EXHIBIT 2
EXECUTION COPY
=====================================================
AGREEMENT AND PLAN OF MERGER
BETWEEN
HERITAGE FINANCIAL CORPORATION
AND
HARBOR BANCORP, INC.
THE BANK OF GRAYS HARBOR
====================================================
DATED AS OF AUGUST 17, 1998
TABLE OF CONTENTS
PAGE
RECITALS.................................................................. 1
DEFINITIONS............................................................... 2
ARTICLE I. MERGER........................................................ 5
1.1 THE MERGER.......................................................... 5
1.2 THE EFFECTIVE DATE.................................................. 6
ARTICLE II. CONSIDERATION................................................ 6
2.1 EFFECT ON COMPANY COMMON STOCK AND COMPANY OPTIONS.................. 6
2.2 EXCHANGE PROCEDURES................................................. 7
2.3 EXCEPTION SHARES.................................................... 7
2.4 RESERVATION OF RIGHT TO REVISE TRANSACTION.......................... 8
ARTICLE III. ACTIONS PENDING CONSUMMATION................................ 8
3.1 CAPITAL STOCK....................................................... 8
3.2 DIVIDENDS, ETC...................................................... 8
3.3 INDEBTEDNESS; LIABILITIES; ETC...................................... 8
3.4 LINE OF BUSINESS; OPERATING PROCEDURES; ETC......................... 8
3.5 LIENS AND ENCUMBRANCES.............................................. 8
3.6 COMPENSATION; EMPLOYMENT AGREEMENTS; ETC............................ 8
3.7 BENEFIT PLANS....................................................... 9
3.8 CONTINUANCE OF BUSINESS............................................. 9
3.9 AMENDMENTS.......................................................... 9
3.10 CLAIMS.............................................................. 9
3.11 CONTRACTS........................................................... 9
3.12 LOANS............................................................... 9
3.13 TRANSACTION EXPENSES................................................ 9
ARTICLE IV. REPRESENTATIONS AND WARRANTIES............................... 9
4.1 THE COMPANY AND THE BANK REPRESENTATIONS AND WARRANTIES............. 9
4.2 HERITAGE REPRESENTATIONS AND WARRANTIES............................. 17
ARTICLE V. COVENANTS..................................................... 18
5.1 BEST EFFORTS........................................................ 19
5.2 THE PROXY........................................................... 19
5.3 REGISTRATION STATEMENT; COMPLIANCE WITH SECURITIES LAWS............. 19
5.4 REGISTRATION STATEMENT EFFECTIVENESS................................ 19
5.5 PRESS RELEASES...................................................... 19
5.6 ACCESS; INFORMATION................................................. 19
5.7 TERMINATION FEE..................................................... 20
5.8 REGISTRATION STATEMENT PREPARATION;
REGULATORY APPLICATIONS PREPARATION................................ 20
5.9 BLUE-SKY FILINGS.................................................... 20
5.10 AFFILIATE AGREEMENTS................................................ 21
5.11 CERTAIN POLICIES OF THE COMPANY AND THE BANK........................ 21
5.12 STATE TAKEOVER LAW.................................................. 21
i
5.13 NO RIGHTS TRIGGERED................................................ 21
5.14 SHARES LISTED...................................................... 21
5.15 REGULATORY APPLICATIONS............................................ 21
5.16 REGULATORY DIVESTITURES............................................ 21
5.17 CURRENT INFORMATION................................................ 22
5.18 INDEMNIFICATION.................................................... 22
5.19 APPOINTMENT OF DIRECTORS........................................... 22
5.20 OPERATION OF THE BANK.............................................. 23
5.21 BENEFIT PLANS...................................................... 23
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE MERGER.................... 23
6.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS............................. 23
6.2 CONDITIONS TO OBLIGATIONS OF HERITAGE.............................. 24
6.3 CONDITIONS TO OBLIGATIONS OF COMPANY AND THE BANK.................. 25
ARTICLE VII. TERMINATION................................................ 25
7.1 GROUNDS FOR TERMINATION............................................ 25
7.2 CONSEQUENCES OF TERMINATION........................................ 26
ARTICLE VIII. OTHER MATTERS............................................. 26
8.1 SURVIVAL........................................................... 26
8.2 WAIVER; AMENDMENT.................................................. 26
8.3 COUNTERPARTS....................................................... 26
8.4 GOVERNING LAW...................................................... 27
8.5 EXPENSES........................................................... 27
8.6 CONFIDENTIALITY.................................................... 27
8.7 NOTICES............................................................ 27
8.8 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES................. 27
8.9 HEADINGS........................................................... 28
EXHIBITS
Exhibit A Approval by Directors of Harbor Bancorp, Inc.
Exhibit B Director's Agreement
Exhibit C Harbor Bancorp, Inc. Affiliate Undertakings and Agreements
Exhibit D Employment Agreement of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Exhibit E Employment Agreement of ▇▇▇▇▇ ▇▇▇▇
Exhibit F Employment Agreement of ▇▇▇▇ Van Dijk
Exhibit G Employment Agreement of ▇▇ ▇▇▇▇▇▇
Exhibit H Legal Opinion of ▇▇▇▇▇▇ & ▇▇▇▇, P.C.
Exhibit I Legal Opinion of ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C.
ii
SCHEDULES
Company Disclosures
Schedule 2.3(B) Outstanding Options
Schedule 3.4 Changes to Line of Business, Operating Procedures, etc.
Schedule 3.6 New or Changes to Compensation, Employment Agreements, etc.
Schedule 3.7 New or Modifications to Benefit Plans
Schedule 3.11 New or Changes to Material Contracts
Schedule 4.1(C) Shares Outstanding
Schedule 4.1(D) Subsidiaries
Schedule 4.1(G) No Defaults - Agreements Requiring Third Party Consent
Schedule 4.1(H) Financial Reports
Schedule 4.1(I) Undisclosed Liabilities
Schedule 4.1(J) No Events Causing Material Adverse Effect
Schedule 4.1(L) Litigation, Regulatory Action
Schedule 4.1(M) Compliance with Laws
Schedule 4.1(N) Material Contracts
Schedule 4.1(Q)(1) List of Employee Benefit Plans
Schedule 4.1(Q)(2) Employee Benefit Plans Not Qualified Under ERISA
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
Heritage Financial Corporation 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
iii
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 17th day of August, 1998
(this "Plan"), is between HARBOR BANCORP, INC. (the "Company"), THE BANK OF
GRAYS HARBOR (the "Bank"), and HERITAGE FINANCIAL CORPORATION ("Heritage").
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 Aberdeen, 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 1,000,000 authorized shares of common
stock, $1.00 par value per share ("Company Common Stock") (no other class of
capital stock being authorized), of which 257,881 shares of Company Common Stock
are issued and outstanding. As of the date of this Plan, the Company has 25,000
shares of Company Common Stock reserved for issuance under employee stock option
plans pursuant to which options covering 14,500 shares of Company Common Stock
are outstanding (the "Employee Options"). As of the date of this Plan, the
Company has no shares of Company Common Stock reserved for issuance under
director stock option plans pursuant to which options covering no shares of
Company Common Stock are outstanding (the "Director Options"). The Employee
Options and the Director Options that are vested immediately prior to the
Effective Date are referred to collectively in this Plan as "Company Options."
As of June 30, 1998, the Company had capital of $11,603,000 divided into common
stock of $257,881 surplus of $5,511,000 and undivided profits of $5,834,000.
(B) THE BANK. The Bank is a state banking corporation duly organized and
existing in good standing under the laws of the State of Washington, with its
principal executive offices located in Aberdeen, 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 255,960 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 June 30, 1998,
the Bank had capital of $11,531,000 divided into common stock of $256,000
surplus of $5,468,000 and undivided profits of $5,807,000.
(C) HERITAGE. Heritage 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 Olympia, Washington. Heritage is a registered bank
holding company under the Bank Holding Company Act of 1956, as amended. As of
the date of this Plan, Heritage has 2,500,000 authorized shares of preferred
stock, no par value per share, of which none of these shares are issued or
outstanding, and Heritage has 15,000,000 authorized shares of common stock, no
par value per share ("Heritage Common Stock"), of which 9,781,082 shares of
Heritage Common Stock are issued and outstanding as of June 30, 1998 As of June
30, 1998, Heritage had capital of $93,862,000 divided into common stock surplus
of $70,509,000 and undivided profits of $23,353,000.
(D) VOTING AGREEMENT. As a condition and an inducement to Heritage'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 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 Heritage and its Subsidiaries.
(E) 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: there are no shares of capital stock of the Company or the Bank
authorized and reserved for issuance; neither the Company or the Bank has any
Rights (as defined below) issued or outstanding; and neither the Company or 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.
(F) APPROVALS. At meetings of the respective Boards of Directors of the
Company, the Bank, and Heritage, each such Board has approved and authorized the
execution of this Plan in counterparts.
In consideration of their mutual promises and obligations, the Parties
further agree as follows:
DEFINITIONS
(A) DEFINITIONS. Capitalized terms used in this Plan have the following
meanings:
"Appraisal Laws" has the meaning assigned to such term in Section 1.1(E).
"Asset Classification" has the meaning assigned to such term in Section
4.1(T).
"Average Closing Price" has the meaning assigned to such term in Section
2.1(B).
"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.
"Company Common Stock Conversion Ratio" has the meaning assigned to such
term in Section 2.1(F).
"Company Option" means an Employee Option or Director Option that is vested
immediately prior to the Effective Date.
"Company Option Conversion Ratio" has the meaning assigned to such term in
Section 2.1(E).
"Company Optionholders" means holders of outstanding Company Options.
"Company Shareholders" means holders of Company Common Stock.
"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).
"Continuing Employees" has the meaning assigned to such term in Section
8.9.
"Department" means the Washington Department of Financial Institutions.
"Derivatives Contract" means an exchange-traded or over-the-counter swap,
forward, future, option, cap, floor or collar financial contract or any other
contract that (1) is not included on the balance sheet of the Holding Company
Financial Reports or the Heritage Financial Reports, as the case may be, and (2)
is a derivative contract (including various combinations of the foregoing).
"Determination Date" has the meaning assigned to such term in Section
2.1(B).
"Director Options" has the meaning assigned to such term in paragraph (A)
of the Recitals.
"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.
2
"Effective Date" has the meaning assigned to such term in Section 1.2.
"Employee Options" has the meaning assigned to such term in paragraph (A)
of the Recitals.
"Employment Agreement" means any of Exhibits D, E, F and G.
"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).
"Exception Shares" means shares held by any of the Company's Subsidiaries
or by Heritage 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 2.6.
"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.
"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).
"Heritage" has the meaning assigned to such term in the first paragraph of
the Plan.
3
"Heritage Common Stock" has the meaning assigned to such term in paragraph
(c) of the Recitals.
"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.
"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 or other real estate owned and
taxes, and (ii) any breach of a representation or warranty contained in this
Plan by such Party) that (a) has or is reasonably likely to have a material
adverse effect on the financial condition, results of operations, business or
prospects of such Party and its Subsidiaries, taken as a whole, or (b) would
materially impair such Party's ability to perform its obligations under this
Plan or the consummation of any of the transactions contemplated by this Plan.
"Meetings" have the meaning assigned to such term in Section 5.2.
"Merger" has the meaning assigned to such term in Section 1.1(A).
"Merger Consideration" has the meaning assigned to such term in Section
2.1(A)..
"Multiemployer Plans" has the meaning assigned to such term in Section
4.1(Q)(2).
"NASDAQ" means the National Association of Securities Dealers Automated
Quotations system.
"Option Conversion Shares" has the meaning assigned to such term in Section
2.1(B).
"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 4.1(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.
"Proxy Statement" has the meaning assigned to such term in Section 5.2.
"Registration Statement" has the meaning assigned to such term in Section
5.2.
"Regulatory Authorities" means federal or state governmental agencies,
authorities or departments charged with the supervision or regulation of
depository institutions or engaged in the insurance of deposits.
"RCW" means the Revised Code of Washington, as amended.
"Rights" has the meaning assigned to such term in paragraph (F) of the
Recitals.
4
"Securities Act" means the Securities Act of 1933, as amended, together
with the rules and regulations promulgated under such statute.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" means, with respect to any entity, each partnership, limited
liability company, or corporation the majority of the outstanding partnership
interests, membership interests, capital stock or voting power of which is (or
upon the exercise of all outstanding warrants, options and other rights would
be) owned, directly or indirectly, at the time in question by such entity.
"Tax Returns" has the meaning assigned to such term in Section 4.1(AA).
"Taxes" means federal, state, local or foreign income, gross receipts,
windfall profits, severance, property, production, sales, use, license, excise,
franchise, employment, withholding or similar taxes imposed on the income,
properties or operations of the respective Party or its Subsidiaries, together
with any interest, additions, or penalties relating to such taxes and any
interest charged on those additions or penalties.
"Third Party" means a person within the meaning of Section 3(a)(9) and
13(d)(3) of the Exchange Act, excluding (1) the Company or any Subsidiary of the
Company, and (2) Heritage or any Subsidiary of Heritage.
"Valuation Price" has the meaning assigned to such term in Section 2.1(E).
(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, Section, 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.
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 Heritage (the "Merger"), the separate
existence of the Company shall cease and Heritage (the "Continuing Corporation")
shall survive, and the name of the Continuing Corporation shall be "Heritage
Financial Corporation."
(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.
5
(D) ARTICLES OF INCORPORATION; BY LAWS; DIRECTORS; OFFICERS. The
Articles of Incorporation and Bylaws of the Continuing Corporation shall be
those of Heritage, as in effect immediately prior to the Merger becoming
effective. The directors and officers of Heritage 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, except that the Board of Directors of
Heritage shall be expanded by one position immediately after the Effective Date
of the Merger and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ appointed by the Board of Directors of
Heritage to fill that position.
