UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Section 240.14a-12
EVERTRUST FINANCIAL GROUP, INC.
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(Name of registrant as specified in its charter)
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(Name of person(s) filing proxy statement, if other than the registrant)
Payment of filing fee (check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials:
$24,707
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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August 20, 2004
Dear Fellow Shareholder:
You are cordially invited to attend a special meeting of shareholders of
EverTrust Financial Group, Inc., to be held at the Monte Cristo Ballroom,
located at 1507 Wall Street, Everett, Washington, on Thursday, September 23,
2004 at 9:00 a.m., local time.
On June 24, 2004, we entered into a merger agreement with KeyCorp. If
the merger is completed, you will receive a cash payment of $25.6016, without
interest, for each share of EverTrust common stock that you own. This price
represents a premium of 28.3% over the closing price of EverTrust common stock
on June 24, 2004, the last trading day before the merger was publicly
announced, a premium of 30.7% over the average price of EverTrust common stock
for the 30 trading days prior to June 25, 2004 and a premium of 20.3% over the
highestclosing stock price ever reported for EverTrust common stock. Receipt
of the merger consideration will be a taxable transaction for federal income
tax purposes. Upon completion of the merger, you will no longer own any stock
or have an interest in EverTrust, and you will not receive, as a result of the
merger, any stock of KeyCorp.
At the special meeting, you will be asked to approve the merger
agreement. Holders of two-thirds of the shares of our issued and outstanding
common stock entitled to vote at the special meeting must vote to approve the
merger agreement for the merger to be completed. If the merger agreement is
approved by our shareholders and all other conditions described in the merger
agreement have been met or waived, the merger is expected to be completed
during the fourth quarter of 2004.
Your Board of Directors has determined that the merger is advisable and
in the best interests of EverTrust and its shareholders. Your Board of
Directors has received the opinion of Keefe, Bruyette &Woods, Inc. that the
consideration to be received by EverTrust's shareholders in the merger is
fair. Accordingly, the Board of Directors has unanimously adopted the merger
agreement and recommends that you vote FOR the approval of the merger
agreement at the special meeting.
The accompanying proxy statement provides you with detailed information
about the proposed merger and includes, as Appendix A, the complete text of
the merger agreement. I urge you to read the enclosed materials carefully.
Whether or not you plan to attend the special meeting in person, please
complete, sign and return the enclosed proxy card as promptly as possible.
This will ensure that you are represented at the special meeting, even if you
are not there in person.
Sincerely,
/s/ Michael B. Hansen
Michael B. Hansen
President and Chief Executive Officer
ADDITIONAL INFORMATION
This proxy statement incorporates important business and financial
information about EverTrust from documents that are not included in or
delivered with this proxy statement. You can obtain documents incorporated by
reference herein by requesting them in writing, by telephone or by e-mail as
follows:
EverTrust Financial Group, Inc.
Lorelei Christenson, Corporate Secretary
2707 Colby Avenue, Suite 600
Everett, Washington 98201
Telephone: (425) 258-3645
E-mail: LChristenson@EverTrustFinancial.com.
You will not be charged for any of these documents. If you wish to
request documents, you should do so by September 9, 2004 in order to receive
them before the special meeting. See "Where You Can Find More Information" on
page 34.
EVERTRUST FINANCIAL GROUP, INC.
2707 COLBY AVENUE, SUITE 600
EVERETT, WASHINGTON 98201
(425) 258-3645
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 23, 2004
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To the shareholders of EverTrust Financial Group, Inc.:
We will hold a special meeting of shareholders of EverTrust Financial
Group, Inc. on Thursday, September 23, 2004, 9:00 a.m., local time, at the
Monte Cristo Ballroom located at 1507 Wall Street, Everett, Washington, for
the following purposes:
(1) To consider and vote upon a proposal to approve the Agreement and
Plan of Merger dated June 24, 2004 among KeyCorp, KC Subsidiary,
Inc. and EverTrust Financial Group, Inc., pursuant to which
EverTrust Financial Group, Inc. will be acquired by KeyCorp, and
each share of EverTrust common stock outstanding prior to the merger
(other than shares owned by EverTrust or KeyCorp for their own
account and shares for which dissenters' rights have been perfected
under Washington law) will be converted into the right to receive
$25.6016 in cash; and
(2) To consider and vote upon a proposal to adjourn the special meeting
to a later date or dates, if necessary, to permit further
solicitation of proxies if there are not sufficient votes at the time
of the special meeting to approve the merger agreement.
Only shareholders who held EverTrust common stock of record as of the
close of business on August 13, 2004 are entitled to notice of and to vote at
the special meeting or any adjournment or postponement thereof.
As a shareholder of EverTrust, you have the right to dissent from the
merger and obtain an appraisal of the fair value of your shares of EverTrust
common stock under applicable provisions of Washington law. In order to
perfect your dissenters' rights, you must give notice of your intent to demand
payment for your shares before a vote is taken on the merger at the special
meeting and you must not vote in favor of the merger. You must also comply
with the other applicable provisions of Washington law regarding dissenters'
rights. A copy of the Washington statutory provisions regarding dissenters'
rights is included as Appendix B to the accompanying proxy statement and a
summary of these provisions can be found under "The Merger Agreement -
Dissenters' Appraisal Rights."
Please read the proxy statement accompanying this notice for a more
complete statement regarding the matters to be acted upon at the special
meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Lorelei Christenson
LORELEI CHRISTENSON
CORPORATE SECRETARY
Everett, Washington
August 20, 2004
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Important: the prompt return of proxies will save EverTrust the expense of
further requests for proxies to ensure a quorum at the special meeting.
Please complete, sign and date the enclosed proxy and promptly mail it in the
enclosed envelope. You may revoke your proxy in the manner described in the
proxy statement at any time before it is exercised.
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Please do not send in any stock certificates at this time.
TABLE OF CONTENTS
Page
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING 1
SUMMARY 2
THE COMPANIES 6
THE SPECIAL MEETING 7
General 7
Record Date; Voting Rights; Vote Required 7
Voting and Revocation of Proxies 7
Solicitation of Proxies 8
Participants in the EverTrust Bank Employee Stock Ownership Plan 8
THE MERGER 8
Overview 8
Background of the Merger 9
EverTrust's Reasons for the Merger; Recommendation of the
EverTrust Board of Directors 11
Opinion of EverTrust's Financial Advisor 13
Taxable Transaction for EverTrust Shareholders 17
Government and Regulatory Approvals 18
Dissenters' Appraisal Rights 19
Interests of Certain Persons in the Merger 20
THE MERGER AGREEMENT 22
Merger Consideration 22
Treatment of EverTrust Stock Options 22
Directors and Officers 22
Completion of the Merger 22
Surrender of Certificates 23
Conduct of Business Pending the Merger 23
No Solicitation of Acquisition Proposals 24
Employee Benefits 26
Efforts to Complete the Merger 26
Indemnification 26
Conditions to the Merger 27
Representations and Warranties 28
Termination of the Merger Agreement 29
Expenses and Termination Fee 30
Amendment of the Merger Agreement 30
Accounting Treatment 30
PRINCIPAL HOLDERS OF EVERTRUST COMMON STOCK 30
MARKET PRICE AND DIVIDEND DATA FOR EVERTRUST'S COMMON STOCK 32
FORWARD-LOOKING STATEMENTS 32
WHERE YOU CAN FIND MORE INFORMATION 34
SHAREHOLDER PROPOSALS 34
Appendix A - Agreement and Plan of Merger
Appendix B - Section 13 of the Washington Business Corporation Act
Appendix C - Fairness Opinion of Keefe, Bruyette & Woods, Inc.
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
Q: When and where is the special Q. If my shares are held in street
meeting of shareholders? name by my bank, brokerage firm
or nominee, will my broker
A: The special meeting of shareholders automatically vote my shares
will take place at the Monte Cristo for me?
Ballroom, 1507 Wall Street, Everett,
Washington on Thursday, September 23, A. No. Your bank, brokerage firm
2004, at 9:00 a.m., local time. or nominee cannot vote your
shares without instructions
Q. What matters will we be asked to vote from you. You should instruct
on at the special meeting? your bank, brokerage firm or
nominee as to how to vote
A. At the special meeting, you will be your shares, following the
asked: instructions contained in the
voting instruction card
* to approve the merger agreement; provided to you by your bank,
and brokerage firm or nominee.
* to approve a proposal to adjourn Q. What if I abstain from voting
the special meeting, if necessary, or fail to instruct my broker?
to solicit additional proxies if
there are not sufficient votes at A. Abstaining from voting or
the time of the special meeting to failing to instruct your bank,
approve the merger agreement. brokerage firm or nominee to
vote your shares will have the
Q. What is the required vote to approve same effect as a vote against
the merger agreement? the merger agreement.
A. In order to approve the merger Q. Should I send in my stock
agreement, holders of two-thirds of certificates now?
the issued and outstanding shares of
our common stock entitled to vote A. No. After we complete the
at the special meeting must vote merger you will receive written
for approval of the merger agreement. instructions for returning your
Each share of common stock is EverTrust stock certificates.
entitled to one vote. These instructions will tell
you how and where to send in
Q. Who may vote at the special meeting? your certificates in order to
receive the merger
A. Only shareholders of record of consideration.
EverTrust common stock as of the
close of business on August 13, Q: What if I object to the merger?
2004 may vote at the special
meeting. As of August 13, 2004, A: As a shareholder of EverTrust,
there were 6,932,848 shares of you have the right to dissent
EverTrust common stock outstanding from the merger and obtain an
and entitled to vote. appraisal of the fair value of
your shares. In order to
Q. What do I need to do now? perfect dissenters' rights,
you must give notice of your
A. After carefully reading and intent to demand payment for
considering the information your shares before a vote is
contained in this proxy statement, taken on the merger at the
please vote your shares as soon special meeting and you must
as possible. You may vote your not vote in favor of the
shares prior to the special merger. You must also comply
meeting by signing and with the other applicable
returning the enclosed proxy provisions of Washington law
card. If you hold your shares regarding dissenters' rights.
in "street name" (i.e., if you A copy of the Washington
hold your shares through a bank, statutory provisions regarding
brokerage firm or nominee), you dissenters' rights is included
must vote in accordance with the as Appendix B to this proxy
instructions on the voting statement.
instruction card that your bank,
brokerage firm or nominee provides Q. Who can help answer my
to you. questions?
A. If you have questions about the
special meeting or the merger
after reading this proxy
statement, you should contact
Brad Ogura at EverTrust
Financial Group, Inc., 2707
Colby Avenue, Suite 600,
Everett, Washington 98201,
telephone: (425) 258-3645 or
e-mail:
Ogura@EverTrustFinancial.com.
1
SUMMARY
This brief summary highlights selected information contained in this
proxy statement. It may not contain all of the information that is important
to you. To fully understand the merger, we urge you to carefully read the
entire proxy statement and the other documents to which this document refers.
See "Where You Can Find More Information" on page 34. We have attached the
merger agreement to this proxy statement as Appendix A. We encourage you to
read the merger agreement because it is the legal document that governs the
merger of KeyCorp and EverTrust.
Throughout this document, "EverTrust," "we" and "our" refers to EverTrust
Financial Group, Inc. and "EverTrust Bank" refers to our wholly-owned banking
subsidiary.
The Merger (pages 8 - 22)
If the merger agreement is approved by our shareholders, subject to the
terms of the merger agreement, a wholly-owned subsidiary of KeyCorp will merge
with and into EverTrust. As a result of the merger, EverTrust will become a
wholly-owned subsidiary of KeyCorp. If the merger agreement is not approved,
EverTrust and EverTrust Bank will continue as separate entities.
You Will Receive $25.6016 for Each Share of EverTrust Common Stock You Own if
the Merger is Completed (Page 22)
Upon completion of the merger, each of your shares of EverTrust common
stock will automatically become exchangeable for $25.6016 in cash (unless you
do not vote in favor of the merger agreement and perfect your dissenters'
rights under Washington law). You will have to surrender your EverTrust stock
certificate(s) to receive this cash payment. No interest will be paid on the
cash merger consideration. KeyCorp, or its payment agent, will send you
written instructions for surrendering your stock certificates after the merger
is completed. For more information on how this exchange procedure works, see
"The Merger Agreement - Surrender of Certificates" on page 23 of this proxy
statement.
Receipt of the Merger Consideration Will Be Taxable for EverTrust Shareholders
(Pages 17 - 18)
The exchange of your shares of EverTrust common stock for cash in the
merger will be a taxable transaction to you. For federal income tax purposes,
you will generally recognize gain or loss in the merger equal to the
difference between the cash payment (i.e., $25.6016 per share) that you
receive for your shares of EverTrust common stock and your adjusted tax basis
in your shares. The gain or loss will be either long-term capital gain or
short-term capital gain depending on the length of time you have held your
shares of EverTrust common stock.
Tax matters are complicated and the tax consequences of the merger may
vary among shareholders. In addition, you may be subject to state, local or
foreign tax laws that are not discussed in this proxy statement. You should
therefore consult your own tax advisor for a full understanding of the tax
consequences to you of the merger.
Our Board of Directors Unanimously Recommends that You Vote "FOR" the Merger
Agreement (Pages 11 - 13)
The Board of Directors has determined, by a unanimous vote, that the
merger agreement and the merger is advisable and in the best interests of
EverTrust and its shareholders, and has unanimously adopted the merger
agreement. The Board recommends that you vote "FOR" approval of the merger
agreement at the special meeting. A failure to vote, either by not returning
the enclosed proxy or by checking the "Abstain" box, will have the same effect
as a vote against the merger agreement.
2
We Received an Opinion from Our Financial Advisor that the Merger
Consideration is Fair to Shareholders from a Financial Point of View (Pages 13
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Keefe, Bruyette & Woods has delivered its written opinion to our Board of
Directors that as of June 24, 2004 (the date the merger agreement was
executed) the consideration to be received by EverTrust shareholders in the
merger is fair from a financial point of view. This opinion was confirmed by
Keefe, Bruyette & Woods as of August 20, 2004. We have attached this opinion
as Appendix C to this proxy statement. You should read it carefully for a
description of the procedures followed, matters considered and limitations on
the reviews undertaken by Keefe, Bruyette & Woods in providing its opinion.
Keefe, Bruyette & Woods provided its opinion to the Board in connection with
its consideration of the merger, and the opinion is not a recommendation to
any shareholder as to how to vote. We have agreed to pay Keefe, Bruyette &
Woods approximately $1.95 million in connection with the merger, of which
$150,000 has been paid to date.
Two-thirds Vote Required to Approve the Merger Agreement (Page 7)
Holders of at least two-thirds of the outstanding shares of EverTrust
common stock entitled to vote at the special meeting is required to approve
the merger agreement at the special meeting. A failure to vote, either by not
returning the enclosed proxy or by checking the "Abstain" box on the proxy
card, will have the same effect as a vote against the merger agreement.
Directors and executive officers of EverTrust and their affiliates
beneficially owned an aggregate of 757,239 shares, or approximately 10.9%, of
EverTrust's outstanding common stock on the August 13, 2004 record date,
excluding options exercisable within 60 days of the record date. These
directors and executive officers have indicated that they intend to vote their
shares in favor of the proposals.
EverTrust Shareholders Have Appraisal Rights in the Merger (Pages 19 - 20,
Appendix B)
Under Washington law, if the merger is completed and you do not vote for
approval of the merger and you comply with the other statutory requirements of
the Washington Business Corporation Act, you may elect to receive, in cash,
the fair value of your shares of our common stock, with interest, in lieu of
the merger consideration. See " The Merger Agreement - Dissenters' Appraisal
Rights."
Conditions to the Merger and Expected Timing (Pages 22 - 27)
The completion of the merger depends on a number of conditions being
satisfied or waived, including approval of the merger agreement by the holders
of two-thirds of the outstanding shares of EverTrust common stock entitled to
vote at the special meeting, as well as receipt of regulatory approvals.
We expect to complete the merger shortly after all of the conditions to
the merger have been satisfied or waived. We currently expect to complete the
merger in the fourth quarter of 2004, but we cannot be certain when or if the
conditions will be satisfied or waived.
The Merger Agreement May Be Terminated under Some Circumstances (Pages 29 -
30)
We and KeyCorp may mutually agree to terminate the merger agreement at
any time without completing the merger, even after we receive shareholder
approval. In addition, either party may terminate the merger agreement and
abandon the merger if:
* the other party to the merger agreement materially breaches the
merger agreement, which breach is not cured or curable within 45
days and would cause certain conditions to the consummation of
the merger agreement not to be satisfied;
* any required governmental approval has been denied or any
governmental entity issues a final, unappealable order prohibiting
the merger; or
3
* we do not complete the merger by March 31, 2005, unless the failure
to complete the merger is due to the breach of any representation,
warranty or covenant of the party seeking to terminate.
In addition, KeyCorp may terminate the merger agreement and abandon the
merger if:
* our Board of Directors withdraws (or adversely modifies in a manner
adverse to KeyCorp) its approval of the merger agreement or its
recommendation to our shareholders to approve the merger agreement
and the merger;
* we initiate, solicit or pursue other proposals to acquire
EverTrust, or recommend or endorse an acquisition proposal other
than the merger agreement; or
* one of the environmental assessments required by the merger
agreement on our owned real property is not acceptable to KeyCorp
and the clean up or other costs exceed $500,000 for an individual
property or $1.0 million in the aggregate.
We May Be Obligated to Pay KeyCorp a Termination Fee Under Some Circumstances
(Page 30)
If any person publicly makes an acquisition proposal or publicly
announces an intention to make an acquisition proposal for EverTrust, or we
initiate, solicit or encourage any inquiries, or the making of, any
acquisition proposal for EverTrust, and thereafter the merger agreement is
terminated because:
* the merger is not completed by March 31, 2005;
* our Board of Directors does not continue to recommend that you vote
to approve the merger agreement or recommends or endorses an
acquisition proposal other than the merger agreement; or
* our shareholders fail to approve the merger agreement at the
special meeting or the special meeting is not held;
then, under those circumstances, we must pay KeyCorp a termination fee of
$9.75 million if, prior to 15 months after termination, we enter into an
agreement providing for, or complete, a competing stock sale, asset sale or
other competing business combination. In addition, we must pay to KeyCorp the
$9.75 million termination fee if KeyCorp terminates the agreement because our
Board of Directors either (i) recommends or endorses any acquisition proposal
other than the merger agreement or (ii) does not continue to recommend that
you approve the merger agreement, withdraws it recommendation or modifies or
changes its recommendation in a manner adverse to the interests of KeyCorp.
Regulatory Matters (Pages 18 - 19)
We and KeyCorp have agreed to use our reasonable best efforts to obtain
all regulatory approvals necessary or advisable to complete the merger. These
approvals include approval from the Board of Governors of the Federal Reserve
System ("Federal Reserve") and notice to various state regulatory authorities.
We and KeyCorp have completed, or will promptly complete, the filing of
applications and notifications to obtain the required regulatory approvals.
Although we do not know of any reason why we cannot obtain these regulatory
approvals in a timely manner, we cannot be certain when or if we will obtain
them or what conditions these approvals might include.
Our Directors and Executive Officers Have Financial Interests in the Merger
that Are Different from Your Interests (Pages 20 - 22)
Some of our directors and executive officers may have an interest in the
merger that is different from, or in addition to, their interests as
shareholders of EverTrust. These interests exist because of the rights that
these directors and executive officers have under the terms of their benefit
and compensation plans and also, in the case of the executive officers, under
the terms of various agreements with EverTrust. These interests include:
4
* The rights of certain executive officers who are currently party to
employment agreements with EverTrust to receive severance payments
in connection with the merger. Executive officers are anticipated
to receive approximately $751,800 of severance payments in
connection with the merger.
* The rights of executive officers and directors in respect of
outstanding stock options under the EverTrust stock option plan,
which options will vest and be cancelled (upon the consent of the
option holder) upon completion of the merger in consideration of a
payment per option in cash of $25.6016, less the option exercise
price and applicable tax withholding. It is expected that our
executive officers as a group and directors as a group will receive
approximately $10.0 million and $5.6 million, respectively, for the
cancellation of their options.
* The rights of executive officers and directors in respect of
outstanding shares of restricted stock under the EverTrust
management recognition plan. These shares vest by their original
terms on October 1, 2004, but vesting will accelerate if the merger
occurs before then. Upon vesting, these shares will become
eligible to be converted into the right to receive the same merger
consideration as all other shares of EverTrust common stock held by
shareholders.
* In connection with the merger, Robert L. Nall, Senior Vice
President and Chief Lending Officer of EverTrust Bank, will receive
$500,000 from EverTrust (or KeyCorp as its successor) immediately
following the effective time of the merger. In addition, Mr. Nall
has entered into a contingent employment agreement with KeyCorp and
will receive a restricted stock award of $250,000, as well as
certain other benefits.
Also following the completion of the merger, KeyCorp will indemnify and
provide directors' and officers' insurance for the directors and officers of
EverTrust for customary events occurring at or prior to the merger, including
those that are related to the merger agreement.
5
THE COMPANIES
KeyCorp
127 Public Square
Cleveland, Ohio 44114
(216) 689-6300
KeyCorp was organized in 1958 under the laws of the State of Ohio, and is
headquartered in Cleveland, Ohio. It has elected to be a bank holding company
and a financial holding company under the Bank Holding Company Act of 1956, as
amended. At March 31, 2004, KeyCorp was one of the nation's largest
bank-based financial services companies with consolidated total assets of
$84.5 billion. Its subsidiaries provide a wide range of retail and commercial
banking, commercial leasing, investment management, consumer finance and
investment banking products and services to individual, corporate and
institutional clients through three major business groups: Consumer Banking,
Corporate and Investment Banking, and Investment Management Services. As of
March 31, 2004, these services were provided across much of the country
through subsidiaries operating 903 full-service retail banking branches, a
telephone banking call center services group and 2,172 automated teller
machines in 17 states. KeyCorp and its subsidiaries had an average of 19,585
full-time equivalent employees during the first quarter of 2004.
In addition to the customary banking services of accepting deposits and
making loans, KeyCorp's bank and trust company subsidiaries provide
specialized services, including personal and corporate trust services,
personal financial services, customer access to mutual funds, cash management
services, investment banking and capital markets products, and international
banking services. Through its subsidiary banks, trust company and registered
investment adviser subsidiaries, KeyCorp provides investment management
services to individual and institutional clients, including large corporate
and public retirement plans, foundations and endowments, high net worth
individuals and Taft-Hartley plans (i.e., multiemployer trust funds
established for providing pension, vacation or other benefits to employees).
KeyCorp provides other financial services both inside and outside of its
primary banking markets through its nonbank subsidiaries. These services
include accident and health insurance on loans made by subsidiary banks,
principal investing, community development financing, securities underwriting
and brokerage and other financial services. KeyCorp is an equity participant
in a joint venture with Key Merchant Services, LLC, which provides merchant
services to businesses.
EverTrust Financial Group, Inc.
2707 Colby Avenue, Suite 600
Everett, Washington 98201
(425) 258-3645
EverTrust, a Washington state corporation, is the holding company for
EverTrust Bank, and was the resulting corporation in connection with EverTrust
Bank's mutual holding company's conversion to stock form on September 30,
1999. Effective May 12, 2000, EverTrust became a financial holding company
pursuant to regulations of the Federal Reserve.
At March 31, 2004, EverTrust had total assets of $770.1 million, total
deposits of $546.4 million and total equity of $90.6 million. EverTrust's
business activities are conducted primarily by EverTrust Bank.
EverTrust Bank, now a Washington state chartered stock savings bank, was
formed as a federally chartered savings institution in 1916 and converted to a
Washington chartered mutual savings bank in 1987. In 1993, EverTrust Bank
became a stock entity in connection with its mutual holding company
reorganization. Its deposits are insured by the Federal Deposit Insurance
Corporation up to applicable legal limits under the Bank Insurance Fund.
6
EverTrust Bank is a regionally oriented bank dedicated to financing
commercial real estate and residential related properties. Its principal
business is attracting deposits from the general public through its retail
branch network and Private Client Group offices, and using those funds to
originate commercial real estate loans as well as construction loans, business
loans and residential (including multi-family) mortgage loans. EverTrust
Bank's Private Client Group focuses on serving high net worth individuals and
small businesses with a range of business and private banking services, as
well as wealth management services such as investment management and limited
trust services.
THE SPECIAL MEETING
General
This proxy statement is being furnished to you in connection with the
solicitation of proxies by EverTrust's Board of Directors for use at a special
meeting to be held on September 23, 2004, and at any adjournments or
postponement thereof. At the special meeting, you will be requested to vote
upon a proposal to approve the Agreement and Plan of Merger dated June 24,
2004 among KeyCorp, KC Subsidiary, Inc. and EverTrust. A copy of the merger
agreement is attached as Appendix A to this proxy statement. The merger
agreement provides for the merger of a subsidiary of KeyCorp into EverTrust,
which, as a result of the merger, will then be a subsidiary of KeyCorp.
Thereafter, shareholders of EverTrust will be entitled to receive $25.6016 in
cash for each of their outstanding shares of EverTrust common stock. You also
will be asked to vote on a proposal to approve the adjournment of the special
meeting, if necessary, to solicit additional proxies if there are not
sufficient votes at the time of the special meeting to approve the merger
proposal.
Record Date; Voting Rights; Vote Required
The EverTrust Board of Directors has fixed the close of business on
August 13, 2004 as the record date for the determination of shareholders of
EverTrust entitled to receive notice of and to vote at the special meeting.
On the record date, there were 6,932,848 shares of EverTrust common stock
outstanding. Each holder of EverTrust common stock is entitled to one vote
per share held of record on the record date.
The presence in person or by proxy at the special meeting of the holders
of a majority of the issued and outstanding shares of EverTrust common stock
will constitute a quorum. Approval of the merger agreement will require the
affirmative vote of the holders of two-thirds of the issued and outstanding
shares of EverTrust common stock. As of the voting record date, directors and
executive officers of EverTrust and their affiliates beneficially owned and
were entitled to vote an aggregate of 757,239 shares, or approximately 10.9%,
of EverTrust's outstanding common stock, excluding options exercisable within
60 days of the record date. These directors and executive officers have
indicated that they intend to vote their shares in favor of the proposals.
Voting and Revocation of Proxies
Shares of EverTrust common stock represented by a proxy properly signed
and received at or prior to the special meeting, unless subsequently revoked,
will be voted at the special meeting in accordance with the instructions on
the proxy. If a proxy is signed, dated and returned without indicating any
voting instructions, shares of EverTrust common stock represented by the proxy
will be voted FOR approval of the merger agreement and FOR the proposal to
approve the adjournment of the special meeting, if necessary, to solicit
additional proxies. Each share of EverTrust common stock that was outstanding
on the record date entitles the holder to one vote at the special meeting.
Regardless of whether you plan to attend the special meeting, you should vote
your shares by proxy as described above as promptly as possible.
If you hold your shares through a bank, brokerage firm or nominee, you
must vote in accordance with the instructions on the voting instruction card
provided to you. You should instruct your bank, brokerage firm or nominee as
to how to vote your shares, following the directions contained in the voting
instruction card.
7
If you have not voted through your bank, brokerage firm or other nominee,
any proxy given in connection with this solicitation may be revoked by the
person giving it at any time before the proxy is voted by filing either an
instrument revoking it or a duly executed proxy bearing a later date with the
Corporate Secretary of EverTrust prior to or at the special meeting or by
voting the shares subject to the proxy in person at the special meeting.
Attendance at the special meeting will not in and of itself constitute a
revocation of a proxy. If you have instructed a bank, brokerage firm or other
nominee to vote your shares, you must follow directions received from that
person in order to change or revoke your vote.
A proxy may indicate that all or a portion of the shares represented by
the proxy are not being voted with respect to a specific proposal. This could
occur, for example, when a broker is not permitted to vote shares held in
street name on certain proposals in the absence of instructions from the
beneficial owner. Shares that are not voted with respect to a specific
proposal will be considered as not present for such proposal, even though such
shares will be considered present for purposes of determining a quorum and
voting on other proposals. Abstentions on a specific proposal will be
considered as present but will not be counted as voting in favor of such
proposal. The proposal to approve the merger agreement must be approved by
the holders of two-thirds of the shares of EverTrust common stock issued and
outstanding on the August 13, 2004 record date. Accordingly, any nonvoted
shares and abstentions with regard to this proposal will have the same effect
as votes against the proposal.
