SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 11, 2006
Banner Corporation
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(Exact name of registrant as specified in its charter)
Washington 0-26584 91-1691604
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State or other jurisdiction Commission (I.R.S. Employer
of incorporation File Number Identification No.)
10 S. First Avenue, Walla Walla, Washington 99362
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number (including area code) (509) 527-3636
Not Applicable
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions.
[X] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement.
On December 11, 2006, Banner Corporation, a Washington corporation
("Banner"), and its financial institution subsidiary, Banner Bank, entered
into an Agreement and Plan of Merger (the "Merger Agreement") with F&M Bank, a
Washington state chartered commercial bank ("F&M"). Under the terms of the
Merger Agreement, F&M will be merged with and into Banner Bank, with Banner
Bank being the surviving institution.
Under the terms of the Merger Agreement, which has been unanimously
approved by the Boards of Directors of Banner, Banner Bank and F&M, each share
of F&M common stock will be converted into 0.8500 shares of Banner common
stock and $9.30 in cash, subject to certain conditions and assuming 2,086,874
shares of F&M common stock are outstanding at the closing of the transaction.
Based upon the closing price for Banner's common stock on December 8, 2006 of
$44.79 per share, the consideration is equivalent to $47.37 per share of F&M
common stock. A special dividend will be accrued by F&M up to the closing
date and paid by Banner at the closing based on an assumed $0.88 annual
dividend for 2007. Outstanding options to purchase shares of F&M common stock
are required to be exercised prior to closing to participate in the
consideration. Unexercised options will expire. The transaction, which is
valued at approximately $98.8 million, is expected to close in the second
quarter of 2007, pending F&M shareholder and regulatory approval and the
satisfaction of other customary closing conditions. F&M has agreed to pay a
termination fee in the event the Merger Agreement is terminated under certain
conditions. All of the directors and certain officers of F&M have entered into
voting agreements pursuant to which they have agreed to vote their shares in
favor of the transaction
For additional information regarding the terms of the proposed
transaction, reference is made to the Merger Agreement which is attached
hereto as Exhibit 2.1 and incorporated herein by reference.
Additional Information and Where to Find it
Banner intends to file with the Securities and Exchange Commission a
registration statement on Form S-4, and F&M expects to mail a proxy
statement/prospectus to its security holders, containing information about the
transaction. Investors and security holders of Banner and F&M are urged to
read the proxy statement/prospectus and other relevant materials when they
become available because they will contain important information about Banner,
F&M and the proposed merger. In addition to the registration statement to be
filed by Banner and the proxy statement/prospectus to be mailed to the
security holders of F&M, Banner files annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange
Commission. Investors and security holders may obtain a free copy of the
proxy statement/prospectus and other relevant documents (when they become
available) and any other documents filed with the Securities and Exchange
Commission at its website at www.sec.gov. The documents filed by Banner, may
also be obtained free of charge from Banner by requesting them in writing at
Banner Corporation, 10 South First Avenue, Walla Walla, WA 99362, or by
telephone at (509) 527-3636. In addition, investors and security holders may
access copies of the documents filed with the Securities and Exchange
Commission by Banner on its website at www.bannerbank.com.
Forward-looking Statements
This Form 8-K and the exhibits hereto may contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 concerning future performance, developments or events, expectations
for earnings, growth and market forecasts, and other guidance on future
periods (including, among others, statements regarding the benefits of the
acquisition of F&M Bank by Banner), which forward-looking statements are
subject to a number of risks and uncertainties that are beyond the Company's
control and might cause actual results to differ materially from stated
objectives. These factors include but are not limited to: competition in the
financial services market for both deposits and loans as well as regional and
general economic conditions; and Banner's ability to successfully complete
consolidation and conversion activities, incorporate acquisitions into its
operations, retain key employees, increase its customer base, achieve cost
savings and successfully generate commercial, consumer and real estate loans.
Additional factors that may affect future results are contained in Banner
filings with the SEC, which are available at the SEC web site
http://www.sec.gov, including in Banner Annual Report on Form 10-K for the
year ended December 31, 2005, under the heading "Risk Factors." Banner
undertakes no responsibility to update or revise any forward-looking
statements.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
2.1 Agreement and Plan of Merger dated December 11, 2006 by and
among Banner Corporation and Banner Bank and F&M Bank.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
BANNER CORPORATION
/s/D. Michael Jones
Date: December 12, 2006 By: -----------------------------------
D. Michael Jones
President and Chief Executive Officer
Exhibit 2.1
Agreement and Plan of Merger dated December 11, 2006
by and among Banner Corporation and F&M Bank
AGREEMENT AND PLAN OF MERGER
by and among
BANNER CORPORATION,
BANNER BANK
and
F&M Bank
_____________________
DATED AS OF DECEMBER 11, 2006
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Effects of the Merger. . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Conversion of F&M Bank Common Stock. . . . . . . . . . . . . . . . . 2
1.5 Stock Options and Other Stock-Based Awards . . . . . . . . . . . . . 4
1.6 Articles of Incorporation of Banner Bank . . . . . . . . . . . . . . 4
1.7 Bylaws of Banner Bank. . . . . . . . . . . . . . . . . . . . . . . . 5
1.8 Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II
DELIVERY OF MERGER CONSIDERATION
2.1 Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Deposit of Merger Consideration . . . . . . . . . . . . . . . . . . 5
2.3 Delivery of Merger Consideration . . . . . . . . . . . . . . . . . . 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF F&M BANK
3.1 Corporate Organization. . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3 Authority; No Violation . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . .10
3.5 Reports; Regulatory Matters . . . . . . . . . . . . . . . . . . . .11
3.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . .12
3.7 Broker's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . .13
3.8 Absence of Certain Changes or Events. . . . . . . . . . . . . . . .13
3.9 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .14
3.10 Taxes and Tax Returns . . . . . . . . . . . . . . . . . . . . . . .14
3.11 Employee Matters. . . . . . . . . . . . . . . . . . . . . . . . . .15
3.12 Compliance with Applicable Law. . . . . . . . . . . . . . . . . . .18
3.13 Certain Contracts . . . . . . . . . . . . . . . . . . . . . . . . .19
3.14 Risk Management Instruments . . . . . . . . . . . . . . . . . . . .20
3.15 Investment Securities . . . . . . . . . . . . . . . . . . . . . . .21
3.16 Loan Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . .21
3.17 Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
3.18 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . .23
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3.19 Environmental Liability . . . . . . . . . . . . . . . . . . . . . .24
3.20 State Takeover Laws . . . . . . . . . . . . . . . . . . . . . . . .24
3.21 Reorganization; Approvals . . . . . . . . . . . . . . . . . . . . .24
3.22 Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
3.23 F&M Bank Information. . . . . . . . . . . . . . . . . . . . . . . .25
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BANNER AND BANNER BANK
4.1 Corporate Organization. . . . . . . . . . . . . . . . . . . . . . .25
4.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . .26
4.3 Authority; No Violation . . . . . . . . . . . . . . . . . . . . . .27
4.4 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . .27
4.5 Reports; Regulatory Matters . . . . . . . . . . . . . . . . . . . .28
4.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . .29
4.7 Broker's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . .30
4.8 Absence of Certain Changes or Events. . . . . . . . . . . . . . . .30
4.9 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .31
4.10 Taxes and Tax Returns . . . . . . . . . . . . . . . . . . . . . . .31
4.11 Compliance with Applicable Law. . . . . . . . . . . . . . . . . . .31
4.12 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . .32
4.13 Risk Management Instruments . . . . . . . . . . . . . . . . . . . .32
4.14 Investment Securities . . . . . . . . . . . . . . . . . . . . . . .32
4.15 Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
4.16 Environmental Liability . . . . . . . . . . . . . . . . . . . . . .33
4.17 Reorganization; Approvals . . . . . . . . . . . . . . . . . . . . .34
4.18 Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
4.19 Banner Information. . . . . . . . . . . . . . . . . . . . . . . . .34
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of Businesses Prior to the Effective Time . . . . . . . . .34
5.2 F&M Bank Forbearances . . . . . . . . . . . . . . . . . . . . . . .34
5.3 Banner Forbearances . . . . . . . . . . . . . . . . . . . . . . . .37
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Regulatory Matters. . . . . . . . . . . . . . . . . . . . . . . . .37
6.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . .39
6.3 Shareholder Approval. . . . . . . . . . . . . . . . . . . . . . . .39
6.4 Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
6.5 Nasdaq Listing. . . . . . . . . . . . . . . . . . . . . . . . . . .40
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6.6 Employee and Director Matters . . . . . . . . . . . . . . . . . . .40
6.7 Indemnification; Directors' and Officers' Insurance . . . . . . . .41
6.8 Additional Agreements . . . . . . . . . . . . . . . . . . . . . . .42
6.9 Advice of Changes . . . . . . . . . . . . . . . . . . . . . . . . .43
6.10 [Reserved]. . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
6.11 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . .43
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger. . . . .45
7.2 Conditions to Obligations of Banner and Banner Bank . . . . . . . .45
7.3 Conditions to Obligations of F&M Bank . . . . . . . . . . . . . . .46
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . .51
8.3 Fees and Expenses; Termination Fees . . . . . . . . . . . . . . . .51
8.4 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
8.5 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . .52
ARTICLE IX
GENERAL PROVISIONS
9.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
9.2 Nonsurvival of Representations, Warranties and Agreements . . . . .53
9.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
9.4 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . .54
9.5 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . .54
9.6 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . .54
9.7 Governing Law; Jurisdiction . . . . . . . . . . . . . . . . . . . .55
9.8 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
9.9 Assignment; Third Party Beneficiaries . . . . . . . . . . . . . . .55
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INDEX OF DEFINED TERMS
Section
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Adjusted Option. . . . . . . . . . . . . . . . . . . . . . . . 1.5(a)
Agency (Agencies). . . . . . . . . . . . . . . . . . . . . . . 3.16(d)
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
All Cash Consideration . . . . . . . . . . . . . . . . . . . . 1.5(a)
Alternative Proposal . . . . . . . . . . . . . . . . . . . . . 6.11(a)
Alternative Transaction. . . . . . . . . . . . . . . . . . . . 6.11(a)
Articles of Merger . . . . . . . . . . . . . . . . . . . . . . 1.2
Average Closing Price. . . . . . . . . . . . . . . . . . . . . 8.1(g)
Banner . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Banner Bank Articles . . . . . . . . . . . . . . . . . . . . . 4.1(b)
Banner Bank Bylaws . . . . . . . . . . . . . . . . . . . . . . 4.1(b)
Banner Benefit Plans . . . . . . . . . . . . . . . . . . . . . 6.6(a)
Banner Capitalization Date . . . . . . . . . . . . . . . . . . 4.2(a)
Banner Change in Control Event . . . . . . . . . . . . . . . . 8.3(c)
Banner Closing Price . . . . . . . . . . . . . . . . . . . . . 1.5(a)
Banner Common Stock. . . . . . . . . . . . . . . . . . . . . . 1.4(a)
Banner Disclosure Schedule . . . . . . . . . . . . . . . . . . Art. IV
Banner Fill Option . . . . . . . . . . . . . . . . . . . . . . 8.1(g)
Banner Leased Properties . . . . . . . . . . . . . . . . . . . 4.15
Banner Owned Properties. . . . . . . . . . . . . . . . . . . . 4.15
Banner Preferred Stock . . . . . . . . . . . . . . . . . . . . 4.2(a)
Banner Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(g)(ii)
Banner Real Property . . . . . . . . . . . . . . . . . . . . . 4.15
Banner Regulatory Agreement. . . . . . . . . . . . . . . . . . 4.5(b)
Banner Requisite Regulatory Approvals. . . . . . . . . . . . . 7.2(d)
Banner Restricted Share Right. . . . . . . . . . . . . . . . . 1.5(b)
Banner SEC Reports . . . . . . . . . . . . . . . . . . . . . . 4.5(c)
Banner Starting Price. . . . . . . . . . . . . . . . . . . . . 8.1(g)
Banner Stock Plans . . . . . . . . . . . . . . . . . . . . . . 4.2(a)
Banner Subsidiary. . . . . . . . . . . . . . . . . . . . . . . 3.1(b)
Banner Warrant . . . . . . . . . . . . . . . . . . . . . . . . 1.5(c)
BHC Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1(b)
Business Combination . . . . . . . . . . . . . . . . . . . . . 8.3(c)
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(g)
Cash Consideration . . . . . . . . . . . . . . . . . . . . . . 1.4(c)(i)
Ceiling Price. . . . . . . . . . . . . . . . . . . . . . . . . 8.1(h)(i)
Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . 1.4(d)
Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7(a)
Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . 9.1
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Confidentiality Agreement. . . . . . . . . . . . . . . . . . . 6.2(b)
Controlled Group Liability . . . . . . . . . . . . . . . . . . 3.11
-iv-
Covered Employees. . . . . . . . . . . . . . . . . . . . . . . 6.6(a)
Derivative Transactions. . . . . . . . . . . . . . . . . . . . 3.14(a)
Determination Date . . . . . . . . . . . . . . . . . . . . . . 8.1(g)
Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . . 1.4(f)
DPC Common Shares. . . . . . . . . . . . . . . . . . . . . . . 1.4(b)
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . 1.2
Employment Agreement . . . . . . . . . . . . . . . . . . . . . 3.11
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.11
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . 3.13(a)
Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . 2.1
Exchange Agent Agreement . . . . . . . . . . . . . . . . . . . 2.1
Exchange Fund. . . . . . . . . . . . . . . . . . . . . . . . . 2.2
Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . 1.5(c)
F&M Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
F&M Bank Articles. . . . . . . . . . . . . . . . . . . . . . . 3.1(b)
F&M Bank Balance Sheet . . . . . . . . . . . . . . . . . . . . 3.6(a)
F&M Bank Benefit Plan. . . . . . . . . . . . . . . . . . . . . 3.11
F&M Bank Bylaws. . . . . . . . . . . . . . . . . . . . . . . . 3.1(b)
F&M Bank Capitalization Date . . . . . . . . . . . . . . . . . 3.2(a)
F&M Bank Common Stock. . . . . . . . . . . . . . . . . . . . . 1.4(b)
F&M Bank Contract. . . . . . . . . . . . . . . . . . . . . . . 3.13(a)
F&M Bank Criticized Assets . . . . . . . . . . . . . . . . . . 3.14(c)
F&M Bank Disclosure Schedule . . . . . . . . . . . . . . . . . Art. III
F&M Bank ERISA Affiliate . . . . . . . . . . . . . . . . . . . 3.11
F&M Bank Fill Option . . . . . . . . . . . . . . . . . . . . . 8.1(h)
F&M Bank Financial Statements. . . . . . . . . . . . . . . . . 3.6(a)
F&M Bank Leased Properties . . . . . . . . . . . . . . . . . . 3.17
F&M Bank Options . . . . . . . . . . . . . . . . . . . . . . . 1.5(a)
F&M Bank Owned Properties. . . . . . . . . . . . . . . . . . . 3.17
F&M Bank Plan. . . . . . . . . . . . . . . . . . . . . . . . . 6.6(f)
F&M Bank Pool. . . . . . . . . . . . . . . . . . . . . . . . . 3.16(g)
F&M Bank Preferred Stock . . . . . . . . . . . . . . . . . . . 3.2(a)
F&M Bank Real Property . . . . . . . . . . . . . . . . . . . . 3.17
F&M Bank Recommendation. . . . . . . . . . . . . . . . . . . . 6.3
F&M Bank Regulatory Agreement. . . . . . . . . . . . . . . . . 3.5(b)
F&M Bank Requisite Regulatory Approvals. . . . . . . . . . . . 7.3(d)
F&M Bank Restricted Shares . . . . . . . . . . . . . . . . . . 1.5(b)
F&M Bank Shareholders' Meeting . . . . . . . . . . . . . . . . 6.3
F&M Bank Stock Plans . . . . . . . . . . . . . . . . . . . . . 1.5(a)
F&M Bank Subsidiary. . . . . . . . . . . . . . . . . . . . . . 3.1(c)
F&M Bank Warrants. . . . . . . . . . . . . . . . . . . . . . . 1.5(c)
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1(d)
Final Aggregate Consideration. . . . . . . . . . . . . . . . . 8.1(g)
Final Index Price. . . . . . . . . . . . . . . . . . . . . . . 8.1(g)
Final Price. . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(g)
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Floor Price. . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(g)(i)
Form S-4 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1(c)
Governmental Entity. . . . . . . . . . . . . . . . . . . . . . 3.4
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . 3.13(a)
Indemnified Parties. . . . . . . . . . . . . . . . . . . . . . 6.7(a)
Index Group. . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(g)
Index Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(g)(ii)
Initial Aggregate Consideration. . . . . . . . . . . . . . . . 8.1(g)
Initial Index Price. . . . . . . . . . . . . . . . . . . . . . 8.1(g)
Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(d)
Insurance Amount . . . . . . . . . . . . . . . . . . . . . . . 6.7(c)
Intellectual Property. . . . . . . . . . . . . . . . . . . . . 3.18
IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10(a)
Letter of Transmittal. . . . . . . . . . . . . . . . . . . . . 2.3(a)
Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3(b)
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.16(a)
Material Adverse Effect. . . . . . . . . . . . . . . . . . . . 3.1(a)
Materially Burdensome Regulatory Condition . . . . . . . . . . 6.1(b)
Maximum Aggregate Consideration. . . . . . . . . . . . . . . . 8.1(g)
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Merger Consideration . . . . . . . . . . . . . . . . . . . . . 1.4(c)
Minimum Aggregate Consideration. . . . . . . . . . . . . . . . 8.1(g)
Multiemployer Plan . . . . . . . . . . . . . . . . . . . . . . 3.11
Nasdaq . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5(a)
Other Regulatory Approvals . . . . . . . . . . . . . . . . . . 3.4
Outstanding Banner Common Stock. . . . . . . . . . . . . . . . 8.3(c)
Outstanding Banner Voting Securities . . . . . . . . . . . . . 8.3(c)
Permitted Encumbrances . . . . . . . . . . . . . . . . . . . . 3.17
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.11
Policies, Practices and Procedures . . . . . . . . . . . . . . 3.15(b)
Prorated Dividend. . . . . . . . . . . . . . . . . . . . . . . 1.4(c)
Proxy Statement. . . . . . . . . . . . . . . . . . . . . . . . 3.4
RCW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(a)
Regulatory Agencies. . . . . . . . . . . . . . . . . . . . . . 3.5(a)
Repurchase Adjustment Amount . . . . . . . . . . . . . . . . . 1.4(c)
Resulting Bank . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Sarbanes-Oxley Act . . . . . . . . . . . . . . . . . . . . . . 4.5(c)
SEC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . 3.2(a)
Share Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . 1.4(c)
Stock Consideration. . . . . . . . . . . . . . . . . . . . . . 1.4(c)(ii)
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1(b)
Takeover Statutes. . . . . . . . . . . . . . . . . . . . . . . 3.20
Tax Return . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10(c)
Tax(es). . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10(b)
Termination Fee. . . . . . . . . . . . . . . . . . . . . . . . 8.3(b)(i)
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Trust Account Common Shares. . . . . . . . . . . . . . . . . . 1.4(b)
Unaudited F&M Bank Balance Sheet . . . . . . . . . . . . . . . 3.6(a)
Voting Debt. . . . . . . . . . . . . . . . . . . . . . . . . . 3.2(a)
WBCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3
Withdrawal Liability . . . . . . . . . . . . . . . . . . . . . 3.11
-vii-
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 11, 2006 (this
"Agreement"), by and among F&M BANK, a Washington state-chartered bank ("F&M
Bank") and BANNER CORPORATION, a Washington corporation ("Banner") and BANNER
BANK, a Washington state-chartered bank.
W I T N E S S E T H:
WHEREAS, the Boards of Directors of F&M Bank and Banner have determined
that it is in the best interests of their respective companies and their
shareholders to consummate the strategic business combination transaction
provided for in this Agreement in which F&M Bank will, on the terms and
subject to the conditions set forth in this Agreement, merge with and into
Banner Bank, a wholly owned subsidiary of Banner (the "Merger"), so that
Banner Bank is the resulting bank in the Merger (sometimes referred to in such
capacity as the "Resulting Bank");
WHEREAS, for federal income Tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), and this Agreement
is intended to be and is adopted as a "plan of reorganization" for purposes of
Sections 354 and 361 of the Code; WHEREAS, certain shareholders of F&M Bank
have entered into Voting and Support Agreements in connection with the Merger;
and
WHEREAS, the parties desire to make certain representations, warranties
and agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained in this Agreement, and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, the parties
agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. (a) Subject to the terms and conditions of this
Agreement, in accordance with Title 30, Chapter 49 of the Revised Code of
Washington (the "RCW"), at the Effective Time, F&M Bank shall merge with and
into Banner Bank. Banner Bank shall be the Resulting Bank in the Merger, and
shall continue its corporate existence under the laws of the State of
Washington. As of the Effective Time, the separate corporate existence of F&M
Bank shall cease.
(b) Banner may at any time change the method or structure of effecting
the combination if and to the extent reasonably requested by Banner; provided,
however, that no such change shall (i) alter or change the amount or kind of
the Merger Consideration provided for in this Agreement, (ii) adversely affect
the Tax treatment of the Merger with respect to F&M
Bank's shareholders or (iii) materially impede or delay consummation of the
transactions contemplated by this Agreement. This Agreement and any related
documents will be appropriately amended in order to reflect any such changed
method or structure.