(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 any of the Merger Consideration, 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 his or her portion of the Merger Consideration. 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 fulfillment or waiver
of each condition precedent set forth in, and the granting of each approval (and
expiration of any waiting period) required by, Article VI. A business day is any
day other than a Saturday, Sunday or legal holiday in the State of Washington.
If the Merger is not consummated in accordance with this Plan on or prior to
March 31, 1999, the Company or Heritage may terminate this Plan in accordance
with Article VII. On the Effective Date, Heritage 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.
ARTICLE II. CONSIDERATION
2.1 EFFECT ON COMPANY COMMON STOCK AND COMPANY OPTIONS. Subject to the
provisions of this Plan, on the Effective Date, by virtue of the Merger and
without any action on the part of Heritage or the Company:
(A) CONVERSION OF COMPANY COMMON STOCK AND COMPANY OPTIONS. All of
the shares of Company Common Stock issued and outstanding immediately prior to
the Effective Date, other than Dissenting Shares and Exception Shares, and all
Company Options outstanding immediately prior to the Effective Date shall be
converted into the right to receive shares of Heritage Common Stock pursuant to
the Company Common Stock Conversion Ratio (defined in section 2.1(F)) or the
Company Option Conversion Ratio (defined in Section 2.1(E)), as applicable,
based upon each Company Shareholder's and Company Optionholder's ownership of
the total number of issued and outstanding shares of Company Common Stock and
outstanding Company Options immediately prior to the Effective Date, as
described in Sections 2.1(E) and (F) below. The aggregate number of shares of
Heritage Common Stock and the amount of cash in lieu of fractional interests
thereof issued in exchange for Company Common Stock and Company Options are
referred to in this Agreement as the "Merger Consideration."
(B) FRACTIONAL SHARES. Fractional shares of Heritage Common Stock
shall not be issued. Any Company Shareholder or Company Optionholder entitled to
receive a fractional share shall receive a cash payment in lieu thereof equal to
the value of the fractional share based on the Average Closing Price. The
"Average Closing Price" means the average of the last reported sales price per
share of Heritage Common Stock as reported on The Nasdaq Stock Market or such
successor exchange on which Heritage Common Stock may then be traded (as
reported in The Wall Street Journal or, if not reported therein, in another
mutually agreed upon authoritative source) for 45 consecutive trading days on
The Nasdaq Stock Market or such successor exchange on which Heritage Common
Stock may then be traded, ending at the close of trading on the Determination
Date. "Determination Date" means the date occurring five days prior to the
Effective Date.
6
(C) CANCELLATION OF COMPANY COMMON STOCK AND COMPANY OPTIONS. All
shares of Company Common Stock issued and outstanding and all Employee Options
and Director Options outstanding immediately prior to the Effective Date shall
no longer be outstanding and shall automatically be cancelled and retired and
shall cease to exist as of the Effective Date, and each holder of a certificate
or other documentation representing any shares of Company Common Stock or
Company Options shall cease to have any rights with respect thereto, except the
right to receive the portion of the Merger Consideration applicable to such
shares or Company Options in consideration therefor upon surrender of such
certificate or other documentation in accordance with the Plan, without
interest, or, if applicable, cash in accordance with the Appraisal Laws. 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.
(D) ANTI-DILUTION. If prior to the Effective Date, shares of Company
Common Stock or Heritage Common Stock shall be changed into a different number
of shares by reason of any reclassification, recapitalization, split-up,
combination, exchange of shares, readjustment or similar transactions, or if a
stock dividend shall be declared, appropriate and proportionate adjustment or
adjustments will be made to the Valuation Price in the conversion ratios set
forth in this Section 2.1.
(E) COMPANY OPTION CONVERSION RATIO. Each Company Option outstanding
immediately prior to the Effective Date shall be converted into the right to
receive that number of shares of Heritage Common Stock equal to the quotient of
the following formula (because the outstanding Company Options are convertible
into shares of Company Common Stock at varying exercise prices, this formula is
to be applied on a Company Option per Company Option basis, each application
thereof producing a "Company Option Conversion Ratio"):
($155.00 minus Exercise Price of a Company Option) divided by the Valuation
Price as defined below
"Valuation Price" means the Average Closing Price except that if the
Average Closing Price is equal to or less than $12.25, the Valuation Price shall
be $12.25 and the terms of Section 7.1(E) shall apply, or if the Average Closing
Price is equal to or greater than $13.75, the Valuation Price shall equal
$13.75.
(F) COMPANY COMMON STOCK CONVERSION RATIO. Each share of Company
Common Stock outstanding immediately prior to the Effective Date shall be
converted into the right to receive that number of shares of Heritage Common
Stock equal to the quotient of $155.00 divided by the Valuation Price.
2.2 EXCHANGE PROCEDURES. As promptly as practicable after the Effective
Date, Heritage shall send or cause to be sent to each former Company Shareholder
and Company Optionholder of record immediately prior to the Effective Date
transmittal materials for use in exchanging such shareholder's certificates for
Company Common Stock and Company Options for the consideration set forth in this
Article II. The certificates representing the shares of Heritage Common Stock
into which shares of such shareholder's Company Common Stock and such
optionholder's Company Options are converted on the Effective Date, any
fractional share or check that such shareholder or optionholder shall be
entitled to receive, and any dividends paid on such shares of Heritage 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 or optionholder only upon delivery to Heritage's exchange agent (the
"Exchange Agent") of the certificates representing all of such shares of Company
Common Stock (or indemnity satisfactory to Heritage and the Exchange Agent, in
their judgment, if any of such certificates are lost, stolen or destroyed) and
documentary evidence satisfactory to Heritage and the Exchange Agent of the
holding of Company Options. No interest will be paid on any such fractional
share check or dividends to which the holder of such shares or options shall be
entitled to receive upon such delivery. Certificates or options 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 Heritage Common Stock until Heritage has received a written
agreement from such person as specified in Section 5.10.
2.3 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.
7
2.4 RESERVATION OF RIGHT TO REVISE TRANSACTION. In its sole discretion,
and notwithstanding any other provision in this Plan to the contrary, Heritage
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 or Company Options 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 Heritage terminates this Plan pursuant to Section 7.1(C).
If Heritage elects to change the method of acquisition, the Company and the Bank
will cooperate with and assist Heritage 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 Heritage, to obtain all necessary shareholder approvals and
approvals of any regulatory agency, administrative body or other governmental
entity.
ARTICLE III. ACTIONS PENDING CONSUMMATION
Unless otherwise agreed to in writing by Heritage, 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 its best
efforts to maintain and preserve its and each of its Subsidiaries' business
organization, employees and advantageous business relationships and retain the
services of its and each of its Subsidiaries' officers and key employees
identified by Heritage, and neither the Company nor the Bank, without the prior
written consent of Heritage, will (or cause or allow any of its Subsidiaries
to):
3.1 CAPITAL STOCK. Except for or as otherwise expressly permitted by this
Plan, 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 Options or Director Options, stock appreciation rights or similar
stock-based employee or director compensation rights.
3.2 DIVIDENDS, ETC. Make, declare or pay any dividend on or in respect
of, or declare or make any distribution on, or directly or indirectly combine,
redeem, reclassify, purchase or otherwise acquire, any shares of its capital
stock or, other than as permitted in or contemplated by this Plan, authorize the
creation or issuance of, or issue, any additional shares of its capital stock or
any Rights with respect thereto; provided, however, that, prior to the Effective
Date, the Company may declare and pay, with respect to each share of Company
Common Stock a per-share cash dividend equal to the lesser of (A) $3.00 per
share or (B) 45% of the Company's after tax net income computed in accordance
with GAAP (excluding transaction expenses and employee severance payments, if
any) through the record date of said dividend.
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; provided, however, the Company shall incur no indebtedness for
borrowed money or engage in any of the actions described in this Section 3.3.
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 $25,000 individually or $100,000 in the aggregate prior to the
Effective Date.
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 Agreements) or arrangement with any
of its directors, officers or employees, or grant any salary or wage increase,
8
amend the terms of any Company Option or increase any employee benefit
(including incentive or bonus payments), except normal individual increases (not
exceeding 5% for any employee of Company or Bank whose salary is $25,000 or
more) 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 Agreements, 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 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 Heritage's Chief Executive
Officer or Chief Financial 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 extension of credit to such Person (or which
would be required to be aggregated for loans-to-one-borrower limitations), would
be in excess of $500,000 for any new customer or $500,000 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 in connection with the
transactions contemplated by this Plan that exceed $150,000 in the aggregate.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
4.1 THE COMPANY AND THE BANK REPRESENTATIONS AND WARRANTIES. Each of the
Company and the Bank hereby represents and warrants to Heritage 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 government 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
9
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, and subject to no preemptive rights. Except as Previously
Disclosed in Schedule 4.1(C) and paragraph (A) of the Recitals, there are no
shares of capital stock or other equity securities of 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.
(F) CORPORATE AUTHORITY. Subject to the receipt of approval by its
shareholders referred to in Section 6.1, this Plan has been authorized by all
necessary corporate action of the Company and each of its Subsidiaries that is a
Party, and 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 consummation by the Company and each of its
Subsidiaries that is a Party to the transactions contemplated by this Plan do
not and will not (1) constitute a breach or violation of, or a default under,
any law, rule or regulation or any judgment, decree, order, governmental permit
or license, or agreement, indenture or instrument of 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, 1997 and the related statements of income, changes in shareholders'
equity and cash flows for the fiscal year ended December 31, 1997 (collectively,
the
10
"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, 1997, and all other financial reports filed or to be filed subsequent to
December 31, 1997, in the form filed with the FDIC (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 statement since 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 of this Plan, and (2) for commitments and obligations made, or liabilities
incurred, in the ordinary course of business consistent with past practice since
December 31, 1997. Except as Previously Disclosed on Schedule 4.1(I), since
December 31, 1997, 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, 1997, no event has occurred that, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on Company or
the Bank.
(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 it
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 controlling persons is a
party to or is subject to any order, decree, agreement, board resolution,
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,
board resolution, memorandum or understanding, commitment letter or similar
submission.
11
(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 filing, 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 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 controlling persons) to enter into a cease
and desist order, agreement or memorandum of understanding (or requiring the
board of directors thereof to adopt any resolution or policy);
(3) is not required to give prior notice to any federal banking
or thrift agency of the proposed addition of an individual to its board of
directors or the employment of an individual as a senior executive;
(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 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 Department, (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.
12
(P) NO BROKERS. All negotiation 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 it 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.
(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 liability," within the meaning of Section 4001(1)(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.
13
(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 4.1(Q)(7) and
except as expressly contemplated by the Employment Agreements, 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,
why Heritage will not be able to account for the Merger as a pooling of
interests, or why the Merger should not qualify as a reorganization under
Section 368(a) of the Code.
(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 June 30, 1998 (the "Asset Classification"); and no amounts of loans,
extensions of credit or other assets that have been classified as of June 30,
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 June 30, 1998 and which have been Previously Disclosed to
Heritage.
(U) ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible
loan losses shown on the balance sheet in the June 30, 1998 Bank Financial
Reports was, and the allowance for possible loan losses to be shown on
subsequent Holding Company Financial Reports and Bank Financial Reports 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.
(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.
14
(X) STATE TAKEOVER LAWS, ARTICLES OF INCORPORATION. The Company and
its Subsidiaries have taken all necessary action to exempt this Plan and the
transactions contemplated by this Plan from, and this Plan 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 consummation of the
transactions contemplated by this Plan (including the Merger) or any other
action or combination of actions, or any other transaction, contemplated by this
Plan do not and will not (1) require a vote of shareholders (other than as set
forth in Section 6.1), or (2) result in the grant of any rights to any Person
under the articles of incorporation, charter or bylaws of the Company or any of
its Subsidiaries or under any agreement to which the Company or any such
Subsidiaries is a party, or (3) restrict or impair in any way the ability of the
other Parties to exercise the rights granted under this Plan.
(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 pending 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, 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
15
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 Schedules and any other
written documents executed and delivered by or on behalf of the Company or any
other Party pursuant to the terms of or relating to this Plan are true and
correct in all material respects, and such statements and documents do not omit
any material fact necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading.
(CC) DERIVATIVES CONTRACTS. None of 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) and
except for the Employment Agreements, 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
16
(3) except as Previously Disclosed in Schedule 4.1(EE)(3), any
material contract with any affiliate.
4.2 HERITAGE REPRESENTATIONS AND WARRANTIES. Heritage hereby represents
and warrants to the Company and the Bank as follows:
(A) RECITALS. The facts set forth in the Recitals of the Plan with
respect to Heritage are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. Heritage 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 Heritage 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 Heritage.
(C) SHARES. The outstanding shares of the Heritage'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. Heritage 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 each of the Employment
Agreements have been authorized by all necessary corporate action of Heritage,
and each such agreement is a valid and binding agreement of Heritage,
enforceable against Heritage 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 the receipt of approval by its
shareholders and the 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 4.1(F), the execution, delivery
and performance of this Plan and each of the Employment Agreements and the
consummation by Heritage and each of its Subsidiaries that is a Party of the
transactions contemplated by this Plan do not and will not (1) constitute a
breach or violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement, indenture
or instrument of Heritage or of any of its Subsidiaries or to which Heritage 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 Heritage, (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 Heritage.
