Exhibit 2.1

AGREEMENT AND PLAN OF MERGER

by and among

TIMBERLAND BANCORP, INC.

TIMBERLAND BANK

and

SOUTH SOUND BANK

Dated as of May 22, 2018

TABLE OF CONTENTS

 

		Page
PREAMBLE		1
RECITALS		1
ARTICLE I THE MERGER		2
1.1	The Merger	2
1.2	Effective Time	2
1.3	Effects of the Merger	2
1.4	Conversion of Stock	2
1.5	Incorporation Documents and By-Laws of the Surviving Bank	3
1.6	Directors and Officers	4
1.7	Name, Principal Office and Branch Offices of Surviving Bank	4
1.8	Approvals	4
1.9	Additional Actions	4
ARTICLE II DELIVERY OF MERGER CONSIDERATION		4
2.1	Exchange Agent	4
2.2	Deposit of Merger Consideration	4
2.3	Delivery of Merger Consideration	5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SOUTH SOUND BANK		7
3.1	Corporate Organization	7
3.2	Capitalization	8
3.3	Authority; No Violation	9
3.4	Consents and Approvals	9
3.5	Reports	10
3.6	Financial Statements and Internal Controls	10
3.7	Broker's Fees	11
3.8	Absence of Certain Changes or Events	12
3.9	Legal Proceedings	12
3.10	Taxes and Tax Returns	12
3.11	Employees	13
3.12	Compliance with Applicable Law	15
3.13	Certain Contracts	16
3.14	Agreements with Regulatory Agencies	17
3.15	Risk Management Instruments	17
3.16	Environmental Matters. South Sound Bank	18
3.17	Investment Securities, Commodities and BOLI	18
3.18	Title	18
3.19	Intellectual Property	19
3.20	Related Party Transactions	20
3.21	State Takeover Laws	20
3.22	Reorganization	20
3.23	Opinion of Financial Advisor	20
3.24	South Sound Bank Information	20
3.25	Loan Portfolio	21
3.26	Insurance	22
3.27	Fiduciary Business	22
3.28	Books and Records	22
3.29	Indemnification	22
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TIMBERLAND AND TIMBERLAND BANK		22

4.1	Corporate Organization	22
4.2	Capitalization	23
4.3	Authority; No Violation	24
4.4	Consents and Approvals	24
4.5	Reports	24
4.6	Financial Statements and Internal Controls	25
4.7	Absence of Certain Changes or Events	26
4.8	Legal Proceedings	26
4.9	Taxes and Tax Returns	26
4.10	Employees	27
4.11	SEC Reports	28
4.12	Compliance with Applicable Law	28
4.13	Agreements with Regulatory Agencies	29
4.14	Risk Management Instruments	29
4.15	Environmental Matters	29
4.16	Investment Securities and Commodities	30
4.17	Title	30
4.18	Intellectual Property	30
4.19	Reorganization	31
4.20	Timberland Information	31
4.21	Loan Portfolio	31
4.22	Insurance	32
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS		32
5.1	South Sound Bank Conduct of Businesses Prior to the Effective Time	32
5.2	South Sound Bank Forbearances	32
5.3	Timberland and Timberland Bank Conduct of Business Prior to the Effective Time	35
5.4	Timberland and Timberland Bank Forbearances	35
ARTICLE VI ADDITIONAL AGREEMENTS		36
6.1	Regulatory Matters	36
6.2	Access to Information; Current Information	38
6.3	Shareholder Meeting	39
6.4	Reservation of Common Stock; Nasdaq Listing	39
6.5	Employee Matters	40
6.6	Officers' and Directors' Tail Insurance	42
6.7	Exemption from Liability Under Section 16(b)	43
6.8	No Solicitation	43
6.9	Notification of Certain Matters	44
6.10	Correction of Information	45
6.11	Integration	45
6.12	Coordination; Integration	45
6.13	Delivery of Agreements	45
ARTICLE VII CONDITIONS PRECEDENT		45
7.1	Conditions to Each Party's Obligations	45
7.2	Conditions to Obligations of Timberland and Timberland Bank	46
7.3	Conditions to Obligations of South Sound Bank	47
ARTICLE VIII TERMINATION AND AMENDMENT		48
8.1	Termination	48
8.2	Effect of Termination	49
8.3	Fees and Expenses	49
8.4	Termination Fee	49
8.5	Amendment	50
8.6	Extension; Waiver. At	50
ARTICLE IX GENERAL PROVISIONS		50

9.1	Closing	50
9.2	Nonsurvival of Representations, Warranties and Agreements	51
9.3	Notices	51
9.4	Interpretation	51
9.5	Counterparts	52
9.6	Entire Agreement	52
9.7	Governing Law, Jurisdiction, Venue and Construction	52
9.8	Publicity	52
9.9	Assignment; Third Party Beneficiaries	52
9.10	Specific Performance; Time of the Essence	53
9.12	Waiver of Jury Trail	53

SIGNATURES		54
ANNEXES AND EXHIBITS
Annex I	Directors of Surviving Bank
Annex II	Officers of Surviving Bank
Annex III	Branch Office Locations of Surviving Bank
Exhibit A	Form of Voting Agreement
Exhibit B	Form of Non-Compete Agreement
Exhibit C	Form of Amendment to the Lease for the Lacey Branch of South Sound Bank
Exhibit D	Third Party Consents

