Tax Consequences of
the Merger."
ADDITIONAL IMPORTANT INFORMATION ABOUT THE MERGER
NBT SPECIAL SHAREHOLDERS MEETING
A special meeting of NBT's shareholders will be held on September 28,
1999 at 7:00 p.m. local time, at Doubletree Suites Hotel, 16500 Southcenter
Parkway, Tukwila, Washington. At the meeting, NBT shareholders will be asked to
approve the merger and the merger agreement. The merger must be approved by the
owners of
3
<PAGE>
two-thirds (2/3) of all of the NBT common stock outstanding on August
23, 1999, which is the record date for the NBT special meeting. See "NBT SPECIAL
SHAREHOLDERS MEETING."
CONDITIONS TO THE MERGER
To complete the merger, InterWest and NBT must satisfy a number of
conditions in addition to approval by NBT shareholders. Such conditions include:
- the merger must not be prohibited by law or injunction;
- InterWest and NBT must receive all necessary approvals of
governmental authorities; and
- InterWest and NBT must receive a legal opinion that the merger
will be treated as a tax-free reorganization under the Internal
Revenue Code.
Additionally, either InterWest or NBT may terminate the merger
agreement if specified conditions applicable to the other party are not
satisfied. Some of these conditions may be waived by the company entitled to
assert the condition. For a more complete discussion of the conditions to the
completion of the merger, see "THE MERGER - Conditions to Consummation of the
Merger."
STOCK OPTION AGREEMENT
To induce InterWest to enter into the merger agreement, NBT granted
InterWest an option to purchase authorized but unissued shares of NBT. InterWest
may exercise this option on the occurrence of certain events. If InterWest was
to exercise this option, it would acquire a number of shares equal to 19.9% of
the outstanding shares of NBT common stock, at $14.50 per share. See "THE MERGER
- - NBT Stock Option Agreement." A copy of the Stock Option Agreement is attached
to this proxy statement/prospectus as APPENDIX B.
AMENDMENT OR TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be amended at any time prior to the closing if
both the InterWest and NBT boards of directors approve. Additionally, InterWest
may change the method by which it acquires NBT and Tukwila Bank. However, no
such change may change the amount or kind of consideration that NBT shareholders
will receive, or change the tax treatment of the merger to NBT shareholders.
The merger agreement may be terminated, and the merger abandoned, at
any time (even after approval by NBT's shareholders) if both the InterWest and
NBT boards of directors agree to do so. Also, in certain circumstances either
one of InterWest's or NBT's board of directors may terminate the merger
agreement, without the other board's consent. This would be the case, for
example, if the merger has not occurred by December 31, 1999. NBT will have the
right to terminate the merger agreement if the InterWest average closing price
(see "THE MERGER - Basic Terms of the Merger") is between $16.01 and $20.99, and
InterWest does not elect to adjust the exchange ratio so that the InterWest
average closing price multiplied by the exchange ratio equals $18.48. If the
InterWest average closing price is $16.00 or less, NBT will have the right to
terminate the merger agreement unconditionally. For a more complete description
of the various circumstances under which the merger agreement may be terminated,
see "THE MERGER - Amendment or Termination of the merger agreement."
OWNERSHIP OF INTERWEST AFTER THE MERGER
Assuming that no NBT shareholders exercise their dissenters' rights,
and assuming for illustration purposes only that each share of NBT common stock
is converted into ______ shares of InterWest common stock, the former
shareholders of NBT will own approximately ____% of the outstanding InterWest
stock after
4
<PAGE>
the merger. The actual percentage ownership of InterWest by former NBT
shareholders will depend on the ultimate exchange ratio determined in
accordance with the merger agreement, as described in 'THE MERGER - BASIC
TERMS OF THE MERGER."
TUKWILA BANK DIRECTORS AND OFFICERS AFTER THE MERGER
After the merger, the executive officers of Tukwila Bank will remain
unchanged. InterWest intends to merge Tukwila Bank with Pacific Northwest Bank
following the InterWest/NBT merger. InterWest will designate certain persons to
serve as directors of Tukwila Bank during the period from the merger effective
date until the merger of Tukwila Bank and Pacific Northwest Bank. See "THE
MERGER - Directors and Executive Officers After the Merger."
ACCOUNTING TREATMENT OF THE MERGER
The merger will be accounted for using the purchase method of
accounting. See "THE MERGER - Accounting Treatment of the Merger."
DISSENTERS' RIGHTS OF APPRAISAL
NBT shareholders are entitled to dissent from the merger if they follow
certain procedures, and if the merger occurs. If such persons properly dissent,
they will have the right to obtain payment of the fair value of their NBT common
stock in cash, as provided by Washington law.
IF AN NBT SHAREHOLDER FAILS TO FOLLOW EXACTLY THE PROCEDURES SPECIFIED
IN THE APPLICABLE WASHINGTON LAW, HE OR SHE WILL LOSE HIS OR HER RIGHTS TO
DISSENT. IF YOU WISH TO DISSENT, YOU SHOULD CAREFULLY READ "THE MERGER -
Dissenters' Rights of Appraisal" AND THE COPY OF THE APPLICABLE WASHINGTON
STATUTE, WHICH IS ATTACHED AS APPENDIX C.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of NBT's management have interests in the merger in
addition to their interests as shareholders of NBT generally. See "THE MERGER -
Interests of Certain Persons in the Merger."
COMPARISON OF SHAREHOLDERS' RIGHTS
NBT shareholders' rights are governed by NBT's articles of
incorporation and bylaws. After the merger, NBT shareholders will be InterWest
shareholders, and their rights will be governed by InterWest's articles of
incorporation and bylaws. See "COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF
INTERWEST AND NBT COMMON STOCK" for a discussion of the major differences in the
rights of the shareholders of the two companies.
TRADING MARKETS
InterWest's common stock is quoted on the Nasdaq National Market under
the symbol "IWBK." See "STOCK PRICE AND DIVIDEND INFORMATION." InterWest's
common stock is registered as a class with the SEC under the Securities Exchange
Act of 1934, as amended. Accordingly, InterWest is required to file periodic
reports with the SEC and to make information about InterWest available to its
shareholders and the public. See "WHERE YOU CAN FIND MORE INFORMATION."
NBT is not subject to the information and reporting requirements of the
Securities Exchange Act of 1934. NBT's common stock is not actively traded, and
is not listed on any market system. See "STOCK PRICE AND DIVIDEND INFORMATION."
5
<PAGE>
STOCK PRICE AND DIVIDEND INFORMATION
INTERWEST. The following table sets forth for the periods indicated:
- the high and low sale prices for InterWest common stock as
reported on the Nasdaq National Market, and
- dividends per share on InterWest common stock.
The per share information has been adjusted retroactively for all stock
splits of InterWest common stock.
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS DECLARED
---- --- ------------------
<S> <C> <C> <C>
1997 *
First quarter............................. 22.25 19.42 09
Second quarter............................ 24.33 21.00 09
Third quarter............................. 26.75 18.33 10
Fourth quarter............................ 28.83 24.67 11
1998 *
First quarter............................. 27.42 24.00 12
Second quarter............................ 30.17 24.17 13
Third quarter............................. 31.50 27.83 13
Fourth quarter............................ 30.67 21.50 14
1999 *
First quarter............................. 27.13 15.75 14
Second quarter............................ 24.50 21.06 14
Third quarter............................. 25.13 20.06 14
Fourth quarter (through August ___, 1999).
----- ----- ---
</TABLE>
* InterWest's fiscal year ends on September 30.
At July 31, 1999, there were approximately 6,200 holders of record of
InterWest common stock.
Applicable federal and Washington state regulations restrict capital
distributions by institutions such as InterWest's subsidiary banks, including
dividends. Such restrictions are tied to the institution's capital levels after
giving effect to such distributions. See "SUPERVISION AND REGULATION -
Dividends."
NBT. No broker makes a market in NBT common stock, and trading has not
otherwise been extensive. The trades that have occurred cannot be characterized
as amounting to an established public trading market. NBT common stock is traded
by individuals on a personal basis and is not listed on any exchange or traded
on the over-the-counter market, and the prices reported reflect only the
transactions known to management of NBT. Due to the limited information
available, the following data may not accurately reflect the actual market value
of NBT common stock. The following data includes trades between individual
investors, as reported to NBT (NBT functions as its own transfer agent).
6
<PAGE>
<TABLE>
<CAPTION>
NBT COMMON
STOCK PRICES
------------
NUMBER OF SHARES
REPORTED AS TRADED HIGH LOW
------------------ ---- ---
1997
<S> <C> <C> <C>
First quarter..................................... 1,740 $7.25 $7.25
Second quarter.................................... 13,500 7.25 7.25
Third quarter..................................... 0 --- ---
Fourth quarter.................................... 2,000 7.25 7.25
1998
First quarter..................................... 23,979 10.00 7.25
Second quarter.................................... 0 --- ---
Third quarter..................................... 2,700 9.25 9.25
Fourth quarter.................................... 40 10.00 10.00
</TABLE>
To the knowledge of management, no trades have occurred during fiscal
year 1999. However, NBT has purchased a total of 480 shares in 12 separate
transactions at a price of $12.50 per share. See "THE MERGER - NBT Share
Repurchases."
As of July 31, 1999, there were approximately 250 shareholders of
record of NBT common stock.
NBT has not paid any dividends on its common stock since inception in
1994.
RECENT STOCK PRICE DATA
The following table sets forth the last reported sale price per share
of InterWest common stock, as reported on Nasdaq, and of NBT common stock, in
addition to the equivalent per share price for NBT common stock, on June 11,
1999 (the last full trading day prior to the public announcement of the
execution of the merger agreement) and on August ___, 1999, the most recent date
for which it is practicable to obtain market price data prior to the printing of
this proxy statement/prospectus. Holders of NBT common stock are urged to obtain
current market quotations for shares of InterWest common stock.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRICE PER SHARE: June 11, 1999 August __, 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
InterWest Common Stock $22.125 $
- -----------------------------------------------------------------------------------------------------------------------
NBT Common Stock(1) $12.50 $12.50
- -----------------------------------------------------------------------------------------------------------------------
NBT Equivalent Pro Forma(2) $ $
- -----------------------------------------------------------------------------------------------------------------------
- ---------------------
</TABLE>
(1) There are no publicly available quotations of NBT common stock, and the
market prices per share as of June 11, 1999 and August ___, 1999,
respectively (quoted above), represent management's determination of
the trading price of the NBT common stock, as utilized in the NBT stock
repurchase described in "THE MERGER - NBT Share Repurchases." As noted
above, there have been no third-party trades in NBT common stock during
1999.
(2) Giving effect for the merger and computed by multiplying the closing
price per share of InterWest common stock by an assumed exchange ratio
of ________.
7
<PAGE>
EQUIVALENT PER COMMON SHARE DATA
The following table shows certain per common share data of InterWest
and NBT common stock on a historical basis and on a pro forma basis giving
effect to the merger using the purchase method of accounting. For a description
of the purchase method of accounting with respect to the merger see "THE MERGER
- - Accounting Treatment of the Merger." The pro forma combined financial data are
not necessarily indicative of actual or future operating results or the
financial position that would have occurred had the merger become effective
prior to the period indicated or that will occur upon consummation of the
merger. This data should be read in conjunction with the financial statements
and other financial data with respect to InterWest and NBT included elsewhere in
this proxy statement/prospectus or incorporated by reference. See "THE MERGER
- -Basic Terms of the Merger."
<TABLE>
<CAPTION>
Pro Forma
Combined Pro Forma
InterWest and Equivalent
InterWest NBT NBT (2) NBT (3)
-----------------------------------------------------------------------------
BOOK VALUE PER SHARE AS OF: (1)
<S> <C> <C> <C> <C>
June 30, 1999 $11.29 $6.93 $11.78 $10.36
BASIC NET INCOME (LOSS) PER SHARE (4)
Three months ended June 30, 1999 0.47 0.26 0.46 0.41
Three months ended June 30, 1998 (5) 0.21 0.33 0.22 0.19
Year ended September 30, 1998 (6)(7) 1.45 1.03 1.44 1.26
Year ended September 30, 1997 (6) 1.58 0.72 1.55 1.36
Year ended September 30, 1996 (6)(8) 1.08 (0.02) 1.04 0.91
DILUTED NET INCOME (LOSS) PER SHARE (4)
Three months ended June 30, 1999 0.46 0.25 0.45 0.40
Three months ended June 30, 1998 (5) 0.20 0.32 0.21 0.18
Year ended September 30, 1998 (6)(7) 1.40 1.01 1.39 1.23
Year ended September 30, 1997 (6) 1.54 0.71 1.51 1.33
Year ended September 30, 1996 (6)(8) 1.05 (0.02) 1.01 0.89
CASH DIVIDENDS DECLARED
Three months ended June 30, 1999 0.14 0.00 0.13 0.12
Three months ended June 30, 1998 0.13 0.00 0.13 0.11
Year ended September 30, 1998 (6) 0.52 0.00 0.50 0.44
Year ended September 30, 1997 (6) 0.39 0.00 0.38 0.33
Year ended September 30, 1996 (6) 0.32 0.00 0.31 0.27
</TABLE>
(1) Book value per share is calculated by dividing the total historical and
pro forma shareholders equity as of the date indicated by the actual
historical and pro forma number of shares outstanding as of the same
date.
(2) The pro forma combined share data is computed based on the combined
share data and accounts of InterWest and NBT. NBT share data has been
adjusted to reflect an assumed exchange ratio of 0.88.
8
<PAGE>
(3) The pro forma equivalent share data for NBT represents the pro forma
combined amount described in Note (2) multiplied by an assumed exchange
ratio of 0.88.
(4) Net income per share is calculated by dividing total actual historical
and pro forma combined net income for the periods presented by the
actual historical and pro forma combined weighted average number of
shares of common stock outstanding for the respective periods. Basic
net income per share excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding for
the period. Diluted net income per share reflects the potential
dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the net income.
(5) InterWest results for the quarter ended June 30, 1998 include
nonrecurring merger-related charges of $4.0 million (net of tax).
Excluding the nonrecurring merger-related charges, InterWest's basic
and diluted net income per share were $0.47 and $0.45, respectively for
the quarter ended June 30, 1998.
(6) The share date for the years ended September 30, 1998, 1997 and 1996
has been adjusted to conform NBT's December 31 fiscal year end with
InterWest's September 30 fiscal year end.
(7) InterWest results for the year ended September 30, 1998 include
nonrecurring merger-related charges of $5.1 million (net of tax).
Excluding the nonrecurring merger-related charges, InterWest's basic
and diluted net income per share were $1.77 and $1.72, respectively for
the year ended September 30, 1998.
(8) InterWest results for the year ended September 30, 1996 include
nonrecurring merger-related charges of $2.6 million (net of tax) and
SAIF assessment of $3.6 million (net of tax). Excluding the
nonrecurring merger-related charges and SAIF assessment, InterWest's
basic and diluted net income per share were $1.48 and $1.44,
respectively for the year ended September 30, 1996.
9
<PAGE>
- --------------------------------------------------------------------------------
INTERWEST SELECTED HISTORICAL FINANCIAL DATA
The following historical financial data for InterWest has been
derived from InterWest's financial statements incorporated into this proxy
statement/prospectus by reference. This information is only a summary, is
qualified in its entirety by reference to, and should be read in conjunction
with, InterWest's financial statements and related notes and other financial
information regarding InterWest contained elsewhere in this proxy
statement/prospectus or incorporated into this proxy statement/prospectus by
reference. All adjustments that the management of InterWest believes to be
necessary for a fair presentation of the data have been included and are of a
normal recurring nature.
<TABLE>
<CAPTION>
Nine months ended Year ended
June 30, September 30,
----------------- ----------------------------------------------------
1999 1998(1) 1998(1) 1997 1996(2) 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS, (UNAUDITED)
EXCEPT SHARE AND PER SHARE AMOUNTS
SUMMARY OF OPERATIONS
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income $133,442 $134,346 $180,279 $165,206 $143,827 $119,731 $97,850
Interest Expense 71,206 75,785 101,483 91,081 77,127 65,119 45,251
------------------------------------------------------------------------------------
Net Interest Income Before
Provision for Losses on Loans 62,236 58,561 78,796 74,125 66,700 54,612 52,599
Provision for Losses on Loans 1,498 2,366 2,807 1,508 2,452 929 1,053
------------------------------------------------------------------------------------
Net Interest Income After
Provision for Losses on Loans 60,738 56,195 75,989 72,617 64,248 53,683 51,546
Noninterest Income 23,264 18,566 26,473 18,645 15,744 13,030 10,428
Noninterest Expense 50,293 50,793 66,972 54,032 55,716 40,718 36,924
Income Tax Expense 11,644 8,733 12,848 12,681 7,785 8,721 8,568
------------------------------------------------------------------------------------
Net Income $22,065 $15,235 $22,642 $24,549 $16,491 $17,274 $16,482
====================================================================================
Basic Net Income Per Share $1.41 $0.97 $1.45 $1.58 $1.08 $1.13 $1.08
Diluted Net Income Per Share 1.38 0.94 1.40 1.54 1.05 1.11 1.06
Cash Dividends Declared Per Share 0.42 0.38 0.50 0.33 0.29 0.19 0.19
- ------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF FINANCIAL CONDITION
Total Assets $2,474,158 $2,351,248 $2,447,848 $2,402,928 $2,016,085 $1,723,780 $1,485,978
Total Loans 1,418,279 1,440,395 1,452,175 1,348,681 1,170,271 1,035,099 895,564
Deposits 1,544,787 1,484,755 1,564,825 1,468,460 1,389,402 1,260,946 1,154,331
Borrowings 735,375 674,282 682,390 755,968 466,693 321,932 209,468
Shareholders' Equity 176,546 167,998 171,652 160,770 137,647 128,882 113,210
Book Value Per Share $11.29 $10.72 $10.97 $10.26 $8.93 $8.45 $7.41
KEY OPERATING RATIOS
Return on Average Assets 1.19% 0.86% 0.95% 1.15% 0.90% 1.10% 1.23%
Return on Average Shareholders' Equity 16.85% 12.27% 13.58% 16.64% 12.13% 14.25% 15.49%
Net Interest Margin 3.60% 3.52% 3.52% 3.70% 3.85% 3.70% 4.16%
Non-performing Assets to Total Assets 0.65% 0.67% 0.64% 0.52% 0.49% 0.41% 0.53%
Efficiency Ratio 58.82% 65.86% 63.62% 58.24% 67.58% 60.20% 58.58%
Average Shareholders' Equity to
Average Assets 7.08% 7.02% 6.99% 6.89% 7.38% 7.73% 7.96%
</TABLE>
(1) 1998 results include nonrecurring merger related charges of $4.4 million
(net of tax) and a merger-related provision for losses on loans of $0.7
million (net of tax).
(2) 1996 results include nonrecurring SAIF assessment of $3.6 million (net
of tax), merger-related charges of $2.0 million (net of tax) and a
merger-related provision for losses on loans of $0.6 million (net of
tax).
- --------------------------------------------------------------------------------
10
<PAGE>
NBT SPECIAL SHAREHOLDERS MEETING
DATE, TIME, PLACE AND PURPOSE
The NBT special shareholders meeting will be held on September 28, 1999
at 7:00 p.m. local time, at the Doubletree Suites Hotel, 16500 Southcenter
Parkway, Tukwila, Washington. The purposes of the NBT special meeting are: (i)
to consider and vote upon approval of the merger agreement and (ii) to act upon
other matters, if any, that may properly come before the meeting.
RECORD DATE; SHARES OUTSTANDING AND ENTITLED TO VOTE
The NBT board of directors has fixed 5:00 p.m. on August 23, 1999 as
the NBT record date for determining the holders of shares of NBT common stock
entitled to notice of and to vote at the NBT special meeting. At the close of
business on the NBT record date, there were 746,514 shares of NBT common stock
issued and outstanding held by approximately 250 holders of record. Holders of
record of NBT common stock on the NBT record date are entitled to one vote per
share.
RIGHT TO DISSENT FROM MERGER
Holders of record of NBT common stock on the NBT record date are
entitled to exercise dissenters' rights under Washington law if certain
procedures are followed. See "THE MERGER - Dissenters' Rights of Appraisal" and
APPENDIX C.
VOTE REQUIRED
At least two-thirds of all shares of NBT common stock outstanding on
the NBT record date must vote in favor of the proposed merger in order for it to
be adopted. A majority of the shares of NBT common stock outstanding at the
record date must be present in person or by proxy to constitute a quorum of
shareholders for the NBT special meeting. For this purpose, proxies from
shareholders who have abstained and broker non-votes (i.e. proxies from brokers
or nominees indicating that such person has not received instructions from the
beneficial owners of, or other persons entitled to vote, such shares) are
counted in determining the shares present at a meeting. For voting purposes,
neither abstentions nor broker non-votes, will be counted as favorable votes in
determining whether the merger agreement is approved by the holders of NBT
common stock. As a consequence, abstentions and broker non-votes will have the
same effect as votes against approval of the merger agreement.
As of the NBT record date, directors and executive officers of NBT, and
their affiliates, owned and were entitled to vote 287,330 shares at the NBT
special meeting, representing approximately 38.5% of the outstanding shares of
NBT common stock. See "MANAGEMENT OF NBT - Security Ownership of Management and
Certain Beneficial Owners." Each director of NBT has agreed to vote all
outstanding shares of NBT common stock held or controlled by him or her (a total
of 287,330 shares or approximately 38.5% of the shares outstanding), in favor of
approval of the merger. See "THE MERGER - Voting Agreement."
VOTING, SOLICITATION, AND REVOCATION OF PROXIES
All NBT shares represented by valid proxies received and not revoked
before they are exercised will be voted in the manner specified in the proxies.
If no specification is given, the persons named in the proxy will vote the
shares represented by the proxy FOR the approval of the merger agreement, and in
the proxy's discretion, on any other matter coming before the meeting, unless
otherwise directed by the proxy.
Proxies for the NBT special meeting are being solicited on behalf of
the NBT board of directors. NBT will bear the cost of soliciting proxies from
its shareholders. In addition to solicitation by mail, proxies may be solicited
11
<PAGE>
in person or by telephone by officers or employees of NBT. Banks, brokerage
houses, other institutions, nominees, and fiduciaries will be requested to
forward their proxy soliciting material to their principals and obtain
authorization for the execution of the proxies. NBT will not pay any
compensation for the solicitation of proxies, but will, upon request, pay the
standard charges and expenses of banks, brokerage houses, other institutions,
nominees, and fiduciaries for forwarding proxy materials to and obtaining
proxies from their principals.
Any proxy given by a shareholder may be revoked before its exercise by
written notice to the Secretary of NBT, or by a properly submitted subsequently
dated proxy, or in open meeting at the special shareholders meeting before the
shareholder vote is taken. Simply attending the special shareholders meeting,
without informing NBT that you desire to vote in person, will not revoke a
previously submitted proxy.
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER
In March 1999, Pat Fahey, Vice Chairman of InterWest, contacted Mike
Fotheringill, President of NBT, and expressed InterWest's preliminary interest
in the possible acquisition of NBT. At a meeting on April 20, 1999, the
InterWest board of directors approved a term sheet and authorized management to
prepare and negotiate, with the assistance of InterWest's advisors, a definitive
agreement for presentation to the entire board for consideration. From March to
May, 1999, there were several discussions between Messrs. Fahey and Fotheringill
regarding the possible financial terms and structure of an acquisition, as well
as discussions regarding employee and employee benefit matters.
Following Mr. Fahey's initial contact on behalf of InterWest, the NBT
board of directors determined to explore opportunities for combinations with
other potential acquirors. Accordingly, two financial institutions, both
well-regarded bank holding companies, were identified as potential acquirors in
addition to InterWest. NBT received informal offers from InterWest, as well as
from the other two potential acquirors during March and April, 1999. One of the
potential acquirors subsequently withdrew from the process, leaving only
InterWest and the other potential acquirer. Although InterWest's preliminary
offering price was higher than the offer of the other potential acquirer, NBT's
board decided to consider both offers.
At a special meeting held on May 3, 1999, the board of directors of NBT
compared the offers received from InterWest and from the other potential
acquirer. After long discussion, the board unanimously decided, for the reasons
given below, to pursue a merger with InterWest. Director Dave Taylor, President
Mike Fotheringill and Chairman Mark Milkovich were authorized to continue
negotiating with InterWest in an effort to reach a definitive agreement for
presentation to the entire NBT board of directors.
At a meeting held on May 18, 1999, the InterWest board reviewed,
discussed and approved an unnegotiated draft merger agreement and authorized
management to negotiate and make additional changes to the draft merger
agreement. At the meeting, InterWest's board authorized the board's executive
committee, acting on behalf of the board, to finalize the merger agreement.
The ensuing negotiations between InterWest and NBT produced the merger
agreement, which was presented to the board of directors of NBT and unanimously
approved at a special meeting held on June 11, 1999, and unanimously approved by
the executive committee of the InterWest board at a meeting held on June 10,
1999.
12
<PAGE>
REASONS FOR THE MERGER - NBT
In reaching their decision to approve the merger and the merger
agreement, the directors of NBT consulted with legal counsel as well as
management and considered several factors, including the directors' belief that:
- NBT faces challenges to future profitability due to increased
competition and changes in the market place.
- The larger resources of capital and personnel of a regional bank
holding company would increase the efficiency of bank operations.
- Anticipated restrictions on use of the pooling-of-interests method
of accounting for business combinations could diminish the value
of NBT to potential acquirers.
- InterWest offered the highest price for NBT's stock.
- The terms of the merger agreement are attractive and the merger
price to be received by NBT shareholders represents a very
satisfactory multiple of book value.
- NBT shareholders will gain liquidity as a result of the merger
because InterWest stock is publicly traded on the national market.
- InterWest has a good reputation for how it treats customers and
employees.
- The merger is expected to be generally tax-free to NBT and its
shareholders.
RECOMMENDATION FOR THE NBT BOARD OF DIRECTORS
FOR THE REASONS SET FORTH ABOVE, THE NBT BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AS ADVISABLE AND IN THE BEST INTERESTS
OF NBT AND NBT SHAREHOLDERS AND RECOMMENDS THAT NBT SHAREHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
NBT SHARE REPURCHASES
In January 1999 (and prior to Mr. Fahey's initial contact with Mr.
Fotheringill regarding a possible acquisition), the NBT board approved the
repurchase by NBT of "odd lot" shares of NBT common stock (holdings of less than
100), and in February 1999 NBT corresponded with its shareholders who owned less
than 100 shares, offering to repurchase such shares at $12.50 per share. This
share repurchase program was initiated before NBT had any indication of
InterWest's, or any other party's, interest in an acquisition transaction. A
total of 480 shares of NBT common stock, owned by 12 shareholders, were tendered
for purchase by NBT as a result of the February correspondence.
Although it is under no legal obligation to do so, the NBT board has
approved a payment to the persons who sold shares of NBT common stock to NBT
prior to the announcement of the merger agreement, in order to provide such
persons with consideration similar to that they would have received if they had
owned the subject shares at the completion of the merger. This amount will be
paid in cash (estimated to be not more than $4,080 in total payments) shortly
following the completion of the merger, and will be based on the difference, per
share, between the $12.50 stock repurchase price and the InterWest average
closing price used in calculating the exchange ratio for the merger, as
described in "THE MERGER - Basic Terms of the Merger."
13
<PAGE>
REASONS FOR THE MERGER - INTERWEST
At a meeting on May 18, 1999, the InterWest board of directors
determined that the merger and merger agreement are fair to and in the best
interests of InterWest and its shareholders. In considering the merger, the
InterWest board of directors determined that the merger would be consistent with
InterWest's strategic intent in expanding its community banking business.
InterWest believes that it can provide customers of Tukwila Bank with certain
advantages of a community banking organization as well as a larger banking
organization.
InterWest determined that the merger would advance InterWest's
strategic plan because of its belief that the merger will combine two
financially sound organizations with complementary businesses and strategies,
thereby creating a stronger combined organization with greater size,
flexibility, efficiency, and profitability. The InterWest board of directors
believes that (i) each organization is currently well managed, (ii) the
companies have compatible management philosophies and strategic focuses, (iii)
Tukwila Bank will contribute complementary business strengths to InterWest, (iv)
the merger would benefit the localities currently served by Tukwila Bank by
providing additional lending capacity; and (v) the combined organization will
continue to be well capitalized. The InterWest board of directors also believes
that the merger will allow the combined organization to compete effectively in
the rapidly changing marketplace of banking and financial services and to take
advantage of opportunities for growth and diversification in Washington State.
In reaching its determination to adopt the merger agreement, the
InterWest board of directors considered a variety of factors, although it did
not assign any relative or specific weights to the factors considered. The
factors considered included the following:
- The InterWest board's knowledge and review of the financial
condition, results of operation, and business operations and
prospects of NBT;
- The InterWest board's analysis of the banking industry
environment, including the rapid consolidation and increasing
regional competition in the banking and financial services
industries and the need to respond proactively to industry trends;
- The InterWest board's belief that the acquisition of Tukwila Bank
will expand InterWest's franchise in Washington State;
- The InterWest board's evaluation of the financial terms of the
merger and their effect on the shareholders of InterWest and the
InterWest board's belief that such terms are fair to InterWest and
its shareholders;
- NBT is not so large as to make the combination of the two
organizations difficult and costly;
- The InterWest board's belief that the merger would allow InterWest
to expand its commercial, small business and consumer lending
activity in the South Seattle/I-5 corridor area through
acquisition of Tukwila Bank faster and more efficiently than
InterWest could develop it on its own; and
- The InterWest board's belief, after consultation with its legal
counsel, that the required regulatory approvals could be obtained
to consummate the merger.
The foregoing discussion of the information and factors considered by
the InterWest board is not intended to be exhaustive but is believed to
encompass all material factors considered by the InterWest board. On the basis
of the foregoing factors, the InterWest board concluded that the terms of the
merger are fair to and in the best interests of InterWest and its shareholders.
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THE MERGER
The following description of certain aspects of the merger does not
purport to be complete and is qualified in its entirety by reference to the
merger agreement. NBT shareholders are being asked to approve the merger in
accordance with the terms of the merger agreement, and are urged to carefully
read the merger agreement, which is attached at APPENDIX A.
BASIC TERMS OF THE MERGER
The merger agreement provides for the merger of NBT with and into
InterWest, with InterWest surviving the merger. The separate existence of NBT
will cease upon completion of the merger.
After consummation of the merger, Tukwila Bank will initially operate
as a wholly-owned subsidiary of InterWest, although InterWest intends to cause
Tukwila Bank to merge into Pacific Northwest Bank, also an InterWest subsidiary,
following the merger.
In the merger, each NBT shareholder (except NBT shareholders who
exercise their dissenters' rights) will receive a fraction of a share of
InterWest common stock for each share of NBT common stock. The exact fraction,
referred to as the "exchange ratio" will be determined by reference to the
average of the closing bid and ask prices for InterWest common stock, as
reported by Bloomberg Financial Markets, during the 10 consecutive trading days
beginning on the 20th trading day prior to the effective date of the merger.
This figure is referred to in the merger agreement as the "average closing
price." As described below, the average closing price will be used to fix the
exchange ratio, which is the amount of InterWest common stock to be received for
each share of NBT common stock.
IF THE AVERAGE CLOSING PRICE IS ABOVE $25.00, the exchange ratio will
be calculated by using the following formula:
Total NBT common shares outstanding) X 21
------------------------------------------------------------------
(Total NBT common shares outstanding) X (average closing price)
IF THE AVERAGE CLOSING PRICE OF INTERWEST COMMON STOCK IS BETWEEN
$21.00 AND $25.00, the exchange ratio will be as follows:
<TABLE>
<CAPTION>
AVERAGE CLOSING PRICE EXCHANGE RATIO
<S> <C>
$25.00 .84
$24.00 to $24.99 .85
$23.00 to $23.99 .86
$22.00 to $22.99 .87
$21.00 to $21.99 .88
</TABLE>
IF THE AVERAGE CLOSING PRICE IS BETWEEN $16.01 AND $20.99, NBT will
have the right to terminate the merger agreement, unless InterWest (in its sole
discretion) elects to adjust the exchange ratio so that the average closing
price multiplied by the adjusted exchange ratio equals $18.48. See "--Amendment
or Termination of the merger agreement."
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IF THE AVERAGE CLOSING PRICE IS $16.00 or less, NBT will have the
unconditional right to terminate the merger agreement. See "--Amendment or
Termination of the merger agreement."
EXAMPLE
HERE IS AN EXAMPLE OF HOW THE EXCHANGE RATIO WOULD WORK IF THE
AVERAGE CLOSING PRICE WAS $____, WHICH WAS THE AVERAGE OF THE CLOSING
BID AND ASK PRICES ON AUGUST ___, 1999, THE MOST RECENT DATE THAT WAS
PRACTICABLE TO USE PRIOR TO THE PRINTING OF THIS PROXY
STATEMENT/PROSPECTUS. THIS IS AN EXAMPLE ONLY, AND THE ACTUAL AVERAGE
CLOSING PRICE COULD BE EITHER HIGHER OR LOWER THAN $____.
If Shareholder Smith owns 100 shares of NBT common stock on
the effective date of the merger, he or she will be entitled to receive
_______ shares of InterWest common stock (100 shares times __). Because
InterWest will not issue fractions of shares in the merger, Shareholder
Smith will receive _____ shares of InterWest common stock and will
receive cash in lieu of the fractional share. (The cash amount to be
paid for fractional shares is also calculated using the average closing
price; in this example, Shareholder Smith would receive $____.) See
"--Cash for Fractional Shares."
Subject to the conditions set forth in the merger agreement, the
effective date of the merger will occur as soon as possible after such
conditions have been satisfied or waived. Subject to those conditions, InterWest
and NBT anticipate that the merger will occur as early as September 30, 1999.
Either InterWest or NBT may terminate the merger agreement if the merger has not
occurred by December 31, 1999.
CASH FOR FRACTIONAL SHARES
InterWest will not issue certificates for fractional shares of
InterWest common stock. Each NBT shareholder who would otherwise be entitled to
receive a fractional share will receive cash in lieu of such fractional share,
in an amount determined by multiplying such fraction by the average closing
price for InterWest common stock. Holders of NBT common stock will have no other
rights with respect to such fractional shares.
EXCHANGE OF NBT STOCK CERTIFICATES
As promptly as possible after the effective date of the merger,
InterWest (or an exchange agent) will send transmittal materials to each NBT
shareholder of record. NBT shareholders will use these materials to exchange
their NBT common stock for InterWest common stock issued in connection with the
merger, and for checks representing cash payable in lieu of fractional shares.
The transmittal materials will contain information and instructions regarding
the surrender and exchange of NBT common stock certificates.
NBT SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
Each record holder of NBT common stock who submits a completed and
executed transmittal letter and surrenders all NBT stock certificates registered
in his or her name (or indemnity satisfactory to InterWest if such certificates
are lost, stolen or destroyed), will receive a certificate or certificates
representing the number of shares of InterWest common stock to which such holder
is entitled, together with all undelivered dividends or distributions in respect
of such shares, and, where applicable, a check for any fractional share
interest, in each case without interest.
All shares of InterWest common stock issued to holders of NBT common
stock pursuant to the merger will be deemed issued as of the merger effective
date. All shares of InterWest common stock issued in the
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merger will participate in InterWest dividends having a record date after the
effective date of the merger, but no dividend or other distribution payable
at or as of any time after the merger effective date will be distributed to a
holder of any NBT 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 merger, the stock
transfer books of NBT will be closed, and there will be no transfers on the
books of NBT of the shares of NBT common stock that were outstanding
immediately prior to the merger.
NBT STOCK OPTION AGREEMENT
As an inducement to InterWest to enter into the merger agreement, NBT
has granted an option to InterWest, by agreement dated as of June 11, 1999 to
purchase authorized but unissued shares of NBT common stock, which, if issued,
would constitute 19.9% of the outstanding NBT common stock, at a price of $14.50
per share. This option terminates no later than June 30, 2000. InterWest's
option effectively makes acquisition of NBT by a party other than InterWest more
expensive (and therefore less likely) as there would be more shares of NBT
common stock outstanding. InterWest may not exercise the option unless certain
"triggering events" as defined in the option agreement occur. These triggering
events include (among other events):
- NBT or the NBT board of directors enters into an agreement under
which another person or business entity would (i) merge,
consolidate with, or acquire 51% or more of the assets or
liabilities of NBT, or (ii) purchase or otherwise acquire
securities representing 25% or more of NBT's voting shares;
- Any person or business entity acquires, subject to certain
additional criteria set forth in the option agreement, the
beneficial ownership or the right to acquire beneficial ownership
of securities which, when aggregated with other securities owned
by such person or business entity, represents 25% or more of the
voting shares of NBT;
- The failure of the NBT board of directors to recommend the merger
to NBT's shareholders, or the withdrawal of such a recommendation;
or
- The failure of NBT's shareholders to approve the merger, after any
person or business entity announces its proposal to (i) acquire
NBT, by merger, consolidation or otherwise, or acquire 51% or more
of NBT's assets or liabilities; (ii) purchase or otherwise acquire
25% or more of NBT's voting stock: or (iii) change the composition
of NBT's board of directors.
InterWest (or a transferee, as permitted under the option agreement)
may only exercise the option, following a Triggering Event, after obtaining all
required regulatory approvals. Additionally, InterWest (or its transferee) may
not exercise the option if at the time of exercise InterWest is failing in any
material respect to perform or observe its material covenants or conditions
under the merger agreement. The option agreement is attached to this proxy
statement/prospectus as APPENDIX B.
VOTING AGREEMENT
Each of the directors of NBT have entered into an agreement pursuant to
which they have agreed, subject to applicable law, including their fiduciary
duties to NBT shareholders, to vote their shares of NBT common stock in favor of
the merger, and to recommend approval of the merger to NBT shareholders. The
directors of NBT own a total of 287,330 outstanding shares of NBT common stock,
which is approximately 38.5% of the shares outstanding.
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<PAGE>
AMENDMENT OR TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be amended or supplemented at any time by
written agreement of the parties, either before or after the NBT special
shareholders meeting. To the extent permitted by applicable law, amendments may
be made without the further approval of NBT's shareholders. The merger agreement
provides that InterWest may at any time change the method of effecting its
acquisition of NBT and Tukwila Bank, as long as such change does not change the
amount or kind of consideration to be issued to NBT shareholders or adversely
affect the tax treatment to NBT shareholders as a result of receiving such
consideration.
The merger agreement contains several provisions entitling either
InterWest or NBT to terminate the merger agreement under certain circumstances.
The following briefly describes some of those conditions:
LAPSE OF TIME. If the merger has not closed by December 31, 1999, then
at any time after that date, the board of directors of either InterWest or NBT
may terminate the merger agreement, as long as the party terminating is not in
material breach of any of its obligations under the merger agreement.
MUTUAL CONSENT. The parties may terminate the merger agreement at any
time before the merger occurs, whether before or after NBT shareholder approval,
by mutual consent.
AVERAGE CLOSING PRICE BETWEEN $16.01 AND $20.99; NO INTERWEST
ADJUSTMENT. NBT may terminate the merger agreement if the average closing price
of InterWest common stock (see "--Basic Terms of the Merger") is between $16.01
and $20.99, and InterWest, in its sole discretion, does not elect to increase
the merger exchange ratio so that the average closing price multiplied by such
increased exchange ratio equals $18.48. This termination right of NBT is subject
to InterWest's right to avoid termination by increasing the number of InterWest
shares that NBT shareholders will receive, by increasing the exchange ratio.
AVERAGE CLOSING PRICE OF $16.00 OR LESS. If the average closing price
of InterWest common stock is $16.00 or less, NBT will have the unconditional
right to terminate the merger agreement.
As described above, if the average closing price of InterWest common
stock is between $16.01 and $20.99, the NBT board of directors may elect to
terminate the merger agreement, but such termination will not become effective
if InterWest elects to increase the exchange ratio as described above.
Additionally, as described above, the NBT board of directors may elect to
terminate the merger agreement if the average closing price of InterWest common
stock is $16.00 or less. In determining whether to elect to terminate the merger
agreement in these circumstances, the NBT board of directors will take into
account, consistent with its fiduciary duties, all relevant facts and
circumstances existing at the time, including, without limitation, the market
for financial institution stocks in general, the relative value of InterWest
common stock in the market and the advice of its financial advisors and legal
counsel. By approving the merger agreement, shareholders of NBT would be
permitting NBT's board of directors to determine, in the exercise of its
fiduciary duties, to proceed with merger even though the average closing price
was less than $21.00.