(G) FINANCIAL REPORTS. Except as Previously Disclosed in Schedule
4.2(G), in the case of Heritage, its Registration Statement on form S-1 (as
amended) and its Quarterly Report on Form 10Q for the fiscal quarter ended March
31, 1998, and all other documents filed or to be filed subsequent to March 31,
1998 under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the form
filed with the SEC (in each such case, the "Heritage 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 Heritage 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 statement of income and changes in shareholders' equity and cash flows or
equivalent statements in the Heritage 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
17
entities to which it relates for the periods set forth therein, in each case in
accordance with GAAP, except as may be noted therein, subject to normal and
recurring year-end audit adjustments in the case of unaudited statements.
(H) NO EVENTS. Except as Previously Disclosed on Schedule 4.2(H),
since December 31, 1997, 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 Heritage 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 Heritage nor any of its Subsidiaries or any of its or their
material properties or their officers, directors or controlling persons is a
party to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or similar
submission to, any Regulatory Authority, and neither Heritage 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 Heritage or its
Subsidiaries has filed all reports and statements, together with any amendments
required to be made with respect thereto, that is required to file with (1) the
FDIC, (2) the Department, (3) the Federal Reserve Board, and (4) any other
Regulatory Authorities having jurisdiction with respect to Heritage 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 land 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 Heritage
and its Subsidiaries contained in this Plan, the Schedules and any other written
documents executed and delivered by or on behalf of Heritage or any other Party
pursuant to the terms of this Plan are true and correct in all material
respects, and such statements and documents do not omit any material fact
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
(L) DERIVATIVES CONTRACTS. None of Heritage 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 Heritage or its Subsidiaries that are
pledged as security for each such Derivatives Contract.
(M) ABSENCE OF UNDISCLOSED LIABILITIES. Neither Heritage 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 Heritage Financial Reports
prior to the date of this Plan, and (2) for commitments and obligations made, or
liabilities incurred, in the ordinary course of business consistent with past
practice since December 31, 1997. Since December 31, 1997, neither Heritage 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.
18
ARTICLE V. COVENANTS
Each of the Company and the Bank hereby covenants to Heritage, and Heritage
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 its
best efforts in good faith to take, or cause to be taken, all actions, and to
do, or cause to be done, all things necessary, proper or desirable, or advisable
under applicable laws, so as to permit consummation of the Merger by December
31, 1998, and to otherwise enable consummation of the transactions contemplated
by this Plan, and shall cooperate fully with the other Parties to that end.
5.2 THE PROXY. In the case of the Company: it shall promptly assist
Heritage in the preparation of a joint proxy statement (the "Proxy Statement")
to be mailed to the holders of the Company Common Stock and the holders of
Heritage Common Stock in connection with the transactions contemplated by this
Plan and to be filed by Heritage in a registration statement (the "Registration
Statement") with the SEC as provided in Section 5.8, which shall conform to all
applicable legal requirements. Heritage and Company shall call special meetings
(the "Meetings") of the holders, respectively, of Company Common Stock and
Heritage Common Stock to be held as soon as practicable for purposes of voting
upon the transactions contemplated by this Plan and Heritage and Company shall
use their best efforts to solicit and obtain shareholder votes in favor of the
transactions contemplated by this Plan and, subject to the exercise of their
fiduciary duties, the Boards of Directors of the Company and Heritage shall
recommend approval of such transactions by such respective 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 Meetings, 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 Heritage relating to
Heritage 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 Heritage: it
will advise the Company, promptly after Heritage 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 Heritage 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 Heritage, and Heritage will not (and will cause its Subsidiaries not
to), 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
Heritage and Heritage shall afford the Company and Heritage's and the Company's
respective officers, employees, counsel, accountants and other authorized
representatives, access, during normal business hours throughout the period up
to the Effective Date, to all of their respective properties, books, contracts,
commitments and records. During such period, the Company and the Bank shall
furnish promptly to Heritage and Heritage shall furnish promptly to Company (and
cause their respective accountants and other agents to furnish promptly) (1) a
copy of each material report, schedule
19
and other document filed by the Company and its Subsidiaries or Heritage and its
Subsidiaries with any Regulatory Authority, and (2) all other information
concerning the business, properties and personnel as Company or Heritage,
respectively, 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 or Heritage in this Plan or the
conditions to the obligations of the Company and the Bank or Heritage to
consummate the transactions contemplated by this Plan; and
(B) Company and Heritage will not use any information obtained
pursuant to this Section 5.6 for any purpose unrelated to the consummation of
the transactions contemplated by this Plan and, if this Plan is terminated, will
hold all confidential information and documents obtained pursuant to this
paragraph in confidence (as provided in Section 8.6) unless and until such time
as such information or documents become publicly available other than by reason
of any action or failure to act by Company or Heritage 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, Company and Heritage will, upon request by the other, deliver to the other
all documents so obtained by it or destroy such documents and, in the case of
destruction, will certify such fact to the other.
5.7 TERMINATION FEE.
(A) Without the prior written consent of Heritage, the Company 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 in writing 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("Acquisition Proposal"); it shall
instruct its and its Subsidiaries' officers, directors, agents, advisors and
affiliates to refrain from doing any of the foregoing; and it shall notify
Heritage 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.
(B) If (1) an Acquisition Proposal occurs prior to the Meetings, (2)
the approval of the Company's shareholders contemplated by Section 6.1 is not
obtained at the special meeting of Company's shareholders, and (3) prior to
October 31, 1999, a Third Party acquires control of the Company or the Bank by
merger, purchase of assets, acquisition of stock or otherwise, then unless the
representations and warranties of Heritage in this Plan were false in any
material respect as of the date of Company's special meeting of shareholders or
Heritage was in material default of its covenants in this Plan as of such date,
the Company will promptly pay to Heritage the amount of $1 million. For the
purposes of this subsection (B), a Third Party will be deemed to have acquired
control of the Company or the Bank when the Third Party possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of the Company or the Bank, whether through the ownership of voting
interests, by contract, or otherwise.
5.8 REGISTRATION STATEMENT PREPARATION; REGULATORY APPLICATIONS
PREPARATION. In the case of Heritage: Heritage 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 Heritage Common Stock to be
issued to the holders of Company Common Stock and Company Options pursuant to
this Plan, and Heritage shall use its best efforts to cause the Registration
Statement to be declared effective as soon as practicable after the filing
thereof Heritage 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 Heritage: Heritage shall use its
best efforts to obtain, prior to the effective date of the Registration
Statement, any necessary state securities laws or "blue sky" permits and
approvals, provided that Heritage shall not be required by virtue thereof to
submit to general jurisdiction in any state.
20
5.10 AFFILIATE AGREEMENTS. Company and the Bank will use their best
efforts to induce each person who may be deemed to be an "affiliate" of,
respectively, Company or the Bank for purposes of Rule 145 under the Securities
Act, to execute and deliver to Heritage on or before the mailing of the joint
Proxy Statement for the Meetings, an agreement in the form attached hereto as
Exhibit C for "affiliates" of the Company, restricting the disposition of such
affiliate's shares of Company Common Stock and the shares of Heritage Common
Stock to be received by such person in exchange for such person's shares of
Company Common Stock or Company Options. Heritage agrees to use its best
efforts to maintain the availability of Rule 145 for use by such "affiliates".
5.11 CERTAIN POLICIES OF THE COMPANY AND THE BANK. In the case of each of
the Company and the Bank: Each shall, at Heritage'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 Heritage; provided, however, that prior to any such modification
or change, Heritage shall certify that the conditions to the obligation of
Heritage 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
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 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 consummation of the transactions contemplated by this Plan (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
Heritage to exercise the rights granted under this Plan.
5.14 SHARES LISTED. In the case of Heritage: Heritage shall use its best
efforts to cause to be listed, prior to the Effective Date, on the NASDAQ
National Market upon official notice of issuance the shares of Heritage Common
Stock to be issued to the holders of Company Common Stock and Company Options.
5.15 REGULATORY APPLICATIONS. Heritage shall, and shall cause its
Subsidiaries to (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 Heritage.
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
Heritage shall advise the Company in writing are not permitted to be engaged in
by Heritage 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 Heritage or
its Subsidiaries, on terms and conditions agreed to by Heritage; provided,
however, that prior to taking such action, Heritage shall certify that the
conditions to the obligations of Heritage under Sections 6.1 and 6.2 to
consummate the transactions contemplated by this Plan, other than the conditions
set forth in Section 6.1(G), have been satisfied or waived.
21
5.17 CURRENT INFORMATION.
(A) During the period from the date of this Plan to the Effective
Date, each of the Company and Heritage 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 Heritage 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) From and after the Effective Date, Heritage 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, suite, 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), 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 Heritage 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 Heritage thereof, provided,
however, that the failure so to notify shall not affect the obligations of
Heritage under paragraph (A) of this Section 5.18 (unless such failure
materially and adversely increases Heritage'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) Heritage shall have
the right to assume the defense thereof and Heritage shall pay all reasonable
fees and expenses of such counsel for the Indemnified parties promptly as
statements therefor are received; provided, however, that Heritage 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) Heritage shall not be liable for any settlement effected
without its prior written consent.
(C) If Heritage 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 Heritage shall assume the
obligations set forth in this Section 5.18.
(D) Heritage 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 APPOINTMENT OF DIRECTORS.
(A) Immediately after the Effective Date, the Bank will cause the
appointment of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ to the Board of Directors of the Bank to hold
office until such time as his or her successor is elected and qualified; and
22
(B) Immediately after the Effective Date, Heritage will cause the
appointment of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ to the Board of Directors of Heritage to hold
office until such time as his or her successor is elected and qualified.
5.20 OPERATION OF THE BANK. It is the present intention of Heritage that
the Bank operate as a separately chartered subsidiary of Heritage until at least
December 31, 2001; provided, however, the boards of Heritage and/or the Bank may
in their discretion in the exercise of their fiduciary duties determine to
combine the Bank with a subsidiary of Heritage prior to or following such date.
The board of directors of the Bank immediately after the Effective Date shall
consist of the directors of the Bank immediately prior to the Effective Date,
who shall continue as directors of the Bank through December 31, 1999, plus
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
5.21 BENEFIT PLANS. Upon consummation of the Merger, all employees of the
Company and its Subsidiaries shall be deemed to be at-will employees of Heritage
and its Subsidiaries except for those employees who are parties to the
Employment Agreements (all such employees being "Continuing Employees"). From
and after the Effective Date, employees of the Company and its Subsidiaries
shall be entitled to participate in the pension, employee benefit and similar
plans (including employee stock ownership, stock option, bonus or other
incentive plans) on substantially the same terms and conditions as similarly
situated employees of Heritage and its Subsidiaries. For the purpose of
determining eligibility to participate in such plans and the vesting and related
calculations of benefits under such plans (but not for the accrual of benefits),
Heritage shall give effect to years of service with the Company or the Company's
Subsidiaries, as the case may be, as if such service were with Heritage or its
Subsidiaries. The incentive bonus plan presently in existence at the Bank shall
remain in effect in its current form through December 31, 1999 subject to
approval of the Bank's board of directors.
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 VOTES. This Plan shall have been duly approved by
the requisite votes of the Company Shareholders and Heritage's shareholders
under applicable law and the articles of incorporation and bylaws, respectively,
of the Company and Heritage.
(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 Heritage, would deprive Heritage 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. Heritage shall have received all state
securities laws and "blue sky" permits necessary to consummate the Merger.
(F) TAX OPINION. Heritage and Company shall have received an opinion
from ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, 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 Heritage 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 the Merger, and, in rendering
its opinion, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C. may require and rely upon
23
representations contained in certificates of officers of Heritage, the Company
and others. The Parties acknowledge that the Merger Consideration received by
Company Optionholders in exchange for their Company Options will be a taxable
event for each Company Optionholder.
(G) NASDAQ LISTING. The shares of Heritage 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) FAIRNESS OPINIONS. The Company shall have received, immediately
prior to the mailing of the Proxy Statement to the Company Shareholders, an
opinion of Pacific Crest Securities to the effect that the financial terms of
the Merger are fair from a financial point of view to the Company Shareholders.
Heritage shall have received, immediately prior to the mailing of the Proxy
Statement to Heritage's shareholders, an opinion of ▇▇▇▇, ▇▇▇▇ & Co. to the
effect that the financial terms of the Merger are fair from a financial point of
view to Heritage's shareholders.
(I) EMPLOYMENT CONTRACTS. The Employment Agreements attached as
Exhibits D, E, F and G shall have been duly executed and delivered by all
parties to such Employment Agreements.
6.2 CONDITIONS TO OBLIGATIONS OF HERITAGE. The obligations of Heritage to
consummate the transactions contemplated by this Plan also are subject to the
written waiver by Heritage or the fulfillment on or prior to the Effective Date
of each of the following conditions:
(A) LEGAL OPINION. Heritage shall have received an opinion, dated
the Effective Date, of ▇▇▇▇▇▇ & ▇▇▇▇, P.C., counsel for the Company and the
Bank, in the form of Exhibit H.
(B) POOLING OPINION. Heritage shall have received the opinion of
KPMG Peat Marwick LLP, Heritage's independent auditors, dated as of the
Effective Date, to the effect that the Merger will be accounted for as a pooling
of interests under applicable accounting principles.
(C) 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 Heritage 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.
(D) RECEIPT OF AFFILIATE AGREEMENTS. Heritage shall have received
from each affiliate of the Company the agreement referred to in Section 5.10.
(E) ADVERSE CHANGE. During the period from December 31, 1997 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 Heritage shall have received a certificate dated the
Effective Date signed by the Chief Executive Officers of the Company and the
Bank to such effect.
(F) 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 payment of cash in lieu of fractional shares of Heritage Common Stock
shall not exceed in the aggregate 5% of the outstanding shares of Company Common
Stock.
24
(G) CAPITAL. The Company's Capital shall not be less than $11.5
million (not including capital contributions upon exercise of Company Options
and net of transaction expenses and employee severance payments, if any) on the
Effective Date.
