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As filed with the Securities and Exchange Commission on August 25, 2014

Registration No. 333-            

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

 

 

COLUMBIA BANKING SYSTEM, INC.

(Exact name of registrant as specified in its charter)

 

 

 

WASHINGTON		6712		91-1422237
(State or other jurisdiction of incorporation or organization)		(Primary standard industrial classification code number)		(I.R.S. employer identification no.)

1301 “A” Street, Tacoma, Washington 98402-4200 (253) 305-1900

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

MELANIE J. DRESSEL

President and Chief Executive Officer

1301 “A” Street

Tacoma, Washington 98402-4200

(253) 305-1900

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of communications to:

 

Mark J. Menting Patrick S. Brown Sullivan & Cromwell LLP 1888 Century Park East, Suite 2100 Los Angeles, CA 90067 Telephone: (310) 712-6600		Curt Hecker President and Chief Executive Officer Intermountain Community Bancorp 414 Church Street Sandpoint, Idaho 83864 Telephone: (208) 263-0505		Stephen M. Klein Laura A. Baumann Graham & Dunn, PC 2801 Alaskan Way, Suite 300 Seattle, WA 98112 Telephone: (206) 340-9648

 

 

Approximate date of commencement of proposed sale of securities to the public:

As soon as practicable after this Registration Statement becomes effective and upon completion of the merger described in the enclosed document.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

		Large accelerated filer		x				Accelerated filer		¨
		Non-accelerated filer		¨				Smaller reporting company		¨

 

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to Be Registered		Amount to be Registered(1)		Proposed Maximum Offering Price Per Share(2)		Proposed Maximum Aggregate Offering Price(2)		Amount of Registration Fee(2)
Common shares, no par value		4,342,949		N/A		$163,438,146.20		$21,050.83

(1)

Represents the maximum number of shares of common stock, no par value per share, of Columbia Banking System, Inc., which we refer to as Columbia, estimated to be issuable upon completion of the merger of Intermountain Community Bancorp, which we refer to as Intermountain, with and into Columbia with Columbia as the surviving entity, in exchange for shares of common stock of Intermountain that are currently outstanding and underlying outstanding warrants if they are not exercised.

(2)

Calculated in accordance with Rules 457(c) and 457(f) under the Securities Act of 1933, the proposed maximum offering price is computed by subtracting $15,754,978 (the cash to be paid by Columbia) from the product of (A) the average of the bid and ask prices of Intermountain common stock as reported on NASDAQ Capital Market on August 22, 2014 ($26.08) times (B) 6,870,902 (the maximum number of shares of Intermountain common stock expected to be exchanged for the common stock being registered, including shares underlying outstanding warrants).

 

 

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

 

 

 

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Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold prior to the time the registration statement becomes effective. This document shall not constitute an offer to sell nor shall there be any sale of these securities in any jurisdiction in which such offer or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

PRELIMINARY—SUBJECT TO COMPLETION—DATED AUGUST 25, 2014

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

 

 

Columbia Banking System, Inc. which we refer to as Columbia, and Intermountain Community Bancorp, which we refer to as Intermountain, have entered into a definitive merger agreement that provides for the combination of the two companies. Under the merger agreement, Intermountain will merge with and into Columbia, with Columbia remaining as the surviving entity, which transaction we refer to as the merger. Immediately following the effective time of the merger, Panhandle State Bank, a wholly owned subsidiary of Intermountain, will merge with and into Columbia State Bank, a wholly owned subsidiary of Columbia, with Columbia State Bank remaining as the surviving entity, which transaction we refer to as the bank merger. Before we complete the merger, the shareholders of Intermountain must approve the merger agreement pursuant to Idaho law. Intermountain shareholders will vote to approve the merger agreement at a special meeting of shareholders to be held on [—], 2014.

Under the terms of the merger agreement, Intermountain shareholders will have the right, with respect to each of their shares of Intermountain common stock, to elect to receive either cash, stock, or a unit consisting of 0.6426 of a share of Columbia common stock and $2.2930 in cash. The aggregate merger consideration is expected to be equal to 4,233,707 shares of Columbia common stock and $15,107,206, in each case assuming the Intermountain warrants (as defined below in the section entitled “The Merger—Terms of the Merger”) are not exercised. Intermountain shareholders electing to receive the unit will receive 0.6426 of a share of Columbia common stock and $2.2930 in cash. Because the total amount of cash and stock to be issued by Columbia is effectively fixed, an Intermountain shareholder electing to receive all cash or all stock may receive a combination of cash and stock that differs from such holder’s election if too many Intermountain shareholders in the aggregate elect one form of consideration over the other. We expect the merger to be a tax-free transaction for Intermountain shareholders, to the extent they receive Columbia common stock for their shares of Intermountain common stock. After completion of the merger, based on the current issued and outstanding shares of Columbia common stock and the 4,233,707 shares of Columbia common stock expected to be issued to Intermountain shareholders, Intermountain shareholders would own approximately 7.4% of Columbia’s common stock (ignoring any shares of Columbia common stock they may already own).

The value of the consideration to be received for each share of Intermountain common stock that is exchanged in the merger, regardless of whether an Intermountain shareholder elects to receive cash, stock, or a unit consisting of a mix of cash and stock, is expected to be substantially equivalent as measured using the daily volume weighted average closing price of Columbia common stock for the 20-day trading period starting on the 25^th trading day before the effective time. Based on the Columbia volume weighted average stock price ending on [—], each share of Intermountain common stock electing cash would receive (subject to proration) $[—] per share in cash, and each Intermountain common stock electing stock would receive (subject to proration) [—] of a share of Columbia common stock. As described above, Intermountain common shareholders electing to receive the unit would receive 0.6426 of a share of Columbia common stock and $2.2930 in cash.

The value of the consideration to be received by Intermountain shareholders in the merger will vary with the trading price of Columbia common stock between now and the completion of the merger. The table below shows the approximate hypothetical value of the merger consideration per share if it had been calculated based on the closing price for Columbia common stock on the Nasdaq Global Select Market on each of July 23, 2014, the trading day immediately prior to the announcement of the merger, and [—], 2014, the last practicable trading day prior to the date of this document.

 

Date		Columbia closing price				Per share consideration
July 23, 2014		$	24.79			$	18.22
[—]			[—]				[—]

The market prices of both Columbia common stock and Intermountain common stock will fluctuate before the closing of the merger. You should obtain current stock price quotations for Columbia common stock and Intermountain common stock. Columbia common stock is traded on the Nasdaq Global Select Market under the symbol “COLB,” and Intermountain common stock is traded on the Nasdaq Capital Market under the symbol “IMCB.”

The Intermountain board of directors has determined that the combination of Intermountain and Columbia is in the best interests of Intermountain shareholders based upon its analysis, investigation and deliberation, and the Intermountain board of directors recommends that the Intermountain shareholders vote “FOR” the approval of the merger agreement and “FOR” the approval of the other proposals described in this proxy statement/prospectus.

You should read this entire proxy statement/prospectus, including the appendices and the documents incorporated by reference into the document, carefully because it contains important information about the merger and the related transactions. In particular, you should read carefully the information under the section entitled “Risk Factors.”

The shares of Columbia common stock to be issued to Intermountain shareholders in the merger are not deposits or savings accounts or other obligations of any bank or savings association, and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the merger described in this proxy statement/prospectus or the Columbia common stock to be issued in the merger, or passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus is dated [—], 2014 and is first being mailed to the shareholders of Intermountain on or about [—], 2014.