 

INDEX OF DEFINED TERMS

 

	Page
Acceptable Confidentiality Agreement	43
Acquisition Proposal	44
Agreement	1
Articles of Merger	2
BHC Act	7
BOLI	18
Cancelled Shares	3
Change in Recommendation	44
Claim	42
Closing	50
Closing Date	51
Code	1
Confidentiality Agreement	39
Covered Employees	40
DFI	10
Dissenting Shares	3
DPC Common Shares	3
Effective Time	2
Enforceability Exception	9
Environmental Laws	18
ERISA	13
Exchange Act	20
Exchange Agent	5
Exchange Agent Agreement	4
Exchange Fund	5
Exchange Ratio	2
Existing Certificate	3
FDIC	8
FHLB	8
Final Determination Letter	40
Form S-4	10
GAAP	8
Governmental Entity	10
Intellectual Property	19
IRS	12
IT Assets	20
Letter of Transmittal	5
Liens	9
Loans	21
Material Adverse Effect	7
Merger	1
Merger Consideration	2
Monetary Liens	19
Multiemployer Plan	14
Multiple Employer Plan	14
Multiple Employer Welfare Arrangement	14
Nasdaq	10
Non-Compete Agreement	1
Parties	1
Permitted Encumbrances	19

Proxy Statement	10
PTO	40
RCW	2
Regulatory Agencies	10
Requisite Regulatory Approvals	46
Sarbanes-Oxley Act	26
SEC	10
Secretary of State	2
Securities Act	10
South Sound	1
South Sound Bank Articles	8
South Sound Bank Benefit Plans	13
South Sound Bank Board Recommendation	39
South Sound Bank Bylaws	8
South Sound Bank Call Reports	11
South Sound Bank Common Stock	2
South Sound Bank Confidential Information	43
South Sound Bank Contract	17
South Sound Bank Disclosure Schedule	7
South Sound Bank ERISA Affiliate	13
South Sound Bank ESOP	40
South Sound Bank Financial Statements	10
South Sound Bank Indemnified Party	42
South Sound Bank Individuals	43
South Sound Bank Insiders	43
South Sound Bank Leased Properties	19
South Sound Bank Owned Properties	19
South Sound Bank Qualified Plans	14
South Sound Bank Real Property	19
South Sound Bank Regulatory Agreement	17
South Sound Bank Representatives	43
South Sound Bank Shareholder Approval	9
South Sound Bank Shareholder Meeting	39
South Sound Bank Termination Fee	49
SRO	10
Superior Proposal	44
Surviving Bank	1
Takeover Statutes	20
Tax	13
Tax Return	13
Taxes	13
Termination Fee	49
Timberland	1
Timberland Articles	23
Timberland Bylaws	23
Timberland Common Stock	2
Timberland Disclosure Schedule	22
Timberland Leased Properties	30
Timberland Owned Properties	30
Timberland Real Property	30
Timberland Regulatory Agreement	29
Timberland Reports	28
Timberland Stock Options	23

Timberland Stock Plans	23
Timberland Termination Fee	50
Total Payments	42
Treasury	13
Trust Account Common Shares	3
Unduly Burdensome Condition	46
Voting Agreement	1

 

 

 

 

 

 

 

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER, dated as of May 22, 2018 (this "Agreement"), by and among Timberland Bancorp, Inc., a Washington corporation ("Timberland"), Timberland Bank, a Washington state-chartered savings bank and first tier, wholly owned subsidiary of Timberland and South Sound Bank,  a Washington state-chartered commercial bank (and together with Timberland and Timberland Bank, the "Parties").

RECITALS

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained in this Agreement, the Parties agree as follows:

ARTICLE I

THE MERGER

 

outstanding and shall automatically be cancelled and shall cease to exist as of the Effective Time, and each certificate previously representing any such shares of South Sound Bank Common Stock (each, an "Existing Certificate"), (it being understood that any reference to an "Existing Certificate" shall be deemed, as appropriate, to include reference to book-entry account statements relating to the ownership of South Sound Bank Common Stock, and it being further understood that provisions herein relating to Existing Certificates shall be interpreted in a manner that appropriately accounts for book-entry shares, including that, in lieu of delivery of an Existing Certificate and a letter of transmittal as specified herein, shares held in book-entry form may be transferred by means of an "agent's message" to the Exchange Agent or such other similar evidence of transfer as the Exchange Agent may reasonably request), shall thereafter represent only the right to receive the Merger Consideration including any cash in lieu of a fractional share interest into which the shares of South Sound Bank Common Stock represented by such Existing Certificate have been converted pursuant to this Section 1.4 and Section 2.3(f), as well as any dividends as provided in Section 2.3(c).

 

shall be the by-laws of the Surviving Bank following the Effective Time until thereafter amended in accordance with applicable law and the terms of such by-laws.