1.2 Effective Time. The Merger shall become effective at the time set
forth in the articles of merger that shall be filed with the Director of the
Washington Department of Financial Institutions (the "Articles of Merger") on
the Closing Date. The term "Effective Time" shall be the date and time when
the Merger becomes effective as set forth in the Articles of Merger.
1.3 Effects of the Merger. At and after the Effective Time, the Merger
shall have the effects set forth in Section 11.060 of the Washington Business
Corporation Act (the "WBCA"), incorporated herein by reference, and other
applicable law.
1.4 Conversion of F&M Bank Common Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of Banner, Banner
Bank, F&M Bank or the holder of any of the following securities:
(a) Each share of common stock, par value $1.00 per share, of Banner
Bank issued and outstanding immediately prior to the Effective Time shall
remain issued and outstanding and shall not be affected by the Merger.
(b) All shares of common stock, par value $1.00 per share, of F&M Bank
issued and outstanding immediately prior to the Effective Time (the "F&M Bank
Common Stock") that are beneficially owned by F&M Bank, Banner or Banner Bank
(other than shares of F&M Bank Common Stock held in trust accounts, managed
accounts and the like, or otherwise held in a fiduciary or agency capacity,
that are beneficially owned by third parties (any such shares, "Trust Account
Common Shares") and other than shares of F&M Bank Common Stock held, directly
or indirectly, by F&M Bank or Banner in respect of a debt previously
contracted (any such shares, "DPC Common Shares")) shall be cancelled and
shall cease to exist and no stock of Banner or other consideration shall be
delivered in exchange therefor.
(c) Subject to Section 1.4(e), each share of F&M Bank Common Stock,
except for shares of F&M Bank Common Stock owned by F&M Bank, Banner (other
than Trust Account Common Shares and DPC Common Shares) or any of their
respective wholly owned Subsidiaries, shall be converted, in accordance with
the procedures set forth in Article II, into the right to receive (i) an
amount in cash, rounded to the nearest cent, equal to the quotient of (A)
$19.4 million minus the Repurchase Adjustment Amount divided by (B) the number
of shares of F&M Bank Common Stock outstanding as of the Effective Time,
without interest (the "Cash Consideration"), (ii) that fraction, rounded to
the nearest ten thousandth (the "Share Ratio"), of a share of Banner common
stock, par value $0.01 per share (the "Banner Common Stock") equal to
1,773,494 divided by the number of shares of F&M Bank Common Stock outstanding
as of the Effective Time (the "Stock Consideration"), and (iii) an amount in
cash equal to the Prorated Dividend. The Cash Consideration, the Stock
Consideration and the
Prorated Dividend are sometimes referred to herein collectively as the "Merger
Consideration."
The "Prorated Dividend" means the product of (A) $0.88 and (B) the
quotient obtained by dividing (x) the number of days between December 31, 2006
and the Closing Date (including the Closing Date) by (y) 365.
The "Repurchase Adjustment Amount" means the value of, without
duplication, any consideration paid or delivered by F&M Bank or Banner in cash
or other property in exchange for F&M Bank Common Stock repurchased from, or
converted into other consideration for the benefit of, participants in the F&M
Bank Plan after the date hereof; provided that the Repurchase Adjustment
Amount shall not include any cash payments made with respect to any Repurchase
Residual Payment, as defined in and referred to in Section 5.2 of the F&M Bank
Disclosure Schedule.
(d) All of the shares of F&M Bank Common Stock converted into the right
to receive the Merger Consideration pursuant to this Section 1.4 shall no
longer be outstanding and shall automatically be cancelled and shall cease to
exist as of the Effective Time, and each certificate previously representing
any such shares of F&M Bank Common Stock (each, a "Certificate") shall
thereafter represent only the right to receive the Merger Consideration and/or
cash in lieu of fractional shares, into which the shares of F&M Bank Common
Stock represented by such Certificate have been converted pursuant to this
Section 1.4 and Section 2.3(f), as well as any dividends to which holders of
F&M Bank Common Stock become entitled in accordance with Section 2.3(c).
(e) If, between the date of this Agreement and the Effective Time, the
outstanding shares of Banner Common Stock shall have been increased,
decreased, changed into or exchanged for a different number or kind of shares
or securities as a result of a reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split, or other
similar change in capitalization, an appropriate and proportionate adjustment
shall be made to the Share Ratio.
(f) Notwithstanding any other provision contained in this Agreement, no
shares of F&M Bank Common Stock that are issued and outstanding as of the
Effective Time and that are held by a shareholder who has properly exercised
such shareholder's appraisal rights (any such shares being referred to herein
as "Dissenting Shares") under RCW 30.49.090 shall be converted into the right
to receive the Merger Consideration as provided in Section 1.4(c) and instead
shall be entitled to such rights (but only such rights) as are granted by RCW
30.49.090 (unless and until such shareholder shall have failed to perfect, or
shall have effectively withdrawn or lost, such shareholder's right to dissent
from the Merger such statute) and to receive such consideration as may be
determined to be due with respect to such Dissenting Shares pursuant to and
subject to the requirements of the RCW 30.49.090. If any such shareholder
shall have failed to perfect or shall have effectively withdrawn or lost such
right, each of such holder's shares of F&M Bank Common Stock shall thereupon
be deemed to have been converted into and to have become, as of the Effective
Time, the
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right to receive the Merger Consideration in accordance with the applicable
provisions of this Agreement. F&M Bank shall give Banner (i) prompt notice of
any notice or demand for appraisal or payment for shares of F&M Bank Common
Stock received by F&M Bank and (ii) the opportunity to participate in and
direct all negotiations and proceedings with respect to any such demand or
notices. F&M Bank shall not, without the prior written consent of Banner,
make any payment with respect to, or settle, offer for settle or otherwise
negotiate any such demands.
1.5 Stock Options and Other Stock-Based Awards. (a) As of the
Effective Time, all options to purchase shares of F&M Bank Common Stock
granted to employees or directors of F&M Bank under any equity-based
compensation plan, including the 2001 Stock Option Plan, the F&M Bank
Management Stock Bonus Plan, or the F&M Bank Director Stock Grant Plan all as
amended and the award agreements thereunder (collectively, the "F&M Bank Stock
Plans") that are outstanding immediately prior to the Effective Time
(collectively, the "F&M Bank Options") regardless of whether or not vested,
shall be cancelled and the holders thereof shall have no further rights with
respect thereto.
(b) As of the Effective Time, each restricted share of F&M Bank Common
Stock granted to any employee or director of F&M Bank under a F&M Bank Stock
Plan that is outstanding immediately prior to the Effective Time
(collectively, the "F&M Bank Restricted Shares") shall, by virtue of the
Merger and without any action on the part of the holder thereof, be cancelled
and converted into the right to receive (the "Banner Restricted Share Right"),
on the same terms and conditions as applied to each such F&M Bank Restricted
Share immediately prior to the Effective Time (including the same transfer
restrictions), the Merger Consideration determined in accordance with Sections
1.4 of this Agreement, and treating such F&M Bank Restricted Shares in the
same manner as all other shares of F&M Bank Common Stock for such purposes;
provided, however, that Banner shall be entitled to deduct and withhold such
amounts as may be required to be deducted and withheld under the Code and any
applicable state or local Tax law.
(c) F&M Bank shall, pursuant to applicable provisions of the F&M Bank
Stock Plan(s) and within 15 days prior to the Effective Date, notify each
holder of an F&M Bank Option of the pendency of the anticipated Effective
Date, and, to the extent requested by Banner, take all action that Banner
deems necessary or advisable to effectuate prior to the Effective Time the
transactions contemplated by Section 1.5 of this Agreement, including amending
each of the F&M Bank Stock Plans (i) if and to the extent necessary and
practicable, to reflect the transactions contemplated by Section 1.5 of this
Agreement and (ii) to preclude any automatic or formulaic grant of options,
restricted shares or other awards thereunder on or after the date hereof.
1.6 Articles of Incorporation of Banner Bank. At the Effective Time,
the articles of incorporation of Banner Bank, as in effect immediately prior
to the Effective Time, shall be the articles of incorporation of the Resulting
Bank until thereafter amended in accordance with applicable law.
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1.7 Bylaws of Banner Bank. At the Effective Time, the bylaws of Banner
Bank, as in effect immediately prior to the Effective Time, shall be the
bylaws of the Resulting Bank until thereafter amended in accordance with
applicable law.
1.8 Tax Consequences. It is intended that the Merger shall constitute
a "reorganization" within the meaning of Section 368(a) of the Code, and that
this Agreement shall constitute a "plan of reorganization" for purposes of
Sections 354 and 361 of the Code.
ARTICLE II
DELIVERY OF MERGER CONSIDERATION
2.1 Exchange Agent. Prior to the Effective Time, Banner shall appoint
a bank or trust company selected by Banner and reasonably acceptable to F&M
Bank (the "Exchange Agent"), pursuant to an agreement (the "Exchange Agent
Agreement"), to act as exchange agent hereunder.
2.2 Deposit of Merger Consideration. At or prior to the Effective
Time, Banner shall deposit, or shall cause to be deposited, with the Exchange
Agent, (i) certificates representing the number of shares of Banner Common
Stock sufficient to deliver, and Banner shall instruct the Exchange Agent to
timely deliver, the aggregate Stock Consideration, and (ii) immediately
available funds equal to the aggregate Cash Consideration (together with, to
the extent then determinable, any cash payable in lieu of fractional shares
pursuant to Section 2.3(f)) (collectively, the "Exchange Fund") and Banner
shall instruct the Exchange Agent to timely pay the Cash Consideration, and
such cash in lieu of fractional shares, in accordance with this Agreement.
2.3 Delivery of Merger Consideration. (a) As soon as reasonably
practicable after the Effective Time, the Exchange Agent shall mail to each
holder of record of Certificate(s) which immediately prior to the Effective
Time represented outstanding shares of F&M Bank Common Stock whose shares were
converted into the right to receive the Merger Consideration pursuant to
Section 1.4 and any cash in lieu of fractional shares of Banner Common Stock
to be issued or paid in consideration therefor (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to Certificate(s) shall pass, only upon delivery of Certificate(s) (or
affidavits of loss in lieu of such Certificate(s))) (the "Letter of
Transmittal") to the Exchange Agent and shall be substantially in such form
and have such other provisions as shall be prescribed by the Exchange Agent
Agreement and (ii) instructions for use in surrendering Certificate(s) in
exchange for the Merger Consideration and any cash in lieu of fractional
shares of Banner Common Stock to be issued or paid in consideration therefor
in accordance with Section 2.3(f) upon surrender of such Certificate and any
dividends or distributions to which such holder is entitled pursuant to
Section 2.3(c).
(b) Upon surrender to the Exchange Agent of its Certificate(s),
accompanied by a properly completed Letter of Transmittal, a holder of F&M
Bank Common Stock will be entitled to receive, promptly after the Effective
Time, the Merger Consideration (with the aggregate Cash Consideration paid to
each such holder rounded to the nearest cent) and any cash in lieu of
fractional shares of Banner Common Stock to be issued or paid in consideration
therefor in respect of the shares of F&M Bank Common Stock represented by its
Certificate(s). Until so surrendered, each such Certificate shall represent
after the Effective Time, for all purposes, only the right to receive, without
interest, the Merger Consideration and any cash in lieu of fractional shares
of Banner Common Stock to be issued or paid in consideration
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therefor upon surrender of such Certificate in accordance with, and any
dividends or distributions to which such holder is entitled pursuant to, this
Article II.
(c) No dividends or other distributions with respect to Banner Common
Stock shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Banner Common Stock represented thereby, in each case
unless and until the surrender of such Certificate in accordance with this
Article II. Subject to the effect of applicable abandoned property, escheat
or similar laws, following surrender of any such Certificate in accordance
with this Article II the record holder thereof shall be entitled to receive,
without interest, (i) the amount of dividends or other distributions with a
record date after the Effective Time theretofore payable with respect to the
whole shares of Banner Common Stock represented by such Certificate and not
paid and/or (ii) at the appropriate payment date, the amount of dividends or
other distributions payable with respect to shares of Banner Common Stock
represented by such Certificate with a record date after the Effective Time
(but before such surrender date) and with a payment date subsequent to the
issuance of the Banner Common Stock issuable with respect to such Certificate.
(d) In the event of a transfer of ownership of a Certificate
representing F&M Bank Common Stock that is not registered in the stock
transfer records of F&M Bank, the proper amount of cash and/or shares of
Banner Common Stock shall be paid or issued in exchange therefor to a person
other than the person in whose name the Certificate so surrendered is
registered if the Certificate formerly representing such F&M Bank Common Stock
shall be properly endorsed or otherwise be in proper form for transfer and the
person requesting such payment or issuance shall pay any transfer or other
similar Taxes required by reason of the payment or issuance to a person other
than the registered holder of the Certificate or establish to the satisfaction
of Banner that the Tax has been paid or is not applicable. The Exchange Agent
(or, subsequent to the first anniversary of the Effective Time, Banner) shall
be entitled to deduct and withhold from the cash portion of the Merger
Consideration, any cash in lieu of fractional shares of Banner Common Stock,
cash dividends or distributions payable pursuant to Section 2.3 (c) hereof and
any other cash amounts otherwise payable pursuant to this Agreement to any
holder of F&M Bank Common Stock such amounts as the Exchange Agent or Banner,
as the case may be, is required to deduct and withhold under the Code, or any
provision of state, local or foreign Tax law, with respect to the making of
such payment. To the extent the amounts are so withheld by the Exchange Agent
or Banner, as the case may be, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of shares of F&M
Bank Common Stock in respect of whom such deduction and withholding was made
by the Exchange Agent or Banner, as the case may be.
(e) After the Effective Time, there shall be no transfers on the stock
transfer books of F&M Bank of any shares of F&M Bank Common Stock that were
issued and outstanding immediately prior to the Effective Time other than to
settle transfers of F&M Bank Common Stock that occurred prior to the Effective
Time. If, after the Effective Time, Certificates representing such shares are
presented for transfer to the Exchange Agent, they shall
-6-
be cancelled and exchanged for the Merger Consideration and any cash in lieu
of fractional shares of Banner Common Stock to be issued or paid in
consideration therefor in accordance with the procedures set forth in this
Article II.
(f) Notwithstanding anything to the contrary contained in this
Agreement, no certificates or scrip representing fractional shares of Banner
Common Stock shall be issued upon the surrender of Certificates for exchange;
no dividend or distribution with respect to Banner Common Stock shall be
payable on or with respect to any fractional share; and such fractional share
interests shall not entitle the owner thereof to vote or to any other rights
of a shareholder of Banner. In lieu of the issuance of any such fractional
share, Banner shall pay to each former shareholder of F&M Bank who otherwise
would be entitled to receive such fractional share, an amount in cash (rounded
to the nearest cent) determined by multiplying (i) the Banner Closing Price by
(ii) the fraction of a share (after taking into account all shares of F&M Bank
Common Stock held by such holder at the Effective Time and rounded to the
nearest one thousandth when expressed in decimal form) of Banner Common Stock
to which such holder would otherwise be entitled to receive pursuant to
Section 1.4.
(g) Any portion of the Exchange Fund that remains unclaimed by the
shareholders of F&M Bank as of the first anniversary of the Effective Time
shall be paid to Banner. Any former shareholders of F&M Bank who have not
theretofore complied with this Article II shall thereafter look only to Banner
with respect to the Merger Consideration, any cash in lieu of any fractional
shares and any unpaid dividends and distributions on the Banner Common Stock
deliverable in respect of each share of F&M Bank Common Stock such shareholder
holds as determined pursuant to this Agreement, in each case, without any
interest thereon. Notwithstanding the foregoing, none of Banner, F&M Bank,
the Exchange Agent or any other person shall be liable to any former holder of
shares of F&M Bank Common Stock for any amount delivered in good faith to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(h) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if reasonably required
by Banner or the Exchange Agent, the posting by such person of a bond in such
amount as Banner may determine is reasonably necessary as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration deliverable in respect thereof pursuant
to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF F&M BANK
Except as disclosed in the disclosure schedule (the "F&M Bank Disclosure
Schedule") delivered by F&M Bank to Banner or Banner Bank prior to the
execution of this Agreement (which schedule sets forth, among other things,
items, the disclosure of which is necessary or appropriate, either in response
to an express disclosure requirement contained in a provision hereof or as an
exception to one or more representations or warranties contained in this
Article III, or to one or more of F&M Bank's covenants, provided, however,
that disclosure in
-7-
any section of such F&M Bank Disclosure Schedule shall apply only to the
indicated Section of this Agreement except to the extent that it is reasonably
apparent that such disclosure is relevant to another section of this
Agreement), F&M Bank hereby represents and warrants to Banner and Banner Bank
as follows:
3.1 Corporate Organization. (a) F&M Bank is a banking corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Washington. F&M Bank has the corporate power and authority to own or
lease all of its properties and assets and to carry on its business as it is
now being conducted, and is duly licensed or qualified to do business, in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified have not had and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on F&M Bank.
As used in this Agreement, the term "Material Adverse Effect" means, with
respect to Banner, Banner Bank, F&M Bank or the Resulting Bank, as the case
may be, a material adverse effect on (i) the business, results of operations
or financial condition of such party and its Subsidiaries taken as a whole
(provided, however, that, with respect to this clause (i), Material Adverse
Effect shall not be deemed to include effects to the extent resulting from (A)
changes, after the date hereof, in generally accepted accounting principles or
regulatory accounting requirements applicable to banks or savings associations
and their holding companies generally, (B) changes, after the date hereof, in
laws, rules or regulations of general applicability or interpretations thereof
by courts or Governmental Entities, (C) changes, after the date hereof, in
global or national political conditions or in general economic or market
conditions affecting banks or their holding companies generally except to the
extent that any such changes have a disproportionate adverse effect on such
party or (D) public disclosure of the transactions contemplated hereby), or
(ii) the ability of such party to timely consummate the transactions
contemplated by this Agreement.
(b) F&M Bank is a bank chartered by the State of Washington. True,
complete and correct copies of the Articles of Incorporation of F&M Bank, as
amended (the "F&M Bank Articles"), and the Bylaws of F&M Bank (the "F&M Bank
Bylaws"), as in effect as of the date of this Agreement, have previously been
made available to Banner. As used in this Agreement, the term "Subsidiary"
means any bank, corporation, partnership, limited liability company or other
organization, whether incorporated or unincorporated, that is consolidated
with a party for financial reporting purposes under U.S. generally accepted
accounting principles ("GAAP"), and a "Banner Subsidiary" means any Subsidiary
of Banner. F&M Bank has no Subsidiaries.
(c) F&M Bank is, and there has not been any event or occurrence since
January 1, 2002 that could reasonably be expected to result in a determination
that F&M Bank is not, "well capitalized" and "well managed" as a matter of
U.S. federal banking law. F&M Bank has at least a "satisfactory" rating under
the U.S. Community Reinvestment Act.
(d) The deposit accounts of F&M Bank are insured by the Federal Deposit
Insurance Corporation (the "FDIC") through the Bank Insurance Fund to the
fullest extent permitted by law, and all premiums and assessments required to
be paid in connection therewith have been paid when due.
-8-
(e) The minute books of F&M Bank previously made available to Banner
contain true, complete and correct records of all meetings and other corporate
actions held or taken since December 31, 2002 of their respective shareholders
and Boards of Directors (including committees of their respective Boards of
Directors).
3.2 Capitalization. The number of authorized shares of capital stock
of F&M Bank, consisting solely of shares of F&M Common Stock, and the number
of such shares issued and outstanding as of December 11, 2006 (the "F&M Bank
Capitalization Date"), is 2,038,034, as is set forth in Schedule 3.2. As of
the F&M Bank Capitalization Date, no shares of F&M Bank Common Stock were held
as treasury stock. As of the date hereof, no shares of F&M Bank Common Stock
were reserved for issuance upon the exercise of F&M Bank Options pursuant to
F&M Bank Stock Plans. All of the issued and outstanding shares of F&M Bank
Common Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. As of the date of this Agreement, no
bonds, debentures, notes or other indebtedness having the right to vote on any
matters on which shareholders may vote ("Voting Debt") of F&M Bank are issued
or outstanding. As of the date of this Agreement, except pursuant to this
Agreement and F&M Bank Stock Plans, F&M Bank does not have and is not bound by
any outstanding subscriptions, options, warrants, calls, rights, commitments
or agreements of any character calling for the purchase or issuance of, or the
payment of any amount based on, any shares of F&M Bank Common Stock, Voting
Debt or any other equity securities of F&M Bank or any securities representing
the right to purchase or otherwise receive any shares of F&M Bank Common
Stock, Voting Debt or any other equity securities of F&M Bank. As of the date
of this Agreement, there are no contractual obligations of F&M Bank (x) to
repurchase, redeem or otherwise acquire any shares of capital stock of F&M
Bank or any equity security of F&M Bank or any securities representing the
right to purchase or otherwise receive any shares of capital stock or any
other equity security of F&M Bank or (y) pursuant to which F&M Bank is or
could be required to register shares of F&M Bank capital stock or other
securities under the Securities Act of 1933, as amended (the "Securities
Act"). F&M Bank has provided Banner with a true, complete and correct list of
the number of shares of F&M Bank Common Stock issuable upon the exercise of
each F&M Bank Option outstanding under F&M Bank Stock Plans as of the F&M Bank
Capitalization Date, the names of the holders thereof, the status as vested or
unvested and the exercise price for each such F&M Bank Option. Since the F&M
Bank Capitalization Date through the date hereof, F&M Bank has not (A) issued
or repurchased any shares of F&M Bank Common Stock, F&M Bank Preferred Stock,
Voting Debt or other equity securities of F&M Bank other than the issuance of
shares of F&M Bank Common Stock in connection with the exercise of F&M Bank
Options to purchase F&M Bank Common Stock granted under F&M Bank Stock Plans
that were outstanding on the F&M Bank Capitalization Date or (B) issued or
awarded any options, warrants, restricted shares or any other equity-based
awards under any of F&M Bank Stock Plans.