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INTERMOUNTAIN COMMUNITY BANCORP

414 CHURCH STREET

SANDPOINT, ID 83864

NOTICE OF THE SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON [—], 2014

NOTICE IS HEREBY GIVEN that a special meeting of the shareholders of Intermountain Community Bancorp, which we refer to as Intermountain, will be held at 414 Church Street, Sandpoint, Idaho 83864 at [—], Pacific Time, on [—], 2014, for the following purposes:

1 To approve the Agreement and Plan of Merger, dated as of July 23, 2014, by and between Columbia Banking System, Inc. and Intermountain, which we refer to as the Merger proposal;

2 To approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to Intermountain’s named executive officers in connection with the merger, and the agreements or understandings pursuant to which such compensation may be paid or become payable, discussed under the section entitled “The Merger—Interests of Intermountain Directors and Executive Officers in the Merger,” which we refer to as the Merger-Related Named Executive Officer Compensation proposal; and

3 To approve one or more adjournments of the Intermountain special meeting, if necessary or appropriate, including adjournments to permit further solicitation of proxies in favor of the Merger proposal, which we refer to as the Adjournment proposal.

Intermountain will transact no other business at the special meeting, except for business properly brought before the special meeting or any adjournment or postponement thereof.

The Merger proposal and the Merger-Related Named Executive Officer Compensation proposal are described in more detail in this document, which you should read carefully in its entirety before you vote. A copy of the merger agreement is attached as Appendix A to this document.

The Intermountain board of directors has set [—], 2014 as the record date for the Intermountain special meeting. All holders of record of Intermountain common stock at the close of business on the record date will be notified of the meeting. Only holders of record of Intermountain common stock at the close of business on [—], 2014 will be entitled to vote at the Intermountain special meeting and any adjournments or postponements thereof. Any shareholder entitled to attend and vote at the Intermountain special meeting is entitled to appoint a proxy to attend and vote on such shareholder’s behalf. Such proxy need not be a holder of Intermountain common stock.

Your vote is very important. To ensure your representation at the Intermountain special meeting, please complete and return the enclosed proxy card or submit your proxy by telephone or through the Internet. Please vote promptly whether or not you expect to attend the Intermountain special meeting. Submitting a proxy now will not prevent you from being able to vote in person at the Intermountain special meeting.

The Intermountain board of directors has adopted and approved the merger agreement and the transactions contemplated thereby and recommends that you vote “FOR” the Merger proposal, “FOR” the Merger-Related Named Executive Officer Compensation proposal and “FOR” the Adjournment proposal.

BY ORDER OF THE BOARD OF DIRECTORS

Ford Elsaesser

Chairman

Curt Hecker

President and Chief Executive Officer

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WHERE YOU CAN FIND MORE INFORMATION

Both Columbia and Intermountain file annual, quarterly and special reports, proxy statements and other business and financial information with the Securities and Exchange Commission, which we refer to as the SEC. You may read and copy any materials that either Columbia or Intermountain files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. Please call the SEC at (800) SEC-0330 ((800) 732-0330) for further information on the public reference room. In addition, Columbia and Intermountain file reports and other business and financial information with the SEC electronically, and the SEC maintains a website located at http://www.sec.gov containing this information. You can also obtain, free of charge, documents that Intermountain files with the SEC by accessing Intermountain’s website at www.intermountainbank.com under the heading “Investor Relations” or documents that Columbia files with the SEC at www.columbiabank.com under the tab “About Us” and then under the heading “Investor Relations.” Copies of the documents that Columbia or Intermountain, respectively, files with the SEC can also be obtained, free of charge, by directing a written request to Columbia Banking System, Inc., Attention: Corporate Secretary, 1301 “A” Street, Suite 800, Tacoma, Washington 98401-2156 or to Intermountain Community Bancorp, 414 Church Street, Sandpoint, Idaho 83864, respectively.

Columbia has filed a registration statement on Form S-4 to register with the SEC shares of Columbia common stock as specified therein. This proxy statement/prospectus is a part of that registration statement. As permitted by SEC rules, this document does not contain all of the information included in the registration statement or in the exhibits or schedules to the registration statement. You may read and copy the registration statement, including any amendments, schedules and exhibits at the addresses set forth below. Statements contained in this document as to the contents of any contract or other documents referred to in this document are not necessarily complete. In each case, you should refer to the copy of the applicable contract or other document filed as an exhibit to the registration statement. This document incorporates important business and financial information about Columbia and Intermountain that is not included in or delivered with this document, including incorporating by reference documents that Columbia and Intermountain have previously filed with the SEC. These documents contain important information about the companies and their financial condition. See “Documents Incorporated by Reference.” These documents are available without charge to you upon written or oral request to the applicable company’s principal executive offices. The respective addresses and telephone numbers of such principal executive offices are listed below

 

Columbia Banking System, Inc. 1301 “A” Street, Suite 800 Tacoma, Washington 98401 Attention: Melanie J. Dressel Telephone: (253) 305-1900		Intermountain Community Bancorp 414 Church Street Sandpoint, Idaho 83864 Attention: Curt Hecker Telephone: (208) 263-0505

To obtain timely delivery of these documents, you must request the information no later than [—], 2014 in order to receive them before Intermountain’s special meeting of shareholders.

Columbia common stock is traded on the Nasdaq Global Select Market under the symbol “COLB,” and Intermountain common stock is traded on the Nasdaq Capital Market under the symbol “IMCB.”

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TABLE OF CONTENTS

 

Questions And Answers			1
Summary			8
Risk Factors			16
Risk Factors Relating to the Merger			16
Risk Factors Relating to Intermountain and Intermountain’s Business			19
Risk Factors Relating to Columbia and Columbia’s Business			19
Selected Consolidated Financial Data of Columbia			20
Selected Consolidated Financial Data of Intermountain			22
Comparative Per Share Data of Columbia (Unaudited)			24
Market Prices, Dividends and Other Distributions			25
Cautionary Note Regarding Forward-Looking Statements			26
The Merger			27
Terms of the Merger			27
Conversion of Shares; Exchange of Certificates; Elections as to Form of Consideration			32
Regulatory Approvals Required for the Merger			35
Accounting Treatment			37
Public Trading Markets			37
Resale of Columbia Common Stock			37
Background of the Merger			37
Recommendation of the Intermountain Board of Directors and Reasons for the Merger			41
Opinion of Intermountain’s Financial Advisor			43
Columbia’s Reasons for the Merger			54
Management and Board of Directors of Columbia After the Merger			55
Interests of Intermountain Directors and Executive Officers in the Merger			55
Merger-Related Compensation for Intermountain’s Named Executive Officers			58
The Merger Agreement			60
Effects of the Merger			60
Effective Time of the Merger			60
Covenants and Agreements			60
Representations and Warranties			68
Conditions to the Merger			71
Termination; Termination Fee			72
Effect of Termination			74
Amendments, Extensions and Waivers			74
Stock Market Listing			74
Fees and Expenses			74
Related Agreements			74
Material U.S. Federal Income Tax Consequences of the Merger			78
Description of Columbia’s Capital Stock			82
Common Stock			82
Preferred Stock			82
Comparison of Certain Rights of Holders of Columbia and Intermountain Common Stock			86
General			86
Comparison of Shareholders’ Rights			86

 