INTERWEST'S CONDITIONS NOT MET. NBT may terminate the merger agreement
if, by December 31, 1999, any of InterWest's conditions to closing are not met.
Among such conditions are:
- There must have been no material adverse change in the financial
condition or results of operations of InterWest and Pacific
Northwest Bank, and
- InterWest must have complied with all terms, covenants and
conditions of the merger agreement.
NBT'S CONDITIONS NOT MET. InterWest may terminate the merger agreement
if, by December 31, 1999, any of NBT's conditions are not met. Among such
conditions are:
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<PAGE>
- NBT's Capital (as defined in the merger agreement) must be at
least $5 million on the merger effective date;
- Tukwila Bank's allowance for possible loan and lease losses must
be not less than 1.25% of Tukwila Bank's total outstanding loans;
- There must have been no material change in the financial position
or results of operations of NBT or Tukwila Bank; and
- NBT must have complied with all of the terms covenants and
conditions of the merger agreement.
DISSENTER'S RIGHTS. InterWest may terminate the merger agreement if the
number of shares of NBT common stock for which cash is to be paid because the
holders have exercised dissenter's rights, together with the number of
fractional shares for which cash will be paid, exceeds 10% of the number of
outstanding shares of NBT common stock.
If the merger agreement is terminated, InterWest and NBT will each pay
their own out-of-pocket expenses incurred in connection with the transaction,
and will have no other liability to the other party. If, however, the merger
agreement is terminated because the average closing price is between $16.01 and
$20.99 and InterWest has elected not to adjust the exchange ratio as described
above, InterWest will reimburse NBT for documented actual expenses incurred, up
to $100,000.
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the merger is subject to various conditions. InterWest
and NBT cannot provide any assurance that these conditions will be satisfied or
waived by the appropriate party. Accordingly, there can be no assurance that the
merger will be completed. If conditions to the merger remain unsatisfied after
the December 31, 1999, either InterWest's or NBT's board of directors may
terminate the merger agreement.
The merger agreement requires the affirmative vote of two-thirds of the
holders of all outstanding shares of NBT common stock at the record date. In
addition, the merger agreement requires the approval of the Federal Reserve
Board. An application for approval by the Federal Reserve Board has been filed.
Although no assurance can be given, the parties expect to receive this approval
in due course.
Certain conditions must be satisfied or events must occur before
InterWest and NBT will be obligated to complete the merger. Each party's
obligations under the merger agreement are conditioned upon the satisfaction by
the other party of conditions applicable to it. Some of these conditions are as
follows:
- The approval of the merger agreement by the required vote of NBT's
shareholders;
- The receipt of all necessary regulatory approvals, without any
condition or requirement that would, in InterWest's opinion,
deprive InterWest of the material benefits of the merger; and
- InterWest's and NBT's receipt of an opinion from Graham & Dunn,
P.C. to the effect that, among other things, the merger will
qualify as a tax-free reorganization under Section 368 of the
Internal Revenue Code.
Additionally, either InterWest or NBT may terminate the merger
agreement if certain conditions applicable to the other party are not satisfied
or waived. Those conditions are discussed above under "--Amendment or
Termination of the merger agreement."
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<PAGE>
Either InterWest or NBT may waive any of its conditions to proceeding
with the merger, except those that are required by law (such as NBT shareholder
approval and the receipt of required regulatory approvals). Either InterWest or
NBT may also grant extended time to the other party to complete an obligation or
condition.
CONDUCT OF BUSINESS PENDING THE MERGER
NBT and Tukwila Bank have agreed in the merger agreement not to take
certain actions without the prior approval of InterWest relating to their
operations pending consummation of the merger. Among other things, NBT and
Tukwila Bank may not:
- issue or sell any common stock or any rights to acquire common
stock;
- declare or pay any dividends;
- incur any indebtedness for borrowed money or become liable for the
obligations of any other entity other than in the ordinary course
of business;
- change their lending, investment, liability management or other
material banking policies in any respect;
- impose or allow the imposition of any lien on any shares of stock
of Tukwila Bank;
- enter into or amend any employment agreements or any employee
benefit plans or grant any increases, other than in the ordinary
course of business;
- dispose of any material portion of their assets or acquire any
material portion of the business or property of any other entity;
- amend their articles of incorporation or bylaws;
- settle any claims involving any liability for material money
damages;
- enter into, renew, terminate or change any material agreements,
except for those agreements that may be terminated by NBT or
Tukwila Bank without penalty upon not more than 60 days' prior
written notice; or
- extend credit or account for loans and leases other than in
accordance with existing lending policies, with specific
exceptions with respect to nonperforming loans, if any.
DIRECTORS AND EXECUTIVE OFFICERS AFTER THE MERGER
The persons serving as directors and executive officers of InterWest
immediately prior to the merger will continue to serve in such capacities
following the merger.
The executive officers of Tukwila Bank will remain unchanged following
the merger. InterWest intends to merge Tukwila Bank with Pacific Northwest Bank,
an InterWest subsidiary, following the merger of InterWest and NBT. During the
period from the effective date of the InterWest/NBT merger until the merger of
Tukwila Bank with Pacific Northwest Bank, InterWest will designate the following
persons to serve as the board of directors of Tukwila Bank: Mike Fotheringill,
Pat Fahey, Roderick Budd; David Straus; and Kim Brace. Mr. Fotheringill is the
President and CEO and a director of Tukwila Bank. Mr. Fahey is President,
Chairman and
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CEO of Pacific Northwest Bank and is the Vice Chairman of InterWest. Messrs.
Budd, Straus and Mrs. Brace are currently executive officers of Pacific
Northwest Bank.
EMPLOYEE BENEFIT PLANS
The merger agreement confirms InterWest's intention to allow the
employees of NBT and Tukwila Bank who continue as InterWest employees after the
merger to participate in certain InterWest employee benefit plans, on
substantially the same terms as other employees of InterWest and its
subsidiaries. For the purposes of determining eligibility to participate in such
plans, and the vesting of benefits under such plans (but not the accrual of
benefits under such plans) InterWest will give effect to years of service with
NBT or Tukwila Bank as though such service was with InterWest. NBT's salary
reduction simplified employee pension plan will be continued for a year after
the merger, and will thereafter be merged into InterWest's pension plan. On the
merger effective date, all outstanding and unexercised options to purchase NBT
common stock will be converted into options to purchase InterWest common stock,
adjusted as to both number of shares and price using the merger exchange ratio
described under "--Basic Terms of the Merger" above.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The directors and executive officers of NBT, together with their
affiliates, beneficially owned a total of 316,330 shares of NBT common stock
(representing approximately 42.4% of all outstanding shares of NBT common stock)
as of the special meeting record date. The directors and executive officers will
receive the same consideration in the merger for their shares, including any
shares which they may acquire prior to the effective date pursuant to the
exercise of stock options, as the other shareholders of NBT. Certain members of
NBT's management and the NBT board of directors have certain interests in the
merger as described below that are in addition to their interest as shareholders
of NBT generally. NBT's board of directors was aware of these interests and
considered them, among other matters, in approving the merger agreement and the
merger.
DIRECTORS' AND OFFICERS' LIABILITY. The merger agreement provides that
for a period of six years following the merger effective date, InterWest will
indemnify the present and former directors, officers and employees of NBT and
Tukwila Bank against certain liabilities to the extent that such persons were
entitled to indemnification under Washington law and the articles of
incorporation and bylaws of NBT and Tukwila Bank.
EMPLOYMENT AGREEMENTS.
MICHAEL FOTHERINGILL. Mr. Fotheringill, the President of NBT and
President and Chief Executive Officer of Tukwila Bank, has entered into an
employment agreement with Tukwila Bank which will become effective upon the
consummation of the merger. Mr. Fotheringill's employment agreement calls for
him to continue to serve as President and CEO of Tukwila Bank, with an initial
term of one year from the merger effective date. Mr. Fotheringill may renew the
employment agreement for two additional one-year terms, by written notice to
InterWest. Mr. Fotheringill will receive a base annual salary of $95,000 and
will be entitled to receive all benefits that are provided to similarly situated
employees of InterWest.
If, prior to the end of the agreement's initial term (or either of the
two one year renewal terms, if applicable), Mr. Fotheringill resigns without
good reason (as defined in the employment agreement) or is dismissed by Tukwila
Bank for cause (as defined in the employment agreement), he will receive his
base salary earned through the date of termination. If, prior to the end of the
agreement's initial term or any renewal term, if applicable, Mr. Fotheringill's
employment is terminated by Tukwila Bank without cause, or if Mr. Fotheringill
resigns for good reason, he will receive his base salary through the end of the
term plus a severance payment in an amount equal to his base annual salary then
in effect. If Mr. Fotheringill completes the term of his employment (either the
initial term or any renewal term(s), as applicable), Mr. Fotheringill will
receive a
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severance payment in an amount equal to his base annual salary then in
effect. Any severance payment will be paid in equal payments over one year.
The employment agreement also restricts Mr. Fotheringill's ability to
compete with InterWest or Tukwila Bank following termination of his employment.
These restrictions, which apply unless Mr. Fotheringill is terminated without
cause or he resigns for good reason, continue for a two year period following
the expiration of the term in which the termination occurs.
RONALD BOSI. Mr. Bosi, the Senior Vice President and Chief Credit
Officer of Tukwila Bank, has entered into a Noncompetition and Severance
Agreement with Tukwila Bank which will become effective upon the consummation of
the merger. The agreement acknowledges that Mr. Bosi's employment status is that
of an "at will" employee, with the employment term indefinite and at the will of
both parties. If Mr. Bosi continues his employment through the effective date of
the merger, and at any time after such date Tukwila Bank terminates his
employment without cause (as defined in the agreement), Mr. Bosi will receive a
severance payment equal to six months of his then-current annual base salary.
The agreement also restricts Mr. Bosi's ability to compete with
InterWest or Tukwila Bank, within a 30 mile radius of Tukwila, Washington, for a
period of six months following termination of his employment for any reason.
DIRECTOR NON-COMPETITION AGREEMENTS. Each director of NBT has signed an
agreement which restricts such director's ability to compete with InterWest or
any of its subsidiaries or affiliates within a 30 mile radius of Tukwila,
Washington for a period of 2 years after the effective date of the merger.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a discussion of the material federal income tax
consequences of the merger that are generally applicable to NBT shareholders.
This discussion is based upon the opinion of Graham & Dunn P.C., special counsel
to InterWest, and on current provisions of the Internal Revenue Code of 1986, as
amended ("Code"), current regulations under the Code (including final, temporary
or proposed), and current administrative rulings and court decisions as of the
date hereof. The foregoing are subject to change. Any such change, which may or
may not be retroactive, could alter the tax consequences described below. The
following discussion is intended only as a summary of the material federal
income tax consequences of the merger and does not purport to be a complete
analysis or listing of all of the potential tax effects relevant to a decision
on whether to vote in favor of approval of the merger agreement.
The merger is expected to qualify as a reorganization under Section
368(a) of the Code. As parties to the merger, neither InterWest nor NBT will
recognize gain or loss as a result of the merger. With respect to NBT
shareholders, and subject to the qualifications contained elsewhere in this
discussion:
- Holders of NBT common stock will recognize no gain or loss on the
receipt of InterWest common stock, but will recognize gain or loss
with respect to the receipt of cash in lieu of fractional shares
(see "--Cash for Fractional Shares").
- The tax basis of the InterWest common stock received pursuant the
merger will be the same as the tax basis of the NBT common stock
for which it is exchanged, less any basis attributable to
fractional shares for which cash is received.
- The holding period of InterWest common stock received by a holder
of NBT common stock pursuant to the merger will include the
holding period of the NBT common stock for which it is exchanged,
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<PAGE>
assuming the shares of NBT common stock are capital assets in the
hands of the holder at the closing of the merger.
- Where cash is received by an NBT shareholder in exchange for the
surrender of such shareholder's NBT common stock, the cash will be
treated as received by the shareholder as a distribution in
redemption of his or her NBT common stock, subject to the
provisions and limitations of the Code.
Graham & Dunn P.C. has delivered an opinion to the foregoing effect to
InterWest, and such opinion has been filed as an exhibit to the registration
statement of which this proxy statement/prospectus is a part. The foregoing is
only a summary of the tax consequences of the merger as described in such
opinion. The opinion is based on assumptions, representations made by officers
of InterWest and NBT to Graham & Dunn P.C., and contains qualifications
appropriate to the subject matter.
Consummation of the merger is conditioned upon the receipt by InterWest
and NBT of an opinion of Graham & Dunn, to the effect that if the merger is
consummated in accordance with the terms set forth in the merger agreement, the
merger will constitute a reorganization within the meaning of Section 368(a) of
the Code, and that no gain or loss will be recognized by NBT shareholders who
receive shares of InterWest common stock in exchange for their shares of NBT
common stock (except for cash received in lieu of fractional shares).
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 or a court considering the issues. Neither NBT nor InterWest 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 THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER TO NBT SHAREHOLDERS, WITHOUT REGARD TO THE PARTICULAR
FACTS AND CIRCUMSTANCES OF EACH SHAREHOLDER'S TAX SITUATION AND STATUS. THE
DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO A
PARTICULAR SHAREHOLDER SUBJECT TO SPECIAL TREATMENT UNDER THE CODE, SUCH AS
DEALERS IN SECURITIES, BANKS, INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS,
NON-UNITED STATES PERSONS, AND SHAREHOLDERS WHO ACQUIRED NBT COMMON STOCK
PURSUANT TO THE EXERCISE OF OPTIONS OR OTHERWISE AS COMPENSATION. IN ADDITION,
THERE MAY BE RELEVANT STATE, LOCAL OR OTHER TAX CONSEQUENCES, NONE OF WHICH IS
DESCRIBED ABOVE. BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY
DEPENDING ON THE PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER, EACH NBT
SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING SUCH
SHAREHOLDER'S SPECIFIC TAX SITUATION AND STATUS, INCLUDING THE SPECIFIC
APPLICATION OF STATE, LOCAL AND FOREIGN LAWS TO SUCH SHAREHOLDER AND THE
POSSIBLE EFFECT OF CHANGE IN FEDERAL AND OTHER TAX LAWS.
ACCOUNTING TREATMENT OF THE MERGER
It is anticipated that the merger will be accounted for using the
purchase method of accounting by InterWest under generally accepted accounting
principles. Accordingly, using the purchase method of accounting, the assets and
liabilities of NBT will be recorded by InterWest at their respective fair values
at the time of the acquisition. The excess of InterWest's purchase price over
the net fair value of assets acquired and liabilities assumed, including
identifiable intangible assets, is recorded as goodwill and amortized as an
expense over periods not to exceed 20 years. Under the purchase method of
accounting, prior period financial statements are not restated and the results
of operation of Tukwila Bank will be included in InterWest's consolidated
statement of operations after the date of acquisition.
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DISSENTER'S RIGHTS OF APPRAISAL
In accordance with the Washington law (RCW 23B.13), NBT shareholders
have the right to dissent from the merger and to receive payment in cash for the
"fair value" of their shares of NBT common stock.
If the number of shares of NBT common stock for which cash is to be
paid (in payments for dissenting shares plus cash payments in lieu of fractional
shares of NBT common stock) exceeds 10% of the outstanding shares of NBT common
stock, InterWest may elect not to consummate the merger. NBT shareholders
electing to exercise dissenter's rights must comply with the provisions of the
Washington appraisal laws in order to perfect their rights. NBT and InterWest
will require strict compliance with the statutory procedures. The following is
intended as a brief summary of the material provisions of the procedures
required to be followed by an NBT shareholder in order to dissent from the
merger and perfect the shareholder's dissenter's rights. THIS SUMMARY, HOWEVER,
IS NOT A COMPLETE STATEMENT OF ALL APPLICABLE REQUIREMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE WASHINGTON APPRAISAL LAWS, THE FULL TEXT OF
WHICH IS SET FORTH IN APPENDIX C HERETO.
An NBT shareholder who wishes to assert dissenter's rights must (a)
deliver to NBT before the special meeting 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 NBT at the
following address:
NBT Northwest Bancorp
505 Industry Drive
P.O. Box 58690
Tukwila, WA 98138
ATTN: Michael Fotheringill, President
A shareholder who wishes to exercise dissenter's rights generally must
dissent with respect to all of the shares the shareholder owns or over which the
shareholder has the 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 NBT in writing of
the name and address of each person on whose behalf the record shareholder
asserts dissenter's rights. A beneficial shareholder may assert dissenter's
rights directly by submitting to NBT the record shareholder's written consent
and by dissenting with respect to all the shares of which the shareholder is the
beneficial shareholder or over which such shareholder has power to direct the
vote.
A SHAREHOLDER WHO DOES NOT DELIVER TO NBT PRIOR TO THE SPECIAL
SHAREHOLDER MEETING A WRITTEN NOTICE OF THE SHAREHOLDER'S INTENT TO DEMAND
PAYMENT FOR THE "FAIR VALUE" OF THE SHARES WILL LOSE THE RIGHT TO EXERCISE
DISSENTER'S RIGHTS. IN ADDITION, ANY SHAREHOLDER ELECTING TO EXERCISE
DISSENTER'S RIGHTS MUST EITHER VOTE AGAINST THE MERGER OR ABSTAIN FROM VOTING.
If the merger is effected, InterWest will, within 10 days after the
effective date of the merger, deliver a written notice to all NBT shareholders
who properly perfected their dissenter's rights. Such notice will, among other
things, (a) state where the payment demand must be sent and where and when
certificates for NBT shares must be deposited; (b) supply a form for demanding
payment; and (c) set a date by which InterWest must receive the payment demand,
which date will be between 30 and 60 days after notice is delivered.
A shareholder wishing to exercise dissenter's 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 such dissenter's rights.
Within 30 days after the merger occurs or receipt of the payment
demand, whichever is later, InterWest will pay each dissenter with properly
perfected dissenters' rights InterWest's estimate of the "fair value" of the
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<PAGE>
shareholder's interest, plus accrued interest from the effective date of the
merger. With respect to a dissenter who does not beneficially own shares of NBT
common stock prior to the public announcement of the merger, InterWest 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 in anticipation of the merger. The rate of interest
is generally required to be the rate at which InterWest can borrow money from
other banks.
A dissenter dissatisfied with InterWest's estimate of the fair value
may notify InterWest of the dissenter's estimate of the fair value. If InterWest
does not accept the dissenter's estimate and the parties do not otherwise settle
on a fair value, then InterWest must within 60 days petition a court to
determine the fair value.
In view of the complexity of the Washington statutes governing
dissenters' rights of appraisal, shareholders of NBT who may wish to dissent
from the merger and pursue appraisal rights should consult their legal advisors.
RESALE OF InterWest COMMON STOCK
The InterWest common stock to be issued in the merger will be
transferable free of restrictions under the Securities Act of 1933, as amended,
except for shares received by persons, including directors and executive
officers of NBT, who may be deemed to be "affiliates" of NBT, as that term is
used in paragraphs (c) and (d) of Rule 145 under the Securities Act of 1933.
Affiliates may not sell their shares of InterWest common stock acquired in the
merger, except (a) pursuant to an effective registration statement under the
Securities Act covering those shares, (b) in compliance with Rule 145, or (c) in
accordance with an opinion of counsel reasonably satisfactory to InterWest,
under other applicable exemptions from the registration requirements of the
Securities Act. InterWest will obtain customary agreements with all NBT
directors, officers, and affiliates of NBT and InterWest, under which such
persons have represented that they will not dispose of their shares of InterWest
common stock received in the merger or the shares of NBT common stock or
InterWest common stock held by them before the merger, except in compliance with
the Securities Act and the rules and regulations promulgated thereunder. This
proxy statement/prospectus does not cover any resales of the InterWest common
stock received by affiliates of NBT.
NO SOLICITATION
NBT has agreed in the merger agreement that neither it nor Tukwila Bank
will solicit, initiate or encourage inquiries or proposals with respect to or,
except as required by the fiduciary duties of the NBT board of directors,
furnish any nonpublic information relating to or participate in any negotiations
concerning, any acquisition or purchase of all or a substantial portion of the
assets of, or a substantial equity interest in, NBT or Tukwila Bank or any
merger or other business combination with NBT or Tukwila Bank.
BUSINESSES OF THE PARTIES TO THE MERGER
INFORMATION CONCERNING InterWest
InterWest is a multibank holding company incorporated in the state of
Washington in 1994. The business of InterWest consists primarily of holding 100%
of the capital stock of InterWest Bank, Pacific Northwest Bank and Kittitas
Valley Bank, N.A. As of June 30, 1999, InterWest and its subsidiaries had
consolidated total assets of approximately $2.5 billion, total loans of
approximately $1.4 billion, total deposits of $1.4 billion and shareholders'
equity of approximately $176.5 million.
Presently, InterWest conducts its business through its subsidiaries' 54
full-service branch offices in western and central Washington State. These
offices are located in towns, small cities, suburbs and metropolitan markets.
Through its banking subsidiaries, a wide range of financial services are offered
to individuals and
25
<PAGE>
businesses. Financial services of InterWest include the banking activities of
accepting deposits from individuals and businesses and originating
residential loans, consumer loans and certain types of commercial real estate
loans, and commercial banking. InterWest is committed to growth in commercial
banking and expansion in Washington state.
InterWest BANK. InterWest Bank is a state-chartered savings bank.
InterWest Bank was organized in 1956 as Island Savings and Loan Association by
two local business people who recognized the need to create a new business to
help families obtain homes in the growing community of Oak Harbor on Whidbey
Island. On July 28, 1995, InterWest Bank completed a reorganization, in which
InterWest Bank became a wholly-owned subsidiary of InterWest Bancorp, Inc., and
the shareholders of InterWest Bank became shareholders of InterWest Bancorp,
Inc. InterWest Bank is a community oriented bank which provides a wide range of
financial services for individual and business customers. InterWest Bank is
currently in the process of transforming from a traditional thrift to a
financial institution with commercial banking in its portfolio of products.
InterWest Bank conducts its business through 39 full-service branch offices
located in the northwestern and north-central parts of the state of Washington
and one lending office located in Everett, Washington.
PACIFIC NORTHWEST BANK. Pacific Northwest Bank is a state-chartered
bank which was acquired by InterWest on June 15, 1998. Pacific Northwest Bank
has been further expanded through internal mergers. First National Bank of Port
Orchard, which was acquired by InterWest on January 15, 1998, was merged into
Pacific Northwest Bank on October 15, 1998. Pioneer National Bank, which was
acquired by InterWest on June 16, 1998, was merged into Pacific Northwest Bank
on January 22, 1999. Pacific Northwest Bank primarily engages in commercial
banking activities, serving individuals and small to medium-sized businesses.
Pacific Northwest Bank conducts its business through 12 full-service branch
offices located in the metropolitan Seattle area, the Kitsap Peninsula and
south-central parts of the state of Washington.
KITTITAS VALLEY BANK, N.A. Kittitas Valley Bank, N.A. is a national
bank which was acquired by InterWest on August 31, 1998. Kittitas Valley Bank,
N.A. offers a full line of commercial banking services to its customers
providing financial services to individuals and small businesses. Kittitas
Valley Bank, N.A. operates three branch offices located in central Washington.
A source of future growth may be through acquisitions. InterWest
believes that many other financial institutions are considering selling their
institutions for a variety of reasons, including lack of shareholder liquidity,
management succession issues, technology challenges, increasing competition and
potential changes with respect to the method of accounting used for mergers and
acquisitions. InterWest actively reviews proposals for various acquisition
opportunities. InterWest has established a due diligence review process to
evaluate potential acquisitions and has established parameters for potential
acquisitions relating to market factors, financial performance and certain
nonfinancial factors. Successful completion of acquisitions by InterWest depends
on several factors such as the availability of suitable acquisition candidates,
necessary regulatory and shareholder approval and compliance with applicable
capital requirements. No assurance can be made that acquisition activity will
continue in the future.
Financial and other information relating to InterWest, including
information relating to InterWest's directors and executive officers, is set
forth in InterWest's 1998 10-K, InterWest's 1999 10-Qs, and InterWest's 1999
Proxy Statement, copies of which may be obtained from InterWest as indicated
under "INFORMATION INCORPORATED BY REFERENCE."
26
<PAGE>
INFORMATION CONCERNING NBT
BUSINESS
NBT was incorporated on February 24, 1994 in the State of Washington
and on May 31, 1994 became a registered bank holding company in connection with
the reorganization of Tukwila Bank as a bank subsidiary of NBT. NBT's principal
business is to hold 100% of the capital stock of Tukwila Bank.
Tukwila Bank was chartered as a national bank under the laws of the
United States on September 26, 1985, and conducts a commercial banking business
in the Seattle, Washington metropolitan area. Tukwila Bank offers a full line of
commercial banking services to its customers, with a strong emphasis on deposit
services and commercial lending to its primary target market, small to
medium-sized businesses. Services include checking and savings accounts, real
estate loans, term, line of credit and other commercial loans, safe deposit
boxes, wire transfers and notary services. Tukwila Bank has an insignificant
amount of consumer lending business. Tukwila Bank conducts business through a
single location in Tukwila, Washington. See " - Facilities."
COMPETITION
The primary service area of Tukwila Bank is Seattle and south King
County, Washington, which includes the communities of Burien, Tukwila, Sea-Tac,
Des Moines, Renton and Federal Way. Tukwila Bank faces strong competition, both
in attracting deposits and originating loans, from numerous national, regional
and community banks, savings and loan associations, mutual savings banks, credit
unions and other financial institutions that serve the population of Tukwila
Bank's primary service. Tukwila Bank's competition includes Bank of America
(Seafirst), Wells Fargo Bank, US Bank, Washington Mutual, Key Bank and the Money
Store. These and many other competitors are larger and better capitalized than
Tukwila Bank.
The primary factors affecting competition for deposits are interest
rates and the quality and range of deposit and lending services offered. The
primary factors affecting competition for loans are interest rates, loan
origination fees, and the quality and range of lending services offered. Tukwila
Bank relies on its close proximity to numerous local small and medium-sized
businesses, personal contacts and referrals by its officers, directors,
employees, shareholders and customers, other local promotional activities and
its reputation in the community to compete effectively.
FACILITIES
Tukwila Bank operates out of a single location at 505 Industry Drive,
Tukwila Washington, consisting of 6,500 square feet. The bank premises include
four teller windows. These premises are leased from an unrelated third party
under a lease which expires in October 2002.
YEAR 2000
NBT has been working on becoming year 2000 compliant since the fourth
quarter of 1997. In early 1998, NBT developed a formal plan relating to the
assessment and remediation of any year 2000 compliance problems and the
development of contingency plans. By mid-1998, NBT had:
- identified and prioritized all internal, mission critical hardware
and software systems;
- developed its own year 2000 testing plan for all internal, mission
critical systems;
- developed a budget for all year 2000-related costs;
27
<PAGE>
- developed a risk assessment for all systems, both internal and
external (i.e., vendors); and
- contacted all large borrowers and depositors to better understand
their year 2000 risks.
During the last half of 1998, NBT tested most of its mission critical
systems to confirm their date change viability. Some minor software systems and
a few computers were found to be non-compliant and were replaced. During this
period, NBT sought and received assurances from all significant vendors that
their own systems were year 2000 compliant and developed contingency plans to
address failures of vendors' systems in spite of their assurances. In late 1998,
a plan to meet the liquidity needs of Tukwila Bank's customers was developed. By
the end of the first quarter of 1999, NBT successfully completed the testing of
all previously untested internal systems.
During the remainder of 1999, NBT intends to test and validate its
previously-developed contingency plans and perform additional customer outreach
and education.
NBT estimates that the total costs related to its year 2000 compliance
program will not be material.
EMPLOYEES
As of June 30, 1999, Tukwila Bank employed 14 individuals with 11
persons working full time and 3 persons working part time. NBT has no employees
separate from those of Tukwila Bank. Tukwila Bank provides a variety of benefits
to its employees and believes employee relations are good.
LEGAL PROCEEDINGS
NBT's management believes that there is no threatened or pending legal
proceedings against NBT or Tukwila Bank which, if determined adversely, would
have a material adverse effect on the business or financial position of NBT or
Tukwila Bank.
NBT MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
For purposes of the following management discussion and analysis, the
information primarily reflects the activities of NBT's subsidiary, Tukwila Bank,
as NBT has no operations other than owning Tukwila Bank. Tukwila Bank operates
one branch in Tukwila, Washington. Tukwila Bank's primary source of revenue is
derived from providing loans to customers, who are predominately small and
middle-market businesses.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
OVERVIEW. Total assets increased to $47.9 million at June 30, 1999 from
$43.3 million at June 30, 1998, representing a 10.6% increase. The increase
resulted primarily from increases in loans which were funded primarily through
increases in deposits and short-term borrowings.
NET INTEREST INCOME. Net interest income for the six months ended June
30, 1999 increased $55,000 or 4.3% over the similar period in 1998. The increase
in net interest income was primarily the result of a 12% increase in average
earning assets in the current period as compared to the previous comparable
period.
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<PAGE>
NON-INTEREST EXPENSE. Non-interest expense for the six month period
ended June 30, 1999 increased $4,000 from the comparable period in 1998. Modest
increases in occupancy and other non-interest expenses were offset partially by
reduced salaries and benefits.
NET INCOME. Net income for the six months ended June 30, 1999 declined
to $356,000 from $364,000 in the comparable period of 1998, representing a 2.2%
decrease. Net income declined primarily as a result of a decrease in gains on
sales of securities, offset partially by an increase in net interest income,
from period to period. Basic and diluted earnings per share for the six months
ended June 30, 1999 were $0.50 and $0.48, respectively, representing decreases
of 5.7% and 5.9%, respectively, from basic and diluted earnings per share of
$0.53 and $0.51, respectively, for the comparable period in 1998. The larger
percentage decline in earnings per share from period to period (compared to the
percentage decline in net income) was due primarily to an increase in the
weighted average number of shares used in calculating earnings per share.
FINANCIAL CONDITION AND RESULTS OF OPERATION FOR THE YEARS ENDED DECEMBER 31,
1998 AND 1997
OVERVIEW. Total assets increased to $49.3 million at December 31, 1998
from $46.1 million at December 31, 1997, representing a 7% increase. This
increase was due primarily to increases in loans resulting from increases in
deposits and reductions in short-term borrowings. The growth resulted primarily
from an increase in deposits, which also liquidated short-term borrowings.
NON-INTEREST INCOME. Non-interest income for the six month period ended
June 30, 1999 decreased by $36,000, or 21%, compared to the comparable period in
1998. This decrease was primarily as a result of the decrease in gain on sale of
securities available for sale.
NET INTEREST INCOME. Net interest income in 1998 increased $297,000, or
13%, over 1997. A $548,000 increase in interest income resulting from increased
loan balances, was offset partially by a $251,000 increase in interest expense
resulting primarily from increases in deposits and other short term borrowings
used for funding purposes.
NON-INTEREST EXPENSE. Non-interest expenses decreased by $25,000 in
1998 from 1997, due primarily to salaries and benefits remaining constant and a
reduction in most other categories of overhead expenses.
NET INCOME. Net income for the year ended December 31, 1998 increased
44% to $715,000 from $495,000 for the year ended December 31, 19997. The
increase was due primarily to an increase in net interest income of $297,000,
which was offset partially by a $47,000 increase in the provision for credit
losses. For the comparable periods, basic earnings per share increased 43% from
$0.72 per share in 1997 to $1.03 per share in 1998 and diluted earnings per
share increased 45%, from $0.71 to $1.02 for the comparable periods.
LOAN QUALITY, LIQUIDITY AND CAPITAL
LIQUIDITY
Liquidity management focuses on the need to meet both short-term
funding requirements and long-term strategies and goals. Specifically, the
objective of liquidity management is to ensure the continuous availability of
funds to meet the demands of depositors, creditors and borrowers.
NBT's primary source of funds is a credit line with the Federal Home
Loan Bank of Seattle. NBT also has lines of credit, standby letters of credit, a
trade finance line and an agreement to sell loan participations with commercial
banks to supplement liquidity needs. Other sources of liquidity include customer
deposits, loan repayments, sales and maturities of securities and net income.
Scheduled loan repayments are a relatively stable
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<PAGE>
sources of funds while deposit inflows and unscheduled loan prepayments are
not. Repayments on loans and deposit inflows and outflows are affected by
changes in interest rates.
The analysis of liquidity also includes a review of NBT's
consolidated statement of cash flows for the six months ended June 30, 1999.
The consolidated statement of cash flows details operating, investing and
financing activities during the period. The most significant item under
operating activities was net income of $356,000. Investing activities include
a net decrease in federal funds sold of $1,035,000, proceeds from the sale of
securities available for sale of $522,000 and purchases of securities
available for sale of $419,000. Financing activities included a $3,844,000
decrease in deposits and a $2,250,000 increase in short-term borrowings.
CAPITAL
NBT is committed to managing capital for maximum shareholder benefit
and maintaining strong protection for depositors and creditors at both the
holding company and subsidiary bank level. NBT manages various capital levels
to maintain appropriate capital ratios and levels in accordance with external
regulations and capital guidelines established by the Board of Directors.
NBT and Tukwila Bank are subject to risk-based capital guidelines
requiring minimum capital levels based on the credit risk of assets. The Tier
I capital to average asset ratio for NBT was 10.8 percent as of June 30,
1999, compared to 9.9 percent as December 31, 1998 and 9.1 percent as of
December 31, 1997. The total capital to risk-weighted assets ratio for NBT
was 14.8 percent as of June 30, 1999, compared to 14.1 percent as of December
31, 1998 and 13.5 percent as of December 31, 1997. As of June 30, 1999 NBT
met all regulatory capital requirements and was considered "well capitalized"
under regulatory risk based capital guidelines.
LENDING
Tukwila Bank's policy is to originate loans primarily in its local
market area. Tukwila Bank's loan underwriting policies focus on an assessment
of each borrower's ability to service and repay the debt and the availability
of collateral that can be used to secure the loan. Depending on the nature of
the borrower and the purpose and amount of the loan, Tukwila Bank's loans may
be secured by a variety of collateral including business and personal assets
and real estate. Most business loans will also be dependent on the personal
guaranty of the business owner(s).
Tukwila Bank's commercial loans consist primarily of secured
operating lines of credit and business term loans. Commercial real estate
loans include loans for various purposes where the primary collateral is
commercial real estate. The majority of loans in Tukwila Bank's portfolio
either reprice in five years or have adjustable interest rates tied to the
prime rate or some other national index.
Consumer loans, although representing a small percentage of the loan
portfolio, include home equity loans, auto loans and Visa credit cards.
TYPES OF LOANS. The following table sets forth the composition of
Tukwila Bank's loan portfolio by type of loan as of June 30, 1999 and
December 31, 1998 and 1997.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) June 30, 1999 December 31, 1998 December 31, 1997
--------------- --------------- --------------- --------------- -------------- ---------------
(ROUNDED TO NEAREST DECIMAL Amount % of Total Amount % of Total Amount % of Total
POINT)
--------------- --------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $14,891 39.0% $14,938 39.2% $14,350 45.4%
Real Estate
Construction 726 1.9 404 1.1% 708 2.2%
1-4 family res. 6,015 15.7 6,753 17.7% 5,515 17.4%
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Commercial 15,295 40.0 14,735 38.7% 9,629 30.5%
Consumer 1,299 3.4 1,242 3.3% 1,421 4.5%
--------- -------- --------- -------- ---------- --------
Total Loans $38,226 100.00% $38,072 100.00% $31,623 100.00%
========= ======== ========= ======== ========== ========
</TABLE>
RISK ELEMENTS. Risk elements include accruing loans past due ninety
days or more, non-accrual loans and loans that have been restructured to
provide a reduction or deferral of interest or principal for reasons related
to the borrower's financial difficulties, potential problem loans and loan
concentrations. The following table states Tukwila Bank's non-accrual loans
as of June 30, 1999 and December 31, 1998 and 1997. There were no loans
accruing and past due 90 days or more and no restructured loans on these
dates.
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998 December 31, 1997
--------------------------- ---------------------------- ---------------------------
<S> <C> <C> <C>
Non-accrual loans $371 $60 $69
</TABLE>
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 is discontinued, all unpaid accrued interest is
reversed against current income. Interest income is subsequently recognized
only to the extent payments are received.
On June 30, 1999, Tukwila Bank was not aware of any other loans that
had ceased to accrue interest or that management reasonably expects will have
a materially negative impact on future operating results. Tukwila Bank's
management is not aware of any information concerning any material loans,
other than those discussed as risk elements above, that cause it to have
doubts as to the ability of the borrowers to comply with the terms of the
loans.
ALLOWANCE FOR CREDIT LOSSES. NBT's allowance for credit losses
represents management's estimate of amounts required to absorb losses on
existing loans. The allowance of $595,000 on June 30, 1999 increased by
$62,000, or 11.3%, from the December 31, 1998 balance. At June 30, 1999, the
allowance represented 1.55% of total loans. The allowance of $533,000 on
December 31, 1998 increased by $87,000, or 19%, from the December 31, 1997
balance.
SUMMARY OF LOAN LOSS EXPERIENCE
ANALYSIS OF THE ALLOWANCE FOR CREDIT LOSSES. Tukwila Bank maintains
the allowance for credit losses at a level sufficient to provide for
estimated loan losses based on evaluation of known and inherent risks in the
loan portfolio. 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 borrower's ability to
repay, the estimated value of any underlying collateral, economic conditions,
the result of examination of individual loans, the evaluation of the overall
portfolio by senior credit personnel, and any other risks inherent in the
portfolio. Credits deemed uncollectible are charged to the allowance.
Provisions for credit losses and recoveries on loans previously charged off
are added to Tukwila Bank is allowance for credit losses.
The following table summarizes Tukwila Bank's loan loss experience
for the six months ended June 30, 1999 and for the years ended December 31,
1998 and 1997.
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<PAGE>
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) June 30 December 31
------- -----------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance beginning of period $533 $446 $359
Charge-offs:
Commercial 2
Consumer 3 112 75
- ----------------------------------------------------- ---------------------- ---------------------- ----------------------
Total Charge-offs 5 112 75
Recoveries
Commercial 6 69 83
Consumer 13 4
- ----------------------------------------------------- ---------------------- ---------------------- ----------------------
Total Recoveries 19 73 83
Net Charge-offs (recoveries) (14) 39 (8)
- ----------------------------------------------------- ---------------------- ---------------------- ----------------------
Provision for credit losses 48 126 79
===================================================== ====================== ====================== ======================
Balance end of period $595 $533 $446
===================================================== ====================== ====================== ======================
Ratio of net charge-offs (recoveries) to average (.07%) .11% (.03%)
loans during period (annualized)
Average outstanding loans $37,590 $34,348 $27,936
</TABLE>
MANAGEMENT AND DIRECTORS OF NBT
DIRECTORS AND EXECUTIVE OFFICERS
The following table presents certain information with respect to the
directors and executive officers of NBT, including their respective ages and
positions with NBT.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Mark Milkovich 50 Chairman of the Board
Michael H. Fotheringill 59 President and Chief Executive Officer, Director
Ronald L. Bosi 57 Senior Vice President and Chief Credit Officer, Director
Gregory F. Cromwell 49 Director
David J. Taylor 48 Director
Mabel J. Harris 78 Director
Stanley E. Harris, M.D. 64 Director
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<PAGE>
Robert W. Huff 64 Director
Louise M. Strander 71 Director
</TABLE>
During the past five years, the business experience of each director
and executive officer is as follows:
MARK MILKOVICH. Mr. Milkovich has been a director of Tukwila Bank
since 1988 and a director of NBT since its inception in 1994, and has served
as Chairman of the Board of NBT and Tukwila Bank since January 1996. Mr.
Milkovich has been the owner and president of Superior Silkscreen, Inc. since
1985.
MICHAEL H. FOTHERINGILL. Mr. Fotheringill has been the President and
a director of Tukwila Bank since 1989, and the President and a director of
NBT since its inception in 1994. In July 1995, he became Chief Executive
Officer of both NBT and Tukwila Bank.
RONALD L. BOSI. Mr. Bosi has been the Senior Vice President and
Chief Credit Officer of Tukwila Bank and NBT since May 1996, and a director
of Tukwila Bank and NBT since April 1998. From February 1992 until joining
NBT, Mr. Bosi served as the General Manager of Tribal Credit for the Colville
Tribal Enterprise Corporation and worked as a private consultant.