3.3 Authority; No Violation. (a) F&M Bank has full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly, validly and unanimously approved by the Board of Directors of F&M
Bank. The Board of Directors of F&M Bank has determined that this Agreement
and the transactions contemplated hereby are advisable and in the best
interests
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of F&M Bank and its shareholders, has directed that this Agreement be
submitted to F&M Bank's shareholders for approval and adoption at a duly held
meeting of such shareholders, has determined to recommend such approval and
has adopted a resolution to the foregoing effect. Except for the approval and
adoption of this Agreement by the affirmative vote of the holders of
two-thirds of the outstanding shares of F&M Bank Common Stock entitled to vote
at such meeting, no other corporate proceedings on the part of F&M Bank are
necessary to approve this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by F&M Bank and (assuming due authorization, execution and delivery
by Banner) constitutes the valid and binding obligation of F&M Bank,
enforceable against F&M Bank in accordance with its terms (except as may be
limited by bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting the rights of creditors generally and subject to general principles
of equity).
(b) Neither the execution and delivery of this Agreement by F&M Bank
nor the consummation by F&M Bank of the transactions contemplated hereby, nor
compliance by F&M Bank with any of the terms or provisions of this Agreement,
will (i) violate any provision of F&M Bank Articles or F&M Bank Bylaws or (ii)
assuming that the consents, approvals and filings referred to in Section 3.4
are duly obtained and/or made, (A) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or Injunction applicable to F&M
Bank, or any of its properties or assets or (B) except as would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on F&M Bank, violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a
default) under, result in the termination of or a right of termination or
cancellation under, accelerate the performance required by, or result in the
creation of any lien, pledge, charge, security interest or other similar
encumbrance (a "Lien") upon any of the properties or assets of F&M Bank under
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which F&M Bank is a party or by which it or any of its
properties or assets is bound.
3.4 Consents and Approvals. Except for (i) the filing of applications
and notices, as applicable, with the FDIC and approval of such applications
and notices, (ii) the filing of any required applications, filings or notices
with the Washington Department of Financial Institutions and approval of such
applications, filings and notices (the "Other Regulatory Approvals"), (iii)
the filing with the Securities and Exchange Commission (the "SEC") of a Proxy
Statement in definitive form relating to the meetings of F&M Bank's
shareholders to be held in connection with this Agreement and the transactions
contemplated by this Agreement (the "Proxy Statement") and of a registration
statement on Form S-4 (the "Form S-4") in which the Proxy Statement will be
included as a prospectus, and declaration of effectiveness of the Form S-4,
(iv) the filing of the Articles of Merger, (v) any consents, authorizations,
approvals, filings or exemptions required under consumer finance, mortgage
banking and other similar laws, and (vi) such filings and approvals as are
required to be made or obtained under the securities or "Blue Sky" laws of
various states in connection with the issuance of the shares of Banner Common
Stock pursuant to this Agreement and approval of listing of such Banner Common
Stock on the Nasdaq, no consents or approvals of or filings or registrations
with any court, administrative agency or commission or other governmental
authority or instrumentality (each a "Governmental Entity") are necessary in
connection with the consummation by F&M
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Bank of the Merger and the other transactions contemplated by this Agreement.
No consents or approvals of or filings or registrations with any Governmental
Entity are necessary in connection with the execution and delivery by F&M Bank
of this Agreement.
3.5 Reports; Regulatory Matters. (a) F&M Bank has timely filed all
reports and statements, together with any amendments required to be made with
respect thereto, that it was required to file since January 1, 2003 with (i)
the Board of Governors of the Federal Reserve System, (ii) the FDIC, (iii)
Washington State Department of Financial Institutions, (iv) the NASD and any
other self-regulatory organization, and (v) any foreign regulatory authority
(collectively, "Regulatory Agencies") and with each other applicable
Governmental Entity, and all other reports and statements required to be filed
by them since January 1, 2003, including any report or statement required to
be filed pursuant to the laws, rules or regulations of the United States, any
state, any foreign entity, or any Regulatory Agency or Governmental Entity,
and have paid all fees and assessments due and payable in connection
therewith. Except for normal examinations conducted by a Regulatory Agency or
Governmental Entity in the ordinary course of the business of F&M Bank, no
Regulatory Agency or Governmental Entity has initiated since January 1, 2003
or has pending any proceeding, enforcement action or, to the knowledge of F&M
Bank, investigation into the business, disclosures or operations of F&M Bank.
Since January 1, 2003, no Regulatory Agency or Governmental Entity has
resolved any proceeding, enforcement action or, to the knowledge of F&M Bank,
investigation into the business, disclosures or operations of F&M Bank. There
is no unresolved violation, criticism or exception by any Regulatory Agency or
Governmental Entity with respect to any report or statement relating to any
examinations or inspections of F&M Bank. Since January 1, 2003, there has
been no formal or informal inquiries by, or disagreements or disputes with,
any Regulatory Agency or Governmental Entity with respect to the business,
operations, policies or procedures of F&M Bank.
(b) F&M Bank is not subject to any cease-and-desist or other order or
enforcement action issued by, or is a party to any written agreement, consent
agreement or memorandum of understanding with, or is a party to any commitment
letter or similar undertaking to, or is subject to any order or directive by,
or has been a recipient of any supervisory letter from, or has been ordered to
pay any civil money penalty by, or has adopted any policies, procedures or
board resolutions at the request or suggestion of, any Regulatory Agency or
other Governmental Entity that currently restricts in any material respect the
conduct of its business or that in any material manner relates to its capital
adequacy, its ability to pay dividends, its credit, risk management or
compliance policies, its internal controls, its management or its business,
other than those of general application that apply to similarly situated banks
(each, a "F&M Bank Regulatory Agreement"), nor has F&M Bank been advised since
January 1, 2003 by any Regulatory Agency or other Governmental Entity that it
is considering issuing, initiating, ordering, or requesting any such F&M Bank
Regulatory Agreement.
(c) F&M Bank has previously made available to Banner an accurate and
complete copy of (i) all documents provided or made available by or on behalf
of F&M Bank to its shareholders or prospective investors and (ii) each
communication mailed by F&M Bank to its shareholders, in each case since
January 1, 2003 and prior to the date of this Agreement. No such F&M Bank
communication, at the time filed, furnished or communicated, contained any
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untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances in which they were made, not
misleading, except that information as of a later date (but before the date of
this Agreement) shall be deemed to modify information as of an earlier date.
3.6 Financial Statements. (a) Section 3.6(a) of the F&M Bank
Disclosure Schedule contains true and correct copies of (i) the audited
consolidated balance sheets of F&M Bank as of December 31, 2005 (the "F&M Bank
Balance Sheet"), December 31, 2004 and December 31, 2003, and the related
audited consolidated statements of income, changes in shareholders' equity and
cash flows for the fiscal years ended December 31, 2005, December 31, 2004 and
December 31, 2003 and (ii) the unaudited consolidated balance sheets of F&M
Bank as of September 30, 2006 (the "Unaudited F&M Bank Balance Sheet") and
September 30, 2005, and the related unaudited consolidated statements of
income for the nine months ended September 30, 2006 and September 30, 2005
(including the related notes, where applicable) (all such balance sheets and
financial statements and related notes, the "F&M Bank Financial Statements").
(b) The F&M Bank Financial Reports (i) have been prepared from, and are
in accordance with, the books and records of F&M Bank, (ii) fairly present in
all material respects the consolidated results of operations, cash flows,
changes in shareholders' equity and consolidated financial position of F&M
Bank for the respective fiscal periods or as of the respective dates therein
set forth (subject in the case of unaudited statements to recurring year-end
audit adjustments normal in nature and amount), and (iii) have been prepared
in accordance with GAAP consistently applied during the periods involved,
except, in each case, as indicated in such statements or in the notes thereto.
The books and records of F&M Bank have been, and are being, maintained in all
material respects in accordance with GAAP and any other applicable legal and
accounting requirements and reflect only actual transactions. Moss Adams LLP
has not resigned or been dismissed as independent public accountants of F&M
Bank as a result of or in connection with any disagreements with F&M Bank on a
matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure.
(c) F&M Bank has no material liability of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or to
become due), except for those liabilities that are reflected or reserved
against on the Unaudited F&M Bank Balance Sheet and for liabilities incurred
in the ordinary course of business consistent with past practice since
September 30, 2006 or in connection with this Agreement and the transactions
contemplated hereby.
(d) The records, systems, controls, data and information of F&M Bank
are recorded, stored, maintained and operated under means (including any
electronic, mechanical or photographic process, whether computerized or not)
that are under the exclusive ownership and direct control of F&M Bank or its
accountants (including all means of access thereto and therefrom), except for
any non-exclusive ownership and non-direct control that would not reasonably
be expected to have a Material Adverse Effect on F&M Bank. F&M Bank maintains
accounting records which fairly and accurately reflect, in all material
respects, its transactions, and F&M Bank has devised and maintains accounting
controls sufficient to provide reasonable assurances that such transactions
are (i) executed in accordance with management's general or
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specific authorization, and (ii) recorded as necessary to permit the
preparation of financial statements in accordance with GAAP.
(e) Since December 31, 2005, (i) through the date hereof, neither F&M
Bank nor, to the knowledge of the officers of F&M Bank, any director, officer,
employee, auditor, accountant or representative of F&M Bank has received or
otherwise had or obtained knowledge of any material complaint, allegation,
assertion or claim, whether written or oral, regarding the accounting or
auditing practices, internal controls, procedures, methodologies or methods of
F&M Bank, including any material complaint, allegation, assertion or claim
that F&M Bank has engaged in questionable accounting or auditing practices,
and (ii) no attorney representing F&M Bank, whether or not employed by F&M
Bank, has reported evidence of a material violation of securities laws, breach
of fiduciary duty or similar violation by F&M Bank or any of its officers,
directors, employees or agents to the Board of Directors of F&M Bank or any
committee thereof or to any director or officer of F&M Bank.
3.7 Broker's Fees. Neither F&M Bank nor any of its officers or
directors has employed any broker or finder or incurred any liability for any
broker's fees, commissions or finder's fees in connection with the Merger or
related transactions contemplated by this Agreement, other than McAdams Wright
Ragen, Inc. pursuant to a letter agreement between F&M Bank and McAdams Wright
Ragen, Inc., a true, complete and correct copy of which has been previously
delivered to Banner.
3.8 Absence of Certain Changes or Events. (a) Since December 31,
2005, no event or events have occurred that have had or are reasonably likely
to have, either individually or in the aggregate, a Material Adverse Effect on
F&M Bank.
(b) Since December 31, 2005, through and including the date of this
Agreement, F&M Bank has carried on its business in all material respects in
the ordinary course of business consistent with past practice.
(c) Since September 30, 2006, F&M Bank has not (i) except for (A)
normal increases for non-executive officer employees made in the ordinary
course of business consistent with past practice, or (B) as required by
applicable law, increased the wages, salaries, compensation, pension, or other
fringe benefits or perquisites payable to any executive officer, employee, or
director from the amount thereof in effect as of December 31, 2005 (which
amounts have been previously made available to Banner), granted any severance
or termination pay, entered into any contract to make or grant any severance
or termination pay (except as required under the terms of agreements or
severance plans listed on Section 3.11 of the F&M Bank Disclosure Schedule, as
in effect as of the date hereof), or paid any bonus other than the customary
year-end bonuses in amounts consistent with past practice, (ii) granted any
options to purchase shares of F&M Bank Common Stock, any restricted shares of
F&M Bank Common Stock or any right to acquire any shares of its capital stock
to any executive officer, director or employee other than grants to employees
made in the ordinary course of business consistent with past practice under
F&M Bank Stock Plans, (iii) made, changed or revoked any material Tax election
or changed any Tax or financial accounting methods, principles or practices of
F&M Bank affecting its assets, liabilities or businesses, including any
reserving, renewal or residual
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method, practice or policy or (iv) suffered any strike, work stoppage,
slow-down, or other labor disturbance.
3.9 Legal Proceedings. (a) F&M Bank is not a party to any, and there
are no pending or, to the best of F&M Bank's knowledge, threatened, material
legal, administrative, arbitral or other material proceedings, claims, actions
or governmental or regulatory investigations of any nature against F&M Bank.
(b) There is no Injunction, judgment, or regulatory restriction (other
than those of general application that apply to banks) imposed upon F&M Bank
or the assets of F&M Bank.
3.10 Taxes and Tax Returns. (a) F&M Bank has duly and timely filed, or
will duly and timely file, (including all applicable extensions) all material
Tax Returns required to be filed by or with respect to F&M Bank on or prior to
the Effective Time (all such returns being accurate and complete in all
material respects), has paid, or will pay, all Taxes with respect to the
periods covered by such Tax Returns and has duly paid or made provision for,
or will duly pay or make provision for, the payment of all material Taxes that
have been incurred or are due or claimed to be due from it by federal, state,
foreign or local taxing authorities other than Taxes that are not yet
delinquent or are being contested in good faith, have not been finally
determined and, in each case, have been adequately reserved against. There
have been no audits or examination of any income Tax returns of F&M Bank.
There are no material disputes pending, or claims asserted, for Taxes or
assessments upon or with respect to F&M Bank. F&M Bank is not a party to or
is bound by any Tax sharing, allocation or indemnification agreement or
arrangement or is liable for any Tax imposed on any person other than F&M Bank
as a result of the application of Treasury Regulation Section 1.1502-6 (and
any comparable provision of state, local or foreign law). All Taxes that F&M
Bank is required to withhold from amounts owing to any employee, creditor or
third party have been properly withheld and, to the extent payable, timely
paid over to the proper Governmental Entity. No extensions or waivers of
statutes of limitation have been given by, or requested with respect to any
Taxes of F&M Bank, and F&M Bank has not requested an extension of time to file
any Tax Return. F&M Bank has not executed a closing agreement pursuant to
Section 7121 of the Code or any similar provision of state or local law. F&M
Bank has not taken or agreed to take any action that would, or would be
reasonably expected to, prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code. F&M Bank has
not been a party to any distribution occurring during the two-year period
prior to the date of this Agreement, or otherwise as part of a plan (or series
of related transactions) of which the Merger is a part, in which the parties
to such distribution treated the distribution as one to which Section 355 of
the Code applied. F&M Bank has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code. F&M Bank
is not required to include in income any adjustment pursuant to Section 481(a)
of the Code or any corresponding provision of state or local law, no such
adjustment has been proposed by the Internal Revenue Service ("IRS") and no
pending request for permission to change any accounting method has been
submitted by F&M Bank. The aggregate balance of the reserve for bad debts
described in Section 593(g) of the Code and any similar provision under state
or local laws and regulations of F&M Bank as of December 31, 2005 is zero.
F&M Bank
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has not participated in a "reportable transaction" within the meaning of
Treasury Regulation section 1.6011-4(b).
(b) As used in this Agreement, the term "Tax" or "Taxes" means (i) any
and all federal, state, local, and foreign income, excise, gross receipts,
gross income, ad valorem, profits, gains, property, capital, sales, transfer,
use, payroll, employment, severance, withholding, duties, intangibles,
franchise, backup withholding, and other taxes, charges, levies or like
assessments together with all penalties and additions to tax and interest
thereon and (ii) any liability for any items described in clause (i) above
under Treasury Regulation Section 1.1502-6 (or any similar provision of state,
local or foreign law), as successor or transferee, by contract or otherwise.
(c) As used in this Agreement, the term "Tax Return" means any report,
return or other information (including any amendments, schedules or
attachments thereto) required to be supplied to a Governmental Entity with
respect to Taxes including, where permitted or required, combined, unitary or
consolidated returns for any group of entities that includes F&M Bank.
3.11 Employee Matters. For purposes hereof, the following terms shall
have the following meaning:
"Controlled Group Liability" means any and all liabilities (i) under
Title IV of ERISA, (ii) under Section 302 of ERISA, (iii) under Sections 412
and 4971 of the Code, (iv) as a result of a failure to comply with the
continuation coverage requirements of Section 601 et seq. of ERISA and Section
4980B of the Code, and (v) under corresponding or similar provisions of
foreign laws or regulations.
A "F&M Bank Benefit Plan" means any compensation or employee benefit
plan, program, policy, practice, agreement or other arrangement providing
compensation or benefits to any current or former employee, officer or
director of F&M Bank or any beneficiary or dependent thereof that is sponsored
or maintained by F&M Bank or to which F&M Bank contributes or is obligated to
contribute, whether or not written, including without limitation any employee
welfare benefit plan within the meaning of Section 3(1) of ERISA, any employee
pension benefit plan within the meaning of Section 3(2) of ERISA (whether or
not such plan is subject to ERISA) and any bonus, incentive, deferred
compensation, vacation, stock purchase, stock option, severance, employment,
change of control or fringe benefit plan, program or policy.
"F&M Bank ERISA Affiliate" means, with respect to any entity, trade or
business, any other entity, trade or business that is, or was at the relevant
time, a member of a group described in Section 414(b), (c), (m) or (o) of the
Code or Section 4001(b)(1) of ERISA that includes or included the first
entity, trade or business, or that is, or was at the relevant time, a member
of the same "controlled group" as the first entity, trade or business pursuant
to Section 4001(a)(14) of ERISA.
"Employment Agreement" means a contract, offer letter or agreement of F&M
Bank with or addressed to any individual who is rendering or has rendered
services thereto as an
-15-
employee or consultant pursuant to which F&M Bank has any actual or contingent
liability or obligation to provide compensation and/or benefits in
consideration for past, present or future services.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations promulgated thereunder.
"Multiemployer Plan" means any "multiemployer plan" within the meaning of
Section 4001(a)(3) of ERISA.
"Plan" means any F&M Bank Benefit Plan other than a Multiemployer Plan.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as
those terms are defined in Part I of Subtitle E of Title IV of ERISA.
(a) Section 3.11(a) of the F&M Bank Disclosure Schedule includes a
complete list and description of all material F&M Bank Benefit Plans and all
Employment Agreements.
(b) With respect to each Plan, F&M Bank has made available to Banner a
true, correct and complete copy of: (i) each writing constituting a part of
such Plan, including without limitation all plan documents, employee
communications, benefit schedules, trust agreements, and insurance contracts
and other funding vehicles; (ii) the most recent Annual Report (Form 5500
Series) and accompanying schedule, if any; (iii) the current summary plan
description and any material modifications thereto, if any (in each case,
whether or not required to be furnished under ERISA); (iv) the most recent
annual financial report, if any; (v) the most recent actuarial report, if any;
and (vi) the most recent determination letter from the IRS, if any. F&M Bank
has made available to Banner a true, correct and complete copy of each
Employment Agreement. Except as specifically provided in the foregoing
documents made available to Banner, there are no amendments to any Plan or
Employment Agreement that have been adopted or approved nor has F&M Bank
undertaken to make any such amendments or to adopt or approve any new Plan or
Employment Agreement.
(c) To the knowledge of F&M, all contributions required to be made to
any Plan by applicable law or regulation or by any plan document or other
contractual undertaking, and all premiums due or payable with respect to
insurance policies funding any Plan, for any period through the date hereof
have been timely made or paid in full or, to the extent not required to be
made or paid on or before the date hereof, have been fully reflected on the
financial statements. Each F&M Bank Benefit Plan that is an employee welfare
benefit plan under Section 3(1) of ERISA either (i) is funded through an
insurance company contract and is not a "welfare benefit fund" within the
meaning of Section 419 of the Code or (ii) is unfunded.
(d) With respect to each F&M Bank Benefit Plan, to the knowledge of F&M
Bank, F&M Bank has complied, and is now in compliance, in all material
respects, with all provisions of ERISA, the Code and all laws and regulations
applicable to such F&M Bank Benefit Plans. Each Plan has been administered in
all material respects in accordance with its terms. To the knowledge of F&M
Bank, there is not now, nor do any circumstances exist that
-16-
could give rise to, any requirement for the posting of security with respect
to a Plan or the imposition of any lien on the assets of F&M Bank under ERISA
or the Code. Section 3.11(d) of the F&M Bank Disclosure Schedule identifies
each Plan that is intended to be a "qualified plan" within the meaning of
Section 401(a) of the Code ("Qualified Plans"). The Internal Revenue Service
has issued a favorable determination letter with respect to each Qualified
Plan and the related trust that has not been revoked, and, to the knowledge of
F&M Bank, there are no existing circumstances and no events have occurred that
could adversely affect the qualified status of any Qualified Plan or the
related trust. No trust funding any Plan is intended to meet the requirements
of Code Section 501(c)(9). Neither F&M Bank nor any other person, including
any fiduciary, has engaged in any "prohibited transaction" (as defined in
Section 4975 of the Code or Section 406 of ERISA), which could subject any of
the F&M Bank Benefit Plans or their related trusts, F&M Bank, or any person
that F&M Bank has an obligation to indemnify, to any material Tax or penalty
imposed under Section 4975 of the Code or Section 502 of ERISA.