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Information Concerning Columbia			95
General			95
Intermountain Special Shareholders’ Meeting			96
General			96
Purpose of Intermountain Special Meeting			96
At the Intermountain special meeting, Intermountain shareholders will be asked to:			96
Recommendation of the Intermountain Board of Directors			96
Intermountain Record Date and Quorum			96
Voting on Proxies; Incomplete Proxies			97
Shares Held in Street Name			98
Revocability of Proxies and Changes to an Intermountain Shareholder’s Vote			98
Solicitation of Proxies			99
Delivery of Proxy Materials to Shareholders Sharing an Address			99
Attending the Intermountain Special Meeting			99
Intermountain Proposals			100
Merger Proposal			100
Merger-Related Named Executive Officer Compensation Proposal			100
Adjournment Proposal			100
Other Matters To Come Before the Intermountain Special Meeting			101
Information Concerning Intermountain			101
Certain Legal Matters			102
Experts			102
Intermountain Annual Meeting Shareholder Proposals			102
Columbia Annual Meeting Shareholder Proposals			103
Documents Incorporated By Reference			104
Signatures			II-4

 

Appendix A		Agreement and Plan of Merger, dated as of July 23, 2014, by and among Columbia Banking System, Inc., and Intermountain Community Bancorp
Appendix B		Opinion of Sandler O’Neill + Partners, L.P.
Appendix C		Title 30, Chapter 1, Part 13 of the Idaho Business Corporations Act, Regarding Dissenters’ Rights
Appendix D		Warrant Transfer, Voting and Support Agreement by and between Columbia Banking System, Inc. and Castle Creek Capital Partners IV, LP dated as of July 23, 2014
Appendix E		Warrant Transfer, Voting and Support Agreement by and among Columbia Banking System, Inc. Stadium Capital Qualified Partners, L.P. and Stadium Capital Partners, L.P. dated as of July 23, 2014
Appendix F		Form of Voting and Non-Competition Agreement by and among Columbia Banking System, Inc., Intermountain Community Bancorp and certain directors of Intermountain Community Bancorp dated as of July 23, 2014
Appendix G		Form of Voting and Non-Solicitation Agreement by and among Columbia Banking System, Inc., Intermountain Community Bancorp and certain directors of Intermountain Community Bancorp dated as of July 23, 2014
Appendix H		Form of Non-Competition and Non-Solicitation Agreement by and among Columbia Banking System, Inc., Intermountain Community Bancorp and a certain director of Intermountain Community Bancorp dated as of July 23, 2014

 

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QUESTIONS AND ANSWERS

The following questions and answers briefly address some commonly asked questions about the merger and the shareholders meeting. They may not include all the information that is important to the shareholders of Intermountain. Shareholders of Intermountain should each carefully read this entire proxy statement/prospectus, including the appendices and other documents referred to in this document.

 

Q:	Why am I receiving these materials?

 

A:	Intermountain is sending these materials to its shareholders to help them decide how to vote their shares of Intermountain common stock with respect to the proposed merger and the other matters to be considered at the Intermountain special meeting, described below.

The merger cannot be completed unless Intermountain shareholders approve the merger agreement. Intermountain is holding a special meeting of shareholders to vote on the merger agreement in addition to the other proposals described in “Intermountain Special Meeting of Shareholders.” Information about the meeting and the merger is contained in this proxy statement/prospectus.

This document constitutes both a proxy statement of Intermountain and a prospectus of Columbia. It is a proxy statement because the Intermountain board of directors is soliciting proxies from its shareholders. It is a prospectus because Columbia will issue shares of its common stock in exchange for shares of Intermountain common stock in the merger.

 

Q:	What will Intermountain shareholders receive in the merger?

 

A:

Under the terms of the merger agreement Intermountain shareholders (other than in respect of certain forfeited restricted stock awards) will have the right, with respect to each of their shares of Intermountain common stock, to elect to receive either cash, stock, or a unit consisting of 0.6426 of a share of Columbia common stock and $2.2930 in cash. The aggregate merger consideration is expected to be equal to 4,233,707 shares of Columbia common stock, and $15,107,206, in each case, assuming the Intermountain warrants are not exercised. Intermountain shareholders electing to receive the unit will be guaranteed to receive 0.6426 of a share of Columbia common stock and $2.2930 in cash. Because the total amount of cash and stock to be issued by Columbia is effectively fixed, an Intermountain shareholder electing to receive all cash or all stock may receive a combination of cash and stock that differs from such holder’s election if too many Intermountain shareholders in the aggregate elect one form of consideration over the other.

 

Q:	Is the value of per share consideration that an Intermountain shareholder receives expected to be substantially equivalent regardless of which election he or she makes?

 

A:

The value of the consideration to be received for each share of Intermountain common stock that is exchanged in the merger, regardless of whether an Intermountain shareholder elects to receive cash, stock or a unit consisting of a mix of cash and stock, is expected to be substantially equivalent. However, because the per share consideration is based on the daily closing volume weighted average price of Columbia common stock on the Nasdaq Global Select Market for the 20 trading day period starting on the 25th trading day before to the effective time, which we refer to as the parent average closing price, the value of the per share consideration that an Intermountain shareholder receiving per share stock consideration or per share mixed consideration for an Intermountain share will increase or decrease based on increases or decreases in Columbia common stock between the measurement date of the average closing price of Columbia common stock and the date an Intermountain shareholder receives his, her or its per share stock consideration or per share consideration, whereas the value of the per share cash consideration and the cash portion of the per share mixed consideration will remain unchanged. Therefore, there may be a difference in value among the per share cash consideration, the per share stock consideration and the per share mixed consideration.

 

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Q:	How does an Intermountain shareholder elect the form of consideration he or she prefers to receive?

 

A:

An election statement with instructions for making the election as to the form of consideration preferred accompanies this proxy statement/prospectus. To make an election, an Intermountain shareholder must submit an election statement, to Columbia’s exchange agent before 5:00 p.m., Pacific Time, on the day prior to the fifth business day prior to the completion of the merger. This date is referred to as the “election deadline.” Election choices and election procedures are described under the section entitled “The Merger.”

 

Q:	How does an Intermountain shareholder guarantee he or she will receive a certain type of consideration?

 

A:	Shareholders who elect to receive a unit consisting of a mix of cash and stock will receive the unit without any adjustment as such elections will not be subject to proration.

 

Q:	May an Intermountain shareholder change his or her election once it has been submitted?

 

A:	Yes. An election may be changed so long as the new election is received by the exchange agent prior to the election deadline. To change an election, an Intermountain shareholder must send the exchange agent a written notice revoking any election previously submitted.

 

Q:	How will an Intermountain shareholder know when the election deadline is?

 

A:

The actual election deadline is not currently known. Columbia and Intermountain will issue a press release announcing the date of the election deadline at least five business days before that deadline. Additionally, Columbia and Intermountain will post the date of the election deadline on their respective websites, also at least five business days before that deadline. See “The Merger—Election Statement.”

 

Q:	What happens if an election is not made prior to the election deadline?

 

A:

If an Intermountain shareholder fails to submit an election statement to the exchange agent prior to the election deadline, then that holder will be deemed to have made no election and will be issued a unit consisting of a mix of (a) 0.6426 of a share of Columbia common stock and (b) $2.2930 in cash in exchange for each share of Intermountain common stock.

 

Q:	How are Intermountain restricted stock awards addressed in the merger agreement?

 

A:

As described under “The Merger—Treatment of Intermountain Equity Awards,” at the closing of the merger, each share of Intermountain common stock subject to vesting restrictions granted under Intermountain’s incentive stock plans, except for certain forfeited restricted stock awards (as described below in the section entitled “The Merger—Interests of Intermountain Directors and Executive Officers in the Merger”), will vest in full, and the holder will be entitled to receive the merger consideration with respect to such shares, less applicable taxes and withholding, and subject to the same election, proration and allocation procedures applicable to Intermountain common stock generally. Accordingly, holders of Intermountain restricted shares must submit an election statement prior to the election deadline. See “The Merger—Election Statement.”