GREGORY F. CROMWELL. Mr. Cromwell has been a director of Tukwila
Bank since 1985 and a director of NBT since its inception in 1994. Mr.
Cromwell has been a partner in the law firm of Curran Mendoza, P.S. (and a
predecessor, Cromwell, Mendoza & Belur) since 1980.
DAVID J. TAYLOR. Mr. Taylor has been a director of Tukwila Bank and
a director of NBT since July 1996. Since 1992, Mr. Taylor has been a co-owner
and the president of The Box Maker, Inc. and since 1993, he has been an owner
and the president of Frederick's Fine Chocolates, Inc.
MABEL J. HARRIS. Ms. Harris has been a director of Tukwila Bank
since 1985 and a director of NBT since its inception in 1994. Ms. Harris is
retired. From 1978 to 1990, she served on the Tukwila City Council.
STANLEY E. HARRIS, M.D. Dr. Harris has been a director of Tukwila
Bank since 1985 and a director of NBT since its inception in 1994. Since
1968, Dr. Harris has practiced medicine.
ROBERT W. HUFF. Mr. Huff has been a director of Tukwila Bank since
1989 and a director of NBT since its inception in 1994. Mr. Huff is retired.
From 1972 to 1992, Mr. Huff owned and served as the president of R.W. Huff
Construction Co., Inc.
LOUISE M. STRANDER. Ms. Strander has been a director of Tukwila Bank
since 1985 and a director of NBT since its inception in 1994. She has been a
real estate investor since 1968.
There are no arrangements or understandings among any of the
directors, officers or any other persons pursuant to which any of the above
directors or officers have been selected as directors or officers.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding the beneficial
ownership of NBT common stock as of July 31, 1999, by (i) each person known
by NBT to own beneficially more than 5 percent of NBT common stock, (ii) each
current director of NBT, and (iii) all executive officers and directors of
NBT and Tukwila Bank
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as a group. Except as otherwise indicated, each of the persons named below
has sole voting and investment power with respect to NBT common stock owned
by them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE OF
NAME OF BENEFICIAL OWNERSHIP SHARES OUTSTANDING
---- ----------------------- ------------------
<S> <C>
Mark Milkovich 74,971(1) 9.92%
Michael H. Fotheringill 76,036(2) 10.19%
Ronald L. Bosi 17,095 2.29%
Gregory F. Cromwell 775(3) *
David J. Taylor 30,325(4) 4.05%
Mabel J. Harris 9,966(5) 1.33%
Stanley E. Harris, M.D. 12,340(6) 1.65%
Robert W. Huff 47,390(7) 6.27%
Louise M. Strander 47,432(8) 6.33%
Langley Family Trust 130,988 17.58%
Directors and executive officers as
a group (9 persons) 316,330 42.37%
- -------------------
</TABLE>
* Less than 1%.
(1) Includes 9,000 shares subject to vested stock options and 2,354 shares
owned by Mr. Milkovich's spouse.
(2) Includes 3,628 shares owned by Mr. Fotheringill's spouse, and 31,165
owned jointly with his spouse.
(3) Includes 350 shares owned jointly by Mr. Cromwell and his spouse.
(4) Includes 3,000 shares subject to vested stock options.
(5) Includes 2,000 shares subject to vested stock options.
(6) Includes 9,140 shares owned by a profit sharing plan established for
the benefit of Dr. Harris, 200 shares owned by a family limited
partnership of which Dr. Harris is a partner, and 3,000 shares subject
to vested stock options held by the same family limited partnership.
(7) Includes 9,000 shares subject to vested stock options and 29,422 shares
owned jointly with Mr. Huff's spouse.
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(8) Includes 44,432 shares owned by a family limited partnership of which
Mrs. Strander is a partner, and 3,000 shares subject to vested stock
options.
MANAGEMENT OF INTERWEST
Information regarding the names, ages, positions and business
backgrounds of the executive officers and directors of InterWest, as well as
additional information, including executive compensation, security ownership
of certain beneficial owners and management and certain relationships and
related transactions, is incorporated by reference to InterWest's 1999 Proxy
Statement. Shareholders desiring a copy of this document may contact
InterWest. See "INFORMATION INCORPORATED BY REFERENCE."
SUPERVISION AND REGULATION
INTRODUCTION
The following generally refers to certain statutes and regulations
affecting the banking industry. These references are only intended to provide
brief summaries and therefore, are not complete and are qualified by the
statutes and regulations referenced. In addition, due to the numerous
statutes and regulations that apply to and regulate the operation of the
banking industry, many are not referenced below.
THE HOLDING COMPANIES
GENERAL
InterWest is a bank holding company, and owns 100% of InterWest
Bank, Pacific Northwest Bank and Kittitas Valley Bank, N.A. (collectively,
the "Subsidiaries"). The Bank Holding Company Act of 1956, as amended
("BHCA") subjects InterWest and the Subsidiaries, as well as NBT and Tukwila
Bank, to supervision and examination by the Federal Reserve Bank ("FRB"), and
InterWest and NBT file annual reports of operations with the FRB.
BANK HOLDING COMPANY STRUCTURE
In general, the BHCA limits bank holding company business to owning
or controlling banks and engaging in other banking-related activities. Bank
holding companies must obtain the FRB's approval before they: (1) acquire
direct or indirect ownership or control of any voting shares of any bank if,
after such acquisition, they would own or control, directly or indirectly,
more than 5% of the voting shares of such bank; (2) merge or consolidate with
another bank holding company; and (3) acquire substantially all of the assets
of any additional banks. Subject to certain state laws, such as age and
contingency restrictions, a bank holding company that is adequately
capitalized and adequately managed may acquire the assets of an out-of-state
bank.
With certain exceptions, the BHCA prohibits bank holding companies
from acquiring direct or indirect ownership or control of voting shares in
any company that is not a bank or a bank holding company unless the FRB
determines that the activities of such company are incidental or closely
related to the business of banking. If a bank holding company is
well-capitalized and meets certain criteria specified by the FRB, it may
engage de novo in certain permissible nonbanking activities without prior FRB
approval.
TRANSACTIONS WITH AFFILIATES
InterWest and the Subsidiaries, as well as NBT and Tukwila Bank, are
deemed affiliates within the meaning of the Federal Reserve Act, and
transactions between affiliates are subject to certain restrictions.
Accordingly, InterWest and the Subsidiaries and NBT and Tukwila Bank must
comply with Sections 23A and
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23B of the Federal Reserve Act. Generally, Sections 23A and 23B (1) limit the
extent to which the financial institution or its subsidiaries may engage in
"covered transactions" with an affiliate, as defined, to an amount equal to
10% of such institution's capital and surplus and an aggregate limit on all
such transactions with all affiliates to an amount equal to 20% of such
capital and surplus, and (2) require all transactions with an affiliate,
whether or not "covered transactions," to be on terms substantially the same,
or at least as favorable to the institution or subsidiary, as those provided
to a non-affiliate. The term "covered transaction" includes the making of
loans, purchase of assets, issuance of a guarantee and other similar types of
transactions.
REGULATION OF MANAGEMENT
Federal law: (1) sets forth the circumstances under which officers
or directors of a financial institution may be removed by the institution's
federal supervisory agency; (2) places restraints on lending by an
institution to its executive officers, directors, principal shareholders, and
their related interests; and (3) prohibits management personnel from serving
as a director or in other management positions of another financial
institution whose assets exceed a specified amount or which has an office
within a specified geographic area.
TIE-IN ARRANGEMENTS
InterWest, NBT and their subsidiaries, are prohibited from engaging
in certain tie-in arrangements in connection with any extension of credit,
sale or lease of property or furnishing of services. For example, with
certain exceptions, neither InterWest, NBT, nor their subsidiaries may
condition an extension of credit on either (1) a requirement that the
customer obtain additional services provided by it or (2) an agreement by the
customer to refrain from obtaining other services from a competitor.
STATE LAW RESTRICTIONS
As corporations chartered under the laws of the State of Washington,
InterWest and NBT may be subject to certain limitations and restrictions as
provided under applicable Washington corporate laws.
SECURITIES REGISTRATION AND REPORTING
The InterWest Common Stock is registered as a class with the SEC
under the Securities Exchange Act of 1934 and thus is subject to the periodic
reporting and proxy solicitation requirements and the insider-trading
restrictions of that Act. The periodic reports, proxy statements, and other
information filed by InterWest under that Act can be inspected and copied at
or obtained from the Washington, D.C., office of the SEC. See "WHERE YOU CAN
FIND MORE INFORMATION." In addition, the securities issued by InterWest are
subject to the registration requirements of the Securities Act of 1933 and
applicable state securities laws unless exemptions are available.
THE EXISTING AND PROPOSED SUBSIDIARIES
GENERAL
Applicable federal and state statutes and regulations governing a
bank's operations relate, among other matters, to capital requirements,
required reserves against deposits, investments, loans, legal lending limits,
certain interest rates payable, mergers and consolidations, borrowings,
issuance of securities, payment of dividends (see below), establishment of
branches, and dealings with affiliated persons. The Federal Deposit Insurance
Corporation ("FDIC") has authority to prohibit banks under their supervision
from engaging in what they consider to be an unsafe and unsound practice in
conducting their business.
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Kittitas Valley Bank and Tukwila Bank are national banking
associations which are subject to extensive regulation and supervision by the
Office of the Comptroller of the Currency. InterWest Bank is a
state-chartered savings bank, and Pacific is a state-chartered commercial
bank, both of which are subject to extensive regulation and supervision by
the Washington Department of Financial Institutions Division of Banks. Under
state law, savings banks in Washington generally have all of the powers that
federal mutual savings banks have under federal laws and regulations. Each of
InterWest's and NBT's banking subsidiaries are also subject to regulation and
examination by the FDIC, which insures the deposits of the banking
subsidiaries to the maximum extent permitted by law and by requirements
established by the FRB. The federal laws that apply to InterWest's and NBT's
banking subsidiaries regulate, among other things, the scope of their
business, their investments, their reserves against deposits, the timing of
the availability of deposited funds and the nature and amount of and
collateral for loans. The laws and regulations governing InterWest's and
NBT's banking subsidiaries generally have been promulgated to protect
depositors and not to protect shareholders of such institutions or their
holding companies.
CRA. The Community Reinvestment Act requires that, in connection
with examinations of financial institutions within their jurisdiction, the
Federal Reserve or the FDIC evaluates the record of the financial
institutions in meeting the credit needs of their local communities,
including low and moderate income neighborhoods, consistent with the safe and
sound operation of those banks. These factors are also considered in
evaluating mergers, acquisitions, and applications to open a branch or
facility.
INSIDER CREDIT TRANSACTIONS. Banks are also subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to
executive officers, directors, principal shareholders, or any related
interests of such persons. Extensions of credit (i) must be made on
substantially the same terms, including interest rates and collateral, and
follow credit underwriting procedures that are not less stringent than those
prevailing at the time for comparable transactions with persons not covered
above and who are not employees; and (ii) must not involve more than the
normal risk of repayment or present other unfavorable features. Banks are
also subject to certain lending limits and restrictions on overdrafts to such
persons. A violation of these restrictions may result in the assessment of
substantial civil monetary penalties on the affected bank or any officer,
director, employee, agent, or other person participating in the conduct of
the affairs of that bank, the imposition of a cease and desist order, and
other regulatory sanctions.
FDICIA. Under the Federal Deposit Insurance Corporation Improvement
Act (the "FDICIA"), each federal banking agency has prescribed, by
regulation, noncapital safety and soundness standards for institutions under
its authority. These standards cover internal controls, information systems,
and internal audit systems, loan documentation, credit underwriting, interest
rate exposure, asset growth, compensation, fees and benefits, such other
operational and managerial standards as the agency determines to be
appropriate, and standards for asset quality, earnings and stock valuation.
An institution which fails to meet these standards must develop a plan
acceptable to the agency, specifying the steps that the institution will take
to meet the standards. Failure to submit or implement such a plan may subject
the institution to regulatory sanctions. Management of InterWest and NBT
believe that the Subsidiaries and Tukwila Bank meet all such standards, and
therefore, does not believe that these regulatory standards materially affect
InterWest's or NBT's business operations
LOANS-TO-ONE BORROWER
Each of InterWest's and NBT's banking subsidiaries is subject to
limitations on the aggregate amount of loans that it can make to any one
borrower, including related entities. Applicable regulations generally limit
loans-to-one borrower to 15 to 20% of unimpaired capital and surplus. As of
July 31, 1999, each of InterWest's and NBT's banking subsidiaries was in
compliance with applicable loans-to-one borrower requirements.
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<PAGE>
DEPOSIT INSURANCE
The deposits of the Subsidiaries and of Tukwila Bank are currently
insured to a maximum of $100,000 per depositor through the Bank Insurance
Fund administered by the FDIC. All insured banks are required to pay
semi-annual deposit insurance premium assessments to the FDIC.
DIVIDENDS
The principal source of InterWest's cash revenues is dividends
received from the Subsidiaries. The payment of dividends is subject to
government regulation, in that regulatory authorities may prohibit banks and
bank holding companies from paying dividends which would constitute an unsafe
or unsound banking practice. In addition, a bank may not pay cash dividends
if that payment could reduce the amount of its capital below that necessary
to meet minimum applicable regulatory capital requirements. Other than the
laws and regulations noted above, which apply to all banks and bank holding
companies, neither InterWest, NBT, the Subsidiaries or Tukwila Bank is
currently subject to any regulatory restrictions on its dividends.
CAPITAL ADEQUACY
Federal bank regulatory agencies use capital adequacy guidelines in
the examination and regulation of bank holding companies and banks. If
capital falls below minimum guideline levels, the holding company or bank may
be denied approval to acquire or establish additional banks or nonbank
businesses or to open new facilities.
The FDIC and Federal Reserve use risk-based capital guidelines for
banks and bank holding companies. These are designed to make such capital
requirements more sensitive to differences in risk profiles among banks and
bank holding companies, to account for off-balance sheet exposure and to
minimize disincentives for holding liquid assets. Assets and off-balance
sheet items are assigned to broad risk categories, each with appropriate
weights. The resulting capital ratios represent capital as a percentage of
total risk-weighted assets and off-balance sheet items. The guidelines are
minimums, and the Federal Reserve has noted that bank holding companies
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain ratios well in excess of
the minimum. The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based total capital
ratio equal to 8%, of which at least 4% must be Tier I capital. Tier I
capital for bank holding companies includes common shareholders' equity,
certain qualifying perpetual preferred stock and minority interests in equity
accounts of consolidated subsidiaries, less intangibles except as described
above.
The Federal Reserve also employs a leverage ratio, which is Tier I
capital as a percentage of total assets less intangibles, to be used as a
supplement to risk-based guidelines. The principal objective of the leverage
ratio is to constrain the maximum degree to which a bank holding company may
leverage its equity capital base. The Federal Reserve requires a minimum
leverage ratio of 3%. However, for all but the most highly rated bank holding
companies and for bank holding companies seeking to expand, the Federal
Reserve expects an additional cushion of at least 1% to 2%.
FDICIA created a statutory framework of supervisory actions indexed
to the capital level of the individual institution. Under regulations adopted
by the FDIC, an institution is assigned to one of five capital categories
depending on its total risk-based capital ratio, Tier I risk-based capital
ratio, and leverage ratio, together with certain subjective factors.
Institutions which are deemed to be "undercapitalized" depending on the
category to which they are assigned are subject to certain mandatory
supervisory corrective actions. InterWest and NBT do not believe that these
regulations have any material effect on their operations.
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<PAGE>
INTERSTATE BANKING AND BRANCHING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Act") permits nationwide interstate banking and
branching under certain circumstances. This legislation generally authorizes
interstate branching and relaxes federal law restrictions on interstate
banking. Currently, bank holding companies may purchase banks in any state,
and states may not prohibit such purchases. Additionally, banks are permitted
to merge with banks in other states as long as the home state of neither
merging bank has opted out. The Interstate Act requires regulators to consult
with community organizations before permitting an interstate institution to
close a branch in a low-income area.
With regard to interstate bank mergers, Washington has "opted-in" to
the Interstate Act and allows in-state banks to merge with out-of-state banks
subject to certain aging requirements. Washington law generally authorizes
the acquisition of an in-state bank by an out-of-state bank holding company
through the acquisition of a financial institution if the in-state bank being
acquired has been in existence for at least five years prior to the
acquisition. At this time, the full impact that the Interstate Act might have
on InterWest and NBT is impossible to predict.
EFFECTS OF GOVERNMENT MONETARY POLICY
The earnings and growth of InterWest and NBT are affected not only
by general economic conditions, but also by the fiscal and monetary policies
of the federal government, particularly the Federal Reserve. The Federal
Reserve can and does implement national monetary policy for such purposes as
curbing inflation and combating recession, but its open market operations in
U.S. government securities, control of the discount rate applicable to
borrowings from the Federal Reserve, and establishment of reserve
requirements against certain deposits, influence the growth of bank loans,
investments and deposits, and also affect interest rates charged on loans or
paid on deposits. The nature and impact of future changes in monetary
policies and their impact on InterWest, NBT, the Subsidiaries and Tukwila
Bank cannot be predicted with certainty.
CHANGES IN BANKING LAWS AND REGULATIONS
The laws and regulations that affect banks and bank holding
companies are currently undergoing significant changes. Legislation proposed
in Congress may alter the structure, regulation, and competitive
relationships of the nation's financial institutions. Such bills could have
the effect of increasing or decreasing the cost of doing business, limiting
or expanding permissible activities (including activities in the insurance
and securities fields), or affecting the competitive balance among banks,
savings associations, and other financial institutions. Some of these bills
may reduce the extent of federal deposit insurance, broaden the powers or the
geographical range of operations of bank holding companies, alter the extent
to which banks could engage in securities activities, and change the
structure and jurisdiction of various financial institution regulatory
agencies. Whether or in what form such legislation may be adopted, or the
extent to which the business of InterWest might be affected thereby, cannot
be predicted with certainty
DESCRIPTION OF INTERWEST CAPITAL STOCK
InterWest is authorized to issue 30,000,000 shares of common stock,
no par value per share. At August ___, 1999, _________ shares of InterWest
common stock were issued and outstanding. A total of _____________ shares are
subject to options under InterWest stock option plans; ___________ of such
options are fully vested and exercisable. InterWest common stock is listed
for trading on the Nasdaq National Market under the symbol "IWBK." Each share
of InterWest common stock has the same relative rights and is identical in
all respects with every other share of InterWest common stock. The following
summary describes the material aspects of the InterWest common stock, but
does not purport to be a complete description of the applicable provisions of
the InterWest articles of incorporation and bylaws or of applicable statutory
or other law, and is
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qualified in its entirety by reference to such documents. See "INFORMATION
INCORPORATED BY REFERENCE" and "WHERE YOU CAN FIND ADDITIONAL INFORMATION."
VOTING RIGHTS
The holders of InterWest common stock possess exclusive voting
rights in InterWest. Each holder of InterWest common stock is entitled to one
vote for each share held of record on all matters submitted to a vote of
holders of InterWest common stock. Holders of shares of InterWest common
stock are not entitled to cumulate votes for the election of directors.
DIVIDENDS
The holders of InterWest common stock are entitled to such dividends
as the InterWest board of directors may declare from time to time out of
funds legally available therefor. Dividends from InterWest depend upon the
receipt to InterWest of dividends from the Subsidiaries because InterWest has
no source of income other than dividends from its subsidiary banks.
Accordingly, the dividend restrictions imposed on InterWest's subsidiary
banks by statute or regulation may effectively limit the amount of dividends
InterWest can pay. See "SUPERVISION AND REGULATION - Dividends."
LIQUIDATION
In the event of liquidation, dissolution or winding up of InterWest,
the holders of shares of InterWest common stock are entitled to share ratably
in all assets remaining after payment of all debts and other liabilities of
InterWest.
OTHER CHARACTERISTICS
Holders of InterWest common stock do not have any preemptive,
conversion or other subscription rights with respect to any additional shares
of InterWest common stock which may be issued. Therefore, the InterWest board
of directors may authorize the issuance and sale of shares of capital stock
of InterWest without first offering them to existing shareholders of
InterWest. InterWest common stock is not subject to any redemption or sinking
fund provisions. The outstanding shares of InterWest common stock are, and
the shares to be issued in the merger will be, fully paid and non-assessable.
The InterWest articles of incorporation and bylaws contain
provisions that may have the effect of discouraging persons from acquiring
large blocks of InterWest common stock or delaying or preventing a change in
control of InterWest. These provisions include the classification of the
InterWest board of directors into three classes with the term of only one
class expiring each year and requirements for the approval of certain
business combinations. See "COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF
INTERWEST AND NBT COMMON STOCK -Potential Antitakeover Provisions."
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF INTERWEST
AND NBT COMMON STOCK
GENERAL
InterWest is incorporated under the laws of the State of Washington
and, accordingly, the rights of InterWest's shareholders are governed by
InterWest's articles of incorporation, bylaws and the Washington Business
Corporations Act ("WBCA"). NBT, likewise, is incorporated under the laws of
the State of Washington and, accordingly, the rights of NBT's shareholders
are governed by NBT's articles of incorporation, bylaws and the WBCA.
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Upon consummation of the merger, shareholders of NBT will become
shareholders of InterWest, and as such, their rights will be governed by
InterWest's articles of incorporation, bylaws and the WBCA. The following is
a summary of material differences between the articles of incorporation and
bylaws of InterWest and the articles of incorporation and bylaws of NBT. 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 WBCA and the articles and bylaws of each entity.
PAYMENT OF DIVIDENDS
INTERWEST. Under Washington law, dividends may be paid only if,
after giving effect to the dividend, InterWest will be able to pay its debts
as they become due in the ordinary course of business and InterWest's total
assets will not be less than the sum of its total liabilities plus the amount
that would be needed, if InterWest 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.
NBT. NBT's ability to pay dividends, and the limits imposed by
Washington law, are the same as those applicable to InterWest.
VOTING RIGHTS
INTERWEST. InterWest'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
shareholders' 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 InterWest board of
directors. All voting rights are vested in the holders of InterWest common
stock, with each share being entitled to one vote.
NBT. All voting rights are vested in the holders of NBT common stock
with each share being entitled to one vote. NBT's articles of incorporation
eliminate cumulative voting.
PREEMPTIVE RIGHTS
Neither InterWest's shareholders nor NBT's shareholders have
preemptive rights to subscribe to any additional securities that may be
issued.
LIQUIDATION RIGHTS
INTERWEST. If InterWest is liquidated, the holders of InterWest
common stock are entitled to share, on a pro rata basis, InterWest's
remaining assets after payment of or provision for all debts and other
liabilities of InterWest.
NBT. Similarly, if NBT is liquidated, holders of NBT common stock
are entitled to share, on a pro rata basis, NBT's remaining assets after
payment of or provision for all debts and other liabilities of NBT.
ASSESSMENTS
All outstanding shares of InterWest common stock and of NBT common
stock are fully paid and nonassessable.
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STOCK REPURCHASES
Under Washington law, a corporation may acquire shares of its own
stock. Therefore, both InterWest and NBT may repurchase shares of their own
capital stock.
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS
INTERWEST. InterWest's articles of incorporation may be amended by
the vote of the holders of a majority of the outstanding shares of InterWest
common stock, except that the provisions of the articles of incorporation
governing approval of business combinations with "Related Persons" may not be
amended altered, changed or repealed except by the vote of the holders of at
least 80% of the outstanding shares of InterWest, unless any such amendment
has been approved by a majority of the members of the InterWest board of
directors who were directors prior to the time any Related Person (as defined
below) became a Related Person. The bylaws of InterWest may be amended by a
majority vote of the board of directors or by the holders of at least a
majority of the outstanding shares of InterWest.
NBT. NBT's articles of incorporation may be amended only by the vote
of the holders of two-thirds of the outstanding shares of NBT common stock.
SPECIAL MEETINGS OF SHAREHOLDERS AND ACTION WITHOUT A MEETING
INTERWEST. The articles of incorporation of InterWest provide that
special meetings of shareholders may be called by the president, the board of
directors or holders of not less than a majority of the outstanding shares.
This restriction on the calling of special shareholders' meetings may deter
hostile takeovers of InterWest making it more difficult for a person or
entity to obtain immediate control of InterWest between one annual meeting
and the next. Pursuant to InterWest's bylaws, any action required or
permitted to be taken at a meeting of shareholders may be taken without a
meeting if a consent in writing is signed by all of the shareholders entitled
to vote on the matter.
NBT. Under Washington law, special meetings of the NBT shareholders
may be called by the board of directors or by the holders of 10% of NBT's
outstanding shares.
APPROVAL OF MERGERS, CONSOLIDATIONS, SALE OF SUBSTANTIALLY ALL ASSETS AND
DISSOLUTION
INTERWEST. Article X of InterWest's articles of incorporation
requires the approval of the holders of (i) at least 80% of InterWest's
outstanding shares of voting stock, and (ii) at least a majority of
InterWest'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 InterWest board of directors who were
directors prior to the time when the Related Person became a Related Person.
In the event the requisite approval of the board of directors were given, the
normal vote requirement of applicable Washington law would apply, or, for
certain transactions, no shareholder vote would be necessary. The term
"Related Person" is defined to include any individual, corporation,
partnership or other entity which owns beneficially or controls, directly or
indirectly, 10% or more of the outstanding shares of voting stock of
InterWest.
The provisions of Article X apply to any "Business Combination"
which is defined to include among other things:
- any merger or consolidation of InterWest or any of its affiliates
with or into any Related Person;
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- any sale, lease, exchange, mortgage, transfer, or other
disposition of all or a substantial part of the assets of
InterWest or any of its affiliates to any Related Person (the term
"substantial part" is defined to include more than 25% of
InterWest's total assets);
- any sale, lease, exchange, or other transfer by any Related Person
to InterWest of all or a substantial part of the assets of Related
Person;
- the acquisition by InterWest of any securities of the Related
Person;
- any reclassification of InterWest common stock; and
- 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.
InterWest's articles of incorporation require InterWest'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.
NBT. Under Washington law, a merger of NBT or a sale of all or
substantially all of its assets requires the approval of the holders of at
least 2/3 of NBT's outstanding shares. Moreover, under NBT's articles of
incorporation, if effected with an "interested shareholder" (defined as any
person or group of affiliated persons who beneficially own 20% or more of
NBT's outstanding voting shares), such transactions must be approved by the
holders of 2/3 of NBT's outstanding shares excluding shares beneficially
owned by the interested shareholder. This special voting requirement does not
apply however, if either the transaction with the interested shareholder is
approved by a majority vote of NBT's board of directors or if a majority of
the board determines that the fair market value of the consideration to be
received by non-interested shareholders in connection with the transaction is
not less than the highest fair market value of the consideration paid by any
interested shareholder in acquiring shares within 24 months of the proposed
transaction. In considering whether to approve any business combination
transaction, NBT's board of directors is allowed, but not obligated, under
NBT's articles of incorporation to consider the social and economic effects
of the proposed transaction on employees and customers and the communities in
which NBT does business, in addition to any other factors deemed relevant by
the board..
RIGHTS OF SHAREHOLDERS TO DISSENT
INTERWEST. Under the WBCA, shareholders of InterWest will generally
have dissenter's appraisal rights in connection with (i) a plan of merger to
which InterWest is a party; (ii) a plan of share exchange to which InterWest
is a party as the corporation whose shares will be acquired; (iii) certain
sales or exchanges of all, or substantially all, of InterWest's property
other than in the regular course of business; and (iv) amendments to
InterWest's articles of incorporation effecting a material reverse stock
split. However, shareholders generally will not have such dissenter's rights
if shareholder approval is not required by the WBCA for the corporate action
in question. Approval of the merger by the holders of InterWest common stock
is not required under the WBCA; therefore shareholders of InterWest do not
have dissenter's rights in connection with the merger.
NBT. Under the WBCA, shareholders of NBT generally have dissenter's
appraisal rights in connection with (i) a plan of merger to which NBT is a
party; (ii) a plan of share exchange to which NBT is a party as the
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corporation whose shares will be acquired; (iii) certain sales or exchanges
of all, or substantially all, of NBT's property other than in the regular
course of business; and (iv) amendments to NBT's articles of incorporation
effecting a material reverse stock split. Shareholders of NBT have
dissenter's rights in connection with the merger. See "THE MERGER -
Dissenter's Rights of Appraisal."
SIZE OF BOARD OF DIRECTORS
INTERWEST. InterWest's articles of incorporation provide that its
board of directors shall consist of not less than five nor more than 15
members, with the current number set at nine by the bylaws of InterWest. The
bylaws of InterWest provide that the board of directors or the shareholders
may change the authorized number of directors within the stated range by
amending the bylaws, which must be approved by a majority of the outstanding
shares entitled to vote or by a majority of the directors. Changes in the
size of the range may be made by an amendment to InterWest's articles of
incorporation, which must be approved by a majority of the outstanding shares
entitled to vote. The effect of such provisions may be to make it difficult
for a person or entity immediately to acquire control of InterWest through an
increase in the number of InterWest's directors and election of such person's
or entity's nominees to fill the newly created vacancies.
NBT. Under NBT's articles of incorporation and bylaws, the number of
directors shall be no less than five nor more than 25, with the exact number
to be fixed within such limits by resolution of the board or shareholders
from time to time. However, the board's authority to increase the number of
directors is limited to 2 directors, if the number of directors last elected
by shareholders was 15 or less, or 4 directors, if the number of directors
last elected by shareholders was 16 or more. In addition, any increase in the
number of directors effected by resolution of the board must be approved by
at least 3/4 of the directors then in office.
CLASSIFIED BOARD OF DIRECTORS
INTERWEST. A classified board is one in which a certain number, but
not all, of the directors are elected on a rotating basis each year.
InterWest'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. 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 of directors, all of the directors
would be elected each year.
NBT. NBT's articles of incorporation, like InterWest's, provide for
a classified board divided into three classes.
REMOVAL OF DIRECTORS
INTERWEST. InterWest'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 for cause by the majority of the
directors or by a vote of the holder of a majority of the shares then
entitled to vote at such meeting. The requirement that directors may be
removed only upon a majority vote and only for cause makes it difficult for a
person or entity immediately to acquire control of InterWest's board of
directors through the removal of existing directors and the election of such
person's or entity's nominated to fill the newly created vacancies.
NBT. NBT's articles of incorporation provide that the shareholders
may remove one or more directors, 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 of shareholders called especially for that purpose.
44
<PAGE>
VACANCIES ON THE BOARD OF DIRECTORS
INTERWEST. The bylaws of InterWest provide that any vacancy on the
board of directors may be filled by the affirmative vote of a majority of the
remaining directors, and any director so appointed is to serve for an
unexpired term of his or her predecessor. A director appointed by reason of
an increase in the number of directors may serve only until the next election
of directors.
NBT. NBT's articles of incorporation provide that vacancies
occurring in the board of directors may be filled by the affirmative vote of
a majority of the remaining directors.
ADVANCE NOTICE REQUIREMENTS; SHAREHOLDER MEETINGS
INTERWEST. The bylaws of InterWest 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 InterWest 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. The InterWest board of directors believes that it is in the best
interests of InterWest and its shareholders to provide sufficient time to
enable the board to disclose to shareholders information about a dissident
slate of nominations for directors. This advance notice requirement may also
give the board time to solicit its own proxies in an attempt to defeat any
dissident slate of nominations, should the board determine that doing so is
in the best interest of shareholders generally. Similarly, adequate advance
notice of shareholder proposals will give the board 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 the board's nominees or proposals, even if
shareholders believe such nominees or proposals are in their best interests.
NBT. Under NBT's articles of incorporation and bylaws, nominations
for election to NBT's board may be made by any shareholder. However, the
articles of incorporation and bylaws require that shareholder nominations of
board candidates, together with certain information relating to the nominee,
be submitted in advance of any meeting called for the election of directors.
The articles of incorporation require that such information be submitted no
less than 60 days prior to the first anniversary of the last shareholders
meeting to elect directors. The bylaws require a lesser amount of advance
notice, but the bylaw advance notice provisions are subordinate to the
requirements under the articles of incorporation.
Neither NBT's articles of incorporation and bylaws impose advance
notice requirements with respect to the proposal of new business at a meeting
of shareholders.
INDEMNIFICATION OF OFFICERS AND DIRECTORS AND LIMITATION OF LIABILITY
INTERWEST. Pursuant to InterWest's articles of incorporation,
InterWest will, to the fullest extent permitted by the WBCA, indemnify the
officers, directors, agents and employees of InterWest with respect to
expenses, settlements, judgments and fines in suits in which such person was
made a party by reason of the fact that he or she is or was an agent of
InterWest. 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. In addition,
InterWest's articles of incorporation provide that the directors of InterWest
shall not be personally liable for monetary damages to InterWest 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. This provision might, in certain instances, discourage or deter
shareholders or management from bringing a lawsuit against directors for a
breach of their duties even though such an action, if successful, might have
benefited InterWest.
45
<PAGE>
In addition to the indemnification provisions set forth in
InterWest's Articles, InterWest has entered into separate Indemnity
Agreements with the directors of InterWest and InterWest Bank which provide
for the indemnification of such directors by InterWest to the fullest extent
allowed by the WBCA. The Indemnity Agreements indemnify each director and
hold such director harmless against any loss arising from a claim or action
relating to his or her services as a director. The Indemnity Agreements
further provides that InterWest will advance sufficient funds as may be
necessary to investigate or defend claims against a director, and to
reimburse funds that may be incurred by the director, with the proviso that
the director will reimburse InterWest any expenses paid to such director in
the event it is later determined that the payment of such sums were not
allowable under Washington law.
NBT. Pursuant to NBT's articles of incorporation and bylaws, NBT
will, to the fullest extent permitted by the WBCA, indemnify directors and
officers against all liability, damage or expense resulting from the fact
that such person is or was a director or officer except that NBT will not
indemnify a director or officer against liability, damage or expense
resulting from the director's or officer's gross negligence. In addition,
NBT's articles of incorporation provide that the directors of NBT shall not
be personally liable for monetary damages to NBT or its shareholders for
conduct as directors except for liabilities that involve intentional
misconduct or a knowing violation of law by the director, conduct violating
Section 23B.08.310 of the WBCA or participation in any transaction from which
the director personally received a benefit to which the director was not
legally entitled.
POTENTIAL ANTITAKEOVER PROVISIONS
INTERWEST. The InterWest articles of incorporation contain
provisions that may have the effect of discouraging persons from acquiring
large blocks of InterWest common stock or delaying or preventing a change of
control of InterWest. These provisions include the classification of the
InterWest board of directors into three classes with the term of only one
class expiring each year (see "-Classified Board of Directors") and
requirements for the approval of certain business combinations (see
"-Approval of Mergers, Consolidations, Sale of Substantially All Assets and
Dissolution.")
NBT. NBT's articles of incorporation and bylaws contain provisions
that may have the effect of discouraging persons from acquiring large blocks
of NBT's common stock or delaying or preventing a change of control. These
provisions include the classification of the NBT board of directors into thee
classes (see "Classified Board of Directors"), limitations on the board's
ability to increase the number of directors in office from time to time (see
"--Size of Board of Directors") advance notice requirements with respect to
shareholder nominations for board of director elections (see "--Advance
Notice Requirements; Shareholder Meetings"), and limitations on business
combinations with interested shareholders (see "--Approval of Mergers,
Consolidations, Sale of Substantially All Assets and Dissolution").
CERTAIN LEGAL MATTERS
The validity of the InterWest common stock to be issued in the
merger is being passed upon for InterWest by Graham & Dunn, P.C., Seattle,
Washington. Graham & Dunn, P.C. will also deliver an opinion concerning
certain federal income tax consequences of the merger.
46
<PAGE>
EXPERTS
Ernst & Young LLP, independent auditors, have audited the InterWest
consolidated financial statements included in the InterWest Annual Report on
Form 10-K for the year ended September 30, 1998, as set forth in their
report, which is incorporated by reference in this proxy statement/prospectus
and elsewhere in the registration statement. The InterWest consolidated
financial statements are incorporated by reference in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
The audited consolidated financial statements of NBT as of December
31, 1998 and 1997, and for each of the two years in the period ended December
31, 1998, included in this proxy statement/prospectus, have been audited by
Knight Vale & Gregory, Inc., P.S., independent auditors, as indicated in
their report with respect thereto appearing elsewhere in this proxy
statement/prospectus, and are included herein in reliance upon the authority
of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
InterWest files annual, quarterly and current reports, proxy
statements, and other information with the SEC. You may read and copy any
reports, statements, or other information that InterWest files, at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the Public Reference Room. You can request copies of InterWest's
filed documents, upon payment of a duplicating fee, by writing to the Public
Reference Section of the SEC, 450 Fifth Street, Room 1024, Washington, D.C.
20549. InterWest's SEC filings are also available to the public on the SEC
Internet site (http://www.sec.gov).
InterWest has filed a Registration Statement on Form S-4 under the
1933 Act, to register with the SEC, the InterWest common stock to be issued
to NBT shareholders in the merger. This proxy statement/prospectus is part of
that Registration Statement and constitutes a prospectus of InterWest in
addition to being a proxy statement of NBT for the NBT special shareholders
meeting. As allowed by SEC rules, this proxy statement/prospectus does not
contain all of the information that you can find in the Registration
Statement or the exhibits to the Registration Statement.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows InterWest to "incorporate by reference" information
into this proxy statement/prospectus, which means that InterWest can disclose
important information to you by referring you to another document filed
separately by InterWest with the SEC. The information incorporated by
reference is considered to be part of this proxy statement/prospectus, except
for any information that is superseded by information that is included
directly in this document.
This proxy statement/prospectus incorporates by reference the
documents set forth below that InterWest has previously filed with the SEC.
These documents contain important information about InterWest and its
financial condition:
- Annual Report on Form 10-K for the year ended September 30,
1998;
- Quarterly Reports on Form 10-Q for the quarters ended December 31,
1998; March 31, 1999 and June 30, 1999; and
- Proxy Statement for InterWest's 1999 Annual Meeting of
Shareholders.
47
<PAGE>
InterWest is also incorporating by reference additional documents
that InterWest files with the SEC between the date of this proxy
statement/prospectus and the date of the special meeting of the NBT
shareholders.
You can obtain the documents that are incorporated by reference from
InterWest or the SEC. You can obtain the documents from the SEC, as described
above under "WHERE YOU CAN FIND MORE INFORMATION." These documents are also
available from InterWest without charge, excluding exhibits unless InterWest
has specifically incorporated such exhibits by reference in this proxy
statement/prospectus. You may obtain documents incorporated by reference in
this proxy statement/prospectus by requesting them from InterWest at 275 S.E.
Pioneer Way, Oak Harbor, Washington 98227, ATTN: Margaret Mordhorst,
Corporate Secretary. InterWest's telephone number is (360) 679-4181. IF YOU
WOULD LIKE TO REQUEST DOCUMENTS FROM INTERWEST, PLEASE DO SO BY SEPTEMBER 21,
1999, IN ORDER TO RECEIVE THEM BEFORE THE NBT SPECIAL SHAREHOLDERS MEETING.
InterWest has supplied all of the information concerning it
contained in this proxy statement/prospectus, and NBT has supplied all of the
information concerning it.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS IN DECIDING HOW TO VOTE ON THE
MERGER. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION OTHER
THAN WHAT IS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. THIS PROXY
STATEMENT/PROSPECTUS IS DATED AUGUST _____, 1999. YOU SHOULD NOT ASSUME THAT
INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF
ANY OTHER DATE, AND NEITHER THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO
NBT SHAREHOLDERS NOR THE ISSUANCE OF INTERWEST COMMON STOCK IN THE MERGER
WILL CREATE ANY IMPLICATION TO THE CONTRARY.
OTHER MATTERS
The NBT board of directors is not aware of any business to come
before the NBT special shareholders meeting other than those matters
described above in this proxy statement/prospectus. However, if any other
matters should properly come before the NBT special shareholders 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.