(e) With respect to each Plan that is subject to Title IV or Section
302 of ERISA or Section 412 or 4971 of the Code, to the knowledge of F&M Bank:
(i) there does not exist any accumulated funding deficiency within the meaning
of Section 412 of the Code or Section 302 of ERISA, whether or not waived;
(ii) the fair market value of the assets of such Plan equals or exceeds the
actuarial present value of all accrued benefits under such Plan (whether or
not vested) on a termination basis; (iii) no reportable event within the
meaning of Section 4043(c) of ERISA for which the 30-day notice requirement
has not been waived has occurred, and the consummation of the transactions
contemplated by this Agreement will not result in the occurrence of any such
reportable event; (iv) all premiums to the Pension Benefit Guaranty
Corporation have been timely paid in full; (v) no liability (other than for
premiums to the PBGC) under Title IV of ERISA has been or is expected to be
incurred by F&M Bank; and (vi) the PBGC has not instituted proceedings to
terminate any such Plan and, to F&M Bank's knowledge, no condition exists that
presents a risk that such proceedings will be instituted or which would
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any such Plan.
(f) Except as set forth in Section 3.11(f) of the F&M Bank Disclosure
Schedule: (i) no F&M Bank Benefit Plan is a Multiemployer Plan or a plan that
has two or more contributing sponsors at least two of whom are not under
common control, within the meaning of Section 4063 of ERISA (a "Multiple
Employer Plan"); (ii) none of F&M Bank nor any of its F&M Bank ERISA
Affiliates has, at any time during the last six years, contributed to or been
obligated to contribute to any Multiemployer Plan or Multiple Employer Plan;
and (iii) none of F&M Bank nor any F&M Bank ERISA Affiliates has incurred any
Withdrawal Liability that has not been satisfied in full. To the knowledge of
F&M Bank, there does not now exist, nor do any circumstances exist that could
result in, any Controlled Group Liability that would be a liability of F&M
Bank following the Closing. Without limiting the generality of the foregoing,
neither F&M Bank nor any of its F&M Bank ERISA Affiliates has engaged in any
transaction described in Section 4069 or Section 4204 or 4212 of ERISA.
(g) Except for any such benefits described in Section 3.11(g) of the
F&M Bank Disclosure Schedule with respect to the individuals listed thereon,
F&M Bank has no liability for life, health, medical or other welfare benefits
to former employees or beneficiaries or dependents thereof, except for health
continuation coverage as required by Section 4980B of the
-17-
Code or Part 6 of Title I of ERISA and at no expense to F&M Bank. F&M Bank
has reserved the right to amend, terminate or modify at any time all plans or
arrangements providing for retiree health or life insurance coverage.
(h) Section 3.11 of the F&M Bank Disclosure Schedule (i) lists each
Plan or Employment Agreement under which the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby could
(either along or in conjunction with any other event) result in, cause the
accelerated vesting, funding or delivery of, or increase the amount or value
of, any payment or benefit to any employee, officer or director of F&M Bank,
or could limit the right of F&M Bank to amend, merge, terminate or receive a
reversion of assets from any F&M Bank Benefit Plan or related trust or any
Employment Agreement or related trust, and (ii) the maximum amount of the
"excess parachute payments" within the meaning of Section 280G of the Code
that could become payable by F&M Bank in connection with the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby.
(i) No labor organization or group of employees of F&M Bank has made a
pending demand for recognition or certification, and there are no
representation or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened to be brought or
filed, with the National Labor Relations Board or any other labor relations
tribunal or authority. F&M Bank is in compliance with all applicable laws and
collective bargaining agreements respecting employment and employment
practices, terms and conditions of employment, wages and hours and
occupational safety and health.
(j) Each individual who renders services to F&M Bank who is classified
by F&M Bank as having the status of an independent contractor or other
non-employee status for any purpose (including for purposes of taxation and
Tax reporting and under F&M Bank Benefit Plans) is properly so characterized.
F&M Bank and each member of its business enterprise has complied with the
Worker Adjustment and Retraining Notification Act and all similar state, local
and foreign laws.
(k) All F&M Bank Benefit Plans subject to the laws of any jurisdiction
outside of the United States (i) have, to the knowledge of F&M Bank, been
maintained in accordance with all applicable requirements, (ii) if they are
intended to qualify for special Tax treatment meet all requirements for such
treatment, and (iii) if they are intended to be funded and/or book-reserved
are fully funded and/or book reserved, as appropriate, based upon reasonable
actuarial assumptions.
3.12 Compliance with Applicable Law. (a) F&M Bank holds all licenses,
franchises, permits and authorizations necessary for the lawful conduct of its
businesses under and pursuant to each, and has complied in all respects with
and are not in default in any respect under any, applicable law, statute,
order, rule, regulation, policy or guideline of any Governmental Entity
relating to F&M Bank, except where the failure to hold such licenses,
franchises, permits and authorizations, or such non-compliance or default, has
not had and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on F&M Bank.
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(b) Except as has not had and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on F&M Bank, to
the knowledge of F&M Bank: F&M Bank has properly administered all accounts
for which it acts as a fiduciary, including accounts for which it serves as a
trustee, agent, custodian, personal representative, guardian, conservator or
investment advisor, in accordance with the terms of the governing documents,
applicable state and federal law and regulation and common law; and none of
F&M Bank, or any director, officer or employee of F&M Bank has committed any
breach of trust or fiduciary duty with respect to any such fiduciary account
and the accountings for each such fiduciary account are true and correct and
accurately reflect the assets of such fiduciary account.
(c) Section 3.12(c) of F&M Bank Disclosure Schedule sets forth, as of
the date hereof, a schedule of all officers and directors of F&M Bank who have
outstanding loans from F&M Bank, and there has been no default on, or
forgiveness or waiver of, in whole or in part, any such loan during the two
years immediately preceding the date hereof.
3.13 Certain Contracts. (a) F&M Bank is not a party to or bound by any
contract, arrangement, commitment or understanding (whether written or oral)
(i) with respect to the employment of any directors, officers, employees or
consultants, other than in the ordinary course of business consistent with
past practice, (ii) which, upon execution of this Agreement or consummation or
shareholder approval of the transactions contemplated by this Agreement will
(either alone or upon the occurrence of any additional acts or events) result
in any payment or benefits (whether of severance pay or otherwise) becoming
due from Banner, F&M Bank, the Resulting Bank, or any of their respective
Subsidiaries to any officer or employee of F&M Bank, (iii) that is or includes
any non-competition, non-solicitation or exclusive dealing agreement or
obligation, or any other agreement or obligation that purports to limit or
restrict in any respect (A) the ability of F&M Bank to solicit customers or
employees or (B) the manner in which, or the localities in which, all or any
portion of the business and operations of F&M Bank or, following consummation
of the Merger, the business and operations of Banner and its Subsidiaries, is
or could be conducted, (iv) that relates to the incurrence of Indebtedness
(other than deposit liabilities, advances and loans from a Federal Home Loan
Bank, and sales of securities subject to repurchase, in each case in the
ordinary course of business) in the principal amount of $100,000 or more, (v)
that grants any person a right of first refusal, right of first offer or
similar right with respect to any material properties, assets or businesses of
F&M Bank, (vi) that is a consulting agreement or service contract (including
data processing, software programming and licensing contracts and outsourcing
contracts for the provision of collection and other services in connection
with the business and operations of F&M Bank) involving the payment of annual
fees of $50,000 or more, or (vii) that would be a "material contract" (as such
term is defined in Item 601(b)(10) of Regulation S-K of the SEC,
notwithstanding that F&M Bank has no securities registered under the
Securities Exchange Act of 1934, as amended, (the "Exchange Act")) to be
performed after the date of this Agreement that has not been disclosed under
the preceding clauses (i) through (vi). As used herein, "Indebtedness" of a
person shall mean (i) all obligations of such person for borrowed money, (ii)
all obligations of such person evidenced by bonds, debentures, notes and
similar instruments, (iii) all leases of such person capitalized in accordance
with GAAP, and (iv) all obligations of such person under sale-and-lease back
transactions, agreements to repurchase securities sold and other similar
financing transactions. Each contract, arrangement, commitment or
understanding of the type described in this Section 3.13, whether or not set
forth in F&M Bank Disclosure Schedule, is referred to as a
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"F&M Bank Contract," and F&M Bank has no knowledge of, and has not received
notice of, any violation of any F&M Bank Contract by any of the other parties
thereto. F&M Bank has made available true and complete copies of each (i) F&M
Bank Contract and (ii) each contract or agreement that involved payments by
F&M Bank in fiscal year 2005 of more than $50,000 or which could reasonably be
expected to involve payments during fiscal year 2006 or 2007 of more than
$50,000 other than where such contract or agreement was or is terminable at
will on 60 days or less notice without payment of a penalty in excess of
$25,000.
(b) Each F&M Bank Contract is valid and binding on F&M Bank and is in
full force and effect. Except as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on F&M Bank, (i)
each F&M Bank Contract is accurately categorized in Section 3.13(a) of the F&M
Bank Disclosure Schedule according to the applicable clause(s) of the
definition of F&M Bank Contracts, (ii) F&M Bank has in all material respects
performed all obligations required to be performed by it to date under each
F&M Bank Contract, and (iii) no event or condition exists that constitutes or,
after notice or lapse of time or both, will constitute, a material default on
the part of F&M Bank under any such F&M Bank Contract.
3.14 Risk Management Instruments. (a) "Derivative Transactions" means
any swap transaction, option, warrant, forward purchase or sale transaction,
futures transaction, cap transaction, floor transaction or collar transaction
relating to one or more currencies, commodities, bonds, equity securities,
loans, interest rates, events or conditions (credit-related or otherwise) or
any indexes, or any other similar transaction or combination of any of these
transactions, and any collateralized debt obligations or other similar
instruments or any debt or equity instruments evidencing or embedding any such
types of transactions, and any related credit support, collateral or other
similar arrangements related to such transactions; provided that, for the
avoidance of doubt, the term "Derivative Transactions" shall not include any
F&M Bank Option.
(b) Except as would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on F&M Bank, (i) all Derivative
Transactions, whether entered into for the account of F&M Bank or for the
account of a customer of F&M Bank, were duly authorized by F&M Bank and
entered into in the ordinary course of business consistent with past practice
and in accordance with prudent banking practice and applicable laws, rules,
regulations and policies of any Regulatory Authority and in accordance with
the investment, securities, commodities, risk management and other policies,
practices and procedures employed by F&M Bank, and with counterparties
believed at the time to be financially responsible and able to understand
(either alone or in consultation with their advisers) and to bear the risks of
such Derivative Transactions; (ii) all of such Derivative Transactions are
legal, valid and binding obligations of F&M Bank enforceable against it in
accordance with their terms (except as may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity), and are in
full force and effect; and (iii) F&M Bank has duly performed its obligations
under the Derivative Transactions to the extent that such obligations to
perform have accrued and, to the knowledge of F&M Bank, there are no breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
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(c) Except as set forth in Section 3.14(c) of the F&M Bank Disclosure
Schedule, as of October 31, 2006, no Derivative Transaction, were it to be a
Loan held by F&M Bank, would be classified as "Other Loans Specially
Mentioned", "Special Mention", "Substandard", "Doubtful", "Loss", or words of
similar import ("F&M Bank Criticized Assets"). The financial position of F&M
Bank under or with respect to such Derivative Transaction has been reflected
in the books and records of F&M Bank in accordance with GAAP consistently
applied, and as of the date hereof, no open exposure of F&M Bank with respect
to any such instrument (or with respect to multiple instruments with respect
to any single counterparty) exceeds $100,000.
3.15 Investment Securities. (a) F&M Bank has good title to all
securities owned by it (except those sold under repurchase agreements or held
in any fiduciary or agency capacity), free and clear of any Lien, except to
the extent such securities are pledged in the ordinary course of business to
secure obligations of F&M Bank. Such securities are valued on the books of
F&M Bank in accordance with GAAP in all material respects.
(b) F&M Bank employs investment, securities, risk management and other
policies, practices and procedures (the "Policies, Practices and Procedures")
which F&M Bank believes are prudent and reasonable in the context of its
business. Prior to the date hereof, F&M Bank has made available to Banner in
writing the material Policies, Practices and Procedures.
3.16 Loan Portfolio. (a) Section 3.16(a) of the F&M Bank Disclosure
Schedule sets forth (i) the aggregate outstanding principal amount, as of
September 30, 2006, of all written or oral loan agreements, notes or borrowing
arrangements (including leases, credit enhancements, commitments, guarantees
and interest-bearing assets) payable to F&M Bank (collectively, "Loans"),
other than "non-accrual" Loans, and (ii) the aggregate outstanding principal
amount, as of September 30, 2006, of all "non-accrual" Loans. As of September
30, 2006, F&M Bank did not have outstanding Loans and assets classified as
"Other Real Estate Owned" with an aggregate then outstanding, fully committed
principal amount in excess of that amount set forth on Section 3.16(a) of the
F&M Bank Disclosure Schedule, net of specific reserves with respect to such
Loans and assets, that were designated as of such date by F&M Bank as F&M Bank
Criticized Assets. Section 3.16(a) of the F&M Bank Disclosure Schedule sets
forth (A) a summary of F&M Bank Criticized Assets as of September 30, 2006, by
category of Loan (e.g., commercial, consumer, etc.), together with the
aggregate principal amount of such Loans by category and the amount of
specific reserves with respect to each such category of Loan and the amount of
reserves with respect to each such category of Loans and (B) each asset of F&M
Bank that, as of September 30, 2006, is classified as "Other Real Estate
Owned" and the book value thereof.
(b) Except as would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on F&M Bank, each Loan (i) is
evidenced by notes, agreements or other evidences of indebtedness which are
true, genuine and what they purport to be, (ii) to the extent secured, has
been secured by valid liens and security interests which have been perfected
and (iii) is the legal, valid and binding obligation of the obligor named
therein, enforceable in accordance with its terms (except as may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting
the rights of creditors generally and subject to general principles of
equity). Except as would not reasonably be expected to have,
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individually or in the aggregate, a Material Adverse Effect on F&M Bank, all
Loans originated by F&M Bank, and all such Loans purchased, administered or
serviced by F&M Bank (including Loans held for resale to investors), were made
or purchased and are administered or serviced, as applicable, in accordance
with customary lending standards of F&M Bank (and in the case of Loans held
for resale to investors, the lending standards, if any, of such investors) and
in accordance with applicable federal, state and local laws, regulations and
rules. All such Loans (and any related guarantees) and payments due
thereunder are, and on the Closing Date will be, free and clear of any Lien,
and F&M Bank has complied in all material respects, and on the Closing Date
will have complied in all material respects, with all laws and regulations
relating to such Loans.
(c) None of the agreements pursuant to which F&M Bank has sold Loans or
pools of Loans or participations in Loans or pools of Loans contains any
obligation to repurchase such Loans or interests therein solely on account of
a payment default by the obligor on any such Loan.
(d) F&M Bank is approved by and is in good standing (i) as a supervised
mortgagee by the Department of Housing and Urban Development to originate and
service Title I FHA mortgage loans; (ii) as a GNMA I and II Issuer by the
Government National Mortgage Association; (iii) by the Department of Veteran's
Affairs to originate and service VA loans; and (iv) as a seller/servicer by
the Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation to originate and service conventional residential mortgage Loans
(each such entity being referred to herein as an "Agency" and, collectively,
the "Agencies").
(e) F&M Bank is not now nor has it ever been since December 31, 2003
subject to any material fine, suspension, settlement or other agreement or
other administrative agreement or sanction by, or any material reduction in
any loan purchase commitment from any Agency or any federal or state agency
relating to the origination, sale or servicing of mortgage or consumer Loans.
F&M Bank has not received any notice, nor does it have any reason to believe,
that any Agency proposes to limit or terminate the underwriting authority of
F&M Bank or to increase the guarantee fees payable to any such Agency.
(f) To its knowledge, F&M Bank is in compliance in all material
respects with all applicable federal, state and local laws, rules and
regulations, including the Truth-In-Lending Act and Regulation Z, the Equal
Credit Opportunity Act and Regulation B, the Real Estate Settlement Procedures
Act and Regulation X, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act and all Agency and other investor and mortgage insurance company
requirements relating to the origination, sale and servicing of mortgage and
consumer Loans.
(g) To the knowledge of F&M Bank, each Loan included in a pool of Loans
originated, acquired or serviced by F&M Bank (a "F&M Bank Pool") meets all
eligibility requirements (including all applicable requirements for obtaining
mortgage insurance certificates and loan guaranty certificates) for inclusion
in such F&M Bank Pool. All such F&M Bank Pools have been finally certified
or, if required, recertified in accordance with all applicable laws, rules and
regulations, except where the time for certification or recertification has
not yet expired. To the knowledge of F&M Bank, no F&M Bank Pools have been
improperly certified, and no Loan
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has been bought out of a F&M Bank Pool without all required approvals of the
applicable investors.
3.17 Property. Except as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on F&M Bank, F&M
Bank (a) has good and marketable title to all the properties and assets
reflected in the latest audited balance sheet included in F&M Bank Financial
Statements as being owned by F&M Bank or acquired after the date thereof
(except properties sold or otherwise disposed of since the date thereof in the
ordinary course of business) (the "F&M Bank Owned Properties"), free and clear
of all Liens of any nature whatsoever, except (i) statutory Liens securing
payments not yet due, (ii) Liens for real property Taxes not yet due and
payable, (iii) easements, rights of way, and other similar encumbrances that
do not materially affect the use of the properties or assets subject thereto
or affected thereby or otherwise materially impair business operations at such
properties and (iv) such imperfections or irregularities of title or Liens as
do not materially affect the use of the properties or assets subject thereto
or affected thereby or otherwise materially impair business operations at such
properties (collectively, "Permitted Encumbrances"), and (b) is the lessee of
all leasehold estates reflected in the latest audited F&M Bank Financial
Statements or acquired after the date thereof (except for leases that have
expired by their terms since the date thereof) (the "F&M Bank Leased
Properties" and, collectively with the F&M Bank Owned Properties, the "F&M
Bank Real Property"), free and clear of all Liens of any nature whatsoever,
except for Permitted Encumbrances, and is in possession of the properties
purported to be leased thereunder, and each such lease is valid without
default thereunder by the lessee or, to F&M Bank's knowledge, the lessor. To
the knowledge of F&M Bank, the F&M Bank Real Property is in material
compliance with all applicable zoning laws and building codes, and the
buildings and improvements located on the F&M Bank Real Property are in good
operating condition and in a state of good working order, ordinary wear and
tear excepted. There are no pending or, to the knowledge of F&M Bank,
threatened condemnation proceedings against the F&M Bank Real Property. To
the knowledge of F&M Bank, F&M Bank is in compliance with all applicable
health and safety related requirements for the F&M Bank Real Property,
including those under the Americans with Disabilities Act of 1990 and the
Occupational Health and Safety Act of 1970.
3.18 Intellectual Property. Except as would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on F&M
Bank, (a) F&M Bank owns, or is licensed to use (in each case, free and clear
of any Liens), all Intellectual Property used in or necessary for the conduct
of its business as currently conducted; (b) the use of any Intellectual
Property by F&M Bank does not, to the knowledge of F&M Bank, infringe on or
otherwise violate the rights of any person and is in accordance with any
applicable license pursuant to which F&M Bank acquired the right to use any
Intellectual Property; (c) no person is challenging, infringing on or
otherwise violating any right of F&M Bank with respect to any Intellectual
Property owned by and/or licensed to F&M Bank; (d) F&M Bank has not received
any written notice of any pending claim with respect to any Intellectual
Property used by F&M Bank and no Intellectual Property owned and/or licensed
by F&M Bank is being used or enforced in a manner that would be expected to
result in the abandonment, cancellation or unenforceability of such
Intellectual Property. For purposes of this Agreement, "Intellectual
Property" means trademarks, service marks, brand names, certification marks,
trade dress and other indications of origin, the goodwill associated with the
foregoing and registrations in any
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jurisdiction of, and applications in any jurisdiction to register, the
foregoing, including any extension, modification or renewal of any such
registration or application; inventions, discoveries and ideas, whether
patentable or not, in any jurisdiction; patents, applications for patents
(including divisions, continuations, continuations in part and renewal
applications), and any renewals, extensions or reissues thereof, in any
jurisdiction; nonpublic information, trade secrets and confidential
information and rights in any jurisdiction to limit the use or disclosure
thereof by any person; writings and other works, whether copyrightable or not,
in any jurisdiction; and registrations or applications for registration of
copyrights in any jurisdiction, and any renewals or extensions thereof; and
any similar intellectual property or proprietary rights.
3.19 Environmental Liability. Except as would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on F&M Bank, (a) there are no legal, administrative, arbitral or other
proceedings, claims, actions, causes of action or notices with respect to any
environmental, health or safety matters or any private or governmental
environmental, health or safety investigations or remediation activities of
any nature seeking to impose, or that are reasonably likely to result in, any
liability or obligation of F&M Bank arising under common law or under any
local, state or federal environmental, health or safety statute, regulation or
ordinance, including the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, pending or threatened against F&M Bank;
(b) to the knowledge of F&M Bank, there is no reasonable basis for, or
circumstances that are reasonably likely to give rise to, any such proceeding,
claim, action, investigation or remediation by any Governmental Entity or any
third party that would give rise to any liability or obligation on the part of
F&M Bank; and (c) F&M Bank is not subject to any agreement, order, judgment,
decree, letter or memorandum by or with any Governmental Entity or third party
imposing any liability or obligation with respect to any of the foregoing.
3.20 State Takeover Laws. The Board of Directors of F&M Bank has
unanimously approved this Agreement and the transactions contemplated hereby
as required to render inapplicable to this Agreement and the transactions
contemplated hereby, the restrictions on "business combinations" and all other
"moratorium," "control share," "fair price," "takeover" or "interested
shareholder" law (any such laws, "Takeover Statutes").