ARTICLE II

DELIVERY OF MERGER CONSIDERATION

 

Exchange Agent to issue an aggregate number of shares of Timberland Common Stock equal to the stock portion of the Merger Consideration and (ii) deposit or cause to be deposited with the Exchange Agent, the cash portion of the aggregate Merger Consideration, plus to the extent then determinable, any cash in lieu of fractional shares pursuant to Section 2.3(f), and, together with any dividends or distributions with respect thereto payable pursuant to Section 2.3(c), (collectively, the "Exchange Fund") and Timberland and Timberland Bank shall instruct the Exchange Agent to timely deliver the Merger Consideration.

 

 

of South Sound Bank, the Merger Consideration, any cash in lieu of a fractional share of Timberland Common Stock to be issued or paid in consideration therefor, and any dividends or distributions to which such holder is entitled, shall be issued or paid in exchange therefor to a person other than the person in whose name the Existing Certificate so surrendered is registered if the Existing Certificate formerly representing such South Sound Bank Common Stock shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment or issuance shall pay any transfer or other similar Taxes (as defined in Section 3.10(b)) required by reason of the payment or issuance to a person other than the registered holder of the Existing Certificate or establish to the satisfaction of Timberland that the Tax has been paid or is not applicable.  The Exchange Agent (or, subsequent to the earlier of (x) six months after the Effective Time and (y) the expiration or termination of the Exchange Agent Agreement, Timberland or Timberland Bank, as applicable) shall be entitled to deduct and withhold from the cash portion of the Merger Consideration and any cash in lieu of a fractional share of Timberland Common Stock or any other cash payable pursuant to this Agreement to any holder of South Sound Bank Common Stock such amounts as the Exchange Agent, Timberland or Timberland Bank, as the case may be, is required to deduct and withhold under the Code, or any provision of state, local or foreign tax law, with respect to the making of such payment.  To the extent amounts are so withheld by the Exchange Agent, Timberland or Timberland Bank, as the case may be, and timely paid over to the appropriate Governmental Entity (as defined in Section 3.4), such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of shares of South Sound Bank Common Stock in respect of whom such deduction and withholding was made by the Exchange Agent, Timberland or Timberland Bank, as the case may be.

 

such shareholder holds as determined pursuant to this Agreement, in each case, without any interest thereon.  Notwithstanding the foregoing, none of Timberland, Timberland Bank, South Sound Bank, the Surviving Bank, the Exchange Agent or any other person shall be liable to any former holder of shares of South Sound Bank Common Stock for any amount delivered in good faith to a public official pursuant to applicable abandoned property, escheat or similar laws.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SOUTH SOUND BANK

Except as disclosed in the disclosure schedule delivered by South Sound Bank to Timberland and Timberland Bank concurrently herewith (the "South Sound Bank Disclosure Schedule"); provided, that (a) no such item is required to be set forth 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, (b) the mere inclusion of an item in the South Sound Bank Disclosure Schedule as an exception to a representation or warranty shall not be deemed an admission by South Sound Bank 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 defined in Section 3.1(a)) on South Sound Bank and (c) any disclosures made with respect to a section of Article III shall be deemed to qualify (1) any other section of Article III specifically referenced or cross-referenced and (2) other sections of Article III to the extent it is reasonably apparent on its face (notwithstanding the absence of a specific cross reference) from a reading of the disclosure that such disclosure applies to such other sections, South Sound Bank hereby represents and warrants to Timberland and Timberland Bank as follows:

 

date hereof, in global, national or regional political conditions (including the outbreak of war or acts of terrorism) or in economic or market (including equity, credit and debt markets, as well as changes in interest rates) conditions affecting the financial services industry generally, (D) public disclosure of the transactions contemplated hereby or actions or inactions expressly required by this Agreement or that are taken with the prior written consent of the other party in contemplation of the transactions contemplated hereby, (E) expenses reasonably incurred by a party in connection with this Agreement or the Merger or (F) a decline in the trading price of a party's common stock or the failure, in and of itself, to meet earnings projections, but not, in either case, including the underlying causes thereof; except, with respect to subclauses (A), (B), or (C), to the extent that the effects of such change are materially disproportionately adverse to the business, properties, assets, liabilities, results of operations or financial condition of such party and its Subsidiaries, taken as a whole, as compared to other companies in the industry in which such party and its Subsidiaries operate), or (ii) the ability of such party to timely consummate the Merger.  As used in this Agreement, the word "Subsidiary" when used with respect to any party, means any corporation, partnership, limited liability company, bank or other organization, whether incorporated or unincorporated, which is consolidated with such party for financial reporting purposes.  True and complete copies of the articles of incorporation of South Sound Bank (the "South Sound Bank Articles") and the bylaws of South Sound Bank (the "South Sound Bank Bylaws"), as in effect as of the date of this Agreement, have previously been made available by South Sound Bank to Timberland and Timberland Bank.

 

a party.  No equity-based awards (including any cash awards where the amount of payment is determined in whole or in part based on the price of any capital stock of South Sound Bank) are outstanding.