Solicitation of Proxies
In addition to solicitation by mail, our directors, officers, employees
and agents may solicit proxies from EverTrust's shareholders, either
personally or by telephone or other form of communication. None of these
persons will be specifically compensated for these services. Nominees,
fiduciaries and other custodians will be requested to forward soliciting
materials to beneficial owners of EverTrust common stock. EverTrust will
reimburse these nominees, fiduciaries and other custodians for reasonable
out-of-pocket expenses incurred by them in connection with this process. In
addition, EverTrust will bear its own expenses in connection with the
solicitation of proxies for the special meeting. We have retained MacKenzie
Partners, Inc. to assist in soliciting proxies for the special meeting and to
send proxy materials to brokerage houses and other custodians, nominees and
fiduciaries for transmittal to their principals, at a cost of $5,000, plus
reimbursement of out-of-pocket expenses.
Participants in the EverTrust Bank Employee Stock Ownership Plan
If you participate in the EverTrust Bank Employee Stock Ownership Plan
("ESOP"), the proxy card represents a voting instruction to the ESOP trustee
as to the number of shares in your plan account. As a participant, you may
direct the trustee as to the manner in which shares of common stock allocated
to your plan account are to be voted. Unallocated shares of common stock held
by the ESOP and allocated shares for which no voting instructions are received
will be voted by the trustee in the same proportion as shares for which the
trustee has received voting instructions, subject to the trustee's exercise of
its fiduciary obligations.
THE MERGER
Overview
The Board of Directors of EverTrust and the Executive Committee of the
Board of Directors of KeyCorp have each unanimously adopted a merger agreement
that provides for the merger of a subsidiary of KeyCorp into EverTrust, which
will then be a subsidiary of KeyCorp. In connection with the merger, your
shares of EverTrust common stock will be converted into the right to receive a
cash payment of $25.6016 per share (unless you do not vote in favor of the
merger agreement and perfect your dissenters' rights under Washington law).
Upon completion of the merger, you will no longer own any stock or have an
interest in EverTrust, and you will not receive, as a result of the merger,
any stock of KeyCorp. See "The Merger Agreement - Treatment of EverTrust
Stock Options" for information on the treatment of stock options.
EverTrust's common stock is quoted on The Nasdaq Stock Market under the
symbol "EVRT." On June 24, 2004, which is the day the last trade occurred
before the merger was announced, EverTrust common stock closed at
8
$19.96 per share. In addition, the per share merger consideration of $25.6016
represents 214.9% of EverTrust's fully diluted tangible book value as of March
31, 2004 and 26.4 times fully diluted earnings per share for the trailing
twelve month period ended June 30, 2004.
Background of the Merger
The Board of Directors and management have periodically reviewed and
discussed the strategic direction, performance and prospects of EverTrust. In
light of several factors, including the need to diversify revenue sources from
EverTrust's roots as a fixed-rate residential mortgage lender, the necessity
of being able to provide stock-based compensation to key employees and the
ability to offer wealth management services, EverTrust determined to convert
from the mutual to stock form in the late 1990s. Since EverTrust's conversion
in 1999 from mutual to stock form, management undertook to disclose to
shareholders the challenges that would lie ahead as a result of
overcapitalization and the need for aggressive capital planning, with a
particular emphasis on stock repurchases.
In 2000, the Board of Directors and management concluded that EverTrust
needed to make a significant investment in the technology necessary to allow
it to compete with larger regional and national banks and money managers for
high deposit prospects, and incur as part of this investment costs of related
additional employee training. This investment contributed substantially to
EverTrust's value; however, it also occupied management's time and energy and
detracted from EverTrust's goal of becoming a diversified financial services
company in its five-year long range plan. Management re-directed its focus
and in 2001, commercial real estate lending, private banking and asset
management lines of business had been formed and were beginning to mature.
These high revenue businesses began to absorb the recent infrastructure costs.
At the same time, the capital plan was progressing only as a result of stock
repurchases while EverTrust's stock was trading at a discount to book value.
The newly-formed commercial mortgage banking group immediately contributed to
the vital strategy of achieving high levels of noninterest income, and also
provided a new asset/liability and interest rate risk management tool.
In fiscal 2001 and 2002, EverTrust repurchased significant amounts of its
stock, reducing its capital ratio from nearly 20.0% at March 31, 2001 to 13.7%
at March 31, 2002. Significant additional repurchases were limited after this
period, as the stock price increased beyond projections, thereby eliminating
any discount to book value. The Board of Directors and management determined
to change the emphasis of the capital plan to achieve a lower capital level,
which later proved to be not possible during the term of the five-year long
range plan. As a result of the increase in the stock price, EverTrust
increased its focus on the value of the stock in relation to earnings. In its
2003 annual report to shareholders, management disclosed in a detailed fashion
four measurements of progress and three specific peer groups in EverTrust's
three major lines of business to enable shareholders to observe its
performance. The second and third quarters of fiscal year 2004 yielded
results below earnings per share expectations as a result of unusual amounts
of loan payoffs. When combined with increased market concerns regarding bank
stocks because of the potential adverse effect of rising interest rates on
interest markets, the market price of EverTrust's stock declined 25%.
The Board of Directors held a regular meeting on January 26, 2004. At
this meeting, the Board discussed the capital plan. Management informed the
Board that the Securities and Exchange Commission ("SEC") had recently changed
the safe harbor provisions regarding stock repurchases, limiting EverTrust's
ability to make repurchases. The Board decided to invite Keefe, Bruyette &
Woods to its upcoming annual Board retreat in March 2004 to make a
presentation, and to review and discuss strategic options. The Board had not
previously explored other alternatives in a serious manner because it had
determined that EverTrust's initial capital plan needed a reasonable amount of
time to succeed.
Later in January 2004, a member of the Board was contacted by an
investment banker to discuss a potential merger with another financial
institution ("Bank A"). Members of the Board met with the investment banker
in early February for an informational meeting. Nothing further came of these
discussions until after the EverTrust annual Board retreat.
The Board of Directors held its annual retreat on March 10 through March
12, 2004, discussing numerous topics, including strategic alternatives for
EverTrust. Management presented the business plan and strategic focus
9
for EverTrust Bank. After considerable discussion, the Board instructed
management to make minor modifications to the business plan as presented, but
more importantly, the Board directed management to fully implement the
business plan.
Keefe, Bruyette & Woods then presented its preliminary findings,
addressing the Board's responsibility to the shareholders, EverTrust's
over-capitalized position, the failure to meet current performance
expectations and the concern about projected performance in an increasing
interest rate market. Keefe, Bruyette & Woods presented some examples of
possible scenarios for EverTrust. The Board decided to formally retain Keefe,
Bruyette & Woods to solicit expressions of interest from other financial
institutions regarding a strategic alliance, including both purchase and sale
transactions. The Board appointed a Strategic Planning Committee, consisting
of Messrs. Collins, Gaffney and Mills, to ensure confidentiality. The
Committee was given the responsibility of exploring strategic options with
Keefe, Bruyette & Woods, and communication with the full Board and senior
management.
The Board determined to proceed along these two paths: Keefe, Bruyette &
Woods would explore strategic options, while management of EverTrust would
create a new long-term capital plan for EverTrust based on the current and
prospective business environment and financial services landscape. Shortly
thereafter, the Board notified its legal counsel, Breyer & Associates PC, that
the Committee had been formed and that Keefe, Bruyette & Woods would be
retained.
In mid-March, a member of the Board of Directors was contacted by another
financial institution ("Bank B") that wanted to meet with EverTrust. It was
determined that a member of the merger and acquisitions group of Bank B would
contact a member of EverTrust's Board of Directors. On March 18, 2004, Bank B
contacted the Board member and began preparing a confidentiality agreement.
Later in March, members of the Committee met with Bank A to discuss a
potential merger. Bank A expressed its interest and general terms were
discussed. While Keefe Bruyette & Woods was preparing information regarding
EverTrust for distribution to other financial institutions that might be
interested in considering a strategic alliance with EverTrust, discussions
with Bank A continued through late March and into early April, and a
confidentiality agreement was entered into. As discussions with Bank A
proceeded, it became apparent that the parties would not be able to agree on
certain terms, and EverTrust and Bank A mutually agreed not to proceed.
EverTrust did not receive an indication of interest from Bank A.
With the approval of the Strategic Planning Committee, Keefe, Bruyette &
Woods contacted seven potential merger parties in mid-April. Keefe, Bruyette
& Woods presented the Committee with a list of financial institutions to
consider for a strategic alliance, including KeyCorp and Bank B. The
Committee approved the list, and instructed Keefe, Bruyette & Woods to obtain
confidentiality agreements from these institutions. On April 22 and 23, 2004,
the Committee and KeyCorp negotiated a confidentiality agreement, which was
finalized on April 26, 2004. Also during April, a confidentiality agreement
with Bank B was extensively negotiated and eventually signed.
In early May 2004, Keefe, Bruyette & Woods received unsolicited
expressions of interest from four regional financial institutions. The
Committee determined that three of these institutions were not viable
acquirors, but allowed one institution, Bank C, the opportunity to prepare a
proposal. In the meantime, the Committee was having continuing discussions
with KeyCorp, which presented an offer on May 21, 2004. Key Corp initially
offered cash and stock consideration in the aggregate range of $180.0 million
to $195.0 million, or approximately $23.79 to $25.67 per share. The full
Board was then apprised of the potential merger transaction.
EverTrust also received an offer from Bank B on May 21, 2004. The offer
was for aggregate consideration of $160.5 million in an all stock transaction.
On May 23, 2004 the Strategic Planning Committee apprised the full Board of
Directors of the indications of interest that had been received and authorized
Keefe, Bruyette & Woods to contact KeyCorp and inform them the Committee was
prepared to negotiate with them exclusively if KeyCorp was prepared to proceed
at the top end of its proposed price range. KeyCorp agreed to the terms and
KeyCorp and EverTrust scheduled on-site due diligence at EverTrust to be held
during the first week in June. On May 26, 2004, EverTrust received a proposal
from Bank C, which was communicated to the full Board on June 1, 2004. Bank C
proposed alternative transactions for EverTrust's consideration. The first
was an aggregate offer of approximately
10
$143.8 million, or a per share price of $19.25, in an all stock transaction.
The second alternative included aggregate consideration of $153.7 million, or
$20.00 per share, of which 80% would be paid in Bank C's stock and 20% would
be paid in cash. Bank C's proposal was rejected because it was not comparable
to KeyCorp's offer.
On May 26, 2004, senior members of KeyCorp's management met with
EverTrust management and several members of the Board of Directors in
Washington State. In anticipation of on-site due diligence, KeyCorp requested
that various materials be provided in advance. These materials were provided
by EverTrust and KeyCorp personnel performed due diligence, as scheduled,
during the first week in June. During this on-site due diligence, KeyCorp was
provided access to management, review of internal files and papers and other
relevant information requested.
Thereafter, the Strategic Planning Committee met on June 9, 2004 and had
a teleconference with KeyCorp personnel, during which KeyCorp confirmed the
pricing at $195.0 million, or $25.665 per share, in a cash and stock
combination and addressed several other business points such as the
termination fee, termination rights, indemnification and other relevant
issues. The Committee decided to proceed with on-site diligence at KeyCorp.
Drafts of a merger agreement were circulated on June 10 and 13, 2004. The
Committee, Mr. Hansen and EverTrust's financial and legal advisors met with
KeyCorp at their offices in Cleveland, Ohio on June 14 and 15, 2004 and
conducted due diligence. During EverTrust's due diligence of KeyCorp,
discussions continued between the parties regarding deal price protection for
the stock component of the transaction. In the end, the parties agreed
instead on an all cash transaction at the $25.665 per share price previously
proposed.
The Committee informed the full Board of the status of negotiations on
June 17, 2004 and a draft of the merger agreement was circulated to the Board
the following day. On June 21, 2004, the Board of Directors met with Keefe,
Bruyette & Woods and Breyer & Associates PC. Breyer & Associates discussed
with the Board the legal standards applicable to its decisions and actions
regarding the proposed transaction and reviewed the legal terms of the
proposed merger agreement. Negotiations continued throughout the week
concerning outstanding issues, regarding the retention of certain key
executives, severance arrangements and other expenses in connection with the
proposed merger. As a result, the merger consideration was reduced to
$25.6016 per share. At the Board meeting held on June 24, 2004, Keefe,
Bruyette & Woods opined that the merger consideration was fair, from a
financial point of view, to EverTrust's shareholders and the definitive merger
agreement was signed.
EverTrust's Reasons for the Merger; Recommendation of the EverTrust Board of
Directors
Our Board of Directors reviewed and discussed the merger agreement and
related transaction with management and its financial and legal advisors in
determining that the merger is advisable to, and in the best interests of,
EverTrust and its shareholders. In reaching its conclusion to adopt the
merger agreement, the Board considered a number of factors, including the
following:
* the Board's understanding of, and the presentations of our
management and financial advisor regarding, our business,
operations, management, financial condition, earnings and
prospects;
* the Board's knowledge of the current and prospective environment in
which we operate, including national and local economic conditions,
the competitive environment, the trend toward consolidation in the
financial services industry and the likely effect of these factors
on our potential growth, development, productivity, profitability
and strategic options;
* the Board's view that the size of the institution and related
economies of scale, as well as diversification of product
offerings, beyond the level it believed to be reasonably achievable
on an independent basis, was becoming increasingly important to
continued success in the current financial services environment;
* the review by the Board with its legal and financial advisors of
the structure of the merger and the financial and other terms of
the merger agreement, including the cash merger price of $25.6016
per share;
11
* the current and historical market prices of our common stock, and
the current and historical market prices of our common stock
relative to those of other industry participants and general
market indices, including the fact that the cash merger price of
$25.6016 per share represents a premium of 28.3% over the closing
price of our common stock on June 24, 2004, the last trading
day prior to the public announcement of the merger agreement, a
premium of 30.7% over the average price of EverTrust common stock
for the 30 trading days prior to June 25, 2004, and a premium of
20.3% over the highest closing stock price ever reported for
EverTrust common stock;
* the likelihood that the merger will be completed, including the
likelihood that the regulatory and shareholder approvals needed to
complete the merger will be obtained;
* management's view that the merger will allow for enhanced products
and opportunities for our clients and customers, and
* the financial information and analyses presented by Keefe, Bruyette
& Woods to the Board of Directors, and the opinion of Keefe,
Bruyette & Woods as of June 24, 2004, based upon and subject to the
assumptions, conditions, limitations and other matters set forth in
its opinion, that the $25.6016 in cash per share to be received by
the holders of our common stock pursuant to the merger was fair
from a financial point of view to our shareholders (see "-Opinion
of EverTrust's Financial Advisor").
The Board of Directors also considered potential risks relating to the
merger, including the following:
* the fact that the all-cash price would not allow our shareholders
to participate in any of the synergies created by the merger or in
any future growth of the combined entity and will be taxable to our
shareholders upon completion of the merger;
* the challenges associated with seeking the regulatory approvals
required to complete the merger in a timely manner;
* the risks and costs to us if the merger is not completed, including
the diversion of management and employee attention, potential
employee attrition and the potential effect on business and
customer relationships;
* the fact that some of our officers and directors have interests in
the merger described under "-Interests of Certain Persons in the
Merger" that are in addition to their interests as EverTrust
shareholders;
* the requirement that we conduct our business in the ordinary course
and the other restrictions on the conduct of our business prior to
completion of the merger, which may delay or prevent us from
undertaking business opportunities that may arise pending
completion of the merger;
* the requirement that we submit the merger agreement to our
shareholders even if our Board withdraws its recommendation; and
* the fact that a termination fee is payable to KeyCorp under certain
circumstances.
The discussion of the information and factors considered by the Board of
Directors is not exhaustive, but includes all material factors considered by
the Board. In view of the wide variety of factors considered in connection
with its evaluation of the merger and the complexity of these matters, the
Board did not consider it practical to, nor did it attempt to, quantify, rank
or otherwise assign relative weights to the specific factors that it
considered in reaching its decision. The Board evaluated the factors
described above, including asking questions of our management and legal and
financial advisors, and reached the unanimous decision that the merger was in
the best interests of EverTrust and its shareholders. In considering the
factors described above, individual directors may
12
have given different weights to different factors. The Board of Directors
considered these factors as a whole, and overall considered them to be
favorable to, and to support, its determination. It should be noted that this
explanation of the Board's reasoning and all other information presented in
this section is forward-looking in nature and, therefore, should be read in
light of the factors discussed under the heading "Forward-Looking Statements."
Generally, the Board of Directors concluded that in the long term we
could not produce shareholder value in excess of the merger price, and that
the merger price was fair, from a financial point of view, to our
shareholders. After careful and thorough consideration of the merger
agreement, the factors discussed above and the opinion of Keefe, Bruyette &
Woods, the Board of Directors unanimously adopted the merger agreement as
being in the best interests of EverTrust and its shareholders. Accordingly,
the Board of Directors unanimously recommends that you vote FOR the approval
of the merger agreement.
Opinion of EverTrust's Financial Advisor
In March 2004, Keefe, Bruyette & Woods participated in the annual
EverTrust Board retreat as a financial advisor to provide a market overview,
provide an analytical financial review of EverTrust, review our results
relative to a comparable group of thrift and banking companies, update the
Board on the merger and acquisition market and expected valuations, and review
a summary of the merger and acquisition process. Following that meeting, the
Strategic Planning Committee of the Board requested an engagement letter from
Keefe, Bruyette & Woods for providing investment banking services for a
potential strategic alliance transaction, including both purchase and sale
transactions. This engagement letter was presented to EverTrust's Board in
March 2004 and executed in May 2004. With its engagement, Keefe, Bruyette &
Woods put in place a process that involved:
* gathering additional data on EverTrust which would be used to build
a confidential investor profile;
* identifying potential strategic alliance partners;
* contacting potential strategic alliance partners and requesting
that they sign a confidentiality agreement to review non-public
information about EverTrust to assist them in preparing a non-
binding letter of interest with EverTrust;
* reviewing and analyzing any indications of interest received;
* organizing due diligence by the potential merger partners; and
* providing the Board with an overview of the merger and acquisition
market from time to time.
At the Board meeting at which the merger agreement was signed, Keefe,
Bruyette & Woods opined as to the fairness of the KeyCorp proposal. Keefe,
Bruyette & Woods, as part of its investment banking business, is regularly
engaged in the evaluation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, and distributions of
listed and unlisted securities. Keefe, Bruyette & Woods is familiar with the
market for common stocks of publicly traded banks, thrifts and bank and thrift
holding companies.
Keefe, Bruyette & Woods delivered its opinion to the EverTrust Board
that, as of June 24, 2004, the merger consideration is fair, from a financial
point of view, to the shareholders of EverTrust. No limitations were imposed
by the Board of Directors on Keefe, Bruyette & Woods with respect to the
investigations made or procedures followed by it in rendering its opinion.
This opinion was confirmed by Keefe, Bruyette & Woods as of August 20, 2004.
Keefe, Bruyette & Woods has consented to the inclusion herein of the summary
of its opinion to the Board and to the reference to the entire opinion
attached hereto as Appendix C.
The full text of the opinion of Keefe, Bruyette & Woods, which is
attached as Appendix C to this proxy statement, sets forth certain assumptions
made, matters considered and limitations on the review undertaken by Keefe,
Bruyette & Woods, and should be read in its entirety. The summary of the
opinion of
13
Keefe, Bruyette & Woods set forth in this proxy statement is qualified in its
entirety by reference to the opinion.
In rendering its opinion, Keefe, Bruyette & Woods:
* reviewed the merger agreement;
* reviewed EverTrust's Annual Reports, Proxy Statements and Annual
Reports on Form 10-K for the fiscal years ended March 31, 2003,
2002 and 2001, and Quarterly Reports on Form 10-Q for the quarters
ended June 30, September 30, and December 31, 2003, and certain
other analyses considered relevant;
* discussed with senior management and the Board of Directors the
current position and prospective outlook for EverTrust;
* reviewed financial and stock market data of other banks in a
comparable asset range to EverTrust;
* reviewed certain recent business combinations with banks as the
acquired company, which Keefe, Bruyette & Woods deemed comparable
in whole or in part; and
* performed other analyses it considered appropriate.
Analysis of Recent Comparable Acquisition Transactions. In rendering its
opinion, Keefe, Bruyette & Woods analyzed nine comparable merger and
acquisition transactions of both pending and completed bank deals, comparing
the acquisition price relative to tangible book value, and premium to core
deposits. All comparative metrics were provided as of June 23, 2004 by SNL
Securities, a respected data source in the depository industry. A comparable
transaction group was selected from pending and completed acquisitions
announced since December 31, 2002, where the seller was a thrift, based on the
following criteria:
* Assets between $500 million and $1 billion;
* Return on average equity between 5% and 12%; and
* Tangible equity/tangible assets between 8% and 15%.
These criteria generated the following list of transactions:
Acquiror State Target State
- ---------------------------- ----- --------------------------- -----
First Commonwealth Financial PA GA Financial, Inc. PA
Corporation
MidCountry Financial Corp. GA FSF Financial Corp. MN
National City Corporation OH Wayne Bancorp, Inc. OH
Northwest Bancorp, Inc. (MHC) PA First Bell Bancorp, Inc. PA
Provident Bancorp, Inc. NY Warwick Community Bancorp, NY
Inc.
SouthTrust Corp. AL FloridaFirst Bancorp, Inc. FL
Texas Regional Bancshares, Inc. TX Southeast Texas Bancshares, TX
Inc.
TierOne Corporation NE United Nebraska Financial Co. NE
UnionBanCal Corporation CA Monterey Bay Bancorp, Inc. CA
14
Keefe, Bruyette & Woods derived the following pricing metrics based on
the aforementioned criteria:
Deal Terms at Announcement
------------------------------------------------------------------
Deal Price/ Price/ Price/ Core Deposit.
Value Book Tangible Book LTM Earnings Premium
------- ------- ------------- ------------ -------------
($MM) (%) (%) (x) (%)
Minimum: $ 86.8 147.5% 161.5% 13.0x 8.9%
Median: 153.5 178.6 183.9 18.2 15.6
Maximum: 226.5 210.2 263.6 24.7 20.6
Deal Multiples
------------------------------------------------------------------
EverTrust/
KeyCorp $194.7 214.9% 214.9% 27.6x 23.1%
Keefe, Bruyette & Woods viewed the criteria listed above as appropriate
in deriving a comparable transaction value based on EverTrust's size, capital
base and return on equity. Keefe, Bruyette & Woods viewed three of the above
metrics as primary metrics for evaluating the fairness from a financial point
of view of the transaction: price to tangible book value, price to last twelve
months earnings and core deposit premium.
Given that the value of the consideration on an aggregate basis to be
paid in the merger, as of the date of the opinion, is above the median values
on all three primary metrics, both on a tangible book value basis and core
deposit premium basis, Keefe, Bruyette & Woods believes that this analysis
supports the fairness, from a financial point of view, to EverTrust
shareholders of the consideration to be paid in the merger.
Discounted Cash Flow Analysis. Keefe, Bruyette & Woods performed a
discounted cash flow analysis to estimate a range of present values per share
of EverTrust common stock. This range was determined by adding (1) the
present value, which is a representation of the current value of a sum that is
to be received some time in the future, of the estimated future earnings that
EverTrust could generate through year 5 of its current business plan (as
provided to Keefe, Bruyette & Woods) and (2) the present value of that
earnings stream using a discount rate commensurate with normal trading
multiples.
In calculating this net present value of EverTrust common stock, Keefe,
Bruyette & Woods applied multiples of 12.0x to 18.0x to year 5 forecasted
earnings. The median of the discount rates, 16.0x, was selected as a terminal
multiple by using a comparable group of 42 financial institutions (with assets
between $500 million and $1 billion located in the Western United States)
which today trade at a median price to earnings ratio of 16.4x. Over the last
five years, this group has traded in a range from 11.1x to 17.2x historical
earnings. Keefe, Bruyette & Woods used the budget provided by EverTrust for
2004 and then extended the growth in earnings out five years at a compounded
annual growth rate of 12% per annum. This rate of earnings growth was
discussed and agreed to by EverTrust management as an achievable growth rate
in earnings for the next five years. The combined earnings stream and
terminal value were then discounted back to current values. Keefe, Bruyette &
Woods established a discount range of 10% to 13% in terms of the cost of
equity. The terminal values were then discounted to present values using
these different discount rates chosen to reflect different assumptions
regarding the required rates of return to holders and liquidity in the
marketplace of prospective buyers of EverTrust common stock. The results of
the analysis of Keefe, Bruyette & Woods are set forth in the following table:
Discounted Cash Flow Assumptions
- --------------------------------
Terminal Multiple 16.0x
Discount Rate 11.7%
Terminal Price at Year 5 $31.22
NPV per share $20.47
15
Terminal Multiple
Discount Rate 12.0x 14.0x 16.0x 17.0x 18.0x
- ------------------ ----- ----- ----- ----- -----
13.0% $15.15 $17.27 $19.38 $20.44 $21.50
12.0 $15.79 $18.01 $20.22 $21.33 $22.43
11.7 $15.98 $18.23 $20.47 $21.59 $22.71
11.0 $16.47 $18.78 $21.10 $22.26 $23.42
10.0 $17.18 $19.61 $22.03 $23.24 $24.45
In performing this analysis, Keefe, Bruyette & Woods assumed a constant
dividend payout ratio of 42%, providing capital in excess of that necessary to
maintain EverTrust's tangible common equity ratio at 8%, could be paid out as
dividends. Based on the foregoing criteria and assumptions, Keefe, Bruyette &
Woods determined that the stand-alone present value of the EverTrust common
stock ranged from $15.15 to $24.45 per share. Given that the value of the
consideration on a per share basis to be paid in the merger, as of the date of
the opinion, is above the range derived from the discounted cash flow
analysis, Keefe, Bruyette & Woods believes that this analysis supports the
fairness, from a financial point of view, to EverTrust shareholders of the
consideration to be paid in the merger.
The discounted cash flow analysis of EverTrust does not necessarily
indicate actual values or actual future results and does not purport to
reflect the prices at which any securities may trade at the present or at any
time in the future. Discounted cash flow analysis is a widely used valuation
methodology, but the results of this methodology are highly dependent upon
numerous assumptions that must be made, including earnings growth rates,
dividend payout rates, terminal values, projected capital structure and
discount rates.
Based on the above analyses, Keefe, Bruyette & Woods concluded that a
$25.6016 share price in cash, was fair, from a financial point of view, to
EverTrust's shareholders. This summary does not purport to be a complete
description of the analysis performed by Keefe, Bruyette & Woods and should
not be construed independently of the other information considered by Keefe,
Bruyette & Woods in rendering its opinion. Selecting portions of Keefe,
Bruyette & Woods's analysis or isolating certain aspects of the comparable
transactions without considering all analysis and factors could create an
incomplete or potentially misleading view of the evaluation process.
In rendering its opinion, Keefe, Bruyette & Woods assumed and relied upon
the accuracy and completeness of the financial information provided to it by
EverTrust. In its review, with the consent of EverTrust's Board of Directors,
Keefe, Bruyette & Woods did not undertake any independent verification of the
information provided to it, nor did it make any independent appraisal or
evaluation of the assets or liabilities and potential or contingent
liabilities of EverTrust.
The fairness opinion of Keefe, Bruyette & Woods is limited to the
fairness as of its date, from a financial point of view, of the consideration
to be paid in the merger and does not address the underlying business decision
to effect the merger (or alternatives thereto). Keefe, Bruyette & Woods
confirmed this opinion as of August 20, 2004.
Keefe, Bruyette & Woods is a nationally recognized investment banking
firm and is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, secondary distributions of listed and unlisted
securities and private placements.
In preparing its analysis, Keefe, Bruyette & Woods made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters, many of which are beyond the control of Keefe,
Bruyette & Woods and EverTrust. The analyses performed by Keefe, Bruyette &
Woods are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses
and do not purport to be appraisals or reflect the prices at which a business
may be sold.
Keefe, Bruyette & Woods will receive a fee of 1% of the aggregate
transaction value, or $1.95 million, as a fee for services rendered in
connection with its strategic engagement as well as in rendering the fairness
opinion regarding the merger, of which $150,000 has been paid to date.