 

Q:	How are outstanding Intermountain stock options addressed in the merger agreement?

 

A:

Each outstanding and unexercised Intermountain stock option will fully vest and may be exercised on the date of notice of termination of such option through the business day immediately preceding closing of the merger. Any Intermountain stock options that remain unexercised as of the effective time of the merger will be cancelled for no consideration. See “The Merger—Treatment of Intermountain Equity Awards.”

 

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Q:	When do Columbia and Intermountain expect to complete the merger?

 

A:

Columbia and Intermountain expect to complete the merger after all conditions to the merger in the merger agreement are satisfied or waived, including after shareholder approval is received at the Intermountain special meeting and all required regulatory approvals are received. Columbia and Intermountain currently expect to complete the merger in the fourth quarter of 2014. It is possible, however, that as a result of factors outside of either company’s control, the merger may be completed at a later time, or may not be completed at all.

 

Q:	What am I being asked to vote on?

 

A:	Intermountain shareholders are being asked to vote on the following proposals:

 

1.

Approval of the Merger Agreement. To approve the merger agreement, which we refer to as the Merger proposal;

 

2.

Non-Binding Approval of Certain Compensation. To approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to Intermountain’s named executive officers in connection with the merger, and the agreements or understandings pursuant to which such compensation may be paid or become payable, which we refer to as the Merger-Related Named Executive Officer Compensation proposal; and

 

3.

Adjournment of Meeting. To approve one or more adjournments of the Intermountain special meeting, if necessary or appropriate, including adjournments to solicit additional proxies in favor of the Merger proposal, which we refer to as the Adjournment proposal.

 

Q:	What will happen if Intermountain’s shareholders do not approve, on an advisory (non-binding) basis, the Merger-Related Named Executive Officer Compensation proposal?

 

A:

The vote on the Merger-Related Named Executive Officer Compensation proposal is a vote separate and apart from the vote to approve the merger agreement. You may vote for this proposal and against the Merger proposal, or vice versa. You also may abstain from this proposal and vote on the Merger proposal, or vice versa. Because the vote on this proposal is advisory only, it will not be binding on Intermountain or Columbia. The merger-related named executive officer compensation to be paid in connection with the merger is based on contractual arrangements with the named executive officers and accordingly the outcome of this advisory vote will not affect the obligation to make these payments.

 

Q:	How does the board of directors of Intermountain recommend that I vote?

 

A:	The Intermountain board of directors recommends that Intermountain shareholders vote “FOR” the proposals described in this proxy statement/prospectus.

 

Q:	What do I need to do now?

 

A:

After carefully reading and considering the information contained in this proxy statement/prospectus, please vote by telephone or on the Internet, or complete, sign and date the enclosed proxy card and return it in the enclosed envelope as soon as possible so that your shares will be represented at the Intermountain special meeting.

Please follow the instructions set forth on the proxy card or on the voting instruction form provided by the record holder if your shares are held in the name of your broker, bank or other nominee.

Additionally, Intermountain shareholders that wish to receive merger consideration in respect of their shares should complete, sign and date the election statement. The election statement should be sent in the enclosed envelope to Columbia’s exchange agent in order to arrive before the election deadline.

 

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Q:	How do I vote?

 

A:	If you are a shareholder of record of Intermountain as of the record date for the Intermountain special meeting, you may vote by:

 

•

accessing the internet website specified on your proxy card ([—]);

 

•

calling the toll-free number specified on your proxy card ([—]); or

 

•

signing the enclosed proxy card and returning it in the postage-paid envelope provided.

You may also cast your vote in person at Intermountain’s special meeting.

If your shares are held in “street name” through a broker, bank or other nominee, that institution will send you separate instructions describing the procedure for voting your shares. Holders in “street name” who wish to vote in person at the Intermountain special meeting will need to obtain a proxy form from the institution that holds their shares.

 

Q:	When and where is the Intermountain special shareholders’ meeting?

 

A:	The special meeting of Intermountain shareholders will be held at 414 Church Street, Sandpoint, Idaho 83864, at [—] Pacific Time, on [—], 2014. All shareholders of Intermountain as of the Intermountain record date, or their duly appointed proxies, may attend the Intermountain special meeting.

 

Q:	If my shares are held in “street name” by a broker, bank or other nominee, will my broker or nominee vote my shares for me?

 

A:

If your shares are held in “street name” in a stock brokerage account or by a bank or other nominee, you must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your bank or broker. Please note that you may not vote shares held in street name by returning a proxy card directly to Intermountain or by voting in person at your meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or other nominee.

Brokers, banks or other nominees who hold shares in street name for a beneficial owner typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers, banks or other nominees are not allowed to exercise their voting discretion on matters that are determined to be “non-routine” without specific instructions from the beneficial owner. Broker non-votes are shares held by a broker, bank or other nominee that are represented at the applicable shareholders meeting but with respect to which the broker, bank or other nominee is not instructed by the beneficial owner of such shares to vote on the particular proposal and the broker, bank or other nominee does not have discretionary voting power on such proposal.

If you are an Intermountain shareholder and you do not instruct your broker, bank or other nominee on how to vote your shares, your broker, bank or other nominee may not vote your shares on the Merger proposal, which broker non-votes will have the same effect as a vote “AGAINST” these proposals. Your broker, bank or other nominee may not vote your shares on the Merger-Related Named Executive Officer Compensation proposal or Adjournment proposal, which broker non-votes will have no effect on the vote on this proposal.

 

Q:	What vote is required to approve each proposal to be considered at the Intermountain special meeting?

 

A:

The affirmative vote of (a) two-thirds (2/3) of all the votes entitled to be cast by the holders of outstanding voting common stock of Intermountain and non-voting common stock of Intermountain considered together, (b) a majority of votes entitled to be cast by the holders of outstanding voting common stock of Intermountain and (c) a majority of votes entitled to be cast by the holders of outstanding non-voting common stock of Intermountain, is required to approve the Merger proposal.

 

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The Merger-Related Named Executive Officer Compensation proposal will be approved, on an advisory (non-binding) basis, if the votes cast in favor of the proposal exceed the votes cast against it. Only holders of Intermountain voting common stock have the right to vote on this proposal.

The Adjournment proposal will be approved if the votes cast in favor of the proposal exceed the votes cast against it. Only holders of Intermountain voting common stock have the right to vote on this proposal.

Certain of Intermountain’s directors and principal shareholders have entered into voting agreements with respect to the Intermountain shares they own, pursuant to which they have agreed to vote such shares in favor of the proposals to be considered at the Intermountain special meeting. A total of 4,307,836, or 64.29%, of the outstanding shares of Intermountain common stock entitled to vote at the special meeting are covered by such voting agreements, which shares consist of 877,969, or 30.69% shares of the outstanding shares of Intermountain voting common stock, and 3,429,867 or 89.33%, of the outstanding shares of Intermountain non-voting common stock.

 

Q:	What if I abstain from voting or do not vote?

 

A:

For the purposes of the Intermountain special meeting, an abstention, which occurs when an Intermountain shareholder attends the Intermountain special meeting, either in person or by proxy, but abstains from voting, will have the same effect as a vote “AGAINST” the Merger proposal but will have no effect on the Merger-Related Named Executive Compensation proposal or the Adjournment proposal.