 

(a)          The audited balance sheets (including related notes and schedules, if any) of South Sound Bank as of December 31, 2017 and 2016 and the related statements of income, comprehensive income, changes in shareholders' equity, and cash flows (including related notes and schedules, if any) of South Sound Bank for each of the two years then ended (collectively, the "South Sound Bank Financial Statements") have been previously made available to Timberland. The South Sound Bank Financial Statements fairly present the financial position and results of operations of South Sound Bank as of and for the respective periods ending on the dates thereof, in accordance with GAAP consistently applied during the periods involved, except as indicated in the South Sound Bank Financial Statements or notes thereto. The financial and accounting books and records of South Sound Bank have been maintained in all material respects in accordance with GAAP and all other applicable legal and accounting requirements, reflect only actual transactions, and there are no material misstatements, omissions, inaccuracies or discrepancies contained or reflected therein. Moss Adams LLP has not resigned (or informed South Sound Bank that it intends to resign) or been dismissed as independent public accountants of South Sound Bank as a result of or in connection with any disagreements with South Sound Bank on a matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.

 

(b)          The call reports of South Sound Bank and accompanying schedules, as filed (or to be filed) with the FDIC, for each calendar quarter beginning with the quarter ended September 30, 2015 through the Closing Date (as defined in Section 9.1) (the "South Sound Bank Call Reports") have

 

been (or will be) prepared in accordance with regulatory requirements including applicable regulatory accounting principles and practices through the periods covered by such reports.

 

(c)          South Sound Bank has no liabilities, obligations or loss contingencies of any nature (whether absolute, accrued, contingent or otherwise) of a type required to be reflected or reserved against on a balance sheet (or notes thereto) prepared in accordance with GAAP, except for liabilities, obligations and loss contingencies which (i) are fully reflected or reserved against on the most recent balance sheet included in the South Sound Bank Financial Statements (including any notes thereto), (ii) were incurred in the ordinary course of business consistent with past practice since the date of the most recent balance sheet included in the South Sound Bank Financial Statements, or (iii) were incurred in connection with the Merger.

 

(d)          The allowance for loan loss account of South Sound Bank as reflected in the South Sound Bank Call Report for the quarter ended March 31, 2018, was as of such date, and the amount thereof contained in the financial books and records of South Sound Bank as of the last day of the month immediately preceding the Closing Date will be as of such future date, in compliance with South Sound Bank's existing methodology for determining the adequacy of its allowance for loan and lease losses as well as GAAP and applicable regulatory guidelines.

 

(e)          The records, systems, controls, data and information of South Sound Bank are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of South Sound Bank or its accountants (including all means of access thereto and therefrom), except for any non-exclusive ownership and non-direct control that would not reasonably be expected to have a material adverse effect on South Sound Bank's system of internal accounting controls.  South Sound Bank has implemented and maintains a system of internal accounting controls effective to provide reasonable assurances that (i) transactions are executed in accordance with management's general and specific authorizations, and (ii) transactions are recorded in accordance with GAAP consistently applied and with applicable law.

 

(f)          Since January 1, 2014, (i) neither South Sound Bank, nor to the knowledge of South Sound Bank, any director, officer, employee, auditor, accountant or any representative of South Sound Bank has received  or otherwise had or obtained knowledge of any complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods (including with respect to loan loss reserves, write downs, charge offs and accruals) of South Sound Bank or its internal accounting controls, including any complaint, allegation, assertion or claim that South Sound Bank has engaged in questionable accounting or auditing practices, and (ii) no attorney representing South Sound Bank or any other person, whether or not employed by South Sound Bank, has reported evidence of a material violation of securities laws, breach of fiduciary duty or violation of banking or other laws by South Sound Bank or any of its officers, directors, employees or agents to the Board of Directors of South Sound Bank or any committee thereof.

 

 

Code.  South Sound Bank has not participated in a "reportable or listed transaction" within the meaning of Treasury Regulation Section 1.6011-4(b).  At no time during the applicable period specified in Code §897(c)(1)(A)(ii) has South Sound Bank been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code.  No claim has been made in the last ten (10) years by any Governmental Entity in a jurisdiction where South Sound Bank does not file Tax Returns that South Sound Bank is or may be subject to taxation by that jurisdiction.   South Sound Bank has not filed an election under Section 338(g) or 338(h)(10) of the Code for which the statute of limitations for audit or examination has not expired.  South Sound Bank has not agreed, nor is it required, to make any adjustment under Section 481(a) of the Code.

 

filing under any voluntary correction program of the IRS, United States Department of Labor or any other Governmental Entity with respect to any South Sound Bank Benefit Plan, and South Sound Bank does not have any knowledge of any plan defect that would qualify for correction under any such program.

 

instituted, and, to South Sound Bank's knowledge, no set of circumstances exists which may reasonably give rise to a claim or lawsuit, against any South Sound Bank Benefit Plan, any fiduciaries thereof with respect to their duties to a South Sound Bank Benefit Plan or the assets of any of trust under any South Sound Bank Benefit Plans which could reasonably be expected to result in any liability of South Sound Bank to any Governmental Entity, any Multiemployer Plan, a Multiple Employer Plan, any participant in a South Sound Bank Benefit Plan, or any other party.