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The opinion of Keefe, Bruyette & Woods is directed toward the
consideration to be received by EverTrust shareholders and does not constitute
a recommendation to any EverTrust shareholder to vote in favor of approval of
the merger agreement. The full text of the Keefe, Bruyette & Woods opinion
which sets forth the assumptions made, procedures followed, matters considered
and limits on the review undertaken is set forth as Appendix C to this proxy
statement and should be read in its entirety by shareholders of EverTrust.
Keefe, Bruyette & Woods has consented to the inclusion and description of its
written opinion in this proxy statement.
Taxable Transaction for EverTrust Shareholders
The following describes generally the material U.S. federal income tax
consequences of the merger to U.S. holders (as defined below) of our common
stock. We base this summary on the provisions of the Internal Revenue Code of
1986, as amended, applicable current and proposed U.S. Treasury Regulations,
judicial authority, and administrative rulings and practice, all of which are
subject to change, possibly on a retroactive basis.
For purposes of this discussion, the term "U.S. holder" means:
* a citizen or resident of the United States;
* a corporation, or other entity taxable as a corporation for U.S.
federal income tax purposes, created or organized under the laws of
the United States or any of its political subdivisions;
* a trust if it (1) is subject to the primary supervision of a court
within the United States and one or more U.S. persons have the
authority to control all substantial decisions of the trust or (2)
has a valid election in effect under applicable U.S. Treasury
Regulations to be treated as a U.S. person; or
* an estate the income of which is subject to U.S. federal income tax
regardless of its source.
This discussion assumes that you hold the shares of our common stock as a
capital asset within the meaning of Section 1221 of the Internal Revenue Code.
This discussion does not address all aspects of U.S. federal income taxation
that may be relevant to you in light of your particular circumstances, or that
may apply to you if you are subject to special treatment under the income tax
laws (including, for example, insurance companies, dealers in securities or
foreign currencies, tax-exempt organizations, financial institutions, mutual
funds, U.S. expatriates, shareholders who hold shares of our stock as part of
a hedge, straddle, constructive sale or conversion transaction, or
shareholders who acquired their shares of our common stock through the
exercise of employee stock options or other compensation arrangements). In
addition, the discussion does not address any tax considerations under state,
local or foreign laws or federal laws other than those pertaining to the
federal income tax that may apply to you. We urge you to consult your own tax
advisor to determine the particular tax consequences to you (including the
application and effect of any state, local or foreign income and other tax
laws) of the receipt of cash in exchange for our common stock pursuant to the
merger.
The receipt of cash in the merger by U.S. holders of our common stock
will be a taxable transaction for U.S. federal income tax purposes (and may
also be a taxable transaction under applicable state, local and foreign tax
laws). In general, for U.S. federal income tax purposes, a U.S. holder of our
common stock will recognize gain or loss equal to the difference between (1)
the amount of cash received in exchange for the shares and (2) the
shareholder's adjusted tax basis in the shares. If the holding period in our
shares surrendered in the merger is greater than one year as of the date of
the merger, the gain or loss will be long-term capital gain or loss. The
deductibility of a capital loss recognized on the exchange is subject to
limitations. If you acquired different blocks of our stock at different times
or different prices, you must determine your tax basis and holding period
separately with respect to each block of our stock. The cash merger
consideration will be taxable to you when received or accrued, in accordance
with your regular method of income tax accounting. For U.S. federal income
tax purposes, if you are a
17
cash method taxpayer, you will be considered to have received the cash when
your ability to receive it is no longer subject to any substantial limitations
or restrictions, as will be the case when you have received the letter of
transmittal following completion of the merger.
Under the Internal Revenue Code, you, as a holder of our stock, may be
subject, under certain circumstances, to backup withholding at a rate of 28%
with respect to the amount of cash received in the merger, unless you provide
proof of an applicable exemption or a correct taxpayer identification number,
and otherwise comply with the applicable requirements of the backup
withholding rules. Backup withholding is not an additional tax and any
amounts withheld under the backup withholding rules may be refunded or
credited against your U.S. federal income tax liability, if any, provided that
you furnish the required information to the Internal Revenue Service in a
timely manner.
Governmental and Regulatory Approvals
EverTrust and KeyCorp have each agreed to use their reasonable best
efforts to obtain the regulatory approvals required to complete the
transactions contemplated by the merger agreement. These include approval
from the Federal Reserve and notice to various state regulatory authorities
and self-regulatory organizations.
The merger cannot proceed in the absence of the requisite regulatory
approvals. We cannot assure you as to whether or when the requisite
regulatory approvals will be obtained, and, if obtained, we cannot assure you
as to the date of receipt of any of these approvals or the conditions that
such approvals might include or the absence of any litigation challenging
them. Likewise, we cannot assure you that the U.S. Department of Justice or a
state attorney general will not attempt to challenge the merger on antitrust
grounds, or, if such a challenge is made, as to the result of that challenge.
We believe that the merger does not raise substantial antitrust or other
significant regulatory concerns and that, together with KeyCorp, we will be
able to obtain all requisite regulatory approvals on a timely basis without
the imposition of any condition that would have a material adverse effect on
KeyCorp or EverTrust.
We are not aware of any other material governmental approvals or actions
that are required prior to the parties' completion of the merger other than
those described below. We presently contemplate that if any additional
governmental approvals or actions are required, these approvals or actions
will be sought. However, we cannot assure you that any of these additional
approvals or actions will be obtained.
Federal Reserve. Completion of the merger is subject to approval by the
Federal Reserve pursuant to Section 3 of the Bank Holding Company Act.
KeyCorp filed the Section 3 application with the Federal Reserve on August 9,
2004.
The Federal Reserve is prohibited from approving any transaction under
the applicable statutes (1) that would result in a monopoly or be in
furtherance of any combination or conspiracy to monopolize or to attempt to
monopolize the business of banking in any part of the United States or (2)
whose effect in any section of the United States may be to substantially
lessen competition, or to tend to create a monopoly or result in a restraint
of trade, unless the Federal Reserve finds that the anti-competitive effects
of the transaction are clearly outweighed in the public interest by the
probable effect of the transaction in meeting the convenience and needs of the
communities to be served.
In addition, in reviewing the merger, the Federal Reserve will consider
the financial and managerial resources of KeyCorp and EverTrust and their
subsidiary banks, the convenience and needs of the communities to be served,
as well as the companies' effectiveness in combating money-laundering
activities. Under the Community Reinvestment Act of 1977, as amended, the
Federal Reserve will also take into account KeyCorp' and EverTrust's records
of performance in meeting the credit needs of the communities, including low-
and moderate-income neighborhoods, served by both companies.
Furthermore, the Bank Holding Company Act and Federal Reserve regulations
require published notice of, and the opportunity for public comment on, the
application submitted by KeyCorp for approval of the merger, and
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authorize the Federal Reserve Board to hold a public hearing or meeting if the
Federal Reserve determines that a hearing or meeting would be appropriate.
Any hearing or meeting or comments provided by third parties could prolong the
period during which the application is under review by the Federal Reserve.
Pursuant to the Bank Holding Company Act, a transaction approved by the
Federal Reserve may not be completed until 30 days after the approval is
received, during which time the U.S. Department of Justice may challenge the
merger on antitrust grounds. With the approval of the Federal Reserve and the
concurrence of the Department of Justice, the waiting period may be reduced to
no less than 15 days. The commencement of an antitrust action would stay the
effectiveness of such an approval unless a court specifically ordered
otherwise. In reviewing the merger, the Department of Justice could analyze
the merger's effect on competition differently than the Federal Reserve, and
thus it is possible that the Department of Justice could reach a different
conclusion than the Federal Reserve regarding the merger's effects on
competition. A determination by the Department of Justice not to object to
the merger does not prevent the filing of antitrust actions by private persons
or state attorneys general.
Other Regulatory Authorities. Notifications are being filed with various
state regulatory authorities and self-regulatory organizations in connection
with acquisitions or changes in control of subsidiaries of EverTrust. These
notices include notice to the Washington Department of Financial Institutions
at least 30 days prior to the merger. In addition, the merger may be reviewed
by the attorneys general in the various states in which KeyCorp and EverTrust
own banking subsidiaries. These authorities may be empowered under applicable
state laws and regulations to investigate or disapprove the merger under the
circumstances and based upon the review provided for in applicable state laws
and regulations.
Dissenters' Appraisal Rights
In accordance with Chapter 13 of the Washington Business Corporation Act
(Chapter 23B.13 of the Revised Code of Washington), EverTrust's shareholders
have the right to dissent from the merger and to receive payment in cash for
the "fair value" of their EverTrust common stock. EverTrust shareholders
electing to exercise dissenters' rights must comply with the provisions of
Chapter 13 in order to perfect their rights. EverTrust and KeyCorp will
require strict compliance with the statutory procedures. The following is
intended as a brief summary of the material provisions of the Washington
statutory procedures required to be followed by an EverTrust shareholder in
order to dissent from the merger and perfect their rights. This summary,
however, is not a complete statement of all applicable requirements and is
qualified in its entirety by reference to Chapter 13 of the Washington
Business Corporation Act, the full text of which is set forth in Appendix B
hereto.
A shareholder who wishes to assert dissenters' rights must (a) deliver to
EverTrust before the vote is taken by EverTrust shareholders notice of the
shareholder's intent to demand payment for the shareholder's shares if the
merger is effected and (b) not vote such shares in favor of the merger. A
shareholder wishing to deliver such notice should hand deliver or mail such
notice to EverTrust at the following address:
EverTrust Financial Group, Inc.
2707 Colby Avenue, Suite 600
Everett, Washington 98201
Attn: Corporate Secretary
A shareholder who wishes to exercise dissenters' rights generally must
dissent with respect to all the shares the shareholder owns or over which the
shareholder has power to direct the vote. However, if a record shareholder is
a nominee for several beneficial shareholders some of whom wish to dissent and
some of whom do not, then the record holder may dissent with respect to all
the shares beneficially owned by any one person by notifying EverTrust of the
name and address of each person on whose behalf the record shareholder asserts
dissenters' rights. A beneficial shareholder may assert dissenters' rights
directly by submitting to EverTrust the record shareholder's consent to the
dissent and by dissenting with respect to all the shares of which such
shareholder is the beneficial shareholder or over which such shareholder has
power to direct the vote.
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A shareholder who does not deliver to EverTrust prior to the vote being
taken by EverTrust shareholders a notice of the shareholder's intent to demand
payment for the "fair value" of the shares will lose the right to exercise
dissenters' rights. In addition, any shareholder electing to exercise
dissenters' rights must either vote against the merger or abstain from voting.
If the merger is effected, KeyCorp as the surviving corporation will,
within ten days after the effective date of the merger, deliver a notice to
all shareholders who properly perfected their dissenters' rights. This notice
will, among other things, (a) state where the payment demand must be sent and
where and when certificates for certificated shares must be deposited, (b)
inform holders of uncertificated shares to what extent transfer of the shares
will be restricted after the payment demand is received, (c) supply a form for
demanding payment and (d) set a date by which KeyCorp must receive the payment
demand, which date will be between 30 and 60 days after notice is delivered.
A shareholder wishing to exercise dissenters' rights must then demand payment
and deliver share certificates all in accordance with the terms of the notice.
Failure to do so will result in loss of dissenters' rights.
Within 30 days after the merger occurs or receipt of the payment demand,
whichever is later, KeyCorp will pay each dissenter with properly perfected
dissenters' rights KeyCorp's estimate of the "fair value" of the shareholder's
shares, plus accrued interest from the effective date of the merger. With
respect to a dissenter who did not beneficially own EverTrust common stock
prior to the public announcement of the merger, KeyCorp is required to make
the payment only after the dissenter has agreed to accept the payment in full
satisfaction of the dissenter's demands. "Fair value" means the value of the
shares immediately before the effective date of the merger, excluding any
appreciation or depreciation in anticipation of the merger unless such
exclusion would be inequitable. The rate of interest is generally required to
be the average rate at which KeyCorp can borrow money from other banks.
KeyCorp currently intends to estimate the fair value of EverTrust common stock
at $25.6016 per share, which represents the price paid for EverTrust common
stock in the merger.
A dissenter who is dissatisfied with KeyCorp's estimate of the fair value
or believes that interest due is incorrectly calculated may notify KeyCorp of
the dissenter's estimate of the fair value and amount of interest due. If
KeyCorp does not accept the dissenter's estimate and the parties do not
otherwise settle on a fair value, then KeyCorp must within 60 days after
receiving the demand for payment petition a court to determine the fair value
of the shares and the accrued interest.
In view of the complexity of Chapter 13 of the Washington Business
Corporation Act, shareholders of EverTrust who may wish to dissent from the
merger and pursue appraisal rights should consult their legal advisors.
Interests of Certain Persons in the Merger
Some of the members of EverTrust's management and the EverTrust Board of
Directors have financial interests in the merger that are in addition to, or
different from, their interests as EverTrust shareholders generally.
EverTrust's Board of Directors was aware of these interests and considered
them, among other matters, in adopting the merger agreement.
EverTrust Employment Agreements. Three of EverTrust's named executive
officers have previously entered into employment agreements with EverTrust,
Michael R. Deller, Robert L. Nall and Jeffrey R. Mitchell, for whom
information is included in the Executive Compensation section of EverTrust's
2004 annual meeting proxy statement (except for Mr. Mitchell, who was not a
named executive officer at March 31, 2004). Each of the agreements contains
provisions that entitle the executive to termination benefits, some of which
are contingent upon the occurrence of a change in control. The proposed
merger will be a change in control for purposes of these agreements.
Pursuant to the terms of these agreements, if, following a change in
control, the employment of the executive is "involuntarily terminated," the
executive will be entitled to receive the following: (1) 150% of the
executive's base salary during the 12 months prior to the change in control,
(2) 150% of the executive's average bonus paid during the five fiscal years
prior to the change in control and (3) substantially the same group life
insurance, medical, dental and other health benefits, and long-term disability
insurance (if any) until February 24,
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2005. Upon completion of the merger, the employment of the three named
executive officers who have employment agreements will be considered to be
"involuntarily terminated" for purposes of their employment agreements, and
the executives will be entitled to receive the cash severance amounts under
the agreements immediately in a lump sum. Assuming the merger is completed on
December 1, 2004, the approximate aggregate amount of the cash severance that
would be paid to Messrs. Deller, Nall and Mitchell would be $296,800, $256,900
and $198,100, respectively.
EverTrust Stock Options. The merger agreement provides that, upon
completion of the merger, each outstanding and unexercised stock option to
acquire shares of EverTrust common stock granted under the EverTrust stock
plans, whether or not vested, will cease to represent the right to acquire
shares of EverTrust common stock, and will be cancelled upon the consent of
the option holder and become a right, to receive $25.6016 per share in cash,
less the option exercise price and applicable tax withholding. Option holders
who do not consent to the cancellation of their options will receive options
to purchase KeyCorp common stock, in accordance with the merger agreement.
Assuming the merger is completed on December 1, 2004, the aggregate number of
stock options to acquire shares of EverTrust common stock held by Messrs.
Hansen, Deller, Nall and Mitchell and Ms. Christenson was 269,587 shares,
119,441 shares, 23,938 shares, 91,656 shares and 67,396 shares, respectively,
as well as 364,483 shares by all non-employee directors as a group. The
options held by Messrs. Hansen, Deller, Nall and Mitchell, Ms. Christenson and
non-employee directors as a group, will vest in full and be cancelled (upon
the consent of the option holder) in exchange for the right to receive the
cash payment, of approximately $4.7 million, $2.1 million, $360,000, $1.6
million, $1.2 million and $5.6 million, respectively. These options have a
weighted average exercise of $8.0417, $8.0417, $10.7024, $8.0417, $8.0417 and
$10.1521, respectively.
EverTrust Management Recognition Plan. Directors and officers of
EverTrust have received grants of restricted stock under EverTrust's 2000
Management Recognition Plan, with vesting of the shares to occur over a period
of five years, subject to limited exceptions. As of the August 13, 2004
record date, the aggregate number of unvested restricted stock held by Messrs.
Hansen, Deller, Nall and Mitchell and Ms. Christenson was 24,801 shares,
10,783 shares, 5,473 shares, 10,783 shares and 14,017 shares, respectively, as
well as 30,130 shares held by all non-employee directors as a group. These
restricted shares will vest on October 1, 2004 and become eligible to be
converted into the right to receive the same merger consideration as all other
shares of EverTrust common stock held by shareholders, $25.6016 per share.
In the event other unvested restricted shares of EverTrust were held by
the executive officers and directors as of the close of the merger, the merger
agreement provides for the vesting of all unvested restricted shares of
EverTrust common stock upon a change in control of EverTrust. The merger will
constitute a change in control of EverTrust. Following the October 1, 2004
final vesting date, however, no other unvested restricted shares of EverTrust
will be held by the executive officers and directors.
Compensation to the Strategic Planning Committee. Messrs. Collins,
Gaffney and Mills, who served as the members of the Strategic Planning
Committee of the Board of Directors will receive an aggregate payment of
$70,000 for their services to EverTrust in connection with the merger.
Retention Arrangement with Robert L. Nall. In connection with the
execution of the merger agreement, Mr. Nall will receive certain retention
benefits. Mr. Nall has entered into an agreement with EverTrust whereby he
will receive a cash payment of $500,000 from EverTrust (or KeyCorp as its
successor) immediately following the effective time of the merger. In
addition, Mr. Nall has entered into a contingent employment agreement with
KeyBank, pursuant to which he will receive an annual base salary of $155,000,
he will continue under his current EverTrust incentive compensation program
until March 31, 2005 at which time, he will participate in the KeyBank
incentive compensation program, and he will receive a one-time award of
$250,000 in restricted stock of KeyCorp, as well as certain other benefits.
Retention Arrangement with John Williams. In connection with the
execution of the merger agreement, John Williams, Vice President and Chief
Credit Officer of EverTrust Bank, has entered into a contingent employment
agreement with KeyBank, pursuant to which he will receive an annual base
salary of $101,760, he will continue under his current EverTrust incentive
compensation program until March 31, 2005, at which time he will
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participate in the KeyBank incentive compensation program, and he will receive
a one-time award of $150,000 in restricted stock of KeyCorp, as well as
certain other benefits.
Stock Ownership. The directors and executive officers of EverTrust,
together with their affiliates, beneficially owned a total of 1,693,733 shares
of EverTrust common stock, including options exercisable within 60 days of the
record date (representing 24.4% of all outstanding shares of EverTrust common
stock) as of the August 13, 2004 record date. The directors and executive
officers will receive the same consideration in the merger for their shares as
the other shareholders of EverTrust.
Indemnification and Insurance. The merger agreement provides that, upon
completion of the merger, KeyCorp will indemnify and hold harmless, and
provide advancement of expenses to, all past and present officers, directors
and employees and agents of EverTrust and its subsidiaries to the fullest
extent permitted by applicable laws and EverTrust's articles of incorporation
and bylaws for a period of six years after completion of the merger. The
merger agreement also provides that KeyCorp will maintain for a period of six
years after completion of the merger coverage for acts or omissions occurring
prior to the effective time of the merger. See "The Merger Agreement -
Indemnification" for more information.
THE MERGER AGREEMENT
The following discussion is qualified by reference to the merger
agreement which is attached as Appendix A to this proxy statement and
incorporated herein by reference. We urge you to read the merger agreement
carefully in its entirety.
Merger Consideration
The merger agreement provides that each share of EverTrust common stock
outstanding immediately prior to the effective time of the merger will be
converted at the effective time of the merger into the right to receive
$25.6016 in cash, without interest, subject to limited exceptions. Shares
owned by EverTrust for its own account and shares owned by KeyCorp or any of
its subsidiaries for their own account will be cancelled. Shares owned by
holders who properly perfect appraisal rights under Washington law will be
treated as described above under "The Merger - Dissenters' Appraisal Rights."
Treatment of EverTrust Stock Options
At the effective time of the merger, each outstanding option to purchase
EverTrust common stock, whether or not fully vested, with respect to which
KeyCorp receives an option cancellation agreement, will be converted into the
right to receive a cash payment (less applicable withholding taxes and without
interest) equal to the excess, if any, of $25.6016 over the applicable
exercise price per share of the stock option, multiplied by the number of
shares of EverTrust common stock subject to that stock option immediately
prior to the effective time of the merger. Payments will be made as soon as
practicable after the effective time of the merger. To the extent any option
holder does not deliver an option cancellation agreement to KeyCorp, that
person's options will be converted into options to purchase shares of KeyCorp
common stock, in accordance with the terms of the merger agreement.
Directors and Officers
The merger agreement provides that the directors and officers of KC
Subsidiary immediately before the merger will be the directors and officers of
the surviving corporation.
Completion of the Merger
The closing of the merger will take place on the last day of the month
following the satisfaction or waiver of all of the conditions to the merger
contained in the merger agreement, unless KeyCorp and EverTrust agree to
another date. On the date of the closing, KeyCorp will file certificates of
merger with the Secretary of State of Washington and Delaware. The merger
will become effective at the time stated in the certificates of merger.
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Subsequent to the completion of the merger, it is currently anticipated that
EverTrust Bank will be merged into KeyBank.
KeyCorp expects to complete the merger in the fourth quarter of 2004.
However, we cannot guarantee when or if the required approvals will be
obtained or what conditions these approvals might include. Furthermore,
either party may terminate the merger agreement if, among other reasons, the
merger has not been completed by March 31, 2005, unless failure to complete
the merger by that time is due to the breach of any representation, warranty
or covenant by the party seeking to terminate.
Surrender of Certificates
Within ten calendar days after the completion of the merger, a payment
agent designated by KeyCorp will mail to each individual or entity who,
immediately prior to the effective time, is a holder of record of EverTrust
common stock a letter of transmittal with instructions on how to exchange
EverTrust stock certificates for the cash merger consideration. Please do not
send in your EverTrust stock certificates until you receive the letter of
transmittal and instructions from the payment agent and have completed the
transmittal materials accordingly. Do not return your stock certificates with
the enclosed proxy.
After you mail the letter of transmittal and your stock certificates to
the payment agent, a check for the cash you will receive in the merger will be
mailed to you. The EverTrust certificate(s) you surrender will be cancelled.
You will not be entitled to receive interest on any cash to be received in the
merger.
In the event of a transfer of ownership of any shares of EverTrust common
stock that has not been registered in the transfer records of EverTrust, a
check for the cash to be received in the merger may be issued to the person
who holds such shares if the certificate representing such shares is presented
to the payment agent with documents that are sufficient in the reasonable
discretion of KeyCorp and the payment agent:
1. to evidence and effect such transfer, and
2. to evidence that all applicable stock transfer taxes have been
paid.
After the completion of the merger, there will be no further transfers of
EverTrust common stock. EverTrust stock certificates presented for transfer
after the completion of the merger will be cancelled and exchanged for the
merger consideration.
If your EverTrust stock certificate(s) have been lost, stolen or
destroyed, you will have to prove your ownership of these certificates and
that they were lost, stolen or destroyed before you receive any consideration
for your shares. The payment agent will send you instructions on how to
provide such evidence and any additional requirements that need to be
satisfied.
Conduct of Business Pending the Merger
Pursuant to the merger agreement, we have agreed that our business and
the business of our subsidiaries will be conducted only in the ordinary
course, and we and our subsidiaries will use our best efforts to preserve
intact our business organizations and assets and maintain existing relations
with customers, employees and others. In addition, we have agreed not to,
without the written consent of KeyCorp, among other things:
* take any action that would adversely affect the ability to get
regulatory approval or would have a material adverse effect;
* amend or restate our articles of incorporation or bylaws;
* split, combine or reclassify our capital stock;
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* declare or pay dividends, other than dividends not in excess of
$0.11 per share per quarter in accordance with our past dividend
practices;
* repurchase, redeem or otherwise acquire any shares of our capital
stock or related securities;
* issue, sell or pledge any shares of our capital stock or related
securities;
* transfer, lease, sell or otherwise dispose of any of our material
properties or assets, other than in the ordinary course of business
consistent with past practices;
* make capital expenditures in excess of specified levels;
* make any investment, other than in the ordinary course of business
consistent with past practices;
* extend credit or renew existing lines of credit, other than in the
ordinary course of business consistent with past practices and
within limits specified in the merger agreement;
* incur any debt, other than in the ordinary course of business
consistent with past practices;
* make changes in our benefit plans or increase the compensation of
any employee, director or independent contractor, other than as
permitted under the merger agreement;
* hire any new employees or promote any employee other than to
satisfy existing obligations and to fill vacancies specified in the
merger agreement;
* make or adopt changes with respect to existing accounting
principles, practices or methods;
* settle any claim, action or proceeding, except for one which
involves solely money damages in an amount which is not material
and does not create precedent claims, actions or proceedings that
are reasonably likely to be material;
* amend, re-file or otherwise modify any of our tax returns; or
* enter into an agreement to take any of these actions.
In addition, we have agreed to use our reasonable best efforts to
implement the requirements of the SEC regarding internal control over
financial reporting in accordance with the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002. We have also agreed to cooperate with and grant
access to an environmental consulting firm selected by KeyCorp to conduct
Phase I and Phase II environmental assessments on any of our owned real
property, and to pay half of the consulting firm's fees and expenses. See
Article IV of the merger agreement, which is attached to this proxy statement
as Appendix A, for additional restrictions on our conduct of business pending
the merger.
No Solicitation of Acquisition Proposals
In accordance with the merger agreement, as of the date of the merger
agreement, we immediately ceased and caused to be terminated all existing
discussions, negotiations and communications with any third parties with
respect to any acquisition proposal. An "acquisition proposal" means any
proposal or offer with respect to the following involving us or any of our
material subsidiaries:
* any merger, consolidation, share exchange, business combination or
similar transaction;
* any sale, lease exchange, pledge, transfer or other disposition of
35% or more of consolidated assets or liabilities;
24
* any tender offer or exchange offer for 10% or more of the
outstanding shares of capital stock; or
* any public announcement of a proposal, plan or intention to do any
of the foregoing by a party other than KeyCorp.
We have also agreed, and will cause our subsidiaries, and our and our
subsidiaries' officers, directors and agents:
* not to initiate, solicit or encourage any inquiries or the making
or implementation of any acquisition proposal; and
* not to engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with,
any person relating to an acquisition proposal, or otherwise
facilitate any effort or attempt to make or implement an
acquisition proposal.
We have agreed to notify KeyCorp immediately if we receive any
acquisition proposals or any request for information or negotiations or
discussions in connection with an acquisition proposal or any inquiry which
could lead to an acquisition proposal. We have also agreed to keep KeyCorp
fully informed of the status and details of any such acquisition proposal or
similar matters and any developments related thereto.
Despite the general prohibitions discussed above and subject to the
conditions described below, we or our Board of Directors may, at any time
prior to approval of the merger agreement by our shareholders, take the
following actions:
* provide information in response to a request from a person who has
made an unsolicited bona fide written acquisition proposal;
* engage in negotiations with such a person; or
* recommend such an unsolicited bona fide written acquisition
proposal.
We or the Board may take these actions only if:
* the Board determines in good faith after consultation with outside
legal counsel that the action is necessary in order for our
directors to comply with their fiduciary duties under applicable
law;
* that person has executed a customary confidentiality agreement;
* we have made available to KeyCorp the same information being
furnished to that person at substantially the same time that such
information is provided to that person;
* in the case of engaging in negotiations or recommending another
acquisition proposal, our Board of Directors determines in good
faith, after consultation with our financial advisor and outside
counsel, that the acquisition proposal, if accepted, is reasonably
likely to be a superior proposal (as described below); and
* in the case of recommending a superior proposal, we have provided
at least three business days' advance written notice to KeyCorp
that we intend to take action regarding a superior proposal and
have during those three business days negotiated in good faith with
KeyCorp to make adjustments in the terms and conditions of the
merger agreement such that the superior proposal would no longer
constitute a superior proposal.
A "superior proposal" means any acquisition proposal that is not conditioned
upon the ability to obtain financing for not less than 80% of our issued and
outstanding shares or 80% of our consolidated assets that the Board of
Directors determines in good faith is:
25
* superior to our shareholders from a financial point of view and,
taking into account the various aspects of the proposal, including
conditions specified in the merger agreement, a more favorable
transaction than the merger with KeyCorp; and
* at least as likely to be approved and completed as the merger with
KeyCorp.