 

Q:	May I change my vote or revoke my proxy after I have delivered my proxy or voting instruction card?

 

A:	Yes. You may change your vote at any time before your proxy is voted at the applicable meeting. You may do this in one of four ways:

 

•

by sending a notice of revocation to the corporate secretary of Intermountain;

 

•

by sending a completed proxy card bearing a later date than your original proxy card;

 

•

by logging onto the website specified on your proxy card in the same manner you would to submit your proxy electronically or by calling the telephone number specified on your proxy card, in each case if you are eligible to do so, and following the instructions on the proxy card; or

 

•

by attending the meeting and voting in person if your shares are registered in your name rather than in the name of a broker, bank or other nominee; however, your attendance alone will not revoke any proxy.

If you choose any of the first three methods, you must take the described action (and, in the case of the second method, your proxy card must be received) no later than the beginning of the Intermountain special meeting.

If your shares are held in an account at a broker, bank or other nominee, you should contact your broker, bank or other nominee to change your vote.

 

Q:	What happens if I sell my shares after the record date but before the meeting?

 

A:

The record date for the Intermountain special meeting is earlier than the date of meeting and the date that the merger is expected to be completed. If you transfer your Intermountain common stock after the record date but before the date of the meeting, you will retain your right to vote at the meeting (provided that such shares remain outstanding on the date of the meeting), but you will not have the right to receive any merger consideration for the transferred shares. You will only be entitled to receive the merger consideration in respect of shares that you hold at the effective time of the merger.

 

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Q:	What do I do if I receive more than one proxy statement/prospectus or set of voting instructions?

 

A:

If you hold shares directly as a record holder and also in “street name,” or otherwise through a nominee, you may receive more than one proxy statement/prospectus and/or set of voting instructions relating to the Intermountain special meeting. These should each be voted or returned separately to ensure that all of your shares are voted.

 

Q:	What are the federal income tax consequences of the merger?

 

A:

The merger is intended to qualify, and Columbia expects to receive a legal opinion from Sullivan & Cromwell LLP at the closing of the merger to the effect that the merger will qualify, as a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended, which we refer to as the Code. In addition, in connection with the filing of the registration statement of which this document is a part, Sullivan & Cromwell LLP has delivered an opinion to Columbia to the same effect. Assuming the merger qualifies as a reorganization, the specific tax consequences to a U.S. holder (as defined in “Material U.S. Federal Income Tax Consequences of the Merger”) exchanging Intermountain common stock in the merger will generally depend upon the form of consideration such U.S. holder receives in the merger.

 

•

A U.S. holder exchanging all of its shares of Intermountain common stock for solely Columbia common stock (and cash instead of fractional shares of Columbia common stock) pursuant to the merger agreement will generally not recognize gain or loss, except with respect to cash received instead of fractional shares of Columbia common stock.

 

•

A U.S. holder exchanging all of its shares of Intermountain common stock for solely cash pursuant to the merger agreement will generally recognize gain or loss equal to the difference between the amount of cash it receives and its cost basis in its Intermountain common stock.

 

•

A U.S. holder exchanging all of its shares of Intermountain common stock for a combination of Columbia common stock and cash pursuant to the merger agreement will generally recognize gain (but not loss) in an amount equal to the lesser of (i) the amount of cash treated as received in exchange for Intermountain common stock in the merger and (ii) the excess of the “amount realized” in the transaction (i.e., the fair market value of the Columbia common stock at the effective time of the merger plus the amount of cash treated as received in exchange for Intermountain common stock in the merger) over its tax basis in its surrendered Intermountain common stock.

Any gain recognized upon the exchange will generally be capital gain, and will be long-term capital gain if, as of the effective date of the merger, the U.S. holder’s holding period with respect to its surrendered Intermountain common stock exceeds one year. Depending on certain facts specific to each U.S. holder, any gain recognized could be taxable as a dividend rather than capital gain.

For a more detailed discussion of the material U.S. federal income tax consequences of the transaction, see “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page [—].

You are encouraged to consult your tax advisor as to the tax consequences of the merger in your particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local or foreign and other tax laws and of changes in those laws.

 

Q:	Do I have appraisal or dissenters’ rights?

 

A:	Under Idaho law, Intermountain shareholders are entitled to exercise appraisal rights in connection with the merger. See “The Merger—Dissenting Shares.”

 

Q:	Should I send in my stock certificates now?

 

A:	No. Please do not send your stock certificates with your proxy card. Intermountain shareholders should follow the instructions provided with the election statement regarding how and when to surrender

 

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their stock certificates. If you do not vote by internet or telephone, you should send the proxy card in the enclosed envelope and the election statement in the separate enclosed envelope. If you are a holder of Intermountain common stock, you will receive written instructions from [—], the exchange agent, after the merger is completed on how to exchange your stock certificates for Columbia common stock.

 

Q:	Whom should I contact if I have any questions about the proxy materials or the meetings?

 

A:

If you have any questions about the merger or any of the proposals to be considered at the Intermountain special meeting, need assistance in submitting your proxy or voting your shares or need additional copies of this proxy statement/prospectus or the enclosed proxy card, you should contact Intermountain [or Intermountain’s proxy solicitor at [—]].

 

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RISK FACTORS

In addition to the other information contained in or incorporated by reference into this document, including Columbia’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and Intermountain’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and the matters addressed under the caption “Cautionary Note Regarding Forward-Looking Statements,” Intermountain shareholders should consider the matters described below carefully in determining whether to vote to approve the merger agreement and the transactions contemplated by the merger agreement.

Risk Factors Relating to the Merger

Because the market price of Columbia common stock may fluctuate, you cannot be sure of the value of the merger consideration that you will receive.

Upon completion of the merger, each share of Intermountain common stock (other than certain shares owned by Intermountain, Columbia or their wholly-owned subsidiaries, or shares held by shareholders who have perfected and not withdrawn a demand for appraisal rights) will be converted into the right to receive merger consideration consisting of shares of Columbia common stock, cash or a unit consisting of a mix of Columbia common stock and cash, pursuant to the terms of the merger agreement. The value of the merger consideration to be received by Intermountain shareholders will be based on the daily closing volume weighted average price of Columbia common stock during the 20 trading day period beginning on the 25^th trading day before the effective time of the merger. This average price may vary from the closing price of Columbia common stock on the date we announced the merger, on the date that this document was mailed to Intermountain shareholders, and on the date of the meeting of Intermountain shareholders. Any change in the market price of Columbia common stock prior to completion of the merger will affect the value of the merger consideration that Intermountain shareholders will receive upon completion of the merger. Accordingly, at the time of the Intermountain special meeting and prior to the election deadline, Intermountain shareholders will not know or be able to calculate the value of the per share consideration they would receive upon completion of the merger. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in our respective businesses, operations and prospects, and regulatory considerations, among other things. Many of these factors are beyond the control of Columbia and Intermountain. Intermountain shareholders should obtain current market quotations for shares of Columbia common stock before voting their shares at the Intermountain special meeting.

Intermountain shareholders may receive a form of consideration different from what they elect.

Although each Intermountain shareholder may elect to receive all cash, all Columbia common stock or a unit consisting of a mix of cash and stock, the pools of cash and Columbia common stock to be paid in the merger are fixed. As a result, if either the aggregate cash or stock elections exceed the maximum available, and you choose the consideration election that exceeds the maximum available, some or all of your consideration may be in a form that you did not choose.

The results of operations of Columbia after the merger may be affected by factors different from those currently affecting the results of operations of Intermountain.