 

of its businesses and ownership of its properties, rights and assets under and pursuant to each (and have paid all fees and assessments due and payable in connection therewith), and to the knowledge of South Sound Bank, no suspension or cancellation of any such necessary license, franchise, permit or authorization is threatened.  South Sound Bank has complied in all material respects with, and is not in material default or violation under any, applicable law, statute, order, rule, regulation, policy and/or guideline of any Governmental Entity relating to South Sound Bank, including without limitation all laws related to data protection or privacy, the USA PATRIOT Act, the Bank Secrecy Act, the Equal Credit Opportunity Act and Regulation B, the Fair Housing Act, the Community Reinvestment Act, the Fair Credit Reporting Act, the Truth in Lending Act and Regulation Z, the Home Mortgage Disclosure Act, the Fair Debt Collection Practices Act, the Electronic Fund Transfer Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, any regulations promulgated by the Consumer Financial Protection Bureau, the Interagency Policy Statement on Retail Sales of Nondeposit Investment Products, the SAFE Mortgage Licensing Act of 2008, the Real Estate Settlement Procedures Act and Regulation X, and any other law relating to bank secrecy, discriminatory lending, financing or leasing practices, money laundering prevention, Sections 23A and 23B of the Federal Reserve Act, and all agency requirements relating to the origination, sale and servicing of mortgage and consumer loans.  South Sound Bank has a Community Reinvestment Act rating of "satisfactory" or better.  Without limitation, neither South Sound Bank, nor to the knowledge of South Sound Bank, any director, officer, employee, agent or other person acting on behalf of South Sound Bank has, directly or indirectly, (i) used any funds of South Sound Bank for unlawful contributions, unlawful gifts, unlawful entertainment or other expenses relating to political activity, (ii) made any unlawful payment to foreign or domestic governmental officials or employees or to foreign or domestic political parties or campaigns from funds of South Sound Bank, (iii) violated any provision that would result in the violation of the Foreign Corrupt Practices Act of 1977, as amended, or any similar law, (iv) established or maintained any unlawful fund of monies or other assets of South Sound Bank, (v) made any fraudulent entry on the books or records of South Sound Bank, or (vi) made any unlawful bribe, unlawful rebate, unlawful payoff, unlawful influence payment, unlawful kickback or other unlawful payment to any person, private or public, regardless of form, whether in money, property or services, to obtain favorable treatment in securing business or to obtain special concessions for South Sound Bank, to pay for favorable treatment for business secured or to pay for special concessions already obtained for South Sound Bank, or is currently subject to any United States sanctions administered by the Office of Foreign Assets Control of the Treasury.

 

indebtedness by South Sound Bank (other than deposit liabilities, trade payables, federal funds purchased, advances and loans from the FHLB and securities sold under agreements to repurchase, in each case incurred in the ordinary course of business consistent with past practice) including any sale and leaseback transactions, capitalized leases and other similar financing transactions, (viii) that grants any right of first refusal, right of first offer or similar right with respect to any assets, rights or properties of South Sound Bank, (ix) that involves the payment by South Sound Bank of more than $10,000 per annum or $25,000 in the aggregate (other than any such contracts which are terminable by South Sound Bank on sixty (60) days or less notice without any required payment or other conditions, other than the condition of notice), (x) that pertains to the leasing of real property, (xi) that obligates South Sound Bank to conduct business with a third party on an exclusive or preferential basis, (xii) that imposes potential recourse obligations on South Sound Bank in connection with sale of loans or loan participations (other than as a result of the breach of customary representations, warranties or covenants), (xiii) for the subservicing of loans, or (xiv) that provides for contractual indemnification to any director, officer, employee or independent contractor.  Each contract, arrangement, commitment or understanding of the type described in this Section 3.13(a), whether or not set forth in the South Sound Bank Disclosure Schedule, is referred to herein as a "South Sound Bank Contract," and South Sound Bank does not know of, and has not received notice of, any material violation of the above by any of the other parties thereto.

 

 

"Trojan horses", "back doors", "trap doors", "worms", viruses, bugs, faults or other devices or effects that (i) enable or assist any person to access without authorization its IT Assets or (ii) otherwise adversely affect the functionality of its IT Assets.  To the knowledge of South Sound Bank, no person has gained unauthorized access to its IT Assets.  To the knowledge of South Sound Bank, South Sound Bank maintains and utilizes its IT Assets in accordance with all applicable licenses, agreements and other contracts.  South Sound Bank has implemented and maintains reasonable backup, security and disaster recovery technology.  South Sound Bank takes reasonable measures, which are to the knowledge of South Sound Bank, adequate to comply with all applicable law and its contractual and privacy commitments, to protect the confidentiality of customer financial and other data.  For purposes of this Agreement, "IT Assets" means the computers, computer software, firmware, middleware, servers, workstations, routers, hubs, switches, data communication lines, and all other information technology equipment, and all associated documentation of a party and its Subsidiaries.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF TIMBERLAND AND TIMBERLAND BANK

 

Except (i) as disclosed in the disclosure schedule delivered by Timberland and Timberland Bank to South Sound Bank concurrently herewith (the "Timberland Disclosure Schedule"); provided, that (a) no such item is required to be set forth 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, (b) the mere inclusion of an item in the Timberland Disclosure Schedule as an exception to a representation or warranty shall not be deemed an admission by Timberland 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 on Timberland, and (c) any disclosures made with respect to a section of Article IV shall be deemed to qualify (1) any other section of Article IV specifically referenced or cross-referenced and (2) other sections of Article IV to the extent it is reasonably apparent on its face (notwithstanding the absence of a specific cross reference) from a reading of the disclosure that such disclosure applies to such other sections or (ii) as disclosed in any Timberland Reports (as defined in Section 4.11) filed with the SEC by Timberland prior to the date hereof (but disregarding risk factor disclosures contained under the heading "Risk Factors," or disclosures of risks set forth in any "forward-looking statements" disclaimer or any other statements that are similarly non-specific or cautionary, predictive or forward-looking in nature), Timberland and Timberland Bank hereby represent and warrant to South Sound Bank as follows:

 

it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified would not reasonably be expected to have a Material Adverse Effect on Timberland.   True and complete copies of the articles of incorporation of Timberland (the "Timberland Articles") and the bylaws of Timberland (the "Timberland Bylaws"), as in effect as of the date of this Agreement, have previously been made available by Timberland to South Sound Bank.