Except as required by its fiduciary duties in connection with a superior
proposal, our Board of Directors may not withdraw, modify or qualify, in a
manner adverse to KeyCorp, its recommendation of the merger.
Employee Benefits
KeyCorp will provide our employees who continue as employees of KeyCorp
or its subsidiaries with benefits under employee benefit plans (other than
benefits under our equity-based plans) that are substantially comparable in
the aggregate to those provided to similarly situated employees of KeyCorp and
its subsidiaries. KeyCorp will also:
* provide our employees with credit for their service with us prior
to the merger for purposes of eligibility and vesting under the
KeyCorp benefit plans (other than for purposes of benefit accrual
under pension plans or retiree medical plans); and
to the extent practicable:
* waive preexisting condition limitations under its medical, health
and dental plans;
* honor under such plans any deductible, co-payment and out-of-pocket
expenses incurred by our employees; and
* waive any waiting period limitation or evidence of insurability
requirement to the extent the employee had satisfied any similar
limitation or requirement under a comparable benefit plan prior
to the effective time.
KeyCorp has also agreed to provide our employees whose employment is
terminated during the year following the merger under specified circumstances
with agreed-upon severance payments and benefits.
Efforts to Complete the Merger
We and KeyCorp have agreed to cooperate with each other and to use
reasonable best efforts to take all actions and do all things necessary or
advisable to consummate the merger, including by:
* promptly preparing and filing all necessary documentation;
* effecting all necessary applications, notices, petitions, filings
and other documents; and
* obtaining as promptly as practicable all necessary permits,
consents, orders, approvals and authorizations of, and any
exemptions by, all third parties and governmental entities.
We and KeyCorp have also agreed to provide each other an advance
opportunity to review governmental and third party filings and submissions
and, where practicable, to consult with each other in respect of those filings
and submissions. We and KeyCorp have also agreed to give each other notice of
any material events.
Indemnification
KeyCorp has agreed, for a period of six years following the effective
time of the merger, to indemnify each of our and our subsidiaries' present and
former directors and officers with respect to acts or omissions in their
26
capacity as such, against any costs or expenses, judgments, fines, losses,
claims, damages or liabilities incurred in connection with any claim, action,
suit, proceeding or investigation arising out of matters existing or occurring
at or prior to the effective time of the merger, to the fullest extent
permitted by, and subject to any limitation imposed by, applicable law and our
articles of incorporation and bylaws.
KeyCorp has further agreed to provide, for a period of six years after
the effective time of the merger, to persons covered by our existing
directors' and officers' liability insurance policy coverage under the
existing policy (or under a substitute policy providing comparable or better
coverage than our existing policy), subject to a maximum annual premium of
200% of the annual premium we currently pay per year. If KeyCorp is unable to
maintain or obtain such insurance, it will obtain as much comparable insurance
as available for up to 200% of the annual premium we paid per year.
Conditions to the Merger
Our obligation and that of KeyCorp to consummate the merger are subject
to the satisfaction or mutual waiver at or prior to the effective date of the
following conditions, among others:
* the merger agreement shall have been duly approved by EverTrust
shareholders in accordance with Washington law;
* all governmental and regulatory consents, approvals and
authorizations, and all other necessary consents to complete the
merger shall have been obtained; and
* no provision of any applicable law or regulation and no judgment,
injunction or decree shall prohibit the completion of the merger.
In addition, the obligation of KeyCorp to complete the merger is subject
to the satisfaction or waiver by KeyCorp of the following conditions:
* our representations and warranties in the merger agreement shall,
subject to materiality qualifiers, be true and correct as of the
effective time of the merger (except that representations and
warranties that speak specifically as of the date of the merger
agreement or some other date shall be true and correct as of that
date);
* the performance by us, in all material respects, of our obligations
under the merger agreement, including obtaining all necessary third
party approvals and consents (other than the regulatory approvals
described above); and
* that we have satisfied KeyCorp of our compliance with Section 404
of the Sarbanes-Oxley Act of 2002 (concerning our internal controls
over financial reporting).
In addition, our obligation to complete the merger is subject to the
satisfaction or waiver by us of the following conditions:
* the representations and warranties of KeyCorp in the merger
agreement shall, subject to materiality qualifiers, be true and
correct as of the effective time of the merger (except that
representations and warranties that speak specifically as of the
date of the merger agreement or some other date shall be true and
correct as of that date); and
* the performance by KeyCorp, in all material respects, of its
obligations under the merger agreement.
For a complete description of all of the conditions to the obligations of
the parties to effect the merger, see Article V of the merger agreement, which
is attached to this proxy statement as Appendix A.
27
Representations and Warranties
We and KeyCorp have made certain customary representations and warranties
to each other relating to our business. For more information on these
representations and warranties, please refer to the merger agreement, which is
attached to this proxy statement as Appendix A. A condition to KeyCorp's
obligation to consummate the merger is that our representations and warranties
must be true and correct as of the effective time of the merger (except that
representations and warranties that speak specifically as of the date of the
merger agreement or some other date shall be true and correct as of that
date), subject to materiality qualifiers. See "-Conditions to the Merger."
Our customary representations and warranties in the merger agreement
include, but are not limited to, those relating to:
* our corporate existence, capitalization and authorization to enter
into the merger agreement;
* government filings required in connection with the merger;
* absence of violations of our articles of incorporation and bylaws,
applicable laws and certain contracts, and absence of the creation
of any lien as a result of entering into the merger agreement
and completing the merger;
* the accuracy and completeness of our filings with the SEC,
including our financial statements;
* the conduct of our business in the ordinary course and the absence
of any material adverse change;
* litigation, licenses, compliance with law and undisclosed
liabilities;
* material contracts, insurance, environmental matters, taxes,
internal controls and matters relating to property and leases;
* receipt of an opinion of our financial advisor with respect to the
merger consideration;
* employment, noncompetition and retention agreements, trust
administration and owned real estate;
* employee benefit plans and arrangements and labor matters; and
* the non-applicability of anti-takeover statutes.
Many of the representations and warranties we make are qualified by a
material adverse effect standard. A material adverse effect for these
purposes means an effect which:
* is materially adverse to the business, properties, financial
condition or results of operations of us and our subsidiaries,
taken as a whole;
* materially impairs or delays our or KeyCorp's ability to consummate
the merger; or
* enables any person to prevent or impair the consummation of the
merger.
In determining whether a material adverse effect has occurred, any effect to
the extent attributable to or resulting after June 24, 2004 (the date of the
merger agreement) of the following shall be excluded: (i) changes in laws,
regulations or interpretations of laws or regulations generally affecting the
banking or bank holding company businesses; (ii) changes in generally accepted
accounting principles or regulatory accounting requirements generally
affecting the banking or bank holding company businesses; and (iii) events,
conditions or trends in economic, business or financial conditions generally
or affecting the banking or bank holding company businesses specifically.
28
The merger agreement contains customary representations made by KeyCorp
and its wholly-owned subsidiary including but not limited to those relating
to:
* their corporate existence and authorization to enter into the
merger agreement;
* government filings required in connection with the merger;
* absence of violations of their charter documents, applicable laws
and certain contracts and absence of the creation or imposition of
any lien as a result of entering into the merger agreement and
completing the merger;
* absence of brokers and finders; and
* the availability of funds to pay the merger consideration.
The representations and warranties made by KeyCorp and its wholly-owned
subsidiary are qualified by the material adverse effect standard described
above for EverTrust.
The representations and warranties of each of the parties to the merger
agreement will expire upon completion of the merger.
Termination of the Merger Agreement
We or KeyCorp may terminate the merger agreement and abandon the merger
at any time prior to the effective time of the merger (notwithstanding any
approval of the merger agreement by our shareholders) as follows:
* by our and KeyCorp's mutual written consent;
* by either KeyCorp or us if:
* the other party to the merger agreement materially breaches
any representation, warranty, covenant or agreement in the
merger agreement, which breach is not cured or curable
within 45 days after written notice is given and would cause
certain conditions to consummation of the merger agreement
not to be satisfied;
* any required governmental approval has been denied or any
governmental entity issues a final, unappealable ordering
prohibiting the merger; or
* the merger is not consummated by March 31, 2005, unless the
failure to consummate the merger is due to the breach of any
representation, warranty or covenant of the party seeking to
terminate.
* by KeyCorp if:
* our Board of Directors withdraws or adversely modifies in a
manner adverse to KeyCorp its approval of the merger agreement
or its recommendation to our shareholders to approve the
merger agreement and the merger;
* we have failed to substantially comply with our obligations
with respect to the solicitation of other acquisition
proposals or our Board of Directors recommends or endorses a
competing acquisition proposal; or
29
* one of the environmental assessments required by the merger
agreement on our owned real property is not acceptable to
KeyCorp and the clean up or other costs exceed $500,000 for an
individual property or $1.0 million in the aggregate.
Expenses and Termination Fee
Except as otherwise provided in the merger agreement, KeyCorp and
EverTrust will each pay their own expenses in connection with the merger. In
addition:
* if the merger agreement is terminated because (i) the merger is not
consummated by March 31, 2005, (ii) our Board of Directors does not
continue to recommend that you adopt the merger agreement,
withdraws its recommendation or modifies its recommendation in a
manner adverse to KeyCorp or (iii) our shareholders do not approve
the merger agreement or the special meeting of shareholders to
adopt the merger agreement is not held;
* if before the merger agreement is terminated, we receive an
acquisition proposal that is made public or violates the merger
agreement, or we violate our obligations in the merger agreement
regarding acquisition proposals by other parties or our obligation
to obtain shareholder approval of the merger agreement; and
* prior to 15 months after termination of the merger agreement, we
consummate an acquisition proposal or enter into a definitive
agreement or letter of intent with respect to an acquisition
proposal;
we must pay KeyCorp a termination fee of $9.75 million.
We are also required to pay KeyCorp a termination fee of $9.75 million if
KeyCorp terminates the merger agreement because:
* we recommend or endorse an acquisition proposal by another party;
or
* our Board of Directors does not continue to recommend that you
vote to approve the merger agreement, withdraws its recommendation
or modifies its recommendation in a manner adverse to KeyCorp.
In no event will we be required to pay termination fees in excess of $9.75
million in the aggregate.
Amendment of the Merger Agreement
Any part of the merger agreement may be amended or waived prior to
completion of the merger, but after shareholder approval any amendment to the
kind of consideration or to decrease the amount of consideration to be paid to
shareholders would require further shareholder approval.
Accounting Treatment
KeyCorp will account for the merger under the purchase method of
accounting. This means that KeyCorp and EverTrust will be treated as one
company as of the date of the merger and KeyCorp will record the fair market
value of EverTrust's assets less liabilities on its financial statements.
KeyCorp will record any difference between the purchase price and the fair
value of EverTrust's identifiable net assets as goodwill.
PRINCIPAL HOLDERS OF EVERTRUST COMMON STOCK
The following table provides information regarding ownership of EverTrust
common stock as of August 13, 2004, by beneficial owners of more than 5% of
the outstanding shares of EverTrust common stock, each director,
30
each named executive officer and all directors and executive officers of
EverTrust and EverTrust Bank as a group. SEC regulations state that "named
executive officers" include all individuals serving as chief executive officer
during the last completed fiscal year, regardless of compensation level, and
the four most highly compensated executive officers, other than the chief
executive officer, whose total annual salary and bonus for the last completed
fiscal year exceeded $100,000 and who were serving as executive officers at
the end of the last fiscal completed year.
Number of Shares Percent of Shares
Name Beneficially Owned (1) Outstanding
- -------------------------------- ---------------------- ------------------
Beneficial Owners of More Than 5%
Private Capital Management, Inc., 545,507 7.87%
Bruce S. Sherman and Gregg J.
Powers (2)
8889 Pelican Bay Boulevard
Naples, Florida 34108
Michael B. Hansen (3)(4) 449,712 6.49
P.O. Box 569
Everett, Washington 98205
Directors
Margaret B. Bavasi 85,773 1.24%
Thomas R. Collins 98,933 1.43
Thomas J. Gaffney 100,712 1.45
R. Michael Kight 87,545 1.26
Louis H. Mills 64,621 0.93
George S. Newland 81,625 1.18
William J. Rucker 103,370 1.49
Robert G. Wolfe 51,121 0.74
Named Executive Officers
Michael B. Hansen (3)(4) 449,712 6.49
Michael R. Deller (4) 193,809 2.80
Robert L. Nall (5) 69,079 1.00
Lorelei Christenson (6) 156,007 2.25
Jeffrey R. Mitchell (7) 151,426 2.18
All Executive Officers and
Directors as a Group (14 persons) 1,693,733 24.43
- --------------
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
as amended, a person is deemed to be the beneficial owner, for purposes
of this table, of any shares of common stock if he or she has voting
and/or investment power with respect to such security. The table
includes shares owned by spouses, other immediate family members in
trust, shares held in retirement accounts or funds for the benefit of the
named individuals, and other forms of ownership, over which shares the
persons named in the table may possess voting and/or investment power.
Shares held in accounts under the ESOP, as to which the holders have
voting power but not investment power, are included as follows: Mr.
Hansen, 12,927 shares; Mr. Deller, 10,348 shares; Ms. Christenson, 7,111
shares; Mr. Nall, 6,525 shares; and Mr. Mitchell, 7,093 shares; all
executive officers and directors as a group, 44,004 shares. Shares of
restricted stock awarded under EverTrust's 2000 Management Recognition
Plan, as to which the holders have voting power but not investment power,
are included as follows: Mrs. Bavasi, 4,162 shares; Mr. Collins, 4,162
shares; Mr. Gaffney, 4,519 shares; Mr. Kight, 4,885 shares; Mr.
31
Mills, 1,500 shares; Mr. Newland, 4,519 shares; Mr. Rucker, 4,884 shares;
Mr. Wolfe, 1,500 shares; Mr. Hansen, 24,801 shares; Mr. Deller, 10,783
shares; Mr. Nall, 5,475 shares; Ms. Christenson, 14,017 shares; and Mr.
Mitchell, 10,783 shares; all executive officers and directors as a group,
95,991 shares. The amounts shown also include the following number of
shares which the indicated individuals have the right to acquire within
60 days of the August 13, 2004 record date through the exercise of stock
options granted pursuant to EverTrust's 2000 Stock Option Plan: Mrs.
Bavasi, 46,876 shares; Mr. Collins, 48,121 shares; Mr. Gaffney, 48,121
shares; Mr. Kight, 48,121 shares; Mr. Mills, 48,121 shares; Mr. Newland,
28,873 shares; Mr. Rucker, 48,121 shares; Mr. Wolfe, 48,121 shares; Mr.
Hansen, 269,587 shares; Mr. Deller, 119,442 shares; Mr. Nall, 23,938
shares; Ms. Christenson, 67,396 shares; and Mr. Mitchell, 91,656 shares;
all executive officers and directors as a group, 928,994 shares.
(2) Based on an amended Schedule 13G filed with the SEC on February 13, 2004.
(3) Includes the amounts detailed in footnote 1 received from the ESOP, the
Management Recognition Plan and the Stock Option Plan, as well as 19,037
shares held in EverTrust's 401(k) Profit Sharing Plan and Trust. Also
includes 19,500 shares held jointly by Mr. Hansen and his spouse and
4,650 shares held in Mr. Hansen's spouse's individual retirement account,
of which Mr. Hansen is deemed to have beneficial ownership.
(4) Messrs. Hansen and Deller are also directors of EverTrust.
(5) Includes 381 shares owned by Mr. Nall's spouse's individual retirement
account.
(6) Includes 7,500 shares owned by Ms. Christenson's spouse's individual
retirement account.
(7) Includes 909 shares owned by Mr. Mitchell's spouse's individual
retirement account.
MARKET PRICE AND DIVIDEND DATA FOR EVERTRUST'S COMMON STOCK
EverTrust's common stock is traded on the Nasdaq National Market under
the symbol "EVRT." As of August 13, 2004, there were 6,932,848 shares of
common stock outstanding and approximately 1,789 shareholders of record,
excluding persons or entities who hold stock in nominee or "street name"
accounts with brokers. In December 2003, EverTrust's Board of Directors
approved a three-for-two stock split effective in January 2004. All share
numbers, prices, earnings per share amounts and dividends paid have been
restated to reflect the stock split.
The following table sets forth the market price range of EverTrust's
common stock and the quarterly cash dividends declared per share for the
periods indicated, as reported on the Nasdaq National Market.
Year Fiscal Quarter High Low Dividends
------ -------------- ------- ------- ---------
2005 First Quarter $25.420 $15.990 $0.110
2004 First Quarter $16.853 $15.133 $0.080
Second Quarter 19.433 15.267 0.100
Third Quarter 21.333 17.613 0.110
Fourth Quarter 21.173 17.700 0.110
2003 First Quarter $12.773 $11.667 $0.077
Second Quarter 13.660 11.033 0.077
Third Quarter 14.820 11.900 0.077
Fourth Quarter 15.987 14.273 0.080
On June 24, 2004, the last trading day prior to the joint announcement by
KeyCorp and EverTrust that they had entered into the merger agreement, the
closing per share sales price of EverTrust common stock was $19.96. On August
12, 2004, which is the last practicable date prior to the printing of this
proxy statement, the closing price for the EverTrust common stock was $25.40.
FORWARD-LOOKING STATEMENTS
This proxy statement, including information incorporated by reference,
contains, and future filings by EverTrust on Form 10-K, Form 10-Q and Form 8-K
and future oral and written statements and press releases by
32
EverTrust and its management may contain, forward-looking statements about
EverTrust which we believe are within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include,
without limitation, statements with respect to anticipated future operating
and financial performance, including revenue creation, lending origination,
operating efficiencies, loan sales, charge-offs and loan loss provisions,
deposits and refinancing of liabilities, growth opportunities, interest rates,
acquisition and divestiture opportunities and synergies, and efficiencies.
These forward-looking statements are based on currently available competitive,
financial and economic data and management's views and assumptions regarding
future events. These forward-looking statements are inherently uncertain, and
investors must recognize that actual results may differ from those expressed
or implied in the forward-looking statements. Accordingly, EverTrust cautions
readers not to place undue reliance on any forward-looking statements, which
speak only as of the date of this document or the date of any document
incorporated by reference in this document.
Many of these forward-looking statements appear throughout this proxy
statement. Words such as may, could, should, would, believe, anticipate,
estimate, expect, intend, plan and similar expressions are intended to
identify these forward-looking statements. The important factors discussed
below, as well as other factors discussed elsewhere in this document and
factors identified in our filings with the SEC and those presented elsewhere
by our management from time to time, could cause actual results to differ
materially from those indicated by the forward-looking statements made in this
document. Among the factors that could cause our actual results to differ from
these forward-looking statements are:
* the strength of the U.S. economy in general and the strength of the
local economies in which we conduct our operations; general
economic conditions, either nationally or regionally, may be less
favorable than expected, resulting in, among other things, a
deterioration in the credit quality of our loans and leases and
other assets;
* the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Federal Reserve;
* financial markets, monetary and interest rate fluctuations,
particularly the relative relationship of short-term interest rates
to long-term interest rates;
* the timely development of and acceptance of new products and
services of EverTrust and the perceived overall value of these
products and services by users, including the features, pricing and
quality compared to competitors' products and services;
* the impact of changes in financial services laws and regulations
(including laws and regulations concerning taxes, accounting
standards, banking, securities and insurance); legislative or
regulatory changes may adversely affect the business in which we
are engaged;
* the impact of technological changes;
* the availability of new acquisitions, joint ventures and alliance
opportunities that build shareholder value;
* changes in consumer spending and saving habits; and
* our success at managing the risks involved in the foregoing.
EverTrust disclaims any obligation to update or revise any
forward-looking statements based on the occurrence of future events, the
receipt of new information, or otherwise.
33
WHERE YOU CAN FIND MORE INFORMATION
EverTrust files annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy such reports,
statements and information at the SEC's public reference room in Washington,
D.C. You can request copies of these documents, upon payment of a duplicating
fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference room. Reports, proxy
statements and other information filed by EverTrust are also available on the
Internet at the SEC's website at http://www.sec.gov.
The SEC allows EverTrust to "incorporate by reference" information into
this proxy statement, which means that EverTrust can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be a part of
this proxy statement, except for any information superseded by information
contained directly in the proxy statement or in later filed documents
incorporated by reference in this proxy statement. This document incorporates
by reference the following documents that EverTrust has filed with the SEC:
1. EverTrust's Annual Report on Form 10-K for the year ended March
31, 2004;
2. EverTrust's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2004; and
3. EverTrust's Current Report on Form 8-K dated June 25, 2004.
EverTrust incorporates by reference additional documents that it may file
with the SEC between the date of this proxy statement and the date of the
special meeting or, if sooner, the termination of the merger agreement. These
include periodic reports, such as Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as well as proxy statements.
Documents incorporated by reference are available from EverTrust without
charge, excluding all exhibits unless specifically incorporated by reference
as an exhibit to this proxy statement. Shareholders of EverTrust may obtain
documents incorporated by reference in this proxy statement by requesting them
in writing or by telephone from Lorelei Christenson, Corporate Secretary,
EverTrust Financial Group, Inc., 2707 Colby Avenue, Suite 600, Everett,
Washington 98201; telephone number: (425) 258-3645. In order to ensure timely
delivery of the documents, any request should be made by September 9, 2004.
KeyCorp has supplied all information contained or incorporated by
reference in this proxy statement relating to KeyCorp and EverTrust has
supplied all information contained in this proxy statement relating to
EverTrust.
You should rely only on the information contained or incorporated by
reference in this proxy statement to vote your shares at the special meeting.
We have not authorized anyone to provide you with information that differs
from that contained in this proxy statement. This proxy statement is dated
August 20, 2004. You should not assume that the information contained in this
proxy statement is accurate as of any date other than that date, and the
mailing of this proxy statement to shareholders should not create any
implication to the contrary.
SHAREHOLDER PROPOSALS
In the event that the merger is not approved by shareholders at the
special meeting, EverTrust expects it would hold its 2005 annual meeting of
shareholders in July 2005. Any proposal intended to be presented by any
shareholder for action at the 2005 annual meeting of shareholders must have
been received by the Corporate Secretary of EverTrust at EverTrust's main
office at 2707 Colby Avenue, Suite 600, Everett, Washington 98201, no later
than February 16, 2005 in order to be eligible for inclusion in EverTrust's
proxy materials for the 2005 annual meeting of shareholders. Any such
proposals shall be subject to the requirements of the proxy rules adopted
under the Securities Exchange Act of 1934, as amended.
34
If a shareholder wishes to present a proposal at EverTrust's annual
meeting, the shareholder must give advance notice to EverTrust not less than
30 nor more than 60 days prior to the meeting unless less than 31 days notice
of the meeting is given to shareholders, in which case the shareholder must
give notice to EverTrust within ten days after disclosure of the meeting date.
EverTrust's Articles of Incorporation specifies the information that must
accompany notice of a shareholder proposal. Copies of the Articles of
Incorporation may be obtained from the Corporate Secretary of EverTrust.
35
APPENDIX A
- ------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated as of June 24, 2004
among
KEYCORP,
KC SUBSIDIARY, INC.
and
EVERTRUST FINANCIAL GROUP, INC.
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
RECITALS
A. Acquiror A-1
B. Acquiror Sub A-1
C. Company A-1
D. Approvals A-1
E. Retention Agreements A-1
ARTICLE I
The Merger
1.1 The Merger A-1
1.2 Directors of the Surviving Corporation A-2
1.3 Officers of the Surviving Corporation A-2
1.4 Effective Time A-2
1.5 Closing A-2
ARTICLE II
Conversion or Cancellation of Shares; Options and Other Stock-Based Awards
2.1 Conversion or Cancellation of Shares A-2
2.2 Exchange of Old Certificates; Payment of the Consideration A-3
2.3 Options and Other Stock-Based Awards A-4
2.4 Dissenting Shareholders A-4
ARTICLE III
Representations and Warranties
3.1 Disclosure Letter A-4
3.2 Standards A-5
3.3 Representations and Warranties of Company A-5
3.4 Representations and Warranties of Acquiror and Acquiror Sub A-14
ARTICLE IV
Covenants
4.1 Conduct of Business Pending the Effective Time. A-15
4.2 Dividends A-17
4.3 Acquisition Proposals A-17
4.4 Stockholder Approval A-19
4.5 Filings; Other Actions A-19
4.6 Information Supplied A-20
4.7 Access and Investigations A-20
4.8 Certain Modifications; Restructuring Charges A-21
4.9 Takeover Laws A-21
4.10 Conversion of Options A-21
4.11 Benefit Plans A-22
4.12 Indemnification and Insurance A-23
A-i
4.13 Publicity A-24
4.14 Reasonable Best Efforts; Additional Agreements A-24
4.15 Notification of Certain Matters A-24
4.16 Expenses A-24
4.17 Section 16(b) Exemption A-24
4.18 Compliance with Sarbanes-Oxley Requirements A-25
4.19 Environmental Assessments A-25
ARTICLE V
Conditions
5.1 Conditions to Each Party's Obligation to Effect the Merger A-26
5.2 Conditions to Obligation of Acquiror A-26
5.3 Conditions to Obligation of Company A-26
ARTICLE VI
Termination
6.1 Termination A-27
6.2 Fee A-28
6.3 Effect of Termination and Abandonment A-28
ARTICLE VII
Miscellaneous
7.1 Survival A-28
7.2 Modification or Amendment A-28
7.3 Waiver of Conditions A-28
7.4 Counterparts A-29
7.5 Governing Law A-29
7.6 Notices A-29
7.7 Entire Agreement, Etc A-29
7.8 Definition of "subsidiary" and "affiliate"; Covenants with
Respect to Subsidiaries and Affiliates A-29
7.9 Interpretation; Effect A-30
7.10 No Third Party Beneficiaries A-30
7.11 Waiver of Jury Trial A-30
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INDEX OF DEFINED TERMS
Location of
Term Definition
Acquiror Preamble
Acquiror Common Stock Recital A
Acquiror Sub Preamble
Acquisition Proposal 4.3(a)
Acquisition Proposal Interest 4.3(a)
affiliate 7.8
Agreement Preamble
Benefit Plans 3.3(o)(i)
BHC Act 3.3(e)(i)
Certificates of Merger 1.4(a)
Change in Company's Recommendation 4.3(c)
Charter 1.1(c)
Closing 1.5
Closing Date 1.5
Company Preamble
Company Common Stock Recital C
Company Insiders 4.17
Company Meeting 4.4
Company Option 2.3(a)
Company Preferred Stock Recital C
Company Section 16 Information 4.17
Confidentiality Agreement 4.3(b)
Consideration 2.1(a)
Contracts 3.3(e)(ii)
DGCL 1.1(b)
Disclosure Letter 3.1
Dissenters' Shares 2.1(a)
Effective Time 1.4(a)
Environmental Assessments 4.19(ii)
Environmental Laws 3.3(p)
ERISA 3.3(o)(i)
ERISA Affiliate 3.3(o)(iii)
ERISA Plans 3.3(o)(ii)
Exception Shares 2.1(a)
Exchange Act 3.3(e)(i)
FDIC 3.3(h)(iii)
Federal Reserve Board 3.3(e)(i)
Financial Statements 3.3(f)(iii)
Governmental Entity 3.3(e)(i)
HSR 3.3(e)(i)
Indemnified Party 4.12(a)
Internal Revenue Code 3.3(j)(vi)
IRS 3.3(o)(ii)
Liens 3.3(c)(v)
Material Adverse Effect 3.2(b)
Maximum Amount 4.12(b)
Merger 1.1(a)
New Option 4.10(a)
NYSE 4.10(a)
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Old Certificate 2.1(c)
Old Share 2.1(c)
Option Consent 2.3(b)
Option Conversion Ratio 4.10(a)
Owned Real Property 3.3(w)
Payment Agent 2.2(a)
PBGC 3.3(o)(iii)
Pension Plan 3.3(o)(ii)
Person 2.2(b)
Phase I Assessments 4.19(i)
Phase II Assessments 4.19(ii)
Proxy Statement 4.5
Regulatory Approvals 3.3(e)(i)
Reports 3.3(f)(i)
Representatives 4.3(a)
Rights 3.3(c)(iv)
SEC 3.3(f)(i)
Securities Act 3.3(f)(i)
Securities Laws 3.3(f)(i)
SOX 404 4.18
subsidiary 7.8
Superior Proposal 4.3(b)
Surviving Corporation 1.1(a)
Takeover Laws 3.3(d)(ii)
Tax 3.3(j)
Termination Date 6.1(d)
WBCA 1.1(b)
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AGREEMENT AND PLAN OF MERGER, dated as of June 24, 2004, (this
"Agreement"), among KEYCORP ("Acquiror"), KC SUBSIDIARY, INC. ("Acquiror Sub")
and EVERTRUST FINANCIAL GROUP, INC. ("Company").