48
<PAGE>
NBT NORTHWEST BANCORP
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1999 Interim Financial Statements (Unaudited)...........................................F-2
Condensed Consolidated Balance Sheets..........................................F-2
Condensed Consolidated Statements of Income....................................F-3
Condensed Consolidated Statements of Changes in Shareholders Equity............F-4
Condensed Consolidated Statements of Cash Flows................................F-5
Notes to Condensed Consolidated Financial Statements...........................F-6
December 31, 1998 and 1997 Financial Statements.........................................F-7
Independent Auditors' Report...................................................F-8
Consolidated Balance Sheets....................................................F-9
Consolidated Statements of Income.............................................F-10
Consolidated Statements of Changes in Shareholders Equity.....................F-11
Consolidated Statements of Cash Flows.........................................F-12
Notes to Consolidated Financial Statements...............................F-13-F-28
</TABLE>
F-1
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS - (UNAUDITED)
- -------------------------------------------------------------------------------
(Dollars in Thousands)
NBT Northwest Bancorp and Subsidiary
June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31
1999 1998
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,971 $ 3,444
Interest-bearing balances in other banks 290 --
Federal funds sold 1,300 2,335
Securities available for sale 5,059 5,277
Loans 38,226 38,072
Allowance for credit losses 595 533
NET LOANS 37,631 37,539
Premises and equipment 304 350
Accrued interest receivable 221 258
Other assets 161 111
TOTAL ASSETS $47,937 $49,314
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $11,322 $12,752
Savings and interest bearing demand 19,926 17,394
Time 9,290 14,236
TOTAL DEPOSITS 40,538 44,382
Short-term borrowings 2,250 --
Accrued interest payable 46 76
Other liabilities 135 180
TOTAL LIABILITIES 42,969 44,638
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY
Common stock (par value $1); authorized 1,000,000 shares;
issued and outstanding: 1999 - 716,517 shares; 1998 - 713,665 shares 717 714
Surplus 2,501 2,491
Retained earnings 1,801 1,445
Accumulated other comprehensive income (51) 26
TOTAL SHAREHOLDERS' EQUITY 4,968 4,676
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $47,937 $49,314
</TABLE>
SEE NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - (UNAUDITED)
- --------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Amounts)
NBT Northwest Bancorp and Subsidiary
Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
INTEREST INCOME
Loans $1,785 $1,697
Federal funds sold and interest bearing deposits 45 54
Securities available for sale 154 182
TOTAL INTEREST INCOME 1,984 1,933
INTEREST EXPENSE
Deposits 633 581
Short-term borrowings 20 76
TOTAL INTEREST EXPENSE 653 657
NET INTEREST INCOME 1,331 1,276
PROVISION FOR CREDIT LOSSES 48 63
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 1,283 1,213
NON-INTEREST INCOME
Service charges on deposit accounts 53 63
Gain on sale of securities available for sale 19 53
Other operating income 66 58
TOTAL NON-INTEREST INCOME 138 174
NON-INTEREST EXPENSE
Salaries and employee benefits 417 427
Occupancy, furniture and equipment 125 120
Other 340 331
TOTAL NON-INTEREST EXPENSE 882 878
INCOME BEFORE INCOME TAXES 539 509
INCOME TAXES 183 145
NET INCOME $ 356 $ 364
EARNINGS PER SHARE DATA
Basic earnings per share $.50 $.53
Diluted earnings per share .48 .51
</TABLE>
SEE NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - (UNAUDITED)
- -------------------------------------------------------------------------------
(Dollars in Thousands)
NBT Northwest Bancorp and Subsidiary
Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON RETAINED COMPREHENSIVE
STOCK SURPLUS EARNINGS INCOME TOTAL
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $686 $2,405 $ 730 $36 $3,857
Comprehensive income:
Net income -- -- 364 -- 364
Other comprehensive income,
net of tax:
Unrealized loss on
securities, net of
reclassification adjustment -- -- -- (26) (26)
COMPREHENSIVE INCOME 338
BALANCE, JUNE 30, 1998 $686 $2,405 $1,094 $10 $4,195
Balance, December 31, 1998 $714 $2,491 $1,445 $26 $4,676
Comprehensive income:
Net income -- -- 356 -- 356
Other comprehensive income,
net of tax:
Unrealized loss on
securities, net of
reclassification adjustment -- -- -- (77) (77)
COMPREHENSIVE INCOME 279
Stock options exercised 3 16 -- -- 19
Common stock repurchased -- (6) -- -- (6)
BALANCE, JUNE 30, 1999 $717 $2,501 $1,801 ($51) $4,968
</TABLE>
SEE NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
- -------------------------------------------------------------------------------
(Dollars in Thousands)
NBT Northwest Bancorp and Subsidiary
Six Months Ended June 30, 1999 and 1998
<TABLE>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income: $356 $364
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for credit losses 48 63
Depreciation and amortization 59 57
Stock dividends received (40) (40)
Gain on sale of securities available for sale (19) (53)
(Increase) decrease in interest receivable 37 (1)
Increase (decrease) in interest payable (30) 11
Other - net (57) 112
NET CASH PROVIDED BY OPERATING ACTIVITIES 354 513
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in federal funds sold 1,035 3,760
Net increase in interest bearing deposits in banks (290) (174)
Proceeds from sales of securities available for sale 522 3,295
Proceeds from maturities of investment securities available for sale 59 515
Purchases of securities available for sale (419) (3,240)
Increase in loans made to customers, net of principal collections (140) (3,069)
Purchases of premises and equipment (13) (5)
NET CASH PROVIDED BY INVESTING ACTIVITIES 754 1,082
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (3,844) (2,411)
Increase in short-term borrowings 2,250 --
Exercise of stock options 19 --
Repurchase of common stock (6) --
NET CASH USED IN FINANCING ACTIVITIES (1,581) (2,411)
NET CHANGE IN CASH AND DUE FROM BANKS (473) (816)
CASH AND DUE FROM BANKS
Beginning of period 3,444 3,581
END OF PERIOD $2,971 $2,765
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $683 $646
Income taxes 195 75
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES
Net fair value adjustment of assets available for sale ($77) ($26)
</TABLE>
SEE NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NBT Northwest Bancorp and Subsidiary
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of NBT
Northwest Bancorp (the Company) and its wholly owned subsidiary, National
Bank of Tukwila. All significant intercompany transactions and balances have
been eliminated.
The interim condensed consolidated financial statements are unaudited but
have been prepared in accordance with generally accepted accounting
principles and practices within the banking industry. Accordingly, the
condensed consolidated interim financial statements do not include all of the
information and footnotes required by generally accepted financial
statements. In the opinion of management, all adjustments necessary for a
fair presentation are reflected in the condensed consolidated interim
financial statements.
The condensed consolidated financial statements should be read in conjunction
with the December 31, 1998 consolidated financial statements, including notes
thereto.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements, and the reported amounts of revenues and expenses during the
period. Actual results could differ from those estimates.
NET INCOME PER SHARE
Basic earnings per share exclude dilution and are 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 June 30, 1999 and 1998 (dollars
in thousands, except per share amounts):
<TABLE>
<CAPTION>
NET INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999
Basic earnings per share:
Net income $356,000 714,312 $.50
Effect of dilutive securities:
Options -- 24,018 (.02)
Diluted earnings per share:
NET INCOME $356,000 738,330 $.48
SIX MONTHS ENDED JUNE 30, 1998
Basic earnings per share:
Net income $364,000 686,165 $.53
Effect of dilutive securities:
Options -- 21,586 (.02)
Diluted earnings per share:
NET INCOME $364,000 707,751 $.51
</TABLE>
F-6
<PAGE>
NBT
Northwest
Bancorp
and
Subsidiary
CONSOLIDATED
FINANCIAL
REPORT
December 31
1998
F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
January 14, 1999
Board of Directors
NBT NORTHWEST BANCORP
Tukwila, Washington
We have audited the accompanying consolidated balance sheets of NBT NORTHWEST
BANCORP AND SUBSIDIARY as of December 31, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of NBT
NORTHWEST BANCORP AND SUBSIDIARY as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
F-8
<PAGE>
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
(Dollars in Thousands)
NBT Northwest Bancorp and Subsidiary
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,444 $ 3,581
Federal funds sold 2,335 4,730
Securities available for sale 5,277 5,780
Loans 38,072 31,623
Allowance for credit losses 533 446
NET LOANS 37,539 31,177
Premises and equipment 350 411
Accrued interest receivable 258 208
Other assets 111 210
TOTAL ASSETS $49,314 $46,097
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $12,752 $11,401
Savings and interest-bearing demand 17,394 17,994
Time 14,236 10,052
TOTAL DEPOSITS 44,382 39,447
Short-term borrowings -- 2,547
Accrued interest payable 76 47
Other liabilities 180 199
TOTAL LIABILITIES 44,638 42,240
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY
Common stock (par value $1); authorized 1,000,000 shares;
issued and outstanding: 1998 - 713,665 shares; 1997 - 686,165 shares 714 686
Surplus 2,491 2,405
Retained earnings 1,445 730
Accumulated other comprehensive income 26 36
TOTAL SHAREHOLDERS' EQUITY 4,676 3,857
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $49,314 $46,097
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-9
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Amounts)
NBT Northwest Bancorp and Subsidiary
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
INTEREST INCOME
Loans $3,556 $3,045
Federal funds sold 86 72
Securities available for sale 350 327
TOTAL INTEREST INCOME 3,992 3,444
INTEREST EXPENSE
Deposits 1,211 1,013
Short-term borrowings 129 76
TOTAL INTEREST EXPENSE 1,340 1,089
NET INTEREST INCOME 2,652 2,355
PROVISION FOR CREDIT LOSSES 126 79
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 2,526 2,276
NON-INTEREST INCOME
Service charges on deposit accounts 124 124
Gain on sale of foreclosed real estate - - 85
Gain on sale of securities available for sale 77 7
Loss on sales of loans - - (20)
Other operating income 119 100
TOTAL NON-INTEREST INCOME 320 296
NON-INTEREST EXPENSE
Salaries 793 792
Employee benefits 116 123
Occupancy 95 112
Furniture and equipment 141 128
State and local taxes 67 59
Other non-interest expense 583 606
TOTAL NON-INTEREST EXPENSE 1,795 1,820
INCOME BEFORE INCOME TAXES 1,051 752
INCOME TAXES 336 257
NET INCOME $ 715 $ 495
EARNINGS PER SHARE DATA
Basic earnings per share $1.03 $.72
Diluted earnings per share 1.02 .71
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-10
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
(Dollars in Thousands)
NBT Northwest Bancorp and Subsidiary
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON RETAINED COMPREHENSIVE
STOCK SURPLUS EARNINGS INCOME TOTAL
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $686 $2,405 $ 235 ($ 1) $3,325
Comprehensive income:
Net income - - - - 495 - - 495
Other comprehensive income,
net of tax:
Unrealized gain on
securities, net of
reclassification adjustment - - - - - - 37 37
COMPREHENSIVE INCOME 532
BALANCE, DECEMBER 31, 1997 686 2,405 730 36 3,857
Comprehensive income:
Net income - - - - 715 - - 715
Other comprehensive income,
net of tax:
Unrealized loss on
securities, net of
reclassification adjustment - - - - - - (10) (10)
COMPREHENSIVE INCOME 705
Stock options exercised 28 86 - - - - 114
BALANCE, DECEMBER 31, 1998 $714 $2,491 $1,445 $26 $4,676
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-11
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
(Dollars in Thousands)
NBT Northwest Bancorp and Subsidiary
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income: $ 715 $ 495
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for credit losses 126 79
Depreciation and amortization 114 142
Deferred income tax benefit 52 (6)
Stock dividends received (68) (27)
Gain on sale of securities available for sale (77) (7)
Gain on sale of foreclosed real estate - - (85)
Loss on sale of loans - - 20
Increase in interest receivable (50) (30)
Increase in interest payable 29 2
Other - net 35 21
NET CASH PROVIDED BY OPERATING ACTIVITIES 876 604
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold 2,395 (3,530)
Proceeds from sales of securities available for sale 5,080 400
Proceeds from maturities of investment securities available for sale 545 2,250
Purchases of securities available for sale (4,994) (3,115)
Increase in loans made to customers, net of principal collections (6,488) (6,470)
Proceeds from sale of loans - - 348
Proceeds from sale of foreclosed real estate - - 67
Purchases of premises and equipment (53) (356)
NET CASH USED IN INVESTING ACTIVITIES (3,515) (10,406)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand, savings and interest-bearing demand deposits 751 7,343
Net increase in time deposits 4,184 555
Increase (decrease) in short-term borrowings (2,547) 2,547
Exercise of stock options 114 - -
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,502 10,445
NET CHANGE IN CASH AND DUE FROM BANKS (137) 643
CASH AND DUE FROM BANKS
Beginning of year 3,581 2,938
END OF YEAR $3,444 $3,581
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $1,311 $1,087
Income taxes 245 137
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES
Net fair value adjustment of assets available for sale ($10) $ 37
Loans made on sales of foreclosed real estate - - 389
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NBT Northwest Bancorp and Subsidiary
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of NBT Northwest
Bancorp (the Company) and its wholly-owned subsidiary, National Bank of Tukwila
(the Bank). All significant intercompany transactions and balances have been
eliminated.
NATURE OF OPERATIONS
The Bank operates one branch in the Tukwila, King County area. The Bank's
primary source of revenue is providing loans to customers, who are predominately
small and middle-market businesses and middle-income individuals.
CONSOLIDATED FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and practices within the banking
industry. The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities, as of the date
of the balance sheet, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ significantly from those
estimates.
Certain prior year amounts have been reclassified to conform to the 1998
presentation.
SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of debt securities which may be sold to
implement the Company's asset/liability management strategies, and in response
to changes in interest rates and similar factors, and certain equity securities
not classified as securities held to maturity. Securities available for sale are
reported at fair value. Unrealized gains and losses, net of the related deferred
tax effect, are reported as a net amount in accumulated other comprehensive
income, which is 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.
Declines in the fair value of individual securities available for sale below
their cost that are other than temporary result in write-downs of the individual
securities to their fair value. Such write-downs are included in earnings as
realized losses.
(CONTINUED)
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NBT Northwest Bancorp and Subsidiary
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS
Loans are stated at the amount of unpaid principal, less an allowance for credit
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 interest is reversed against current income.
If management determines that the ultimate collectibility of principal is in
doubt, cash receipts on non-accrual loans are applied to reduce the principal
balance.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit 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 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 credit losses as an
adjustment to the allowance for credit losses.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation, which
is computed on the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the terms of the respective
leases or the estimated useful lives of the improvements, whichever is less.
Gains or losses on dispositions are reflected in earnings.
(CONTINUED)
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NBT Northwest Bancorp and Subsidiary
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred tax assets and liabilities result from differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities, and 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. The deferred tax provision represents the difference
between the net deferred tax asset/liability at the beginning and end of the
year. As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
CASH EQUIVALENTS
The Company considers all amounts included in the balance sheet caption "Cash
and due from banks" to be cash equivalents.
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
Basic earnings per share exclude dilution and are 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.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS No. 130), which was
effective for years beginning after December 15, 1997. SFAS No. 130 requires
that an entity report and display comprehensive income in a financial statement
that is displayed with the same prominence as other financial statements.
Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
non-owner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners. With
regard to the Company, comprehensive income includes net income reported on the
consolidated statements of income, and changes in the fair value of securities
available for sale, reported as a component of shareholders' equity. There was
no effect on previously reported net income as a result of this reporting
change.
(CONTINUED)
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NBT Northwest Bancorp and Subsidiary
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in its balance sheet and measure those instruments at fair value.
Under this statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk. This statement is
effective for all fiscal years beginning after June 15, 1999. The Bank had no
derivatives as of December 31, 1998, nor does the Bank engage in any hedging
activities. The Bank does not anticipate that the adoption of SFAS No. 133 will
have a material effect on its financial position or results of operations.
NOTE 2 - RESTRICTED ASSETS
Federal Reserve Board regulations require that the Bank maintain certain minimum
cash and deposit balances with the Federal Reserve Bank. The average amounts of
these balances for the years ended December 31, 1998 and 1997 were approximately
$200,000 and $235,000, respectively.
NOTE 3 - SECURITIES AVAILABLE FOR SALE
Securities available for sale have been classified according to management's
intent. The carrying amount of securities and their approximate fair values at
December 31 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUES
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
U.S. Government and agency securities $2,751 $27 $6 $2,772
Mortgage backed securities 1,437 19 - - 1,456
Federal Reserve Bank and Federal
Home Loan Bank stock 1,049 - - - - 1,049
$5,237 $46 $6 $5,277
DECEMBER 31, 1997
U.S. Government and agency securities $4,745 $58 $4 $4,799
Federal Reserve Bank and Federal
Home Loan Bank stock 981 - - - - 981
$5,726 $58 $4 $5,780
</TABLE>
(CONTINUED)
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NBT Northwest Bancorp and Subsidiary
December 31, 1998 and 1997
NOTE 3 - SECURITIES AVAILABLE FOR SALE (CONCLUDED)
The scheduled maturities of debt securities available for sale at December 31,
1998 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
<S> <C> <C>
Due from one year to five years $2,751 $2,772
Due after ten years 1,437 1,456
$4,188 $4,228
</TABLE>
Gross realized gains on sales of securities available for sale were $77,000 and
$7,000, respectively, in 1998 and 1997. There were no gross realized losses.
Securities carried at approximately $4,188,000 at December 31, 1998 and
$4,298,000 at December 31, 1997 were pledged to secure public deposits and for
other purposes required or permitted by law.
NOTE 4 - LOANS
Loans at December 31 consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Commercial $14,938 $14,350
Real estate:
Construction 404 708
1 - 4 family residential 6,753 5,515
Commercial 14,735 9,629
Consumer 1,242 1,421
TOTAL LOANS $38,072 $31,623
</TABLE>
Changes in the allowance for credit losses for the years ended December 31 are
as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Balance at beginning of year $446 $359
Provision for credit losses 126 79
Charge-offs (112) (75)
Recoveries 73 83
NET (CHARGE-OFFS) RECOVERIES (39) 8
BALANCE AT END OF YEAR $533 $446
</TABLE>
(CONTINUED)
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NBT Northwest Bancorp and Subsidiary
December 31, 1998 and 1997
NOTE 4 - LOANS (CONCLUDED)
The recorded investment in impaired loans, which were all on non-accrual
status, was $60,000 and $69,000 at December 31, 1998 and 1997, respectively.
No specific allocation of the allowance for credit losses was considered
necessary for these impaired loans. The average recorded investment in
impaired loans was $89,000 and $115,000 during the years ended December 31,
1998 and 1997, respectively. There was no interest income recognized on
impaired loans in either year.
At December 31, 1998, there were no commitments to lend additional funds to
borrowers whose loans have been modified. There were no loans 90 days and
over past due still accruing interest at December 31, 1998 or 1997.
Certain related parties of the Company, principally directors and their
associates, were loan customers of the Bank in the ordinary course of
business during 1998 and 1997. Total loans outstanding at December 31, 1998
and 1997 to key officers and directors were $403,000 and $255,000,
respectively. During 1998, advances totaled $443,000, and repayments totaled
$295,000 on these loans.
NOTE 5 - PREMISES AND EQUIPMENT
The components of premises and equipment at December 31 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Leasehold improvements $320 $ 320
Furniture and equipment 594 831
914 1,151
Less accumulated depreciation and amortization (564) (740)
TOTAL PREMISES AND EQUIPMENT $350 $ 411
</TABLE>
The Bank leases premises and equipment under operating leases. Rental expense
of leased premises and equipment was $94,000 and $67,000 for 1998 and 1997,
respectively.
Minimum rental commitments under noncancellable leases having an original or
remaining term of more than one year are as follows for future years ending
December 31 (dollars in thousands):
<TABLE>
<S> <C>
1999 $ 86
2000 87
2001 92
2002 77
TOTAL MINIMUM RENTAL COMMITMENTS $342
</TABLE>
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NBT Northwest Bancorp and Subsidiary
December 31, 1998 and 1997
NOTE 6 - DEPOSITS
The aggregate amount of certificates of deposit with balances in excess of
$100,000 was approximately $9,167,000 and $6,069,000 at December 31, 1998 and
1997, respectively.
At December 31, 1998, the scheduled maturities of certificates of deposit are
as follows (dollars in thousands):
<TABLE>
<S> <C>
1999 $ 11,205
2000 2,047
2001 79
2002 656
2003 and thereafter 249
$ 14,236
</TABLE>
NOTE 7 - INCOME TAXES
Income taxes are comprised of the following for the years ended December 31
(dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Current $284 $263
Deferred (benefit) 52 (6)
TOTAL INCOME TAXES $336 $257
</TABLE>
The following is reconciliation between the statutory and the effective
federal income tax rate for the years ended December 31 (dollars in
thousands):
<TABLE>
<CAPTION>
1998 1997
PERCENT PERCENT
OF PRE-TAX OF PRE-TAX
AMOUNT INCOME AMOUNT INCOME
<S> <C> <C> <C> <C>
Income tax at statutory rates $357 34.0% $255 34.0%
Increase (decrease) resulting from:
Reduction of valuation allowance (3) (.3) (3) (.4)
Other (18) (1.7) 5 .6
TOTAL INCOME TAX EXPENSE $336 32.0% $257 34.2%
</TABLE>
(CONTINUED)
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NBT Northwest Bancorp and Subsidiary
December 31, 1998 and 1997
NOTE 7 - INCOME TAXES (CONCLUDED)
The tax effect of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31 are (dollars in
thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
DEFERRED TAX ASSETS
Allowance for credit losses $134 $101
Accumulated depreciation 47 74
Net operating loss carryforward 17 20
TOTAL DEFERRED TAX ASSETS 198 195
DEFERRED TAX LIABILITIES
Cash basis accounting (49) (25)
Deferred income (158) (124)
Unrealized gain on securities available for sale (14) (18)
TOTAL DEFERRED TAX LIABILITIES (221) (167)
VALUATION ALLOWANCE (17) (20)
NET DEFERRED TAX ASSETS (LIABILITIES) ($ 40) $ 8
</TABLE>
At December 31, 1998, net operating loss carryforwards of $51,000, which are
available to offset future taxable income, have the following expiration dates:
2001 - $25,000; 2002 - $9,000; 2003 - $9,000; and 2004 - $8,000.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby
letters of credit. The instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized on the consolidated balance
sheets.
(CONTINUED)
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NBT Northwest Bancorp and Subsidiary
December 31, 1998 and 1997
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONCLUDED)
The Bank'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 Bank's commitments at December 31 is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Commitments to extend credit $10,278 $8,788
Standby letters of credit 180 226
$10,458 $9,014
</TABLE>
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 Bank's experience has been that approximately 75% of loan
commitments are drawn upon by customers. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary by the Bank 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 Bank to
guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements.
The credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers. Collateral held
varies as specified above, and is required in instances where the Bank deems
necessary.
The Bank and the Company have agreements with commercial banks for lines of
credit totaling $2,750,000, a standby letter of credit totaling $1,000,000, a
trade finance line totaling $1,250,000, an agreement to sell loan
participations totaling $2,549,000, and a credit line with the Federal Home
Loan Bank totaling $6,444,000, none of which was used at December 31, 1998.
The Bank has pledged $7,821,000 of securities and loans as collateral for
these borrowings at December 31, 1998. At December 31, 1997, the Bank had
borrowed $2,547,000 under its Federal Home Loan Bank line of credit.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Most of the Bank's business activity is with customers located in the State
of Washington. The Bank, as a matter of policy, generally does not extend
credit in excess of $776,000 to any single borrower or group of borrowers.
Standby letters of credit were granted primarily to commercial borrowers.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NBT Northwest Bancorp and Subsidiary
December 31, 1998 and 1997
NOTE 9 - EMPLOYEE AND DIRECTOR BENEFIT PLANS
STOCK OPTION PLANS
At December 31, 1998, the Company has two stock option plans, which are
described below. The Company applies APB Opinion No. 25 and related
interpretations in accounting for these plans. Accordingly, no compensation
cost has been recognized for these plans. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant dates for awards granted in 1997 and 1998, consistent with the method
of SFAS No. 123, the Company's net income and earnings per share would have
been reduced to these pro forma amounts (dollars in thousands, except per
share amounts):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net income:
As reported $715 $495
Pro forma 694 470
Earnings per share:
Basic:
As reported $1.03 $.72
Pro forma 1.00 .69
Diluted:
As reported 1.02 .71
Pro forma .99 .67
</TABLE>
Effective December 18, 1989, the Company adopted an employee stock option
plan. Total shares reserved under this plan were 166,000. The options are not
transferable, vest over periods from 3 to 5 years, and expire upon
termination if the options are not exercised within 90 days. The exercise
price for the stock options may not be less than the fair value of the
optioned stock at the date of grant; an option's maximum term is ten years.
Options for 10,000 shares were granted to employees in 1997; none were
granted in 1998. At December 31, 1998, options were outstanding for 32,329
shares and 44,241 shares were reserved for future options.
During 1997, the Company adopted a director stock option plan. Total shares
reserved under this plan were 75,000.
The options are not transferable and vest immediately upon issuance. Options
granted under the plan expire ten years from the date of grant. Options for
10,000 shares and 11,000 shares were granted to directors in 1998 and 1997,
respectively. At December 31, 1998, options were outstanding for 20,000
shares and 54,000 shares were reserved for future options
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NBT Northwest Bancorp and Subsidiary
December 31, 1998 and 1997
NOTE 9 - EMPLOYEE AND DIRECTOR BENEFIT PLANS (CONTINUED)
The fair value of each option grant is estimated on the date of grant, based
on the Black-Scholes option pricing model and using the following weighted
average assumptions: dividend yield of 0%, risk-free interest rate of 4.7% in
1998 and 5.7% in 1997, and an expected life of five years. The weighted
average fair value of stock options granted during 1998 and 1997, calculated
using the Black-Scholes option pricing model, was $1.66 per share and $1.52
per share, respectively.
A summary of the status of the Company's stock option plans as of December
31, and changes during the years ending on those dates, is presented below:
<TABLE>
<CAPTION>
1998 1997
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C>
Outstanding at beginning of year 69,829 $ 5.22 48,829 $4.19
Granted 10,000 8.00 21,000 7.61
Exercised 27,500 4.12 - - - -
OUTSTANDING AT END OF YEAR 52,329 6.33 69,829 5.22
Options exercisable at year-end 48,329 6.19 61,964 5.10
</TABLE>
The following information summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED
AVERAGE
REMAINING
EXERCISE NUMBER CONTRACTUAL NUMBER
PRICE OUTSTANDING LIFE (YEARS) EXERCISABLE
<S> <C> <S> <C>
$4.00 13,000 1 13,000
5.00 9,329 5 9,329
7.25 10,000 9 10,000
8.00 20,000 9.5 16,000
52,329 48,329
</TABLE>
(CONTINUED)
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NBT Northwest Bancorp and Subsidiary
December 31, 1998 and 1997
NOTE 9 - EMPLOYEE AND DIRECTOR BENEFIT PLANS (CONCLUDED)
EMPLOYEE BENEFIT PLAN
In 1993, the Bank adopted a SARSEP employee benefit plan covering employees
who meet eligibility requirements set forth in the plan. Eligible employees
may contribute up to 10% of their compensation. The Bank's contribution to
the plan is determined by the Board of Directors. The Bank contributed
$22,000 to the plan in 1998 and 1997.
NOTE 10 - REGULATORY MATTERS
The Company and the Bank are 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 and the Bank's consolidated
financial statements. Under capital adequacy guidelines of the regulatory
framework for prompt corrective action, the Bank must meet specific capital
adequacy guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's and the Bank's 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 Bank 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, 1998, 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.
(CONTINUED)
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NBT Northwest Bancorp and Subsidiary
December 31, 1998 and 1997
NOTE 10 - REGULATORY MATTERS (CONCLUDED)
The Bank's actual capital amounts and ratios are also presented in the table
(dollars in thousands):
<TABLE>
<CAPTION> TO BE WELL CAPITALIZED
UNDER PROMPT
CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> C
DECEMBER 31, 1998
TIER 1 CAPITAL (TO AVERAGE ASSETS):
Consolidated $4,650 9.9% $1,886 4.0% N/A N/A
Bank 4,628 9.8 1,887 4.0 $2,359 5.0%
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS):
Consolidated 4,650 12.8 1,452 4.0 N/A N/A
Bank 4,628 12.7 1,454 4.0 2,180 6.0
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS):
Consolidated 5,105 14.1 2,904 4.0 N/A N/A
Bank 5,083 14.0 2,907 4.0 3,634 10.0
DECEMBER 31, 1997
TIER 1 CAPITAL (TO AVERAGE ASSETS):
Consolidated $3,821 9.1% $1,684 4.0% N/A N/A
Bank 3,763 8.9 1,684 4.0 $2,105 5.0%
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS):
Consolidated 3,821 12.2 1,252 4.0 N/A N/A
Bank 3,763 12.0 1,252 4.0 1,878 6.0
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS):
Consolidated 4,213 13.5 2,504 8.0 N/A N/A
Bank 4,155 13.3 2,504 8.0 3,130 10.0
</TABLE>
Management believes, as of December 31, 1998, that the Company and the Bank
meet all capital requirements to which they are subject.
RESTRICTIONS ON RETAINED EARNINGS
National banks can initiate dividend payments in a given year without prior
regulatory approval, equal to net profits, as defined for that year, plus
retained net profits for the preceding two years. At December 31, 1998, there
were no restrictions on the payment of dividends by the Bank.
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NBT Northwest Bancorp and Subsidiary
December 31, 1998 and 1997
NOTE 11 - QUASI-REORGANIZATION
Effective March 31, 1995, the Company's Board of Directors approved a
quasi-reorganization. In quasi-reorganization, assets and liabilities are
restated at their current fair values at the date of the
quasi-reorganization. Equipment was written down a total of $30,000; the fair
values of other assets and liabilities at the date of the
quasi-reorganization were determined by management to approximate their
carrying values. As part of the quasi-reorganization, the accumulated deficit
of $1,104,000 was eliminated against surplus. The balance in retained
earnings at December 31, 1998 represents accumulated net income arising
subsequent to the date of the quasi-reorganization.
NOTE 12 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS - DECEMBER 31
(Dollars in Thousands) 1998 1997
<S> <C> <C>
ASSETS
Cash $ 22 $ 58
Investment in subsidiary 4,654 3,799
TOTAL ASSETS $4,676 $3,857
SHAREHOLDERS' EQUITY $4,676 $3,857
CONDENSED STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31
(Dollars in Thousands)
INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY $ -- $ --
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY 715 495
NET INCOME $715 $495
</TABLE>
(CONTINUED)
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NBT Northwest Bancorp and Subsidiary
December 31, 1998 and 1997
NOTE 12 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONCLUDED)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS - YEARS ENDED DECEMBER 31
(Dollars in Thousands)
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $715 $495
Adjustments to reconcile net income to net cash
Provided by operating activities:
Equity in undistributed income of subsidiary (715) (495)
NET CASH PROVIDED BY OPERATING ACTIVITIES -- --
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary (150) --
CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of stock options 114 --
NET DECREASE IN CASH (36) --
CASH, BEGINNING OF YEAR 58 58
CASH, END OF YEAR $ 22 $ 58
</TABLE>
NOTE 13 - EARNINGS PER SHARE DISCLOSURES
Following is information regarding the calculation of basic and diluted
earnings per share for the years indicated.
<TABLE>
<CAPTION>
(dollars in thousands, except per share amounts)
NET INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Basic earnings per share:
Net income $715 694,580 $1.03
Effect of dilutive securities:
Options -- 9,956 (.01)
Diluted earnings per share:
NET INCOME $715 704,536 $1.02
YEAR ENDED DECEMBER 31, 1997
Basic earnings per share:
Net income $495 686,165 $.72
Effect of dilutive securities:
Options -- 14,869 (.01)
Diluted earnings per share:
NET INCOME $495 701,034 $.71
</TABLE>
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NBT Northwest Bancorp and Subsidiary
December 31, 1998 and 1997
NOTE 14 - COMPREHENSIVE INCOME
Net unrealized gains include, net of tax, $40,000 and $42,000 of unrealized
gains arising during 1998 and 1997, respectively, less reclassification
adjustments of $50,000 and $5,000 for gains included in net income for 1998
and 1997 respectively (dollars in thousands).
<TABLE>
<CAPTION>
BEFORE-TAX TAX NET-OF-TAX
AMOUNT EXPENSE AMOUNT
<S> <C> <C> <C>
DECEMBER 31, 1998
Unrealized holding gains arising during the year $63 $23 $40
Less reclassification adjustments for gains realized
in net income (77) (27) (50)
NET UNREALIZED LOSS ($14) ($ 4) ($10)
DECEMBER 31, 1997
Unrealized holding gains arising during the year $63 $21 $42
Less reclassification adjustments for gains realized
in net income (7) (2) (5)
NET UNREALIZED GAIN $56 $19 $37
</TABLE>
NOTE 15 - YEAR 2000 ISSUES
As the year 2000 approaches, business issues are emerging regarding how
existing computer software programs and operating systems can accommodate the
date value. Many software systems are designed to recognize only a two-digit
date field, and may read the year 2000 as the year 1900. Thus computations of
interest and other similar calculations may be based on wrong dates, or the
systems may not be able to process information at all.
The Bank primarily utilizes a third-party service bureau for processing the
mission-critical data that might be affected by this problem. The service
bureau is in the process of testing, updating, and modifying its computer
systems to ensure year 2000 compliance. The first phase of testing those
systems was successfully completed before December 31, 1998. Internally, the
Bank has implemented a year 2000 compliance program, which is aggressively
reviewing year 2000 issues that may be faced by its outside vendors and
customers, and that affect its internal computer systems. In the event that
significant suppliers or customers do not successfully and timely achieve
year 2000 compliance, the Bank's business could be adversely affected.
However, management believes that the Bank's own internal systems, networks
and resources would allow the Bank to effectively operate and service its
customers. To the extent necessary, the Bank will engage alternative vendors
and suppliers to facilitate normal operations after January 1, 2000. The
costs incurred to date on year 2000 compliance issues have not been material.
While it is impossible to estimate the potential impact on the Bank's
business after January 1, 2000, management estimates that the costs the Bank
will incur prior to that date in its activities necessary to ensure year 2000
compliance will not have a significant effect on its financial position or
results of operations.
F-28
<PAGE>
APPENDIX A
----------------------------------------------
----------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
NBT NORTHWEST BANCORP,
NATIONAL BANK OF TUKWILA
AND
INTERWEST BANCORP, INC.
AND
PACIFIC NORTHWEST BANK
----------------------------------------------
----------------------------------------------
DATED AS OF JUNE 11, 1999
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE I. MERGER................................................................................................7
1.1 THE MERGER......................................................................................7
1.2 EFFECTIVE DATE..................................................................................7
ARTICLE II. CONSIDERATION........................................................................................8
2.1 CONSIDERATION...................................................................................8
2.2 SHAREHOLDER RIGHTS; STOCK TRANSFERS.............................................................8
2.3 FRACTIONAL SHARES...............................................................................8
2.4 EXCHANGE PROCEDURES.............................................................................9
2.5 EXCHANGE RATIO ADJUSTMENTS......................................................................9
2.6 EXCEPTION SHARES................................................................................9
2.7 RESERVATION OF RIGHT TO REVISE TRANSACTION......................................................9
2.8 OPTIONS.........................................................................................9
ARTICLE III. ACTIONS PENDING CONSUMMATION.......................................................................10
3.1 CAPITAL STOCK..................................................................................10
3.2 DIVIDENDS, ETC.................................................................................10
3.3 INDEBTEDNESS; LIABILITIES; ETC.................................................................10
3.4 LINE OF BUSINESS; OPERATING PROCEDURES; ETC....................................................10
3.5 LIENS AND ENCUMBRANCES.........................................................................11
3.6 COMPENSATION; EMPLOYMENT AGREEMENTS; ETC.......................................................11
3.7 BENEFIT PLANS..................................................................................11
3.8 CONTINUANCE OF BUSINESS........................................................................11
3.9 AMENDMENTS.....................................................................................11
3.10 CLAIMS.........................................................................................11
3.11 CONTRACTS......................................................................................11
3.12 LOANS..........................................................................................11
3.13 TRANSACTION EXPENSES...........................................................................12
ARTICLE IV. REPRESENTATIONS AND WARRANTIES......................................................................12
4.1 THE COMPANY AND BANK REPRESENTATIONS AND WARRANTIES............................................12
4.2 INTERWEST AND PACIFIC NORTHWEST BANK REPRESENTATIONS
AND WARRANTIES.................................................................................21
4.3 EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES...................................................23
ARTICLE V. COVENANTS............................................................................................23
5.1 BEST EFFORTS...................................................................................23
5.2 THE PROXY......................................................................................24
5.3 REGISTRATION STATEMENT COMPLIANCE WITH SECURITIES LAWS.........................................24
5.4 REGISTRATION STATEMENT EFFECTIVENESS...........................................................24
5.5 PRESS RELEASES.................................................................................24
5.6 ACCESS; INFORMATION............................................................................24
5.7 ACQUISITION PROPOSALS..........................................................................25
5.8 REGISTRATION STATEMENT PREPARATION; REGULATORY
APPLICATIONS PREPARATION.......................................................................25
5.9 BLUE-SKY FILINGS...............................................................................26
5.10 AFFILIATE AGREEMENTS...........................................................................26
5.11 CERTAIN POLICIES OF THE COMPANY AND BANK.......................................................26
A-i
<PAGE>
<S> <C> <C>
5.12 STATE TAKEOVER LAW.............................................................................26
5.13 NO RIGHTS TRIGGERED............................................................................26
5.14 SHARES LISTED..................................................................................26
5.15 REGULATORY APPLICATIONS........................................................................26
5.16 REGULATORY DIVESTITURES........................................................................27
5.17 CURRENT INFORMATION............................................................................27
5.18 INDEMNIFICATION................................................................................27
5.19 POST-MERGER ACTIONS............................................................................28
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE MERGER............................................................28
6.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS.........................................................28
6.2 CONDITIONS TO OBLIGATIONS OF INTERWEST.........................................................29
6.3 CONDITIONS TO OBLIGATIONS OF COMPANY AND BANK..................................................30
ARTICLE VII. TERMINATION........................................................................................31
7.1 GROUNDS FOR TERMINATION........................................................................31
7.2 CONSEQUENCES OF TERMINATION....................................................................31
ARTICLE VIII. OTHER MATTERS.....................................................................................32
8.1 SURVIVAL.......................................................................................32
8.2 WAIVER; AMENDMENT..............................................................................32
8.3 COUNTERPARTS...................................................................................32
8.4 GOVERNING LAW..................................................................................32
8.5 EXPENSES.......................................................................................32
8.6 CONFIDENTIALITY................................................................................32
8.7 NOTICES........................................................................................32
8.8 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES.............................................33
8.9 BENEFIT PLANS..................................................................................33
8.10 HEADINGS.......................................................................................33
EXHIBITS
- --------
Exhibit A Approval by Directors of NBT Northwest Bancorp
Exhibit B Director's Agreement
Exhibit C Stock Option Agreement
Exhibit D Bank Merger Agreement
Exhibit E Affiliate Undertakings and Agreements
Exhibit F-1 Employment Agreement of Michael Fotheringill
Exhibit F-2 NonCompetition and Severance Agreement of Ronald L. Bosi
Exhibit G Legal Opinion of Davis Wright Tremaine LLP
Exhibit H Legal Opinion of Graham & Dunn, PC
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
- ---------
<S> <C>
COMPANY DISCLOSURES
Schedule 2.8 Outstanding Options
Schedule 3.4 Changes to Line of Business, Operating
Procedures, etc.
Schedule 3.6 New or Changes to Compensation, Employment
Agreements, etc.