 

 

 

 

personal liability attaching to the ownership thereof.  Timberland Bank is not bound by any outstanding subscriptions, options, warrants, calls, rights, commitments or agreements of any character calling for the purchase or issuance of any shares of its capital stock or any securities representing the right to purchase or otherwise receive any shares of its capital stock.

 

(a)         The financial statements of Timberland and its Subsidiaries included (or incorporated by reference) in the Timberland Reports (including the related notes, where applicable) (i) have been prepared from, and are in accordance with, the books and records of Timberland and its Subsidiaries, (ii) fairly present in accordance with GAAP the consolidated results of operations, cash flows, changes in shareholders' equity and consolidated financial position of Timberland and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth (subject in the case of unaudited statements to year-end audit adjustments normal in nature and amount and the absence of notes), (iii) complied, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, and (iv) have been prepared in accordance with GAAP consistently applied during the periods involved, except, in each case, as indicated in such statements or in the notes thereto.  The books and records of Timberland and its Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements, reflect only actual transactions and there are no material misstatements, omissions, inaccuracies or discrepancies contained or reflected therein.  Delap LLP has not resigned (or informed Timberland that it intends to resign) or been dismissed as independent public accountants of Timberland as a result of or in connection with any disagreements with Timberland on a matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.

 

 

 

significant role in Timberland's internal controls over financial reporting.  These disclosures were made in writing by management to Timberland's auditors and audit committee.  There is no reason to believe that Timberland's outside auditors and its Chief Executive Officer and Chief Financial Officer will not be able to give the certifications and attestations required pursuant to the rules and regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act, without qualification, when next due.

 

 

Timberland nor any of its Subsidiaries has granted any extension or waiver of the limitation period applicable to any Tax that remains in effect.  The federal income Tax Returns of Timberland and its Subsidiaries for all years to and including the tax year ended September 30, 2013 have been examined by the IRS or are Tax Returns with respect to which the applicable period for assessment under applicable law, after giving effect to extensions or waivers, has expired.  Neither Timberland nor any of its Subsidiaries has received written notice of assessment or proposed assessment in connection with any amount of Taxes, and there are no threatened or pending disputes, claims, audits, examinations or other proceedings regarding any Tax of Timberland or its Subsidiaries or the assets of Timberland or its Subsidiaries.  Timberland has made available to South Sound Bank true and complete copies of any private letter ruling requests, closing agreements or gain recognition agreements with respect to Taxes requested or executed in the last six (6) years.  Neither Timberland nor any of its Subsidiaries is a party to or is bound by any Tax sharing, allocation or indemnification agreement or arrangement (other than such an agreement or arrangement exclusively between or among Timberland and its Subsidiaries).  Neither Timberland nor Timberland Bank has been, within the past two (2) years or otherwise as part of a "plan (or series of related transactions)" within the meaning of Section 355(e) of the Code of which the Merger is also a part, a "distributing corporation" or a "controlled corporation" (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock intending to qualify for tax-free treatment under Section 355 of the Code.  Neither Timberland nor Timberland Bank has participated in a "reportable or listed transaction" within the meaning of Treasury Regulation Section 1.6011-4(b).  At no time during the applicable period specified in Code §897(c)(1)(A)(ii) has Timberland or Timberland Bank been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code.

(b)         Each Timberland Benefit Plan has been established, operated and administered in all material respects in accordance with its terms and the requirements of all applicable laws, including ERISA and the Code. 

 

(c)         No Timberland Benefit Plan is subject to Title IV or Section 302 of ERISA.

   

 

 

material liability of Timberland or Timberland Bank to any Governmental Entity, any Multiemployer Plan, a Multiple Employer Plan, any participant in a Timberland Benefit Plan, or any other party.

 

 

or indirectly, (i) used any funds of Timberland or Timberland Bank for unlawful contributions, unlawful gifts, unlawful entertainment or other expenses relating to political activity, (ii) made any unlawful payment to foreign or domestic governmental officials or employees or to foreign or domestic political parties or campaigns from funds of Timberland or Timberland Bank, (iii) violated any provision that would result in the violation of the Foreign Corrupt Practices Act of 1977, as amended, or any similar law, (iv) established or maintained any unlawful fund of monies or other assets of Timberland or Timberland Bank, (v) made any fraudulent entry on the books or records of Timberland or Timberland Bank, or (vi) made any unlawful bribe, unlawful rebate, unlawful payoff, unlawful influence payment, unlawful kickback or other unlawful payment to any person, private or public, regardless of form, whether in money, property or services, to obtain favorable treatment in securing business or to obtain special concessions for Timberland or  Timberland Bank, to pay for favorable treatment for business secured or to pay for special concessions already obtained for Timberland or Timberland Bank, or is currently subject to any United States sanctions administered by the Office of Foreign Assets Control of the Treasury.