RECITALS
A. Acquiror. Acquiror is an Ohio corporation with its principal
executive offices located in Cleveland, Ohio. Acquiror has (i) 1,400,000,000
authorized shares of common stock, par value $1.00 per share ("Acquiror Common
Stock"), of which not more than 410,335,022 shares were outstanding as of
April 30, 2004, together with the rights issued pursuant to the Restated
Rights Agreement, dated as of May 15, 1997, between Acquiror and KeyBank
National Association, as Rights Agent; and (ii) 25,000,000 authorized shares
of preferred stock, par value $1.00 per share, of which no shares were
outstanding as of April 30, 2004.
B. Acquiror Sub. Acquiror Sub is a Delaware corporation and a
wholly owned subsidiary of Acquiror that has been organized for the purpose of
effecting the Merger (as defined below). As of the date hereof, Acquiror Sub
has 1,000 authorized shares of common stock, par value $0.001 per share.
C. Company. Company is a Washington corporation with its principal
executive offices located in Everett, Washington. As of the date hereof,
Company has (i) 49,000,000 authorized shares of common stock, with no par
value per share ("Company Common Stock"), of which not more than 6,892,660
shares are outstanding; and (ii) 1,000,000 authorized shares of preferred
stock, with no par value per share ("Company Preferred Stock"), of which no
shares are outstanding.
D. Approvals. The Board of Directors of each of Acquiror and
Company has (i) determined that this Agreement and the transactions
contemplated hereby are advisable and in the best interests of Acquiror and
Company, respectively, and in the best interests of their respective
stockholders, (ii) determined that this Agreement and the transactions
contemplated hereby are consistent with, and in furtherance of, its respective
business strategies and (iii) authorized and approved this Agreement.
E. Retention Agreements. Simultaneously with the execution and
delivery of this Agreement, Acquiror is entering into contingent retention
agreements with Robert L. Nall and John Williams.
NOW, THEREFORE, in consideration of their mutual promises and
obligations, the parties hereto approve, adopt and make this Agreement and
Plan of Merger and prescribe the terms and conditions hereof and the manner
and mode of carrying it into effect, which are as follows:
ARTICLE I
The Merger
1.1 The Merger. (a) Subject to the terms and conditions of this
Agreement, at the Effective Time (as hereinafter defined), Acquiror Sub shall
merge with and into Company (the "Merger"), and the separate corporate
existence of Acquiror Sub shall thereupon cease. Company shall be the
surviving corporation in the Merger (hereinafter sometimes referred to as the
"Surviving Corporation") and shall continue to be governed by the laws of the
State of Washington. Acquiror may at any time prior to the Effective Time
change the method of effecting the combination of Company and Acquiror Sub
(including the provisions of this Article I) if and to the extent it deems
such change to be necessary, appropriate or desirable; provided, however, that
no such change shall (i) alter or change the Consideration (as hereinafter
defined), (ii) adversely affect the tax treatment of Acquiror's stockholders
or Company's stockholders pursuant to this Agreement, (iii) adversely affect
the tax treatment of Company or Acquiror pursuant to this Agreement or (iv)
materially impede or delay consummation of the transactions contemplated by
this Agreement. In the event Acquiror makes such a change, Company agrees to
execute an appropriate amendment to this Agreement in order to reflect such
change.
(b) The Merger shall have the effects specified in this Agreement
and the Washington Business Corporation Act (the "WBCA") and the Delaware
General Corporation Law (the "DGCL").
(c) The articles of incorporation of Company as in effect
immediately prior to the Effective Time shall be the articles of incorporation
of the Surviving Corporation (the "Charter"), until thereafter amended as
provided therein or by applicable law, except that Article IV of the Charter
shall be amended to read in its entirety as follows: "The aggregate number of
shares that the Company shall have the authority to issue is one thousand
(1,000) shares of common stock, par value $0.001 per share."
(d) The by-laws of Acquiror Sub in effect at the Effective Time
shall be the bylaws of the Surviving Corporation, until thereafter amended as
provided therein or by applicable law.
1.2 Directors of the Surviving Corporation. Immediately after the
Effective Time, the directors of the Surviving Corporation shall consist of
the directors of Acquiror Sub in office immediately prior to the Effective
Time, until their respective successors are duly elected and qualified.
1.3 Officers of the Surviving Corporation. Immediately after the
Effective Time, the officers of the Surviving Corporation shall consist of the
officers of Acquiror Sub in office immediately prior to the Effective Time.
1.4 Effective Time. (a) Subject to the terms and conditions of
this Agreement, on or before the Closing Date (as hereinafter defined),
Acquiror will cause certificates of merger to be filed with the Office of the
Secretary of State of the State of Washington as provided in Section
23B.11.050 of the WBCA and with the Office of the Secretary of State of the
State of Delaware as provided in Section 251 of the DGCL (together, the
"Certificates of Merger"). The Merger shall become effective at such time as
the Certificates of Merger have been filed, or at such other time as may be
specified therein. The date and time at which the Merger becomes effective is
herein referred to as the "Effective Time".
(b) Acquiror and Company each will use reasonable best efforts to
cause the Effective Time to occur on the last day of the month in which the
satisfaction or waiver of the last of the conditions specified in Sections
5.1(a) and (b) and 5.2(c) and (e) of this Agreement has occurred; provided,
however, that if the Effective Time would occur less than three business days
after the satisfaction or waiver of the conditions described above, Acquiror
and Company will cause the Effective Time to occur on the last day of the
immediately following month (except that, if the immediately following month
is December 2004, Acquiror and Company will cause the Effective Time to occur
on December 15, 2004). Notwithstanding anything to the contrary in this
Section 1.4(b), Acquiror and Company may cause the Effective Time to occur on
such earlier or later day following the satisfaction or waiver of such
conditions as they may agree, consistent with the provisions of the WBCA and
the DGCL.
1.5 Closing. The closing of the Merger (the "Closing") shall take
place at the offices of Sullivan & Cromwell LLP in The City of New York, at
such time as Acquiror and Company shall agree, on the date when the Effective
Time is to occur (the "Closing Date").
ARTICLE II
Conversion or Cancellation of Shares;
Options and Other Stock-Based Awards
2.1 Conversion or Cancellation of Shares. At the Effective Time,
by virtue of the Merger and without any action on the part of any stockholder:
(a) Company Common Stock. Each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time, other than
Exception Shares, shall be converted into and
A-2
constitute the right to receive consideration of $25.6016 in cash (the
"Consideration"). "Exception Shares" means shares of Company Common Stock (i)
owned or held, other than in a bona fide fiduciary or agency capacity or in
satisfaction of a debt previously contracted in good faith, by Company or by
Acquiror or (ii) the holders of which have perfected and not withdrawn or lost
their dissenters' rights with respect to such shares under Chapter 23B.13 of
the WBCA ("Dissenters' Shares").
(b) Acquiror Sub Common Stock. Each share of Acquiror Sub common
stock outstanding immediately prior to the Effective Time shall be converted
into one validly issued, fully paid and nonassessable share of common stock,
par value $0.001 per share, of the Surviving Corporation.
(c) Rights as Stockholders; Stock Transfers. Each Exception Share
shall cease to be outstanding, shall be canceled and retired and shall cease
to exist, and no consideration shall be delivered in exchange therefor. Each
share of Company Common Stock issued and outstanding immediately prior to the
Effective Time, other than Exception Shares, is hereinafter defined as an "Old
Share". Old Shares shall cease to be outstanding, shall be canceled and
retired and shall cease to exist, and each holder of a certificate (an "Old
Certificate") formerly representing Old Shares shall thereafter cease to have
any rights with respect to such shares, except the right to receive, as
applicable, without interest, upon exchange of such Old Certificate in
accordance with this Article II (i) any dividends with respect to Company
Common Stock with a record date prior to the Effective Time but unpaid as of
the Effective Time and (ii) the Consideration.
2.2 Exchange of Old Certificates; Payment of the Consideration.
(a) Appointment of Payment Agent. Until the first anniversary of
the Effective Time, Acquiror shall make available on a timely basis or cause
to be made available to a payment agent agreed upon by Acquiror and Company
(the "Payment Agent") cash in an amount sufficient to allow the Payment Agent
to make all payments that may be required in exchange for Old Certificates
pursuant to this Article II. Upon such anniversary, any such cash remaining
in the possession of the Payment Agent (together with any earnings in respect
thereof) shall be delivered to Acquiror. Any holder of Old Certificates who
has not theretofore exchanged his or her Old Certificates for the
Consideration pursuant to this Article II shall thereafter be entitled to look
exclusively to Acquiror, and only as a general creditor thereof, for the
Consideration to which he or she may be entitled upon exchange of such Old
Certificates pursuant to this Article II. Notwithstanding the foregoing,
neither the Payment Agent nor any party hereto, shall be liable to any holder
of Old Certificates for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(b) Exchange Procedures. Promptly after the Effective Time, but in
no event later than ten days thereafter, Acquiror shall cause the Payment
Agent to mail or deliver to each individual, bank, corporation, partnership,
trust, association or other entity or organization (a "Person") who was,
immediately prior to the Effective Time, a holder of record of Company Common
Stock a form of letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to Old Certificates shall pass, only
upon proper delivery of such certificates to the Payment Agent) containing
instructions for use in effecting the surrender of Old Certificates in
exchange for the Consideration. Upon surrender to the Payment Agent of an Old
Certificate for cancellation together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, the holder
of such Old Certificate shall promptly be provided in exchange therefor, but
in no event later than ten business days after due surrender, a check in the
amount of the Consideration to which such holder is entitled pursuant to this
Article II, and the Old Certificate so surrendered shall forthwith be
canceled. No interest will accrue or be paid with respect to any property to
be delivered upon surrender of Old Certificates. If any cash payment is to be
made in a name other than that in which the Old Certificate surrendered in
exchange therefor is registered, it shall be a condition of such exchange that
the Person requesting such exchange shall pay any transfer or other taxes
required by reason of the making of such payment of the Consideration in a
name other than that of the registered holder of the Old Certificate
surrendered, or shall establish to the satisfaction of the Surviving
Corporation and the Payment Agent that any such taxes have been paid or are
not applicable.
A-3
(c) Transfers. At or after the Effective Time, there shall be no
transfers on the stock transfer books of the Surviving Corporation of Old
Shares.
(d) Lost, Stolen or Destroyed Certificates. If any Old Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such Old Certificate to be lost, stolen or
destroyed and, if required by the Surviving Corporation or the Payment Agent,
the posting by such Person of a bond in such reasonable amount as the
Surviving Corporation or the Payment Agent may direct as indemnity against any
claim that may be made against it with respect to such Old Certificate, the
Surviving Corporation or the Payment Agent shall, in exchange for such lost,
stolen or destroyed Old Certificate, pay or cause to be paid the Consideration
deliverable in respect of the Old Shares formerly represented by such Old
Certificate pursuant to this Article II.
2.3 Options and Other Stock-Based Awards. (a) Each outstanding
option to purchase shares of Company Common Stock, whether vested or unvested,
exercisable or unexercisable (a "Company Option"), with respect to which
Acquiror has received a duly executed Option Consent (as defined below) prior
to 3:00 p.m. New York time on the business day immediately preceding the
Effective Time, will, without any action on the part of the holder, be
converted at the Effective Time into the right to receive payment at the
Effective Time of an amount in cash equal to the product of (a) the excess of
the Consideration over the exercise price per share, if any, subject to such
Company Option and (b) the number of shares of Company Common Stock subject to
such Company Option immediately prior to the Effective Time; provided that
Acquiror shall be entitled to withhold from such cash payment any amounts
required to be withheld by applicable law. Each Company Option to which this
paragraph applies will be cancelled and shall cease to exist by virtue of such
payment.
(b) Prior to the Effective Time, Company shall take all necessary
actions to effect the foregoing Section 2.3(a), including (1) using best
efforts to obtain prior to ten business days after the Proxy Statement (as
defined below) is mailed to Company shareholders a written consent in form and
substance satisfactory to Acquiror from each Company Option holder, including
consent to the terms of Section 2.3(a) (each, an "Option Consent"), including
employees of Company and its subsidiaries and each of the directors on
Company's Board of Directors, in each case, in their individual capacities,
and (2) obtaining resolutions of Company's Board of Directors and of the board
of directors of any subsidiary of Company or of a duly authorized committee
thereof, as applicable, in form and substance satisfactory to Acquiror, to
effect the foregoing Section 2.3(a).
(c) With respect to any Company Option that Acquiror has not
received a duly executed Option Consent prior to 3:00 p.m. New York time on
the business day immediately preceding the Effective Time, the provisions of
this Section 2.3 shall not apply and shall have no effect and, in lieu
thereof, the provisions of Section 4.10 shall apply.
2.4 Dissenting Shareholders. Dissenters' Shares will be paid for
by or at the direction of Acquiror in accordance with Chapter 23B.13 of the
WBCA. Company shall give Acquiror prompt notice of any notice received by
Company of a shareholder's intent to demand payment for such shareholder's
Company Common Stock, withdrawals of any such notice or demand, and any other
related instruments served pursuant to Chapter 23B.13 of the WBCA and received
by Company. Company shall not, except with the prior written consent of
Acquiror, voluntarily make any payment with respect to any demands for payment
for Dissenters' Shares or offer to settle, or settle, or negotiate in respect
of any such demands.
ARTICLE III
Representations and Warranties
3.1 Disclosure Letter. At least forty-eight hours prior to the
execution and delivery hereof, Company has delivered to Acquiror a letter (its
"Disclosure Letter") setting forth, among other things, items the disclosure
of which is necessary or appropriate either in response to an express
disclosure requirement contained in a
A-4
provision hereof or as an exception to one or more of Company's
representations or warranties contained in Section 3.3 or to one or more of
its covenants contained in Article IV; provided that (a) no such item is
required to be set forth in the Disclosure Letter as an exception to a
representation or warranty if its absence would not result in the related
representation or warranty being deemed untrue or incorrect under the standard
established by Section 3.2, and (b) the mere inclusion of an item in a
Disclosure Letter as an exception to a representation or warranty shall not be
deemed an admission by a party that such item represents a material exception
or fact, event or circumstance or that such item is reasonably likely to
result in a Material Adverse Effect (as hereinafter defined) with respect to
Company.
3.2 Standards. (a) No representation or warranty of any party
hereto contained in Section 3.3 or 3.4, other than:
(i) the representations and warranties in Sections 3.3(a), 3.3(b),
3.3(d), 3.3(e)(ii)(A), 3.3(f)(ii) and (iii), 3.3(g)(i), 3.3(k),
3.3(m), 3.3(o), 3.3(q)(i) and 3.3(u), which shall be true and
correct in all material respects;
(ii) the representations and warranties in Section 3.3(i), when
made as of the date of this Agreement, shall be true and correct in
all material respects; and
(iii) the representations and warranties in Sections 3.3(c) (except
for de minimis errors), 3.3(g)(ii), 3.3(s), 3.3(t) and 3.3(w) which
shall be true and correct in all respects;
shall be deemed untrue or incorrect, and no party hereto shall be deemed to
have breached a representation or warranty, as a consequence of the existence
or absence of any fact, circumstance or event unless such fact, circumstance
or event, individually or taken together with all other facts, circumstances
or events inconsistent with any representation or warranty contained in
Section 3.3 or 3.4, as applicable, has had or is reasonably likely to have a
Material Adverse Effect on such party.
(b) The term "Material Adverse Effect" means an effect which (A) is
materially adverse to the business, properties, financial condition or results
of operations of Acquiror or Company, as the context may dictate, and its
subsidiaries, taken as a whole, (B) materially impairs or delays the ability
of Acquiror or Company to consummate the Merger or (C) enables any Person to
prevent or impair the consummation by Acquiror or Company of the Merger;
provided, however, that in determining whether a Material Adverse Effect has
occurred there shall be excluded any effect to the extent attributable to or
resulting after the date of this Agreement from (i) any changes in laws,
regulations or interpretations of laws or regulations generally affecting the
banking or bank holding company businesses, but not uniquely relating to
Acquiror or Company, (ii) any change in generally accepted accounting
principles or regulatory accounting requirements, generally affecting the
banking or bank holding company businesses, but not uniquely relating to
Acquiror or Company, (iii) events, conditions or trends in economic, business
or financial conditions generally or affecting the banking or bank holding
company businesses specifically, except to the extent any such events,
conditions or trends in economic, business or financial conditions have a
disproportionately adverse effect upon Acquiror or Company, as the context may
dictate, (iv) changes in national or international political or social
conditions including the engagement by the United States in hostilities,
whether or not pursuant to the declaration of a national emergency or war, or
the occurrence of any military or terrorist attack upon or within the United
States, or any of its territories, possessions or diplomatic or consular
offices or upon any military installation, equipment or personnel of the
United States, (v) the effects of the actions contemplated by Section 4.8 and
(vi) changes resulting from transaction expenses, including legal, accounting
and investment bankers' fees incurred in connection with this Agreement.
3.3 Representations and Warranties of Company. Subject to and
giving effect to Sections 3.1 and 3.2 and except as set forth in Company's
Disclosure Letter, Company hereby represents and warrants to Acquiror and
Acquiror Sub, that:
A-5
(a) Corporate Organization and Qualification. It is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation. It is duly qualified to do business as a foreign
corporation in each jurisdiction where the properties owned, leased or
operated or the business conducted by it require such qualification. It has
the requisite corporate power and authority to own or lease its properties and
assets and to carry on its businesses as they are now being conducted. It has
made available to Acquiror a complete and correct copy of its governing
documents, each as amended to the date hereof and as in full force and effect
as of the date hereof.
(b) Subsidiaries. Each of its subsidiaries is duly organized, and
(to the extent applicable) validly existing and in good standing under the
laws of the jurisdiction of incorporation or organization of such subsidiary,
and is duly qualified to do business in each jurisdiction where the property
owned, leased or operated, or the business conducted, by such subsidiary
requires such qualification. Each of its subsidiaries has the requisite
corporate power and authority to own or lease its properties and assets and to
carry on its business as it is now being conducted. A true and complete list
of its direct and indirect subsidiaries as of the date hereof is set forth in
Paragraph 3.3(b) of its Disclosure Letter.
(c) Capital Stock.
(i) The information in Recital C hereof is true and correct.
(ii) As of the date hereof, no shares of its common stock or
preferred stock were held in treasury by it or otherwise owned by it or
its subsidiaries for its own account.
(iii) All the outstanding shares of its common stock, and its
preferred stock, if any, have been duly authorized and validly issued
and are fully paid and nonassessable and were not issued in violation of
any preemptive or similar rights.
(iv) As of the date hereof, except as specifically set forth in
Paragraph 3.3(c)(iv) of its Disclosure Letter (which shall set forth in
detail (including exercise prices) all outstanding (i) stock options,
(ii) stock appreciation rights and (iii) restricted stock) (A) there are
no shares of its common stock or its preferred stock authorized and
reserved for issuance, (B) it does not have any Rights issued or
outstanding with respect to any of its capital stock and (C) no Person
has any Contract or any right or privilege (whether pre-emptive or
contractual) capable of becoming a Right or a Contract for the purchase,
subscription or issuance of any securities of it. As used herein,
"Rights" means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any Person
any right to subscribe for or acquire, or any options, calls or
commitments relating to, or any stock appreciation right or other
instrument the value of which is determined in whole or in part by
reference to the market price or value of, shares of capital stock or
earnings of such Person.
(v) All the outstanding shares of capital stock of each of its
subsidiaries owned by it or a subsidiary of it have been duly authorized
and validly issued and are fully paid and (except, with respect to bank
subsidiaries, as provided in 12 U.S.C. section 55 or under applicable
state law) nonassessable, and are owned by it or a subsidiary of it free
and clear of all liens, pledges, security interests, claims, proxies,
preemptive or subscriptive rights or other encumbrances or restrictions
of any kind or Rights ("Liens").
(d) Corporate Authority and Action.
(i) It has the requisite corporate power and authority and has
taken all corporate action necessary in order to authorize the execution
and delivery of, and performance of its obligations under, this Agreement
and to consummate the Merger, subject only to receipt of the requisite
approval of the holders of at least a two-thirds of the outstanding
shares of Company Common Stock. This Agreement is its valid and legally
binding agreement enforceable in accordance with its terms. Its
stockholders have no
A-6
dissenters' or similar rights in connection with the Merger except
pursuant to Chapter 23B.13 of the WBCA.
(ii) It has taken all action required to be taken by it in order to
exempt this Agreement and the transactions contemplated hereby from, and
this Agreement and the transactions contemplated hereby are exempt from,
the requirements of (A) any "moratorium", "control share", "fair price",
"supermajority", "affiliate transactions", "business combination" or
other state antitakeover laws and regulations (collectively, "Takeover
Laws"), including Chapter 23B.19 of the WBCA, and (B) the provisions of
Article XI, Section A of its articles of incorporation (but subject to
the provisions of Article IV, Section C of its articles of
incorporation). As of the date hereof, its Board of Directors has
unanimously approved the transactions contemplated by this Agreement.
(e) Governmental Filings; No Violations.
(i) Other than the applications, notices, reports and other filings
required to be made by it in connection with the approval of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board")
under the Bank Holding Company Act of 1956, as amended (the "BHC Act)"),
the approval of the Washington State Department of Financial
Institutions, the approval of the Office of the Comptroller of the
Currency under the Bank Merger Act, and the approvals of other federal,
state and local, domestic and foreign authorities regulating financial
institutions; other than as required under the Securities Exchange Act of
1934, as amended (including the rules and regulations thereunder, the
"Exchange Act"), the rules of the National Association of Securities
Dealers, Inc. and other applicable securities exchanges and
self-regulatory organizations and the Hart-Scott-Rodino Antitrust
Improvements Act ("HSR"), and other than as set forth in Paragraph 3.3(e)
of its Disclosure Letter (the "Regulatory Approvals"), no applications,
notices, reports or other filings are required to be made by it with, nor
are any consents, registrations, approvals, permits or authorizations
required to be obtained by it from, any governmental or regulatory
authority, administrative agency, court, commission, self-regulatory
authority, agency, other entity, domestic or foreign, or other body
acting in an adjudicative capacity ("Governmental Entity"), in connection
with the execution, delivery or performance of this Agreement by it and
the consummation by it of the transactions contemplated hereby.
(ii) The execution, delivery and performance of this Agreement does
not and will not, and the consummation by it of any of the transactions
contemplated hereby will not (individually or in conjunction with any
other event), constitute or result in (A) a breach or violation of, or a
default under, its articles of incorporation or by-laws, or the
comparable governing instruments of any of its subsidiaries, or (B) a
breach or violation of, or a default under, or the acceleration of or the
creation of a Lien (with or without the giving of notice, the lapse of
time or both) pursuant to, any provision of any agreement, lease,
contract, note, mortgage, indenture, arrangement or other obligation
(written or oral) ("Contracts") of it or any of its subsidiaries or (C)
subject to the receipt of all Regulatory Approvals, a violation of any
law, rule, ordinance or regulation or judgment, decree, order, award or
governmental or non-governmental permit or license to which it or any of
its subsidiaries is subject, or any change in the rights or obligations
of any party under any of the Contracts.
(f) Reports and Financial Statements.
(i) It has made available to Acquiror each registration statement,
offering circular, report, definitive proxy statement or information
statement filed, used or circulated by it under the Securities Act of
1933, as amended (including the rules and regulations thereunder, the
"Securities Act"), the Exchange Act and state securities and "Blue Sky"
laws (together with the Securities Act and state securities and "Blue
Sky" laws, the "Securities Laws") with respect to periods since December
31, 2001 through the date of this Agreement and will promptly deliver
each such registration statement, offering circular, report, definitive
proxy statement or information statement filed, used or circulated after
the date hereof (collectively, whether filed before or after the date
hereof, its "Reports"), each in the form (including exhibits and any
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amendments thereto) filed with the Securities and Exchange Commission
(the "SEC") (or if not so filed, in the form used or circulated).
(ii) As of their respective dates (and without giving effect to any
amendments or modifications filed after the date of this Agreement), each
of the Reports, including the financial statements, exhibits and
schedules thereto, filed, used or circulated prior to the date hereof
complied (and each of the Reports filed after the date of this Agreement,
will comply) with applicable Securities Laws and did not (or in the case
of Reports filed after the date of this Agreement, will not) contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(iii) Each of its consolidated statements of condition or
balance sheets included in or incorporated by reference into its Reports,
including the related notes and schedules, fairly presented (or, in the
case of Reports prepared after the date of this Agreement, will fairly
present) the consolidated financial position of it and its subsidiaries
as of the date of such statement of condition or balance sheet and each
of the consolidated statements of income, cash flows and changes in
stockholders' equity included in or incorporated by reference into its
Reports, including any related notes and schedules, fairly presented (or,
in the case of Reports prepared after the date of this Agreement, will
fairly present) the consolidated results of operations, retained earnings
and cash flows, as the case may be, of it and its subsidiaries for the
periods set forth therein (subject, in the case of unaudited statements,
to normal year-end audit adjustments), in each case in accordance with
generally accepted accounting principles consistently applied during the
periods involved, except as may be noted therein. Collectively, its
foregoing consolidated statements of condition or balance sheets,
statements of income, cash flows and stockholders' equity are referred to
as its "Financial Statements". Its auditor is independent within the
meaning of generally accepted accounting principles and related rules of
the SEC. It is in compliance with the provisions of the Sarbanes-Oxley
Act of 2002 and the certifications provided and to be provided pursuant
to Sections 302 and 906 thereof are accurate.
(g) Absence of Certain Events and Changes. Since March 31, 2004,
except as disclosed in its Reports filed on or prior to the date hereof, (i)
it and its subsidiaries have conducted their respective businesses only in the
ordinary and usual course of such businesses, and (ii) there has not been any
change or development or combination of changes or developments which,
individually or in the aggregate, has resulted in, or is reasonably likely to
result in, a Material Adverse Effect on it.
(h) Compliance with Laws and Other Matters. Other than as set
forth in Paragraph 3.3(h) of Company's Disclosure Letter, it and each of its
subsidiaries:
(i) is in compliance, in the conduct of its business, with all
applicable federal, state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable thereto or to
the employees conducting such businesses, including the Sarbanes-Oxley
Act of 2002, the Equal Credit Opportunity Act, the Fair Housing Act, the
Community Reinvestment Act, the Home Mortgage Disclosure Act, the Uniting
and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, all other
applicable fair lending laws or other laws relating to discrimination and
the Bank Secrecy Act, and, as of the date hereof, each of its
subsidiaries that is an insured depository institution has a Community
Reinvestment Act rating of "satisfactory" or better and is "well managed"
and "well capitalized", as defined in Regulation Y of the Federal Reserve
Board;
(ii) has all permits, licenses, franchises, certificates of
authority, orders, and approvals of, and has made all filings,
applications, and registrations with, Governmental Entities that are
required in order to permit it or such subsidiary to carry on its
business as currently conducted;
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(iii) has, since December 31, 2000, received no notification or
communication from any Governmental Entity (including the Federal Reserve
Board and any other bank, insurance or securities regulatory authority)
(A) asserting that it or any of its subsidiaries is not in compliance
with any statutes, regulations or ordinances (or indicating, in the
absence of any such assertion, a possible investigation or inquiry with
respect to any of the foregoing), (B) threatening to revoke any permit,
license, franchise, certificate of authority or other governmental
authorization, or (C) threatening or contemplating revocation or
limitation of, or which would have the effect of revoking or limiting,
Federal Deposit Insurance Corporation ("FDIC") deposit insurance;
and
(iv) is not a party to or subject to any order, decree, agreement,
memorandum of understanding or similar arrangement with, or a commitment
letter, supervisory letter or similar submission to, any Governmental
Entity charged with the supervision or regulation of depository
institutions or engaged in the insurance of deposits (including, the
FDIC) or the supervision or regulation of it or any of its subsidiaries
and neither it nor any of its subsidiaries has been advised by any such
Governmental Entity that such Governmental Entity is contemplating
issuing or requesting (or is considering the appropriateness of issuing
or requesting) any such order, decree, agreement, memorandum of
understanding, commitment letter, supervisory letter or similar
submission.