3.21 Reorganization; Approvals. As of the date of this Agreement, F&M
Bank (a) is not aware of any fact or circumstance that could reasonably be
expected to prevent the Merger from qualifying as a "reorganization" within
the meaning of Section 368(a) of the Code, and (b) knows of no reason why all
regulatory approvals from any Governmental Entity required for the
consummation of the transactions contemplated by this Agreement should not be
obtained on a timely basis.
3.22 Opinions. Prior to the execution of this Agreement, F&M Bank has
received an opinion from McAdams Wright Ragen, Inc. to the effect that as of
the date of such opinion and based upon and subject to the matters set forth
in such opinion, the Merger Consideration is fair to the shareholders of F&M
Bank from a financial point of view. Such opinion has not been amended or
rescinded as of the date of this Agreement. F&M Bank has provided Banner with
a true, correct and complete copy of such opinion for informational purposes.
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3.23 F&M Bank Information. The information relating to F&M Bank that is
provided by F&M Bank or its representatives for inclusion in the Proxy
Statement and the Form S-4, or in any other document filed with any other
Regulatory Agency or Governmental Entity in connection with the transactions
contemplated by this Agreement, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances in which they are made, not
misleading. The portions of the Proxy Statement relating to F&M Bank and
other portions within the reasonable control of F&M Bank will comply in all
material respects with applicable provisions of the Exchange Act and the rules
and regulations thereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BANNER AND BANNER BANK
Except as disclosed in the disclosure schedule (the "Banner Disclosure
Schedule") delivered by Banner to F&M Bank prior to the execution of this
Agreement (which schedule sets forth, among other things, items, the
disclosure of which is necessary or appropriate, either in response to an
express disclosure requirement contained in a provision hereof or as an
exception to one or more representations or warranties contained in this
Article IV, or to one or more of Banner's covenants, provided, however, that
disclosure in any section of such Banner Disclosure Schedule shall apply only
to the indicated Section of this Agreement except to the extent that it is
reasonably apparent that such disclosure is relevant to another section of
this Agreement), Banner hereby represents and warrants to F&M Bank as follows:
4.1 Corporate Organization. (a) Banner is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Washington. Banner has the corporate power and authority to own or
lease all of its properties and assets and to carry on its business as it is
now being conducted, and is duly licensed or qualified to do business, in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified have not had and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Banner.
(b) Banner is duly registered as a bank holding company under the BHC
Act and meets the applicable requirements for qualification as such. True,
complete and correct copies of the Restated Articles of Incorporation, as
amended (the "Banner Articles"), and Amended Restated Bylaws of Banner, as
amended (the "Banner Bylaws"), as in effect as of the date of this Agreement,
have previously been made available to F&M Bank. Banner Bank is a bank
chartered by the State of Washington. True, complete and correct copies of
the Banner Bank Articles and the Banner Bank Bylaws, as in effect as of the
date of this Agreement, have previously been made available to F&M Bank.
(c) As of September 30, 2006, Banner Bank is "well capitalized" and
"well managed" as a matter of U.S. federal banking law. Banner Bank has at
least a "satisfactory" rating under the U.S. Community Reinvestment Act.
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(d) The deposit accounts of Banner Bank are insured by the FDIC through
the Bank Insurance Fund to the fullest extent permitted by law, and all
premiums and assessments required to be paid in connection therewith have been
paid when due.
(e) The minute books of Banner and Banner Bank previously made
available to F&M Bank contain true, complete and correct records of all
meetings and other corporate actions held or taken since December 31, 2002 of
their respective shareholders and Boards of Directors (including committees of
their respective Boards of Directors).
(f) Except as would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Banner, each Banner Subsidiary
(i) is duly incorporated or duly formed, as applicable to each such
Subsidiary, and validly existing under the laws of its jurisdiction of
organization, (ii) is duly licensed or qualified to do business and in good
standing in all jurisdictions (whether federal, state, local or foreign) where
its ownership or leasing of property or the conduct of its business requires
it to be so licensed or qualified, and (iii) has all requisite corporate power
or other power and authority to own or lease its properties and assets and to
carry on its business as now conducted.
4.2 Capitalization. (a) The authorized capital stock of Banner
consists of 25,000,000 shares of Banner Common Stock, of which, as of November
30, 2006 (the "Banner Capitalization Date"), 12,311,230 shares were issued and
outstanding, and 500,000 shares of preferred stock, par value $0.01 per share
(the "Banner Preferred Stock"), of which, as of the Banner Capitalization
Date, no shares were issued and outstanding. As of the Banner Capitalization
Date, no shares of Banner Common Stock were held in Banner's treasury. As of
the Banner Capitalization Date, no shares of Banner Common Stock or Banner
Preferred Stock were reserved for issuance, except for (i) 770,467 shares of
Banner Common Stock reserved for issuance upon exercise of options issued
pursuant to employee and director stock plans of Banner in effect as of the
date of this Agreement (the "Banner Stock Plans") and (ii) 1,000,000 shares of
Banner Common Stock reserved for issuance pursuant to the Banner Corporation
Dividend Reinvestment and Direct Stock Purchase And Sale Plan. All of the
issued and outstanding shares of Banner Common Stock have been duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive
rights, with no personal liability attaching to the ownership thereof. As of
the date of this Agreement, no Voting Debt of Banner is issued or outstanding.
As of the Banner Capitalization Date, except pursuant to this Agreement, the
Banner Stock Plans, and stock repurchase plans entered into by Banner from
time to time, Banner does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, rights, commitments or agreements of
any character calling for the purchase or issuance of any shares of Banner
Common Stock, Voting Debt or any other equity securities of Banner or any
securities representing the right to purchase or otherwise receive any shares
of Banner Common Stock, Voting Debt or other equity securities of Banner. The
shares of Banner Common Stock to be issued pursuant to the Merger will be duly
authorized and validly issued and, at the Effective Time, all such shares will
be fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof.
(b) Except for director qualifying shares, all of the issued and
outstanding shares of capital stock or other equity ownership interests of
each Banner Subsidiary are owned by Banner, directly or indirectly, free and
clear of any Liens, and all of such shares or equity
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ownership interests are duly authorized and validly issued and are fully paid,
nonassessable (subject to 12 U.S.C. Section 55) and free of preemptive rights.
No such Banner Subsidiary has or is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling
for the purchase or issuance of any shares of capital stock or any other
equity security of such Subsidiary or any securities representing the right to
purchase or otherwise receive any shares of capital stock or any other equity
security of such Subsidiary.
4.3 Authority; No Violation. (a) Banner has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly, validly and unanimously approved by the Board of Directors of
Banner. The Board of Directors of Banner has determined that this Agreement
and the transactions contemplated hereby are advisable and in the best
interests of Banner and its shareholders. No other corporate proceedings on
the part of Banner are necessary to approve this Agreement or to consummate
the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by Banner and (assuming due authorization,
execution and delivery by F&M Bank) constitutes the valid and binding
obligation of Banner, enforceable against Banner in accordance with its terms
(except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors generally and
subject to general principles of equity).
(b) Neither the execution and delivery of this Agreement by Banner, nor
the consummation by Banner of the transactions contemplated hereby, nor
compliance by Banner with any of the terms or provisions of this Agreement,
will (i) violate any provision of the Articles of Incorporation of Banner or
the Bylaws of Banner, or (ii) assuming that the consents, approvals and
filings referred to in Section 4.4 are duly obtained and/or made, (A) violate
any statute, code, ordinance, rule, regulation, judgment, order, writ, decree
or Injunction applicable to Banner, any Banner Subsidiary or any of their
respective properties or assets or (B) except as would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on Banner, violate, conflict with, result in a breach of any provision of or
the loss of any benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of or a right of termination or cancellation under, accelerate
the performance required by, or result in the creation of any Lien upon any of
the respective properties or assets of Banner or any of its Subsidiaries
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which Banner or any of its Subsidiaries is a party or by which
any of them or any of their respective properties or assets is bound.
4.4 Consents and Approvals. Except for (i) the filing of applications
and notices, as applicable, with the FDIC and approval of such applications
and notices, (ii) the Other Regulatory Approvals, (iii) the filing with the
SEC of the Proxy Statement and the filing and declaration of effectiveness of
the Form S-4, (iv) the filing of the Articles of Merger, (v) any consents,
authorizations, approvals, filings or exemptions required under consumer
finance, mortgage banking and other similar laws, and (vi) such filings and
approvals as are required to be made or obtained under the securities or "Blue
Sky" laws of various states in connection with the issuance of the shares of
Banner Common Stock pursuant to this Agreement and approval of listing of such
Banner Common Stock on the Nasdaq, no consents or approvals of or filings or
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registrations with any Governmental Entity are necessary in connection with
the consummation by Banner of the Merger and the other transactions
contemplated by this Agreement. No consents or approvals of or filings or
registrations with any Governmental Entity are necessary in connection with
the execution and delivery by Banner of this Agreement.
4.5 Reports; Regulatory Matters. (a) Banner and each Banner
Subsidiary has timely filed all reports, registrations and statements,
together with any amendments required to be made with respect thereto, that it
was required to file since January 1, 2003 with the Regulatory Agencies or any
Governmental Entity, and all other reports and statements required to be filed
by them since January 1, 2003, including any report or statement required to
be filed pursuant to the laws, rules or regulations of the United States, any
state, any foreign entity, or any Regulatory Agency or Governmental Entity,
and have paid all fees and assessments due and payable in connection
therewith. Except for normal examinations conducted by a Regulatory Agency or
Governmental Entity in the ordinary course of the business of Banner and its
Subsidiaries, no Regulatory Agency or Governmental Entity has initiated since
January 1, 2003 or has pending any proceeding, enforcement action or, to the
knowledge of Banner, investigation into the business, disclosures or
operations of Banner or any of its Subsidiaries. Since January 1, 2003, no
Regulatory Agency or Governmental Entity has resolved any proceeding,
enforcement action or, to the knowledge of Banner, investigation into the
business, disclosures or operations of Banner or any of its Subsidiaries.
There is no unresolved violation, criticism, or exception by any Regulatory
Agency or Governmental Entity with respect to any report or statement relating
to any examinations or inspections of Banner or any of its Subsidiaries.
Since January 1, 2003 there has been no formal or informal inquiries by, or
disagreements or disputes with, any Regulatory Agency with respect to the
business, operations, policies or procedures of Banner or any of its
Subsidiaries.
(b) Neither Banner nor any Banner Subsidiary is subject to any
cease-and-desist or other order or enforcement action issued by, or is a party
to any written agreement, consent agreement or memorandum of understanding
with, or is a party to any commitment letter or similar undertaking to, or is
subject to any order or directive by, or has been a recipient of any
supervisory letter from, or has been ordered to pay any civil money penalty
by, or has adopted any policies, procedures or board resolutions at the
request or suggestion of, any Regulatory Agency or other Governmental Entity
that currently restricts in any material respect the conduct of its business
or that in any material manner relates to its capital adequacy, its ability to
pay dividends, its credit, risk management or compliance policies, its
internal controls, its management or its business, other than those of general
application that apply to similarly situated bank holding companies or their
Subsidiaries (each, a "Banner Regulatory Agreement"), nor has Banner or any of
its Subsidiaries been advised since January 1, 2003, by any Regulatory Agency
or other Governmental Entity that it is considering issuing, initiating,
ordering or requesting any such Banner Regulatory Agreement.
(c) Banner has previously made available to F&M Bank an accurate and
complete copy of each (i) final registration statement, prospectus, report,
schedule and definitive proxy statement filed with or furnished to the SEC by
Banner since January 1, 2003 pursuant to the Securities Act or the Exchange
Act and prior to the date of this Agreement (the "Banner SEC Reports") and
(ii) communication mailed by Banner to its shareholders, in each case since
January 1, 2003 and prior to the date of this Agreement. No such Banner SEC
Report or
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communication, at the time filed, furnished or communicated (and, in the case
of registration statements and proxy statements, on the dates of effectiveness
and the dates of the relevant meetings, respectively), contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements made therein,
in light of the circumstances in which they were made, not misleading, except
that information as of a later date (but before the date of this Agreement)
shall be deemed to modify information as of an earlier date. As of their
respective dates, all Banner SEC Reports complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto. No executive officer of Banner has failed in any respect to make the
certifications required of him or her under Section 302 or 906 of the
Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act").
4.6 Financial Statements. (a) The financial statements of Banner and
its Subsidiaries included (or incorporated by reference) in the Banner SEC
Reports (including the related notes, where applicable) (i) have been prepared
from, and are in accordance with, the books and records of Banner and its
Subsidiaries, (ii) fairly present in all material respects the consolidated
results of operations, cash flows, changes in shareholders' equity and
consolidated financial position of Banner and its Subsidiaries for the
respective fiscal periods or as of the respective dates therein set forth
(subject in the case of unaudited statements to recurring year-end audit
adjustments normal in nature and amount), (iii) complied as to form, as of
their respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, and (iv) have been prepared in
accordance with GAAP consistently applied during the periods involved, except,
in each case, as indicated in such statements or in the notes thereto. The
books and records of Banner and its Subsidiaries have been, and are being,
maintained in all material respects in accordance with GAAP and any other
applicable legal and accounting requirements and reflect only actual
transactions. Moss Adams LLP has not resigned or been dismissed as
independent public accountants of Banner as a result of or in connection with
any disagreements with Banner on a matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.
(b) Neither Banner nor any Banner Subsidiary has any material liability
of any nature whatsoever (whether absolute, accrued, contingent or otherwise
and whether due or to become due), except for those liabilities that are
reflected or reserved against on the consolidated balance sheet of Banner
included in its Quarterly Report on Form 10-Q for the period ended September
30, 2006 (including any notes thereto) and for liabilities incurred in the
ordinary course of business consistent with past practice since September 30,
2006 or in connection with this Agreement and the transactions contemplated
hereby.
(c) The records, systems, controls, data and information of Banner and
its Subsidiaries are recorded, stored, maintained and operated under means
(including any electronic, mechanical or photographic process, whether
computerized or not) that are under the exclusive ownership and direct control
of Banner or its Subsidiaries or accountants (including all means of access
thereto and therefrom), except for any non-exclusive ownership and non-direct
control that would not reasonably be expected to have a material adverse
effect on the system of internal accounting controls described below in this
Section 4.6(c). Banner (x) has implemented and maintains disclosure controls
and procedures (as defined in Rule 13a-15(e) of the Exchange
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Act) to ensure that material information relating to Banner, including its
consolidated Subsidiaries, is made known to the chief executive officer and
the chief financial officer of Banner by others within those entities, and (y)
has disclosed, based on its most recent evaluation prior to the date hereof,
to Banner's outside auditors and the audit committee of Banner's Board of
Directors (i) any significant deficiencies and material weaknesses in the
design or operation of internal controls over financial reporting (as defined
in Rule 13a-15(f) of the Exchange Act) which are reasonably likely to
adversely affect Banner's ability to record, process, summarize and report
financial information and (ii) any fraud, whether or not material, that
involves management or other employees who have a significant role in Banner's
internal controls over financial reporting. These disclosures were made in
writing by management to Banner's auditors and audit committee and a copy has
previously been made available to F&M Bank. As of the date hereof, there is
no reason to believe that its outside auditors and its chief executive officer
and chief financial officer will not be able to give the certifications and
attestations required pursuant to the rules and regulations adopted pursuant
to Section 404 of the Sarbanes-Oxley Act, without qualification, when next
due.
(d) Since December 31, 2005, (i) through the date hereof, neither
Banner nor any of its Subsidiaries nor, to the knowledge of the officers of
Banner, any director, officer, employee, auditor, accountant or representative
of Banner or any of its Subsidiaries has received or otherwise had or obtained
knowledge of any material complaint, allegation, assertion or claim, whether
written or oral, regarding the accounting or auditing practices, procedures,
methodologies or methods of Banner or any of its Subsidiaries or their
respective internal accounting controls, including any material complaint,
allegation, assertion or claim that Banner or any of its Subsidiaries has
engaged in questionable accounting or auditing practices, and (ii) no attorney
representing Banner or any of its Subsidiaries, whether or not employed by
Banner or any of its Subsidiaries, has reported evidence of a material
violation of securities laws, breach of fiduciary duty or similar violation by
Banner or any of its officers, directors, employees or agents to the Board of
Directors of Banner or any committee thereof or to any director or officer of
Banner.
4.7 Broker's Fees. Neither Banner nor any Banner Subsidiary nor any of
their respective officers or directors has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's fees in
connection with the Merger or related transactions contemplated by this
Agreement, other than Sandler O'Neill & Partners, L.P.
4.8 Absence of Certain Changes or Events. (a) Since December 31,
2005, no event or events have occurred that have had or are reasonably likely
to have, either individually or in the aggregate, a Material Adverse Effect on
Banner.
(b) Since December 31, 2005, through and including the date of this
Agreement, except as publicly disclosed by Banner in the Banner SEC Reports
filed or furnished prior to the date hereof, Banner and its Subsidiaries have
carried on their respective businesses in all material respects in the
ordinary course of business consistent with their past practice.
(c) Except as set forth in Section 4.8(c) of the Banner Disclosure
Schedule, as of the date hereof no material agreement is being negotiated,
otherwise than in the ordinary
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course of business, the execution of which agreement would require the filing
of a current report on Form 8-K under the Exchange Act.
4.9 Legal Proceedings. (a) Neither Banner nor any Banner Subsidiary
is a party to any, and there are no pending or, to the best of Banner's
knowledge, threatened, material legal, administrative, arbitral or other
material proceedings, claims, actions or governmental or regulatory
investigations of any nature against Banner or any of its Subsidiaries.
(b) There is no Injunction, judgment, or regulatory restriction (other
than those of general application that apply to bank holding companies or
their Subsidiaries) imposed upon Banner, any of its Subsidiaries or the assets
of Banner or any of its Subsidiaries.
4.10 Taxes and Tax Returns. Each of Banner and its Subsidiaries has
duly and timely filed, or will duly and timely file, (including all applicable
extensions) all material Tax Returns required to be filed by or with respect
to Banner and its Subsidiaries on or prior to the Effective Time (all such
returns being accurate and complete in all material respects), has paid, or
will pay, all Taxes with respect to the periods covered by such Tax Returns
and has duly paid or made provision for, or will duly pay or make provision
for, the payment of all material Taxes that have been incurred or are due or
claimed to be due from it by federal, state, foreign or local taxing
authorities other than Taxes that are not yet delinquent or are being
contested in good faith, have not been finally determined and, in each case,
have been adequately reserved against. There are no material disputes
pending, or claims asserted, for Taxes or assessments upon Banner or any of
its Subsidiaries for which Banner does not have reserves that are adequate
under GAAP. Neither Banner nor any of its Subsidiaries has taken or agreed to
take any action that would, or would be reasonably expected to, prevent or
impede the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
4.11 Compliance with Applicable Law. (a) Banner and each Banner
Subsidiary hold all material licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses under and
pursuant to each, and have complied in all respects with and are not in
default in any material respect under any, applicable law, statute, order,
rule, regulation, policy or guideline of any Governmental Entity relating to
Banner or any of its Subsidiaries, except where the failure to hold such
licenses, franchises, permits and authorizations, or such non-compliance or
default, has not had and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Banner.
(b) Except as has not had and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Banner: Banner
and each Banner Subsidiary has properly administered all accounts for which it
acts as a fiduciary, including accounts for which it serves as a trustee,
agent, custodian, personal representative, guardian, conservator or investment
advisor, in accordance with the terms of the governing documents, applicable
state and federal law and regulation and common law. None of Banner, any
Banner Subsidiary, or any director, officer or employee of Banner or of any
Banner Subsidiary has committed any breach of trust or fiduciary duty with
respect to any such fiduciary account and the accountings for each such
fiduciary account are true and correct and accurately reflect the assets of
such fiduciary account.
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(c) Since the enactment of the Sarbanes-Oxley Act, Banner has been and
is in compliance in all material respects with (i) the applicable provisions
of the Sarbanes-Oxley Act and (ii) the applicable listing and corporate
governance rules and regulations of the Nasdaq. Section 4.11(c) of the Banner
Disclosure Schedule sets forth, as of the date hereof, a schedule of all
officers and directors of Banner who have outstanding loans from Banner, and
there has been no default on, or forgiveness or waiver of, in whole or in
part, any such loan during the two years immediately preceding the date
hereof.
4.12 Intellectual Property. Except as would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on
Banner, (a) Banner and each Banner Subsidiary owns, or is licensed to use (in
each case, free and clear of any Liens), all Intellectual Property used in or
necessary for the conduct of its business as currently conducted; (b) the use
of any Intellectual Property by Banner and each Banner Subsidiary does not, to
the knowledge of Banner, infringe on or otherwise violate the rights of any
person and is in accordance with any applicable license pursuant to which
Banner or any Banner Subsidiary acquired the right to use any Intellectual
Property; (c) no person is challenging, infringing on or otherwise violating
any right of Banner or any Banner Subsidiary with respect to any Intellectual
Property owned by and/or licensed to Banner or its Subsidiaries; and (d)
neither Banner nor any Banner Subsidiary has received any written notice of
any pending claim with respect to any Intellectual Property used by Banner or
any Banner Subsidiary and no Intellectual Property owned and/or licensed by
Banner or any Banner Subsidiary is being used or enforced in a manner that
would be expected to result in the abandonment, cancellation or
unenforceability of such Intellectual Property.