(H) ALLOWANCE FOR LOAN AND LEASE LOSSES. The Bank's allowance for
possible loan and lease losses shall not be less than 1.4% of the Bank's total
outstanding loans and leases and in all cases will be adequate to absorb the
Bank's anticipated loan and lease losses.
(I) DIRECTOR'S AGREEMENTS. Heritage shall have received from each
director of Company and the Bank the Director's Agreement attached as Exhibit B.
6.3 CONDITIONS TO OBLIGATIONS OF COMPANY AND THE 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 ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C., special counsel
for Heritage, in the form of Exhibit I.
(B) OFFICER'S CERTIFICATE. (1) Each of the representations and
warranties of Heritage 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 Heritage 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 Heritage dated the Effective Date,
to such effect.
(C) ADVERSE CHANGE. During the period from December 31, 1997 to the
Effective Date, there shall not have been any material adverse change in the
financial position or results of operations of Heritage, nor shall Heritage 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 Heritage 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 Heritage 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 Heritage 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 or has 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 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 Heritage 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 March 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).
25
(D) NO SHAREHOLDER APPROVAL. By Heritage 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 either of the shareholder approvals contemplated
by Section 6.1 is not obtained at the Meetings, including any adjournment or
adjournments of the Meetings.
(E) MARKET PRICE DECLINE. By the Company, if the Average Closing
Price shall be less than $11.25. If the Company elects to exercise its
termination right pursuant to the immediately preceding sentence, it shall give
to Heritage written notice on or before the second day after the Determination
Date. During the three-day period commencing on the date of such notice,
Heritage shall have the option of adjusting the Company Option Conversion Ratio
and the Company Common Stock Conversion Ratio so that the Valuation Price shall
equal $11.25. If Heritage makes an election contemplated by the preceding
sentence, within such three-day period, it shall give prompt written notice to
Company of such election and the revised Company Option and Company Common Stock
Conversion Ratios, whereupon no termination shall have occurred pursuant to this
Section and this Agreement shall remain in effect in accordance with its terms
(except as the Company Option and Company Common Stock Conversion Ratios shall
have been so modified), and any references in this Agreement to "Company Option
Conversion Ratio" or "Company Common Stock Conversion Ratio" shall thereafter be
deemed to refer to such ratios as adjusted pursuant to this Section.
If Heritage declares or effects a stock dividend, reclassification,
recapitalization, split-up, combination, exchange of shares or similar
transaction between the date hereof and the Determination Date, the prices for
Heritage Common Stock shall be appropriately adjusted for the purposes of
applying this Section.
7.2 CONSEQUENCES OF TERMINATION.
(A) GENERAL CONSEQUENCES. Subject to Section 5.7 (Termination Fee),
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 shareholder with respect to this Plan.
(B) 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
attorney's fees and expenses.
ARTICLE VIII. OTHER MATTERS
8.1 SURVIVAL. Only those agreements and covenants in the 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(B), 8.5 and 8.6 shall survive such abandonment and
termination.
8.2 WAIVER; AMENDMENT. Prior to the Effective Date, any provision of this
Plan may be (A) waived in writing by the Party benefited by the provision, or
(B) amended or modified at any time (including the structure of the transactions
contemplated by this Plan) by 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 Heritage's rights pursuant to Section 2.4.
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.
26
8.4 GOVERNING LAW. This Plan shall be governed by, and interpreted in
accordance with, the laws of the State of Washington, except as federal law may
be applicable.
8.5 EXPENSES. Each Party will bear all expenses incurred by it in
connection with this Plan and the transactions contemplated by this Plan, except
printing expenses which shall be shared equally between the Company and
Heritage.
8.6 CONFIDENTIALITY. Except as otherwise provided in Section 5.6(B), each
of the Parties and their respective agents, attorneys and accountants will
maintain the confidentiality of all information provided in connection herewith
which has not been publicly disclosed.
8.7 NOTICES. All notices, requests and other communications hereunder to
a "Party" shall be in writing and shall be deemed to have been duly given when
delivered by hand, telegram, certified or registered mail, overnight courier,
telecopy or telex (confirmed in writing) to such party at its address set forth
below or such other address as such party may specify by notice to the Parties.
If to Heritage to: Heritage Financial Corporation
▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Chairman,
President and CEO
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Copies to: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
and
P. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopy: 901-684-2339
If to the Company or the Bank, to: Harbor Bancorp, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President and CEO
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Copies to: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ & ▇▇▇▇, P.C.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
8.8 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Plan
represents the entire understanding of the Parties with reference to
transactions contemplated by this Plan, and supersedes any and all other oral or
written agreements previously made. Nothing in this Plan, expressed or implied,
is intended to confer upon any Person, other than the Parties or their
respective successors, any rights, remedies, obligations or liabilities under or
by reason of this Plan.
8.9 HEADINGS. The headings contained in this Plan are for reference
purposes only and are not part of this Plan.
27
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.
HERITAGE FINANCIAL CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------------
NAME: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
TITLE: CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
HARBOR BANCORP, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------
NAME: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
TITLE: PRESIDENT AND CHIEF EXECUTIVE OFFICER
BANK OF GRAYS HARBOR
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------
NAME: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
TITLE: PRESIDENT AND CHIEF EXECUTIVE OFFICER
28
EXHIBIT A
APPROVAL BY DIRECTORS OF
HARBOR BANCORP, INC.
Each of the undersigned who together comprise all of the members of the
Board of Directors of Harbor Bancorp. Inc. (the "Company") and Bank of Grays
Harbor., (the "Bank"), approves the Agreement and Plan of Merger dated as of
August 17, 1998 (the "Plan") between Heritage Financial Corporation, the
Company, and the Bank, and, except as otherwise required by applicable law,
including without limitation his fiduciary duties to the Company's shareholders,
agrees to (a) vote his shares of Company Common Stock in favor of the
transactions contemplated by the Plan (collectively, the "Merger"), (b)
recommend to the shareholders of the Company that they approve the Plan, (c)
until at least June 30, 2000, maintain at the Bank the deposit and loan
relationships that he and his affiliates now have with the Bank, and (d) refrain
from any actions or omissions inconsistent with the foregoing.
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.
__________________________________ ___________________________________
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
__________________________________ ___________________________________
▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
__________________________________ ___________________________________
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
__________________________________ ___________________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇
__________________________________ ___________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇
__________________________________ ___________________________________
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
EXHIBIT B
DIRECTOR'S AGREEMENT
This Agreement is made and entered into as of the ____ day of August, 1998,
between HERITAGE FINANCIAL CORPORATION., a Washington corporation ("Heritage")
and _______________ ("Director"), a director of Harbor Bancorp, Inc. ("Bancorp")
and Bank of Grays Harbor (the "Bank") (Bancorp and the Bank, collectively, being
the "Company").
RECITALS
1. Pursuant to the terms of the Agreement and the Plan of Merger dated as
of the 17th day of August, 1998 (the "Plan") among Heritage and the Company,
Bancorp will be merged into Heritage, and the Bank will become the wholly owned
subsidiary of Heritage.
2. The obligation of Heritage 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 Heritage under the Plan, Director
agrees that for a period of two (2) years after he ceases to be a director of
the Bank or its successor, he 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 Heritage or any of its
subsidiaries or their affiliates within Grays Harbor County in the State of
Washington (the "County").
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, Heritage,
or any of their subsidiaries or affiliates, to leave their employment for
employment with another financial institution or (ii) any customers of the
Company, Heritage, or any of their subsidiaries or affiliates to remove their
business from the Company, Heritage, 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
will entitle Heritage 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.
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 _____ day of August, 1998.
HERITAGE FINANCIAL CORPORATION DIRECTOR
By:__________________________ ______________________________
Its:_________________________
EXHIBIT C
HARBOR BANCORP, INC.
AFFILIATE UNDERTAKINGS AND AGREEMENTS
A. The undersigned understands that he or she may be deemed to be an
"affiliate" of Harbor Bancorp, Inc. ("Company") with respect to the matters set
forth below, and further understands that:
1. Pursuant to the Agreement and Plan of Merger, dated August 17,
1998 (the "Plan"), between Heritage Financial Corporation. ("Heritage"), the
Company, and its wholly owned subsidiary Bank of Grays Harbor, execution of this
document is a condition to the merger transaction ("Merger") contemplated by the
Plan.
2. Pursuant to the Securities and Exchange Commission ("SEC") Rule
145 ("Rule 145") under the Securities Act of 1933, as amended ("Act"), the
transferability of the Heritage Common Stock received by affiliates in
connection with the Merger will be restricted.
B. The undersigned hereby agrees and undertakes not to transfer, sell or
otherwise dispose of any shares of Heritage Common Stock received in connection
with the Merger, except (a) pursuant to an effective Registration Statement
under the Act covering such Heritage Common Stock, or (b) as permitted by the
provisions of Rule 145 under the Act, or (c) if the undersigned furnishes to
Heritage an opinion of counsel, satisfactory to counsel for Heritage, to the
effect that registration under the Act is not required for the proposed sale,
transfer or other disposition, or (d) if the undersigned furnishes to Heritage a
copy of a "no-action" or interpretive letter from he staff of the SEC to the
effect that the proposed sale, transfer or other disposition of such Heritage
Common Stock may be effected without registration under the Act. The
restrictions set forth in this paragraph B shall terminate two years after the
effective date of the Merger unless after such effective date, the undersigned
is an affiliate of Heritage.
C. The undersigned understands that Heritage will furnish to the
undersigned upon his or her written request a written statement that Heritage
has complied with the reporting requirements specified in paragraph (c)(1) of
Rule 144 under the Act, and that Heritage will so comply as long as the
undersigned holds the Heritage Common Stock received in connection with the
Merger.
D. The undersigned further understands and agrees that Heritage will
issue stop-transfer instructions to its transfer agent respecting shares of
Heritage Common Stock issued to the undersigned in connection with the Merger,
and that the restrictive legend set forth below will be placed on certificates
delivered to the undersigned evidencing such shares of Heritage Common Stock:
"The shares evidenced by this certificate were received by an
"affiliate" of a corporation in a transaction (the acquisition of Harbor
Bancorp, Inc.) pursuant to Rule 145 of the Securities and Exchange
Commission under the Securities Act of 1933, as amended. The
transferability, sale or other disposition of these shares is thus
restricted. Reference is made to a letter agreement and undertaking signed
by such affiliate, a copy of which is on file in the principal office of
Heritage Financial Corporation., for a description of the restrictions on
the transfer of shares represented hereby."
E. The term "Heritage Common Stock" as used in this letter shall mean and
include not only the common stock of Heritage as presently constituted, but also
any other stock which may be issued in exchange for, in lieu of, or in addition
to, all or any party of such common stock.
F. This Agreement may be signed in one or more facsimile counterparts,
each of which will be deemed an original, but all of which taken together will
constitute one and the same document.
IN WITNESS WHEREOF, I have signed my name on this _____ day of __________,
1998.
________________________________
Director, Executive Officer, or
Principal Shareholder
_________________________________
Print Name
Accepted and Agreed To:
HERITAGE FINANCIAL CORPORATION
By:_________________________
Its President & CEO
_________________________
2
EXHIBIT D
THE BANK OF GRAYS HARBOR
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), signed August ____, 1998, between
THE BANK OF GRAYS HARBOR (the "Bank") and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("Executive") takes
effect on the effective date of the Merger ("Effective Date").
RECITALS
--------
A. Harbor Bancorp, Inc. which is the parent company of the Bank, intends to
merge into Heritage Financial Corporation. ("Heritage"), and the Bank will
thereby become the wholly owned subsidiary of Heritage (the "Merger") under
the terms of the Agreement and Plan of Merger dated as of August __, 1998
("Plan") between the parties.
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 ("Initial Term") commences
on the Effective Date and terminates on March 31, 2000.
(b) Supplemental Term. Bank and Executive agree that prior to January 15,
2000, Bank and Executive will discuss Executive's continued employment
for a supplemental employment term ("Supplemental Term"). Such
Supplemental Term will contemplate a reduced work schedule and reduced
compensation for the Executive as agreed upon by the parties. Such
Supplemental Term may be evidenced by an amendment to this Agreement
or by a new employment agreement between Bank and Executive.
(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 Heritage's board of directors, or by the President and CEO of Heritage.
In the event that Heritage elects to merge the Bank into Heritage Bank or
some other affiliate or Heritage, then the title and duties of Executive
with respect to the entity surviving such merger shall be determined by the
President and CEO of Heritage or his designee. Executive will use his best
efforts to perform his duties and will devote his full time and attention
to these duties during working hours during the Initial Term. These duties
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 Heritage'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 Heritage. Executive will participate in the
integration of the Bank's commercial banking activities with
Heritage'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 Heritage or his designee.
The Bank's or Heritage'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 Heritage.
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; VACATION. During the Initial Term, Executive will receive a salary
of $115,000 per year, to be paid in accordance with the Bank's regular
payroll schedule. Executive will be entitled to twelve weeks of vacation
during the Initial Term. Executive is not entitled to receive cash or any
other compensation in lieu of unused vacation time, and unused vacation
time will not carry over beyond the Initial Term.
5. INCENTIVE COMPENSATION. The Bank's board of directors, subject to
ratification by Heritage'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
Initial 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
Heritage's board of directors with respect to any benefit plans or
programs, Executive will be entitled to receive benefits comparable to
those offered to other executive officers of Heritage and its subsidiaries
with position and duties comparable to those of Executive. Neither the Bank
nor Heritage through this Agreement obligates itself to make any particular
benefits available to its employees or executive officers.
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. The Executive shall have
continued use of a Bank-owned or leased automobile during Executive's
employment hereunder.