A-ii
<PAGE>
<S> <C>
Schedule 3.7 New or Modifications to Benefit Plans
Schedule 3.11 New or Changes to Material Contracts
Schedule 4.1(C) Shares Outstanding
Schedule 4.1(D) Subsidiaries
Schedule 4.1(G) No Defaults - Agreements Requiring Third Party
Consent
Schedule 4.1(H) Financial Reports
Schedule 4.1(I) Undisclosed Liabilities
Schedule 4.1(J) No Events Causing Material Adverse Effect
Schedule 4.1(L) Litigation, Regulatory Action
Schedule 4.1(M) Compliance with Laws
Schedule 4.1(N) Material Contracts
Schedule 4.1(Q)(1) List of Employee Benefit Plans
Schedule 4.1(Q)(2) Employee Benefit Plans Not Qualified Under ERISA
Schedule 4.1(Q)(6) Obligations for Retiree Health and Life Benefits
Schedule 4.1(Q)(7) Agreements Resulting in Payments to Employees
Under Any Compensation and Benefit Plan with
Respect to Proposed Transaction
Schedule 4.1(T) Asset Classification
Schedule 4.1(V) Insurance
Schedule 4.1(W) Affiliates
Schedule 4.1(Z)(2) Pending Proceedings with Respect to Environmental
Matters
Schedule 4.1(Z)(3) Pending Proceedings with Respect to Environmental
Matters Involving Loan/Fiduciary Property
Schedule 4.1(Z)(4) Pending Proceedings with Respect to Environmental
Matters Listed in Sections 4.1(Z)(2) or (3)
Schedule 4.1(Z)(5) Actions During Ownership Which could Have
Material Adverse Effect with Respect to
Environmental Matters
Schedule 4.1(Z)(6) Actions Prior to Ownership Which could Have
Material Adverse Effect with Respect to
Environmental Matters
Schedule 4.1(AA) Tax Reports Matters
Schedule 4.1(CC) Derivative Contracts
Schedule 4.1(EE)(1) Employment Contracts Requiring Payment In
Connection with Termination
Schedule 4.1(EE)(2) Leases with Aggregate Annual Rent Exceeding
$10,000
Schedule 4.1(EE)(3) Material Contracts with Affiliates
INTERWEST DISCLOSURES
Schedule 4.2(C) Shares
Schedule 4.2(F) No Defaults
Schedule 4.2(G) Financial Reports
Schedule 4.2(H) No Events Causing Material Adverse Effect
Schedule 4.2(I) Litigation, Regulatory Action
Schedule 4.2(L) Derivative Contracts
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 11th day of June, 1999
(this "Plan"), is between NBT NORTHWEST BANCORP (the "Company"), NATIONAL BANK
OF TUKWILA (the "Bank"), INTERWEST BANCORP, INC.
("InterWest"), and PACIFIC NORTHWEST BANK.
RECITALS
(A) THE COMPANY. The Company is a corporation duly organized and
existing in good standing under the laws of the State of Washington, with its
principal executive offices located in Tukwila, Washington. The Company is a
registered bank holding company under the Bank Holding Company Act of 1956, as
amended. As of the date of this Plan, the Company has 3,000,000 authorized
shares of common stock, $1.00 par value per share ("Company Common Stock") (no
other class of capital stock being authorized), of which 713,225 shares of
Company Common Stock are issued and outstanding. As of the date of this Plan,
the Company has 166,000 shares of Company Common Stock reserved for issuance
under an employee stock option plan, pursuant to which options covering 32,329
shares of Company Common Stock are outstanding. As of the date of this Plan, the
Company has 75,000 shares of Company Common Stock reserved for issuance under a
director stock option plan, pursuant to which options covering 29,000 shares of
Company Common Stock are outstanding.
(B) THE BANK. The Bank is a national banking association duly organized
and existing in good standing under the laws of the United States, with its
principal executive offices located in Tukwila, Washington. As of the date of
this Plan, the Bank has 1,000,000 authorized shares of common stock, $1.00 par
value per share ("Bank Common Stock") (no other class of capital stock being
authorized), of which 688,100 shares of Bank Common Stock are issued and
outstanding. All of the issued and outstanding shares of Bank Common Stock are
owned by the Company, the sole shareholder of the Bank. As of March 31, 1999,
the Bank had capital of $4,823,000, divided into common stock of $688,100,
surplus of $2,463,000, and undivided profits of $1,672,000.
(C) INTERWEST. InterWest is a corporation duly organized and existing
in good standing under the laws of the State of Washington, with its principal
executive offices located in Oak Harbor, Washington. InterWest is a registered
bank holding company under the Bank Holding Company Act of 1956, as amended. As
of the date of this Plan, InterWest has 20,000,000 authorized shares of common
stock, no par value ("InterWest Common Stock") (no other class of capital stock
being authorized), of which 15,782,012 shares of InterWest Common Stock are
issued and outstanding.
(D) PACIFIC NORTHWEST BANK. Pacific Northwest Bank is a commercial bank
duly organized and existing in good standing under the laws of the State of
Washington, with its principal executive offices located in Oak Harbor,
Washington. As of the date of this Plan, Pacific Northwest Bank has 800,000
authorized shares of common stock, $1.00 par value per share ("Pacific Northwest
Bank Common Stock") (no other class of capital stock being authorized), of which
100 shares are issued and outstanding and owned by InterWest, the sole
shareholder of Pacific Northwest Bank. As of March 31, 1999, Pacific Northwest
Bank had capital of $32,187,000, divided into common stock of $1,994,000,
surplus of $12,047,000, undivided profits of $18,235,000 and $89,000 unrealized
loss on securities.
(E) VOTING AGREEMENT. As a condition and an inducement to InterWest's
and Pacific Northwest Bank's willingness to enter into this Plan, the directors
and officers of the Bank and the Company have entered into agreements in the
forms attached to this Plan as EXHIBIT A and EXHIBIT B, pursuant to which, among
other things, each such individual has agreed to vote his or her shares of
A-1
<PAGE>
Company Common Stock in favor of approval of the actions contemplated by this
Plan at the Meeting (as defined below) and to refrain from competing with
InterWest and its Subsidiaries.
(F) STOCK OPTION AGREEMENT. Immediately after the execution and
delivery of this Plan, as a condition and an inducement to InterWest's
willingness to enter into this Plan, the Company and InterWest are entering into
a Stock Option Agreement (the "Stock Option Agreement") in the form attached to
this Plan as EXHIBIT C, pursuant to which the Company is granting to InterWest
an option to purchase, under certain circumstances, shares of Company Common
Stock.
(G) RIGHTS, ETC. Except as Previously Disclosed (as defined below) in
SCHEDULE 4. 1(C), or paragraph (A) of the Recitals to this Plan, or as
authorized by this Plan or the Stock Option Agreement: there are no shares of
capital stock of the Company or the Bank authorized and reserved for issuance;
neither the Company nor the Bank has any Rights (as defined below) issued or
outstanding; and neither the Company nor the Bank has any commitment to
authorize, issue or sell any such shares or any Rights. The term "Rights" means
securities or obligations convertible into or exchangeable for, or giving any
Person any right to subscribe for or acquire, or any options, calls or
commitments relating to, shares of capital stock. There are no preemptive rights
with respect to the Company Common Stock.
(H) APPROVALS. At meetings of the respective Boards of Directors of the
Company, the Bank, InterWest and Pacific Northwest Bank, each such Board has
approved and authorized the execution of this Plan and the Stock Option
Agreement in counterparts.
In consideration of their mutual promises and obligations, the Parties
further agree as follows:
DEFINITIONS
(A) DEFINITIONS. Capitalized terms used in this Plan have the following
meanings:
"APPRAISAL LAWS" has the meaning assigned to such term in Section
1.1(E).
"ASSET CLASSIFICATION" has the meaning assigned to such term in Section
4.l(T).
"AVERAGE CLOSING PRICE" means the price equal to the average (rounded
to the nearest penny) of each Daily Sales Price of InterWest Common Stock for
the Pricing Period, subject to any adjustment that may be required in connection
with the adjustment of the Exchange Ratio pursuant to Section 2.5.
"BANK" has the meaning assigned to such term in the first paragraph of
this Plan.
"BANK COMMON STOCK" has the meaning assigned to such term in paragraph
(B) of the Recitals.
"BANK FINANCIAL REPORTS" has the meaning assigned to such term in
Section 4.1(H).
"CAPITAL" means capital stock, surplus and retained earnings determined
in accordance with GAAP.
"CODE" has the meaning assigned to such term in Section 4.1(Q)(2).
"COMPANY" has the meaning assigned to such term in the first paragraph
to this Plan.
"COMPANY COMMON STOCK" has the meaning assigned to such term in
paragraph (A) of the Recitals.
A-2
<PAGE>
"COMPANY OPTION" has the meaning assigned to such term in Section 2.8.
"COMPENSATION AND BENEFIT PLANS" has the meaning assigned to such term
in Section 4.1(Q)(1).
"CONTINUING CORPORATION" has the meaning assigned to such term in
Section 1.1(A).
"CONTROL" with respect to any Person means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting interests, by
contract, or otherwise.
"DAILY SALES PRICE" for any trading day shall be equal to the average
of the closing bid and ask prices per share of all market makers quoting both
bid and asked prices, as reported on Bloomberg Financial Markets, of InterWest
Common Stock on the NASDAQ National Market System.
"DERIVATIVES CONTRACT" means a swap, forward, future, option, cap,
floor or collar financial contract or any similar contract that is not included
on the balance sheet of the Holding Company Financial Reports or the InterWest
Financial Reports, as the case may be.
"DISSENTING SHARES" means the shares of Company Common Stock held by
those shareholders of the Company who have timely and properly exercised their
dissenters' rights in accordance with the Appraisal Laws.
"EFFECTIVE DATE" has the meaning assigned to such term in Section 1.2.
"ELIGIBLE COMPANY COMMON STOCK" means shares of Company Common Stock
validly issued and outstanding on the Effective Date other than Exception Shares
and Dissenting Shares.
"EMPLOYMENT AGREEMENT" means Exhibit F-1.
"ENVIRONMENTAL LAW" means (1) any federal, state, and/or local law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, legal doctrine, order, judgment, decree, injunction,
requirement or agreement with any governmental entity, relating to (a) the
protection, preservation or restoration of the environment (including air, water
vapor, surface water, groundwater, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural resource) or to
human health or safety, or (b) the exposure to, or the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous Material, in each case as amended
and as now in effect, including the Federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of 1972, the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic
Substances Control Act, and the Federal Insecticide, Fungicide and Rodenticide
Act, the Federal Occupational Safety and Health Act of 1970, and (2) any common
law or equitable doctrine (including injunctive relief and tort doctrines such
as negligence, nuisance, trespass and strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Material.
"ERISA" has the meaning assigned to such term in Section 4.1(Q)(2).
"ERISA AFFILIATE" has the meaning assigned to such term in Section
4.1(Q)(3).
"ERISA PLANS" has the meaning assigned to such term in Section
4.1(Q)(2).
A-3
<PAGE>
"EXCEPTION SHARES" means shares held by any of the Company's
Subsidiaries or by InterWest or any of its Subsidiaries, in each case other than
in a fiduciary capacity or as a result of debts previously contracted.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated under such statute.
"EXCHANGE AGENT" has the meaning assigned to such term in Section 2.4.
"EXCHANGE RATIO" has the meaning assigned to such term in Section
2.1(B).
"FDIC" means the Federal Deposit Insurance Corporation.
"FINANCIAL REPORTS" has the meaning assigned to such term in Section
4.1(H).
"FEDERAL RESERVE BOARD" means the Board of Governors of the Federal
Reserve System.
"GAAP" means generally accepted accounting principles consistently
applied.
"HAZARDOUS MATERIAL" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, under any Environmental Law, whether by type or quantity,
including any oil or other petroleum product, toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste, special
waste or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos, asbestos containing material, urea formaldehyde foam
insulation, lead and polychlorinated biphenyl.
"HOLDING COMPANY FINANCIAL REPORTS" has the meaning assigned to such
term in Section 4.1(H).
"INDEMNIFIED PARTY" has the meaning assigned to such term in Section
5.18(A).
"INTERWEST" has the meaning assigned to such term in the first
paragraph of this Plan.
"INTERWEST COMMON STOCK" has the meaning assigned to such term in
paragraph (C) of the Recitals.
"INTERWEST OPTION" has the meaning assigned to such term in Section
2.8.
"INTERWEST TRANSACTION" means (1) a merger, consolidation or similar
transaction involving InterWest or any of its significant subsidiaries, (2) the
disposition, by sale, lease, exchange or otherwise, of assets or deposits of
InterWest or any of its significant subsidiaries representing in either case 25%
or more of the consolidated assets or deposits of InterWest and its
subsidiaries, or (3) the issuance, sale or other disposition (including by way
of merger, consolidation, share exchange or any similar transaction) of
securities representing 25% or more of the voting power of InterWest or any of
its significant subsidiaries other than the issuance of InterWest Common Stock
upon the exercise of outstanding options or the conversion of outstanding
convertible securities of InterWest.
"LOAN/FIDUCIARY PROPERTY" means any property owned or controlled by the
Company or any of its Subsidiaries or in which the Company or any of its
Subsidiaries holds a security or other interest, and, where required by the
context, includes any such property where the Company or any of its Subsidiaries
constitutes the owner or operator of such property, but only with respect to
such property.
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<PAGE>
"MATERIAL ADVERSE EFFECT" means, with respect to any Party, an event,
occurrence or circumstance (including (i) the making of any provisions for
possible loan and lease losses, write-downs of other real estate owned and
taxes, and (ii) any breach of a representation or warranty contained in this
Plan by such Party) that (a) has or is reasonably likely to have a material
adverse effect on the financial condition, results of operations, business or
prospects of such Party and its Subsidiaries, taken as a whole, or (b) would
materially impair such Party's ability to perform its obligations under this
Plan or the Stock Option Agreement or the consummation of any of the
transactions contemplated by this Plan or the Stock Option Agreement.
"MEETING" has the meaning assigned to such term in Section 5.2.
"MERGER" has the meaning assigned to such term in Section 1.1(A).
"MULTIEMPLOYER PLANS" has the meaning assigned to such term in
Section 4.l(Q)(2).
"NASDAQ" means the National Association of Securities Dealers
Automated Quotations system.
"NONCOMPETITION AGREEMENT" means Exhibit F-2.
"OPTION" has the meaning assigned to such term in the Stock Option
Agreement.
"OPTION SHARES" has the meaning assigned to such term in the Stock
Option Agreement.
"PACIFIC NORTHWEST BANK COMMON STOCK" has the meaning assigned to such
term in paragraph (D) of the Recitals.
"PARTICIPATION FACILITY" means any facility in which the Company or
any of its Subsidiaries participates in the management and, where required by
the context, includes the owner or operator of such facility.
"PARTY" means a party to this Plan.
"PENSION PLAN" has the meaning assigned to such term in Section
4.l(Q)(2).
"PERSON" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, labor union,
governmental body, or other entity.
"PLAN" means this Agreement and Plan of Merger.
"PREVIOUSLY DISCLOSED" with respect to information, means that the
information is provided by a Party in a Schedule that is delivered
contemporaneously with the execution of this Plan.
"PRICING PERIOD" means the ten consecutive trading days beginning on
and including the twentieth trading day immediately preceding the Effective
Date.
"PROXY STATEMENT" has the meaning assigned to such term in Section 5.2.
"REGISTRATION STATEMENT" has the meaning assigned to such term in
Section 5.2.
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<PAGE>
"REGULATORY AUTHORITIES" means federal or state governmental agencies,
authorities or departments charged with the supervision and regulation of
depository institutions or engaged in the insurance of deposits.
"RCW" means the Revised Code of Washington, as amended.
"RIGHTS" has the meaning assigned to such term in paragraph (G) of
the Recitals.
"SECURITIES ACT" means the Securities Act of 1933, as amended, together
with the rules and regulations promulgated under such statute.
"SEC" means the Securities and Exchange Commission.
"STOCK OPTION AGREEMENT" has the meaning assigned to such term in
paragraph (F) of the Recitals.
"SUBSIDIARY" means, with respect to any entity, each partnership,
limited liability company, or corporation the majority of the outstanding
partnership interests, membership interests, capital stock or voting power of
which is (or upon the exercise of all outstanding warrants, options and other
rights would be) owned, directly or indirectly, at the time in question by such
entity.
"TAX RETURNS" has the meaning assigned to such term in Section 4.1(AA).
"TAXES" means federal, state, local or foreign income, gross receipts,
windfall profits, severance, property, production, sales, use, license, excise,
franchise, employment, withholding or similar taxes imposed on the income,
properties or operations of the respective Party or its Subsidiaries, together
with any interest, additions, or penalties relating to such taxes and any
interest charged on those additions or penalties.
"TERMINATION DATE" has the meaning assigned to such term in Section
1.2.
"THIRD PARTY" means a person within the meaning of Sections 3(a)(9)
and 13(d)(3) of the Exchange Act, excluding (1) the Company or any Subsidiary
of the Company, and (2) InterWest or any Subsidiary of InterWest.
(B) GENERAL INTERPRETATION. Except as otherwise expressly provided in
this Plan or unless the context clearly requires otherwise, the terms defined in
this Plan include the plural as well as the singular; the words "hereof,"
"herein," "hereunder," "in this Plan" and other words of similar import refer to
this Plan as a whole and not to any particular Article, Section or other
subdivision; and references in this Plan to Articles, Sections, Schedules, and
Exhibits refer to Articles and Sections of and Schedules and Exhibits to this
Plan. Whenever the words "include," "includes," or "including" are used in this
Plan, they shall be deemed to be followed by the words "without limitation."
Unless otherwise stated, references to Subsections refer to the Subsections of
the Section in which the reference appears. All pronouns used in this Plan
include the masculine, feminine and neuter gender, as the context requires. All
accounting terms used in this Plan that are not expressly defined in this Plan
have the respective meanings given to them in accordance with GAAP.
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<PAGE>
ARTICLE I. MERGER
1.1 THE MERGER. Subject to the provisions of this Plan, on the
Effective Date:
(A) THE CONTINUING CORPORATION. In accordance with the terms
of RCW Ch. 23B.11, the Company shall merge into InterWest (the "Merger"), the
separate existence of the Company shall cease and InterWest (the "Continuing
Corporation") shall survive, and the name of the Continuing Corporation shall be
"InterWest Bancorp, Inc."
(B) RIGHTS, ETC. Upon consummation of the Merger, the
Continuing Corporation shall possess all of the rights, privileges, immunities
and franchises, of a public as well as of a private nature, of each of the
merging corporations; and all property, real, personal and mixed, and all debts
due on whatever account, and all other choses in action, and all and every other
interest, of or belonging to or due to each of the corporations so merged, shall
be deemed to be vested in the Continuing Corporation without further act or
deed; and the title to any real estate or any interest therein, vested in each
of such corporations, shall not revert or be in any way impaired by reason of
the Merger.
(C) LIABILITIES. The Continuing Corporation shall be
responsible and liable for all the liabilities, obligations and penalties of
each of the corporations so merged.
(D) ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS; OFFICERS.
The Articles of Incorporation and Bylaws of the Continuing Corporation shall be
those of InterWest, as in effect immediately prior to the Merger becoming
effective. The directors and officers of InterWest in office immediately prior
to the Merger becoming effective shall be the directors and officers of the
Continuing Corporation, who shall hold office until such time as their
successors are elected and qualified.
(E) DISSENTING SHARES. Notwithstanding anything to the
contrary in this Plan, each Dissenting Share whose holder, as of the Effective
Date of the Merger, has not effectively withdrawn or lost his dissenters' rights
under RCW 23B.13 (the "Appraisal Laws") shall not be converted into or represent
a right to receive InterWest Common Stock, but the holder of such Dissenting
Share shall be entitled only to such rights as are granted by the Appraisal
Laws, unless and until such holder shall have failed to perfect or shall have
effectively withdrawn or lost the right to payment under the Appraisal Laws, in
which case each such share shall be deemed to have been converted at the
Effective Date into the right to receive InterWest Common Stock without any
interest thereon. Each holder of Dissenting Shares who becomes entitled to
payment for his Company Common Stock pursuant to the provisions of the Appraisal
Laws shall receive payment for such Dissenting Shares from the Company (but only
after the amount thereof shall have been agreed upon or finally determined
pursuant to the Appraisal Laws).
1.2 EFFECTIVE DATE. Unless the Parties agree upon another date, the
"Effective Date" will be the tenth business day after the fullfillment or
waiver of each condition precedent set forth in, and the granting of each
approval (and expiration of any waiting period) required by, Article VI. If
the Merger is not consummated in accordance with this Plan on or prior to
December 31, 1999 (the "Termination Date"), the Company or InterWest may
terminate this Plan in accordance with Article VII. A business day is any day
other than a Saturday, Sunday or legal holiday in the State of Washington. On
the Effective Date, InterWest and the Company shall execute and deliver to
the Secretary of State of the State of Washington articles of merger in
accordance with applicable law.
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ARTICLE II. CONSIDERATION
2.1 CONSIDERATION. Subject to the provisions of this Plan, on the
Effective Date:
(A) OUTSTANDING INTERWEST COMMON STOCK. The shares of
InterWest Common Stock issued and outstanding immediately prior to the Effective
Date shall, on and after the Effective Date, remain as issued and outstanding
shares of InterWest Common Stock.
(B) OUTSTANDING COMPANY COMMON STOCK. Each share of Eligible
Company Common Stock issued and outstanding immediately prior to the Effective
Date shall, by virtue of the Merger, automatically and without any action on the
part of the holder of such share, become and be converted into the right to
receive shares of InterWest Common Stock pursuant to the provisions of either
Section 2.1(C) or 2.1(D) (as adjusted, if applicable, pursuant to Section 2.5)
(the "Exchange Ratio").
(C) EXCHANGE RATIO IF AVERAGE CLOSING PRICE BETWEEN $21.00 AND
$25.00. If the Average Closing Price is equal to or greater than $21.00 but not
more than $25.00, the Exchange Ratio will be determined as follows:
<TABLE>
<CAPTION>
AVERAGE CLOSING PRICE EXCHANGE RATIO
--------------------- --------------
<S> <C>
$21.00 to $21.99 .88
$22.00 to $22.99 .87
$23.00 to $23.99 .86
$24.00 to $24.99 .85
$25 .84
</TABLE>
(D) EXCHANGE RATIO IF AVERAGE CLOSING PRICE EXCEEDS $25.00. If
the Average Closing Price exceeds $25.00, the Exchange Ratio will be calculated
according to the following formula:
(TOTAL COMPANY COMMON STOCK SHARES OUTSTANDING) X 21
- --------------------------------------------------------------------------------
(Total Company Common Stock Shares Outstanding) x (Average Closing Price)
2.2 SHAREHOLDER RIGHTS; STOCK TRANSFERS. On the Effective Date, holders
of Company Common Stock shall cease to be, and shall have no rights as,
shareholders of the Company, other than to receive the consideration provided
under this Article II. After the Effective Date, there shall be no transfers on
the stock transfer books of the Company or the Continuing Corporation of the
shares of Company Common Stock that were issued and outstanding immediately
prior to the Effective Date.
2.3 FRACTIONAL SHARES. Notwithstanding any other provision of this
Plan, no fractional shares of InterWest Common Stock and no certificates, scrip
or other evidence of ownership of fractional shares will be issued in the
Merger. InterWest shall pay to each holder of Company Common Stock who would
otherwise be entitled to a fractional share an amount in cash determined by
multiplying such fraction by the Average Closing Price.
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2.4 EXCHANGE PROCEDURES. As promptly as practicable after the Effective
Date, InterWest shall send or cause to be sent to each former shareholder of the
Company of record immediately prior to the Effective Date transmittal materials
for use in exchanging such shareholder's certificates for Company Common Stock
for the consideration set forth in this Article II. The certificates
representing the shares of InterWest Common Stock into which shares of such
shareholder's Company Common Stock are converted on the Effective Date, any
fractional share checks that such shareholder shall be entitled to receive, and
any dividends paid on such shares of InterWest Common Stock for which the record
date for determination of shareholders entitled to such dividends is on or after
the Effective Date, will be delivered to such shareholder only upon delivery to
InterWest's designee (the "Exchange Agent") of the certificates representing all
of such shares of Company Common Stock (or indemnity satisfactory to InterWest
and the Exchange Agent, in their judgment, if any of such certificates are lost,
stolen or destroyed). No interest will be paid on any such fractional share
checks or dividends to which the holder of such shares shall be entitled to
receive upon such delivery. Certificates surrendered for exchange by any person
constituting an "affiliate" of the Company for purposes of Rule 145 of the
Securities Act shall not be exchanged for certificates representing InterWest
Common Stock until InterWest has received a written agreement from such person
as specified in Section 5.10.
2.5 EXCHANGE RATIO ADJUSTMENTS. If, before the Effective Date,
InterWest changes the number of shares of InterWest Common Stock issued and
outstanding as a result of a stock split, stock dividend, recapitalization or
similar transaction, and the record date therefor shall be prior to the
Effective Date, the Exchange Ratio shall be proportionately adjusted.
2.6 EXCEPTION SHARES. Each of the Exception Shares of Company Common
Stock shall be canceled and retired upon consummation of the Merger, and no
consideration shall be issued in exchange therefor.
2.7 RESERVATION OF RIGHT TO REVISE TRANSACTION. In its sole discretion
and at its sole expense, notwithstanding any other provision in this Plan to the
contrary, InterWest may at any time change the method of effecting its
acquisition of the Company and the Bank; PROVIDED, HOWEVER, that (A) no such
change shall alter or change the amount or kind of consideration to be issued to
holders of Company Common Stock as provided for in this Plan, (B) no such change
shall adversely affect the tax treatment to the Company shareholders as a result
of receiving such consideration, and (C) no delay caused by such a change shall
be the basis upon which InterWest terminates this Plan pursuant to Section
7.1(C). If InterWest elects to change the method of acquisition, the Company and
the Bank will cooperate with and assist InterWest and Pacific Northwest Bank
with any necessary amendment to this Plan, and with the preparation and filing
of such applications, documents, instruments and notices as may be necessary or
desirable, in the opinion of counsel for InterWest, to obtain all necessary
shareholder approvals and approvals of any regulatory agency, administrative
body or other governmental entity. InterWest's authority under this section
includes the right of InterWest, if it so elects, to merge the Bank into Pacific
Northwest Bank on the Effective Date pursuant to the Merger Agreement attached
to this Plan as EXHIBIT D.
2.8 OPTIONS. On the Effective Date, by virtue of the Merger, and
without any action on the part of any holder of an option, each option granted
by the Company to purchase shares of Company Common Stock ("Company Option")
that is then outstanding and unexercised shall be converted into and become an
option to purchase InterWest Common Stock ("InterWest Option") on the same terms
and conditions as are in effect with respect to the Company Option immediately
prior to the Effective Date, except that (A) each such InterWest Option may be
exercised solely for shares of InterWest Common Stock, (B) the number of shares
of InterWest Common Stock subject to such InterWest Option shall be equal to the
number of shares of Company Common Stock subject to such Option immediately
prior to the Effective Date multiplied by the Exchange Ratio, the product being
rounded, if necessary, up or down
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to the nearest whole share, and (C) the per share exercise price under each
such InterWest Option shall be adjusted by dividing the per share exercise
price of the Company Option by the Exchange Ratio, and rounding up or down to
the nearest cent. The number of shares of Company Common Stock that are
issuable upon exercise of Options as of the date of this Plan are Previously
Disclosed in SCHEDULE 2.8. Following the Effective Date, InterWest shall use
all reasonable efforts to prepare and file with the SEC a registration
statement on Form S-8 covering shares of InterWest Common Stock to be issued
upon the exercise of stock options assumed by InterWest pursuant to this
Section 2.8.
ARTICLE III. ACTIONS PENDING CONSUMMATION
Unless otherwise agreed to in writing by InterWest, each of the
Company and the Bank shall conduct its and each of its Subsidiaries' business
in the ordinary and usual course consistent with past practice and shall use
all reasonable efforts to maintain and preserve its and each of its
Subsidiaries' business organization, employees and advantageous business
relationships and retain the services of its and each of its Subsidiaries'
officers and key employees identified by Pacific Northwest Bank, and neither
the Company nor the Bank, without the prior written consent of InterWest,
will (or cause or allow any of its Subsidiaries to):
3.1 CAPITAL STOCK. Except for or as otherwise expressly permitted by
this Plan, the Stock Option Agreement, or Company Options, or as Previously
Disclosed in SCHEDULE 4.1(C), issue, sell or otherwise permit to become
outstanding any additional shares of capital stock of the Company, the Bank
or any of their Subsidiaries, or any Rights with respect thereto, or enter
into any agreement with respect to the foregoing, or permit any additional
shares of Company Common Stock to become subject to grants of employee stock
options, stock appreciation rights or similar stock-based employee
compensation rights.
3.2 DIVIDENDS, ETC. Make, declare or pay any dividend on or in
respect of, or declare or make any distribution on, or directly or indirectly
combine, redeem, reclassify, purchase or otherwise acquire, any shares of its
capital stock or, other than as permitted in or contemplated by this Plan or
the Stock Option Agreement, authorize the creation or issuance of, or issue,
any additional shares of its capital stock or any Rights with respect thereto.
3.3 INDEBTEDNESS; LIABILITIES; ETC. Other than in the ordinary
course of business consistent with past practice, incur any indebtedness for
borrowed money, assume, guarantee, endorse or otherwise as an accommodation
become responsible or liable for the obligations of any other individual,
corporation or other entity.
3.4 LINE OF BUSINESS; OPERATING PROCEDURES; ETC. Except as may be
directed by any regulatory agency, (A) change its lending, investment,
liability management or other material banking policies in any material
respect, except such changes as are in accordance and in an effort to comply
with Section 5.11, or (B) commit to incur any further capital expenditures
beyond those Previously Disclosed in SCHEDULE 3.4 other than in the ordinary
course of business and not exceeding $10,000 individually or $35,000 in the
aggregate.
3.5 LIENS AND ENCUMBRANCES. Impose, or suffer the imposition, on any
shares of stock of any of its Subsidiaries, any lien, charge or encumbrance,
or permit any such lien, charge or encumbrance to exist.
3.6 COMPENSATION; EMPLOYMENT AGREEMENTS; ETC. Except as Previously
Disclosed in SCHEDULE 3.6, enter into or amend any employment, severance or
similar agreement (other than the Employment Agreement and the Noncompetition
Agreement) or arrangement with any of its
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<PAGE>
directors, officers or employees, or grant any salary or wage increase, amend
the terms of any Company Option or increase any employee benefit (including
incentive or bonus payments), except normal individual increases in regular
compensation to employees in the ordinary course of business consistent with
past practice.
3.7 BENEFIT PLANS. Except as Previously Disclosed in SCHEDULE 3.7,
and except as expressly contemplated by the Employment Agreement, enter into
or modify (except as may be required by applicable law) any pension,
retirement, stock option, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers or other
employees, including taking any action that accelerates the vesting or
exercise of any benefits payable thereunder.
3.8 CONTINUANCE OF BUSINESS. Dispose of or discontinue any portion
of its assets, business or properties, that is material to the Company and
its Subsidiaries taken as a whole, or merge or consolidate with, or acquire
all or any portion of, the business or property of any other entity that is
material to the Company and its Subsidiaries taken as a whole (except
foreclosures or acquisitions by the Bank in its fiduciary capacity, in each
case in the ordinary course of business consistent with past practice).
3.9 AMENDMENTS. Amend its articles of incorporation or bylaws.
3.10 CLAIMS. Settle any claim, litigation, action or proceeding
involving any liability for material money damages or restrictions upon the
operations of the Company or any of its Subsidiaries.
3.11 CONTRACTS. Except as previously disclosed on SCHEDULE 3.11,
enter into, renew, terminate or make any change in any material contract,
agreement or lease, except in the ordinary course of business consistent with
past practice with respect to contracts, agreements and leases that are
terminable by it without penalty on no more than 60 days prior written notice.
3.12 LOANS. Extend credit or account for loans and leases other than
in accordance with existing lending policies and accounting practices, except
that the Bank shall not, without the prior consent of Pacific Northwest
Bank's Chief Executive Officer or Chief Credit Officer, make any new loan or
modify, restructure or renew any existing nonperforming loan (defined as on
non-accrual status, or 90 days or more past due) to any borrower if the
amount of the resulting loan, when aggregated with all other loans or
extensions of credit to such Person (or which would be required to be
aggregated for loans-to-one-borrower limitations), would be in excess of
$175,000 for any new customer or $400,000 to any customer as of the date of
this Plan, except that (i) single-family residential loans may be made in
amounts that would not exceed applicable FHLMC and FNMA limits, and (ii) such
limits shall not apply to SBA, FmHA, USDA Rural Development or other
governmental or governmental agency guaranteed amounts.
3.13 TRANSACTION EXPENSES. Incur expenses (other than printing and
postage expenses) in connection with the transactions contemplated by this
Plan that exceed $100,000 in the aggregate.
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES
4.1 THE COMPANY AND BANK REPRESENTATIONS AND WARRANTIES. Each of the
Company and the Bank hereby represents and warrants to InterWest and Pacific
Northwest Bank as follows:
(A) RECITALS. The facts set forth in the Recitals of this
Plan with respect to the Company and its Subsidiaries are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. Each of the
Company and its Subsidiaries is duly qualified to do business and is in good
standing in the States of the United States and foreign jurisdictions where
the failure to be duly qualified, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on it. Each of the
Company and its Subsidiaries has in effect all federal, state, local and
foreign governmental authorizations necessary for it to own or lease its
properties and assets and to carry on its business as it is now conducted,
the absence of which, individually or in the aggregate, is reasonably likely
to have a Material Adverse Effect on it. The Bank is an "insured depository
institution" as defined in the Federal Deposit Insurance Act, as amended, and
applicable regulations under such statute, and its deposits are insured by
the Bank Insurance Fund of the FDIC.
(C) SHARES. The outstanding shares of the Company and its
Subsidiaries' capital stock are validly issued and outstanding, fully paid
and nonassessable (except with respect to the assessability of Bank Common
Stock under 12 U.S.C. Section 55), and subject to no preemptive rights.
Except as Previously Disclosed in SCHEDULE 4.1(C) and paragraph (A) of the
Recitals, and as provided under the Stock Option Agreement, there are no
shares of capital stock or other equity securities of the Company or its
Subsidiaries outstanding and no outstanding Rights with respect thereto.
(D) THE COMPANY SUBSIDIARIES. The Company has Previously
Disclosed in SCHEDULE 4.1(D) a list of all of its Subsidiaries. Each of its
Subsidiaries that is a bank is an "insured depository institution" as defined
in the Federal Deposit Insurance Act, as amended, and applicable regulations
under such statute. No equity securities of any of its Subsidiaries are or
may become required to be issued (other than to the Company or one of its
Subsidiaries) by reason of any Rights with respect thereto. There are no
contracts, commitments, understandings or arrangements by which any of its
Subsidiaries is or may be bound to sell or otherwise issue any shares of such
Subsidiary's capital stock, and there are no contracts, commitments,
understandings or arrangements relating to the rights of the Company or its
Subsidiaries, as applicable, to vote or to dispose of such shares. All of the
shares of capital stock of each of its Subsidiaries held by the Company or
one of its Subsidiaries are fully paid and nonassessable and are owned by the
Company or one of its Subsidiaries free and clear of any charge, mortgage,
pledge, security interest, restriction, claim, lien or encumbrance. Each of
its Subsidiaries is in good standing under the laws of the jurisdiction in
which it is incorporated or organized, and is duly qualified to do business
and in good standing in the jurisdictions where the failure to be duly
qualified is reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on it. Except as Previously Disclosed in SCHEDULE
4.1(D), it does not own beneficially, directly or indirectly, any shares of
any equity securities or similar interests of any corporation, bank,
partnership, joint venture, business trust, association or other
organization. In the case of representations by the Company, the deposits of
its Subsidiaries that are banks are insured by the Bank Insurance Fund of the
FDIC.
(E) CORPORATE POWER. Each of the Company and its
Subsidiaries has the corporate power and authority to carry on its business
as it is now being conducted and to own all its material properties and
assets.
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(F) CORPORATE AUTHORITY. Subject to any necessary receipt
of approval by its shareholders referred to in Section 6.1, this Plan and the
Stock Option Agreement have been authorized by all necessary corporate action
of the Company and each of its Subsidiaries that is a Party, and each such
agreement is a valid and binding agreement of the Company and such
Subsidiaries, enforceable against the Company and such Subsidiaries in
accordance with its terms, subject to bankruptcy, insolvency and other laws
of general applicability relating to or affecting creditors' rights and to
general equity principles.
(G) NO DEFAULTS. Subject to the approval by its
shareholders referred to in Section 6.1, the required regulatory approvals
referred to in Section 6.1, and the required filings under federal and state
securities laws, and except as Previously Disclosed in SCHEDULE 4.1(G), the
execution, delivery and performance of this Plan and the Stock Option
Agreement and the consummation by the Company and each of its Subsidiaries
that is a Party to the transactions contemplated by this Plan and the Stock
Option Agreement do not and will not (1) constitute a breach or violation of,
or a default under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or agreement, indenture or instrument
of the Company or of any of its Subsidiaries or to which the Company or any
of its Subsidiaries or its or their properties is subject or bound, which
breach, violation or default is reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on it, (2) constitute a breach
or violation of, or a default under, the articles of incorporation, charter
or bylaws of it or any of its Subsidiaries, or (3) require any consent or
approval under any such law, rule, regulation, judgment, decree, order,
governmental permit or license or the consent or approval of any other party
to any such agreement, indenture or instrument, other than any such consent
or approval that, if not obtained, would not be reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on it.
(H) FINANCIAL REPORTS. Except as Previously Disclosed in
SCHEDULE 4.1(H), (1) as to the Company, its audited consolidated balance
sheet as of December 31, 1998 and the related consolidated statement of
income, consolidated statement of changes in shareholders' equity and
consolidated statement of cash flows for the fiscal year ended December 31,
1998 (collectively, the "Holding Company Financial Reports"), and (2) as to
each of the Company's Subsidiaries that is a bank, its call report for the
fiscal year ended December 31, 1998, and all other financial reports filed or
to be filed subsequent to December 31, 1998, in the form filed with the FDIC
and the Office of the Comptroller of the Currency (in each case, the "Bank
Financial Reports" and together with the Holding Company Financial Reports,
the "Financial Reports") did not and will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading; and each of the
balance sheets in or incorporated by reference into the Financial Reports
(including the related notes and schedules thereto) fairly presents and will
fairly present the financial position of the entity or entities to which it
relates as of its date, and each of the statements of income and changes in
shareholders' equity and cash flows or equivalent statements in the Bank
Financial Reports (including any related notes and schedules thereto) fairly
presents and will fairly present the results of operations, changes in
shareholders' equity and cash flows, as the case may be, of the entity or
entities to which it relates for the periods set forth therein, in each case
for the Holding Company Financial Reports in accordance with GAAP during the
periods involved, and in each case for the Bank Financial Reports in
accordance with regulatory accounting principles during the periods involved,
except in each case as may be noted therein, subject to normal and recurring
year-end audit adjustments in the case of unaudited statements.
(I) ABSENCE OF UNDISCLOSED LIABILITIES. Except as
Previously Disclosed on Schedule 4.1(I), neither the Company nor any of its
Subsidiaries has any obligation or liability (contingent or otherwise) that,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on it, except (1) as reflected in its Holding Company
Financial Reports prior to the date
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of this Plan, and (2) for commitments and obligations made, or liabilities
incurred, in the ordinary course of business consistent with past practice
since December 31, 1998. Except as Previously Disclosed on SCHEDULE 4.1(I),
since December 31, 1998, neither the Company nor any of its Subsidiaries has
incurred or paid any obligation or liability (including any obligation or
liability incurred in connection with any acquisitions in which any form of
direct financial assistance of the federal government or any agency thereof
has been provided to any Subsidiary) that, individually or in the aggregate,
is reasonably likely to have a Material Adverse Effect on it.
(J) NO EVENTS. Except as Previously Disclosed on SCHEDULE
4.1(J), since December 31, 1998, no event has occurred that, individually or
in the aggregate, is reasonably likely to have a Material Adverse Effect on
it.
(K) PROPERTIES. Except as reserved against in its Holding
Company Financial Reports, the Company and each of its Subsidiaries have good
and marketable title, free and clear of all liens, encumbrances, charges,
defaults, or equities of any character, to all of the properties and assets,
tangible and intangible, reflected in its Holding Company Financial Reports
as being owned by the Company or its Subsidiaries as of the dates thereof
other than those that, individually or in the aggregate, are not reasonably
likely to have a Material Adverse Effect on it, except those sold or
otherwise disposed of in the ordinary course of business. All buildings and
all material fixtures, equipment, and other property and assets that are held
under leases or subleases by the Company or any of its Subsidiaries are held
under valid leases or subleases enforceable in accordance with their
respective terms, other than any such exceptions to validity or
enforceability that, individually or in the aggregate, are not reasonably
likely to have a Material Adverse Effect on it.