The businesses of Columbia and Intermountain differ in certain respects and, accordingly, the results of operations of the combined company and the market price of the combined company’s common stock may be affected by factors different from those currently affecting the independent results of operations of Intermountain. For a discussion of the business of Columbia and certain factors to be considered in connection with Columbia’s business, see “Information Concerning Columbia” and the documents incorporated by reference in this document and referred to under “Where You Can Find More Information.” For a discussion of the business of Intermountain and certain factors to be considered in connection with Intermountain’s business, see “Information Concerning Intermountain” and the documents incorporated by reference in this document and referred to under “Where You Can Find More Information.”

 

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The merger agreement limits Intermountain’s ability to pursue an alternative transaction and requires Intermountain to pay a termination fee of $5,500,000 under certain circumstances relating to alternative acquisition proposals.

The merger agreement prohibits Intermountain from soliciting, initiating, encouraging or knowingly facilitating certain alternative acquisition proposals with any third party, subject to exceptions set forth in the merger agreement. See “The Merger Agreement—No Solicitation” included elsewhere in this proxy statement/prospectus. The merger agreement also provides for the payment by Intermountain to Columbia of a termination fee of $5,500,000 in the event that the merger agreement is terminated in certain circumstances, involving, among others, the termination of the merger agreement in certain circumstances followed by an acquisition, or a definitive agreement providing for an acquisition, of Intermountain by a third party. These provisions may discourage a potential competing acquirer that might have an interest in acquiring Intermountain from considering or proposing such an acquisition. It should be noted, however, that the failure of Intermountain shareholders to approve the merger agreement will not in and of itself trigger Intermountain’s obligation to pay the termination fee, unless other factors, including a third-party acquisition proposal for Intermountain, also exist. See “The Merger Agreement—Termination; Termination Fee” included elsewhere in this proxy statement/prospectus.

The fairness opinion that Intermountain has obtained from Sandler O’Neill has not been, and is not expected to be, updated to reflect any changes in circumstances that may have occurred since the signing of the merger agreement.

The fairness opinion issued to Intermountain by Sandler O’Neill, which is Intermountain’s financial advisor, regarding the fairness, from a financial point of view, of the consideration to be paid in connection with the merger, speak only as of July 23, 2014. Changes in the operations and prospects of Intermountain, general market and economic conditions and other factors which may be beyond the control of Intermountain, and on which the fairness opinion was based, may have altered the value of Columbia or Intermountain or the market prices of shares of Intermountain as of the date of this document, or may alter such values and market prices by the time the merger is completed. Sandler O’Neill does not have any obligation to update, revise or reaffirm its opinion to reflect subsequent developments, and has not done so. Because Intermountain does not currently anticipate asking its financial advisor to update its opinion, the opinion will not address the fairness of the merger consideration from a financial point of view at the time the merger is completed. Intermountain’s board of directors’ recommendation that Intermountain shareholders vote “FOR” approval of the merger agreement, however, is made as of the date of this document. For a description of the opinion that Intermountain received from its respective financial advisor, see “Opinion of Intermountain’s Financial Advisor” included elsewhere in this proxy statement/prospectus.

The merger is subject to the receipt of consents and approvals from governmental entities that may impose conditions that could have an adverse effect on the combined company following the merger.

Before the merger may be completed, various approvals and consents must be obtained from the FDIC, Idaho Department of Finance and the Washington State Department of Financial Institutions. These governmental entities may impose conditions on the granting of such approvals and consents or require changes to the terms of the merger or the bank merger. Although Columbia and Intermountain do not currently expect that any such material conditions or changes would be imposed, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying or preventing completion of the merger or imposing additional costs or limiting the revenues of the combined company following the merger, any of which might have an adverse effect on the combined company following the merger.

The merger is subject to certain closing conditions that, if not satisfied or waived, will result in the merger not being completed, which may cause the prices of Columbia common stock or Intermountain common stock to decline.

The merger is subject to customary conditions to closing, including the receipt of required regulatory approvals and approval of Intermountain shareholders. If any condition to the merger is not satisfied or waived,

 

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to the extent permitted by law, the merger will not be completed. In addition, Columbia and Intermountain may terminate the merger agreement under certain circumstances even if the merger agreement is approved by Intermountain shareholders. If Columbia and Intermountain do not complete the merger, the trading prices of Columbia common stock or Intermountain common stock may decline. In addition, neither company would realize any of the expected benefits of having completed the merger. If the merger is not completed and Intermountain’s board of directors seeks another merger or business combination, Intermountain shareholders cannot be certain that Intermountain will be able to find a party willing to offer equivalent or more attractive consideration than the consideration Columbia has agreed to provide in the merger. If the merger is not completed, additional risks could materialize, which could materially and adversely affect the business, financial condition and results of Columbia or Intermountain. For more information on closing conditions to the merger agreement, see “The Merger Agreement—Conditions to the Merger” included elsewhere in this proxy statement/prospectus.

Columbia and Intermountain will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees, customers and vendors may have an adverse influence on the business, financial condition and results of operations of Intermountain. These uncertainties may impair Intermountain’s ability to attract, retain and motivate key personnel, depositors and borrowers pending the consummation of the merger, as such personnel, depositors and borrowers may experience uncertainty about their future roles following the consummation of the merger. Additionally, these uncertainties could cause customers (including depositors and borrowers), suppliers, vendors and others who deal with Intermountain to seek to change existing business relationships with Intermountain or the combined company or fail to extend an existing relationship with Intermountain or the combined company.

In addition, the merger agreement restricts Intermountain from taking certain actions without Columbia’s consent while the merger is pending. These restrictions could have a material adverse effect on Intermountain’s business, financial condition and results of operations. Please see the section entitled “The Merger Agreement—Covenants and Agreements” for a description of the restrictive covenants applicable to Intermountain.

Shares of Columbia common stock to be received by Intermountain shareholders as a result of the merger will have rights different from the shares of Intermountain common stock.

Upon completion of the merger, the rights of former Intermountain shareholders who receive Columbia common stock in the merger and thereby become Columbia shareholders will be governed by the articles of incorporation and amended and restated bylaws of Columbia. The rights associated with Intermountain common stock are different from the rights associated with Columbia common stock. In addition, the rights of shareholders under Washington law, where Columbia is organized, may differ from the rights of shareholders under Idaho law, where Intermountain is organized. See “Comparison of Rights of Holders of Columbia and Intermountain Common Stock” for a discussion of the different rights associated with Columbia common stock.

Columbia has various provisions in its articles of incorporation that could impede a takeover of Columbia.

Columbia’s amended and restated articles of incorporation contain provisions providing for, among other things, preferred stock, super majority approval of certain business transactions, and consideration of non-monetary factors in evaluating a takeover offer. Although these provisions were not adopted for the express purpose of preventing or impeding the takeover of Columbia without the approval of the Columbia board of directors, such provisions may have that effect. Such provisions may prevent former Intermountain shareholders who receive shares of Columbia common stock in the merger from taking part in a transaction in which such shareholders could realize a premium over the current market price of Columbia common stock. See “Comparison of Rights of Holders of Columbia and Intermountain Common Stock.”

 

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Certain Intermountain directors and officers may have interests in the merger different from the interests of Intermountain shareholders.