8. TERMINATION.
(a) Termination By Bank for Cause. If, before the end of the Initial
Term, the Bank terminates Executive's employment for Cause or
Executive terminates his employment without Good Reason, the Bank will
pay Executive the salary earned and expenses reimbursable under this
Agreement incurred through the date of Executive's termination.
Executive will have no right to receive compensation or other benefits
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 Initial Term
and for the two-year period following such Initial Term.
2
(b) Other Termination By Bank. If before the end of the Initial Term, the
Bank terminates Executive's employment without Cause or Executive
terminates his employment for Good Reason (defined below), the Bank
will pay Executive for the remainder of the Initial Term the salary
Executive would have been entitled to under this Agreement if his
employment had not terminated. If Executive is terminated pursuant to
this Section 8(b), Executive will be subject to the noncompetition and
nonsolicitation requirements of Section 12 only through the remainder
of the Initial Term.
(c) Death or Disability. This Agreement terminates (1) if Executive dies
or (2) if Executive is unable to perform his duties and obligations
under this Agreement for a period of 90 days as a result of a physical
or mental disability arising at any time during the term of this
Agreement (such inability being "Disabled"), unless with reasonable
accommodation Executive could continue to perform his duties under
this Agreement and making these accommodations would not require the
Bank to expend any funds. The Bank or its successor's Board of
Directors, acting in good faith, will make the final determination of
whether Executive is Disabled, and for purposes of making such
determination, may require Executive to submit to a physical
examination by a physician mutually agreed upon by Executive and the
Board of Directors. 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 of such termination.
(d) Termination Related to a Change in Control.
(1) Termination by Bank. If the Bank, or its successor in interest
by merger, or its transferee in the event of a purchase and
assumption transaction, for reasons other than Executive's death,
disability, or Cause (1) terminates Executive's employment within
one year following a Change in Control (as defined below) or (2)
terminates Executive's employment before the Change in Control
but on or after the date that any party either announces or is
required by law to announce any prospective Change in Control
transaction and a Change in Control occurs within six months
after the termination, the Bank will pay Executive an amount
equal to twelve months of Executive's Base Salary for the
calendar year in which Executive's employment is terminated (the
"Change in Control Payment").
(2) Termination by Executive. If Executive terminates Executive's
employment, with or without Good Reason, within one year
following a Change in Control, the Bank will pay Executive the
Change in Control Payment.
(e) Limitations on Payments Related to Change in Control. Notwithstanding
any other provision of this Agreement:
(1) the Change in Control Payment will be less than the amount that
would cause it to be a "parachute payment" within the meaning of
Section 280G(b)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code");
(2) the Change in Control Payment will be reduced by any salary that
Executive receives from the Bank or its successor after the
Change in Control; and
(3) Executive's right to receive the Change in Control Payment
terminates (i) immediately, if before the Change in Control
transaction closes, Executive terminates his employment without
Good Reason or the Bank terminates Executive's employment for
Cause, or (ii) one year after a Change in Control occurs.
(f) Definition of "Change in Control". "Change in Control" means a change
"in the ownership or effective control" or "in the ownership of a
substantial portion of the assets" of Heritage, within the meaning of
Section 280G of the Internal Revenue Code.
3
(g) 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 Heritage. At the same time, Executive also must return to
the Bank all originals and copies (whether in hard copy, electronic or
other form) of any documents, drawings, notes, memoranda, designs,
devices, diskettes, tapes, manuals, and specifications which
constitute proprietary information or material of the Bank or
Heritage. 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;
(c) Conduct demonstrably and significantly harmful to the Bank, as
reasonably determined by the Bank's or Heritage's board of directors
on the advice of legal counsel of Bank or Heritage; or
(d) Permanent disability, meaning a physical or mental impairment which
renders Executive incapable of substantially performing the duties
required under this Agreement, and which is expected to continue
rendering Executive so incapable for the reasonably foreseeable
future.
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 generally applicable to
substantially all similarly situated Bank Executives (or Executives of
a successor or controlling entity of the Bank) formerly benefited;
(b) The assignment to Executive without his consent of any authority or
duties materially inconsistent with Executive's position as of the
date of this Agreement; or
(c) A relocation or transfer of Executive's principal place of employment
that would require Executive to commute on a regular basis more than
25 miles each way from his current business office at the Bank on the
date of this Agreement (other than a relocation of Employee's current
business office to Olympia, Washington), unless Executive consents to
the relocation or transfer.
11. CONFIDENTIALITY. Executive will not, after signing this Agreement,
including during and after its Initial Term, use for his own purposes or
disclose to any other person or entity and confidential information
concerning the Bank or Heritage or their business operations or customers,
unless (1) the Bank or Heritage 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 Competition Business. During the Initial Term and
for two years after expiration of Initial Term (such two years being
the "Post-Term Period") (regardless of whether Employee's employment
ends at the end of the Initial Term or at some other point after the
end of the Initial Term), Employee 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 Employee may acquire and own an interest not to exceed
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 Competing Business). Employee's
noncompetition obligations for the Post-Term Period will not apply if
(1) Employee's employment during the Initial Term is terminated
without Cause, (2) Employee terminates his employment during
4
the Initial Term for Good Reason, or (3) the Bank or its successor
declines to employ Employee after expiration of the Initial Term.
(b) No Solicitation. During the Initial Term and the Post-Term Period
(regardless of whether Employee's employment ends at the end of the
Initial Term or at some other point after the end of the Initial Term)
Employee will not directly or indirectly solicit or attempt to solicit
(1) any employees located in Grays Harbor County or ▇▇▇▇▇▇▇▇ County in
Washington State (collectively, the "County") of the Bank, Heritage,
or any of Heritage's Subsidiaries, to leave their employment or (2)
and customers located in the County of the Bank, Heritage, or any of
Heritage's Subsidiaries to remove their business from the Bank,
Heritage, or any of Heritage'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. Employee's
nonsolicitation obligations for the Post-Term Period will not apply if
(1) Employee's employment during the Initial Term is terminated
without Cause, (2) Employee terminates his employment during the
Initial Term for Good Reason, or (3) the Bank or its successor
declines to employ Employee after expiration of the Initial Term.
(c) Employment Outside the County. Nothing in this Agreement prevents
Employee from accepting employment after the end of the Initial Term
outside the County from a Competing Business, as long as Employee will
not (a) act as an employee or other representative or agent of the
Competing Business within the County (b) have any responsibilities for
the Competing Business' operations within the County.
(d) Competing Business. "Competing Business" means any financial
institution or trust company that competes with, or will compete in
the County with, Heritage, the Bank, or any of Heritage'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 relationships 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 Heritage'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 Heritage to the maximum extent, in time, scope of activities,
and geography, the court finds enforceable.
(b) Executive acknowledges that the Bank and Heritage 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 Heritage, 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 Heritage will be required to post
a bond as a condition for the granting of this relief.
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 the Bank's enforcement of a remedy by way of injunction will
not prevent Executive from earning a livelihood.
5
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 attorney's fees.
(b) Governing Law. All proceedings will be held at a place designated by
the arbitrator in ▇▇▇▇▇▇▇▇ 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 Sections 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 proceeding wherever appropriate within Washington State; but
Executive will consent to venue and jurisdiction in ▇▇▇▇▇▇▇▇ 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 Initial Term.
(d) Binding Effect. This Agreement will bind and inure to the benefit of
the Bank's, Heritage'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.
6
(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 Heritage.
(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 ▇▇▇▇▇▇▇▇ 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.
[this space intentionally left blank]
7
Signed: August ___, 1998: THE BANK OF GRAYS HARBOR
_________________________________________
By:
Its:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, individually
_________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
8
EXHIBIT E
THE BANK OF GRAYS HARBOR
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), signed August ____, 1998, between
THE BANK OF GRAYS HARBOR (the "Bank") and ▇▇▇▇▇ ▇▇▇▇ ("Employee") takes effect
on the effective date of the Merger ("Effective Date").
RECITALS
--------
A. Harbor Bancorp, Inc. which is the parent company of the Bank, intends to
merge into Heritage Financial Corporation ("Heritage"), and the Bank will
thereby become the wholly owned subsidiary of Heritage (the "Merger") under
the terms of the Agreement and Plan of Merger dated as of August __, 1998
("Plan") between the parties.
B. Employee is presently the Bank's Executive Vice President and Chief
Operating Officer. The Bank wishes to continue Employee's employment in
that capacity under the terms and conditions of this Agreement.
C. Under the terms of this Agreement, Employee 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 Employee's employment during the Term,
and Employee accepts employment by the Bank, on the terms and conditions
set forth in this Agreement. Employee's title will be "_________________."
2. EFFECTIVE DATE AND TERM.
(a) Term. The term of this Agreement ("Term") commences on the Effective
Date and terminates on __________, 2002.
(b) Abandonment of the Merger. If the Plan terminates before Closing,
this Agreement will not become effective and will be void.
3. DUTIES. Employee will faithfully and diligently perform the duties
assigned to Employee from time to time by the Bank's Chairman or President,
consistent with the duties that have been normal and customary to
Employee's position. Employee will use his best efforts to perform his
duties and will devote his full time and attention to these duties during
working hours. Employee acknowledges that such duties may require Employee
to travel for business purposes to Heritage or Bank locations other than
Employee's current business office at the Bank. Employee will report
directly to the Bank's President. The Bank's board of directors may, from
time to time, modify Employee's title or performance responsibilities to
accommodate management succession, as well as any other management
objectives of the Bank or of Heritage. In the event that Heritage elects to
merge the bank into Heritage Bank or some other affiliate of Heritage, then
the title and duties of Employee with respect to the entity surviving such
merger shall be determined by the President and CEO of Heritage or his
designee. Employee 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 this Section 3.
4. SALARY. Initially, Employee will receive a salary of $_________ [INSERT
CURRENT SALARY AMOUNT] per year ("Base Salary"), to be paid in accordance
with the Bank's regular payroll schedule.
5. INCENTIVE COMPENSATION. The Bank's board of directors, subject to
ratification by Heritage's board of directors, will determine the amount of
bonus, if any, to be paid by the Bank to Employee for each year during the
Term. In making this determination, the Bank's board of directors will
consider factors such as Employee's performance of his duties and the
safety, soundness, and profitability of the Bank. Employee's bonus, if any,
will reflect Employee'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
Heritage's board of directors with respect to any benefit plans or
programs, Employee will be entitled to receive benefits (including stock
options) similar to those offered to other officers of Heritage and its
subsidiaries with position and duties comparable to those of Employee.
Neither the Bank nor Heritage through this Agreement obligates itself to
make any particular benefits available to its employees or executive
officers.
7. BUSINESS EXPENSES. The Bank will reimburse Employee for ordinary and
necessary expenses (including, without limitation, travel, entertainment,
and similar expenses) incurred in performing and promoting the Bank's
business. Employee 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 the Term, the
Bank terminates Employee's employment for Cause or Employee terminates
his employment without Good Reason, the Bank will pay Employee the
salary earned and expenses reimbursable under this Agreement incurred
through the date of Employee's termination. Employee will have no
right to receive compensation or other benefits for any period after
termination under this section 8(a), and Employee 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 the Term.
(b) Other Termination By Bank. If before the end of the Term, the Bank
terminates Employee's employment without Cause or Employee terminates
his employment for Good Reason (defined below), the Bank will pay
Employee for the remainder of the Term the salary Employee would have
been entitled to under this Agreement if his employment had not
terminated, and Employee 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 Employee dies
or (2) 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 require the Bank to expend any funds. The
Bank or its successor's Board of Directors, acting in good faith, will
make the final determination of whether Employee is Disabled, and for
purposes of making such determination, may require Employee to submit
to a physical examination by a physician mutually agreed upon by
Employee and the Board of Directors. If termination occurs under this
Section 8(c), Employee or his estate will be entitled to receive only
the compensation and benefits earned and expenses reimbursable through
the date this Agreement terminated.
(d) Termination Related to a Change in Control.
(1) Termination by Bank. If the Bank, or its successor in interest
by merger, or its transferee in the event of a purchase and
assumption transaction, for reasons other than Employee's death,
disability, or Cause (1) terminates Employee's employment within
one year following a Change in Control (as defined below) or (2)
terminates Employee's employment before the Change in Control but
on or after the date that any party either announces or is
required by law to announce any prospective Change in Control
transaction
2
and a Change in Control occurs within six months after the
termination, the Bank will pay Employee an amount equal to
_________ months of Employee's Base Salary for the calendar year
in which Employee's employment is terminated (the "Change in
Control Payment").
(2) Termination by Employee. If Employee terminates Employee's
employment, with or without Good Reason, within one year
following a Change in Control, the Bank will pay employee the
Change in Control Payment.
(e) Limitations on Payments Related to Change in Control. Notwithstanding
any other provision of this Agreement:
(1) the Change in Control Payment will be less than the amount that
would cause it to be a "parachute payment" within the meaning of
Section 280G(b)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code");
(2) the Change in Control Payment will be reduced by any salary that
Employee receives from the Bank or its successor after the Change
in Control; and
(3) Employee's right to receive the Change in Control Payment
terminates (i) immediately, if before the Change in Control
transaction closes, Employee terminates his employment without
Good Reason or the Bank terminates Employee's employment for
Cause, or (ii) one year after a Change in Control occurs.
(f) Definition of "Change in Control". "Change in Control" means a change
"in the ownership or effective control" or "in the ownership of a
substantial portion of the assets" of Heritage, within the meaning of
Section 280G of the Internal Revenue Code.