4.13 Risk Management Instruments. Except as would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on Banner, (a) all Derivative Transactions (which for the avoidance of doubt
shall not include any Banner stock option), whether entered into for the
account of Banner or any Banner Subsidiary or for the account of a customer of
Banner or any Banner Subsidiary, were duly authorized and entered into in the
ordinary course of business consistent with past practice and in accordance
with prudent banking practice and applicable laws, rules, regulations and
policies of any Regulatory Authority and in accordance with the investment,
securities, commodities, risk management and other policies, practices and
procedures employed by Banner and its Subsidiaries, and with counterparties
believed at the time to be financially responsible and able to understand
(either alone or in consultation with their advisers) and to bear the risks of
such Derivative Transactions; (b) all of such Derivative Transactions are
legal, valid and binding obligations of Banner or a Banner Subsidiary
enforceable against it in accordance with their terms (except as may be
limited by bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting the rights of creditors generally and subject to general principles
of equity), and are in full force and effect; and (c) Banner and each
applicable Banner Subsidiary have duly performed their obligations under the
Derivative Transactions to the extent that such obligations to perform have
accrued and, to Banner's knowledge, there are no breaches, violations or
defaults or allegations or assertions of such by any party thereunder.
4.14 Investment Securities. (a) Each of Banner and each Banner
Subsidiary has good title to all securities owned by it (except those sold
under repurchase agreements or held in any fiduciary or agency capacity), free
and clear of any Lien, except to the extent such
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securities are pledged in the ordinary course of business to secure
obligations of Banner or its Subsidiaries. Such securities are valued on the
books of Banner in accordance with GAAP in all material respects.
(b) Banner and its Subsidiaries and their respective businesses employ
Policies, Practices and Procedures which Banner believes are prudent and
reasonable in the context of such businesses. Prior to the date hereof,
Banner has made available to F&M Bank in writing the material Policies,
Practices and Procedures.
4.15 Property. Except as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Banner, Banner
or a Banner Subsidiary (a) has good and marketable title to all the properties
and assets reflected in the latest audited balance sheet included in the
Banner SEC Reports as being owned by Banner or a Banner Subsidiary or acquired
after the date thereof (except properties sold or otherwise disposed of since
the date thereof in the ordinary course of business) (the "Banner Owned
Properties"), free and clear of all Liens of any nature whatsoever, except
Permitted Encumbrances, and (b) is the lessee of all leasehold estates
reflected in the latest audited financial statements included in such Banner
SEC Reports or acquired after the date thereof (except for leases that have
expired by their terms since the date thereof) (the "Banner Leased Properties"
and, collectively with the Banner Owned Properties, the "Banner Real
Property"), free and clear of all Liens of any nature whatsoever, except for
Permitted Encumbrances, and is in possession of the properties purported to be
leased thereunder, and each such lease is valid without default thereunder by
the lessee or, to the knowledge of Banner, the lessor. The Banner Real
Property is in material compliance with all applicable zoning laws and
building codes, and the buildings and improvements located on the Banner Real
Property are in good operating condition and in a state of good working order,
ordinary wear and tear excepted. There are no pending or, to the knowledge of
F&M Bank, threatened condemnation proceedings against the Banner Real
Property. Banner and its Subsidiaries are in compliance with all applicable
health and safety related requirements for the Banner Real Property, including
those under the Americans with Disabilities Act of 1990 and the Occupational
Health and Safety Act of 1970.
4.16 Environmental Liability. Except as would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on Banner, (a) there are no legal, administrative, arbitral or other
proceedings, claims, actions, causes of action or notices with respect to any
environmental, health or safety matters or any private or governmental
environmental, health or safety investigations or remediation activities of
any nature seeking to impose, or that are reasonably likely to result in, any
liability or obligation of Banner or any of its Subsidiaries arising under
common law or under any local, state or federal environmental, health or
safety statute, regulation or ordinance, including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
pending or threatened against Banner or any of its Subsidiaries; (b) to the
knowledge of Banner, there is no reasonable basis for, or circumstances that
are reasonably likely to give rise to, any such proceeding, claim, action,
investigation or remediation by any Governmental Entity or any third party
that would give rise to any liability or obligation on the part of Banner or
any of its Subsidiaries; and (c) neither Banner nor any of its Subsidiaries is
subject to any agreement, order, judgment, decree, letter or memorandum by or
with any Governmental Entity or third party imposing any liability or
obligation with respect to any of the foregoing.
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4.17 Reorganization; Approvals. As of the date of this Agreement,
Banner (a) is not aware of any fact or circumstance that could reasonably be
expected to prevent the Merger from qualifying as a "reorganization" within
the meaning of Section 368(a) of the Code, and (b) knows of no reason why all
regulatory approvals from any Governmental Entity required for the
consummation of the transactions contemplated by this Agreement should not be
obtained on a timely basis.
4.18 Opinion. Prior to the execution of this Agreement, Banner has
received an opinion from Sandler O'Neill & Partners, L.P. to the effect that
as of the date thereof and based upon and subject to the matters set forth
therein, the Merger Consideration is fair to Banner from a financial point of
view. Such opinion has not been amended or rescinded as of the date of this
Agreement.
4.19 Banner Information. The information relating to Banner and its
Subsidiaries that is provided by Banner or its representatives for inclusion
in the Proxy Statement and the Form S-4, or in any other document filed with
any other Regulatory Agency or Governmental Entity in connection with the
transactions contemplated by this Agreement, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances in which they are
made, not misleading. The portions of the Proxy Statement relating to Banner
and other portions within the reasonable control of Banner will comply in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder. The Form S-4 will comply in all material respects
with the provisions of the Securities Act and the rules and regulations
thereunder.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of Businesses Prior to the Effective Time. Except as
expressly contemplated by or permitted by this Agreement or with the prior
written consent of the other party, during the period from the date of this
Agreement to the Effective Time, each of F&M Bank and Banner shall, and Banner
shall cause each of its Subsidiaries to, (a) conduct its business in the
ordinary course in all material respects, (b) use reasonable best efforts to
maintain and preserve intact its business organization and advantageous
business relationships and retain the services of its key officers and key
employees and (c) take no action that is intended to or would reasonably be
expected to adversely affect or materially delay the ability of either F&M
Bank or Banner to obtain any necessary approvals of any Regulatory Agency or
other Governmental Entity required for the transactions contemplated hereby or
to perform its covenants and agreements under this Agreement or to consummate
the transactions contemplated hereby or thereby.
5.2 F&M Bank Forbearances. During the period from the date of this
Agreement to the Effective Time, except as set forth in the F&M Bank
Disclosure Schedule and except as expressly contemplated or permitted by this
Agreement, F&M Bank shall not, without the prior written consent of Banner:
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(a) 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 for the
obligations of any other individual, corporation or other entity, or make any
loan or advance or capital contribution to, or investment in, any person (it
being understood and agreed that incurrence of indebtedness or the making of
loans in the ordinary course of business consistent with past practice shall
include the creation of deposit liabilities, purchases of Federal funds,
securitizations, sales of certificates of deposit entering into repurchase
agreements, making loans and other extensions of credit to customers in
accordance with existing loan policies and procedures);
(b) (i) adjust, split, combine or reclassify any of its capital
stock;
(ii) make, declare or pay any dividend (other than the regular
2006 annual dividend of $0.88 per share to be declared and paid in December
2006), or make any other distribution on, or directly or indirectly redeem,
purchase or otherwise acquire, any shares of its capital stock or any
securities or obligations convertible (whether currently convertible or
convertible only after the passage of time or the occurrence of certain
events) into or exchangeable for any shares of its capital stock (except
(A) distributions, if any, pursuant to Section 6.12 and (B) the acceptance
of shares of F&M Bank Common Stock in payment of the exercise price or
withholding taxes incurred by any employee or director in connection with
the exercise of F&M Bank Options or the vesting of F&M Bank Restricted
Shares granted under a F&M Bank Stock Plan, in each case in accordance with
past practice and the terms of the applicable F&M Bank Stock Plan and
related award agreements);
(iii) grant any stock options, restricted shares or other equity-
based award with respect to shares of F&M Bank Common Stock under any of
F&M Bank Stock Plans or otherwise (whether such awards are settled in cash,
F&M Bank Common Stock or otherwise), or grant any individual, corporation
or other entity any right to acquire any shares of its capital stock, other
than grants of stock options to newly hired employees of F&M Bank in the
ordinary course of business consistent with past practice under the F&M
Bank Stock Plans; or
(iv) issue any additional shares of capital stock or other
securities except pursuant to the exercise of F&M Bank Options granted
under a F&M Bank Stock Plan that are outstanding as of the F&M Bank
Capitalization Date or granted thereafter in compliance with this
Agreement;
(c) except as required by applicable law, (i) increase the wages,
salaries, or incentive compensation or incentive compensation opportunities of
any director or employee of F&M Bank other than normal increases in annual
base salary in the ordinary course of business consistent with past practice
for employees who are not (x) executive officers, (y) directors or (z)
employees of F&M Bank who are party to change of control or severance
agreements; (ii) increase or accelerate the accrual rate, vesting or timing of
payment or funding of, any compensation, benefits or other rights of
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any director or employee of F&M Bank or otherwise pay any amount to which any
director or employee of F&M Bank is not entitled; (iii) establish, adopt, or
become a party to any new employee benefit or compensation plan, program,
commitment or agreement or amend, suspend or terminate any F&M Bank Benefit
Plan other than amendments required to be made to comply with Section 409A of
the Code; (iv) modify any F&M Bank Option or other equity-based award; (v)
make any discretionary contributions or payments to any trust or other funding
vehicle or pay any discretionary premiums in respect of benefits under any F&M
Bank Benefit Plan or Employment Agreement, except as may be consistent with
past practice, (vi) establish, adopt or enter into any collective bargaining
agreement or (vii) hire, terminate the employment or otherwise change the
status of employment of any executive officer or director or employee of F&M
Bank who is party to any change of control or severance agreement;
(d) except as permitted by Section 6.12, sell, transfer, mortgage,
encumber or otherwise dispose of any material amount of its properties or
assets to any individual, corporation or other entity or cancel, release or
assign any material amount of indebtedness to any such person or any claims
held by any such person, in each case other than in the ordinary course of
business consistent with past practice or pursuant to contracts in force at
the date of this Agreement;
(e) enter into any new line of business or change in any material
respect its lending, investment, underwriting, risk and asset liability
management and other banking and operating, securitization and servicing
policies, except as required by applicable law, regulation or policies imposed
by any Governmental Entity;
(f) except for transactions in the ordinary course of business
consistent with past practice, make any material investment either by purchase
of stock or securities, contributions to capital, property transfers, or
purchase of any property or assets of any other individual, corporation or
other entity;
(g) take any action, or knowingly fail to take any action, which action
or failure to act is reasonably likely to prevent the Merger from qualifying
as a reorganization within the meaning of Section 368(a) of the Code;
(h) amend its articles of incorporation or bylaws, or otherwise take
any action to exempt any person or entity (other than Banner or its
Subsidiaries) or any action taken by any person or entity from any Takeover
Statute or similarly restrictive provisions of its organizational documents or
terminate, amend or waive any provisions of any confidentiality or standstill
agreements in place with any third parties;
(i)restructure or materially change its investment securities portfolio or its
gap position, through purchases, sales or otherwise, or the manner in which
the portfolio is classified or reported;
(j) commence or settle any material claim, action or proceeding, except
in the ordinary course of business consistent with past practice (provided
that no
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such settlement shall include any restrictions on the operation or conduct of
business by F&M Bank without the prior written consent of Banner);
(k) take any action or fail to take any action that is intended or may
reasonably be expected to result in any of the conditions to the Merger set
forth in Article VII not being satisfied;
(l) implement or adopt any change in its Tax accounting or financial
accounting principles, practices or methods, other than as may be required by
applicable law, GAAP or regulatory guidelines;
(m) file any application to establish, or to relocate or terminate the
operations of, any banking office of F&M Bank;
(n) file or amend any Tax Return other than in the ordinary course of
business, make, change or revoke any material Tax election, agree to an
extension of the statute of limitations with respect to the assessment or
collection of material Taxes, make or surrender any claim for a material
refund of Taxes, or settle or compromise any material Tax liability;
(o) create, renew, amend, terminate or cancel any F&M Bank Contract
other than in the ordinary course of business consistent with past practice;
provided, that F&M Bank shall not enter into any contract or agreement of the
type addressed in clause (ii) or (iii) of the definition of F&M Bank
Contracts; or
(p) agree to take, make any commitment to take, or adopt any
resolutions of its board of directors in support of, any of the actions
prohibited by this Section 5.2.
5.3 Banner Forbearances. Except as expressly permitted by this
Agreement or with the prior written consent of F&M Bank, during the period
from the date of this Agreement to the Effective Time, Banner shall not, and
shall not permit any Banner Subsidiary to, (a) amend, repeal or otherwise
modify any provision of the Banner Articles or the Banner Bylaws in a manner
that would adversely affect F&M Bank or the transactions contemplated by this
Agreement, (b) take any action, or knowingly fail to take any action, which
action or failure to act is reasonably likely to prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Code, (c) take any action that is intended or may reasonably be expected to
result in any of the conditions to the Merger set forth in Article VII not
being satisfied, or (d) agree to take, make any commitment to take, or adopt
any resolutions of its board of directors in support of, any of the actions
prohibited by this Section 5.3.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Regulatory Matters. (a) Banner and F&M Bank shall promptly
prepare and file with the SEC the Form S-4, in which the Proxy Statement will
be included as a prospectus. Each of Banner and F&M Bank shall use its
reasonable best efforts to have the Form
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S-4 declared effective under the Securities Act as promptly as practicable
after such filing, and F&M Bank shall thereafter mail or deliver the Proxy
Statement to its shareholders. Banner shall file the opinion described in
Section 7.3(c) on a post-effective amendment to the Form S-4. Banner shall
also use its reasonable best efforts to obtain all necessary state securities
law or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement, and F&M Bank shall furnish all information
concerning F&M Bank and the holders of F&M Bank Common Stock as may be
reasonably requested in connection with any such action.
(b) The parties shall cooperate with each other and use their
respective reasonable best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, to
obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and Governmental Entities that are
necessary or advisable to consummate the transactions contemplated by this
Agreement, and to comply with the terms and conditions of all such permits,
consents, approvals and authorizations of all such third parties, Regulatory
Agencies or Governmental Entities. F&M Bank and Banner shall have the right
to review in advance, and, to the extent practicable, each will consult the
other on, in each case subject to applicable laws relating to the
confidentiality of information, all the information relating to F&M Bank or
Banner, as the case may be, and any Banner Subsidiaries, which appear in any
filing made with, or written materials submitted to, any third party or any
Governmental Entity in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties shall act
reasonably and as promptly as practicable. The parties shall consult with
each other with respect to the obtaining of all permits, consents, approvals
and authorizations of all third parties and Governmental Entities necessary or
advisable to consummate the transactions contemplated by this Agreement and
each party will keep the other apprised of the status of matters relating to
completion of the transactions contemplated by this Agreement.
Notwithstanding the foregoing, nothing contained herein shall be deemed to
require Banner to take any action, or commit to take any action, or agree to
any condition or restriction, in connection with obtaining the foregoing
permits, consents, approvals and authorizations of Governmental Entities, that
would reasonably be expected to have a material adverse effect (measured on a
scale relative to F&M Bank) on either Banner or F&M Bank (a "Materially
Burdensome Regulatory Condition").
(c) Each of Banner and F&M Bank shall, upon request, furnish to the
other all information concerning itself, its Subsidiaries, directors, officers
and shareholders and such other matters as may be reasonably necessary or
advisable in connection with the Proxy Statement, the Form S-4 or any other
statement, filing, notice or application made by or on behalf of Banner, F&M
Bank, or any Banner Subsidiary to any Governmental Entity in connection with
the Merger and the other transactions contemplated by this Agreement.
(d) Each of Banner and F&M Bank shall promptly advise the other upon
receiving any communication from any Regulatory Agency or Governmental Entity
consent or approval of which is required for consummation of the transactions
contemplated by this Agreement that causes such party to believe that there is
a reasonable likelihood that any Banner Requisite Regulatory Approval or F&M
Bank Requisite Regulatory Approval, respectively, will not be obtained or that
the receipt of any such approval may be materially delayed.
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6.2 Access to Information. (a) Upon reasonable notice and subject to
applicable laws relating to the confidentiality of information, each of F&M
Bank and Banner shall, and, in the case of Banner, shall cause its
Subsidiaries to, afford to the officers, employees, accountants, counsel,
advisors, agents and other representatives of the other party, reasonable
access, during normal business hours during the period prior to the Effective
Time, to all its properties, books, contracts, commitments and records, and,
during such period, each party shall, and, in the case of Banner, shall cause
its Subsidiaries to, make available to the other party (i) a copy of each
report, schedule, registration statement and other document filed or received
by it during such period pursuant to the requirements of federal securities
laws or federal or state banking or insurance laws (other than reports or
documents that such party is not permitted to disclose under applicable law)
and (ii) all other information concerning its business, properties and
personnel as the other party may reasonably request (in the case of a request
by F&M Bank, information concerning Banner that is reasonably related to the
prospective value of Banner Common Stock or to Banner's ability to consummate
the transactions contemplated hereby). Neither F&M Bank nor Banner, nor any
Banner Subsidiaries, shall be required to provide access to or to disclose
information where such access or disclosure would jeopardize the
attorney-client privilege of such party or its Subsidiaries or contravene any
law, rule, regulation, order, judgment, decree, fiduciary duty or binding
agreement entered into prior to the date of this Agreement. The parties shall
make appropriate substitute disclosure arrangements under circumstances in
which the restrictions of the preceding sentence apply.
(b) All information and materials provided pursuant to this Agreement
shall be subject to the provisions of the Confidentiality Agreement entered
into between the parties as of November 17, 2006 (the "Confidentiality
Agreement").
(c) No investigation by a party hereto or its representatives shall
affect the representations and warranties of the other party set forth in this
Agreement.
6.3 Shareholder Approval. F&M Bank shall call a meeting of its
shareholders (the "F&M Bank Shareholders' Meeting") to be held as soon as
reasonably practicable for the purpose of obtaining the requisite shareholder
approvals required in connection with this Agreement and the Merger. The
Board of Directors of F&M Bank shall recommend to F&M Bank's shareholders the
approval and adoption of this Agreement and the Merger (the "F&M Bank
Recommendation"); provided, however, that F&M Bank's Board of Directors shall
not be required to make such F&M Bank Recommendation to the extent provided in
Section 6.11. Notwithstanding any change in the F&M Bank Recommendation,
unless otherwise directed in writing by Banner, this Agreement and the Merger
shall be submitted to the shareholders of F&M Bank at the F&M Bank
Shareholders' Meeting for the purpose of approving the Agreement and the
Merger and nothing contained herein shall be deemed to relieve F&M Bank of
such obligation; provided, however, that if the Board of Directors of F&M Bank
shall have effected a change in F&M Bank Recommendation in accordance with
this Agreement, then in submitting this Agreement to F&M Bank's shareholders,
the Board of Directors of F&M Bank may submit this Agreement to F&M Bank's
shareholders without recommendation (although the resolutions adopting this
Agreement and the Plan of Merger as of the date hereof may not be rescinded or
amended), in which event the Board of Directors of F&M Bank may communicate
the basis for its lack of a recommendation to F&M Bank's shareholders in the
Proxy Statement or an appropriate amendment or supplement thereto to the
extent required by law.
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6.4 Affiliates. F&M Bank shall use its reasonable best efforts to
cause each director, executive officer and other person who is an "affiliate"
(for purposes of Rule 145 under the Securities Act) of F&M Bank to deliver to
Banner, as soon as practicable after the date of this Agreement, and prior to
the date of the meeting of F&M Bank shareholders to be held pursuant to
Section 6.3, a written agreement, in the form of Exhibit B.
6.5 Nasdaq Listing. Banner shall cause the shares of Banner Common
Stock to be issued in the Merger to be approved for listing on the Nasdaq,
subject to official notice of issuance, prior to the Effective Time.
6.6 Employee and Director Matters. (a) From and after the Effective
Time, the employees of F&M Bank who are employed by Banner or the Resulting
Bank as of the Effective Time (the "Covered Employees") and who remain
employed with Banner or the Resulting Bank during such period will be offered
participation and coverage under employee benefit plans generally in effect
for similarly situated employees of Banner and its Subsidiaries ("Banner
Benefit Plans"); provided that continued participation and coverage following
the Effective Time under the employee benefit plans of F&M Bank in effect
immediately prior to the Effective Time shall be deemed to satisfy the
obligations under this sentence.
(b) To the extent permitted by applicable law or the terms of any
applicable insurance policies, Banner shall cause each Banner Benefit Plan, in
which Covered Employees are eligible to participate, to take into account for
purposes of eligibility, vesting and benefit accruals under the Banner Benefit
Plans the service of such employees with F&M Bank (and any predecessor
entities) to the same extent as such service was credited for such purpose by
F&M Bank; provided, however, that such service shall not be recognized for
purposes of benefit accruals under any defined benefit pension plan, to the
extent that such recognition would result in a duplication of benefits with
respect to the same period of service, or with respect to newly implemented
plans for which prior service is not taken into account. Nothing herein shall
limit the ability of Banner or the Resulting Bank to amend or terminate any of
the F&M Bank Benefit Plans or Banner Benefits Plans in accordance with their
terms at any time.