In considering the recommendations of the board of directors of Intermountain, Intermountain shareholders should be aware that certain directors and executive officers of Intermountain have interests in the merger that may differ from, or may be in addition to, the interests of Intermountain shareholders generally. The board of directors of Intermountain was aware of these interests and considered them, among other matters, when it adopted the merger agreement and in making its recommendations that the Intermountain shareholders approve the Merger proposal. These interests include:

 

•

In accordance with the merger agreement, one of the directors of Intermountain will be recommended by Columbia’s Nominating and Corporate Governance Committee to serve on Columbia’s board of directors and the board of directors of Columbia State Bank following the merger;

 

•

In accordance with the merger agreement, Columbia State Bank will form an advisory board and invite certain members of Intermountain’s board of directors as mutually agreed between Columbia and Intermountain to join such advisory board;

 

•

Two of Intermountain’s executive officers are party to agreements that provide for payments upon completion of the merger, and one of Intermountain’s executive officers is party to an agreement that provides for severance and other benefits following a change in control of Intermountain in connection with a qualifying termination of employment;

 

•

Curt Hecker, who is the chief executive officer and president of Intermountain, entered into an employment agreement with Columbia that becomes effective upon the completion of the merger and that replaces an existing employment agreement with Intermountain;

 

•

Certain of Intermountain’s executive officers may have restricted stock awards that under the merger agreement become fully vested upon the merger; and

 

•

Intermountain directors and officers are entitled to continued indemnification and insurance coverage under the merger agreement.

For a more complete description of the interests of Intermountain directors and executive officers in the merger, see “The Merger—Interests of Intermountain’s Directors and Executive Officers in the Merger.”

Risk Factors Relating to Intermountain and Intermountain’s Business

Intermountain is, and will continue to be, subject to the risks described in Intermountain’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. See “Documents Incorporated by Reference” and “Where You Can Find More Information” included elsewhere in this proxy statement/prospectus.

Risk Factors Relating to Columbia and Columbia’s Business

Columbia is, and will continue to be, subject to the risks described in Columbia’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. See “Documents Incorporated by Reference” and “Where You Can Find More Information” included elsewhere in this proxy statement/prospectus.

 

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SELECTED CONSOLIDATED FINANCIAL DATA OF COLUMBIA

The following selected consolidated financial information for the fiscal years ended December 31, 2009 through December 31, 2013 is derived from audited financial statements of Columbia. The financial information as of and for the six months ended June 30, 2014 and 2013 are derived from unaudited financial statements, has been prepared on the same basis as the historical information derived from audited financial statements and, in the opinion of Columbia’s management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data for those dates. The results of operations for the six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2014. You should read this information in conjunction with Columbia’s consolidated financial statements and related notes thereto included in Columbia’s Annual Report on Form 10-K for the year ended December 31, 2013, and in Columbia’s Quarterly Report on Form 10-Q for the six months ended June 30, 2014, which are incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information.”

 

		Six Months Ended June 30, 2014				Six Months Ended June 30, 2013				Years Ended December 31,
										2013				2012				2011				2010				2009
		(dollars in thousands except per share)
For the Period
Interest income		$	151,012			$	137,029			$	296,935			$	248,504			$	251,271			$	185,879			$	143,035
Interest expense		$	1,948			$	3,558			$	5,840			$	9,577			$	14,535			$	21,092			$	27,683
Net interest income		$	149,064			$	133,471			$	291,095			$	238,927			$	236,736			$	164,787			$	115,352
Provision for loan and lease losses, excluding covered loans		$	100			$	1,000			$	3,160			$	13,475			$	7,400			$	41,291			$	63,500
Noninterest income (loss)		$	28,635			$	8,466			$	26,700			$	27,058			$	(9,283	)		$	52,781			$	29,690
Noninterest expense		$	115,150			$	102,553			$	230,886			$	162,913			$	155,759			$	137,147			$	94,488
Net income (loss)		$	41,071			$	26,767			$	60,016			$	46,143			$	48,037			$	30,784			$	(3,968	)
Net income (loss) applicable to common shareholders		$	41,034			$	26,757			$	59,984			$	46,143			$	48,037			$	25,837			$	(8,371	)
Per Common Share
Earnings (loss) (Basic)		$	0.79			$	0.59			$	1.24			$	1.16			$	1.22			$	0.73			$	(0.38	)
Earnings (loss) (Diluted)		$	0.77			$	0.58			$	1.21			$	1.16			$	1.21			$	0.72			$	(0.38	)
Cash dividends declared per common share		$	0.36			$	0.20			$	0.41			$	0.98			$	0.27			$	0.04			$	0.07
Book Value		$	20.71			$	20.07			$	20.50			$	19.25			$	19.23			$	17.97			$	16.13
Averages
Total assets		$	7,229,187			$	7,110,957			$	6,558,517			$	4,826,283			$	4,509,010			$	4,248,590			$	3,084,421
Interest-earning assets		$	6,339,102			$	6,284,281			$	5,754,543			$	4,246,724			$	3,871,424			$	3,583,728			$	2,783,862
Loans, including covered loans		$	4,646,356			$	4,571,181			$	4,140,826			$	2,900,520			$	2,607,266			$	2,485,650			$	2,124,574
Securities		$	1,645,993			$	1,665,180			$	1,474,744			$	1,011,294			$	928,891			$	720,152			$	584,028
Deposits		$	5,968,881			$	5,824,802			$	5,420,577			$	3,875,666			$	3,541,399			$	3,270,923			$	2,378,176
Shareholders’ equity		$	1,084,927			$	1,051,380			$	979,099			$	761,185			$	730,726			$	668,469			$	462,127
Financial Ratios
Net interest margin (tax equivalent)			4.86	%			5.13	%			5.16	%			5.77	%			6.27	%			4.76	%			4.33	%
Return on average assets			1.14	%			0.89	%			0.92	%			0.96	%			1.07	%			0.72	%			(0.13	)%
Return on average common equity			7.64	%			5.88	%			6.14	%			6.06	%			6.57	%			4.15	%			(2.16	)%
Average equity to average assets			14.97	%			15.21	%			14.93	%			15.77	%			16.21	%			15.73	%			14.98	%
At Period End
Total assets		$	7,297,458			$	7,070,465			$	7,161,582			$	4,906,335			$	4,785,945			$	4,256,363			$	3,200,930
Covered assets, net		$	255,151			$	351,545			$	289,790			$	407,648				560,055				531,504				—
Loans, excluding covered loans		$	4,452,674			$	4,181,018			$	4,219,451			$	2,525,710			$	2,348,371			$	1,915,754			$	2,008,884
Allowance for noncovered loan and lease losses		$	49,494			$	51,698			$	52,280			$	52,244			$	53,041			$	60,993			$	53,478
Securities		$	1,621,929			$	1,541,039			$	1,696,640			$	1,023,484			$	1,050,325			$	781,774			$	631,645
Deposits		$	5,985,069			$	5,747,861			$	5,959,475			$	4,042,085			$	3,815,529			$	3,327,269			$	2,482,705
Core deposits		$	5,735,047			$	5,467,899			$	5,696,357			$	3,802,366			$	3,510,435			$	2,998,482			$	2,072,821
Shareholders’ equity		$	1,092,151			$	1,030,674			$	1,053,249			$	764,008			$	759,338			$	706,878			$	528,139

 