(g) Return of Bank Property. If and when Employee ceases, for any reason,
to be employed by the Bank, Employee must return to the Bank all keys,
pass cards, identification cards and any other property of the Bank or
Heritage. At the same time, Employee also must return to the Bank all
originals and copies (whether in hard copy, electronic or other form)
of any documents, drawings, notes, memoranda, designs, devices,
diskettes, tapes, manuals, and specifications which constitute
proprietary information or material of the Bank or Heritage. The
obligations in this paragraph include the return of documents and
other materials which may be in Employee's desk at work, in Employee's
car or place of residence, or in any other location under Employee'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
Employee's duties;
(b) Conviction of a crime in connection with his duties;
(c) Conduct demonstrably and significantly harmful to the Bank, as
reasonably determined by the Bank's or Heritage's board of directors
on the advice of legal counsel of the Bank or Heritage; or
(d) Permanent disability, meaning a physical or mental impairment which
renders Employee incapable of substantially performing the duties
required under this Agreement, and which is expected to continue
rendering Employee so incapable for the reasonably foreseeable future.
10. DEFINITION OF "GOOD REASON". "Good Reason" means only any one or more of
the following:
(a) Reduction, without Employee's consent, of Employee's salary or
elimination of any compensation or benefit plan benefiting Employee,
unless the reduction or elimination is generally applicable to
substantially all similarly situated Bank employees (or employees of a
successor or controlling entity of the Bank) formerly benefited;
3
(b) The assignment to Employee without his consent of any authority or
duties materially inconsistent with Employee's position as of the date
of this Agreement; or
(c) A relocation or transfer of Employee's principal place of employment
that would require Employee to commute on a regular basis more than 25
miles each way from his current business office at the Bank on the
date of this Agreement (other than a relocation or transfer of
Employee's current business office to Olympia, Washington), unless
Employee consents to the relocation or transfer.
11. CONFIDENTIALITY. Employee 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 and confidential information concerning the
Bank or Heritage or their business operations or customers, unless (1) the
Bank or Heritage consents to the use or disclosure of their respective
confidential information, (2) the use or disclosure is consistent with
Employee's duties under this Agreement, or (3) disclosure is required by
law or court order.
12. NONCOMPETITION.
(a) Participation in a Competition Business. During the Term and for two
years after expiration of Term (such two years being the "Post-Term
Period") (regardless of whether Employee's employment ends at the end
of the Term or at some other point after the end of the Term),
Employee 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 Employee may acquire and
own an interest not to exceed 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 Competing
Business). Employee's noncompetition obligations for the Post-Term
Period will not apply if (1) Employee's employment during the Term is
terminated without Cause, (2) Employee terminates his employment
during the Term for Good Reason, or (3) the Bank or its successor
declines to employ Employee after expiration of the Term.
(b) No Solicitation. During the Term and the Post-Term Period (regardless
of whether Employee's employment ends at the end of the Term or at
some other point after the end of the Term) Employee will not directly
or indirectly solicit or attempt to solicit (1) any employees located
in Grays Harbor County or ▇▇▇▇▇▇▇▇ County in Washington State
(collectively, the "County") of the Bank, Heritage, or any of
Heritage's Subsidiaries, to leave their employment or (2) and
customers located in the County of the Bank, Heritage, or any of
Heritage's Subsidiaries to remove their business from the Bank,
Heritage, or any of Heritage'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. Employee's
nonsolicitation obligations for the Post-Term Period will not apply if
(1) Employee's employment during the Term is terminated without Cause,
(2) Employee terminates his employment during the Term for Good
Reason, or (3) the Bank or its successor declines to employ Employee
after expiration of the Term.
(c) Employment Outside the County. Nothing in this Agreement prevents
Employee from accepting employment after the end of the Term outside
the County from a Competing Business, as long as Employee will not (a)
act as an employee or other representative or agent of the Competing
Business within the County (b) have any responsibilities for the
Competing Business' operations within the County.
(d) Competing Business. "Competing Business" means any financial
institution or trust company that competes with, or will compete in
the County with, Heritage, the Bank, or any of Heritage's
Subsidiaries. The Term "Competing Business" includes, without
limitation, any start-up or other financial institution or trust
company information.
4
13. ENFORCEMENT.
(a) The Bank and Employee stipulate that, in light of all of the facts and
circumstances of the relationships between Employee 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 Heritage'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 Heritage to the maximum extent, in time, scope of activities,
and geography, the court finds enforceable.
(b) Employee acknowledges that the Bank and Heritage will suffer immediate
and irreparable harm that will not be compensable by damages alone, if
Employee 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 Heritage, 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 Heritage will be required to post a bond as a
condition for the granting of this relief.
14. ADEQUATE CONSIDERATION. Employee 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. Employee
represents that if his employment is terminated, whether voluntarily or
involuntarily, Employee has experience and capabilities sufficient to
enable Employee to obtain employment in areas which do not violate this
Agreement and the Bank's enforcement of a remedy by way of injunction will
not prevent Employee 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 attorney's fees.
(b) Governing Law. All proceedings will be held at a place designated by
the arbitrator in ▇▇▇▇▇▇▇▇ 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 Employee
violates Sections 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 proceeding wherever appropriate within Washington State; but
Employee will consent to venue and jurisdiction in ▇▇▇▇▇▇▇▇ County,
Washington.
5
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, Employee 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 Employee the right to continued
employment with the Bank after the Term.
(d) Binding Effect. This Agreement will bind and inure to the benefit of
the Bank's, Heritage's, and Employee'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. Employee 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 Employee under this
Agreement are unique and personal. Accordingly, Employee 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 Heritage.
(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 ▇▇▇▇▇▇▇▇ 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.
6
Signed: August ___, 1998: THE BANK OF GRAYS HARBOR
_________________________________________
By:
Its:
▇▇▇▇▇ ▇▇▇▇, individually
_________________________________________
▇▇▇▇▇ ▇▇▇▇
7
EXHIBIT F
THE BANK OF GRAYS HARBOR
EMPLOYMENT AGREEMENT
[FOR MR. VAN DIJK]
THIS EMPLOYMENT AGREEMENT ("Agreement"), signed August ____, 1998, between
THE BANK OF GRAYS HARBOR (the "Bank") and _______________________ ("Employee")
takes effect on the effective date of the Merger ("Effective Date").
RECITALS
--------
A. Harbor Bancorp, Inc. which is the parent company of the Bank, intends to
merge into Heritage Financial Corporation ("Heritage"), and the Bank will
thereby become the wholly owned subsidiary of Heritage (the "Merger") under
the terms of the Agreement and Plan of Merger dated as of August __, 1998
("Plan") between the parties.
B. Employee is presently the Bank's ________________________. The Bank wishes
to continue Employee's employment in that capacity under the terms and
conditions of this Agreement.
C. Under the terms of this Agreement, Employee 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 Employee's employment during the Term,
and Employee accepts employment by the Bank, on the terms and conditions
set forth in this Agreement. Employee's title will be
"______________________."
2. EFFECTIVE DATE AND TERM.
(a) Term. The term of this Agreement ("Term") commences on the Effective
Date and terminates on __________, 200__.
(b) Abandonment of the Merger. If the Plan terminates before Closing,
this Agreement will not become effective and will be void.
3. DUTIES. Employee will faithfully and diligently perform the duties
assigned to Employee from time to time by the Bank's Chairman or President,
consistent with the duties that have been normal and customary to
Employee's position. Employee will use his best efforts to perform his
duties and will devote his full time and attention to these duties during
working hours. Employee acknowledges that such duties may require Employee
to travel for business purposes to Heritage or Bank locations other than
Employee's current business office at the Bank. Employee will report
directly to the Bank's President. The Bank's board of directors may, from
time to time, modify Employee's title or performance responsibilities to
accommodate management succession, as well as any other management
objectives of the Bank or of Heritage. In the event that Heritage elects to
merge the bank into Heritage Bank or some other affiliate of Heritage, then
the title and duties of Employee with respect to the entity surviving such
merger shall be determined by the President and CEO of Heritage or his
designee. Employee 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 this Section 3.
4. SALARY. Initially, Employee will receive a salary of $_________ [INSERT
CURRENT SALARY AMOUNT] per year ("Base Salary"), to be paid in accordance
with the Bank's regular payroll schedule.
5. INCENTIVE COMPENSATION. The Bank's board of directors, subject to
ratification by Heritage's board of directors, will determine the amount of
bonus, if any, to be paid by the Bank to Employee for each year during the
Term. In making this determination, the Bank's board of directors will
consider factors such as Employee's performance of his duties and the
safety, soundness, and profitability of the Bank. Employee's bonus, if any,
will reflect Employee'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
Heritage's board of directors with respect to any benefit plans or
programs, Employee will be entitled to receive benefits (including stock
options) similar to those offered to other officers of Heritage and its
subsidiaries with position and duties comparable to those of Employee.
Neither the Bank nor Heritage through this Agreement obligates itself to
make any particular benefits available to its employees or executive
officers.
7. BUSINESS EXPENSES. The Bank will reimburse Employee for ordinary and
necessary expenses (including, without limitation, travel, entertainment,
and similar expenses) incurred in performing and promoting the Bank's
business. Employee 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 the Term, the
Bank terminates Employee's employment for Cause or Employee terminates
his employment without Good Reason, the Bank will pay Employee the
salary earned and expenses reimbursable under this Agreement incurred
through the date of Employee's termination. Employee will have no
right to receive compensation or other benefits for any period after
termination under this section 8(a), and Employee 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 the Term.
(b) Other Termination By Bank. If before the end of the Term, the Bank
terminates Employee's employment without Cause or Employee terminates
his employment for Good Reason (defined below), the Bank will pay
Employee for the remainder of the Term the salary Employee would have
been entitled to under this Agreement if his employment had not
terminated, and Employee 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 Employee dies
or (2) 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 require the Bank to expend any funds. The
Bank or its successor's Board of Directors, acting in good faith, will
make the final determination of whether Employee is Disabled, and for
purposes of making such determination, may require Employee to submit
to a physical examination by a physician mutually agreed upon by
Employee and the Board of Directors. If termination occurs under this
Section 8(c), Employee or his estate will be entitled to receive only
the compensation and benefits earned and expenses reimbursable through
the date this Agreement terminated.
(d) Termination Related to a Change in Control.
(1) Termination by Bank. If the Bank, or its successor in interest
by merger, or its transferee in the event of a purchase and
assumption transaction, for reasons other than Employee's death,
disability, or Cause (1) terminates Employee's employment within
one year following a Change in Control (as defined below) or (2)
terminates Employee's employment before the Change in Control but
on or after the date that any party either announces or is
required by law to announce any prospective Change in Control
transaction
2
and a Change in Control occurs within six months after the
termination, the Bank will pay Employee an amount equal to
_________ months of Employee's Base Salary for the calendar year
in which Employee's employment is terminated (the "Change in
Control Payment").
(2) Termination by Employee. If Employee terminates Employee's
employment, with or without Good Reason, within one year
following a Change in Control, the Bank will pay employee the
Change in Control Payment.
(e) Limitations on Payments Related to Change in Control. Notwithstanding
any other provision of this Agreement:
(1) the Change in Control Payment will be less than the amount that
would cause it to be a "parachute payment" within the meaning of
Section 280G(b)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code");
(2) the Change in Control Payment will be reduced by any salary that
Employee receives from the Bank or its successor after the Change
in Control; and
(3) Employee's right to receive the Change in Control Payment
terminates (i) immediately, if before the Change in Control
transaction closes, Employee terminates his employment without
Good Reason or the Bank terminates Employee's employment for
Cause, or (ii) one year after a Change in Control occurs.
(f) Definition of "Change in Control". "Change in Control" means a change
"in the ownership or effective control" or "in the ownership of a
substantial portion of the assets" of Heritage, within the meaning of
Section 280G of the Internal Revenue Code.
(g) Return of Bank Property. If and when Employee ceases, for any reason,
to be employed by the Bank, Employee must return to the Bank all keys,
pass cards, identification cards and any other property of the Bank or
Heritage. At the same time, Employee also must return to the Bank all
originals and copies (whether in hard copy, electronic or other form)
of any documents, drawings, notes, memoranda, designs, devices,
diskettes, tapes, manuals, and specifications which constitute
proprietary information or material of the Bank or Heritage. The
obligations in this paragraph include the return of documents and
other materials which may be in Employee's desk at work, in Employee's
car or place of residence, or in any other location under Employee'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
Employee's duties;
(b) Conviction of a crime in connection with his duties;
(c) Conduct demonstrably and significantly harmful to the Bank, as
reasonably determined by the Bank's or Heritage's board of directors
on the advice of legal counsel of the Bank or Heritage; or
(d) Permanent disability, meaning a physical or mental impairment which
renders Employee incapable of substantially performing the duties
required under this Agreement, and which is expected to continue
rendering Employee so incapable for the reasonably foreseeable future.
10. DEFINITION OF "GOOD REASON". "Good Reason" means only any one or more of
the following:
(a) Reduction, without Employee's consent, of Employee's salary or
elimination of any compensation or benefit plan benefiting Employee,
unless the reduction or elimination is generally applicable to
substantially all similarly situated Bank employees (or employees of a
successor or controlling entity of the Bank) formerly benefited;
3
(b) The assignment to Employee without his consent of any authority or
duties materially inconsistent with Employee's position as of the date
of this Agreement; or
(c) A relocation or transfer of Employee's principal place of employment
that would require Employee to commute on a regular basis more than 25
miles each way from his current business office at the Bank on the
date of this Agreement (other than a relocation or transfer of
Employee's current business office to Olympia, Washington), unless
Employee consents to the relocation or transfer.
11. CONFIDENTIALITY. Employee 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 and confidential information concerning the
Bank or Heritage or their business operations or customers, unless (1) the
Bank or Heritage consents to the use or disclosure of their respective
confidential information, (2) the use or disclosure is consistent with
Employee's duties under this Agreement, or (3) disclosure is required by
law or court order.