(c) If Covered Employees become eligible to participate in a medical,
dental or health plan of Banner or its Subsidiaries, Banner shall cause each
such plan to (i) waive any preexisting condition limitations to the extent
such conditions are covered under the applicable medical, health or dental
plans of Banner, (ii) honor under such plans any deductible, co-payment and
out-of-pocket expenses incurred by such employees and their beneficiaries
during the portion of the calendar year prior to such participation and (iii)
waive any waiting period limitation or evidence of insurability requirement
which would otherwise be applicable to such employee on or after the Effective
Time for the year in which the Effective Time occurs, in each case to the
extent such employee had satisfied any similar limitation or requirement under
an analogous medical dental or health plan of F&M Bank prior to the Effective
Time for the year in which the Effective Time or participation in such
medical, dental or health plan of Banner, as applicable, occurs.
(d) From and after the Effective Time, Banner shall, or shall cause its
Subsidiaries to, honor, in accordance with the terms thereof as in effect as
of the date hereof or as may be amended after the date hereof but prior to the
Effective Time with the prior written
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consent of Banner, each employment agreement and change in control agreement
of F&M Bank set forth in Section 6.6(d) of the F&M Bank Disclosure Schedule.
(e) As of the Effective Time, Banner and the Resulting Bank shall take
all actions necessary to effectuate the agreements set forth in Section 6.6(e)
of the Banner Disclosure Schedule.
(f) Prior to the Effective Time, subject to applicable Law, F&M Bank
shall adopt the relevant resolutions of its board of directors necessary to
terminate the F&M Bank 401(k) Profit Sharing Plan (the "F&M Bank Plan") and to
ensure that each participant is fully vested in his or her account balance
under the F&M Bank Plan upon such plan termination and shall take such other
actions with respect to the F&M Bank Plan, including any amendments as may be
reasonably requested by Banner, in each case, effective as of the day prior to
the Effective Time and subject to the consummation of the transactions
contemplated by this Agreement. Following the Effective Time and as soon as
practicable following receipt of a favorable determination letter from the IRS
on the termination of the F&M Bank Plan, the assets thereof shall be
transferred to the corresponding Banner Plan, or if such transfer is not
permitted by the terms of such plans or by applicable law then distributed to
the participants of the F&M Bank Plan.
(g) Without limiting the generality of the final sentence of Section
9.9, nothing in this Section 6.6, express or implied is intended to or shall
confer upon any other person including without limitation any Covered
Employee, any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement, and no provision of this Section 6.6 shall
constitute an amendment of any compensation or benefit plan, program, policy,
agreement or other arrangement. (h)(i) As of the Effective Date, Banner shall
appoint David Klaue as a director of Banner, and shall take such action as may
be necessary to increase the number of directors constituting the Banner Board
of Directors to accommodate such appointment. (ii) Upon the creation of a
vacancy due to the retirement, resignation, disability, death or removal of,
or the failure to stand for reelection of, a current member of the Banner
Board of Directors, Banner shall, subject to qualification requirements for
members of the Banner Board of Directors generally, nominate John R. Layman
for election as a Banner director.
6.7 Indemnification; Directors' and Officers' Insurance. (a) In the
event of any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative (a "Claim"),
including any such Claim in which any individual who is now, or has been at
any time prior to the date of this Agreement, or who becomes prior to the
Effective Time, a director or officer of F&M Bank or who is or was serving at
the request of F&M Bank as a director or officer of another person, including,
but not limited to, acting as a trustee, administrator or fiduciary of any F&M
Bank Benefit Plan (the "Indemnified Parties"), is, or is threatened to be,
made a party based in whole or in part on, or arising in whole or in part out
of, or pertaining to (i) the fact that he is or was a director or officer of
F&M Bank prior to the Effective Time or (ii) this Agreement or any of the
transactions contemplated by this Agreement, whether asserted or arising
before or after the Effective Time, the parties shall cooperate and use their
best efforts to defend against and respond thereto. All rights to
indemnification and
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exculpation from liabilities for acts or omissions occurring at or prior to
the Effective Time now existing in favor of any Indemnified Party as provided
in their respective certificates or articles of incorporation or bylaws (or
comparable organizational documents), and any existing indemnification
agreements set forth in Section 6.7 of F&M Bank Disclosure Schedule, shall
survive the Merger and shall continue in full force and effect in accordance
with their terms, it being understood that nothing in this sentence shall
require any amendment to the articles of incorporation or bylaws of the
Resulting Bank.
(b) From and after the Effective Time, the Resulting Bank shall, to the
fullest extent permitted by applicable law, indemnify, defend and hold
harmless, and provide advancement of expenses to, each Indemnified Party
against all losses, claims, damages, costs, expenses, fines, penalties,
liabilities or judgments or amounts that are paid in settlement of or in
connection with any Claim based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director or officer of
F&M Bank, and pertaining to any matter existing or occurring, or any acts or
omissions occurring, at or prior to the Effective Time, whether asserted or
claimed prior to, or at or after, the Effective Time (including matters, acts
or omissions occurring in connection with the approval of this Agreement and
the consummation of the transactions contemplated hereby) or taken at the
request of Banner pursuant to Section 6.8 hereof.
(c) Banner, either directly or through F&M Bank and at Banner's
expense, shall cause the individuals serving as officers and directors of F&M
Bank immediately prior to the Effective Time to be covered for a period of six
years from the Effective Time by the directors' and officers' liability
insurance policy maintained by F&M Bank (provided that Banner may substitute
therefor policies of at least the same coverage and amounts containing terms
and conditions that are not less advantageous than such policy) with respect
to acts or omissions occurring prior to the Effective Time that were committed
by such officers and directors in their capacity as such; provided that in no
event shall Banner be required to expend annually in the aggregate an amount
in excess of 200% of the annual premiums currently paid by F&M Bank (which
current amount is set forth in Section 6.7 of the F&M Bank Disclosure
Schedule) for such insurance (the "Insurance Amount"), and provided further
that if Banner is unable to maintain such policy (or such substitute policy)
as a result of the preceding proviso, Banner shall obtain as much comparable
insurance as is available for the Insurance Amount.
(d) The provisions of this Section 6.7 shall survive the Effective Time
and are intended to be for the benefit of, and shall be enforceable by, each
Indemnified Party and his or her heirs and representatives.
6.8 Additional Agreements. (a) Subject to the terms and conditions of
this Agreement, each of F&M Bank and Banner agree to cooperate fully with each
other and to use reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make the Merger effective at the time and in the
manner contemplated by this Agreement.
(b) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement or to vest
the Resulting Bank with full title to all properties, assets, rights,
approvals, immunities and franchises of either party to the
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Merger, the proper officers and directors of each party shall, at Banner's
sole expense, take all such necessary action as may be reasonably requested by
Banner.
6.9 Advice of Changes. Each of Banner and F&M Bank shall promptly
advise the other of any change or event (i) having or reasonably likely to
have a Material Adverse Effect on it or (ii) that it believes would or would
be reasonably likely to cause or constitute a material breach of any of its
representations, warranties or covenants contained in this Agreement;
provided, however, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties (or remedies with respect
thereto) or the conditions to the obligations of the parties under this
Agreement; provided further that a failure to comply with this Section 6.9
shall not constitute a breach of this Agreement or the failure of any
condition set forth in Article VII to be satisfied unless the underlying
Material Adverse Effect or material breach would independently result in the
failure of a condition set forth in Article VII to be satisfied.
6.10 [Reserved].
6.11 No Solicitation. (a) None of F&M Bank, or any officer, director,
employee, agent or representative (including any investment banker, financial
advisor, attorney, accountant or other retained representative) of F&M Bank
shall directly or indirectly (i) solicit, initiate, encourage, facilitate
(including by way of furnishing information) or take any other action designed
to facilitate any inquiries or proposals regarding any merger, share exchange,
consolidation, sale of assets, sale of shares of capital stock (including,
without limitation, by way of a tender offer) or similar transactions
involving F&M Bank that, if consummated, would constitute an Alternative
Transaction (any of the foregoing inquiries or proposals, including any
indication of an intention to propose any of the foregoing, if with respect to
F&M Bank, being referred to herein as an "Alternative Proposal"), (ii)
participate in any discussions or negotiations regarding an Alternative
Transaction or (iii) enter into any agreement regarding any Alternative
Transaction. Notwithstanding the foregoing, the Board of Directors of F&M
Bank shall be permitted, prior to the meeting of F&M Bank shareholders to be
held pursuant to Section 6.3, and subject to compliance with the other terms
of this Section 6.11 and to first entering into an agreement with the person
proposing such Alternative Proposal on terms substantially similar to, and no
less favorable to F&M Bank than, those contained in the Confidentiality
Agreement, to (A) consider and participate in discussions with respect to a
bona fide Alternative Proposal received in writing by F&M Bank, and (B)
withdraw, modify or qualify the F&M Bank Recommendation, in each case if and
only to the extent that the Board of Directors of F&M Bank reasonably
determines in good faith after consultation with outside legal counsel that
failure to do so would cause it to violate its fiduciary duties.
As used in this Agreement, "Alternative Transaction" means any of (i) a
transaction pursuant to which any person (or group of persons) (other than
Banner or its affiliates) directly or indirectly, acquires or would acquire
more than 25% of the outstanding shares of F&M Bank or outstanding voting
power or of any new series or new class of preferred stock that would be
entitled to a class or series vote with respect to a merger of F&M Bank
whether from F&M Bank or pursuant to a tender offer or exchange offer or
otherwise, (ii) a merger, share exchange, consolidation or other business
combination involving F&M Bank (other than the Merger), (iii) any transaction
pursuant to which any person (or group of persons)
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(other than Banner or its affiliates) acquires or would acquire control of
assets of F&M Bank, or any of its Subsidiaries representing more than 25% of
the fair market value of all the assets, net revenues or net income of F&M
Bank, immediately prior to such transaction, or (iv) any other consolidation,
business combination, recapitalization or similar transaction involving F&M
Bank, other than the transactions contemplated by this Agreement.
(b) F&M Bank shall notify Banner promptly (but in no event later than
24 hours) after receipt of any Alternative Proposal, or any material
modification of or material amendment to any Alternative Proposal, or any
request for nonpublic information relating to F&M Bank or for access to the
properties, books or records of F&M Bank by any person or entity that informs
the Board of Directors of F&M Bank that it is considering making, or has made,
an Alternative Proposal. Such notice to Banner shall be made orally and in
writing, and shall indicate the identity of the person making the Alternative
Proposal or intending to make or considering making an Alternative Proposal or
requesting non-public information or access to the books and records of F&M
Bank, and the material terms of any such Alternative Proposal or modification
or amendment to an Alternative Proposal. F&M Bank shall keep Banner fully
informed, on a current basis, of any material changes in the status and any
material changes or modifications in the terms of any such Alternative
Proposal, indication or request. F&M Bank shall also promptly, and in any
event within 24 hours, notify Banner, orally and in writing, if it enters into
discussions or negotiations concerning any Alternative Proposal in accordance
with Section 6.11(a).
(c) F&M Bank shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons conducted heretofore
with respect to any of the foregoing, and shall use reasonable best efforts to
cause all persons other than Banner who have been furnished confidential
information regarding F&M Bank in connection with the solicitation of or
discussions regarding an Alternative Proposal within the 12 months prior to
the date hereof promptly to return or destroy such information. F&M Bank
agrees not to release any third party from the confidentiality and standstill
provisions of any agreement to which F&M Bank is or may become a party, and
shall immediately take all steps necessary to terminate any approval that may
have been heretofore given under any such provisions authorizing any person to
make an Alternative Proposal.
(d) F&M Bank shall ensure that the officers, directors and all
employees, agents and representatives (including any investment bankers,
financial advisors, attorneys, accountants or other retained representatives)
of F&M Bank are aware of the restrictions described in this Section 6.11 as
reasonably necessary to avoid violations thereof. It is understood that any
violation of the restrictions set forth in this Section 6.11 by any officer,
director, employee, agent or representative (including any investment banker,
financial advisor, attorney, accountant or other retained representative) of
F&M Bank, at the direction or with the consent of F&M Bank, shall be deemed to
be a breach of this Section 6.11 by F&M Bank.
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ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of the parties to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Shareholder Approval. This Agreement shall have been approved and
adopted by the requisite affirmative vote of the holders of F&M Bank Common
Stock entitled to vote thereon.
(b) Nasdaq Listing. The shares of Banner Common Stock to be issued to
the holders of F&M Bank Common Stock upon consummation of the Merger shall
have been authorized for listing on the Nasdaq, subject to official notice of
issuance.
(c) Form S-4. The Form S-4 shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the Form S-4
shall have been issued and no proceedings for that purpose shall have been
initiated or threatened by the SEC.
(d) No Injunctions or Restraints; Illegality. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") preventing the consummation of the
Merger or any of the other transactions contemplated by this Agreement shall
be in effect. No statute, rule, regulation, order, Injunction or decree shall
have been enacted, entered, promulgated or enforced by any Governmental Entity
that prohibits or makes illegal consummation of the Merger.
7.2 Conditions to Obligations of Banner and Banner Bank. The obligation
of Banner to effect the Merger is also subject to the satisfaction, or waiver
by Banner, at or prior to the Effective Time, of the following conditions:
(a) Representations and Warranties. The representations and warranties
of F&M Bank set forth in Section 3.2 of this Agreement shall be true and
correct (other than for such failures to be true and correct as are de minimis
in effect), and the remaining representations and warranties of F&M Bank set
forth in this Agreement shall be true and correct (for this purpose
disregarding any qualification or limitation as to materiality or Material
Adverse Effect), in each case as of the date of this Agreement and as of the
Closing Date as though made on such date, except to the extent such
representations and warranties are expressly made only as of an earlier date,
in which case as of such earlier date; provided that, if any of such
representations and warranties (other than the representations and warranties
contained in Section 3.2, which shall be true and correct other than for such
failures to be true and correct as are de minimis in effect) shall not be true
and correct (for this purpose disregarding any qualification or limitation as
to materiality or Material Adverse Effect), then the condition stated in this
clause (a) shall be deemed satisfied if and only if the cumulative effect of
all inaccuracies
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of such representations and warranties (for this purpose disregarding any
qualification or limitation as to materiality or Material Adverse Effect)
shall not be or have a Material Adverse Effect on F&M Bank; and Banner shall
have received a certificate signed on behalf of F&M Bank by its Chief
Executive Officer or Chief Financial Officer to the foregoing effect.
(b) Performance of Obligations of F&M Bank. F&M Bank shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Effective Time; and Banner shall
have received a certificate signed on behalf of F&M Bank by the Chief
Executive Officer or the Chief Financial Officer of F&M Bank to such effect.
(c) Federal Tax Opinion. Banner shall have received the opinion of
Wachtell, Lipton, Rosen & Katz, counsel to Banner, dated the Closing Date, to
the effect that, on the basis of facts, representations and assumptions set
forth or referred to in such opinion, the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code. In rendering
such opinion, counsel may require and rely upon customary representations
contained in certificates of officers of F&M Bank and Banner.
(d) Regulatory Approvals. All regulatory approvals set forth in
Section 4.4 required to consummate the transactions contemplated by this
Agreement, including the Merger, shall have been obtained and shall remain in
full force and effect and all statutory waiting periods in respect thereof
shall have expired (all such approvals and the expiration of all such waiting
periods being referred as the "Banner Requisite Regulatory Approvals"), and no
such regulatory approval shall have resulted in the imposition of any
Materially Burdensome Regulatory Condition.
7.3 Conditions to Obligations of F&M Bank. The obligation of F&M Bank
to effect the Merger is also subject to the satisfaction or waiver by F&M Bank
at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Banner set forth in this Agreement shall be true and correct (for this
purpose disregarding any qualification or limitation as to materiality or
Material Adverse Effect), in each case as of the date of this Agreement and as
of the Closing Date as though made on such date, except to the extent such
representations and warranties are expressly made only as of an earlier date,
in which case as of such earlier date; provided that, if any of such
representations and warranties shall not be true and correct (for this purpose
disregarding any qualification or limitation as to materiality or Material
Adverse Effect), then the condition stated in this clause (a) shall be deemed
satisfied if and only if the cumulative effect of all inaccuracies of such
representations and warranties (for this purpose disregarding any
qualification or limitation as to materiality or Material Adverse Effect)
shall not be or have a Material Adverse Effect on Banner; and F&M Bank shall
have received a certificate signed on behalf of Banner by its Chief Executive
Officer or Chief Financial Officer to the foregoing effect.
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(b) Performance of Obligations of Banner. Banner shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Time, and F&M Bank shall have
received a certificate signed on behalf of Banner by the Chief Executive
Officer or the Chief Financial Officer of Banner to such effect.
(c) Federal Tax Opinion. F&M Bank shall have received the opinion of
Wachtell, Lipton, Rosen & Katz, counsel to Banner, dated the Closing Date, to
the effect that, on the basis of facts, representations and assumptions set
forth or referred to in such opinion, the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code. In rendering
such opinion, counsel may require and rely upon customary representations
contained in certificates of officers of F&M Bank and Banner.
(d) Regulatory Approvals. All regulatory approvals set forth in
Section 3.4 required to consummate the transactions contemplated by this
Agreement, including the Merger, shall have been obtained and shall remain in
full force and effect and all statutory waiting periods in respect thereof
shall have expired (all such approvals and the expiration of all such waiting
periods being referred as the "F&M Bank Requisite Regulatory Approvals").
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the matters presented
in connection with the Merger by the shareholders of F&M Bank or Banner:
(a) by mutual consent of F&M Bank and Banner in a written instrument
authorized by the boards of directors of F&M Bank and Banner, as determined by
a vote of a majority of the members of each respective entire board of
directors;
(b) by either F&M Bank or Banner, if any Governmental Entity that must
grant a Banner Requisite Regulatory Approval or a F&M Bank Requisite
Regulatory Approval has denied approval of the Merger and such denial has
become final and nonappealable or any Governmental Entity of competent
jurisdiction shall have issued a final and nonappealable order permanently
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement;
(c) by either F&M Bank or Banner, if the Merger shall not have been
consummated on or before July 31, 2007 unless the failure of the Closing to
occur by such date shall be due to the failure of the party seeking to
terminate this Agreement to perform or observe the covenants and agreements of
such party set forth in this Agreement;
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(d) by either Banner or F&M Bank (provided that the terminating party
is not then in material breach of any representation, warranty, covenant or
other agreement contained herein), if there shall have been a breach of any of
the covenants or agreements or any of the representations or warranties set
forth in this Agreement on the part of F&M Bank, in the case of a termination
by Banner, or Banner, in the case of a termination by F&M Bank, which breach,
either individually or in the aggregate, would result in, if occurring or
continuing on the Closing Date, the failure of the conditions set forth in
Section 7.2 or 7.3, as the case may be, and which is not cured within 45 days
following written notice to the party committing such breach or by its nature
or timing cannot be cured within such time period;
(e) by Banner, if (i) F&M Bank shall have materially breached its
obligations under Section 6.3 or Section 6.11, or (ii) the Board of Directors
of F&M Bank shall have (A) failed to recommend in the Proxy Statement the
adoption of the agreement of merger set forth in this Agreement, (B) publicly
withdrawn or modified, or publicly announced its intention to withdraw or
modify, in any manner adverse to Banner, its recommendation that its
shareholders approve or adopt this Agreement or (C) recommended any
Alternative Proposal or failed to recommend against any Alternative Proposal
within the 10 business day period specified in Rule 14e-2(a) under the
Exchange Act (or, in the case of clause (ii), resolved to take any such
action), whether or not permitted by the terms hereof;
(f) by either F&M Bank or Banner if any approval of the shareholders of
F&M Bank contemplated by this Agreement shall not have the F&M Bank
Shareholders' Meeting or at any adjournment or postponement of either such
meeting; or
(g) by F&M Bank, if the Board of Directors of F&M Bank so determines by
the vote of a majority of all of its members, by giving written notice to
Banner not later than the end of the second Business Day next following the
Determination Date, in the event that, as of the Determination Date, both of
the following conditions are satisfied:
(i) the Average Closing Price shall be less than $33.27 (the
"Floor Price"); and
(ii)(A) the number obtained by dividing the Average Closing Price by
the Banner Starting Price (such number, the "Banner Ratio") is less than
(B) the number obtained by dividing the Final Index Price by the Initial
Index Price and subtracting 0.1866 from such quotient (such number, the
"Index Ratio").
If F&M Bank elects to exercise its termination right pursuant to this
Section 8.1(g), it shall give written notice to Banner. During the
five-business-day period commencing with its receipt of such notice, Banner
may, at its option (the "Banner Fill Option"), (A) adjust the Share Ratio to
equal the lesser of (1) the number (rounded to the nearest one-ten-thousandth)
that would cause the Final Aggregate Consideration to be
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equal to Minimum Aggregate Consideration, and (2) the number equal to a
quotient (rounded to the nearest one-ten-thousandth), the numerator of which
is the Index Ratio multiplied by the Share Ratio (as then in effect) and the
denominator of which is the Banner Ratio, (B) increase the Cash Consideration
by an amount equal to product of (1) the Share Ratio as adjusted pursuant to
the preceding Clause (A) minus the Share Ratio prior to such adjustment and
(2) the Average Closing Price, or (C) increase the Share Ratio less than would
otherwise be required by the preceding Clause (A) but increase the Cash
Consideration by the amount required to achieve a like economic result. If
Banner exercises the Banner Fill Option, it shall give prompt written notice
to F&M Bank of such election and the revised Stock Consideration or Cash
Consideration, as applicable, whereupon no termination shall have occurred
pursuant to this Section 8.1(g) and this Agreement shall remain in effect in
accordance with its terms (except as the Share Ratio or Cash Consideration, as
applicable, shall have been so modified), and any references in this Agreement
to "Share Ratio" or "Cash Consideration," as applicable, shall thereafter be
deemed to refer to the Share Ratio or Cash Consideration, as applicable, as
adjusted pursuant to this Section 8.1(g).