(i) Litigation. Other than as set forth in Paragraph 3.3(i) of
Company's Disclosure Letter, there are no criminal or administrative
investigations or hearings of, before or by any Governmental Entity, or civil,
criminal or administrative actions, suits, claims or proceedings of, before or
by any Person (including any Governmental Entity) pending or, to its
knowledge, threatened, against or affecting it or any of its subsidiaries
(including under the Equal Credit Opportunity Act, the Fair Housing Act, the
Community Reinvestment Act, the Home Mortgage Disclosure Act or any other fair
lending law or other law relating to discrimination, or the Bank Secrecy Act).
(j) Taxes.
(i) All federal, state, local and foreign Tax (as hereinafter
defined) returns, including all information returns, required to be filed
by or on behalf of it or any of its subsidiaries have been timely filed
or requests for extensions have been timely filed and any such extension
has been granted and has not expired, and all such filed returns are
complete and accurate. It has made available to Acquiror true and
correct copies of the United States federal income Tax returns filed by
it or its subsidiaries for each of the two most recent fiscal years ended
on or before March 31, 2003.
(ii) Except as disclosed in its Reports, all Taxes attributable to
it or any of its subsidiaries that are or were due or payable (without
regard to whether such Taxes have been assessed) have been paid in full
or have been adequately provided for on its consolidated balance sheet
and consolidated statement of earnings or income (in accordance with
generally accepted accounting principles).
(iii) As of the date of this Agreement and except as disclosed in
its Reports, there is no outstanding audit examination, deficiency,
refund or other tax litigation or outstanding waivers or agreements
extending the applicable statute of limitations for the assessment or
collection of any Taxes for any period with respect to any Taxes of it or
its subsidiaries. All Taxes due with respect to completed and settled
examinations or concluded litigation relating to it or any of its
subsidiaries have been paid in full or have been recorded on its or such
subsidiary's balance sheet and consolidated statement of earnings or
income (in accordance with generally accepted accounting principles).
(iv) Neither it nor any of its subsidiaries is a party to a Tax
sharing, indemnification or similar agreement, is or has been a member of
an affiliated group filing consolidated or combined tax returns (other
than a group over which it is or was the common parent) or otherwise has
any liability for the Taxes of any party (other than its own Taxes and
those of its subsidiaries).
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(v) The proper and accurate amounts have been withheld from all
employees, creditors, or third parties (and timely paid to the
appropriate Governmental Entity or set aside in an account for such
purposes) for all periods through the Closing Date in compliance with all
Tax withholding provisions of applicable federal, state, local and
foreign laws (including income, social security and employment tax
withholding for all types of compensation).
(vi) Neither it nor any of its subsidiaries has been a party to any
distribution occurring during the last three (3) years in which the
parties to such distribution treated the distribution as one to which
Section 355 of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code") applied.
(vii) Neither it nor any of its subsidiaries is a party to any
"listed transaction" as defined in Treasury Regulation Section
1.6011-4(b)(2).
(viii) No Liens for Taxes exist with respect to it or its
subsidiaries, except for statutory Liens for Taxes not yet due and
payable or that are being contested in good faith and reserved for (in
accordance with generally accepted accounting principles).
(ix) No closing agreements, private letter rulings, technical
advance memoranda or similar agreements or rulings have been entered into
or issued by any taxing authority with respect to it.
(x) It will not be required, as a result of (a) a change in
accounting method for a Tax period beginning on or before the Closing, to
include any adjustment under Section 481(c) of the Code (or any similar
provision of state, local or foreign law) in taxable income for any Tax
period beginning on or after the Closing Date, or (b) any "closing
agreement" as described in Section 7121 of the Code (or any similar
provision of state, local or foreign Tax law), to include any item of
income in or exclude any item of deduction from any tax period beginning
on or after the Closing.
(xi) No tax is required to be withheld pursuant to Section 1445 of
the Code as a result of the transfer contemplated by this Agreement.
The term "Tax" includes any tax or similar governmental charge, impost or levy
(including income taxes, franchise taxes, transfer taxes or fees, stamp taxes,
sales taxes, use taxes, excise taxes, ad valorem taxes, withholding taxes,
employee withholding taxes, worker's compensation, payroll taxes, unemployment
insurance, social security, minimum taxes or windfall profits taxes), together
with any related liabilities, penalties, fines, additions to tax or interest,
imposed by any federal, state or local, domestic or foreign government or
subdivision or agency thereof.
(k) Internal Controls. None of its or its subsidiaries' records,
systems, controls, data or information are recorded, stored, maintained,
operated or otherwise wholly or partly dependent on or held by any means
(including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and
therefrom) are not under the exclusive ownership and direct control of it or
its subsidiaries or accountants except as would not reasonably be expected to
have a materially adverse effect on the system of internal accounting controls
described in the next sentence. It and its subsidiaries have devised and
maintain a system of internal accounting controls sufficient to provide
reasonable assurances regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.
(l) Insurance. It and its subsidiaries are insured with reputable
insurers against such risks and in such amounts as its management reasonably
has determined to be prudent in accordance with industry practices.
(m) Books and Records. Its and its subsidiaries' books and records
have been fully, properly and accurately maintained, and there are no
inaccuracies or discrepancies of any kind contained or reflected therein, and
they fairly present their financial position.
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(n) Labor Matters. Neither it nor any of its subsidiaries is a
party to, or is bound by, any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization, nor
is it or any of its subsidiaries the subject of any proceeding asserting that
it or any such subsidiary has committed an unfair labor practice or seeking to
compel it or such subsidiary to bargain with any labor organization as to
wages or conditions of employment, nor is there any strike involving it or any
of its subsidiaries pending or, to its knowledge, threatened, nor is it aware
of any activity involving its or any of its subsidiaries' employees seeking to
certify a collective bargaining unit or engaging in any other organizational
activity.
(o) Employee Benefits.
(i) Paragraph 3.3(o)(i) of its Disclosure Letter lists all benefit
and compensation plans, contracts, policies or arrangements covering
current or former employees of Company and its subsidiaries and current
or former directors of Company, including "employee benefit plans"
within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and deferred compensation,
stock option, stock purchase, stock appreciation rights, stock based,
incentive and bonus plans (its "Benefit Plans"), and each Benefit Plan
which has received a favorable opinion letter from the Internal Revenue
Service National Office, including any master or prototype plan, has
been separately identified. True and complete copies of all Benefit
Plans, including any trust instruments, insurance contracts and with
respect to any employee stock ownership plan, loan agreements forming a
part of any Benefit Plans, and all amendments thereto have been provided
to Acquiror.
(ii) All Benefit Plans are in compliance with ERISA, the Internal
Revenue Code and other applicable laws. Each Benefit Plan which is
subject to ERISA (the "ERISA Plans") that is an "employee pension benefit
plan" within the meaning of Section 3(2) of ERISA (a "Pension Plan") and
that is intended to be qualified under Section 401(a) of the Code, has
received a favorable determination letter from the Internal Revenue
Service (the "IRS") covering all tax law changes prior to the Economic
Growth and Tax Relief Reconciliation Act of 2001 or has applied to the
IRS for such favorable determination letter within the applicable
remedial amendment period under Section 401(b) of the Code, and Company
is not aware of any circumstances likely to result in the loss of the
qualification of such Plan under Section 401(a) of the Code. Any
voluntary employees' beneficiary association within the meaning of
Section 501(c)(9) of the Code that provides benefits under a Benefit Plan
has (A) received an opinion letter from the IRS recognizing its exempt
status under Section 501(c)(9) of the Code and (B) filed a timely notice
with the IRS pursuant to Section 505(c) of the Code, and Company is not
aware of circumstances likely to result in the loss of such exempt status
under Section 501(c)(9) of the Code. Neither Company nor any of its
subsidiaries has engaged in a transaction with respect to any ERISA Plan
that, assuming the taxable period of such transaction expired as of the
date hereof, could subject Company or any subsidiary to a tax or penalty
imposed by either Section 4975 of the Code or Section 502(i) of ERISA.
Neither Company nor any of its subsidiaries has incurred or reasonably
expects to incur a tax or penalty imposed by Section 4980F of the Code or
Section 502 of ERISA.
(iii) No liability under Subtitle C or D of Title IV of ERISA has
been or is expected to be incurred by Company or any of its subsidiaries
with respect to any ongoing, frozen or terminated "single-employer plan",
within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or the single-employer plan of any entity
which is considered one employer with Company under Section 4001 of ERISA
or Section 414 of the Code (an "ERISA Affiliate"). Company and its
subsidiaries have not incurred and will not incur any withdrawal
liability with respect to a "multiemployer plan", within the meaning of
Section 3(37) of ERISA, under Subtitle E of Title IV of ERISA
(regardless of whether based on contributions of an ERISA Affiliate). No
notice of a "reportable event", within the meaning of Section 4043 of
ERISA for which the 30-day reporting requirement has not been waived or
extended, other than pursuant to Pension Benefit Guaranty Corporation
("PBGC") Reg. Section 4043.66, has been required to be filed for any
Pension Plan or by any ERISA Affiliate within the 12-month period ending
on the date hereof or will be required to be filed in connection with the
transaction contemplated by this Agreement.
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(iv) All contributions required to be made under each Benefit Plan,
as of the date hereof, have been timely made and all obligations in
respect of each Benefit Plan have been properly accrued and reflected in
its Financial Statements. Neither any Pension Plan nor any
single-employer plan of an ERISA Affiliate has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of
the Code or Section 302 of ERISA and no ERISA Affiliate has an
outstanding funding waiver. It is not reasonably anticipated that the
required minimum contributions to any Pension Plan under Section 412 of
the Code will be increased by application of Section 412(l) of the Code.
Neither Company nor any of its subsidiaries has provided, or is required
to provide, security to any Pension Plan or to any single-employer plan
of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code.
(v) Under each Pension Plan that is a single-employer plan, as of
the date hereof, the actuarially determined present value of all "benefit
liabilities", within the meaning of Section 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in such
Pension Plan's most recent actuarial valuation), did not exceed the then
current value of the assets of such Pension Plan.
(vi) As of the date hereof, there is no pending or, to the knowledge
of Company threatened, litigation relating to the Benefit Plans. Neither
Company nor any of its subsidiaries has any obligations for retiree
health and life benefits under any ERISA Plan or collective bargaining
agreement other than as required to comply with Section 4980B of the
Code or Part 6 of Title I of ERISA. Company or its subsidiaries may
amend or terminate any such plan at any time without incurring any
liability thereunder other than in respect of claims incurred prior to
such amendment or termination.
(vii) There has been no amendment to, announcement by Company or
any of its subsidiaries relating to, or change in employee participation
or coverage under, any Benefit Plan which would increase the expense of
maintaining such plan above the level of the expense incurred therefor
for the most recent fiscal year. Neither the execution of this
Agreement, shareholder approval of this Agreement nor the consummation of
the transactions contemplated hereby will (A) entitle any employees of
Company or any of its subsidiaries to severance pay or any increase in
severance pay upon any termination of employment after the date hereof,
(B) accelerate the time of payment or vesting or result in any payment or
funding (through a grantor trust or otherwise) of compensation or
benefits under, increase the amount payable or result in any other
obligation pursuant to, any of the Benefit Plans, (C) limit or restrict
the right of Company or, after the consummation of the transactions
contemplated hereby, Acquiror to merge, amend or terminate any of the
Benefit Plans or (D) result in payments under any of the Benefit Plans
which would not be deductible under Section 162(m) or Section 280G of the
Code.
(p) Environmental Matters. Other than as set forth in Paragraph
3.3(p) of Company's Disclosure Letter, neither the conduct nor operation of it
or its subsidiaries nor any condition of any property presently or previously
owned, leased, used or operated by any of them (including in a fiduciary or
agency capacity), or on which any of them holds a Lien, violates or violated
any Environmental Laws (as hereinafter defined) and no condition exists or has
existed or event has occurred with respect to any of them or any such property
that, with notice or the passage of time, or both, could result in obligations
or liabilities with respect to any of them under any Environmental Laws.
Neither it nor any of its subsidiaries has received any notice from any Person
that it or its subsidiaries or the operation or condition of any property ever
owned, leased, operated, or held as collateral or in a fiduciary capacity by
any of them are or were in violation of or otherwise are alleged to have
liability under any Environmental Laws, including, but not limited to,
responsibility (or potential responsibility) for the cleanup or other
remediation of any pollutants, contaminants, or hazardous or toxic wastes,
substances or materials at, on, beneath, or originating from any such
property. As used herein, "Environmental Laws" means all applicable local,
state and federal environmental, health and safety laws and regulations,
including the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation, and Liability Act, the Clean Water Act,
the Federal Clean Air Act, and the Occupational Safety and Health Act, each as
amended, regulations promulgated thereunder, and state counterparts.
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(q) Agreements.
(i) Except for this Agreement or as may be specifically required or
contemplated by this Agreement or as set forth in Paragraph 3.3(q) of
Company's Disclosure Letter, it and its subsidiaries are not a party to
or bound by (A) any material Contract (as defined in Item 601(b)(10) of
Regulation S-K under the Securities Act) to be performed after the date
hereof that has not been filed with or incorporated by reference in its
Reports filed on or prior to the date hereof; (B) any Contract containing
covenants that limit the ability of it or any of its subsidiaries to
compete in any line of business or with any Person, or that involve any
restriction of the geographic area in which, or method by which, it or
any of its subsidiaries may carry on its business; (C) any Contract that
involves performance of services or delivery of goods or materials to or
by it or any of its subsidiaries of an amount or value in excess of
$100,000; (D) any Contract that was not entered into in the ordinary
course of business and that involves expenditures or receipts of it or
any of its subsidiaries in excess of $100,000; (E) any lease, rental or
occupancy agreement, license, installment and conditional sale agreement
or other Contract affecting the ownership of, leasing of, title to, use
of, or any leasehold or other interest in, any real or personal property
having a value or providing for aggregate payments in excess of $100,000;
(F) any Contract for capital expenditures in excess of $100,000; (G) any
joint venture, partnership or similar Contract providing for the sharing
of profits, losses, costs or liabilities by it or any of its subsidiaries
with any other Person, (H) any agreement providing for the
indemnification by Company or any of its subsidiaries of any Person; (I)
any agreement providing for any future payments that are conditioned, in
whole or in part, on a change of control of Company or any of its
subsidiaries; or (J) any material agreement that contains a "most favored
nation" clause.
(ii) None of it or any of its subsidiaries is, with or without the
giving of notice or lapse of time or both, in default under any material
Contract.
(r) Knowledge as to Conditions. As of the date of this Agreement,
it knows of no reason why the Regulatory Approvals should not be obtained in
time for the Closing to take place prior to the Termination Date.
(s) Fairness Opinion. As of the date of this Agreement, it has
received the written opinion, dated the date of this Agreement, of its
financial advisor, Keefe, Bruyette & Woods, Inc., to the effect that the
Consideration is fair, from a financial point of view, to the holders of
Company Common Stock.
(t) Brokers and Finders. None of it, its subsidiaries or any of
their officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finder's fees in
connection with the transactions contemplated herein, except that it has
retained Keefe, Bruyette & Woods, Inc. as its financial advisor. A true and
correct copy of Company's engagement letter with such financial advisor has
been set forth in Company's Disclosure Letter.
(u) Employment, Noncompetition and Retention Agreements. It has
entered into certain employment agreements, noncompetition agreements and
retention agreements as set forth in Company's Disclosure Letter, each of
which has been duly authorized, executed and delivered by it and none of which
shall be modified, amended or supplemented without the prior written consent
of Acquiror.
(v) Trust Administration. Each subsidiary of Company that acts in
a fiduciary capacity has properly administered all accounts for which it acts
as a fiduciary or agent, including but not limited to 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 and applicable state and federal law and regulation and
common law. Neither Company, any subsidiary of Company, nor any director,
officer, or employee of Company or any of its subsidiaries acting on behalf of
Company or any of its subsidiaries, has committed any breach of trust with
respect to any such fiduciary or agency account, and the accountings for each
such fiduciary or agency account are true and correct and accurately reflect
the assets of such fiduciary or agency account. There is no investigation or
inquiry by any Governmental Entity pending, or to the knowledge of Company,
threatened, against or affecting
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Company or any of its subsidiaries relating to the compliance by Company or
any such subsidiary with sound fiduciary principles and applicable
regulations.
(w) Owned Real Property. As of the date hereof, Paragraph 3.3(w)
of Company's Disclosure Letter contains a true and complete list of each
parcel of real property owned by Company or its subsidiaries, whether by
foreclosure or acquisition of deeds in lieu of foreclosure of mortgages or
otherwise, other than any real property held as "other real-estate owned" or
"OREO" (the "Owned Real Property").
3.4 Representations and Warranties of Acquiror and Acquiror Sub.
Subject to and giving effect to Section 3.2, each of Acquiror and Acquiror Sub
hereby represent and warrant to Company that:
(a) Corporate Organization and Qualification. It is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation. It is duly qualified to do business as a foreign
corporation in each jurisdiction where the properties owned, leased or
operated or the business conducted by it require such qualification. It has
the requisite corporate power and authority to own or lease its properties and
assets and to carry on its businesses as they are now being conducted. It has
made available to Company a complete and correct copy of its governing
documents, each as amended to the date hereof and as in full force and effect
as of the date hereof.
(b) Corporate Authority and Action. It has the requisite corporate
power and authority and has taken all corporate action necessary in order to
authorize the execution and delivery of, and performance of its obligations
under, this Agreement and to consummate the Merger. This Agreement is its
valid and legally binding agreement enforceable in accordance with its terms.
Its stockholders have no dissenters' or similar rights in connection with the
Merger. As of the date hereof, its Board of Directors or Executive Committee,
as the case may be, has unanimously approved the transactions contemplated by
this Agreement.
(c) Governmental Filings; No Violations.
(i) Other than the Regulatory Approvals, no applications, notices,
reports or other filings are required to be made by it with, nor are any
consents, registrations, approvals, permits or authorizations required to
be obtained by it from, any Governmental Entity, in connection with the
execution, delivery or performance of this Agreement by it and the
consummation by it of the transactions contemplated hereby.
(ii) The execution, delivery and performance of this Agreement does
not and will not, and the consummation by it of any of the transactions
contemplated hereby will not (individually or in conjunction with any
other event), constitute or result in (A) a breach or violation of, or a
default under, its articles of incorporation or by-laws, or the
comparable governing instruments of any of its subsidiaries, or (B) a
breach or violation of, or a default under, or the acceleration of or the
creation of a Lien (with or without the giving of notice, the lapse of
time or both) pursuant to, any provision of any Contracts of it or any of
its subsidiaries or (C) subject to the receipt of all Regulatory
Approvals, a violation of any law, rule, ordinance or regulation or
judgment, decree, order, award or governmental or non-governmental permit
or license to which it or any of its subsidiaries is subject, or any
change in the rights or obligations of any party under any of the
Contracts.
(d) Interim Operations of Acquiror Sub. Acquiror Sub has been
formed solely for the purpose of engaging in the transactions contemplated
hereby and, as of the Closing Date, will have engaged in no business other
than in connection with the transactions contemplated by this Agreement.
(e) Brokers and Finders. None of it, its subsidiaries or any of
their officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finder's fees in
connection with the transactions contemplated herein.
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(f) Financing. Acquiror has, and will have, as and when required,
the funds necessary to consummate the Merger and pay the Consideration in
accordance with the terms of this Agreement.
ARTICLE IV
Covenants
4.1 Conduct of Business Pending the Effective Time.
(a) Company Conduct of Business Pending the Effective Time.
Company agrees, as to itself and its subsidiaries, that, except insofar
Acquiror shall otherwise consent in writing (such consent not to be
unreasonably withheld or delayed) or except as otherwise expressly
contemplated by this Agreement or as set forth in Paragraph 4.1(a) of its
Disclosure Letter:
(i) The business of it and its subsidiaries will be conducted only
in the ordinary and usual course and, to the extent consistent therewith,
it and its subsidiaries will use all reasonable best efforts to preserve
intact their business organizations and assets and maintain their rights,
franchises and existing relations with customers, suppliers, employees
and business associates.
(ii) Except as required by law, it and its subsidiaries will not
knowingly take any action that, individually or in the aggregate, would
(1) adversely affect the ability of anyone to obtain any Regulatory
Approval (2) materially adversely affect its ability to perform its
obligations under this Agreement; or (3) reasonably be expected to have a
Material Adverse Effect.
(iii) It will not (1) sell or pledge, agree to sell or pledge, or
permit any Lien to exist on, any stock of any of its subsidiaries as of
the date hereof; (2) amend or restate its articles of incorporation or
by-laws; (3) split, combine or reclassify any outstanding capital stock;
(4) except as permitted by Section 4.2, split, declare, set aside or pay
any dividend or distribution payable in cash, stock or other property
with respect to any of its capital stock; or (5) repurchase, redeem or
otherwise acquire, or permit any subsidiary to purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock or any
securities convertible into or exercisable for any shares of its capital
stock.
(iv) Neither it nor any of its subsidiaries will (1) other than
pursuant to the exercise of stock options and stock appreciation rights
disclosed in Paragraph 3.3(c)(iv) of Company's Disclosure Letter, issue,
sell, pledge, dispose of or encumber, or authorize or propose the
issuance, sale, pledge, disposition or encumbrance of, any shares of, or
securities convertible or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of its capital
stock of any class; (2) other than in the ordinary course of business
consistent with past practice, transfer, lease, license, guarantee, sell,
mortgage, pledge or dispose of any other material property or assets or
encumber any property or assets other than to a direct or indirect wholly
owned subsidiary of it; or (3) authorize capital expenditures in excess
of $50,000 individually or $250,000 in the aggregate or acquire any
interest in real estate with any such capital expenditure.
(v) Other than in the ordinary course of its banking business
consistent with past practice with respect to debt and marketable
securities (other than any equity securities), neither it nor any of its
subsidiaries will make any investment either by purchase of stock or
securities, contributions to capital, property transfers, or purchase of
any property or assets of any Person.
(vi) Other than as set forth in Paragraph 4.1(a)(vi) of Company's
Disclosure Letter, neither it nor any of its subsidiaries will (1) make,
increase or purchase any loan, lease, advance, credit enhancement or
other extension of credit, or make any commitment in respect of any of
the foregoing, except (A) loans, advances or commitments in individual
amounts less than $500,000 ($500,000 in the case of 1-4 family
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residential mortgage loans and $100,000 in the case of home equity lines)
made in the ordinary course of business consistent with past practice and
made in conformity with all applicable policies and procedures or (B)
loans or advances as to which Company has a legally binding obligation to
make such loan or advance as of the date hereof and a description of
which has been provided by Company in writing to Acquiror prior to the
execution of this Agreement in Company's Disclosure Letter; or (2)
renegotiate, renew or extend the term of any loan, lease, advance, credit
enhancement or other extension of credit, or make any commitment in
respect of any of the foregoing, except renegotiations, renewals or
extensions of loans, advances or commitments in each case in amounts less
than $5,000,000 on market terms, with a maturity or expiration date no
later than June 24, 2009, with a loan to value ratio of 75% (with value
being the lower of cost or appraised value) or less, in the ordinary
course of business consistent with past practice and in conformity with
all applicable policies and procedures or renegotiations, renewals or
extensions of overdraft loans or passbook loans made in the ordinary
course of business consistent with past practice and made in conformity
with all applicable policies and procedures.
(vii) Other than in the ordinary course of business consistent with
past practice, neither it nor any of its subsidiaries will incur any
indebtedness for borrowed money or assume, guarantee, endorse or
otherwise as an accommodation become responsible for the obligations of
any other Person or make any loan or advance.
(viii) Neither it nor its subsidiaries shall terminate, establish,
adopt, enter into, make any new grants or awards under, amend or
otherwise modify, any Benefit Plans or increase the salary, wage, bonus
or other compensation of any employee, director or independent contractor
except new grants and awards and increases and bonuses disclosed in
Paragraph 4.1(a) (viii) of Company's Disclosure Letter.
(ix) neither it nor its subsidiaries shall hire any person as an
employee or promote any employee, except (1) to satisfy contractual
obligations existing as of the date hereof and set forth in Paragraph
4.1(a)(ix) of Company's Disclosure Letter and (2) persons hired to fill
any vacancies in existence as of the date of this Agreement and which
are listed on Paragraph 4.1(a)(ix) of Company's Disclosure Letter or
arising after the date hereof, in each case whose employment is
terminable at the will of Company or a subsidiary and who would have a
base salary, including any guaranteed bonus or any similar bonus,
considered on an annual basis of no more than $75,000.
(x) Neither it nor any of its subsidiaries will implement or adopt
any change in its accounting principles, practices or methods, other than
as may be required by generally accepted accounting principles or
regulatory accounting principles or applicable law.
(xi) Except in the ordinary course of business consistent with past
practice, settle any claim, action or proceeding against it, except for
any claim, action or proceeding which involves solely money damages in an
amount, individually or in the aggregate for all such settlements, that
is not material to Company and its subsidiaries, taken as a whole, and
that does not involve or create precedent for claims, actions or
proceedings that are reasonably likely to be material to Company and its
subsidiaries taken as a whole.
(xii) Neither it nor any of its subsidiaries will amend, re-file or
otherwise modify (or grant an extension of any statute of limitations
with respect to) any Tax return relating in whole or in part to Company
or its subsidiaries with respect to any taxable year or period ending on
or before the Effective Time, or make any Tax election, without the
prior written consent of Acquiror.
(xiii) Neither it nor any of its subsidiaries will authorize or
enter into an agreement to take any of the actions referred to in
paragraphs (i) through (xii) above.
Company may submit a written request to Acquiror for Acquiror's consent to any
action that is not permitted by this Section 4.1(a). Any such written request
shall be delivered by Company via facsimile and overnight mail to:
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Stephen Yose
KeyBank National Association
601 108th Avenue N.E.
Bellevue, WA 98004
Facsimile: 425-709-4519
with a copy to:
Larry Burke
KeyBank National Association
601 108th Avenue N.E.
Bellevue, WA 98004
Facsimile: 425-709-4519
With respect to any such written request by Company, Company shall be entitled
to conclusively presume that Acquiror has consented to the action specified in
the written request if Company has not received Acquiror's written objection
to such request within (i) three business days after the date Acquiror
receives such written request in the case of matters pertaining to Section
4.1(a)(vi) and (ii) five business days after the date Acquiror receives such
written request in the case of any other written requests pertaining to
Section 4.1(a).
(b) Acquiror Conduct of Business Pending the Effective Time.
Acquiror agrees, as to itself and its subsidiaries, that, except insofar as
Company shall otherwise consent in writing (such consent not to be
unreasonably withheld or delayed) or except as otherwise expressly
contemplated by this Agreement, except as required by law, it and its
subsidiaries will not knowingly take any action that would (i) adversely
affect the ability of anyone to obtain any Regulatory Approval; (ii)
materially adversely affect its ability to perform its obligations under this
Agreement; or (iii) reasonably be expected to have a Material Adverse Effect.
Notwithstanding anything in this Section 4.1(b) to the contrary, Acquiror may
make dispositions and acquisitions and agree to issue capital stock in
connection therewith, provided that such transactions do not present a
material risk that the Closing Date will be materially delayed or that any
necessary approvals of any Governmental Entity required for the transactions
contemplated hereby will be materially more difficult to obtain.
4.2 Dividends. Company agrees that, from and after the date
hereof until the Effective Time, (a) direct and indirect wholly owned
subsidiaries of Company may (to the extent legally and contractually permitted
to do so), but shall not be obligated to, declare and pay dividends in cash,
stock or other property; and (b) Company may pay quarterly dividends on
outstanding shares of Company Common Stock at a rate not to exceed $0.11 per
share per quarter, on substantially the same record and payment date schedules
as have been utilized in the past. In addition, the Company may establish a
record date immediately prior to the Effective Time for the payment of a
dividend representing a pro rata portion of Company's most recent quarterly
dividend based on the number of days elapsed since the end of the immediately
preceding quarter.