12. NONCOMPETITION.
(a) Participation in a Competition Business. During the Term and for two
years after expiration of Term (such two years being the "Post-Term
Period") (regardless of whether Employee's employment ends at the end
of the Term or at some other point after the end of the Term),
Employee 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 Employee may acquire and
own an interest not to exceed 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 Competing
Business). Employee's noncompetition obligations for the Post-Term
Period will not apply if (1) Employee's employment during the Term is
terminated without Cause, (2) Employee terminates his employment
during the Term for Good Reason, or (3) the Bank or its successor
declines to employ Employee after expiration of the Term.
(b) No Solicitation. During the Term and the Post-Term Period (regardless
of whether Employee's employment ends at the end of the Term or at
some other point after the end of the Term) Employee will not directly
or indirectly solicit or attempt to solicit (1) any employees located
in Grays Harbor County or ▇▇▇▇▇▇▇▇ County in Washington State
(collectively, the "County") of the Bank, Heritage, or any of
Heritage's Subsidiaries, to leave their employment or (2) and
customers located in the County of the Bank, Heritage, or any of
Heritage's Subsidiaries to remove their business from the Bank,
Heritage, or any of Heritage'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. Employee's
nonsolicitation obligations for the Post-Term Period will not apply if
(1) Employee's employment during the Term is terminated without Cause,
(2) Employee terminates his employment during the Term for Good
Reason, or (3) the Bank or its successor declines to employ Employee
after expiration of the Term.
(c) Employment Outside the County. Nothing in this Agreement prevents
Employee from accepting employment after the end of the Term outside
the County from a Competing Business, as long as Employee will not (a)
act as an employee or other representative or agent of the Competing
Business within the County (b) have any responsibilities for the
Competing Business' operations within the County.
(d) Competing Business. "Competing Business" means any financial
institution or trust company that competes with, or will compete in
the County with, Heritage, the Bank, or any of Heritage's
Subsidiaries. The Term "Competing Business" includes, without
limitation, any start-up or other financial institution or trust
company in formation.
4
13. ENFORCEMENT.
(a) The Bank and Employee stipulate that, in light of all of the facts and
circumstances of the relationships between Employee 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 Heritage'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 Heritage to the maximum extent, in time, scope of activities,
and geography, the court finds enforceable.
(b) Employee acknowledges that the Bank and Heritage will suffer immediate
and irreparable harm that will not be compensable by damages alone, if
Employee 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 Heritage, 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 Heritage will be required to post a bond as a
condition for the granting of this relief.
14. ADEQUATE CONSIDERATION. Employee 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. Employee
represents that if his employment is terminated, whether voluntarily or
involuntarily, Employee has experience and capabilities sufficient to
enable Employee to obtain employment in areas which do not violate this
Agreement and the Bank's enforcement of a remedy by way of injunction will
not prevent Employee 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 attorney's fees.
(b) Governing Law. All proceedings will be held at a place designated by
the arbitrator in ▇▇▇▇▇▇▇▇ 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 Employee
violates Sections 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 proceeding wherever appropriate within Washington State; but
Employee will consent to venue and jurisdiction in ▇▇▇▇▇▇▇▇ County,
Washington.
5
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, Employee 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 Employee the right to continued
employment with the Bank after the Term.
(d) Binding Effect. This Agreement will bind and inure to the benefit of
the Bank's, Heritage's, and Employee'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. Employee 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 Employee under this
Agreement are unique and personal. Accordingly, Employee 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 Heritage.
(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 ▇▇▇▇▇▇▇▇ 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.
6
Signed: August ___, 1998: THE BANK OF GRAYS HARBOR
_________________________________________
By:
Its:
[NAME OF EMPLOYEE], individually
_________________________________________
[Name of Employee]
7
EXHIBIT G
THE BANK OF GRAYS HARBOR
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), signed August ____, 1998, between
THE BANK OF GRAYS HARBOR (the "Bank") and ▇▇ ▇▇▇▇▇▇ ("Employee") takes effect on
the effective date of the Merger ("Effective Date").
RECITALS
A. Harbor Bancorp, Inc. which is the parent company of the Bank, intends to
merge into Heritage Financial Corporation ("Heritage"), and the Bank will
thereby become the wholly owned subsidiary of Heritage (the "Merger") under
the terms of the Agreement and Plan of Merger dated as of August __, 1998
("Plan") between the parties.
B. Employee is presently the Bank's Senior Vice President and Senior Loan
Officer. The Bank wishes to continue Employee's employment in that capacity
under the terms and conditions of this Agreement.
C. Under the terms of this Agreement, Employee 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 Employee's employment during the Term,
and Employee accepts employment by the Bank, on the terms and conditions
set forth in this Agreement. Employee's title will be
"______________________."
2. EFFECTIVE DATE AND TERM.
(a) Term. The term of this Agreement ("Term") commences on the Effective
Date and terminates on __________, 2001.
(b) Abandonment of the Merger. If the Plan terminates before Closing,
this Agreement will not become effective and will be void.
3. DUTIES. Employee will faithfully and diligently perform the duties
assigned to Employee from time to time by the Bank's Chairman or President,
consistent with the duties that have been normal and customary to
Employee's position. Employee will use his best efforts to perform his
duties and will devote his full time and attention to these duties during
working hours. Employee acknowledges that such duties may require Employee
to travel for business purposes to Heritage or Bank locations other than
Employee's current business office at the Bank. Employee will report
directly to the Bank's President. The Bank's board of directors may, from
time to time, modify Employee's title or performance responsibilities to
accommodate management succession, as well as any other management
objectives of the Bank or of Heritage. In the event that Heritage elects to
merge the bank into Heritage Bank or some other affiliate of Heritage, then
the title and duties of Employee with respect to the entity surviving such
merger shall be determined by the President and CEO of Heritage or his
designee. Employee 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 this Section 3.
4. SALARY. Initially, Employee will receive a salary of $_________ [INSERT
CURRENT SALARY AMOUNT] per year ("Base Salary"), to be paid in accordance
with the Bank's regular payroll schedule.
5. INCENTIVE COMPENSATION. The Bank's board of directors, subject to
ratification by Heritage's board of directors, will determine the amount of
bonus, if any, to be paid by the Bank to Employee for each year during the
Term. In making this determination, the Bank's board of directors will
consider factors such as Employee's performance of his duties and the
safety, soundness, and profitability of the Bank. Employee's bonus, if any,
will reflect Employee'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
Heritage's board of directors with respect to any benefit plans or
programs, Employee will be entitled to receive benefits (including stock
options) similar to those offered to other officers of Heritage and its
subsidiaries with position and duties comparable to those of Employee.
Neither the Bank nor Heritage through this Agreement obligates itself to
make any particular benefits available to its employees or executive
officers.
7. BUSINESS EXPENSES. The Bank will reimburse Employee for ordinary and
necessary expenses (including, without limitation, travel, entertainment,
and similar expenses) incurred in performing and promoting the Bank's
business. Employee 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 the Term, the
Bank terminates Employee's employment for Cause or Employee terminates
his employment without Good Reason, the Bank will pay Employee the
salary earned and expenses reimbursable under this Agreement incurred
through the date of Employee's termination. Employee will have no
right to receive compensation or other benefits for any period after
termination under this section 8(a), and Employee 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 the Term.
(b) Other Termination By Bank. If before the end of the Term, the Bank
terminates Employee's employment without Cause or Employee terminates
his employment for Good Reason (defined below), the Bank will pay
Employee for the remainder of the Term the salary Employee would have
been entitled to under this Agreement if his employment had not
terminated, and Employee 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 Employee dies
or (2) 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 require the Bank to expend any funds. The
Bank or its successor's Board of Directors, acting in good faith, will
make the final determination of whether Employee is Disabled, and for
purposes of making such determination, may require Employee to submit
to a physical examination by a physician mutually agreed upon by
Employee and the Board of Directors. If termination occurs under this
Section 8(c), Employee or his estate will be entitled to receive only
the compensation and benefits earned and expenses reimbursable through
the date this Agreement terminated.
(d) Termination Related to a Change in Control.
(1) Termination by Bank. If the Bank, or its successor in interest
by merger, or its transferee in the event of a purchase and
assumption transaction, for reasons other than Employee's death,
disability, or Cause (1) terminates Employee's employment within
one year following a Change in Control (as defined below) or (2)
terminates Employee's employment before the Change in Control but
on or after the date that any party either announces or is
required by law to announce any prospective Change in Control
transaction
2
and a Change in Control occurs within six months after the
termination, the Bank will pay Employee an amount equal to
_________ months of Employee's Base Salary for the calendar year
in which Employee's employment is terminated (the "Change in
Control Payment").
(2) Termination by Employee. If Employee terminates Employee's
employment, with or without Good Reason, within one year
following a Change in Control, the Bank will pay employee the
Change in Control Payment.
(e) Limitations on Payments Related to Change in Control. Notwithstanding
any other provision of this Agreement:
(1) the Change in Control Payment will be less than the amount that
would cause it to be a "parachute payment" within the meaning of
Section 280G(b)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code");
(2) the Change in Control Payment will be reduced by any salary that
Employee receives from the Bank or its successor after the Change
in Control; and
(3) Employee's right to receive the Change in Control Payment
terminates (i) immediately, if before the Change in Control
transaction closes, Employee terminates his employment without
Good Reason or the Bank terminates Employee's employment for
Cause, or (ii) one year after a Change in Control occurs.
(f) Definition of "Change in Control". "Change in Control" means a change
"in the ownership or effective control" or "in the ownership of a
substantial portion of the assets" of Heritage, within the meaning of
Section 280G of the Internal Revenue Code.
(g) Return of Bank Property. If and when Employee ceases, for any reason,
to be employed by the Bank, Employee must return to the Bank all keys,
pass cards, identification cards and any other property of the Bank or
Heritage. At the same time, Employee also must return to the Bank all
originals and copies (whether in hard copy, electronic or other form)
of any documents, drawings, notes, memoranda, designs, devices,
diskettes, tapes, manuals, and specifications which constitute
proprietary information or material of the Bank or Heritage. The
obligations in this paragraph include the return of documents and
other materials which may be in Employee's desk at work, in Employee's
car or place of residence, or in any other location under Employee'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
Employee's duties;
(b) Conviction of a crime in connection with his duties;
(c) Conduct demonstrably and significantly harmful to the Bank, as
reasonably determined by the Bank's or Heritage's board of directors
on the advice of legal counsel of the Bank or Heritage; or
(d) Permanent disability, meaning a physical or mental impairment which
renders Employee incapable of substantially performing the duties
required under this Agreement, and which is expected to continue
rendering Employee so incapable for the reasonably foreseeable future.
10. DEFINITION OF "GOOD REASON". "Good Reason" means only any one or more of
the following:
(a) Reduction, without Employee's consent, of Employee's salary or
elimination of any compensation or benefit plan benefiting Employee,
unless the reduction or elimination is generally applicable to
substantially all similarly situated Bank employees (or employees of a
successor or controlling entity of the Bank) formerly benefited;
3
(b) The assignment to Employee without his consent of any authority or
duties materially inconsistent with Employee's position as of the date
of this Agreement; or
(c) A relocation or transfer of Employee's principal place of employment
that would require Employee to commute on a regular basis more than 25
miles each way from his current business office at the Bank on the
date of this Agreement (other than a relocation or transfer of
Employee's current business office to Olympia, Washington), unless
Employee consents to the relocation or transfer.
11. CONFIDENTIALITY. Employee 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 and confidential information concerning the
Bank or Heritage or their business operations or customers, unless (1) the
Bank or Heritage consents to the use or disclosure of their respective
confidential information, (2) the use or disclosure is consistent with
Employee's duties under this Agreement, or (3) disclosure is required by
law or court order.
12. NONCOMPETITION.
(a) Participation in a Competition Business. During the Term and for two
years after expiration of Term (such two years being the "Post-Term
Period") (regardless of whether Employee's employment ends at the end
of the Term or at some other point after the end of the Term),
Employee 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 Employee may acquire and
own an interest not to exceed 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 Competing
Business). Employee's noncompetition obligations for the Post-Term
Period will not apply if (1) Employee's employment during the Term is
terminated without Cause, (2) Employee terminates his employment
during the Term for Good Reason, or (3) the Bank or its successor
declines to employ Employee after expiration of the Term.
(b) No Solicitation. During the Term and the Post-Term Period (regardless
of whether Employee's employment ends at the end of the Term or at
some other point after the end of the Term) Employee will not directly
or indirectly solicit or attempt to solicit (1) any employees located
in Grays Harbor County or ▇▇▇▇▇▇▇▇ County in Washington State
(collectively, the "County") of the Bank, Heritage, or any of
Heritage's Subsidiaries, to leave their employment or (2) and
customers located in the County of the Bank, Heritage, or any of
Heritage's Subsidiaries to remove their business from the Bank,
Heritage, or any of Heritage'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. Employee's
nonsolicitation obligations for the Post-Term Period will not apply if
(1) Employee's employment during the Term is terminated without Cause,
(2) Employee terminates his employment during the Term for Good
Reason, or (3) the Bank or its successor declines to employ Employee
after expiration of the Term.
(c) Employment Outside the County. Nothing in this Agreement prevents
Employee from accepting employment after the end of the Term outside
the County from a Competing Business, as long as Employee will not (a)
act as an employee or other representative or agent of the Competing
Business within the County (b) have any responsibilities for the
Competing Business' operations within the County.
(d) Competing Business. "Competing Business" means any financial
institution or trust company that competes with, or will compete in
the County with, Heritage, the Bank, or any of Heritage's
Subsidiaries. The Term "Competing Business" includes, without
limitation, any start-up or other financial institution or trust
company in formation.