(L) LITIGATION; REGULATORY ACTION. Except as Previously
Disclosed in SCHEDULE 4.1(L), no litigation, proceeding or controversy before
any court or governmental agency is pending that, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on the
Company or any of its Subsidiaries or that alleges claims under any fair
lending law or other law relating to discrimination, including the Equal
Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act
and the Home Mortgage Disclosure Act, and, to the best of its knowledge, no
such litigation, proceeding or controversy has been threatened; and except as
Previously Disclosed in SCHEDULE 4.1(L), neither the Company nor any of its
Subsidiaries or any of its or their material properties or their officers,
directors or, to the best of its knowledge, Control persons, is a party to or
is subject to any order, decree, agreement, memorandum of understanding or
similar arrangement with, or a commitment letter or similar submission to,
any Regulatory Authority, and neither the Company nor any of its Subsidiaries
has been advised by any of such Regulatory Authorities that such authority is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum or
understanding, commitment letter or similar submission.
(M) COMPLIANCE WITH LAWS. Except as Previously Disclosed in
SCHEDULE 4.1(M), each of the Company and its Subsidiaries:
(1) has all permits, licenses,
authorizations, orders and approvals of, and has made all filings,
applications and registrations with, all Regulatory Authorities that are
required in order to permit it to own its businesses presently conducted and
that are material to the business of it and its Subsidiaries taken as a
whole; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect and, to its best knowledge, no
suspension or cancellation of any of them is threatened; and all such
filings, applications and registrations are current;
(2) has received no notification or
communication from any Regulatory Authority or the staff thereof (a)
asserting that the Company or any of its Subsidiaries is not in
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compliance with any of the statutes, regulations or ordinances which such
Regulatory Authority enforces, which, as a result of such noncompliance in
any such instance, individually or in the aggregate, is reasonably likely to
have a Material Adverse Effect on the Company or its Subsidiaries, (b)
threatening to revoke any license, franchise, permit or governmental
authorization, which revocation, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on the Company or its
Subsidiaries, or (c) requiring any of the Company or its Subsidiaries (or any
of its or their officers, directors or Control persons) to enter into a cease
and desist order, agreement or memorandum of understanding (or requiring the
board of directors thereof to adopt any resolution or policy);
(3) is not required to give prior notice to any
federal banking or thrift agency of the proposed addition of an individual
to its board of directors or the employment of an individual as a senior
executive;
(4) is in compliance in all material respects with
all fair lending laws or other laws relating to discrimination, including
the Equal Credit Opportunity Act, the Fair Housing Act, the Community
Reinvestment Act and the Home Mortgage Disclosure Act; and
(5) has adopted and is implementing a program to
address any problems associated with the capacity and capability of the
computer software, hardware, code and programs utilized by the Company, its
Subsidiaries and their vendors to properly process transactions after
December 31, 1999.
(N) MATERIAL CONTRACTS. Except as Previously Disclosed in
SCHEDULE 4.1(N), none of the Company or its Subsidiaries, nor any of their
respective assets, businesses or operations, is a party to, or is bound or
affected by, or receives benefits under, any material contract or agreement
or amendment thereto. Neither the Company nor any of its Subsidiaries is in
default under any contract, agreement, commitment, arrangement, lease,
insurance policy or other instrument to which it is a party, by which its
respective assets, business or operations may be bound or affected or under
which it or any of its respective assets, business or operations receives
benefits, which default, individually or in the aggregate, is reasonably
likely to have a Material Adverse Effect on the Company or its Subsidiaries,
and there has not occurred any event that, with the lapse of time or the
giving of notice or both, would constitute such a default. Except as
Previously Disclosed in SCHEDULE 4.1(N), neither the Company nor any of its
Subsidiaries is subject to or bound by any contract containing covenants that
limit the ability of the Company or any of its Subsidiaries to compete in any
line of business or with any Person or that involve any restriction of
geographical area in which, or method by which, the Company or any of its
Subsidiaries may carry on its business (other than as may be required by law
or any applicable Regulatory Authority).
(O) REPORTS. Since January 1, 1993, each of the Company and
its Subsidiaries has filed all reports and statements, together with any
amendments required to be made with respect thereto, that it was required to
file with (1) the Office of the Comptroller of the Currency, (2) the FDIC,
(3) the Federal Reserve Board, and (4) any other Regulatory Authorities
having jurisdiction with respect to the Company and its Subsidiaries. As of
their respective dates (and without giving effect to any amendments or
modifications filed after the date of this Plan with respect to reports and
documents filed before the date of this Plan), each of such reports and
documents, including the financial statements, exhibits and schedules
thereto, complied in all material respects with all of the statutes, rules
and regulations enforced or promulgated by the Regulatory Authority with
which they were filed and did not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
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(P) NO BROKERS. All negotiations relative to this Plan and
the transactions contemplated by this Plan have been carried on by it
directly with the other Parties and no action has been taken by it that would
give rise to any valid claim against any Party for a brokerage commission,
finder's fee or other like payment.
(Q) EMPLOYEE BENEFIT PLANS.
(1) SCHEDULE 4.1(Q)(1) contains a complete
list of all bonus, deferred compensation, pension, retirement, profit-sharing,
thrift savings, employee stock ownership, stock bonus, stock purchase
restricted stock and stock option plans, all employment or severance
contracts, all medical, dental, health and life insurance plans, all other
employee benefit plans, contracts or arrangements and any applicable "change
of control" or similar provisions in any plan, contract or arrangement
maintained or contributed to by the Company or any of its Subsidiaries for
the benefit of employees, former employees, directors, former directors or
their beneficiaries (the "Compensation and Benefit Plans"). True and complete
copies of all Compensation and Benefit Plans of the Company and its
Subsidiaries, including any trust instruments and/or insurance contracts, if
any, forming a part thereof, and all amendments thereto, have been supplied
to the other Parties.
(2) All "employee benefit plans" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), other than "multiemployer plans" within the
meaning of Section 3(37) of ERISA ("Multiemployer Plans"), covering employees
or former employees of the Company and its Subsidiaries (the "ERISA Plans"),
to the extent subject to ERISA, are in substantial compliance with ERISA.
Except as Previously Disclosed in SCHEDULE 4.1(Q)(2) each ERISA Plan which is
an "employee pension benefit plan" within the meaning of Section 3(2) of
ERISA ("Pension Plan") and which is intended to be qualified under Section
401(a) of the Internal Revenue Code of 1986 (as amended, the "Code") has
received a favorable determination letter from the Internal Revenue Service,
and it is not aware of any circumstances reasonably likely to result in the
revocation or denial of any such favorable determination letter or the
inability to receive such a favorable determination letter. There is no
material pending or, to its knowledge, threatened litigation relating to the
ERISA Plans. Neither the Company nor any of its Subsidiaries has engaged in a
transaction with respect to any ERISA Plan that could subject the Company or
any of its Subsidiaries to a tax or penalty imposed by either Section 4975 of
the Code or Section 502(i) of ERISA in an amount which would be material.
(3) No liability under Subtitle C or D of Title
IV of ERISA has been or is expected to be incurred by the Company or any
of its Subsidiaries with respect to any ongoing, frozen or terminated
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any of them, or the single-employer plan
of any entity which is considered one employer with the Company under Section
4001(a)(15) of ERISA or Section 414 of the Code (an "ERISA Affiliate").
Neither the Company nor any of its Subsidiaries presently contributes to a
Multiemployer Plan, nor have they contributed to such a plan within the past
five calendar years. No notice of a "reportable event," within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not been
waived, has been required to be filed for any Pension Plan or by any ERISA
Affiliate within the past 12-month period.
(4) All contributions required to be made under
the terms of any ERISA Plan have been timely made. Neither any Pension Plan
nor any single-employer plan of an ERISA Affiliate has an "accumulated
funding deficiency"(whether or not waived) within the meaning of Section 412
of the Code or Section 302 of ERISA. Neither the Company nor any of its
Subsidiaries has provided, or is required to provide, security to any Pension
Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section
401(a)(29) of the Code.
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(5) Under each Pension Plan which is a
single-employer plan, as of the last day of the most recent plan year, the
actuarially determined present value of all "benefit liabilities," within the
meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the
actuarial assumptions contained in the plan's most recent actuarial
valuation) did not exceed the then current value of the assets of such plan,
and there has been no material change in the financial condition of such plan
since the last day of the most recent plan year.
(6) Neither the Company nor any of its
Subsidiaries has any obligations for retiree health and life benefits under
any plan, except as set forth in SCHEDULE 4.1(Q)(6). There are no
restrictions on the rights of the Company or any of its Subsidiaries to amend
or terminate any such plan without incurring any liability thereunder.
(7) Except as Previously Disclosed in SCHEDULE
4.L(Q)(7) and except as expressly contemplated by the Employment Agreement
and the Noncompetition Agreement, neither the execution and delivery of this
Plan nor the consummation of the transactions contemplated by this Plan will
(a) result in any payment (including severance, unemployment compensation,
golden parachute or otherwise) becoming due to any director or any employee
of the Company or any of its Subsidiaries under any Compensation and Benefit
Plan or otherwise from the Company or any of its Subsidiaries, (b) increase
any benefits otherwise payable under any Compensation and Benefit Plan, or
(c) result in any acceleration of the time of payment or vesting of any such
benefit.
(R) NO KNOWLEDGE. The Company and its Subsidiaries know of
no reason why the regulatory approvals referred to in Section 6.1 should not
be obtained.
(S) LABOR AGREEMENTS. Neither the Company nor any of its
Subsidiaries is a party to or is bound by any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization, nor is the Company or any of its Subsidiaries the subject
of a proceeding asserting that it or any such Subsidiary has committed an
unfair labor practice (within the meaning of the National Labor Relations
Act) or seeking to compel it or such Subsidiary to bargain with any labor
organization as to wages and conditions of employment, nor is there any
strike or other labor dispute involving it or any of its Subsidiaries pending
or, to the best of its knowledge, threatened, nor is it aware of any activity
involving its or any of the Subsidiaries' employees seeking to certify a
collective bargaining unit or engaging in any other organization activity.
(T) ASSET CLASSIFICATION. The Company and its Subsidiaries
have Previously Disclosed in SCHEDULE 4.1(T) a list, accurate and complete in
all material respects, of the aggregate amounts of loans, extensions of
credit or other assets of the Company and its Subsidiaries that have been
classified by it as of December 31, 1998 (the "Asset Classification"); and no
amounts of loans, extensions of credit or other assets that have been
classified as of December 31, 1998 by any regulatory examiner as "Other Loans
Specially Mentioned," "Substandard," "Doubtful" "Loss," or words of similar
import are excluded from the amounts disclosed in the Asset Classification,
other than amounts of loans, extensions of credit or other assets that were
charged off by the Company or any Subsidiary prior to December 31, 1998.
(U) ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for
possible loan losses shown on the consolidated balance sheets in the December
31, 1998 Holding Company Financial Reports of the Company was, and the
allowance for possible loan losses to be shown on subsequent Holding Company
Financial Reports of the Company was and will be, adequate in the opinion of
the Board of Directors of the Company to provide for possible losses, net of
recoveries relating to loans previously charged off, on loans outstanding
(including accrued interest receivable) as of the date thereof.
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(V) INSURANCE. Each of the Company and its Subsidiaries has
taken all requisite action (including the making of claims and the giving of
notices) pursuant to its directors' and officers' liability insurance policy
or policies in order to preserve all rights thereunder with respect to all
matters that are known to the Company, except for such matters that,
individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect on the Company or its Subsidiaries. Set forth in
SCHEDULE 4.1(V) is a list of all insurance policies maintained by or for the
benefit of the Company or its Subsidiaries or their respective directors,
officers, employees or agents.
(W) AFFILIATES. Except as Previously Disclosed in SCHEDULE
4.1(W), to the best of the Company's knowledge, there is no person who, as of
the date of this Plan, may be deemed to be an "affiliate" of the Company as
that term is used in Rule 145 under the Securities Act.
(X) STATE TAKEOVER LAWS, ARTICLES OF INCORPORATION. The
Company and its Subsidiaries have taken all necessary action to exempt this
Plan and the Stock Option Agreement and the transactions contemplated by this
Plan and the Stock Option Agreement from, and this Plan and the Stock Option
Agreement and such transactions are exempt from (1) any applicable state
takeover laws, including, but not limited to, RCW Ch. 23B.19, as amended, and
(2) any takeover-related provisions of the Company's and its Subsidiaries'
articles of incorporation.
(Y) NO FURTHER ACTION. The Company and its Subsidiaries
have taken all action so that the entering into of this Plan and the Stock
Option Agreement and the consummation of the transactions contemplated by
this Plan and the Stock Option Agreement (including the Merger and the
exercise of the Option) or any other action or combination of actions, or any
other transactions, contemplated by this Plan and the Stock Option Agreement
do not and will not (1) require a vote of shareholders (other than as set
forth in Section 6.1), or (2) result in the grant of any rights to any Person
under the articles of incorporation, charter or bylaws of the Company or any
of its Subsidiaries or under any agreement to which the Company or any such
Subsidiaries is a party, or (iii) restrict or impair in any way the ability
of the other Parties to exercise the rights granted under this Plan or the
Stock Option Agreement.
(Z) ENVIRONMENTAL MATTERS.
(1) To the Company's knowledge, it and each
of its Subsidiaries, the Participation Facilities and the Loan/Fiduciary
Properties are, and have been, in compliance with all Environmental Laws,
except for instances of noncompliance that are not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on the
Company or its Subsidiaries.
(2) There is no proceeding pending or, to the
Company's knowledge, threatened before any court, governmental agency or
board or other forum in which the Company or any of its Subsidiaries or any
Participation Facility has been, or with respect to threatened proceedings,
reasonably would be expected to be, named as a defendant or potentially
responsible party (a) for alleged noncompliance (including by any
predecessor) with any Environmental Law, or (b) relating to the release or
threatened release into the environment of any Hazardous Material, whether or
not occurring at or on a site owned, leased or operated by the Company or any
of its Subsidiaries or any Participation Facility, except for such
proceedings pending or threatened that are not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on the
Company or its Subsidiaries or have been Previously Disclosed in SCHEDULE
4.1(Z)(2).
(3) There is no proceeding or, to the
Company's knowledge, threatened before any court, governmental agency or
board or other forum in which any Loan/Fiduciary Property (or the Company or
any of its Subsidiaries in respect of any Loan/Fiduciary Property) has been,
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or with respect to threatened proceedings, reasonably would be expected to
be, named as a defendant or potentially responsible party (a) for alleged
noncompliance (including by any predecessor) with any Environmental Law, or
(b) relating to the release or threatened release into the environment of any
Hazardous Material, whether or not occurring at or on a Loan/Fiduciary
Property, except for such proceedings pending or threatened that are not
reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect on the Company or have been Previously Disclosed in SCHEDULE
4.1(Z)(3).
(4) To the Company's knowledge, there is no
reasonable basis for any proceeding of a type described in subparagraph (2)
or (3) of this paragraph (Z), except as has been Previously Disclosed in
SCHEDULE 4.1(Z)(4).
(5) To the Company's knowledge, during the
period of (a) ownership or operation by the Company or any of its
Subsidiaries of any of their respective current properties, (b) participation
in the management of any Participation Facility by the Company or any of its
Subsidiaries, or (c) holding of a security or other interest in a
Loan/Fiduciary Property by the Company or any of its Subsidiaries, there have
been no releases of Hazardous Material in, on, under or affecting any such
property, Participation Facility or Loan/Fiduciary Property, except for such
releases that are not reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on the Company or its Subsidiaries or have
been Previously Disclosed in SCHEDULE 4.1(Z)(5).
(6) To the Company's knowledge, prior to the
period of (a) ownership or operation by the Company or any of its
Subsidiaries of any of their respective current properties, (b) participation
in the management of any Participation Facility by the Company or any of its
Subsidiaries, or (c) holding of a security or other interest in a
Loan/Fiduciary Property by the Company or any of its Subsidiaries, there were
no releases of Hazardous Material in, on, under or affecting any such
property, Participation Facility or Loan) Fiduciary Property, except for such
releases that are not reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on the Company or its Subsidiaries or have
been Previously Disclosed in SCHEDULE 4.1(Z)(6).
(AA) TAX REPORTS. Except as Previously Disclosed in
SCHEDULE 4.1(AA), (1) all reports and returns with respect to Taxes that are
required to be filed by or with respect to the Company or its Subsidiaries,
including consolidated federal income tax returns of the Company and its
Subsidiaries (collectively, the "Tax Returns"), have been duly filed, or
requests for extensions have been timely filed and have not expired, for
periods ended on or prior to the most recent fiscal year-end, except to the
extent all such failures to file, taken together, are not reasonably likely
to have a Material Adverse Effect on the Company or its Subsidiaries, and
such Tax Returns were true, complete and accurate in all material respects,
(2) all Taxes shown to be due on the Tax Returns have been paid in full, (3)
the Tax Returns have been examined by the Internal Revenue Service or the
appropriate state, local or foreign taxing authority, or the period for
assessment of the Taxes in respect of which such Tax Returns were required to
be filed has expired, (4) all Taxes due with respect to completed and settled
examinations have been paid in full, (5) no issues have been raised by the
relevant taxing authority in connection with the examination of any of the
Tax Returns which are reasonably likely, individually or in the aggregate, to
result in a determination that would have a Material Adverse Effect on the
Company or its Subsidiaries, except as reserved against in the Holding
Company Financial Reports of the Company, and (6) no waivers of statutes of
limitations (excluding such statutes that relate to years under examination
by the Internal Revenue Service) have been given by or requested with respect
to any Taxes of the Company or its Subsidiaries.
(BB) ACCURACY OF INFORMATION. The statements with respect
to the Company and its Subsidiaries contained in this Plan, the Exhibits and
Schedules, and such other written documents executed and delivered by or on
behalf of the Company or the Bank pursuant to the terms of
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this Plan are true and correct in all material respects, and such statements
and documents do not omit any material fact necessary to make the statements
contained therein, in light of the circumstances under which they were made,
not misleading.
(CC) DERIVATIVES CONTRACTS. None of the Company or its
Subsidiaries is a party to or has agreed to enter into a Derivatives Contract
or owns securities that are referred to as "structured notes" except for
those Derivatives Contracts and structured notes Previously Disclosed in
SCHEDULE 4.1(CC). SCHEDULE 4.1(CC) includes a list of any assets of the
Company or its Subsidiaries that are pledged as security for each such
Derivatives Contract.
(DD) ACCOUNTING CONTROLS. Each of the Company and its
Subsidiaries has devised and maintained systems of internal controls
sufficient to provide reasonable assurances that (1) all material
transactions are executed in accordance with management's general or specific
authorization, (2) all material transactions are recorded as necessary to
permit the preparation of financial statements in conformity with GAAP, and
to maintain proper accountability for items, (3) access to the material
property and assets of the Company and its Subsidiaries is permitted only in
accordance with management's general or specific authorization, and (4) the
recorded accountability for items is compared with the actual levels at
reasonable intervals and appropriate action is taken with respect to any
differences.
(EE) COMMITMENTS AND CONTRACTS. Neither the Company
nor any of its Subsidiaries is a party or subject to any of the following
(whether written or oral, express or implied):
(1) except as Previously Disclosed in
SCHEDULE 4.1(EE)(1), any employment contract or understanding (including any
understandings or obligations with respect to severance or termination pay
liabilities or fringe benefits) with any present or former officer, director
or employee (other than those which are terminable at will by the Company or
any such Subsidiary without any obligation on the part of the Company or any
such Subsidiary to make any payment in connection with such termination);
(2) except as Previously Disclosed in
SCHEDULE 4.1(EE)(2), any real or personal property lease with annual rental
payments aggregating $10,000 or more; or
(3) except as Previously Disclosed in
SCHEDULE 4.1(EE)(3), any material contract with any affiliate.
(FF) OPTION SHARES. The Option Shares, when issued
upon exercise of the Option, will be validly issued, fully paid and
nonassessable and subject to no preemptive rights.
4.2 INTERWEST AND PACIFIC NORTHWEST BANK REPRESENTATIONS AND
WARRANTIES. Each of InterWest and Pacific Northwest Bank hereby represents
and warrants to the Company and the Bank as follows:
(A) RECITALS. The facts set forth in the Recitals of this
Plan with respect to InterWest and Pacific Northwest Bank are true and
correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. Each of InterWest
and Pacific Northwest Bank is duly qualified to do business and is in good
standing in the States of the United States and foreign jurisdictions where
the failure to be duly qualified, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on it. Each of InterWest
and its Subsidiaries has in effect all federal state, local, and foreign
governmental authorizations necessary for it
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to own or lease its properties and assets and to carry on its business as it
is now conducted, the absence of which, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on InterWest.
(C) SHARES. The outstanding shares of InterWest's capital
stock are validly issued and outstanding, fully paid and nonassessable, and
subject to no preemptive rights. Except as Previously Disclosed in SCHEDULE
4.2(C), there are no shares of capital stock or other equity securities of it
or its Subsidiaries outstanding and no outstanding Rights with respect
thereto.
(D) CORPORATE POWER. Each of InterWest and Pacific
Northwest Bank has the corporate power and authority to carry on its business
as it is now being conducted and to own all its material properties and
assets.
(E) CORPORATE AUTHORITY. This Plan and the Stock Option
Agreement have been authorized by all necessary corporate action of InterWest
and Pacific Northwest Bank and each such agreement is a valid and binding
agreement of InterWest and Pacific Northwest Bank, enforceable against
InterWest and Pacific Northwest Bank in accordance with its terms, subject to
bankruptcy, insolvency and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
(F) NO DEFAULTS. Subject to receipt of the required
regulatory approvals referred to in Section 6.1, and the required filings
under federal and state securities laws, and except as Previously Disclosed
in SCHEDULE 4.2(F), the execution, delivery and performance of this Plan and
the consummation by InterWest and each of its Subsidiaries that is a Party of
the transactions contemplated by this Plan does not and will not (1)
constitute a breach or violation of, or a default under, any law, rule or
regulation or any judgment, decree, order, governmental permit or license, or
agreement, indenture or instrument of InterWest or of any of its Subsidiaries
or to which InterWest or any of its Subsidiaries or its or their properties
is subject or bound, which breach, violation or default is reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on
InterWest, (2) constitute a breach or violation of, or a default under, the
articles of incorporation, charter or bylaws of its or any of its
Subsidiaries, or (3) require any consent or approval under any such law,
rule, regulation, judgment, decree, order, governmental permit or license or
the consent or approval of any other party to any such agreement, indenture
or instrument, other than any such consent or approval that, if not obtained,
would not be reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on InterWest.
(G) FINANCIAL REPORTS. Except as Previously Disclosed in
SCHEDULE 4.2(G), in the case of InterWest, its Annual Report on Form 10-K for
the fiscal year ended September 30, 1998, and all other documents filed or to be
filed subsequent to September 30, 1998 under Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act, in the form filed with the SEC (in each such case, the
"InterWest Financial Reports"), did not and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading; and each of the
balance sheets in or incorporated by reference into the InterWest Financial
Reports (including the related notes and schedules thereto) fairly presents and
will fairly present the financial position of the entity or entities to which it
relates as of its date, and each of the statements of income and changes in
shareholders' equity and cash flows or equivalent statements in the InterWest
Financial Reports (including any related notes and schedules thereto) fairly
presents and will fairly present the results of operations, changes in
shareholders, equity and changes in cash flows, as the case may be, of the
entity or entities to which it relates for the periods set forth therein, in
each case in accordance with GAAP, except as may be noted therein, subject to
normal and recurring year-end audit adjustments in the case of unaudited
statements.
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(H) NO EVENTS. Except as Previously Disclosed on SCHEDULE
4.2(H), since September 30, 1998, no event has occurred which is reasonably
likely to have a Material Adverse Effect on it.
(I) LITIGATION; REGULATORY ACTION. Except as Previously
Disclosed in SCHEDULE 4.2(I) no litigation, proceeding or controversy before any
court or governmental agency is pending that, individually or in the aggregate,
is reasonably likely to have a Material Adverse Effect on InterWest or its
Subsidiaries or that alleges claims under any fair lending law or other law
relating to discrimination, including the Equal Credit Opportunity Act, the Fair
Housing Act, the Community Reinvestment Act and the Home Mortgage Disclosure
Act, and, to the best of its knowledge, no such litigation, proceeding or
controversy has been threatened; and except as Previously Disclosed in SCHEDULE
4.2(I), neither InterWest nor any of its Subsidiaries or any of its or their
material properties or their officers, directors or, to the best of its
knowledge, Control persons is a party to or is subject to any order, decree,
agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, any Regulatory Authority, and
neither InterWest nor any of its Subsidiaries has been advised by any of such
Regulatory Authorities that such authority is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding, commitment letter or
similar submission.
(J) REPORTS. Since September 30, 1995, each of InterWest and
its Subsidiaries has filed all reports and statements, together with any
amendments required to be made with respect thereto, that it was required to
file with (1) the FDIC, (2) the Department of Financial Institutions of the
State of Washington, (3) the Federal Reserve Board, (4) the SEC, and (5) any
other Regulatory Authorities having jurisdiction with respect to InterWest and
its Subsidiaries. As of their respective dates (and without giving effect to any
amendments or modifications filed after the date of this Plan with respect to
reports and documents filed before the date of this Plan), each of such reports
and documents, including the financial statements, exhibits and schedules
thereto, complied in all material respects with all of the statutes, rules and
regulations enforced or promulgated by the Regulatory Authority with which they
were filed and did not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(K) ACCURACY OF INFORMATION. The statements with respect to
InterWest and its Subsidiaries contained in this Plan, the Exhibits and
Schedules, and such other written documents executed and delivered by or on
behalf of InterWest or Pacific Northwest Bank pursuant to the terms of this Plan
are true and correct in all material respects, and such statements and documents
do not omit any material fact necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
(L) DERIVATIVES CONTRACTS. None of InterWest or its
Subsidiaries is a party to or has agreed to enter into a Derivatives Contract
or owns securities that are referred to as "structured notes" except for
those Derivatives Contracts and structured notes Previously Disclosed in
SCHEDULE 4.2(L). SCHEDULE 4.2(L) includes a list of any assets of InterWest
or its Subsidiaries that are pledged as security for each such Derivatives
Contract.
(M) ABSENCE OF UNDISCLOSED LIABILITIES. Neither InterWest
nor any of its Subsidiaries has any obligation or liability (contingent or
otherwise) that, individually or in the aggregate, is reasonably likely to
have a Material Adverse Effect on it, except (1) as reflected the InterWest
Financial Reports prior to the date of this Plan, and (2) for commitments and
obligations made, or liabilities incurred, in the ordinary course of business
consistent with past practice since September 30, 1998. Since September 30,
1998, neither InterWest nor any of its Subsidiaries has
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incurred or paid any obligation or liability (including any obligation or
liability incurred in connection with any acquisitions in which any form of
direct financial assistance of the federal government or any agency thereof
has been provided to any Subsidiary) that, individually or in the aggregate,
is reasonably likely to have a Material Adverse Effect on it.
(N) NO KNOWLEDGE. InterWest and its Subsidiaries know of no
reason why the regulatory approvals referred to in Section 6.1 should not be
obtained.
4.3 EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES.
(A) DISCLOSURE OF EXCEPTIONS. Each exception set forth in a
Schedule is disclosed only for the purposes of the representations and
warranties referenced in that exception; but the following conditions apply:
(1) no exception is required to be set forth in a Schedule if
its absence would not result in the related representation or
warranty being found untrue or incorrect under the standard
established by Section 4.3(B); and
(2) the mere inclusion of an exception in a Schedule is not an
admission by a party that such exception represents a material
fact, material set of facts, or material event or would result
in a Material Adverse Effect with respect to that party.
(B) NATURE OF EXCEPTIONS. No representation or warranty
contained in Section 4.1 or 4.2 will be found untrue or incorrect, and no
party to this Plan will have breached a representation or warranty due to the
following: (1) the existence of any fact, set of facts, or event, if the fact
or event individually or taken together with other facts or events would not,
or in the case of Section 4.1(L) or 4.2(I), is not reasonably likely to, have
a Material Adverse Effect with respect to such Party.
ARTICLE V. COVENANTS
Each of the Company and the Bank hereby covenants to InterWest and
Pacific Northwest Bank, and each of InterWest and Pacific Northwest Bank
hereby covenants to the Company and the Bank, that:
5.1 BEST EFFORTS. Subject to the terms and conditions of this Plan
and, in the case of the Company and the Bank, to the exercise by their
respective Boards of Directors of such Boards' fiduciary duties, each party
shall use all reasonable efforts in good faith to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit consummation
of the Merger by October 31, 1999, and to otherwise enable consummation of
the transactions contemplated by this Plan and the Stock Option Agreement,
and shall cooperate fully with the other Parties to that end (it being
understood that any amendments to the Registration Statement or a
resolicitation of proxies as a consequence of an InterWest Transaction shall
not violate this covenant).
5.2 THE PROXY. In the case of the Company: it shall promptly assist
InterWest in the preparation of a proxy statement (the "Proxy Statement") to
be mailed to the holders of the Company Common Stock in connection with the
transactions contemplated by this Plan and to be filed by InterWest in a
registration statement (the "Registration Statement") with the SEC as
provided in Section 5.8, which shall conform to all applicable legal
requirements, and it shall call a special meeting (the "Meeting") of the
holders of Company Common Stock to be held as soon as practicable for
purposes of voting upon the transactions contemplated by this Plan and the
Company shall use all reasonable efforts to solicit and obtain votes of the
holders of Company Common Stock in favor of the transactions
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contemplated by this Plan and, subject to the exercise of its fiduciary
duties, the Board of Directors of the Company shall recommend approval of
such transactions by such holders.
5.3 REGISTRATION STATEMENT COMPLIANCE WITH SECURITIES LAWS. When the
Registration Statement or any post-effective amendment or supplement thereto
shall become effective, and at all times subsequent to such effectiveness, up
to and including the date of the Meeting, such Registration Statement, and
all amendments or supplements thereto, with respect to all information set
forth therein furnished or to be furnished by or on behalf of the Company
relating to the Company or its Subsidiaries and by or on behalf of InterWest
relating to InterWest or its Subsidiaries, (A) will comply in all material
respects with the provisions of the Securities Act and any other applicable
statutory or regulatory requirements, and (B) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading; PROVIDED, HOWEVER, in no event shall any Party be liable for any
untrue statement of a material fact or omission to state a material fact in
the Registration Statement made in reliance upon, and in conformity with,
written information concerning another Party furnished by or on behalf of
such other Party specifically for use in the Registration Statement.
5.4 REGISTRATION STATEMENT EFFECTIVENESS. In the case of InterWest:
it will advise the Company, promptly after InterWest 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 InterWest Common Stock for
offering or sale in any jurisdiction, of the initiation or threat of any
proceeding for any such purpose, or of any request by the SEC for the
amendment or supplement of the Registration Statement or for additional
information.
5.5 PRESS RELEASES. The Company and the Bank will not, without the
prior approval of InterWest, and InterWest and Pacific Northwest Bank will
not, without the prior approval of the Company, issue any press release or
written statement for general circulation relating to the transactions
contemplated by this Plan, except as otherwise required by law.
5.6 ACCESS; INFORMATION.
(A) Upon reasonable notice, the Company and the Bank shall
afford InterWest and its officers, employees, counsel, accountants and other
authorized representatives, access, during normal business hours at
reasonable intervals throughout the period up to the Effective Date, to all
of the properties, books, contracts, commitments and records of the Company
and its Subsidiaries. During such period, the Company and the Bank shall
furnish promptly (and cause its accountants and other agents to furnish
promptly) to InterWest (1) a copy of each material report, schedule and other
document filed by the Company and its Subsidiaries with any Regulatory
Authority, and (2) all other information concerning the business, properties
and personnel of the Company and its Subsidiaries as InterWest may reasonably
request, provided that no investigation pursuant to this Section 5.6 shall
affect or be deemed to modify or waive any representation or warranty made by
the Company or the Bank in this Plan or the conditions to the obligations of
the Company and the Bank to consummate the transactions contemplated by this
Plan. InterWest and its representatives will use all reasonable efforts not
to disrupt the business of the Company or the Bank during the course of their
investigations under this Section.
(B) Upon reasonable notice, InterWest shall afford the
Company and its officers, employees, counsel, accountants and other
authorized representatives, such access to the regulatory examination
reports, articles of incorporation and bylaws of InterWest and its
Subsidiaries and such other properties, books, contracts, commitments and
records as the Company may reasonably request, consistent with InterWest's
past practice in other merger transactions. No investigation pursuant to this
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Section 5.6 shall affect or be deemed to modify or waive any representation
or warranty made by InterWest or Pacific Northwest Bank in this Plan or the
conditions to the obligations of InterWest and Pacific Northwest Bank to
consummate the transactions contemplated by this Plan.
(C) No Party shall use any information obtained pursuant to
this Section 5.6 for any purpose unrelated to the consummation of the
transactions contemplated by this Plan and, if this Plan is terminated, will
hold all confidential information and documents obtained pursuant to this
paragraph in confidence (as provided in Section 8.6) unless and until such
time as such information or documents become publicly available other than by
reason of any action or failure to act by such Party or as it is advised by
counsel that any such information or document is required by law or
applicable stock exchange rule to be disclosed, and in the event of the
termination of this Plan, each Party will, upon request by the other Parties,
deliver all documents so obtained or destroy such documents and, in the case
of destruction, will certify such fact to the requesting Party.
5.7 ACQUISITION PROPOSALS. Without the prior written consent of
InterWest, the Company: (a) shall not, and it shall cause its Subsidiaries
not to, solicit, initiate or encourage inquiries or proposals with respect
to, or, except to the extent that the Board of Directors of the Company
determines in its good faith judgment after receipt of advice of counsel that
such response is reasonably required in order to discharge its fiduciary
duties, furnish any nonpublic information relating to or participate in any
negotiations or discussions concerning, any acquisition or purchase of all or
a substantial portion of the assets of, or a substantial equity interest in,
the Company or any of its Subsidiaries or any merger or other business
combination with the Company or any of its Subsidiaries other than as
contemplated by this Plan; (b) shall instruct its and its Subsidiaries'
officers, directors, agents, advisors and affiliates to refrain from doing
any of the foregoing; and (c) shall notify InterWest immediately if any such
inquiries or proposals are received by, or any such negotiations or
discussions are sought to be initiated with, the Company or any of its
Subsidiaries.
5.8 REGISTRATION STATEMENT PREPARATION; REGULATORY APPLICATIONS
PREPARATION. In the case of InterWest: InterWest shall, as promptly as
practicable following the date of this Plan, prepare and file the
Registration Statement with the SEC with respect to the shares of InterWest
Common Stock to be issued to the holders of Company Common Stock pursuant to
this Plan, and InterWest shall use all reasonable efforts to cause the
Registration Statement to be declared effective as soon as practicable after
the filing thereof. InterWest shall, as promptly as practicable following the
date of this Plan, prepare and file all necessary notices or applications
with Regulatory Authorities having jurisdiction with respect to the
transactions contemplated by this Plan.
5.9 BLUE-SKY FILINGS. In the case of InterWest: InterWest shall use
all reasonable efforts to obtain, prior to the effective date of the
Registration Statement, any necessary state securities laws or "blue sky"
permits and approvals, provided that InterWest shall not be required by
virtue thereof to submit to general jurisdiction in any state.
5.10 AFFILIATE AGREEMENTS. InterWest and the Company will use all
reasonable efforts to induce each person who may be deemed to be an
"affiliate" of, respectively, InterWest or the Company for purposes of Rule
145 under the Securities Act, to execute and deliver to InterWest on or
before the mailing of the Proxy Statement for the Meeting, an agreement in
the form attached hereto as EXHIBIT E for "affiliates" of the Company,
restricting the disposition of such affiliate's shares of Company Common
Stock and the shares of InterWest Common Stock to be received by such person
in exchange for such person's shares of Company Common Stock. InterWest
agrees to use all reasonable efforts to maintain the availability of Rule 145
for use by such "affiliates".
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5.11 CERTAIN POLICIES OF THE COMPANY AND BANK. In the case of each
of the Company and the Bank: Each shall, at InterWest's request, modify and
change its loan, litigation and other reserve and real estate valuation
policies and practices (including loan classifications and levels of
reserves), and generally conform its operating, lending and compliance
policies and procedures, immediately prior to the Effective Date so as to be
consistent on a basis satisfactory to InterWest; PROVIDED, HOWEVER, that
prior to any such modification or change, InterWest shall certify that the
conditions to the obligation of InterWest under Section 6.1 and 6.2 to
consummate the transactions contemplated by this Plan, other than the
condition set forth in Section 6.1(G), have been satisfied or waived. The
Company's and the Bank's representations, warranties, covenants and
conditions contained in this Plan shall not be deemed to be untrue, breached
or unsatisfied in any respect for any purpose as a consequence of any
modifications or changes undertaken pursuant to this Section 5.11.
5.12 STATE TAKEOVER LAW. In the case of the Company: The Company
shall not take any action that would cause the transactions contemplated by
this Plan or the Stock Option Agreement to be subject to any applicable state
takeover statute, and the Company shall take all necessary steps to exempt
(or ensure the continued exemption of) the transactions contemplated by this
Plan and the Stock Option Agreement from, or, if necessary, challenge the
validity or applicability of, any applicable state takeover law.
5.13 NO RIGHTS TRIGGERED. In the case of the Company: Except for
those consents of Third Parties Previously Disclosed on SCHEDULE 4.1(G), the
Company shall take all necessary steps to ensure that the entering into of
this Plan and the Stock Option Agreement and the consummation of the
transactions contemplated by this Plan and the Stock Option Agreement
(including the Merger) and any other action or combination of actions, or any
other transactions contemplated by this Plan, do not and will not (A) result
in the grant of any rights to any Person under the articles of incorporation
or bylaws of the Company or under any agreement to which the Company or any
of its Subsidiaries is a party, or (B) restrict or impair in any way the
ability of InterWest or Pacific Northwest Bank to exercise the rights granted
under this Plan or the Stock Option Agreement.
5.14 SHARES LISTED. In the case of InterWest: InterWest shall use
all reasonable efforts to cause to be listed, prior to the Effective Date, on
the NASDAQ National Market upon official notice of issuance the shares of
InterWest Common Stock to be issued to the holders of Company Common Stock.
5.15 REGULATORY APPLICATIONS. In the case of each of InterWest and
Pacific Northwest Bank, each shall (A) promptly prepare and submit
applications to the appropriate Regulatory Authorities for approval of the
Merger, and (B) promptly make all other appropriate filings to secure all
other approvals, consents and rulings that are necessary for the consummation
of the Merger by InterWest.
5.16 REGULATORY DIVESTITURES. In the case of the Company: No later
than the Effective Date, the Company shall cease engaging in such activities
as InterWest shall advise the Company in writing are not permitted to be
engaged in by InterWest under applicable law following the Effective Date
and, to the extent required by any Regulatory Authority as a condition of
approval of the transactions contemplated by this Plan, the Company shall
divest any Subsidiary engaged in activities or holding assets that are
impermissible for InterWest or Pacific Northwest Bank, on terms and
conditions agreed to by InterWest; PROVIDED, HOWEVER, that prior to taking
such action, InterWest shall certify that the conditions to the obligations
of InterWest under Sections 6.1 and 6.2 to consummate the transactions
contemplated by this Plan, other than the condition set forth in Section
6.2(F), have been satisfied or waived.
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5.17 CURRENT INFORMATION.
(A) During the period from the date of this Plan to the
Effective Date, each of the Company and InterWest shall, and shall cause its
representatives to, confer on a regular and frequent basis with
representatives of the other.
(B) Each of the Company and InterWest shall promptly notify
the other of (1) any material change in the business or operations of it or
its Subsidiaries, (2) any material complaints, investigations or hearings (or
communications indicating that the same may be contemplated) of any
Regulatory Authority relating to it or its Subsidiaries, (3) the initiation
or threat of material litigation involving or relating to it or its
Subsidiaries, or (4) any event or condition that might reasonably be expected
to cause any of its representations or warranties set forth in this Plan not
to be true and correct in all material respects as of the Effective Date or
prevent it or its Subsidiaries from fulfilling its or their obligations under
this Plan.