4.3 Acquisition Proposals. (a) Company shall immediately cease
and cause to be terminated all existing discussions, negotiations and
communications with any third parties with respect to any Acquisition
Proposal. Neither Company nor any of its subsidiaries nor any of its
respective executive officers and directors or the executive officers and
directors of any of its subsidiaries shall, and it shall direct and use all
reasonable best efforts to cause its executive officers and agents, including
any investment banker, attorney or accountant retained by it or by any of its
subsidiaries (collectively, its "Representatives"), not to, initiate, solicit
or encourage, directly or indirectly, any inquiries or the making or
implementation of any Acquisition Proposal, or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any Person relating to an Acquisition Proposal or otherwise
facilitate any effort or attempt to implement or make an Acquisition Proposal.
"Acquisition Proposal" means any proposal or offer with respect to the
following involving Company or any of its material subsidiaries: (a) any
merger, consolidation, share exchange, business combination or other similar
transaction; (b) any sale, lease, exchange, pledge, transfer or other
disposition of 35% or more of its consolidated assets or liabilities in a
single transaction or series of transactions; (c) any tender offer or exchange
offer for 10% or
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more of the outstanding shares of its capital stock; or (d) any public
announcement of a proposal, plan or intention to do any of the foregoing or
any agreement to engage in any of the foregoing, other than the Merger
provided for in this Agreement. Company shall ensure that the executive
officers, directors and agents of Company and its subsidiaries and its other
Representatives are aware of the restrictions described in this Section 4.3 as
reasonably necessary to avoid violations thereof. It is understood that any
violation of the restrictions set forth in this Section 4.3 by any executive
officer, director, agent or other Representative of Company or its
subsidiaries, at the direction or with the consent of Company or its
subsidiaries, shall be deemed to be a breach of this Section 4.3 by Company.
Notwithstanding anything in this Agreement to the contrary, Company shall (i)
immediately, and in any event within twenty-four hours, advise Acquiror,
orally and in writing, of (A) the receipt by it (or any of the other Persons
referred to above) of any Acquisition Proposal, any request for information
from, or any request for, or initiation or continuation of, any negotiations
or discussions with Company or any of its subsidiaries or any of their
respective Representatives, in each case in connection with any Acquisition
Proposal or the possibility or consideration of making an Acquisition Proposal
or any inquiry which could reasonably be expected to lead to an Acquisition
Proposal (any of the foregoing "Acquisition Proposal Interest"), (B) the
material terms and conditions of such Acquisition Proposal or Acquisition
Proposal Interest (whether written or oral), and (C) the identity of the
Person making such Acquisition Proposal or expressing any such Acquisition
Proposal Interest, (ii) prior to providing any such Person from whom an
Acquisition Proposal or Acquisition Proposal Interest has been received with
any material non-public information, notify Acquiror of the receipt of the
same (and promptly provide to Acquiror any material non-public information
regarding Company provided to any other Person that was not previously
provided to Acquiror, such additional information to be provided no later than
the next business day after the date of provision of such information to such
other Person) and (iii) keep Acquiror fully informed of the status and details
of any such Acquisition Proposal or Acquisition Proposal Interest and any
developments with respect thereto. Company shall use its reasonable best
efforts to enforce any existing confidentiality or standstill agreements in
accordance with the terms thereof.
(b) Notwithstanding Section 4.3(a), Company (i) may permit any
Person who expresses an Acquisition Proposal Interest to make an Acquisition
Proposal to the Board of Directors of Company, if the Board of Directors of
Company with the advice of independent counsel (who may be Company's regularly
engaged independent counsel) determines in good faith that the failure to do
so would be inconsistent with the fiduciary duty of the Board of Directors of
Company under applicable law, (ii) may furnish information concerning its
business, properties or assets to any Person pursuant to a customary
confidentiality agreement with terms no less favorable to Company than those
contained in the Confidentiality Agreement dated April 26, 2004, entered into
between Acquiror and Company (the "Confidentiality Agreement") if, and only
if, such Person has on an unsolicited basis, and in the absence of any
violation of this Section 4.3 by Company or any of its Representatives,
submitted an Acquisition Proposal or Acquisition Proposal Interest that
constitutes or, that in the good faith opinion of Company's Board of
Directors, is reasonably likely to result in a Superior Proposal and (iii) may
negotiate and participate in discussions and negotiations with such Person
concerning an Acquisition Proposal if, and only if, (x) such Person has on an
unsolicited basis, and in the absence of any violation of this Section 4.3 by
Company or any of its Representatives, or by such Person or any of its
Representatives of any confidentiality or standstill agreement, submitted a
bona fide written Superior Proposal (as defined below) to Company and (y) in
the good faith opinion of Company's Board of Directors, only after
consultation with independent outside legal counsel to Company, the Board of
Directors of Company has determined that engaging in such discussions or
negotiations is in the best interests of Company and its shareholders and the
failure to engage in such discussions or negotiations would be inconsistent
with the Board's fiduciary duties to Company's shareholders under applicable
law. A "Superior Proposal" means any Acquisition Proposal that is not
conditioned upon the ability to obtain financing (or dependent upon financing
that is subject to contingencies) (A) which is for not less than eighty
percent (80%) of the issued and outstanding shares of Company Common Stock or
eighty percent (80%) of the consolidated assets of Company and (B) which
Company's Board of Directors determines in good faith, after consultation with
a nationally recognized investment banking firm, is (I) superior to Company's
shareholders from a financial point of view and, taking into account relevant
legal, financial and regulatory aspects of the proposal and any other factors
that Company's Board of Directors determines to be relevant, the identity of
the third party making such proposal, and the conditions for completion of
such proposal, a more favorable transaction than the Merger and (II) in the
reasonable opinion of
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Company's Board of Directors, based on discussions with Company's investment
bankers and other information known to Company's Board of Directors, is at
least as likely to be approved and completed as the Merger.
(c) Except as expressly permitted by this Section 4.3(c), neither
Company's Board of Directors nor any committee thereof shall (i) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal or
(ii) withdraw or modify, or propose to withdraw or modify, in a manner adverse
to Acquiror, the approval or recommendation referred to in Section 4.4 by
Company's Board of Directors or any such committee of this Agreement, the
Merger or the other matters contemplated hereby or take any action or make any
statement inconsistent with such approval (any action described in the
foregoing clauses (i) and (ii), a "Change in Company's Recommendation"), or
(iii) enter into any letter of intent, agreement in principle or agreement
with respect to any Acquisition Proposal. Notwithstanding the foregoing,
Company's Board of Directors, subject to the terms of this and the following
two sentences, to the extent that it determines in good faith, after
consultation with independent outside legal counsel, that the failure to do so
would be inconsistent with the Board's fiduciary duties to Company's
shareholders under applicable law, may make a Change in Company's
Recommendation. Company may make a Change in Company's Recommendation (A) at
a time that is after the third day following Company's delivery to Acquiror of
written notice advising Acquiror that Company's Board of Directors has
determined that it has received a Superior Proposal, specifying the material
terms and conditions of such Superior Proposal, identifying the Person making
such Superior Proposal and indicating that it intends to make a Change in
Company's Recommendation and (B) if, during such three (3) day period, Company
and its advisors shall have negotiated in good faith with Acquiror to make
adjustments in the terms and conditions of this Agreement such that such
Acquisition Proposal would no longer constitute a Superior Proposal.
Notwithstanding any Change in Company's Recommendation, unless otherwise
directed in writing by Acquiror, this Agreement and the Merger shall be
submitted to the shareholders of Company for the purpose of adopting this
Agreement and approving the Merger and the other matters contemplated hereby
at the meeting called by Company pursuant to Section 4.4, and nothing in this
Agreement shall be deemed to relieve Company of such obligation. Any Change
in Company's Recommendation shall not permit Company's Board of Directors to
rescind or amend the resolutions adopting this Agreement or otherwise change
the approval of Company's Board of Directors for purposes of causing any state
takeover statute or other state law or provision of Company's articles of
incorporation or by-laws to be inapplicable to the transactions contemplated
thereby.
(d) Notwithstanding the foregoing, nothing contained in this
Section 4.3 or any other provision hereof shall prohibit Company or Company's
Board of Directors from taking and disclosing to Company's stockholders a
position contemplated by Rule 14e-2 promulgated under the Exchange Act or from
making any disclosure if, in the good faith judgment of the Board of Directors
of Company, after consultation with outside counsel, failure to do so would be
inconsistent with the Board's fiduciary duties to Company's stockholders under
applicable law; provided, however, that Company's Board of Directors shall not
in any case make a Change in Company's Recommendation except in accordance
with Section 4.3(c).
4.4 Stockholder Approval. Company agrees to take, in accordance
with applicable law and its articles of incorporation and by-laws, all action
necessary to convene a meeting of its stockholders (including any adjournment
or postponement, the "Company Meeting"), as promptly as practicable to
consider and vote upon the adoption and approval of this Agreement and the
Merger and the other matters contemplated hereby. The Board of Directors of
Company shall recommend such adoption and approval, and Company shall use its
reasonable best efforts to solicit the adoption and approval of this
Agreement, by its stockholders; provided that the Board of Directors of
Company may withdraw, modify, condition or refuse to make such recommendation
only in accordance with Section 4.3(c) in connection with the receipt of a
Superior Proposal.
4.5 Filings; Other Actions. (a) Each of Acquiror and Company
agrees to cooperate in the preparation of a proxy statement and other proxy
solicitation materials of Company (the "Proxy Statement"). Company agrees to
file the Proxy Statement in preliminary form with the SEC as promptly as
reasonably practicable, but in no event later than five weeks after the
execution of this Agreement. Company will advise Acquiror promptly of the
time when the Proxy Statement and any amendment or supplement to the Proxy
Statement has been filed, and of any request by the SEC for amendment of the
Proxy Statement or comments thereon and
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responses thereto or requests by the SEC for additional information. Company
agrees to use its reasonable best efforts, after consultation with Acquiror,
to respond promptly to all such comments of and requests by the SEC. Company
will use its reasonable best efforts to cause the definitive Proxy Statement
and all required amendments and supplements thereto to be mailed to its
stockholders as promptly as practicable.
(b) Each of Acquiror and Company agrees to cooperate with the other
and, subject to the terms and conditions set forth in this Agreement, use
reasonable best efforts to promptly prepare and file all necessary
documentation (including making all required initial filings in connection
with the Regulatory Approvals within 45 days of the date of this Agreement),
to effect all necessary applications, notices, petitions, filings and other
documents, and to obtain as promptly as practicable all necessary permits,
consents, orders, approvals and authorizations of, or any exemption by, all
third parties and Governmental Entities necessary or advisable to consummate
the transactions contemplated by this Agreement, including the Regulatory
Approvals. Each of Acquiror and Company shall have the right to review in
advance, and to the extent practicable each will consult with the other, in
each case subject to applicable laws relating to the exchange of information,
with respect to all the material information relating to the other party, and
any of their respective subsidiaries, which appears in any material 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 hereto
agrees to act reasonably and as promptly as practicable. Each party hereto
agrees that it will consult with the other party hereto 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
party apprised of the status of matters relating to completion of the
transactions contemplated hereby.
(c) Each of Acquiror and Company agree, upon request, to furnish
the other with all information concerning itself, its subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably
necessary or advisable in connection with the Proxy Statement or any other
statement, filing, notice or application made by or on behalf of such other
party or any of its subsidiaries to any Governmental Entity in connection with
the Merger and the other transactions contemplated by this Agreement.
4.6 Information Supplied. Each of Company and Acquiror agrees, as
to itself and its subsidiaries, that none of the information supplied or to be
supplied by it for inclusion or incorporation by reference in the Proxy
Statement and any amendment or supplement thereto, at the date of mailing to
stockholders and at the time of the Company Meeting, will contain any
statement which, in light of the circumstances under which such statement is
made, will be false or misleading with respect to any material fact, or will
omit to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier statement in the Proxy Statement or any amendment or supplement
thereto. Each of Company and Acquiror further agrees that if it shall become
aware prior to the Effective Time of any information furnished by it that
would cause any of the statements in the Proxy Statement to be false or
misleading with respect to any material fact, or to omit to state any material
fact necessary to make the statements therein not false or misleading, to
promptly inform the other party thereof and to take the necessary steps to
correct the Proxy Statement. The Proxy Statement shall not be filed, and,
prior to the termination of this Agreement, no amendment or supplement to the
Proxy Statement shall be filed, by Acquiror or Company, without consultation
with the other party and its counsel.
4.7 Access and Investigations. (a) Upon reasonable notice,
Company agrees to (and shall cause each of its subsidiaries and affiliates to)
afford Acquiror and its Representatives access, during normal business hours
throughout the period until the Closing Date, to its properties, books,
contracts and records and, during such period, shall (and shall cause each of
its subsidiaries and affiliates to) furnish promptly to Acquiror all material
information concerning its business, properties and personnel as may
reasonably be requested. Neither Company nor any of its subsidiaries or
affiliates shall be required to provide access to or to disclose information
where such access or disclosure would violate or prejudice the rights of
Company's (including its subsidiaries and affiliates) customers, jeopardize
the attorney-client privilege of the institution in possession or control of
such information or contravene any law, rule regulation, order, judgment or
decree or any binding agreement entered into
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prior to the date of this Agreement. The parties hereto will make appropriate
substitute disclosure arrangements under circumstances in which restrictions
of the preceding sentence apply.
(b) Each party agrees, and will cause its respective subsidiaries,
affiliates and Representatives not to use any information obtained from the
other party (or such other party's subsidiaries, affiliates or
Representatives), pursuant to this Section 4.7 or otherwise, for any purpose
unrelated to the consummation of the transactions contemplated by this
Agreement. Each party will keep, and will cause its subsidiaries, affiliates
and Representatives to keep, all information and documents obtained from the
other party pursuant to this Section 4.7 or during the investigation leading
up to the execution of this Agreement confidential unless such information (i)
becomes available to such party from other sources not known by such party to
be bound by a confidentiality obligation, or (ii) is or becomes readily
ascertainable from publicly available information or trade sources (other than
as a result of a breach of this Agreement by such party or its subsidiaries,
affiliates or Representatives). In the event that this Agreement is
terminated or the transactions contemplated by this Agreement shall otherwise
fail to be consummated, each party shall promptly cause all copies of
documents or extracts thereof containing information and data as to another
party hereto to be returned to the party which furnished the same, or (at such
party's option) confirm in writing to such party that it has completely
destroyed all such copies, documents, extracts, information and data.
(c) No investigation by either of the parties or their respective
Representatives shall affect the representations and warranties of the other
set forth herein or preclude reliance thereon.
4.8 Certain Modifications; Restructuring Charges. Company and
Acquiror agree to consult with respect to their loan, litigation and real
estate valuation policies and practices (including loan classifications and
levels of reserves) and Company shall make such modifications or changes to
its policies and practices, if any, and at such date prior to the Effective
Time, as Acquiror shall reasonably request; provided that (a) such
modifications or changes comply with generally accepted accounting principles
and regulatory requirements and guidelines and (b) the conditions specified in
Sections 5.1(a) and (b) have been satisfied or waived. Company and Acquiror
shall also consult with respect to the character, amount and timing of
restructuring charges to be taken by each of them in connection with the
transactions contemplated hereby and shall take such charges in accordance
with generally accepted accounting principles, as Acquiror shall reasonably
request. No party's representations, warranties and covenants contained in
this Agreement shall be deemed to be untrue or breached in any respect for any
purpose as a consequence of any modifications or changes to such policies and
practices which may be undertaken on account of this Section 4.8.
4.9 Takeover Laws. If any Takeover Law may become, or may purport
to be, applicable to the transactions contemplated hereby, each of Acquiror
and Company and the members of their respective Boards of Directors will grant
such approvals and take such actions as are necessary (other than any action
requiring the approval of its stockholders other than as contemplated by
Section 4.4) so that the transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated hereby and
thereby and otherwise act to eliminate or minimize the effects of any Takeover
Law on any of the transactions contemplated by this Agreement.
4.10 Conversion of Options. (a) With respect to any Company
Options that Acquiror has not received a duly executed Option Consent prior to
3:00 p.m. New York time on the business day immediately preceding the
Effective Time, the provisions of Section 2.3 shall not apply and shall have
no effect and, in lieu thereof, the provisions of this Section 4.10 shall
apply. Subject to the preceding sentence, at the Effective Time, by virtue of
the Merger and without any action on the part of any holder of a Company
Option, each Company Option with respect to which such an Option Consent has
not been so received and that is outstanding and unexercised, whether vested
or unvested, immediately prior thereto shall be deemed to constitute an option
(a "New Option") to purchase, on the same terms and conditions as were
applicable under the terms of the Company 2000 Stock Option Plan, such number
of shares of Acquiror Common Stock and at such an exercise price per share
determined as follows:
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(i) Number of Shares. The number of shares of Acquiror Common
Stock subject to a New Option shall be equal to the product of (A) the
number of shares of Company Common Stock purchasable upon exercise of the
Company Option and (B) the Option Conversion Ratio (as defined below),
the product being rounded to the nearest whole share; and
(ii) Exercise Price. The exercise price per share of Acquiror Common
Stock purchasable upon exercise of a New Option shall be equal to (A) the
exercise price per share of Company Common Stock under the Company Option
divided by (B) the Option Conversion Ratio, the quotient being rounded to
the nearest cent.
With respect to any such Company Options that are "incentive stock options"
(as defined in Section 422(b) of the Internal Revenue Code), the foregoing
adjustments shall be effected in a manner consistent with Section 424(a) of
the Internal Revenue Code. Company, or its Board of Directors or an
appropriate committee thereof, has taken all action necessary on its part to
give effect to the provisions of this Section 4.10 and shall take such other
actions reasonably requested by Acquiror to give effect to the foregoing.
For purposes of this Agreement "Option Conversion Ratio" shall mean
the quotient, rounded to the nearest ten-thousandth, obtained by dividing the
Consideration by the average of the last reported sale prices per share of
Acquiror Common Stock as reported on the New York Stock Exchange Inc. (the
"NYSE") Composite Transactions Reporting System (as published in the Wall
Street Journal or, if not published therein, in another authoritative source)
during the ten consecutive trading days during which the shares of Acquiror
Common Stock are traded on the NYSE ending on the last calendar day
immediately prior to the Effective Time, or if such calendar day is not a
trading day, then ending on the trading day immediately preceding such
calendar day.
(b) Reservation and Registration of Shares. Prior to the Effective
Time, Acquiror shall take all corporate action necessary to reserve for future
issuance a sufficient additional number of shares of Acquiror Common Stock to
provide for the satisfaction of its obligations, if any, with respect to the
New Options. If applicable, as soon as practicable following the Effective
Time, Acquiror shall file a registration statement on Form S-8 (or any
successor or other appropriate form) with respect to the Acquiror Common Stock
issuable upon exercise of the New Options and shall use its reasonable efforts
to maintain the effectiveness of such registration statement (and to maintain
the current status of the prospectus or prospectuses contained therein) for so
long as such New Options remain outstanding.
4.11 Benefit Plans. (a) From and after the Effective Time,
Acquiror shall provide employees of Company and its subsidiaries who continue
as employees of Acquiror or its subsidiaries with benefits under employee
benefit plans (other than stock options and other equity-based plans)
substantially comparable in the aggregate to those provided to similarly
situated employees of Acquiror and its subsidiaries, as the case may be.
Acquiror shall cause each employee benefit plan, program, policy or
arrangement in which employees of Company or its subsidiaries are eligible to
participate to take into account for purposes of eligibility and vesting (but
not benefit accrual under Pension Plans or retiree medical plans) thereunder
the service of such employees with Company or its subsidiaries to the same
extent as such service was credited for such purpose by Company or its
subsidiaries under a comparable Benefit Plan (including for the avoidance of
doubt the Company's Employee Severance Compensation Plan). Nothing herein
shall limit the ability of Acquiror to amend or terminate any of the Benefit
Plans in accordance with their terms at any time.
(b) For employees of Company or its subsidiaries who become
eligible to participate in a medical, dental or health plan of Acquiror,
Acquiror shall cause, to the extent practicable, each such plan to (i) waive
any preexisting condition limitations to the extent such conditions were
covered under the applicable medical, health or dental plans of Company or its
subsidiaries, (ii) honor under such plans any deductible, co-payment and
out-of-pocket expenses incurred by the 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 to the extent such employee had satisfied any similar limitation or
requirement under a comparable Benefit Plan prior to the Effective Time. To
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the extent that it is not practicable to allow employees of Company or its
subsidiaries to participate in medical, dental and health programs of Acquiror
at the Effective Time, Acquiror shall to the extent reasonably practicable
continue in effect a comparable plan maintained by Company or an applicable
Company subsidiary immediately prior to the Effective Time for the employees
of Company or its subsidiaries, as the case may be, for a transition period
and, during such transition period, the employees of Company or its
subsidiaries who continue in the employ of Acquiror shall continue to
participate in such plans.
(c) If Acquiror determines that one or more Benefit Plans should be
amended, modified or terminated as of immediately prior to the Effective Time,
Company shall take, or cause to be taken, all actions reasonably requested by
Acquiror to so amend, modify or terminate and, if reasonably necessary or
appropriate or practicable, obtain applicable determination letters or other
or other required approvals from the Internal Revenue Service and/or the
Department of Labor, as appropriate, in connection with such action.
(d) Company shall cooperate in preparing and distributing any
notices that Acquiror may desire to provide prior to the Effective Time under
the Workers Adjustment and Retraining Notification Act of 1988 (WARN Act) or
any other applicable law relating to plant closings or employee separations or
severance pay.
(e) Acquiror shall assume and honor the accrued but unused vacation
and sick time of employees of Company and its subsidiaries who continue as
employees of Acquiror or any of its subsidiaries. Each full time employee of
Company or a subsidiary who is employed immediately prior to the Effective
Time and who is (x) not entitled to receive any form of severance under any
agreement and (y) experiences an involuntarily termination of employment
without cause at the Effective Time or within one year thereafter shall be
entitled to receive a severance payment at the time of his or her involuntary
termination of employment without cause within such one year period in
accordance with the terms of Company's severance policies as in effect on the
date of this Agreement (which are described in the fourth paragraph of
Paragraph 3.3(o)(i) of Company's Disclosure Letter). For the avoidance of
doubt, any employee who is eligible to receive a severance payment under this
Section 4.11(e) shall not be entitled to any severance payment under any
benefit plan of Acquiror. In addition, Acquiror will provide outplacement
services for all the employees of Company and its subsidiaries that are
terminated in connection with the Merger or within one year of the Effective
Time.
(f) With respect to the Company's Employee Stock Ownership Plan,
Company may file for a determination letter from the IRS with respect to the
tax-qualified status of the Plan upon termination of such Plan. Prior to
filing, Acquiror shall be given a reasonable opportunity to review and comment
on such filing and the parties shall consult with each other and cooperate in
good faith to effect the proper termination of the Company's Employee Stock
Ownership Plan.
4.12 Indemnification and Insurance. (a) For six years after the
Effective Time, Acquiror agrees to indemnify and hold harmless (including the
advancement of expenses as incurred) each present and former director and
officer of Company and its subsidiaries (each, an "Indemnified Party")
following the Effective Time, against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
arising out of or pertaining to matters existing or occurring at or prior to
the Effective Time, whether asserted or claimed prior to, at or after the
Effective Time, to the extent such Indemnified Party would have been
indemnified as a director or officer of Company or any of its subsidiaries
under the WBCA and Company's articles of incorporation and by-laws.
(b) Acquiror shall cause the Persons covered by the directors' and
officers' liability policy currently maintained by Company immediately prior
to the Effective Time to be covered for a period of six years after the
Effective Time by the Company's directors' and officers' liability insurance
policy (provided that Acquiror may substitute policies providing comparable or
better coverage than such policy) with respect to acts or omissions occurring
prior to the Effective Time which were committed by such officers and
directors in their capacity as such; provided, however, that in no event shall
Acquiror be required to expend more than 200% per year of coverage of the
amount currently expended by Company per year of coverage as of the date
hereof under its directors' and
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officers' liability insurance policy (the "Maximum Amount") to maintain or
procure insurance coverage pursuant hereto, and provided further that, if
notwithstanding the use of reasonable best efforts to do so Acquiror is unable
to maintain or obtain the insurance called for by this Section 4.12(b),
Acquiror shall obtain as much comparable insurance as available for the
Maximum Amount; provided further that such Persons may be required to make
reasonable application and provide reasonable and customary representations
and warranties to Acquiror's insurance carrier for the purpose of obtaining
such insurance, comparable in nature and scope to the applications,
representations and warranties required of persons who are officers and
directors of Acquiror as of the date hereof.
(c) Any Indemnified Party wishing to claim indemnification under
Section 4.12(a), upon learning of any claim, action, suit, proceeding or
investigation described above, shall promptly notify Acquiror thereof;
provided that the failure so to notify shall not affect the obligations of
Acquiror under Section 4.12(a) unless and to the extent that Acquiror is
prejudiced as a result of such failure.
(d) The provisions of this Section 4.12 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her
heirs and representatives.
4.13 Publicity. The initial press release relating hereto will be
a joint press release and thereafter, except as otherwise required by law or
the applicable rules of the NYSE, NASDAQ or any other self-regulatory
organization, Company and Acquiror shall coordinate with each other prior to
issuing any press releases or otherwise making public statements with respect
to the transactions contemplated hereby.
4.14 Reasonable Best Efforts; Additional Agreements. Subject to
the terms and conditions of this Agreement, each of Acquiror and Company
agrees 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 effective, at
the time and in the manner contemplated by this Agreement, the Merger,
including using reasonable best efforts to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the
parties to consummate the Merger (it being understood that any amendments or
supplements to the Proxy Statement or a resolicitation of proxies as a result
of a transaction by Acquiror or its subsidiaries shall not violate this
covenant).
4.15 Notification of Certain Matters. Each of Acquiror and Company
will give prompt notice to the other (and subsequently keep the other party
informed on a current basis) upon its becoming aware of the occurrence or
existence of any fact, event or circumstance that (a) is reasonably likely to
result in any Material Adverse Effect with respect to it, or (b) would cause
or constitute a material breach of any of its representations, warranties,
covenants or agreements contained herein; provided that any failure to give
notice in accordance with the foregoing with respect to any breach shall not
be deemed to constitute the failure of any condition set forth in Section
5.2(a) or (b) or Section 5.3(a) or (b) to be satisfied, or to give rise to any
right to terminate this Agreement pursuant to Section 6.1(b), unless the
underlying breach would independently result in a failure of the conditions
set forth in Section 5.2(a) or (b) or Section 5.3(a) or (b), as the case may
be, to be satisfied or give rise to such termination right.
4.16 Expenses. Each of the parties shall bear and pay all costs
and expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder, including fees and expenses of its own
financial or other consultants, investment bankers, accountants and counsel,
except that Acquiror and Company each shall bear and pay one-half of the
following expenses: (a) the costs (excluding the fees and disbursements of
counsel and accountants) incurred in connection with the preparation of
applications to Governmental Entities for the approval of the Merger and (b)
all fees paid for filings with Governmental Entities.
4.17 Section 16(b) Exemption. Acquiror and Company agree that, in
order to most effectively compensate and retain Company Insiders (as defined
below) in connection with the Merger, both prior to and after the Effective
Time, it is desirable that Company Insiders not be subject to a risk of
liability under Section 16(b) of the Exchange Act to the fullest extent
permitted by applicable law in connection with the conversion of (i) shares of
Company Common Stock into the right to receive cash and (ii) Company Options
into the right to receive options to
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purchase Acquiror Common Stock and/or cash, as applicable, in the Merger, and
for that compensatory and retentive purpose agree to the provisions of this
Section 4.17. Assuming that Company delivers to Acquiror the Company Section
16 Information (as defined below) in a timely fashion prior to the Effective
Time, the Board of Directors of Acquiror, or a committee of non-employee
directors thereof (as such term is defined for purposes of Rule 16b-3(d) under
the Exchange Act), shall reasonably promptly thereafter and in any event prior
to the Effective Time adopt a resolution providing in substance that the
receipt by the Company Insiders (as defined below) of cash and/or options to
purchase Acquiror Common Stock in exchange for shares of Company Common Stock
and Company Options, in each case pursuant to the transactions contemplated
hereby and to the extent such securities are listed in the Company Section 16
Information, are intended to be exempt from liability pursuant to Section
16(b) under the Exchange Act to the fullest extent permitted by applicable
law. "Company Section 16 Information" shall mean information accurate in all
material respects regarding the Company Insiders, the number of shares of
Company Common Stock held by each such Company Insider and expected to be
exchanged for the right to receive cash in the Merger, and the number and
description of Company Options held by each such Company Insider and expected
to be converted into an option to purchase shares of Acquiror Common Stock or
cash, as applicable, in connection with the Merger; provided that the
requirement for a description of any Company Options shall be deemed to be
satisfied if copies of all plans, and forms of agreements, under which such
options have been granted are listed in Paragraph 3.3(o)(i) of Company's
Disclosure Letter and copies of the same are attached to Company's Disclosure
Letter. "Company Insiders" shall mean those officers and directors of Company
who are subject to the reporting requirements of Section 16(a) of the Exchange
Act and who are listed in the Company Section 16 Information.