 

 

 

 

or memorandum of agreement by or with Governmental Entity or third party imposing any liability or obligation with respect to the foregoing.

(a)         Each of Timberland and Timberland Bank has good title to all securities and commodities owned by it (except those sold under repurchase agreements), free and clear of any Lien, except to the extent such securities or commodities are pledged in the ordinary course of business to secure obligations of Timberland or Timberland Bank.  Such securities and commodities are valued on the books of Timberland in accordance with GAAP.

 

 

 

commercially reasonable actions to avoid the abandonment, cancellation or unenforceability of all Intellectual Property owned or licensed, respectively, by Timberland and Timberland Bank.

 

 

 

(a)         As of the date hereof, except as set forth in Section 4.21(a) of the Timberland Disclosure Schedule, neither Timberland nor Timberland Bank is a party to any Loan in which Timberland or Timberland Bank is a creditor which, as of March 31, 2018, was over ninety (90) days or more delinquent in payment of principal or interest.  Set forth in Section 4.21(a) of the Timberland Disclosure Schedule is a true, correct and complete list of (A) all of the Loans of Timberland and Timberland Bank that, as of March 31, 2018, were classified by Timberland or Timberland Bank as "Other Loans Specially Mentioned," "Special Mention," "Substandard," "Doubtful," "Loss," or words of similar import, together with the principal amount of each such Loan and the identity of the borrower thereunder, together with the aggregate principal amount of such Loans by category of Loan (e.g., commercial, consumer, etc.), and (B) each asset of Timberland or Timberland Bank that, as of March 31, 2018, was classified as "Other Real Estate Owned" and the book value thereof.

 

 

the legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms, subject to the Enforceability Exception.

 

 

 

 

 

ARTICLE V

COVENANTS RELATING TO CONDUCT OF BUSINESS

 

of Timberland and Timberland Bank (which shall not be unreasonably withheld or delayed with respect to subsections (g), (l) (m),(n) or (r)):

 

 

 

prior written consent of South Sound Bank during the period from the date of this Agreement to the Effective Time, Timberland and Timberland Bank shall not:

ARTICLE VI

ADDITIONAL AGREEMENTS

 

other with copies of any such filings. Timberland and South Sound Bank shall advise the other party, promptly after receipt of notice thereof, of (and provide copies of any notices or communications with respect to) the time of the effectiveness of the Form S-4, the filing of any supplement or amendment thereto, the issuance of any stop order relating thereto, the suspension of the qualification of Timberland Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction, or of any request by the SEC or its staff for amendment to the Proxy Statement or the Form S-4, comments thereon from the SEC's staff and each party's responses thereto or request of the SEC or its staff for additional information. No amendment or supplement to the Proxy Statement or the Form S-4 shall be filed without the approval of each of South Sound Bank and Timberland, which approval shall not be unreasonably withheld, delayed or conditioned.

 

 

Timberland Bank in electronic form (i) the monthly deposit and loan trial balances of South Sound Bank, (ii) the monthly analysis of South Sound Bank's investment portfolio, (iii) monthly balance sheet and income statement of South Sound Bank, and (iv) to the extent available, an update of all of the information set forth in Section 3.25(a) of the South Sound Bank Disclosure Schedule for the then current period.

(c)        Prior to the Effective Time, South Sound Bank shall take, and cause its Subsidiaries to take, all actions necessary or appropriate to cause the South Sound Bank Employee Stock Ownership Plan and Trust (the "South Sound Bank ESOP") to be terminated immediately prior to the Effective Time.   Upon termination of the South Sound Bank ESOP, all affected participants shall become fully vested in their accounts under the South Sound Bank ESOP determined in accordance with the terms of the South Sound Bank ESOP and applicable law. Within sixty days after the date hereof, South Sound Bank shall make a determination letter submission to the IRS, in order to obtain a favorable determination letter from the IRS that the termination of the South Sound Bank ESOP does not adversely affect the tax-qualified status of the South Sound Bank ESOP under Section 401(a) of the Code (the "Final Determination Letter"). As soon as practicable after receipt of such Final Determination Letter, distribution of benefits under the South Sound Bank ESOP shall be made to

 

 

the South Sound Bank ESOP participants in compliance with the terms of the South Sound Bank ESOP and the Final Determination Letter.

 

 

"Acquisition Proposal" means a tender or exchange offer, proposal for a merger, consolidation or other business combination involving South Sound Bank or any proposal or offer to acquire in any manner more than 20% of the voting power in, or more than 20% of the fair market value of the business, assets or deposits of, South Sound Bank, other than the Merger.

"Superior Proposal" means a written Acquisition Proposal that the Board of Directors of South Sound Bank concludes in good faith to be more favorable from a financial point of view to its shareholders than the Merger, (i) after receiving the advice of its financial advisors (ii) after taking into account the likelihood of consummation of such transaction on the terms set forth therein and (iii) after taking into account all legal (with the advice of outside counsel), financial (including the financing terms of any such proposal), regulatory and other aspects of such proposal and any other relevant factors permitted under applicable law; provided, however, that for purposes of the definition of "Superior Proposal," the references to "more than 20%" in the definition of Acquisition Proposal shall be deemed to be references to "a majority".