5.18 INDEMNIFICATION.
(A) For a period of six years from and after the Effective
Date, InterWest shall indemnify, defend and hold harmless the present and
former directors, officers and employees of the Company and its Subsidiaries
(each, an "Indemnified Party") against all costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities incurred in connection with any claim, action, suit, proceeding
or investigation, whether civil, criminal, administrative or investigative,
and arising out of matters existing or occurring at or prior to the Effective
Date (including the transactions contemplated by this Plan and the Stock
Option Agreement), whether asserted or claimed prior to, at or after the
Effective Date, to the fullest extent that the Company would have been
permitted under Washington law and its articles of incorporation or bylaws in
effect on the date of this Plan to indemnify such person (and InterWest will
also advance expenses as incurred to the fullest extent permitted under
applicable law so long as the person to whom expenses are advanced provides
an undertaking to repay such advances within a reasonable period of time if
it is ultimately determined that applicable law does not allow for such
indemnification).
(B) Any Indemnified Party wishing to claim indemnification
under paragraph (A) of this Section 5.18, upon learning of such claim,
action, suit, proceeding or investigation, shall promptly notify InterWest
thereof, PROVIDED, HOWEVER, that the failure so to notify shall not affect
the obligations of InterWest under paragraph (A) of this Section 5.18 (unless
such failure materially and adversely increases InterWest's liability under
such paragraph (A)). In the event of any such claim, action, suit, proceeding
or investigation (whether arising before or after the Effective Date), (1)
InterWest shall have the right to assume the defense thereof and InterWest
shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received; PROVIDED,
HOWEVER, that InterWest shall be obligated pursuant to this paragraph (B) to
pay for only one firm of counsel for all Indemnified Parties in any
jurisdiction for any single action, suit or proceeding, (2) the Indemnified
Parties will cooperate in the defense of any such matter, and (3) InterWest
shall not be liable for any settlement effected without its prior written
consent.
(C) If InterWest or any of its successors or assigns shall
consolidate with or merge into any other entity and shall not be the
continuing or surviving entity of such consolidation or merger or shall
transfer all or substantially all of its assets to any entity, then and in
each case, proper provision shall be made so that the successors and assigns
of InterWest shall assume the obligations set forth in this Section 5.18.
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(D) InterWest shall pay all expenses, including attorneys'
fees, that may be incurred by any Indemnified Party in enforcing the
indemnity and other obligations provided for in this Section 5.18. The rights
of each Indemnified Party under this Section 5.18 shall be in addition to any
other rights such Indemnified Party may have under the articles of
incorporation or bylaws of the Company or under applicable Washington law.
5.19 POST-MERGER ACTIONS. Following the Merger, neither
InterWest nor any of its affiliates shall take any action that will adversely
affect the federal income tax treatment of the Merger to the shareholders of
the Company, including failing to continue at least one historic business
line of the Company or to use at least a significant portion of the Company's
historic assets in a business, in each case with in the meaning of Treas.
Reg. Section 1.368-1(d).
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE MERGER
6.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligations of each Party to consummate the transactions contemplated by this
Plan are subject to the written waiver by such Party or the fulfillment on or
prior to the Effective Date of each of the following conditions:
(A) SHAREHOLDER VOTE. This Plan shall have been duly
approved by the requisite vote of the Company's shareholders under applicable
law and the articles of incorporation and bylaws of the Company.
(B) REGULATORY APPROVALS. The Parties shall have procured
all necessary regulatory consents and approvals by the appropriate Regulatory
Authorities, and any waiting periods relating thereto shall have expired;
PROVIDED, HOWEVER, that no such approval or consent shall have imposed any
condition or requirement not normally imposed in such transactions that, in
the opinion of InterWest, would deprive InterWest of the material economic or
business benefits of the transactions contemplated by this Plan.
(C) NO INJUNCTION. There shall not be in effect any order,
decree or injunction of any court or agency of competent jurisdiction that
enjoins or prohibits consummation of any of the transactions contemplated by
this Plan.
(D) EFFECTIVE REGISTRATION STATEMENT. The Registration
Statement shall have become effective and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
SEC or any other Regulatory Authority.
(E) BLUE-SKY PERMITS. InterWest shall have received all
state securities laws and "blue sky" permits necessary to consummate the
Merger.
(F) TAX OPINION. InterWest and the Company shall have
received an opinion from Graham & Dunn, P.C. to the effect that (1) the
Merger constitutes a reorganization under Section 368 of the Code, and (2) no
gain or loss will be recognized by shareholders of the Company who receive
shares of InterWest Common Stock in exchange for their shares of the Company
Common Stock, except that gain or loss may be recognized as to cash received
in lieu of fractional share interests, and, in rendering their opinion,
Graham & Dunn may require and rely upon representations contained in
CERTIFICATES of officers of InterWest, the Company and others.
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(G) NASDAQ LISTING. The shares of InterWest Common Stock to
be issued pursuant to this Plan shall have been approved for listing on the
NASDAQ National Market subject only to official notice of issuance.
(H) EMPLOYMENT CONTRACT. The Employment Agreement attached
as EXHIBIT F-1 shall have been duly executed and delivered by all parties to
such Employment Agreement.
(I) NONCOMPETITION CONTRACT. The Noncompetition and
Severance Agreement attached as EXHIBIT F-2 shall have been duly executed and
delivered by all parties to such agreement.
6.2 CONDITIONS TO OBLIGATIONS OF INTERWEST. The obligations
of InterWest and Pacific Northwest Bank to consummate the transactions
contemplated by this Plan also are subject to the written waiver by InterWest
or the fulfillment on or prior to the Effective Date of each of the following
conditions:
(A) LEGAL OPINION. InterWest shall have received an
opinion, dated the Effective Date, of Davis Wright Tremaine LLP, counsel for
the Company and the Bank, in the form of EXHIBIT G.
(B) OFFICERS' CERTIFICATE. (1) Each of the representations
and warranties contained in this Plan of the Company and the Bank shall be
true and correct in all material respects (except the representations and
warranties in Section 4.1(C) and those representations and warranties that
are qualified by reference to "Material Adverse Effect" or any other
materiality caveat, which shall be true and correct in all respects) as of
the date of this Plan and upon the Effective Date with the same effect as
though all such representations and warranties had been made on the Effective
Date, except for any such representations and warranties that specifically
relate to an earlier date, which shall be true and correct as of such earlier
date and except as otherwise provided in Section 5.11, and (2) each and all
of the agreements and covenants of the Company and the Bank to be performed
and complied with pursuant to this Plan on or prior to the Effective Date
shall have been duly performed and complied with in all material respects,
and InterWest and Pacific Northwest Bank shall have received a certificate
signed by the chief executive officers, chief financial officers, and chief
lending officers of the Company and the Bank dated the Effective Date, to
such effect.
(C) RECEIPT OF AFFILIATE AGREEMENTS. InterWest shall have
received from each affiliate of the Company the agreement referred to in
Section 5.10.
(D) ADVERSE CHANGE. During the period from December 31,
1998 to the Effective Date, there shall not have been any material adverse
change in the financial position or results of operations of the Company or
the Bank, nor shall the Company or the Bank have sustained any loss or damage
to its properties, whether or not insured, that materially affects its
ability to conduct its business; and InterWest shall have received a
certificate dated the Effective Date signed by the Chief Executive Officers
of the Company and the Bank to such effect.
(E) DISSENTERS' RIGHTS. The number of shares of Company
Common Stock for which cash is to be paid because dissenters' rights of
appraisal under the Appraisal Laws shall have been effectively preserved as
of the Effective Date or because of the payment of cash in lieu of fractional
shares of InterWest Common Stock shall not exceed in the aggregate 10% of the
outstanding shares of Company Common Stock.
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(F) CAPITAL. The Company's Capital shall not be less than $5
million (not including capital contributions upon exercise of outstanding
Company Options and net of transaction expenses) on the Effective Date.
(G) ALLOWANCE FOR LOAN AND LEASE LOSSES. The Bank's allowance
for possible loan and lease losses shall not be less than 1.25% of the Bank's
total outstanding loans and leases and will be adequate to absorb the Bank's
anticipated loan and lease losses.
6.3 CONDITIONS TO OBLIGATIONS OF COMPANY AND BANK. The
obligations of the Company and the Bank to consummate the transactions
contemplated by this Plan also are subject to the written waiver by the
Company and the Bank or the fulfillment on or prior to the Effective Date of
each of the following conditions:
(A) LEGAL OPINION. The Company and the Bank shall have
received an opinion, dated the Effective Date, of Graham & Dunn, P.C., special
counsel for InterWest, in the form of EXHIBIT H.
(B) OFFICER'S CERTIFICATE. (1) Each of the representations and
warranties of InterWest and Pacific Northwest Bank contained in this Plan shall
be true and correct in all material respects (except the representations and
warranties in Section 4.2(C) and those representations and warranties that are
qualified by reference to "Material Adverse Effect" or any other materiality
caveat, which shall be true and correct in all respects) as of the date of this
Plan and upon the Effective Date with the same effect as though all such
representations and warranties had been made on the Effective Date, except for
any such representations and warranties that specifically relate to an earlier
date, which shall be true and correct as of such earlier date, and (2) each and
all of the agreements and covenants of InterWest and Pacific Northwest Bank to
be performed and complied with pursuant to this Plan on or prior to the
Effective Date shall have been duly performed and complied with in all material
respects, and the Company and the Bank shall have received a certificate signed
by an executive officer of each of InterWest and Pacific Northwest Bank dated
the Effective Date, to such effect.
(C) ADVERSE CHANGE. During the period from September 30, 1998
to the Effective Date, there shall not have been any material adverse change in
the financial position or results of operations of InterWest and Pacific
Northwest Bank nor shall InterWest or Pacific Northwest Bank have sustained any
loss or damage to its properties, whether or not insured, that materially
affects its ability to conduct its business; and the Company shall have received
a certificate dated the Effective Date signed by the Chief Executive Officers of
InterWest and Pacific Northwest Bank to such effect.
ARTICLE VII. TERMINATION
7.1 GROUNDS FOR TERMINATION. This Plan may be terminated prior
to the Effective Date, either before or after receipt of required shareholder
approvals:
(A) MUTUAL CONSENT. By the mutual consent of InterWest and the
Company, if the Board of Directors of each so determines by vote of a majority
of the members of its entire board.
(B) BREACH. By InterWest or the Company, if its Board of
Directors so determines by vote of a majority of the members of its entire
Board, in the event of (A) a material breach by the other party of any
representation or warranty contained in this Agreement, which breach cannot be
or has not been cured within 30 days after the giving of written notice to the
breaching party of such breach, or (B) a material breach by the other party of
any of the covenants or agreements contained in
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this Agreement, which breach cannot be or has not been cured within 30 days
after the giving of written notice to the breaching party of such breach.
(C) DELAY. By InterWest or the Company, if its Board of
Directors so determines by vote of a majority of the members of the entire
Board, in the event that the Merger is not consummated by December 31, 1999;
PROVIDED, HOWEVER, that a Party that is in material breach of any of the
provisions of this Plan shall not be entitled to terminate the Plan pursuant to
this Section 7.1(C).
(D) NO SHAREHOLDER APPROVAL. By InterWest or the Company, if
its Board of Directors so determines by a vote of a majority of the members of
its entire Board, in the event that the shareholder approval contemplated by
Section 6.1 is not obtained at the Meeting, including any adjournment or
adjournments thereof.
(E) AVERAGE CLOSING PRICE BETWEEN $16.01 AND $20.99. By the
Company, within five business days after the end of the Pricing Period, if (1)
the Average Closing Price is greater than $16.00 but less than $21.00, and (2)
InterWest, in its sole discretion, does not elect (by written notice delivered
to the Company within 2 business days of the end of the Pricing Period) to
adjust the Exchange Ratio (rounded to two decimals) so that the Average Closing
Price multiplied by the Exchange Ratio equals $18.48.
(F) AVERAGE CLOSING PRICE $16.00 OR LESS. By the Company,
within five business days after the end of the Pricing Period, if the Average
Closing Price is $16.00 or less.
7.2 CONSEQUENCES OF TERMINATION.
(A) GENERAL CONSEQUENCES. Subject to subsections (B) and (C)
of this Section 7.2, in the event of the termination or abandonment of this Plan
pursuant to the provisions of Section 7.1, this Plan shall become void and have
no force or effect, without any liability on the part of the Parties or any of
their respective directors or officers or shareholders with respect to this
Plan.
(B) PAYMENT. If this Plan is terminated pursuant to Section
7.1(E), InterWest will reimburse the Company for documented actual expenses
incurred by the Company or the Bank in connection with the transactions
contemplated hereby of up to $100,000.
(C) OTHER CONSEQUENCES. Notwithstanding anything in this Plan
to the contrary, no termination of this Plan will relieve any Party of any
liability for breach of this Plan or for any misrepresentation under this Plan
or be deemed to constitute a waiver of any remedy available for such breach or
misrepresentation. In any action or proceeding in connection with such breach or
misrepresentation, the prevailing party will be entitled to reasonable
attorneys' fees and expenses.
ARTICLE VIII. OTHER MATTERS
8.1 SURVIVAL. Only those agreements and covenants in this Plan
that by their express terms apply in whole or in part after the Effective
Date shall survive the Effective Date. All other representations, warranties,
and covenants shall be deemed only to be conditions of the Merger and shall
not survive the Effective Date. If the Merger is abandoned and this Plan is
terminated, the provisions of Article VII shall apply and the agreements of
the Parties in Sections 5.6(C), 8.5 and 8.6 shall survive such abandonment
and termination.
8.2 WAIVER; AMENDMENT. Prior to the Effective Date, any
provision of this Plan may be (A) waived in writing by the Party benefited by
the provision, or (B) amended or modified at any time
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(including the structure of the transactions contemplated by this Plan) by an
agreement in writing among the Parties approved by their respective Boards of
Directors and executed in the same manner as this Plan, except that, after
the vote by the shareholders of the Company, the consideration to be received
by the shareholders of the Company for each share of Company Common Stock
shall not thereby be altered. Nothing contained in this Section 8.2 is
intended to modify InterWest's rights pursuant to Section 2.7.
8.3 COUNTERPARTS. This Plan may be executed in one or more
counterparts, including facsimile counterparts, each of which shall be deemed
to constitute an original. This Plan shall become effective when one
counterpart has been signed by each Party.
8.4 GOVERNING LAW. This Plan shall be governed by, and
interpreted in accordance with, the laws of the State of Washington, except
as federal law may be applicable.
8.5 EXPENSES. Except as set forth in Section 7.2(B), each Party
will bear all expenses incurred by it in connection with this Plan and the
transactions contemplated by this Plan, except printing expenses which shall
be shared equally between the Company and InterWest.
8.6 CONFIDENTIALITY. Except as otherwise provided in Section
5.6(C), each of the Parties and their respective agents, attorneys and
accountants will maintain the confidentiality of all information provided in
connection herewith which has not been publicly disclosed.
8.7 NOTICES. All notices, requests and other communications
hereunder to a "Party" shall be in writing and shall be deemed to have been
duly given when delivered by hand, telegram, certified or registered mail,
overnight courier, telecopy or telex (confirmed in writing) to such Party at
its address set forth below or such other address as such Party may specify
by notice to the Parties.
If to InterWest or Pacific Northwest Bank to:
InterWest Bancorp, Inc.
1259 West Pioneer Way
Oak Harbor, Washington 98277
Attn: Stephen Walden, President
Copies to:
Edward C. Beeksma
Zylstra, Beeksma & Waller
791 S.E. Barrington Drive
Oak Harbor, Washington 98277
Stephen M. Klein
Graham & Dunn, P.C.
1420 Fifth Avenue, Suite 3300
Seattle, Washington 98101
If to the Company or the Bank, to:
NBT Northwest Bancorp
PO Box 58690
Tukwila, Washington 98138
Attn: Michael Fotheringill, President and CEO
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Copies to:
Daniel B. Ritter
Davis Wright Tremaine LLP
1501 Fourth Avenue, Suite 2600
Seattle, WA 98101-1688
8.8 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This
Plan and the Stock Option Agreement represent the entire understanding of the
Parties with reference to transactions contemplated by this Plan, the Stock
Option Agreement and the confidentiality agreement between the parties, and
supersede any and all other oral or written agreements previously made.
Nothing in this Plan or the Stock Option Agreement, expressed or implied, is
intended to confer upon any Person, other than the Parties or their
respective successors, any rights, remedies, obligations or liabilities under
or by reason of this Plan or the Stock Option Agreement.
8.9 BENEFIT PLANS. Upon consummation of the Merger, all
employees of the Company and its Subsidiaries shall be deemed to be at-will
employees of InterWest and its Subsidiaries except for Michael Fotheringill,
who is party to the Employment Agreement (all such employees being
"Continuing Employees"). For one year following the Effective Date, unless
InterWest in its sole discretion determines otherwise, Continuing Employees
will only be entitled to participate in InterWest's equivalent of the
pension, employee benefit or related plans that the Company or its
Subsidiaries had in effect for at least one year prior to the date of this
Agreement. Commencing one year after the Effective Date, Continuing Employees
will be entitled to participate in pension, employee benefit and similar
plans on substantially the same terms and conditions as similarly situated
employees of InterWest and its Subsidiaries. The foregoing notwithstanding,
the Company's Salary Reduction Simplified Employee Pension Plan will be
maintained for at least one year following the Effective Date, after which
point such plan will be rolled-over into InterWest's 401(k) plan or its
equivalent.
8.10 HEADINGS. The headings contained in this Plan are for
reference purposes only and are not part of this Plan.
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IN WITNESS WHEREOF, the Parties have caused this instrument to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
INTERWEST BANCORP, INC.
By: /s/
-----------------------------------------
NAME: STEPHEN M. WALDEN
TITLE: PRESIDENT AND CHIEF EXECUTIVE OFFICER
PACIFIC NORTHWEST BANK
By: /s/
-----------------------------------------
NAME: DAVID H. STRAUS
TITLE: EXECUTIVE VICE PRESIDENT AND CHIEF CREDIT OFFICER
NBT NORTHWEST BANCORP
By: /s/
-----------------------------------------
NAME: MICHAEL H. FOTHERINGILL
TITLE: PRESIDENT AND CHIEF EXECUTIVE OFFICER
NATIONAL BANK OF TUKWILA
By: /s/
-----------------------------------------
NAME: MICHAEL H. FOTHERINGILL
TITLE: PRESIDENT AND CHIEF EXECUTIVE OFFICER
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APPENDIX B
STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement"), dated as of June 11, 1999,
is between INTERWEST BANCORP, INC. ("InterWest") and NBT NORTHWEST BANCORP (the
"Company").
RECITALS
The Company and InterWest have executed an Agreement and Plan of Merger
("Plan"), of even date with this Agreement, under which the Company will be
merged into InterWest and National Bank of Tukwila, the wholly owned subsidiary
of the Company, will become a wholly owned subsidiary of InterWest upon
completion of the merger ("Merger") contemplated in the Plan.
By negotiating and executing the Plan and by taking actions necessary
or appropriate to effect the transactions contemplated by the Plan, InterWest
has incurred and will incur substantial direct and indirect costs (including,
without limitation, the costs of management and employee time) and will forgo
the pursuit of certain alternative investments and transactions.
AGREEMENT
THEREFORE, in consideration of the promises set forth in this Agreement
and in the Plan, the parties agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions set forth in this
Agreement, the Company irrevocably grants an option ("Option") to
InterWest to purchase an aggregate of 177,193 authorized but unissued
shares of the Company's capital stock ("Common Stock") (which if
issued, and assuming exercise of outstanding options to acquire the
Common Stock, would represent approximately 19.9% of total stock then
issued and outstanding), at a per share price of $14.50 ("Option
Price").
2. EXERCISE OF OPTION. Subject to the provisions of this Section 2 and of
Section 13(a) of this Agreement, this Option may be exercised by
InterWest or any transferee as set forth in Section 5 of this
Agreement, in whole or in part, at any time, or from time to time in
any of the following circumstances:
(a) The Company or its board of directors enters into an agreement
or recommends to Company shareholders an agreement (other than
the Plan) under which any entity, person or group
(collectively "Person"), within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), would: (1) merge or consolidate with,
acquire 51% or more of the assets or liabilities of, or enter
into any similar transaction with the Company, or (2) purchase
or otherwise acquire (including by merger, reorganization,
consolidation, share exchange or
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any similar transaction) securities representing 25% or more
of the Company's voting shares;
(b) any Person (other than David W. Langley, InterWest or any of
its subsidiaries and other than any Person owning as of the
date of this Agreement 10% or more of the Company's voting
shares) acquires the beneficial ownership or the right to
acquire beneficial ownership of securities which, when
aggregated with other such securities owned by such Person,
represents 25% or more of the voting shares of the Company
(the term "beneficial ownership" for purposes of this
Agreement has the meaning set forth in Section 13(d) of the
Exchange Act, and the regulations promulgated under the
Exchange Act);
(c) failure of the board of directors of the Company to recommend,
or withdrawal by the board of directors of a prior
recommendation of, the Merger to the shareholders; or
(d) failure of the shareholders to approve the Merger by the
required affirmative vote at a meeting of the shareholders,
after any Person (other than InterWest or a subsidiary of
InterWest) announces publicly or communicates, in writing, to
the Company a proposal to (1) acquire the Company (by merger,
reorganization, consolidation, the purchase of 51% or more of
its assets or liabilities, or any other similar transaction),
(2) purchase or otherwise acquire securities representing 25%
or more of the voting shares of the Company or (3) change the
composition of the board of directors of the Company.
It is understood and agreed that the Option will become exercisable on
the occurrence of any of the above-described circumstances even though
the circumstance occurred as a result, in part or in whole, of the
board of the Company complying with its fiduciary duties.
NOTWITHSTANDING THE FOREGOING, the Option may not be exercised if
either (1) any applicable and required governmental approvals have not
been obtained with respect to such exercise or if such exercise would
violate any applicable regulatory restrictions, or (2) at the time of
exercise, InterWest is failing in any material respect to perform or
observe its material covenants or conditions under the Plan, unless the
reason for such failure is that the Company is failing to perform or
observe its covenants or conditions under the Plan.
3. NOTICE, TIME AND PLACE OF EXERCISE. Each time that InterWest or any
transferee wishes to exercise any portion of the Option, InterWest or
such transferee will give written notice of its intention to exercise
the Option specifying the number of shares as to which the Option is
being exercised ("Option Shares") and the place and date for the
closing of the exercise (which date may not be later than ten business
days from the date such notice is mailed). If any law, regulation or
other restriction will not permit such exercise to be
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consummated during this ten-day period, the date for the closing of
such exercise will be within five days following the cessation of the
restriction on consummation.
4. PAYMENT AND DELIVERY OF CERTIFICATE(s). At any closing for an exercise
of the Option or any portion thereof, (a) InterWest and the Company
will each deliver to the other certificates as to the accuracy, as of
the closing date, of their respective representations and warranties
under this Agreement, (b) InterWest or the transferees will pay the
aggregate purchase price for the shares of Common Stock to be purchased
by delivery of a certified or bank cashier's check in immediately
available funds payable to the order of the Company, and (c) the
Company will deliver to InterWest or the transferees a certificate or
certificates representing the shares so purchased.
5. TRANSFERABILITY OF THE OPTION AND OPTION SHARES. Before the Option, or
a portion of the Option, becomes exercisable in accordance with the
provisions of Section 2 of this Agreement, neither the Option nor any
portion of the Option will be transferable. If any of the events or
circumstances set forth in Sections 2(a) through (d) above occur,
InterWest may freely transfer, subject to applicable federal and state
securities laws, the Option or any portion of the Option, or any of the
Option Shares.
For purposes of this Agreement, a reorganization or consolidation of
InterWest (whether or not InterWest is the surviving entity) or an
acquisition of InterWest will not be deemed a transfer.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company
represents and warrants to InterWest as follows:
(a) DUE AUTHORIZATION. This Agreement has been duly authorized by
all necessary corporate action on the part of the Company, has
been duly executed by a duly authorized officer of the Company
and constitutes a valid and binding obligation of the Company.
No shareholder approval by Company shareholders is required by
applicable law or otherwise before the exercise of the Option
in whole or in part.
(b) OPTION SHARES. The Company has taken all necessary corporate
and other action to authorize and reserve and to permit it to
issue and, at all times from the date of this Agreement to
such time as the obligation to deliver shares under this
Agreement terminates, will have reserved for issuance, at the
closing(s) upon exercise of the Option, or any portion of the
Option, the Option Shares (subject to adjustment, as provided
in Section 8 below), all of which, upon issuance under this
Agreement, will be duly and validly issued, fully paid and
nonassessable, and will be delivered free and clear of all
claims, liens, encumbrances and security interests, including
any preemptive right of any of the shareholders of the
Company.
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(c) NO CONFLICTS. Neither the execution and delivery of this
Agreement nor the consummation of the transactions
contemplated by it will violate or result in any violation of
or be in conflict with or constitute a default under any term
of the articles of incorporation or bylaws of the Company or
any agreement, instrument, judgment, decree, law, rule or
order applicable to the Company or any subsidiary of the
Company or to which the Company or any such subsidiary is a
party.
(d) NOTIFICATION OF RECORD DATE. At any time from and after the
date of this Agreement until the Option is no longer
exercisable, the Company will give InterWest or any transferee
30 days prior written notice before setting the record date
for determining the holders of record of the Common Stock
entitled to vote on any matter, to receive any dividend or
distribution or to participate in any rights offering or other
matters, or to receive any other benefit or right, with
respect to the Common Stock.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF Interwest. InterWest
represents and warrants to the Company as follows:
(a) DUE AUTHORIZATION. This Agreement has been duly authorized by
all necessary corporate action on the part of InterWest, has
been duly executed by a duly authorized officer of InterWest
and constitutes a valid and binding obligation of InterWest.
(b) TRANSFERS OF COMMON STOCK. No shares of Common Stock acquired
upon exercise of the Option will be transferred except in a
transaction registered or exempt from registration under any
applicable securities laws.
(c) NO CONFLICTS. Neither the execution and delivery of this
Agreement nor the consummation of the transactions
contemplated by it will violate or result in any violation of
or be in conflict with or constitute a default under any term
of the articles of incorporation or bylaws of InterWest or any
agreement, instrument, judgment, decree, law, rule or order
applicable to InterWest or any subsidiary of InterWest or to
which InterWest or any such subsidiary is a party.
8. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of any change
in the Common Stock by reason of stock dividends, split-ups, mergers,
reorganizations, recapitalizations, combinations, exchanges of shares
or the like, the number and kind of shares or securities subject to the
Option and the purchase price per share of Common Stock will be
appropriately adjusted. If, before the Option terminates or is
exercised, the Company is acquired by another party, consolidates with
or merges into another corporation or liquidates, InterWest or any
transferee will thereafter receive, upon exercise of the Option, the
securities or properties to which a holder of the number of shares of
Common Stock then deliverable upon the exercise thereof would have been
entitled upon such acquisition, consolidation, merger, reorganization
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or liquidation, and the Company will take all steps in connection with
such acquisition, consolidation, merger, reorganization or liquidation
as may be necessary to assure that the provisions of this agreement
will thereafter be applicable, as nearly as reasonably may be
practicable, in relation to any securities or property thereafter
deliverable upon exercise of the Option.
9. NONASSIGNABILITY. This Agreement binds and inures to the benefit of the
parties and their successors. This Agreement is not assignable by
either party, but InterWest may transfer the Option, the Option Shares
or any portion of the Option or Option Shares in accordance with
Section 5. A merger, reorganization or consolidation of InterWest
(whether or not InterWest is the surviving entity) or an acquisition of
InterWest will not be deemed an assignment or transfer.
10. REGULATORY RESTRICTIONS. The Company will use its best efforts to
obtain or to cooperate with InterWest or any transferee in obtaining
all necessary regulatory consents, approvals, waivers or other action
(whether regulatory, corporate or other) to permit the acquisition of
any or all Option Shares by InterWest or any transferee.
11. REMEDIES. The Company agrees that if for any reason InterWest or any
transferee will have exercised its rights under this Agreement and the
Company will have failed to issue the Option Shares to be issued upon
such exercise or to perform its other obligations under this Agreement,
unless such action would violate any applicable law or regulation by
which the Company is bound, then InterWest or any transferee will be
entitled to specific performance and injunctive and other equitable
relief. InterWest agrees that if it fails to perform any of its
obligations under this Agreement, then the Company will be entitled to
specific performance and injunctive and other equitable relief. This
provision is without prejudice to any other rights that the Company or
InterWest or any transferee may have against the other party for any
failure to perform its obligations under this Agreement.
12. NO RIGHTS AS SHAREHOLDER. This Option, before it is exercised, will not
entitle its holder to any rights as a shareholder of the Company at law
or in equity. Specifically, this Option, before it is exercised, will
not entitle the holder to vote on any matter presented to the
shareholders of the Company or, except as provided in this Agreement,
to any notice of any meetings of shareholders or any other proceedings
of the Company.
13. MISCELLANEOUS.
(a) TERMINATION. This Agreement and the Option, to the extent not
previously exercised, will terminate upon the earliest of (1)
June 30, 2000; (2) the mutual agreement of the parties to this
Agreement; (3) 31 days after the date on which any application
for regulatory approval for the Merger has been denied, but if
before the expiration of the 31-day period, the Company or
InterWest is engaged in litigation or an appeal procedure
relating to an attempt to obtain approval of the Merger, this
Agreement will not terminate until the earlier of (i) June 30,
2000, or (ii) 31 days after the completion of the litigation
and appeal procedure; (4) the 30th day following the
termination of the Plan for any reason other than a material
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noncompliance or default by InterWest with respect to its
obligations under it; or (5) the date of termination of the
Plan if the termination is due to a material noncompliance or
default by InterWest with respect to its obligations under it;
but if the Option has been exercised, in whole or in part,
before the termination of this Agreement, then the exercise
will close under Section 4 of this Agreement, even though that
closing date is after the termination of this Agreement; and
if the Option is sold before the termination of this
Agreement, the Option may be exercised by the transferee at
any time within 31 days after the date of termination even
though such exercise or the closing of such exercise occurs
after the termination of this Agreement.
(b) AMENDMENTS. This Agreement may not be modified, amended,
altered or supplemented, except upon the execution and
delivery of a written agreement executed by the parties.
(c) SEVERABILITY OF TERMS. Any provision of this Agreement that is
invalid, illegal or unenforceable is ineffective only to the
extent of the invalidity, illegality or unenforceability
without affecting in any way the remaining provisions or
rendering any other provisions of this Agreement invalid,
illegal or unenforceable. Without limiting the generality of
the foregoing, if the right of InterWest or any transferee to
exercise the Option in full for the total number of shares of
Common Stock or other securities or property issuable upon the
exercise of the Option is limited by applicable law, or
otherwise, InterWest or any transferee may, nevertheless,
exercise the Option to the fullest extent permissible.
(d) NOTICES. All notices, requests, claims, demands and other
communications under this Agreement must be in writing and
must be given (and will be deemed to have been duly received
if so given) by delivery, by cable, telecopies or telex, or by
registered or certified mail, postage prepaid, return receipt
requested, to the respective parties at the addresses below,
or to such other address as either party may furnish to the
other in writing. Change of address notices will be effective
upon receipt.
If to the Company to:
NBT Northwest Bancorp
PO Box 58690
505 Industry Drive
Tukwila, WA 98188
Attn: Michael H. Fotheringill,
President & Chief Executive Officer
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With a copy to:
Daniel B. Ritter, Esq.
Davis Wright Tremaine LLP
1501 Fourth Avenue, Suite 2600
Seattle, WA 98101
If to InterWest, to:
InterWest Bancorp, Inc.
1259 West Pioneer Way
Oak Harbor, Washington 98277
Attn: Stephen M. Walden,
President & Chief Executive Officer
With a copy to:
Stephen M. Klein, Esq.
Graham & Dunn, P.C.
1420 Fifth Avenue, 33rd Floor
Seattle, WA 98101-2390
(a) GOVERNING LAW AND VENUE. The parties intend this Agreement and
the Option, in all respects, including all matters of
construction, validity and performance, to be governed by the
laws of the State of Washington, without giving effect to
conflicts of law principles. Any actions brought by either
party against the other arising under this Agreement must be
filed in King County, Washington, and each party consents to
personal jurisdiction in King County.
(b) COUNTERPARTS. This Agreement may be executed in several
counterparts, including facsimile counterparts, each of which
is an original, and all of which together constitute one and
the same agreement.
(c) EFFECTS OF HEADINGS. The section headings in this Agreement
are for convenience only and do not affect the meaning of its
provisions.
[Signatures on next page]
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Dated June 11, 1999:
INTERWEST BANCORP, INC.
By: /s/
----------------------------
Stephen M. Walden
Its:President
NBT NORTHWEST BANCORP
By: /s/
----------------------------
Michael H. Fotheringill
Its:President
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APPENDIX C
TITLE 23B. WASHINGTON BUSINESS CORPORATION ACT
CHAPTER 23B.13. DISSENTERS' RIGHTS
SECTION 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.
SECTION 23B.13.020 RIGHT TO DISSENT.
(1) A shareholder is entitled to dissent from, and obtain payment of
the fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) Consummation of a plan of merger to which the corporation
is a party (i) if shareholder approval is required for the merger by RCW
23B.11.030, 23B.11.080, or the articles of incorporation and the shareholder is
entitled to vote on the merger, or (ii) if the corporation is a subsidiary that
is merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other than in the usual
and regular course of business, if the shareholder is entitled to vote on the
sale or exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed to the
shareholders within one year after the date of sale;
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(d) An amendment of the articles of incorporation that
materially reduces the number of shares owned by the shareholder to a fraction
of a share if the fractional share so created is to be acquired for cash under
RCW 23B.06.040; or
(e) Any corporate action taken pursuant to a shareholder vote
to the extent the articles of incorporation, bylaws, or a resolution of the
board of directors provides that voting or nonvoting shareholders are entitled
to dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any one
of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets
aside the corporate action; or
(c) The shareholder's demand for payment is withdrawn with the
written consent of the corporation. 1991 c 269 Section 37; 1989 c 165 Section
141.
SECTION 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. 1989 c 165 Section 142.
SECTION 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.
C-2
<PAGE>
(2) If corporate action creating dissenters' rights under RCW
23B.13.020 it 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. 1989
c 165 Section 143.
SECTION 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. 1989 c 165 Section 144.
SECTION 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.
SECTION 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.
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<PAGE>
(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.
SECTION 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.
SECTION 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 shareholders' shares, plus accrued interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal
year ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair
value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment
under RCW 23B.13.280; and
(e) A copy of this chapter.
SECTION 23B.13.260 FAILURE TO TAKE ACTION.
(1) If the corporation does not effect the proposed action within sixty
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release any transfer
restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment demand
procedure.
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<PAGE>
SECTION 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.
SECTION 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.
SECTION 23B.13.300 COURT ACTION.
(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(2) The corporation shall commence the proceeding in the superior court
of the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
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<PAGE>
(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.
SECTION 23B.13.310 COURT COSTS AND COUNSEL FEES.
(1) The court in a proceeding commenced under RCW 23B.13.300 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess the costs against all
or some of the dissenters, in amounts the court finds equitable, to the extent
the court finds the dissenters acted arbitrarily, vexatiously, or not in good
faith in demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially comply with
the requirements of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
C-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to InterWest's articles of incorporation, InterWest will,
to the fullest extent permitted by the WBCA, indemnify the officers,
directors, agents and employees of InterWest with respect to expenses,
settlements, judgments and fines in suits in which such person was made a
party by reason of the fact that he or she is or was an agent of InterWest.
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. In addition,
InterWest's articles of incorporation provide that the directors of InterWest
shall not be personally liable for monetary damages to InterWest 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. This provision might, in certain instances, discourage or deter
stockholders or management from bringing a lawsuit against directors for a
breach of their duties even though such an action, if successful, might have
benefited InterWest.
In addition to the indemnification provisions set forth in
InterWest's Articles, InterWest has entered into separate Indemnity
Agreements with each of the directors of InterWest and InterWest Bank that
provide for the indemnification of such directors by InterWest to the fullest
extent allowed by the WBCA. The Indemnity Agreements indemnify each director
and hold such director harmless against any loss arising from a claim or
action relating to his or her services as a director. The Indemnity
Agreements further provide that InterWest will advance sufficient funds as
may be necessary to investigate or defend claims against a director, and to
reimburse funds that may be incurred by the director, with the proviso that
the director will reimburse InterWest any expenses paid to such director in
the event it is later determined that the payment of such sums were not
allowable under Washington law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The exhibits are listed on the accompanying "Exhibit Index".
(b) Financial Statement Schedules. None.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or
sells securities, a post-effective amendment to this registration statement
to;
(i) Include any prospectus required by
Section 10(a)(3) of the 1933 Act;
(ii) Reflect in the prospectus any facts or
events which, individually or together, represent a fundamental change in the
information 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 SEC pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
II-1
<PAGE>
(iii) Include any additional or changed
information on the plan of distribution;
(2) For determining liability under the 1933 Act, to
treat each such post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at that time shall
be deemed to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) To advise all directors and officers that insofar as
indemnification for liabilities arising under the 1933 Act may be permitted
to directors, officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been advised that
in the opinion of the SEC such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
(c) 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.
(d) 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-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the 1933 Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Oak Harbor, Washington on
8/17, 1999.
INTERWEST BANCORP, INC.
By: /s/ Stephen M. Walden
------------------------------------
Stephen M. Walden
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose individual signature appears below hereby
authorizes and appoints Stephen M. Walden and H. Glenn Mouw, and each of
them, with full power of substitution and full power to act without the
other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file any and all
amendments to this Registration Statement, including any and all
post-effective amendments.
Pursuant to the requirements of the 1933 Act, this Power of Attorney
has been signed by the following persons in the capacities indicated, on the
17 day of Aug, 1999.
SIGNATURE TITLE
--------- ------
/s/ Stephen M. Walden
- ------------------------------ President, Chief Executive Officer and
Stephen M. Walden Director (Principal Executive Officer)
/s/ H. Glenn Mouw
- ------------------------------ Executive Vice President
H. Glenn Mouw (Principal Financial Officer)
/s/ Eric D. Jensen
- ------------------------------ Chief Accounting Officer
Eric D. Jensen (Principal Accounting Officer)
/s/ Barney R. Beeksma
- ------------------------------ Chairman of the Board
Barney R. Beeksma
/s/ Gary M. Bolyard
- ------------------------------ Director
Gary M. Bolyard
/s/ Larry Carlson
- ------------------------------ Director
Larry Carlson
II-3
<PAGE>
/s/ Michael T. Crawford
- ------------------------------ Director
Michael T. Crawford
/s/ Patrick M. Fahey
- ------------------------------ Director
Patrick M. Fahey
/s/ Jean Gorton
- ------------------------------ Director
Jean Gorton
/s/ Stephen Lewis
- ------------------------------ Director
Stephen Lewis
/s/ Clark H. Mock
- ------------------------------ Director
Clark H. Mock
/s/ Russel E. Olson
- ------------------------------ Director
Russel E. Olson
/s/ Vern Sims
- ------------------------------ Director
Vern Sims
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
2.1 Agreement and Plan of Merger between InterWest and NBT dated
as of June 11, 1999, (included in this Registration Statement
as Appendix A to the Prospectus/Proxy Statement).
5.1 Opinion of Graham & Dunn, P.C. as to the legality of
securities.
8.1 Opinion of Graham & Dunn, P.C. as to federal income tax
consequences.
10.1 Stock Option Agreement between InterWest and NBT dated as of
June 11, 1999 (included as Appendix B to the Prospectus/Proxy
Statement)
10.2 Employment Agreement between Tukwila Bank and Michael H.
Fotheringill dated June 11, 1999
10.3 Noncompetition and Severance Agreement between Tukwila Bank
and Ronald L. Bosi dated June 11, 1999
10.4 Form of Noncompetition Agreement between InterWest and each
respective director of NBT and National Bank of Tukwila, dated
as of June 11, 1999.
10.5 Voting Agreement of NBT directors
23.1 Consent of Graham & Dunn, P.C., as to its legality of
securities opinion (contained in its opinion filed as Exhibit
5.1).
23.2 Consent of Graham & Dunn, P.C. as to its tax opinion
(contained in its opinion filed as Exhibit 8.1).
23.3 Consent of Ernst & Young LLP, Independent Auditors for InterWest
23.4 Consent of Knight, Vale & Gregory, Independent Auditors for NBT.
24.1 Power of Attorney (included in the signature page of this
Registration Statement) and certified resolutions of the
InterWest Board.
99.1 Form of proxy to be mailed to the stockholders of the Company.
</TABLE>
II-5
<PAGE>
August 18, 1999
The Board of Directors
InterWest Bancorp, Inc.