4.18 Compliance with Sarbanes-Oxley Requirements. Company shall
use its reasonable best efforts to implement the requirements of Section 404
of the Sarbanes-Oxley Act ("SOX 404") prior to the Effective Time in a manner
satisfactory to Acquiror in its sole discretion such that Company's SOX 404
implementation is consistent with Acquiror's SOX 404 implementation or
otherwise satisfactory to Acquiror. Acquiror shall cooperate with Company in
its compliance with this Section 4.18 and Acquiror shall communicate with
Company regarding Company's implementation efforts not less often than on a
bi-monthly basis.
4.19 Environmental Assessments. Upon reasonable notice, Company
shall cooperate with and grant access to an environmental consulting firm
selected by Acquiror and reasonably acceptable to Company, during normal
business hours (and at such other times as may be agreed) to the Owned Real
Property, for the purpose of conducting:
(i) ASTM 1527 Phase I environmental assessments ("Phase I
Assessments"); and
(ii) ASTM 1903 Phase II environmental assessments ("Phase II
Assessments" and together with the Phase I Assessments, the
"Environmental Assessments") on any Owned Real Property in respect of
which (A) a Recognized Environmental Condition (as such term is defined
in the ASTM Standard) is identified in a Phase I Assessment or (B) a
Phase I Assessment indicates conditions that Acquiror determines, in its
sole discretion, merit further investigation. Each Phase II Assessment,
if any, shall include an estimate by the environmental consulting firm
preparing such Environmental Assessment of the costs of investigation,
monitoring, personal injury, property damage, clean up, remediation,
penalties, fines or other liabilities, as the case may be, relating to
the Recognized Environmental Condition(s) or other conditions which are
the subject of the Phase II Assessment.
Acquiror and Company each shall bear and pay one-half of the environmental
consulting firm's fees and expenses. Within 15 days after the date hereof,
Acquiror shall engage an environmental consultant reasonably acceptable to
Company to perform the Phase I Assessments. Acquiror shall use reasonable
efforts to cause its environmental consultant to complete and provide Acquiror
with its written Phase I Assessment(s) within 45 days after such consultant is
retained. Promptly following the receipt of all Phase I Assessments (but not
later than 15 days thereafter), Acquiror shall order all applicable Phase II
Assessments. Acquiror shall use reasonable best efforts to have all
Environmental Assessments completed within 90 days of the date of this
Agreement.
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ARTICLE V
Conditions
5.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each of Acquiror, Acquiror Sub and Company to
consummate the Merger is subject to the fulfillment or written waiver by
Acquiror and Company prior to the Effective Time of each of the following
conditions:
(a) Stockholder Approval. This Agreement shall have been duly
adopted and approved by the requisite vote of the stockholders of Company.
(b) Governmental and Regulatory Consents. All statutory waiting
periods applicable to the consummation of the Merger shall have expired or
been terminated, and, other than the filing provided for in Section 1.4(a),
all notices, reports and other filings required to be made prior to the
Effective Time by Acquiror or Company or any of their respective subsidiaries
with, and all regulatory consents, registrations, approvals, permits and
authorizations required to be obtained prior to the Effective Time by Acquiror
or Company or any of their respective subsidiaries from, any Governmental
Entity in connection with the consummation of the Merger and the other
transactions contemplated hereby by Acquiror and Company shall have been made
or obtained (as the case may be) and become final provided that none of the
foregoing shall contain any term or condition which would have, or would be
reasonably likely to have, a Material Adverse Effect on (A) Acquiror and its
subsidiaries taken as a whole or (B) Company and its subsidiaries taken as a
whole.
(c) No Prohibitions. No United States or state court or other
Governmental Entity of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law, statute, rule, regulation, judgment,
decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and prohibits consummation of the Merger.
5.2 Conditions to Obligation of Acquiror. The obligation of
Acquiror to consummate the Merger is also subject to the fulfillment, or the
written waiver by Acquiror, prior to the Effective Time of each of the
following conditions:
(a) Representations and Warranties. The representations and
warranties of Company set forth in this Agreement shall be, giving effect to
Sections 3.1 and 3.2, true and correct as of the date of this Agreement and as
of the Effective Time as though made at and as of the Effective Time (except
that representations and warranties that by their terms speak specifically as
of the date of this Agreement or some other date shall be true and correct as
of such date); and Acquiror shall have received a certificate, dated the
Closing Date, signed on behalf of Company by the Chief Executive Officer and
the Chief Financial Officer of Company to such effect.
(b) Performance of Obligations of Company. Company 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 Acquiror shall
have received a certificate, dated the Closing Date, signed on behalf of
Company by the Chief Executive Officer and the Chief Financial Officer of
Company to such effect.
(c) Third Party Consents. All consents or approvals of all Persons
(other than Governmental Entities) required for consummation of the Merger
shall have been obtained and shall be in full force and effect.
(d) SOX 404. Acquiror shall be satisfied, in its sole discretion
(after consultation with Acquiror's independent accountants), with Company's
implementation of the requirements of SOX 404.
5.3 Conditions to Obligation of Company. The obligation of
Company to consummate the Merger is also subject to the fulfillment, or the
written waiver by Company prior to the Effective Time, of each of the
following conditions:
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(a) Representations and Warranties. The representations and
warranties of Acquiror set forth in this Agreement shall be, giving effect to
Section 3.2, true and correct as of the date of this Agreement and as of the
Effective Time as though made at and as of the Effective Time (except that
representations and warranties that by their terms speak specifically as of
the date of this Agreement or some other date shall be true and correct as of
such date) and Company shall have received a certificate, dated the Closing
Date, signed on behalf of Acquiror by the Chief Administrative Officer or the
Chief Executive Officer and the Chief Financial Officer of Acquiror to such
effect.
(b) Performance of Obligations of Acquiror. Acquiror 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 Company shall
have received a certificate, dated the Closing Date, signed on behalf of
Acquiror by the Chief Administrative Officer or the Chief Executive Officer
and the Chief Financial Officer of Acquiror to such effect.
ARTICLE VI
Termination
6.1 Termination. This Agreement may be terminated, and the Merger
abandoned, prior to the Effective Time, either before or after its approval by
the shareholders of Company:
(a) by the mutual consent of Acquiror and Company, if the board of
directors of each so determines by vote of a majority of the members of its
entire board;
(b) by Acquiror or Company, if its board of directors so determines
by vote of a majority of the members of its entire board, in the event of a
breach by the other party hereto of any representation, warranty, covenant or
agreement contained herein which is not cured or not curable within 45 days
after written notice of such breach is given to the party committing such
breach by the other party and which breach, individually or in the aggregate
with other such breaches, would cause the conditions set forth in Section
5.2(a) and (b), in the case of breaches by Company, or Section 5.3(a) and (b),
in the case of breaches by Acquiror, not to be satisfied;
(c) by Acquiror or Company by written notice to the other if either
(i) any approval, consent or waiver of a Governmental Entity required to
permit consummation of the transactions contemplated hereby shall have been
denied in writing or (ii) any Governmental Entity of competent jurisdiction
shall have issued a final, unappealable order enjoining or otherwise
prohibiting consummation of the transactions contemplated by this Agreement;
(d) by Acquiror or Company, if its board of directors so determines
by vote of a majority of the members of its entire board, in the event that
the Merger is not consummated by March 31, 2005 (the "Termination Date"),
unless the failure to so consummate by such time is due to the breach of any
representation, warranty or covenant contained in this Agreement by the party
seeking to terminate;
(e) by the Board of Directors of Acquiror in the event that (i) the
Board of Directors of Company does not continue to recommend that its
stockholders adopt this Agreement, withdraws such recommendation or modifies
or changes such recommendation in a manner adverse to the interests of
Acquiror, (ii) Company has failed to substantially comply with its obligations
under Section 4.3 or 4.4 or (iii) the Board of Directors of Company has
recommended or endorsed an Acquisition Proposal; or
(f) by Acquiror upon written notice that is received by Company
within five days of the receipt of any Phase II Assessment if such Phase II
Assessment indicates the existence of any condition or matter not satisfactory
or acceptable to Acquiror with respect to which it is reasonably likely that
the cost set forth in the Phase II Assessment(s) of investigation, monitoring,
personal injury, property damage, clean up, remediation, penalties, fines or
other liabilities relating to the Recognized Environmental Condition(s) or
other conditions which
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resulted in the Phase II Assessment would exceed $500,000 in the case of any
one parcel of Owned Real Property or $1,000,000 in the case of all Owned Real
Property.
6.2 Fee. (a) Company must immediately pay to Acquiror a cash
termination fee of $9,750,000 if:
(i) either Company terminates this Agreement pursuant to Section
6.1(d), Acquiror terminates this Agreement pursuant to Section 6.1(e),
the required vote of Company stockholders is not obtained at the Company
Meeting to adopt this Agreement or the Company Meeting is not held;
(ii) prior to the time of the termination, an Acquisition Proposal
is made to Company or its stockholders or is made publicly known or there
has occurred a violation of the obligations under Section 4.3 or 4.4; and
(iii) prior to the date that is fifteen months after such
termination, either an Acquisition Proposal with respect to Company is
consummated or a definitive agreement or letter of intent is entered into
by Company with respect to an Acquisition Proposal.
(b) Company must immediately pay to Acquiror a cash termination fee
of $9,750,000 if Acquiror terminates this Agreement because Company recommends
or endorses an Acquisition Proposal.
(c) If Acquiror terminates this Agreement because the Board of
Directors of Company does not continue to recommend that its stockholders
adopt this Agreement, withdraws such recommendation or modifies or changes
such recommendation in a manner adverse to the interests of Acquiror, then
Company must immediately pay Acquiror $9,750,000.
(d) In no event will the termination fees payable under this
Agreement exceed $9,750,000 in the aggregate.
6.3 Effect of Termination and Abandonment. In the event of
termination of this Agreement and the abandonment of the Merger pursuant to
Section 6.1, (a) no party to this Agreement shall have any liability or
further obligation to any other party hereunder; provided, however,
termination will not relieve a breaching party from liability for any willful
breach giving rise to such termination and (b) this Agreement shall forthwith
be void and of no further legal effect, other than the provisions of Sections
4.7(b), 4.16 and 6.2, this Section 6.3 and Article VII.
ARTICLE VII
Miscellaneous
7.1 Survival. Except for the agreements and covenants contained in
Articles I and II, Sections 4.10, 4.11 and 4.12, and this Article VII, the
representations and warranties, agreements and covenants contained in this
Agreement shall be deemed only to be conditions of the Merger and shall not
survive the Effective Time.
7.2 Modification or Amendment. Subject to applicable law, at any
time prior to the Effective Time, the parties hereto may modify or amend this
Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties.
7.3 Waiver of Conditions. The conditions to each party's
obligation to consummate the Merger are for the sole benefit of such party and
may be waived by such party as a whole or in part to the extent
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permitted by applicable law. No waiver shall be effective unless it is in a
writing signed by a duly authorized officer of the waiving party that makes
express reference to the provision or provisions subject to such waiver.
7.4 Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of separate counterparts, each such
counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement, and may be
delivered by facsimile or other electronic means.
7.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed entirely within the State of Delaware,
without regard to the conflict of law principles of the State of Delaware.
7.6 Notices. Except as set forth in Section 4.1(a), any notice,
request, instruction or other document to be given hereunder by any party to
the other shall be in writing and shall be deemed to have been duly given (a)
on the date of delivery if delivered personally, or by telecopy or
telefacsimile, upon confirmation of receipt, (b) on the first business day
following the date of dispatch if delivered by a recognized next-day courier
service, or (c) on the third business day following the date of mailing if
delivered by registered or certified mail, return receipt requested, postage
prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the
party to receive such notice.
To Acquiror or Acquiror Sub: To Company:
KeyCorp EverTrust Financial Group, Inc.
127 Public Square 2707 Colby Avenue, Suite 600
Cleveland, Ohio 44114-1306 Everett, Washington 98201
Attention: Andrew Tyson Attention: Thomas J. Gaffney
Facsimile: 216-689-3610 Facsimile: 425-259-2844
with a copy to: with a copy to:
KeyCorp Breyer & Associates PC
127 Public Square 8180 Greensboro Drive
Cleveland, Ohio 44114-1306 Suite 785
Attention: Daniel R. Stolzer McLean, Virginia 22102
Facsimile: 216-689-5372 Attention: John F. Breyer, Jr.
Facsimile: 703-883-2511
and with a copy to:
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004-2498
Attention: Mitchell S. Eitel
Facsimile: 212-558-3588
7.7 Entire Agreement, Etc. This Agreement (including the Company
Disclosure Letter) constitutes the entire agreement, and supersedes all other
prior agreements, understandings, representations and warranties, both written
and oral, between the parties, with respect to the subject matter hereof and
thereof, including but not limited to the Confidentiality Agreement in its
entirety which shall hereby terminate, and this Agreement shall not be
assignable by operation of law or otherwise (any attempted assignment in
contravention of this Section 7.7 being null and void).
7.8 Definition of "subsidiary" and "affiliate"; Covenants with
Respect to Subsidiaries and Affiliates. (a) When a reference is made in this
Agreement to a subsidiary of a Person, the term "subsidiary" means
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those other Persons that are controlled, directly or indirectly, by such
Person within the meaning of Section 2(2) of the BHC Act. When a reference is
made in this Agreement to an affiliate of a Person, the term "affiliate" means
those other Persons that, directly or indirectly, control, are controlled by,
or are under common control with, such Person.
(b) Insofar as any provision of this Agreement shall require a
subsidiary or an affiliate of a party to take or omit to take any action, such
provision shall be deemed a covenant by Acquiror or Company, as the case may
be, to cause such action or omission to occur.
7.9 Interpretation; Effect. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated. The table of contents and headings contained in
this Agreement are for reference purposes only and are not part 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."
7.10 No Third Party Beneficiaries. Nothing contained in this
Agreement, expressed or implied, is intended to confer upon any Person, other
than the parties hereto, any benefit, right or remedies except that the
provisions of Section 4.12 shall inure to the benefit of the Persons referred
to therein.
7.11 Waiver of Jury Trial. Each party hereto acknowledges and
agrees that any controversy which may arise under this Agreement is likely to
involve complicated and difficult issues, and therefore each party hereby
irrevocably and unconditionally waives any right such party may have to a
trial by jury in respect of any litigation, directly or indirectly, arising
out of, or relating to, this Agreement, or the transactions contemplated by
this Agreement. Each party certifies and acknowledges that (a) no
representative, agent or attorney of any other party has represented,
expressly or otherwise, that such other party would not, in the event of
litigation, seek to enforce the foregoing waiver, (b) each party understands
and has considered the implications of this waiver, (c) each party makes this
waiver voluntarily, and (d) each party has been induced to enter into this
Agreement by, among other things, the mutual waivers and certifications in
this Section 7.11.
[next page is a signature page]
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first above written.
KEYCORP
By: /s/ Daniel R. Stolzer
-------------------------------------
Name: Daniel R. Stolzer
Title: Senior Vice President and
Deputy General Counsel
KC SUBSIDIARY, INC.
By: /s/ Daniel R. Stolzer
-------------------------------------
Name: Daniel R. Stolzer
Title: Secretary
EVERTRUST FINANCIAL GROUP, INC.
By: /s/ Michael B. Hansen
-------------------------------------
Name: Michael B. Hansen
Title: Chief Executive Officer
APPENDIX B
Section 13 of the Washington Business Corporation Act
23B.13.010 Definitions. As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and in
the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
23B.13.020 Right to dissent. (1) A shareholder is entitled to dissent from,
and obtain payment of the fair value of the shareholder's shares in the event
of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by RCW
23B.11.030, 23B.11.080, or the articles of incorporation, and the shareholder
is entitled to vote on the merger, or (ii) if the corporation is a subsidiary
that is merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if
the shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the shareholders within
one year after the date of sale;
(d) An amendment of the articles of incorporation, whether or not
the shareholder was entitled to vote on the amendment, if the amendment
effects a redemption or cancellation of all of the shareholder's shares in
exchange for cash or other consideration other than shares of the corporation;
or
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(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any
one of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside
the corporate action; or
(c) The shareholder's demand for payment is withdrawn with the
written consent of the corporation.
23B.13.030 Dissent by nominees and beneficial owners. (1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in the shareholder's name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and delivers to the
corporation a notice of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the
dissenter dissents and the dissenter's other shares were registered in the
names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights, which consent shall be set forth
either (i) in a record or (ii) if the corporation has designated an address,
location, or system to which the consent may be electronically transmitted and
the consent is electronically transmitted to the designated address, location,
or system, in an electronically transmitted record; and
(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
23B.13.200 Notice of dissenters' rights. (1) If proposed corporate action
creating dissenters' rights under RCW 23B.13.020 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this chapter and be
accompanied by a copy of this chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020
is taken without a vote of shareholders, the corporation, within ten days
after the effective date of such corporate action, shall deliver a notice to
all shareholders entitled to assert dissenters' rights that the action was
taken and send them the notice described in RCW 23B.13.220.
23B.13.210 Notice of intent to demand payment. (1) If proposed corporate
action creating dissenters' rights under RCW 23B.13.020 is submitted to a vote
at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights must (a) deliver to the corporation before the vote is taken notice of
the shareholder's intent to demand payment for the shareholder's shares if the
proposed action is effected, and (b) not vote such shares in favor of the
proposed action.
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(2) A shareholder who does not satisfy the requirements of subsection (1)
of this section is not entitled to payment for the shareholder's shares under
this chapter.
23B.13.220 Notice. (1) If proposed corporate action creating dissenters'
rights under RCW 23B.13.020 is authorized at a shareholders' meeting, the
corporation shall deliver a notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.
(2) The notice must be sent within ten days after the effective date of
the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not the person acquired beneficial ownership of the
shares before that date;
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days after
the date the notice in subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of this chapter.
23B.13.230 Duty to demand payment. (1) A shareholder sent a notice described
in RCW 23B.13.220 must demand payment, certify whether the shareholder
acquired beneficial ownership of the shares before the date required to be set
forth in the notice pursuant to RCW 23B.13.220(2)(c), and deposit the
shareholder's certificates, all in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (1) of this section retains all other
rights of a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the
shareholder's share certificates where required, each by the date set in the
notice, is not entitled to payment for the shareholder's shares under this
chapter.
23B.13.240 Share restrictions. (1) The corporation may restrict the transfer
of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is effected or the restriction is
released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until the
effective date of the proposed corporate action.
23B.13.250 Payment. (1) Except as provided in RCW 23B.13.270, within thirty
days of the later of the effective date of the proposed corporate action, or
the date the payment demand is received, the corporation shall pay each
dissenter who complied with RCW 23B.13.230 the amount the corporation
estimates to be the fair value of the shareholder's shares, plus accrued
interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value
of the shares;
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(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter.
23B.13.260 Failure to take action. (1) If the corporation does not effect
the proposed action within sixty days after the date set for demanding payment
and depositing share certificates, the corporation shall return the deposited
certificates and release any transfer restrictions imposed on uncertificated
shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment
demand procedure.
23B.13.270 After-acquired shares. (1) A corporation may elect to withhold
payment required by RCW 23B.13.250 from a dissenter unless the dissenter was
the beneficial owner of the shares before the date set forth in
the dissenters' notice as the date of the first announcement to news media or
to shareholders of the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation
of how the interest was calculated, and a statement of the dissenter's right
to demand payment under RCW 23B.13.280.
23B.13.280 Procedure if shareholder dissatisfied with payment or offer. (1)
A dissenter may deliver a notice to the corporation informing the corporation
of the dissenter's own estimate of the fair value of the dissenter's shares
and amount of interest due, and demand payment of the dissenter's estimate,
less any payment under RCW 23B.13.250, or reject the corporation's offer under
RCW 23B.13.270 and demand payment of the dissenter's estimate of the fair
value of the dissenter's shares and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250
or offered under RCW 23B.13.270 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250
within sixty days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty days after the date set for demanding
payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand under
subsection (1) of this section within thirty days after the corporation made
or offered payment for the dissenter's shares.
23B.13.300 Court action. (1) If a demand for payment under RCW 23B.13.280
remains unsettled, the corporation shall commence a proceeding within sixty
days after receiving the payment demand and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does
not commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the superior court
of the county where a corporation's principal office, or, if none in this
state, its registered office, is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the county in this state
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where the registered office of the domestic corporation merged with or whose
shares were acquired by the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unsettled, parties to the proceeding as in
an action against their shares and all parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this chapter. If the court
determines that such shareholder has not complied with the provisions of this
chapter, the shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under RCW 23B.13.270.
23B.13.310 Court costs and counsel fees. (1) The court in a proceeding
commenced under RCW 23B.13.300 shall determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers appointed by
the court. The court shall assess the costs against the corporation, except
that the court may assess the costs against all or some of the dissenters, in
amounts the court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280;
(b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that
the fees for those services should not be assessed against the corporation,
the court may award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefitted.
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APPENDIX C
KEEFE, BRUYETTE & WOODS, INC.
SPECIALISTS IN FINANCIAL SERVICES
211 BRADENTON AVE. DUBLIN, OH 43017
PHONE FAX
614-766-8400 614-766-8406
AUGUST 20, 2004
Board of Directors
EverTrust Financial Group, Inc.
2707 Colby Ave., Suite 600
Everett, WA 98201
Dear Board Members:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the stockholders of
EverTrust Financial Group, Inc. ("EverTrust"), of the consideration to be paid
to EverTrust shareholders in the merger (the "Merger") between EverTrust and
KeyCorp, a Delaware corporation ("Key"). We have not been requested to opine
as to, and our opinion does not in any manner address, EverTrust's underlying
business decision to proceed with or effect the Merger.
Pursuant to the Agreement and Plan of Merger, dated June 24, 2004, by and
among EverTrust and Key (the "Agreement"), at the effective time of the
Merger, Key will acquire all of EverTrust's issued and outstanding shares of
common stock. EverTrust shareholders will receive $25.6016 in cash per share.
Keefe, Bruyette & Woods, Inc., as part of its investment banking business, is
regularly engaged in the evaluation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, and distributions of
listed and unlisted securities. We are familiar with the market for common
stocks of publicly traded banks, savings institutions and bank and savings
institution holding companies.
In connection with this opinion we reviewed certain financial and other
business data supplied to us by EverTrust, including (i) the Agreement (ii)
Annual Reports for the years ended March 31, 2002, 2003 and 2004 (iii) Proxy
Statements for the years ended March 30, 2002, 2003 and 2004 (iv) unaudited
financial statements for the quarter ended June 30, 2004 (v) and other
information we deemed relevant. We also discussed with senior management and
directors of EverTrust, the current position and prospective outlook for
EverTrust. We reviewed financial and stock market data of other savings
institutions and the financial and structural terms of several other recent
transactions involving mergers and acquisitions of savings institutions or
proposed changes of control of comparably situated companies.
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Board of Directors
EverTrust Financial Corporation
August 20, 2004
Page 2
For Key, we reviewed (i) Annual Reports for the years ended December 31, 2001,
2002 and 2003, (ii) unaudited financial statements for the quarters ended
March 31, 2004 and June 30, 2004 (iii) and other information we deemed
relevant. We also discussed with members of the senior management team of
Key, the current position and prospective outlook for Key.
For purposes of this opinion we have relied, without independent verification,
on the accuracy and completeness of the material furnished to us by EverTrust
and the material otherwise made available to us, including information from
published sources, and we have not made any independent effort to verify such
data. With respect to the financial information, including forecasts and
asset valuations we received from EverTrust, we assumed (with your consent)
that they had been reasonably prepared reflecting the best currently available
estimates and judgment of EverTrust's management. In addition, we have not
made or obtained any independent appraisals or evaluations of the assets or
liabilities, and potential and/or contingent liabilities of EverTrust. We
have further relied on the assurances of management of EverTrust that they are
not aware of any facts that would make such information inaccurate or
misleading. We express no opinion on matters of a legal, regulatory, tax or
accounting nature or the ability of the Merger, as set forth in the Agreement,
to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to Key or the ability to consummate the Merger. Our opinion is
based on the market, economic and other relevant considerations as they exist
and can be evaluated on the date hereof.
Consistent with the engagement letter with you, we have acted as financial
advisor to EverTrust in connection with the Merger and will receive a fee for
such services. In addition, EverTrust has agreed to indemnify us for certain
liabilities arising out of our engagement by EverTrust in connection with the
Merger.
Based upon and subject to the foregoing, as outlined in the foregoing
paragraphs and based on such other matters as we considered relevant, it is
our opinion that as of the date hereof, the consideration to be paid by Key in
the Merger is fair, from a financial point of view, to the stockholders of
EverTrust.
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Board of Directors
EverTrust Financial Corporation
August 20, 2004
Page 3
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the proxy statement of EverTrust used to
solicit stockholder approval of the Merger. It is understood that this letter
is directed to the Board of Directors of EverTrust in its consideration of the
Agreement, and is not intended to be and does not constitute a recommendation
to any stockholder as to how such stockholder should vote with respect to the
Merger.
Very truly yours,
/s/ Keefe, Bruyette & Woods, Inc.
Keefe, Bruyette, & Woods, Inc.
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REVOCABLE PROXY
EVERTRUST FINANCIAL GROUP, INC.
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SPECIAL MEETING OF SHAREHOLDERS
SEPTEMBER 23, 2004
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The undersigned hereby appoints Michael B. Hansen and Michael R. Deller
as the official Proxy Committee of the Board of Directors with full powers of
substitution, as attorneys and proxies for the undersigned, to vote all shares
of common stock of EverTrust which the undersigned is entitled to vote at a
special meeting of shareholders, to be held at the Monte Cristo Ballroom
located at 1507 Wall Street, Everett, Washington, on Thursday, September 23,
2004, at 9:00 a.m., local time, and at any and all adjournments thereof, as
follows:
FOR AGAINST ABSTAIN
1. MERGER AGREEMENT: To approve the Agreement [ ] [ ] [ ]
and Plan of Merger dated June 24, 2004 among
KeyCorp, KC Subsidiary, Inc. and EverTrust
Financial Group, Inc., which provides, among
other things, for the acquisition of EverTrust
Financial Group, Inc. by KeyCorp.
2. ADJOURNMENT: To approve the adjournment of [ ] [ ] [ ]
the Special Meeting, if necessary, to solicit
additional proxies if there are not sufficient
votes at the time of the Special Meeting to
approve the Agreement and Plan of Merger
referenced above.
The Board of Directors recommends a vote "FOR" each of the above proposals.
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THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED ON
A SIGNED, DATED AND RETURNED PROXY, THIS PROXY WILL BE VOTED FOR THE
PROPOSITIONS STATED. THIS PROXY CARD WILL ALSO BE USED TO PROVIDE VOTING
INSTRUCTIONS TO THE TRUSTEE FOR ANY SHARES OF EVERTRUST COMMON STOCK ALLOCATED
BY EVERTRUST TO PARTICIPANTS UNDER THE EVERTRUST BANK EMPLOYEE STOCK OWNERSHIP
PLAN. IF ANY OTHER BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE
VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT
TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE
MEETING.
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the special
meeting or at any adjournment thereof and after notification to the Secretary
of EverTrust at the special meeting of the shareholder's decision to terminate
this proxy, then the power of said attorneys and proxies shall be deemed
terminated and of no further force and effect.
The undersigned acknowledges receipt from EverTrust prior to the
execution of this proxy of notice of the special meeting, and proxy statement
dated August 20, 2004.
Dated: , 2004
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PRINT NAME OF SHAREHOLDER PRINT NAME OF SHAREHOLDER
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SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER
Please sign exactly as your name appears on this proxy card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
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PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
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