 

ARTICLE VII

CONDITIONS PRECEDENT

 

(A)

the representations and warranties in Sections 3.2 (Capitalization) (other than inaccuracies that are de minimis in amount and effect), Section 3.7 (Broker's Fees), Section 3.8(a) (Absence of Certain Changes or Events), and Section 3.24 (South Sound Bank Information) shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date as though made on the Closing Date;

(B)

the representations and warranties in Section 3.3 (Authority; No Violation) shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on the Closing Date; and

(C)

no other representation or warranty of South Sound Bank shall be deemed untrue or incorrect as of the Closing Date as a consequence of events or circumstances arising after the date hereof, unless such event or circumstance, individually or taken together with other facts, events or circumstances inconsistent with any representation or warranty of South Sound Bank has had or would reasonably be expected to result in a Material Adverse Effect on South Sound Bank;

provided, further, that for purposes of clause (C) above, any qualification or exception for, or reference to, materiality (including the terms "material," "materially," "in all material respects" or similar terms or phrases) or Material Adverse Effect in any such representation or warranty shall be disregarded.

 

 

Timberland and Timberland Bank, to enable Timberland Bank to receive the full benefit under such contracts following the consummation of the Merger without the payment of any penalty or premium.

(A)

the representations and warranties in Section 4.2 (Capitalization) (other than inaccuracies that are de minimis in amount and effect), Section 4.7(a) (Absence of Certain Changes or Events) and Section 4.20 (Timberland Information) shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date as though made on the Closing Date, except the representations in Section 4.2 that speak specifically as the date of this Agreement or another specified date shall be true or current as of such date;

(B)

the representations and warranties in Section 4.3 (Authority; No Violation) shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on the Closing Date; and

 

(C)

no other representation or warranty of Timberland or Timberland Bank shall be deemed untrue or incorrect as of the Closing Date as a consequence of events or circumstances arising after the date hereof, unless such event or circumstance, individually or taken together with other facts, events or circumstances inconsistent with any representation or warranty of Timberland and Timberland Bank has had or would reasonably be expected to result in a Material Adverse Effect on Timberland;

provided, further, that for purposes of clause (C) above, any qualification or exception for, or reference to, materiality (including the terms "material," "materially," "in all material respects" or similar terms or phrases) or Material Adverse Effect in any such representation or warranty shall be disregarded; and South Sound Bank shall have received a certificate signed on behalf of Timberland and Timberland Bank by the Chief Executive Officer or the Chief Financial Officer of each of Timberland and Timberland Bank to the foregoing effect.

ARTICLE VIII

TERMINATION AND AMENDMENT

 

warranty, covenant or other agreement contained herein), if there shall have been a breach of any of the covenants or agreements or any of the representations or warranties set forth in this Agreement on the part of South Sound Bank, in the case of a termination by Timberland and Timberland Bank, or Timberland or Timberland Bank, in the case of a termination by South Sound Bank, which breach, either individually or in the aggregate, would result in, if occurring or continuing on the Closing Date, the failure of the conditions set forth in Section 7.2 or 7.3, as the case may be, and which is not cured within twenty (20) days following written notice to the party committing such breach or by its nature or timing cannot be cured within such time period;

 

South Sound Bank Termination Fee set forth in Section 8.4(a) in same-day funds. For purposes of clauses (A) and (B) above, the reference to 20% in the definition of Acquisition Proposal shall be 50%.

ARTICLE IX

GENERAL PROVISIONS

Timberland Bancorp, Inc.
624 Simpson Avenue

Hoquiam, Washington 98550
Attention:  Michael R. Sand, President and Chief Executive Officer
Facsimile: (360) 532-9460

with a copy to:

Breyer & Associates PC

8180 Greensboro Drive

Suite 785

McLean, Virginia 22102

Attention: John F. Breyer, Jr.

Facsimile:  (703) 883-2511

South Sound Bank

2850 Harrison Avenue NW

Olympia, Washington 98502

Attention:  Daniel D. Yerrington, President and Chief Executive Officer

Facsimile: (360) 705-2244

with a copy to:

Keller Rohrback L.L.P.

1201 Third Avenue

Suite 3200

Seattle, Washington 98101-3052

Attention: Glen P. Garrison

Facsimile:  (206) 623-3384

 

covenant or restriction contained in this Agreement is held by a court or a federal or state regulatory agency of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions and covenants and restrictions contained in this Agreement shall remain in full force and effect, and shall in no way be affected, impaired or invalidated. If for any reason such court or regulatory agency determines that any provision, covenant or restriction is invalid, void or unenforceable, it is the express intention of the Parties that such provision, covenant or restriction be enforced to the maximum extent permitted.

 

is not intended to and does not confer upon any person other than the Parties hereto any rights or remedies under this Agreement.

 

 

Timberland, Timberland Bank and South Sound Bank have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written.

TIMBERLAND BANCORP, INC.

TIMBERLAND BANK

SOUTH SOUND BANK

 

 

54

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