For purposes of Sections 8.1(g) and 8.1(h), (A) if the outstanding shares
of common stock of Banner or any company belonging to the Index Group shall be
changed into a different number of shares by reason of any stock dividend,
reclassification, recapitalization, split-up, combination, exchange of shares
or similar transaction between the date of the Agreement and the Determination
Date, the prices for the common stock of such company will be appropriately
adjusted and (B) the following terms shall have the meanings set forth below:
"Average Closing Price" of the Banner Common Stock shall mean the
arithmetic mean of the daily closing sales prices per share of Banner Common
Stock reported on the Nasdaq (as reported by the Wall Street Journal or, if
not reported thereby, another authoritative source) for the twenty consecutive
Nasdaq trading days ending at the close of trading on the Determination Date.
"Banner Starting Price" means $45.42.
"Business Day" means Monday through Friday of each week, except a legal
holiday recognized as such by the U.S. Government or any day on which banking
institutions in the State of Washington are authorized or obligated to close.
"Determination Date" means the date on which the last required approval
of a Governmental Authority is obtained with respect to the Merger, without
regard to any requisite waiting period.
"Final Aggregate Consideration" means the value of the aggregate Cash
Consideration plus the value of the aggregate Stock Consideration calculated
substituting the Average Closing Price for the per share value of Banner
Common Stock.
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"Final Index Price" means the sum of the Final Prices for each company
comprising the Index Group multiplied by the weight set forth on Exhibit A
opposite the name of the applicable company, as they may be adjusted in
accordance herewith.
"Final Price" means, with respect to any company belonging to the Index
Group, the arithmetic average of the daily closing sales prices of a share of
common stock of such company, as reported on the consolidated transaction
reporting system for the market or exchange on which such common stock is
principally traded (as reported by the Wall Street Journal or, if not reported
thereby, another authoritative source) for the same trading days used in
calculating the Average Closing Price.
"Index Group" means the 17 financial institution holding companies listed
on Exhibit A attached hereto, the common stock of all of which shall be
publicly traded and as to which there shall not have been a publicly announced
proposal for the acquisition of any such company or as to which any such
company shall have made a proposal to acquire another company in which 20% or
more of its outstanding shares would be issued, in each case at any time
during the period beginning on the date of this Agreement and ending on the
Determination Date. In the event that, at any time during the period beginning
on the date of this Agreement and ending on the Determination Date, the common
stock of any such company ceases to be publicly traded, a proposal to acquire
any such company is announced, or such company announces an acquisition
proposal in which 20% or more of such company's outstanding shares are to be
issued, such company will be removed from the Index Group, and the weights
(which have been determined based on the number of outstanding shares of
common stock) attributed to the remaining companies will be adjusted
proportionately for purposes of determining the Final Index Price and the
Initial Index Price. The 17 financial institution holding companies and the
weights attributed to them are listed on Exhibit A.
"Initial Aggregate Consideration" means $98,834,796.
"Initial Index Price" means $30.50.
"Maximum Aggregate Consideration" means the value of the aggregate Cash
Consideration plus the value of the aggregate Stock Consideration calculated
substituting the Ceiling Price for the per share value of Banner Common Stock.
"Minimum Aggregate Consideration" means the value of the aggregate Cash
Consideration plus the value of the aggregate Stock Consideration calculated
substituting the Floor Price for the per share value of Banner Common Stock.
(h) by Banner, if the Board of Directors of Banner so determines by the
vote of a majority of all of its members, by giving written notice to F&M Bank
not later than the end of the second Business Day next following the
Determination Date, in the event that, as of the Determination Date, the
Average Closing Price shall be more than $49.71 (the "Ceiling Price");
provided, however, that if, prior to the Determination Date, a third party
acquires a majority of the outstanding Banner Common Stock, or if Banner and a
third party execute a definitive agreement regarding such an acquisition, the
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Ceiling Price shall be increased by the amount equal to the difference between
(A) the closing sales price of Banner Common Stock on the trading date
following the announcement of such acquisition or agreement and (B) the
closing sales price of Banner Common Stock on the date twenty trading days
prior to the date specified in the preceding clause (A).
If Banner elects to exercise its termination right pursuant to this
Section 8.1(h), it shall give written notice to F&M Bank. During the
five-business-day period commencing with its receipt of such notice, F&M
Banner decrease the Cash Consideration by the amount that would cause the
Final Aggregate Consideration to be equal to Maximum Aggregate Consideration.
If F&M Bank exercises the F&M Bank Fill Option, it shall give prompt written
notice to Banner of such election, whereupon no termination shall have
occurred pursuant to this Section 8.1(h) and this Agreement shall remain in
effect in accordance with its terms (except as the Cash Consideration shall
have been so modified), and any references in this Agreement to "Cash
Consideration" shall thereafter be deemed to refer to the Cash Consideration
as adjusted pursuant to this Section 8.1(h).
The party desiring to terminate this Agreement pursuant to any clause of
this Section 8.1 (other than clause (a)) shall give written notice of such
termination to the other party in accordance with Section 9.3, specifying the
provision or provisions hereof pursuant to which such termination is effected.
8.2 Effect of Termination. In the event of termination of this
Agreement by either F&M Bank or Banner as provided in Section 8.1,
thisAgreement shall forthwith become void and have no effect, and none of F&M
Bank or Banner, or any Banner Subsidiaries or any of the officers or directors
of any of them, shall have any liability of any nature whatsoever under this
Agreement, or in connection with the transactions contemplated by this
Agreement, except that (i) Sections 6.2(b), 8.2, 8.3 and 9.2 through and
including 9.9 shall survive any termination of this Agreement, and (ii)
neither F&M Bank nor Banner shall be relieved or released from any liabilities
or damages arising out of its willful breach of any provision of this
Agreement.
8.3 Fees and Expenses; Termination Fees.
-----------------------------------
(a) Except (i) as provided in this Section 8.3 and (ii) with respect to
costs and expenses of printing and mailing the Proxy Statement and all filing
and other fees paid to the SEC in connection with the Merger, which shall be
borne equally by F&M Bank and Banner, all fees and expenses incurred in
connection with the Merger, this Agreement, and the transactions contemplated
by this Agreement shall be paid by the party incurring such fees or expenses,
whether or not the Merger is consummated.
(b) F&M Bank shall pay to Banner, by wire transfer of immediately
available funds to such accounts as Banner may designate, the fee provided
below in the event that this Agreement is terminated as follows:
(i) if Banner shall terminate this Agreement pursuant to Section
8.1(e), then F&M Bank shall pay an amount equal to Three Million
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Dollars ($3,000,000) (the "Termination Fee") on the Business Day following
such termination; or
(ii) if (A) either party shall terminate this Agreement as a
result of a failure to consummate the Merger prior to the date set forth in
Section 8.1(c) caused by a material breach (other than an unintentional
material breach) of this Agreement by F&M Bank, either party shall
terminate this Agreement pursuant to Section 8.1(f) due to the failure to
obtain the required F&M Bank shareholder approval addressed therein, or
Banner shall terminate this Agreement pursuant to Section 8.1(d) (other
than as a result of any unintentional breach of this Agreement), and (B) an
Alternative Proposal shall have been publicly announced or otherwise
communicated or made known to the senior management or Board of Directors
of F&M Bank (or any person shall have publicly announced, communicated or
made known a bona fide intention, whether or not conditional, to make an
Alternative Proposal) after the date hereof and before the termination
pursuant to Section 8.1(c) or 8.1(d) in the case of a termination pursuant
to either such Section or before the F&M Bank Shareholder Meeting in the
case of a termination pursuant to Section 8.1(f), then (1) F&M Bank shall
pay an amount equal to one-third of the Termination Fee on the Business Day
following such termination and (2) if, within twelve months of the date of
such termination of this Agreement, F&M Bank enters into any agreement with
respect to, or consummates, any Alternative Proposal (provided that, in
this instance, all percentages included in the definition of "Alternative
Proposal" shall be increased to 50%), then F&M Bank shall pay an amount
equal to two-thirds of the Termination Fee upon the date of such execution
or consummation, whichever is earlier.
(c) In the event that F&M Bank fails to pay when due any amount payable
under this Section 8.3 and Banner commences a suit that results in a judgment
against F&M Bank, then F&M Bank shall reimburse Banner for all costs and
expenses (including disbursements and reasonable fees of counsel) incurred in
connection with such suit.
8.4 Amendment. This Agreement may be amended by the parties, by action
taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with Merger by
the shareholders of F&M Bank and Banner; provided, however, that after any
approval of the transactions contemplated by this Agreement by the
shareholders of F&M Bank or Banner, as the case may be, there may not be,
without further approval of such shareholders, any amendment of this Agreement
that requires such further approval under applicable law. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties.
8.5 Extension; Waiver. At any time prior to the Effective Time, the
parties, by action taken or authorized by their respective Board of Directors,
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other party, (b) waive any
inaccuracies in the representations and warranties contained in this Agreement
or (c) waive compliance with any of the agreements or conditions contained in
this
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Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in a written instrument signed on
behalf of such party, but such extension or waiver or failure to insist on
strict compliance with an obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure.
ARTICLE IX
GENERAL PROVISIONS
9.1 Closing. On the terms and subject to the conditions set forth in
this Agreement, the closing of the Merger (the "Closing") shall take place at
10:00 a.m. on a date and at a place to be specified by the parties, which date
shall be no later than five Business Days after the satisfaction or waiver
(subject to applicable law) of the latest to occur of the conditions set forth
in Article VII (other than those conditions that by their nature are to be
satisfied or waived at the Closing), unless extended by mutual agreement of
the parties (the "Closing Date"); provided, however, that if the Closing would
otherwise occur during the calendar month preceding any fiscal quarter-end or
fiscal year-end, then Banner may elect to cause the Closing Date to occur
during the first full week of the first calendar month of such succeeding
fiscal quarter or year.
9.2 Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties, covenants and agreements set forth in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for those covenants and agreements
contained in this Agreement that by their terms apply or are to be performed
in whole or in part after the Effective Time.
9.3 Notices. All notices and other communications in connection with
this Agreement shall be in writing and shall be deemed given if delivered
personally, sent via facsimile (with confirmation), mailed by registered or
certified mail (return receipt requested) or delivered by an express courier
(with confirmation) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
if to F&M Bank, to:
F&M BANK
25 North Mullan Road, Suite 303
Spokane Valley, WA 99206
Attention: John Wagner, President
Facsimile: (509) 892-4599
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with a copy to:
Foster Pepper Tooze, LLP
601 SW Second Ave., Suite 1800
Portland, Oregon 97204
Attention: Gordon E. Crim, Esq.
Facsimile: (503) 221-0607
and
if to Banner, to:
BANNER CORPORATION
10 South First Avenue
Walla Walla, WA 99362
Attention: D. Michael Jones, President & Chief Executive Officer
Lloyd W. Baker, Chief Financial Officer
Facsimile: (509) 526-8873
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 W. 52nd Street
New York, NY 10019
Attention: Adam D. Chinn, Esq.
Nicholas G. Demmo, Esq.
Facsimile: (212) 403-2000
9.4 Interpretation. When a reference is made in this Agreement to
Articles, Sections, Exhibits or Schedules, such reference shall be to an
Article or Section of or Exhibit or Schedule to this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation." The F&M Bank Disclosure
Schedule and the Banner Disclosure Schedule, as well as all other schedules
and all exhibits hereto, shall be deemed part of this Agreement and included
in any reference to this Agreement. This Agreement shall not be interpreted
or construed to require any person to take any action, or fail to take any
action, if to do so would violate any applicable law.
9.5 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each of the
parties and delivered to the other party, it being understood that each party
need not sign the same counterpart.
9.6 Entire Agreement. This Agreement (including the documents and the
instruments referred to in this Agreement), together with the Confidentiality
Agreement,
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constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter of this Agreement, other than the Confidentiality Agreement.
9.7 Governing Law; Jurisdiction. This Agreement shall be governed and
construed in accordance with the internal laws of the State of Washington
applicable to contracts made and wholly-performed within such state, without
regard to any applicable conflicts of law principles, except to the extent
that the application of federal securities laws is mandatory. The parties
hereto agree that any suit, action or proceeding brought by either party to
enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby shall
be brought in any federal or state court located in the State of Washington.
Each of the parties hereto submits to the jurisdiction of any such court in
any suit, action or proceeding seeking to enforce any provision of, or based
on any matter arising out of, or in connection with, this Agreement or the
transactions contemplated hereby and hereby irrevocably waives the benefit of
jurisdiction derived from present or future domicile or otherwise in such
action or proceeding. Each party hereto irrevocably waives, to the fullest
extent permitted by law, any objection that it may now or hereafter have to
the laying of the venue of any such suit, action or proceeding in any such
court or that any such suit, action or proceeding brought in any such court
has been brought in an inconvenient forum.
9.8 Publicity. Neither F&M Bank nor Banner shall, and neither F&M
Bank nor Banner shall permit any of its Subsidiaries to, issue or cause the
publication of any press release or other public announcement with respect to,
or otherwise make any public statement concerning, the transactions
contemplated by this Agreement without the prior consent (which consent shall
not be unreasonably withheld) of Banner, in the case of a proposed
announcement or statement by F&M Bank, or F&M Bank, in the case of a proposed
announcement or statement by Banner; provided, however, that either party may,
without the prior consent of the other party (but after prior consultation
with the other party to the extent practicable under the circumstances) issue
or cause the publication of any press release or other public announcement to
the extent required by law or by the rules and regulations of the Nasdaq.
9.9 Assignment; Third Party Beneficiaries. Neither this Agreement nor
any of the rights, interests or obligations under this Agreement shall be
assigned by either of the parties (whether by operation of law or otherwise)
without the prior written consent of the other party. Subject to the
preceding sentence, this Agreement shall be binding upon, inure to the benefit
of and be enforceable by each of the parties and their respective successors
and assigns. Except as otherwise specifically provided in Sections 6.6(h) and
6.7, this Agreement (including the documents and instruments referred to in
this Agreement) is not intended to and does not confer upon any person other
than the parties hereto any rights or remedies under this Agreement.
Remainder of Page Intentionally Left Blank
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IN WITNESS WHEREOF, F&M Bank, Banner and Banner Bank have caused this
Agreement to be executed by their respective officers thereunto duly
authorized as of the date first above written.
BANNER CORPORATION
/s/D. Michael Jones
By: -------------------------------------------
Name: D. Michael Jones
Title: President & Chief Executive Officer
BANNER BANK
/s/D. Michael Jones
By: -------------------------------------------
Name: D. Michael Jones
Title: President & Chief Executive Officer
F&M BANK
/s/David A. Klaue
By: ------------------------------------------
Name: David A. Klaue
Title: Chairman of the Board
/s/John R. Layman
By: ------------------------------------------
Name: John G. Layman
Title: Vice Chairman
/s/John R. Layman
By: ------------------------------------------
Name: John R. Layman
Title: Vice Chairman
/s/John Wagner
By: ------------------------------------------
Name: John Wagner
Title: President, Chief Operating Officer
Signature Page to Agreement and Plan of Merger
/s/Lawrence E. Peretti
By: ------------------------------------------
Name: Lawrence E. Peretti
Title: Director
/s/Richard E. Odegard
By: ------------------------------------------
Name: Richard E. Odegard
Title: Director
Signature Page to Agreement and Plan of Merger
Exhibit A
---------
Index Group Members and Weights
-------------------------------
Company Weight
------------------------------------------- ----------------------------
Umpqua Holdings Corporation 15.01%
Frontier Financial Corporation 11.73%
Sterling Financial Corporation 9.58%
Glacier Bancorp, Inc. 8.76%
Westamerica Bancorporation 8.00%
Cascade Bancorp 7.32%
Placer Sierra Bancshares 5.79%
PremierWest Bancorp 4.19%
Columbia Banking System, Inc. 4.15%
TriCo Bancshares 4.10%
West Coast Bancorp 4.02%
Horizon Financial Corp. 3.17%
Cascade Financial Corporation 3.13%
AmericanWest Bancorporation 2.94%
Capital Corp of the West 2.78%
Pacific Continental Corporation 2.75%
Columbia Bancorp 2.58%
A-1
Exhibit B
---------
Form of Affiliate Letter
Banner Corporation
10 South First Avenue
Walla Walla, WA 99362
Ladies and Gentlemen:
I have been advised that as of the date hereof I may be deemed to be
an "affiliate" of F&M BANK, a Washington banking corporation ("F&M Bank"), as
the term "affiliate" is defined for purposes of paragraphs (c) and (d) of Rule
145 of the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"). I have been further advised that pursuant to
the terms of the Agreement and Plan of Merger dated as of December 11, 2006
(the "Merger Agreement"), by and among Banner Corporation, a Washington
corporation ("Banner") and Banner Bank, on the one hand, and F&M Bank, on the
other hand, F&M Bank shall be merged with and into Banner Bank (the "Merger").
All terms used in this letter but not defined herein shall have the meanings
ascribed thereto in the Merger Agreement.
I represent, warrant and covenant to Banner and Banner Bank that in
the event I receive any Banner Common Stock as a result of the Merger:
I shall not make any sale, transfer or other disposition of Banner
Common Stock in violation of the Act or the Rules and Regulations.
I have carefully read this letter and the Merger Agreement and
discussed its requirements and other applicable limitations upon my ability to
sell, transfer or otherwise dispose of Banner Common Stock to the extent I
believed necessary with my counsel or counsel for F&M Bank.
I have been advised that the issuance of Banner Common Stock to me
pursuant to the Merger will be registered with the Commission under the Act on
a Registration Statement on Form S-4. However, I have also been advised that,
since at the time the Merger will be submitted for a vote of the shareholders
of F&M Bank I may be deemed to have been an affiliate of F&M Bank and the
distribution by me of Banner Common Stock has not been registered under the
Act, I may not sell, transfer or otherwise dispose of Banner Common Stock
issued to me in the Merger unless (i) such sale, transfer or other disposition
has been registered under the Act, (ii) such sale, transfer or other
disposition is made in conformity with the volume and other limitations of
Rule 145 promulgated by the Commission under the Act, or (iii) in the opinion
of counsel reasonably acceptable to Banner, such sale, transfer or other
disposition is otherwise exempt from registration under the Act.
I understand that Banner is under no obligation to register the
sale, transfer or other disposition of Banner Common Stock by me or on my
behalf under the Act or to take any other action necessary in order to make
compliance with an exemption from such registration available.
B-1
I also understand that stop transfer instructions will be given to
Banner's transfer agents with respect to Banner Common Stock and that there
will be placed on the certificates for Banner Common Stock issued to me, or
any substitutions therefor, a legend stating in substance:
"The securities represented by this certificate have been issued in
a transaction to which Rule 145 promulgated under the Securities
Act of 1933 applies and may only be sold or otherwise transferred
in compliance with the requirements of Rule 145 or pursuant to a
registration statement under said act or an exemption from such
registration."
I also understand that unless the transfer by me of my Banner Common
Stock has been registered under the Act or is a sale made in conformity with
the provisions of Rule 145, Banner reserves the right to put the following
legend on the certificates issued to my transferee:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and were acquired from a person
who received such shares in a transaction to which Rule 145
promulgated under the Securities Act of 1933 applies. The shares
have been acquired by the holder not with a view to, or for resale
in connection with, any distribution thereof within the meaning of
the Securities Act of 1933 and may not be sold, pledged or otherwise
transferred except in accordance with an exemption from the
registration requirements of the Securities Act of 1933."
It is understood and agreed that the legends set forth above shall
be removed by delivery of substitute certificates without such legend, and/or
the issuance of a letter to Banner's transfer agent removing such stop
transfer instructions, and the above restrictions on sale will cease to apply,
if (A) one year (or such other period as may be required by Rule 145(d)(2)
under the Securities Act or any successor thereto) shall have elapsed from the
Closing Date and the provisions of such Rule are then available to me; or (B)
if two years (or such other period as may be required by Rule 145(d)(3) under
the Securities Act or any successor thereto) shall have elapsed from the
Effective Date and the provisions of such Rule are then available to me; or
(C) I shall have delivered to Banner (i) a copy of a letter from the staff of
the Commission, or an opinion of counsel in form and substance reasonably
satisfactory to Banner, or other evidence reasonably satisfactory to Banner,
to the effect that such legend and/or stop transfer instructions are not
required for purposes of the Securities Act or (ii) reasonably satisfactory
evidence or representations that the securities represented by such
certificates are being or have been transferred in a transaction made in
conformity with the provisions of Rule 145 under the Securities Act or
pursuant to an effective registration under the Securities Act.
I recognize and agree that the foregoing provisions also apply to
(i) my spouse, (ii) any relative of mine or my spouse occupying my home, (iii)
any trust or estate in which I, my spouse or any such relative owns at least
10% beneficial interest or of which any of us serves as trustee, executor or
in any similar capacity and (iv) any corporate or other organization in which
I, my spouse or any such relative owns at least 10% of any class of equity
securities or of the equity interest.
B-2
It is understood and agreed that this Letter Agreement shall
terminate and be of no further force and effect if the Merger Agreement is
terminated in accordance with its terms.
Execution of this letter should not be construed as an admission on
my part that I am an "affiliate" of F&M Bank as described in the first
paragraph of this letter or as a waiver of any rights I may have to object to
any claim that I am such an affiliate on or after the date of this letter.
Very truly yours,
By: ------------------------------------
Name:
Accepted this ___ day of
__________, 2007
BANNER CORPORATION
By: ------------------------------
Name:
Title:
B-3