4
13. ENFORCEMENT.
(a) The Bank and Employee stipulate that, in light of all of the facts and
circumstances of the relationships between Employee 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 Heritage'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 Heritage to the maximum extent, in time, scope of activities,
and geography, the court finds enforceable.
(b) Employee acknowledges that the Bank and Heritage will suffer immediate
and irreparable harm that will not be compensable by damages alone, if
Employee 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 Heritage, 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 Heritage will be required to post a bond as a
condition for the granting of this relief.
14. ADEQUATE CONSIDERATION. Employee 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. Employee
represents that if his employment is terminated, whether voluntarily or
involuntarily, Employee has experience and capabilities sufficient to
enable Employee to obtain employment in areas which do not violate this
Agreement and the Bank's enforcement of a remedy by way of injunction will
not prevent Employee 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 attorney's fees.
(b) Governing Law. All proceedings will be held at a place designated by
the arbitrator in ▇▇▇▇▇▇▇▇ 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 Employee
violates Sections 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 proceeding wherever appropriate within Washington State; but
Employee will consent to venue and jurisdiction in ▇▇▇▇▇▇▇▇ County,
Washington.
5
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, Employee 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 Employee the right to continued
employment with the Bank after the Term.
(d) Binding Effect. This Agreement will bind and inure to the benefit of
the Bank's, Heritage's, and Employee'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. Employee 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 Employee under this
Agreement are unique and personal. Accordingly, Employee 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 Heritage.
(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 ▇▇▇▇▇▇▇▇ 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.
6
Signed: August ___, 1998: THE BANK OF GRAYS HARBOR
_________________________________________
By:
Its:
▇▇ ▇▇▇▇▇▇, individually
_________________________________________
▇▇ ▇▇▇▇▇▇
EXHIBIT H
___________, 1998
Heritage Financial Corporation
▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Agreement and Plan of Merger
Ladies and Gentlemen:
We have acted as counsel for Harbor Bancorp, Inc. (the "Company"), a corporation
organized under the laws of the State of Washington, and The Bank of Grays
Harbor (the "Bank"), a state banking corporation organized under the laws of the
State of Washington, in connection with the merger of Company with Heritage
Financial Corporation ("Heritage"), pursuant to an Agreement and Plan of Merger
dated August __, 1998 (the "Plan"). This opinion letter is rendered pursuant to
Section 6.2(A) of the Plan. Capitalized terms used but not defined in this
opinion letter have the meanings assigned to such terms in the Plan.
This opinion letter is governed by, and must be interpreted in accordance with,
the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a result, this opinion letter is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this opinion
letter should be read in conjunction with the Accord. The law covered by the
opinions expressed in this letter is limited to the Federal Law of the United
States and the laws of the State of Washington. We express no opinion with
respect to the effect of the laws of any other jurisdiction.
In conducting our examination, we have assumed, without investigation, the
genuineness of all signatures, the legal capacity of natural persons, the
correctness of all certificates, the authenticity of all documents and
instruments submitted to us as originals, the conformity to original documents
and instruments of all such documents and instruments submitted to us as
certified or photostatic or facsimile copies and the authenticity of the
originals of such copies, and the accuracy and completeness of all records made
available to us by the Company and the Bank. In conducting our examination of
these documents and instruments, we also have assumed, without investigation,
that each party to such documents and instruments (other than the Company and
the Bank) has (a) the power and capacity to enter into and perform all of its
obligations under such documents and instruments; (b) duly authorized all
requisite actions with respect to such document sand instruments; and (c) duly
executed and delivered such documents and instruments.
We have assumed, without investigation, the accuracy of all statements,
representations, and warranties as to factual matters, written or oral, made by
officers and employees of, and accountants for, the Bank and by public
officials. We also assume that the Plan is binding upon and enforceable in
accordance with its terms and against Heritage.
In rendering the opinions expressed in this letter, we have examined and relied
upon such records, documents, instruments, certificates of public officials and
certificates of officers and employees of and accountants for the Company and
the Bank as we have deemed appropriate, including:
1. A certificate of existence or authorization dated ________, 1998 issued by
the Washington Secretary of State ("Company Certificate of Good Standing") with
respect to the Company and a certificate of good standing dated ________, 1998
issued by the Washington Department of Financial Institutions ("Bank Certificate
of Good Standing") with respect to the Bank.
2. The Company's Articles of Incorporation, as amended, certified by the
Washington Secretary of State as of __________, 1998 and the Bank's Articles of
Incorporation, as amended, certified by the Washington Department of Financial
Institutions as of _________, 1998;
3. The Company's Bylaws, as amended, certified by the Secretary of the Company
and the Bank's Bylaws, as amended, certified by the Cashier of the Bank;
4. Resolutions of the Bank's and the Company's respective Board of Directors,
authorizing actions relating to the transactions contemplated by the Plan; and
5. The Plan.
The opinions expressed in this letter are subject to the following
qualifications:
1. Our opinion regarding the Company's and the Bank's respective status as
organizations validly existing and in good standing under Washington law is
based solely upon the Company Certificate of Good Standing and Bank Certificate
of Good Standing.
2. Our opinion regarding the enforceability of the Plan may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, or
similar laws generally affecting the enforcement of the rights of creditors and
by generally applicable principles of equity.
3. A Washington court, or federal court applying Washington law, may consider
extrinsic evidence of the circumstances surrounding the making of the Plan to
ascertain the intent of the parties using the language employed in the Plan,
regardless of whether or not the language used is plain and unambiguous on its
face, and may incorporate additional or supplementary terms into the Plan.
4. As used in this opinion letter, the expression "to our actual knowledge"
means the conscious awareness of facts or other information by the lawyers in
our office actively representing the Company or the Bank in connection with the
transactions contemplated by the Plan. We have not undertaken any independent
investigation or review of our files nor canvassed all the lawyers in our
office. Except as otherwise set forth in this opinion letter, we have not
reviewed any agreements, orders, writs, judgments or decrees or made any inquiry
of the Company or the Bank.
We express no opinion as to: (i) any anti-trust or tax laws; (ii) provisions
relating to venue, jurisdiction, governing law, waiver of remedies (or the delay
or omission of enforcement of such provisions), or disclaimers or liability
limitations with respect to third parties; (iii) provisions for payment or
reimbursement of costs and expenses (including, without limitation, attorney
fees) in excess of statutory limits or amounts determined to be reasonable by
any court or other tribunal; and (iv) severability and indemnification
provisions.
Based upon the foregoing and subject to the qualifications, limitations and
assumptions set forth in this opinion letter, we are of the opinion that:
1. The Company is a corporation validly existing and in good standing under
the laws of the State of Washington. The Bank is a banking corporation validly
existing and in good standing under the laws of the State of Washington.
2. The Company and the Bank have the corporate power and authority to execute,
deliver and perform the Plan.
3. The execution, delivery and performance of the Plan have been duly
authorized by all necessary corporate action on the part of the Company and the
Bank, and the Plan constitutes the Company's and the Bank's legal, binding and
valid obligation, enforceable and in accordance with its terms.
4. Execution of the Plan and consummation of the transactions contemplated by
the Plan will not violate the Company's or the Bank's respective Articles of
Incorporation or Bylaws nor breach or result in a default under an existing
obligation of the Company or the Bank under any material contract or any other
contract to which the Company or the Bank is a party.
5. All issued and outstanding shares of the Company's and the Bank's capital
stock have been duly authorized and are validly issued, fully paid, non-
assessable, and are free of preemptive rights except those created by the
respective Articles of Incorporation of the Company or the Bank or by contract.
6. All of the Company Options have been duly authorized and validly granted.
7. To our actual knowledge, there are no pending or threatened claims, actions,
suits or legal or equitable proceedings before any court or governmental agency
which, in our opinion would be, individually or in the aggregate, reasonably
likely to result in liability in excess of $25,000 or prevent consummation of
the transactions contemplated by the Plan.
The foregoing is rendered solely for your benefit in connection with the above-
described transaction. You may not, without our prior express written approval,
deliver copies of this letter or extracts therefrom to any other person, and no
one other than you is entitled to rely upon the foregoing.
Sincerely,
▇▇▇▇▇▇ & ▇▇▇▇, P.C.
EXHIBIT I
___________, 1998
Harbor Bancorp, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Agreement and Plan of Merger
Ladies and Gentlemen:
We have acted as counsel for Heritage Financial Corporation ("Heritage"), a
corporation organized under the laws of the State of Washington, in connection
with the merger of Heritage with Harbor Bancorp, Inc., a corporation organized
under the laws of the State of Washington, and The Bank of Grays Harbor, a state
banking corporation organized under the laws of the State of Washington,
pursuant to an Agreement and Plan of Merger dated August __, 1998 (the "Plan").
This opinion letter is rendered pursuant to Section 6.3(A) of the Plan.
Capitalized terms used but not defined in this opinion letter have the meanings
assigned to such terms in the Plan.
This opinion letter is governed by, and must be interpreted in accordance with,
the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a result, this opinion letter is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this opinion
letter should be read in conjunction with the Accord. The law covered by the
opinions expressed in this letter is limited to the Federal Law of the United
States and the laws of the State of Washington. We express no opinion with
respect to the effect of the laws of any other jurisdiction.
In conducting our examination, we have assumed, without investigation, the
genuineness of all signatures, the legal capacity of natural persons, the
correctness of all certificates, the authenticity of all documents and
instruments submitted to us as originals, the conformity to original documents
and instruments of all such documents and instruments submitted to us as
certified or photostatic or facsimile copies and the authenticity of the
originals of such copies, and the accuracy and completeness of all records made
available to us by Heritage. In conducting our examination of these documents
and instruments, we also have assumed, without investigation, that each party to
such documents and instruments (other than Heritage) has (a) the power and
capacity to enter into and perform all of its obligations under such documents
and instruments; (b) duly authorized all requisite actions with respect to such
document sand instruments; and (c) duly executed and delivered such documents
and instruments.
We have assumed, without investigation, the accuracy of all statements,
representations, and warranties as to factual matters, written or oral, made by
officers and employees of, and accountants for, Heritage and by public
officials. We also assume that the Plan is binding upon and enforceable in
accordance with its terms and against the Company and the Bank.
Harbor Bancorp, Inc.
______________, 1998
Page 2
In rendering the opinions expressed in this letter, we have examined and relied
upon such records, documents, instruments, certificates of public officials and
certificates of officers and employees of and accountants for Heritage as we
have deemed appropriate, including:
1. A certificate of existence or authorization dated ________, 1998 issued by
the Washington Secretary of State ("Certificate of Good Standing");
2. Heritage's Articles of Incorporation, as amended, certified by the
Washington Secretary of State as of __________, 1998;
3. Heritage's Bylaws, as amended, certified by the Secretary of Heritage;
4. Resolutions of Heritage's Board of Directors, authorizing actions relating
to the transactions contemplated by the Plan; and
5. The Plan.
The opinions expressed in this letter are subject to the following
qualifications:
1. Our opinion regarding Heritage's status as a corporation validly existing
and in good standing under Washington law is based solely upon the
Certificate of Good Standing.
2. Our opinion regarding the enforceability of the Plan may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium,
or similar laws generally affecting the enforcement of the rights of
creditors and by generally applicable principles of equity.
3. A Washington court, or federal court applying Washington law, may consider
extrinsic evidence of the circumstances surrounding the making of the Plan
to ascertain the intent of the parties using the language employed in the
Plan, regardless of whether or not the language used is plain and
unambiguous on its face, and may incorporate additional or supplementary
terms into the Plan.
4. As used in this opinion letter, the expression "to our actual knowledge"
means the conscious awareness of facts or other information by the lawyers
in our office actively representing Heritage in connection with the
transactions contemplated by the Plan. We have not undertaken any
independent investigation or review of our files nor canvassed all the
lawyers in our office. Except as otherwise set forth in this opinion
letter, we have not reviewed any agreements, orders, writs, judgments or
decrees or made any inquiry of Heritage
We express no opinion as to: (i) any anti-trust or tax laws; (ii) provisions
relating to venue, jurisdiction, governing law, waiver of remedies (or the delay
or omission of enforcement of such provisions), or disclaimers or liability
limitations with respect to third parties; (iii) provisions for payment or
reimbursement of costs and expenses (including, without limitation, attorney
fees) in excess of statutory limits or amounts determined to be reasonable by
any court or other tribunal; and (iv) severability and indemnification
provisions.
Based upon the foregoing and subject to the qualifications, limitations and
assumptions set forth in this opinion letter, we are of the opinion that:
1. Heritage is a corporation validly existing and in good standing under the
laws of the State of Washington.
2. Heritage has the corporate power and authority to execute, deliver and
perform its obligations under the Plan.
Harbor Bancorp, Inc.
______________,1998
Page 3
3. The execution, delivery and performance of the Plan have been duly
authorized by all necessary corporate action on the part of Heritage.
4. The execution of the Plan and consummation of the transactions contemplated
by the Plan will not violate Heritage's Articles of Incorporation or
Bylaws.
5. The Plan constitutes the valid and binding obligation of Heritage
enforceable against Heritage in accordance with its terms.
6. The shares to be issued in connection with the Plan have been duly
authorized and, when issued as contemplated by the Plan, will be validly
issued, fully paid and nonassessable.
7. The Registration Statement became effective under the Securities Act on
_________, 1998, and to the best of our actual knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or threatened by
the Securities and Exchange Commission.
The foregoing is rendered solely for your benefit in connection with the above-
described transaction. You may not, without our prior express written approval,
deliver copies of this letter or extracts therefrom to any other person, and no
one other than you is entitled to rely upon the foregoing.
Sincerely,
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C.