275 S.E. Pioneer Way
Oak Harbor, Washington 98277
RE: LEGAL OPINION REGARDING VALIDITY OF SECURITIES OFFERED
Ladies and Gentlemen:
We have acted as counsel for InterWest Bancorp, Inc. ("InterWest"), a
Washington corporation and bank holding company, in connection with the
registration under the Securities Act of 1933, as amended (the "Act") of up
to 681,608 shares of InterWest common stock, no par value per share (the
"Shares"), to be issued in accordance with the Agreement and Plan of Merger
dated June 11, 1999 (the "Plan") between InterWest, NBT Northwest Bancorp,
National Bank of Tukwila, and Pacific Northwest Bank. A Registration
Statement on Form S-4 (the "Registration Statement") is being filed under the
Act with the Securities and Exchange Commission on August 19, 1999 (the
"Registration Statement").
In connection with the Shares that will be issued under the Plan, we
have examined the following: (i) the Plan; (ii) the Registration Statement;
and (iii) such other documents as we have deemed necessary to form the
opinion expressed below. As to various questions of fact material to such
opinion, where relevant facts were not independently established, we have
relied upon statements of officers of InterWest or representations and
warranties of InterWest contained in the Plan. We have assumed without
independent investigation or review, the accuracy and completeness of the
facts, representations, and warranties contained in the documents listed
above or otherwise made known to us.
Our opinion assumes that the Shares are issued in accordance with the
terms of the Plan after the Registration Statement has become effective under
the Act.
Based upon and relying solely upon the foregoing, we advise you that in
our opinion, the Shares, or any portion thereof, when issued pursuant to the
Plan, after the Registration Statement has become effective under the Act,
will be validly issued under the laws of the State of Washington and will be
fully paid and nonassessessable.
<PAGE>
InterWest Bancorp, Inc.
August 18, 1999
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the legal reference to this firm under the
caption "Certain Legal Matters" as having passed upon the validity of the
Shares. In giving such consent, we do not thereby admit that we are experts
within the meaning of the Act.
The attorneys in this firm are members of the Bar of the State of
Washington. We do not hold ourselves out as being conversant with the laws of
any jurisdiction other than those of the State of Washington and the United
States of America.
Very truly yours,
/s/ GRAHAM & DUNN, P.C.
GRAHAM & DUNN, P.C.
<PAGE>
August 18, 1999
InterWest Bancorp, Inc. NBT Northwest Bancorp
275 S.E. Pioneer Way 505 Industry Drive
Oak Harbor, Washington 98277 P.O. Box 58690
Tukwila, Washington 98138
RE: HOLDING COMPANY MERGER/TAX CONSEQUENCES
Ladies and Gentlemen:
This letter responds to your request for our opinion as to certain of
the federal income tax consequences of the proposed merger ("Merger") of NBT
Northwest Bancorp ("NBT") into InterWest Bancorp, Inc. ("InterWest").
We have acted as legal counsel to InterWest in connection with the
Merger. For the purpose of rendering this opinion, we have examined and relied
upon originals, certified copies, or copies otherwise identified to our
satisfaction as being true copies of the originals of the following documents,
including all exhibits and schedules attached to them:
a. The Agreement and Plan of Merger, dated June 11, 1999, between
InterWest, NBT, National Bank of Tukwila, and Pacific Northwest
Bank (the "Merger Agreement");
b. Form S-4 Registration Statement of InterWest filed with the
Securities and Exchange Commission on August 19, 1999
("Registration Statement");
c. The Proxy Statement of NBT (included as part of the Registration
Statement) ("Proxy Statement");
d. The factual representations set forth in a letter from InterWest
and NBT, dated August 18, 1999 ("Representation Letter"); and
e. Such other documents, instruments, records and information
pertaining to the Merger as we have deemed necessary for rendering
our opinion.
We have assumed, without independent investigation or review, the
accuracy and completeness of the facts and representations and warranties
contained in those documents or
<PAGE>
InterWest Bancorp, Inc.
NBT Northwest Bancorp
August 18, 1999
Page 2
otherwise made known to us, that the Merger will be effected in accordance
with the terms of the Merger Agreement, and that the representations
contained in the Representation Letter will be true and complete at the
effective date of the Merger.
In connection with the Merger and pursuant to the Merger Agreement,
each share of NBT voting common stock will be exchanged for shares of InterWest
voting common stock, based on the exchange rate established in the Merger
Agreement. No fractional shares will be issued; cash will be paid in lieu of
fractional share interests. NBT shareholders who perfect their dissenters'
rights under state law will be paid the cash value of their NBT shares. Such
payments will be made by NBT without reimbursement by InterWest. Upon the
consummation of the Merger, InterWest will continue the historic business of
NBT.
Based upon our review of the facts described above and our analysis of
the law, and subject to the qualifications and limitations set forth herein, and
the completion of the transactions described in the manner contemplated, it is
our opinion that:
1. The merger of NBT into InterWest for cash and for InterWest voting
common stock, as described above, will constitute a reorganization
within the meaning of Section 368(a)(1)(A) of the Internal Revenue
Code, as amended (the "Code"). NBT and InterWest will each be a
"party to a reorganization" within the meaning of Section 368(b) of
the Code.
2. No gain or loss will be recognized by NBT shareholders upon the
receipt of InterWest voting common stock in exchange for their
shares of NBT stock, except with respect to cash received in lieu of
fractional share interests, pursuant to Section 354(a)(1) of the
Code.
3. The basis of the shares of InterWest voting common stock received by
NBT shareholders will be the same as the basis of the NBT stock
surrendered in exchange therefor, less any basis attributable to
fractional shares for which cash is received, pursuant to Section
358(a)(1) of the Code.
4. The holding period of the shares of InterWest voting common stock
received by NBT shareholders will include the holding period during
which the NBT stock surrendered in exchange therefor was held,
provided that the shares of NBT stock were held as a capital asset
in the hands of the exchanging shareholders on the date of the
exchange, pursuant to Section 1223(1) of the Code.
<PAGE>
InterWest Bancorp, Inc.
NBT Northwest Bancorp
August 18, 1999
Page 3
5. Where cash is received by any shareholder of NBT in exchange for the
surrender of such shareholder's NBT stock, the cash will be treated
as received by the shareholder as a distribution in redemption of
his or her NBT stock, subject to the provisions and limitations of
Section 302 of the Code.
6. No gain or loss will be recognized by NBT upon the transfer of its
assets to InterWest, pursuant to Sections 361 and 357(a) of the
Code.
7. The basis of the assets of NBT acquired by InterWest will be the
same as the basis of NBT in the assets immediately before the
Merger, pursuant to Section 362(b) of the Code.
8. The holding period of the assets acquired by InterWest will include
the period such assets were held by NBT, pursuant to Section 1223(2)
of the Code.
9. No gain or loss will be recognized by InterWest upon the receipt by
InterWest of the assets of NBT, as described above.
Our opinion represents only our best legal judgment as to the probable
federal income tax consequences of the transaction described, based upon
existing law. Our opinion is not intended to be a conclusive statement as to all
of the tax consequences of the transaction and is expressly limited to the
matters addressed. Further, our opinion is not binding upon the Internal Revenue
Service (the "IRS") or any court and has no official status of any kind, and no
private ruling regarding the matters discussed has been or will be requested
from the IRS. The IRS has ruled in a number of private rulings that transactions
substantially identical to the Merger result in tax consequences consistent with
those described in this opinion. Although such rulings do not constitute
authority on which we can rely in expressing our opinion, such rulings generally
do reflect the position of the IRS. Each shareholder, however, is urged to
consult with his or her own tax advisor with respect to their individual tax
situation. Our opinion is intended solely for the benefit of InterWest, the
shareholders of InterWest, and the shareholders of NBT, and may not be relied
upon for any other purpose or by any other person or entity or made available to
any other person or entity without our prior written consent.
<PAGE>
InterWest Bancorp, Inc.
NBT Northwest Bancorp
August 18, 1999
Page 4
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 "THE MERGER
- - Federal Income Tax Consequences of the Merger" in the Proxy Statement. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act.
Very truly yours,
GRAHAM & DUNN
/s/ Graham & Dunn
<PAGE>
NATIONAL BANK OF TUKWILA
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), signed June 11, 1999, between
NATIONAL BANK OF TUKWILA (the "Bank") and MICHAEL H. FOTHERINGILL ("Executive")
takes effect on the effective date of the Merger ("Effective Date").
RECITALS
A. NBT Northwest Bancorp, which is the parent company of the Bank, intends
to merge into InterWest Bancorp, Inc. ("InterWest"), and the Bank will
thereby become the wholly owned subsidiary of InterWest (the "Merger")
under the terms of the Agreement and Plan of Merger dated as of June
11, 1999 ("Plan") between the parties and Pacific Northwest Bank, the
wholly owned subsidiary of InterWest.
B. Executive is presently the Bank's President and Chief Executive Officer
("CEO"). The Bank wishes to continue Executive's employment in that
capacity under the terms and conditions of this Agreement.
C. Under the terms of this Agreement, Executive wishes to continue his
employment with the Bank (or its successor, if any) for the period
provided in this Agreement.
AGREEMENT
The parties agree as follows.
1. EMPLOYMENT. The Bank will continue Executive's employment during the
Term (as defined below), and Executive accepts employment by the Bank,
on the terms and conditions set forth in this Agreement.
Executive's title will be "President and Chief Executive Officer."
2. EFFECTIVE DATE AND TERM.
(a) TERM. The initial term of this Agreement commences on the
Effective Date and terminates one year from the Effective Date
("Initial Term"); PROVIDED, however, Executive may renew his
employment under this Agreement for two additional one-year
terms (each, a "Renewal Term") by providing InterWest with
written notice of his intent to renew at least sixty (60) days
prior to the date this Agreement would otherwise terminate
(the Initial Term and any exercised Renewal Term being, the
"Term").
(b) FAILURE TO RENEW TERM. If Executive fails to provide the
written notice described above but his employment is
nonetheless continued after expiration of the then applicable
Term, then (i) Executive shall be deemed an at-will employee
of the Bank, (ii) Executive shall cease to have any right to
continued employment under this Agreement, and (iii) upon
termination of his employment, Executive shall only be
entitled to receive (X) the salary earned and expenses
reimbursable through the date of such termination plus (Y)
only if such termination is without Cause or Executive resigns
for Good Reason, the Severance Payment. In addition, upon any
termination of Executive's employment under this Section 2(b),
Executive will be subject to the noncompetition and
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nonsolicitation requirements of Section 12 for a two-year
period following such termination.
(c) ABANDONMENT OF THE MERGER. If the Plan terminates before
Closing, this Agreement will not become effective and will be
void.
3. DUTIES. Executive will faithfully and diligently perform the duties
assigned to Executive from time to time by the Bank's board of
directors, by InterWest's board of directors, or by the President and
CEO of InterWest. In the event that InterWest elects to merge the Bank
into Pacific Northwest Bank or some other affiliate of InterWest, then
the title and duties of Executive with respect to the entity surviving
such merger shall be determined by the President and CEO of InterWest
or his designee. Executive will use his best efforts to perform his
duties and will devote his time and attention to these duties, which
will include, without limitation, the following:
(a) BANK PERFORMANCE. Executive will be responsible for all
aspects of the Bank's performance, including, without
limitation, directing that daily operational and managerial
matters are performed in a manner consistent with InterWest's
and the Bank's policies. These duties will also include
formulating and implementing the Bank's expansion strategies
and performing all other tasks in connection with the Bank's
management and affairs that are normal and customary to
Executive's position.
(b) INTEGRATION WITH INTERWEST. Executive will participate in the
integration of the Bank's commercial banking activities with
InterWest's existing operations.
(c) DEVELOPMENT AND PRESERVATION OF BUSINESS. Executive will be
responsible for the development and preservation of banking
relationships and other business development efforts
(including appropriate civic and community activities) in the
Bank's market areas.
(d) REPORT TO BOARD. Executive will report directly to the Bank's
board of directors and to the President and CEO of InterWest
or his designee. The Bank's or InterWest's board of directors
may, from time to time, modify Executive's title or add to,
delete from, or modify Executive's performance
responsibilities to accommodate management succession, as well
as any other management objectives of the Bank or of
InterWest. Executive will assume any additional positions,
duties, and responsibilities as may reasonably be requested of
him with or without additional compensation, as appropriate
and consistent with Sections 3(a), 3(b), and 3(c) of this
Agreement.
4. SALARY. Executive will receive a salary of $95,000 per year (the "Base
Salary"), which shall be paid in accordance with the Bank's customary
payment practices.
5. INCENTIVE COMPENSATION. The Bank's board of directors, subject to
ratification by InterWest's board of directors, will determine the
amount of bonus, if any, to be paid by the Bank to Executive for each
year during the Term. In making this determination, the Bank's board of
directors will consider factors such as Executive's performance of his
duties and the safety, soundness, and profitability of the Bank.
Executive's bonus, if any, will reflect Executive's contribution to the
performance of the Bank during the year.
6. INCOME DEFERRAL AND BENEFITS. Subject to eligibility requirements and
in accordance with and subject to any policies adopted by the Bank's or
InterWest's board of directors with respect to any
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benefit plans or programs (including stock option plans), Executive
will be entitled to receive benefits similar to those offered to
other executive officers of InterWest's subsidiaries with position
and duties comparable to those of Executive. The foregoing
notwithstanding, Executive will continue to receive at minimum
perquisites commensurate to those he currently receives, including
without limitation, four (4) weeks of apid vacation per year and use
of a Bank automobile.
7. BUSINESS EXPENSES. The Bank will reimburse Executive for ordinary and
necessary expenses (including, without limitation, travel,
entertainment, and similar expenses) incurred in performing and
promoting the Bank's business. Executive will present from time to time
itemized accounts of these expenses, subject to any limits of Bank
policy or the rules and regulations of the Internal Revenue Service.
8. TERMINATION.
(a) TERMINATION BY BANK FOR CAUSE. If, before the end of any
Term, the Bank terminates Executive's employment for Cause
or Executive terminates his employment without Good Reason,
the Bank will pay Executive the Base Salary earned and
expenses reimbursable under this Agreement for such Term
that are incurred through the date of Executive's
termination. Executive will have no right to receive
compensation or other benefits for any period after
termination under this Section 8(a), and Executive will be
subject to the noncompetition and nonsolicitation
requirements of SECTION 12 through the remainder of the
Term and for the two-year period following such Term.
(b) OTHER TERMINATION BY BANK. If, before the end of any Term, the
Bank terminates Executive's employment without Cause or
Executive terminates his employment for Good Reason (defined
below), the Bank will (1) pay Executive for the remainder of
such Term the Base Salary for that Term he would have been
entitled to under this Agreement if his employment had not
terminated, and (2) make a payment to Executive in an amount
equal to his Base Salary then in effect (the "Severance
Payment"), which Severance Payment will be made in equal
payments over one year. If Executive is terminated pursuant to
this Section 8(b), Executive will be subject to the
noncompetition and nonsolicitation requirements of SECTION 12
through the remainder of the Term only.
(c) DEATH OR DISABILITY. This Agreement terminates (1) if
Executive dies or (2) Executive is unable to perform his
duties and obligations under this Agreement for a period of 90
days as a result of a physical or mental disability arising
during any Term, unless with reasonable accommodation
Executive could continue to perform his duties under this
Agreement and making these accommodations would not pose an
undue burden on the Bank. If termination occurs under this
Section 8(c), Executive or his estate will be entitled to
receive only the compensation and benefits earned and expenses
reimbursable through the date this Agreement terminated.
(d) COMPLETION OF TERM. Upon termination of Executive's employment
by reason of completion of the Term, the Bank will pay
Executive the Severance Payment in equal payments over the
course of one year.
(e) RETURN OF BANK PROPERTY. If and when Executive ceases, for any
reason, to be employed by the Bank, Executive must return to
the Bank all keys, pass cards, identification cards and any
other property of the Bank or InterWest. At the same time,
Executive also must
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return to the Bank all originals and copies (whether in
hard copy, electronic or other form) of any documents,
drawings, notes, memoranda, designs, devices, diskettes,
tapes, manuals, and specifications which constitute
proprietary information or material of the Bank or
InterWest. The obligations in this paragraph include the
return of documents and other materials which may be in
Executive's desk at work, in Executive's car or place of
residence, or in any other location under Executive's
control.
9. DEFINITION OF "CAUSE". "Cause" means any one or more of the following:
(a) Willful misfeasance or gross negligence in the performance of
Executive's duties;
(b) Conviction of a crime in connection with his duties; or
(c) Conduct demonstrably and significantly harmful to the Bank, as
reasonably determined by the Bank's board of directors on the
advice of legal counsel.
10. DEFINITION OF "GOOD REASON". "Good Reason" means only any one or more
of the following:
(a) Reduction, without Executive's consent, of Executive's salary
or elimination of any compensation or benefit plan benefiting
Executive, unless the reduction or elimination is applicable
to all similarly situated Bank employees (or employees of a
successor or controlling entity of the Bank) formerly
benefited;
(b) A relocation or transfer of Executive's principal place of
employment that would require Executive to commute on a
regular basis more than thirty miles each way from his current
business office at the Bank on the date of this Agreement,
unless Executive consents to such commute. Notwithstanding the
foregoing, it is the parties' understanding and intent that
Executive will, on occasion, be required to travel to Seattle,
Washington, for Bank-related business; or
(c) The written consent of the Bank and InterWest to such resignation.
11. CONFIDENTIALITY. Executive will not, after signing this Agreement,
including during and after its Term, use for his own purposes or
disclose to any other person or entity any confidential information
concerning the Bank, InterWest, their subsidiaries or their business
operations or customers, unless (1) the Bank or InterWest consents to
the use or disclosure of their respective confidential information, (2)
the use or disclosure is consistent with Executive's duties under this
Agreement, or (3) disclosure is required by law or court order.
12. NONCOMPETITION.
(a) PARTICIPATION IN A COMPETING BUSINESS. During any Term and for
two years after expiration of such Term (such two years being
the "Post-Term Period") (regardless of whether Executive
remains employed with the Bank through such Term), Executive
will not become involved with a Competing Business or serve,
directly or indirectly, a Competing Business in any manner,
including, without limitation, as a shareholder, member,
partner, director, officer, manager, investor, organizer,
"founder," employee, consultant or agent; PROVIDED, HOWEVER,
that Executive may acquire and own an interest not exceeding
2% of the total equity interest in any publicly held entity
whose equity securities are listed on a national securities
exchange (whether or not such entity is a
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<PAGE>
Competing Business). Executive's noncompetition obligations
for the Post-Term Period will not apply if (1) Executive's
employment during any Term is terminated without Cause, or
(2) Executive terminates his employment during any Term for
Good Reason.
(b) NO SOLICITATION. During any Term and the Post-Term Period
(regardless of whether Executive remains employed with the
Bank through the Term), Executive will not directly or
indirectly solicit or attempt to solicit (1) any employees of
the Bank, InterWest, or any of InterWest's Subsidiaries, to
leave their employment or (2) any customers of the Bank,
InterWest, or any of InterWest's Subsidiaries to remove their
business from the Bank, InterWest, or any of InterWest's
Subsidiaries, or to participate in any manner in a Competing
Business. Solicitation prohibited under this Section includes
solicitation by any means, including, without limitation,
meetings, letters or other mailings, electronic communications
of any kind, and internet communications. Executive's
nonsolicitation obligations for the Post-Term Period will not
apply if (1) Executive's employment during any Term is
terminated without Cause, or (2) Executive terminates his
employment during any Term for Good Reason.
(c) EMPLOYMENT OUTSIDE THE COUNTY. Nothing in this Agreement
prevents Executive from accepting employment after the end of
the Term outside a thirty mile radius of Tukwila, Washington
(the "Restricted Zone"), from a Competing Business, as long as
Executive will not (a) act as an employee or other
representative or agent of the Competing Business within the
Restricted Zone or (b) have any responsibilities for the
Competing Business' operations within the Restricted Zone.
(d) COMPETING BUSINESS. "Competing Business" means any financial
institution or trust company that competes with, or will
compete with, InterWest, the Bank, or any of InterWest's
Subsidiaries. The term "Competing Business" includes, without
limitation, any start-up or other financial institution or
trust company in formation.
13. ENFORCEMENT.
(a) The Bank and Executive stipulate that, in light of all of the
facts and circumstances of the relationship between Executive
and the Bank, the agreements referred to in Sections 11 and 12
(including without limitation their scope, duration and
geographic extent) are fair and reasonably necessary for the
protection of the Bank's and InterWest's confidential
information, goodwill and other protectable interests. If a
court of competent jurisdiction should decline to enforce any
of those covenants and agreements, Executive and the Bank
request the court to reform these provisions to restrict
Executive's use of confidential information and Executive's
ability to compete with the Bank and InterWest to the maximum
extent, in time, scope of activities, and geography, the court
finds enforceable.
(b) Executive acknowledges that the Bank and InterWest will suffer
immediate and irreparable harm that will not be compensable by
damages alone, if Executive repudiates or breaches any of the
provisions of Sections 11 or 12 or threatens or attempts to do
so. For this reason, under these circumstances, the Bank and
InterWest, in addition to and without limitation of any other
rights, remedies or damages available to it at law or in
equity, will be entitled to obtain temporary, preliminary, and
permanent injunctions in order to prevent or restrain the
breach, and neither the Bank nor InterWest will be required to
post a bond as a condition for the granting of this relief.
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<PAGE>
14. ADEQUATE CONSIDERATION. Executive specifically acknowledges the receipt
of adequate consideration for the covenants contained in Sections 11
and 12 and that the Bank is entitled to require him to comply with
these Sections. These Sections will survive termination of this
Agreement. Executive represents that if his employment is terminated,
whether voluntarily or involuntarily, Executive has experience and
capabilities sufficient to enable Executive to obtain employment in
areas which do not violate this Agreement and that the Bank's
enforcement of a remedy by way of injunction will not prevent Executive
from earning a livelihood.
15. ARBITRATION.
(a) ARBITRATION. At either party's request, the parties must
submit any dispute, controversy or claim arising out of or in
connection with, or relating to, this Agreement or any breach
or alleged breach of this Agreement, to arbitration under the
American Arbitration Association's rules then in effect (or
under any other form of arbitration mutually acceptable to the
parties). A single arbitrator agreed on by the parties will
conduct the arbitration. If the parties cannot agree on a
single arbitrator, each party must select one arbitrator and
those two arbitrators will select a third arbitrator. This
third arbitrator will hear the dispute. The arbitrator's
decision is final (except as otherwise specifically provided
by law) and binds the parties, and either party may request
any court having jurisdiction to enter a judgment and to
enforce the arbitrator's decision. The arbitrator will provide
the parties with a written decision naming the substantially
prevailing party in the action. This prevailing party is
entitled to reimbursement from the other party for its costs
and expenses, including reasonable attorneys' fees.
(b) GOVERNING LAW. All proceedings will be held at a place
designated by the arbitrator in King County, Washington. The
arbitrator, in rendering a decision as to any state law
claims, will apply Washington law.
(c) EXCEPTION TO ARBITRATION. Notwithstanding the above, if
Executive violates Section 11 or 12, the Bank will have the
right to initiate the court proceedings described in Section
13(b), in lieu of an arbitration proceeding under this Section
15. The Bank may initiate these proceedings wherever
appropriate within Washington State; but Executive will
consent to venue and jurisdiction in King County, Washington.
16. MISCELLANEOUS PROVISIONS.
(a) DEFINED TERMS. Capitalized terms used as defined terms, but
not defined in this Agreement, will have the meanings assigned
to those terms in the Plan.
(b) ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding between the parties concerning its subject
matter and supersedes all prior agreements. Accordingly,
Executive specifically waives the terms of and all of his
rights under all employment, change-in-control and salary
continuation agreements, whether written or oral, he has
entered into with the Bank or any of its Subsidiaries or
affiliates.
(c) NO RIGHT TO CONTINUED EMPLOYMENT. Nothing in this Agreement,
express or implied, is intended to confer upon Executive the
right to continued employment with the Bank after the Term.
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(d) BINDING EFFECT. This Agreement will bind and inure to the
benefit of the Bank's, InterWest's, and Executive's heirs,
legal representatives, successors and assigns.
(e) LITIGATION EXPENSES. If either party successfully seeks to
enforce any provision of this Agreement or to collect any
amount claimed to be due under it, this party will be entitled
to reimbursement from the other party for any and all of its
out-of-pocket expenses and costs including, without
limitation, reasonable attorneys' fees and costs incurred in
connection with the enforcement or collection.
(f) WAIVER. Any waiver by a party of its rights under this
Agreement must be written and signed by the party waiving its
rights. A party's waiver of the other party's breach of any
provision of this Agreement will not operate as a waiver of
any other breach by the breaching party.
(g) COUNSEL REVIEW. Executive acknowledges that he has had the
opportunity to consult with independent counsel with respect
to the negotiation, preparation, and execution of this
Agreement.
(h) ASSIGNMENT. The services to be rendered by Executive under
this Agreement are unique and personal. Accordingly, Executive
may not assign any of his rights or duties under this
Agreement.
(i) AMENDMENT. This Agreement may not be modified or amended
except by a written instrument signed by both parties with the
prior written consent of InterWest.
(j) SEVERABILITY. The provisions of this Agreement are severable.
The invalidity of any provision will not affect the validity
of other provisions of this Agreement.
(k) GOVERNING LAW AND VENUE. This Agreement will be governed by
and construed in accordance with Washington law, except to the
extent that certain matters may be governed by federal law.
Except as otherwise provided in Section 15(c), the parties
must bring any legal proceeding arising out of this Agreement
in King County, Washington, and the parties will submit to
jurisdiction in that county.
(l) COUNTERPARTS. This Agreement may be executed in one or more
facsimile counterparts, each of which will be deemed an
original, but all of which taken together will constitute one
and the same document.
Signed: June 11, 1999:
NATIONAL BANK OF TUKWILA MICHAEL H. FOTHERINGILL, individually
/s/ /s/
- ---------------------------- -----------------------------------
By: Michael H. Fotheringill
Its:
<PAGE>
NATIONAL BANK OF TUKWILA
NONCOMPETITION AND SEVERANCE AGREEMENT
THIS NONCOMPETITION AND SEVERANCE AGREEMENT ("Agreement"), signed June
11, 1999, between NATIONAL BANK OF TUKWILA (the "Bank") and Ronald L. Bosi
("Employee") takes effect on the effective date of the Merger ("Effective
Date").
RECITALS
A. NBT Northwest Bancorp ("NBT"), which is the parent company of the Bank,
intends to merge into InterWest Bancorp, Inc. ("InterWest"), and the
Bank will thereby become the wholly owned subsidiary of InterWest (the
"Merger") under the terms of the Agreement and Plan of Merger of even
date herewith ("Plan") between the parties and Pacific Northwest Bank,
the wholly owned subsidiary of InterWest.
B. As a condition to InterWest's execution of the Plan, all members of the
boards of directors of NBT and the Bank must execute a director's
agreement, pursuant to which such directors will be subject to certain
noncompetition and nonsolicitation obligations for two years after they
cease to be directors of NBT or the Bank (the "Director's Agreement").
C. Employee, who is presently the Bank's Senior Vice President and Chief
Credit Officer, has resigned from the boards of directors of NBT and
the Bank so as not to be subject to the Director's Agreement. InterWest
has agreed to such resignation provided that Employee execute this
Agreement.
AGREEMENT
The parties agree as follows.
1. ABANDONMENT OF THE MERGER. If the Plan terminates before Closing, this
Agreement will not become effective and will be void.
2. SEVERANCE PAYMENT. If Employee continues his employment with the Bank
through the Effective Date, and at any time after the Effective Date
the Bank terminates Employee without Cause (defined below), the Bank
will pay to Employee an amount equal to six (6) months of Employee's
then-current annual base salary (the "Severance Payment").
3. TERMINATION OF AGREEMENT. This Agreement terminates immediately (1) if
Employee dies, (2) if Employee voluntarily terminates his employment
with the Bank at any time, or (3) if Employee is unable to perform his
duties and obligations under this Agreement for a period of 90 days as
a result of a physical or mental disability arising at any time during
the term of this Agreement, unless with reasonable accommodation
Employee could continue to perform his duties under this Agreement and
making these accommodations would not pose an undue burden on the Bank.
4. DEFINITION OF "CAUSE". "Cause" means any one or more of the following:
(a) Willful misfeasance or gross negligence in the performance of
Employee's duties;
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(b) Conviction of a crime in connection with his duties; or
(c) Conduct demonstrably and significantly harmful to the Bank, as
reasonably determined by the Bank's board of directors on the
advice of legal counsel.
5. CONFIDENTIALITY. Employee will not use for his own purposes or disclose
to any other person or entity any confidential information concerning
the Bank, InterWest, their subsidiaries or their business operations or
customers, unless (1) the Bank or InterWest consents to the use or
disclosure of their respective confidential information, (2) the use or
disclosure is consistent with Employee's duties as an employee of the
Bank, or (3) disclosure is required by law or court order.
6. POST-EMPLOYMENT RESTRICTIONS.
(a) NON-COMPETITION. For a six-month period after Employee's
employment with the Bank or its successor terminates for any
reason (the "Restricted Period"), Employee will not, directly
or indirectly, become interested in, as a promoter, principal
shareholder, director or officer of, any financial institution
that competes or will compete with InterWest or any of its
subsidiaries or their affiliates within a thirty (30) mile
radius of Tukwila, Washington. The term "principal
shareholder" means any person who owns, directly or
indirectly, five percent (5%) or more of the outstanding
shares of any voting class of equity security of a company.
(b) NON-SOLICITATION. During the Restricted Period, Employee will
not directly or indirectly solicit or attempt to solicit on
behalf or for the benefit of any financial institution (i) any
employees of the Bank, InterWest, or any of their subsidiaries
or affiliates, to leave their employment for employment with
another financial institution or (ii) any customers of the
Bank, InterWest, or any of their subsidiaries or affiliates to
remove their business from the Bank, InterWest, or any of
their subsidiaries or affiliates. Solicitation prohibited
under this section includes solicitation by any means,
including, without limitation, meetings, telephone calls,
letters or other mailings, electronic communication of any
kind, and internet communications.
(c) REMEDIES. Employee recognizes and agrees that any breach of
this paragraph 6 by him will entitle InterWest and any of its
successors or assigns to injunctive relief and/or specific
performance, as well as any other legal or equitable remedies
to which such entities may otherwise be entitled. The
substantially prevailing party in any such dispute will be
entitled to recover from the other party its costs and
expenses, including specifically, reasonable attorneys' fees.
7. MISCELLANEOUS PROVISIONS.
(a) ENTIRE AGREEMENT; AT-WILL EMPLOYMENT. This Agreement
constitutes the entire understanding between the parties
concerning its subject matter and supersedes all prior
agreements. Nothing in this Agreement, express or implied, is
intended to confer upon Employee the right to employment with
the Bank. Employee's employment term with the Bank is
indefinite and at the will of both parties, subject only to
the provisions of paragraph 2 regarding severance pay and
paragraphs 5 and 6 regarding Employee's confidentiality,
noncompetition and nonsolicitation obligations.
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(b) COUNSEL REVIEW. Employee acknowledges that he has had the
opportunity to consult with independent counsel with respect
to the negotiation, preparation and execution of this
Agreement.
(c) LITIGATION EXPENSES. If either party seeks to enforce any
provision of this Agreement or to collect any amount claimed
to be due under it, the substantially prevailing party will be
entitled to reimbursement from the other party for any and all
of its out-of-pocket expenses and costs including, without
limitation, reasonable attorneys' fees and costs incurred in
connection with the enforcement or collection.
(d) BINDING EFFECT. This Agreement will bind and inure to the
benefit of the Bank's or InterWest's legal representatives,
successors and assigns.
(e) ASSIGNMENT; AMENDMENT. Employee may not assign any of his
rights or duties under this Agreement. This Agreement may not
be modified or amended except by a written instrument signed
by both parties with the prior written consent of InterWest.
(f) FAIRNESS; SEVERABILITY. The Bank and Employee stipulate that,
in light of all of the facts and circumstances of the
relationship between Employee and the Bank, the agreements
referred to in paragraphs 5 and 6 (including without
limitation their scope, duration and geographic extent) are
fair and reasonably necessary for the protection of the Bank's
and InterWest's confidential information, goodwill and other
protectable interests. If a court of competent jurisdiction
should decline to enforce any of those covenants and
agreements, Employee and the Bank request the court to reform
these provisions to restrict Employee's use of confidential
information and Employee's ability to compete with the Bank
and InterWest to the maximum extent, in time, scope of
activities, and geography, the court finds enforceable.
(g) GOVERNING LAW. This Agreement will be governed by and
construed in accordance with Washington law.
(h) COUNTERPARTS. This Agreement may be executed in one or more
facsimile counterparts, each of which will be deemed an
original, but all of which taken together will constitute one
and the same document.
Signed: June 11, 1999:
NATIONAL BANK OF TUKWILA
/s/
----------------------------------------------
By:
Its:
RONALD L. BOSI, individually
/s/
----------------------------------------------
Ronald L. Bosi
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DIRECTOR'S AGREEMENT
This Agreement is made and entered into as of the 11th day of June,
1999, between INTERWEST BANCORP, INC., a Washington corporation ("InterWest")
and _____________________ ("Director"), a director of NBT Northwest Bancorp
("Bancorp") and National Bank of Tukwila (the "Bank") (Bancorp and the Bank,
collectively, being the "Company"), and shall become effective only upon the
closing of the Merger (defined below).
RECITALS
1. Pursuant to the terms of the Agreement and Plan of Merger dated as of
the 11th day of June, 1999 (the "Plan") among InterWest, Pacific Northwest
Bank and the Company, Bancorp will be merged into InterWest, and the Bank
will become the wholly owned subsidiary of InterWest (the "Merger").
2. The obligation of InterWest to consummate the transactions
contemplated by the Plan is conditioned upon its receipt of non-competition
agreements from directors of the Company.
3. Director is a shareholder of Bancorp as well as a director of the
Company.
AGREEMENT
In consideration of the performance of InterWest under the Plan,
Director agrees that for a period of two (2) years after he or she ceases to
be a director of the Bank or its successor, he or she will not, directly or
indirectly, become interested in, as a promoter, principal shareholder,
director or officer of, any financial institution that competes or will
compete with InterWest or any of its subsidiaries or their affiliates within
a thirty (30) mile radius of Tukwila, Washington.
Director also agrees that during this two (2) year period, Director will
not directly or indirectly solicit or attempt to solicit on behalf or for the
benefit of any financial institution (i) any employees of the Company,
InterWest, or any of their subsidiaries or affiliates, to leave their
employment for employment with another financial institution or (ii) any
customers of the Company, InterWest, or any of their subsidiaries or
affiliates to remove their business from the Company, InterWest, or any of
their subsidiaries or affiliates. Solicitation prohibited under this section
includes solicitation by any means, including, without limitation, meetings,
telephone calls, letters or other mailings, electronic communication of any
kind, and internet communications.
For purposes of this Agreement, the term "principal shareholder" means
any person who owns, directly or indirectly, five percent (5%) or more of the
outstanding shares of any voting class of equity security of a company.
Director recognizes and agrees that any breach of this Agreement by him
or her will entitle InterWest and any of its successors or assigns to
injunctive relief and/or specific performance, as well as any other legal or
equitable remedies to which such entities may otherwise be entitled. The
substantially prevailing party in any such dispute will be entitled to
recover from the other party its costs and expenses, including specifically,
reasonable attorneys' fees.
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This Agreement shall be effective upon the closing of the Merger. If the
Plan is terminated before such closing, this Agreement will not become
effective and will be void.
The provisions of this Agreement are severable, and the invalidity of
any provision will not affect the validity of other provisions. If a court of
competent jurisdiction deems that the duration, geographic scope, or other
restriction imposed by this Agreement is unenforceable, such court may reform
the restriction as is necessary to make such restriction enforceable.
Executed as of the 11th day of June, 1999.
INTERWEST BANCORP, INC. DIRECTOR
- ---------------------------------------- ----------------------------------
Stephen M. Walden, President and CEO
2
<PAGE>
APPROVAL BY DIRECTORS OF
NBT NORTHWEST BANCORP
The undersigned, all of the members of the Board of Directors of NBT
Northwest Bancorp (the "Company"), approve the Agreement and Plan of Merger,
dated June 11, 1999 (the "Plan") between InterWest Bancorp, Inc., Pacific
Northwest Bank, the Company, and National Bank of Tukwila, and, except as
otherwise required by applicable law, including without limitation their
fiduciary duties to the Company's shareholders, agree to (a) vote their
shares in favor of the transactions contemplated by the Plan, (b) recommend
to the shareholders of the Company that they approve the Plan, and (c)
refrain from any actions or omissions inconsistent with such transactions or
recommendation.
This Approval may be executed in one or more facsimile counterparts,
each of which shall be deemed an original, but all of which taken together
will constitute one and the same document.
/s/ /s/
- --------------------------------- ---------------------------------
Gregory Cromwell Robert W. Huff
/s/ /s/
- --------------------------------- ---------------------------------
Michael H. Fotheringill Mark Milkovich
/s/ /s/
- --------------------------------- ---------------------------------
Mabel J. Harris Louise Strander
/s/ /s/
- --------------------------------- ---------------------------------
Stanley Eugene Harris, MD David J. Taylor
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of InterWest
Bancorp, Inc., for the registration of its shares of common stock related to
the planned merger with NBT Northwest Bancorp and to the incorporation by
reference therein of our report dated October 30, 1998, with respect to the
consolidated financial statements of InterWest Bancorp, Inc. included in its
Annual Report (Form 10-K) for the year ended September 30, 1998, filed with
the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Seattle, Washington
August 16, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4
of our report, dated January 14, 1999, relating to the consolidated financial
statements of NBT Northwest Bancorp and Subsidiary. We also consent to the
reference to our Firm under the caption "Experts" in the Proxy
Statement/Prospectus.
/s/ Knight, Vale & Gregory, Inc. P.S.
Tacoma, Washington
August 18, 1999
<PAGE>
EXHIBIT 99.1
REVOCABLE PROXY OF NBT NORTHWEST BANCORP
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SPECIAL MEETING OF SHAREHOLDERS
SEPTEMBER 28, 1999
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The undersigned hereby appoints ____________ and _____________ and
each of them (with full power to act alone) as proxies, with full power of
substitution, and hereby authorizes them to represent and to vote, as
designated below, all the shares of common stock, $1.00 par value, of NBT
Northwest Bancorp ("NBT") held of record by the undersigned on August __,
1999, at the Special Meeting of Shareholders to be held at Doubletree Suites
Hotel, 16500 Southcenter Blvd., Tukwila, Washington on SEPTEMBER 28, 1999, AT
7:00 P.M., local time, and at any and all adjournments of such Meeting, as
follows:
<TABLE>
<S> <C> <C> <C>
1. A proposal to approve the Agreement and Plan of Merger dated as FOR AGAINST ABSTAIN
of June 11, 1999 between NBT Northwest Bancorp, National Bank --- ------- -------
of Tukwila and InterWest Bancorp, Inc. and the merger described [ ] [ ] [ ]
therein of NBT Northwest Bancorp with and into InterWest
Bancorp, Inc.
2. Whatever other business may properly be brought before the Special
Meeting or any adjournment.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ABOVE PROPOSAL.
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS
PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS
KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING. HOWEVER, IF ANY
OTHER MATTERS ARE PROPERLY PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED
IN ACCORDANCE WITH THE RECOMMENDATIONS OF MANAGEMENT.
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Special
Meeting or at any adjournment thereof, and after notifying the Secretary of
NBT prior to the time of voting at the Special Meeting of your 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 NBT prior to the execution
of this proxy of Notice of the Meeting and the Prospectus/Proxy Statement.
(SIGN ON REVERSE SIDE)
<PAGE>
-----------------------------------------
PRINT NAME OF SHAREHOLDER(S)
(As it appears on Stock Certificate)
- ---------------------------------- ----------------------------------
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER
No. of Shares Owned: Dated: , 1999
------------------ -------------------
* * * * *
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THIS PROXY CARD AND
COMPLETE THE NUMBER OF SHARES OWNED. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE YOUR FULL
TITLE. IF SHARES ARE HELD JOINTLY, EACH HOLDER MUST SIGN.
- --------------------------------------------------------------------------------
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS FORM OF PROXY TO NBT IN
THE ENCLOSED, POSTAGE-PREPAID ENVELOPE.
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