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		Six Months Ended June 30, 2014				Six Months Ended June 30, 2013				Years Ended December 31,
										2013				2012				2011				2010				2009
		(dollars in thousands except per share)
Nonperforming Assets, Excluding Covered Assets
Nonaccrual loans		$	30,613			$	43,610			$	34,015			$	37,395			$	53,483			$	89,163			$	110,431
Other real estate owned and other personal property owned			15,203				24,423				23,918				11,108				31,905				30,991				19,037
Total nonperforming assets, excluding covered assets		$	45,816			$	68,033			$	57,933			$	48,503			$	85,388			$	120,154			$	129,468
Nonperforming loans to year end loans, excluding covered loans			0.69	%			1.04	%			0.81	%			1.48	%			2.28	%			4.65	%			5.50	%
Nonperforming assets to year end assets, excluding covered assets			0.65	%			1.01	%			0.84	%			1.08	%			2.02	%			3.23	%			4.04	%
Allowance for loan and lease losses to year end loans, excluding covered loans			1.11	%			1.24	%			1.24	%			2.07	%			2.26	%			3.18	%			2.66	%
Allowance for loan and lease losses to nonperforming loans, excluding covered loans			161.68	%			118.55	%			153.70	%			139.71	%			99.17	%			68.41	%			48.43	%
Net loan charge-offs		$	2,886			$	1,546			$	3,124			$	14,272			$	15,352			$	33,776			$	52,769
Risk-Based Capital Ratios
Total capital			14.52	%			14.12	%			14.68	%			20.62	%			21.05	%			24.47	%			19.60	%
Tier 1 capital			13.27	%			12.86	%			13.43	%			19.35	%			19.79	%			23.20	%			18.34	%
Leverage ratio			10.52	%			9.86	%			10.19	%			12.78	%			12.96	%			13.99	%			14.33	%

 

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SELECTED CONSOLIDATED FINANCIAL DATA OF INTERMOUNTAIN

The following selected consolidated financial information for the fiscal years ended December 31, 2009 through December 31, 2013 is derived from audited financial statements of Intermountain. The financial information as of and for the six months ended June 30, 2014 and 2013 are derived from unaudited financial statements, has been prepared on the same basis as the historical information derived from audited financial statements and, in the opinion of Intermountain’s management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data for those dates. The results of operations for the six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2014. You should read this information in conjunction with Intermountain’s consolidated financial statements and related notes thereto included in Intermountain’s Annual Report on Form 10-K for the year ended December 31, 2013, and in Intermountain’s Quarterly Report on Form 10-Q for the six months ended June 30, 2014, which are incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information.”

 

(Dollars in thousands, except per share)		As of and for the Six Months Ended June 30,								As of and for the Year Ended December 31,
		2014				2013				2013				2012				2011				2010				2009
Income Statement Data:
Interest income		$	15,939			$	16,842			$	33,331			$	35,876			$	41,813			$	46,217			$	54,070
Interest expense			1,560				1,936				3,598				5,083				6,812				10,785				16,170
Net interest income			14,379				14,906				29,733				30,793				35,001				35,432				37,900
Provision for loan losses			99				426				559				4306				7289				24012				36329
Net interest income after provision for losses on loans			14,280				14,480				29,174				26,487				27,712				11,420				1,571
Non interest income			4,584				5,384				10,562				10,717				10,469				10,856				11,788
Non interest expense			15,670				16,398				34,083				33,433				38,330				54,894				49,630
Income(loss) before income taxes			3,194				3,466				5,653				3,771				(149	)			(32,618	)			(36,271	)
Income tax(provision) benefit			(898	)			—				6,118				8				152				882				14,360
Net income(loss)			2,296				3,466				11,771				3,779				3				(31,736	)			(21,911	)
Preferred stock dividend			—				918				1,673				1,891				1,808				1,716				1,662
Net income(loss) applicable to common stockholders		$	2,296			$	2,548			$	10,098			$	1,888			$	(1,805	)		$	(33,452	)		$	(23,573	)
Per Share Data:
Basic earnings(loss) per share(1)		$	0.35			$	0.40			$	1.57			$	0.33			$	(2.15	)		$	(39.89	)		$	(28.20	)
Diluted earnings(loss) per share(1)		$	0.34			$	0.39			$	1.55			$	0.32			$	(2.15	)		$	(39.89	)		$	(28.20	)
Cash dividends per share		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Period end book value per common share, excluding preferred stock		$	15.25			$	13.39			$	14.48			$	13.64			$	42.17			$	40.00			$	75.47
Weighted average common shares outstanding(1)			6,619,576				6,443,142				6,444,556				5,806,958				840,654				838,562				836,065
Weighted average diluted shares outstanding(1)			6,686,675				6,482,376				6,494,089				5,825,283				840,654				838,562				836,065
Balance Sheet Data:
Total assets		$	920,162			$	930,558			$	939,648			$	972,139			$	934,218			$	1,005,109			$	1,079,644
Available-for-sale securities, at fair value			261,190				256,616				251,638				280,169				219,039				183,081				181,784
Net loans receivable			520,280				522,740				514,834				520,768				502,252				563,228				655,602
Deposits			693,888				699,521				706,050				748,934				729,373				778,833				819,321
Securities sold subject to repurchase agreements			77,847				85,605				99,888				76,738				85,104				105,116				95,233
Advances from Federal Home Loan Bank			14,000				4,000				4,000				4,000				29,000				34,000				49,000
Other borrowings			23,060				16,527				23,410				16,527				16,527				16,527				16,527
Stockholders’ equity			98,999				113,045				94,012				114,434				61,616				59,353				88,627
Financial Ratios:
Return on average assets			0.50	%			0.74	%			1.25	%			0.39	%			0.00	%			-3.04	%			-2.01	%
Return on average common stockholders’ equity			4.81	%			5.85	%			11.33	%			2.75	%			-5.27	%			-67.35	%			-31.17	%
Average equity to average assets			10.43	%			12.10	%			12.03	%			11.22	%			6.27	%			7.53	%			9.51	%

 

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(Dollars in thousands, except per share)		As of and for the Six Months Ended June 30,								As of and for the Year Ended December 31,
		2014				2013				2013				2012				2011				2010				2009
Efficiency ratio(2)			82.63	%			80.82	%			84.58	%			80.54	%			84.30	%			118.59	%			99.88	%
Net loans to assets			56.54	%			56.17	%			54.79	%			53.57	%			53.76	%			56.04	%			60.72	%
Average yields earned			3.87	%			3.97	%			3.92	%			4.16	%			4.81	%			4.93	%			5.45	%
Average rates paid			0.39	%			0.48	%			0.63	%			0.81	%			0.96	%			1.36	%			1.96	%
Net interest margin			3.49	%			3.51	%			3.50	%			3.57	%			4.02	%			3.77	%			3.81	%
Nonperforming assets to total assets			0.77	%			1.00	%			0.68	%			1.18	%			1.71	%			1.59	%			2.83	%
Allowance for loan losses to total loans			1.46	%			1.52	%			1.47	%			1.50	%			2.47	%			2.16	%			2.47	%
Net loan charge-offs to average loans			0.04	%			0.13	%			0.16	%			1.71	%			1.37	%			4.89	%			5.38	%
Allowance for loan losses to nonperforming loans			224.65	%			167.58	%			288.10	%			121.70	%			136.60	%			108.10	%			87.20	%

 

(1)	Earnings per share and weighted average shares outstanding have been adjusted retroactively for the effect of stock splits and dividends, including the 10-for-1 reverse stock split effective October 5, 2012.

(2)	The efficiency ratio has been computed as non interest expense divided by the sum of net interest income and non interest income.

(3)

Non-performing loan components are comprised of loans on non-accrual status (inclusive of non-accruing TDRs), plus any loans past due 90 days or more still on accrual. Accruing TDRs are not included in the non-performing loan calculation. Intermountain’s rationale for this is that Intermountain’s policy for moving non-performing TDRs to accrual status requires payment performance (typically six consecutive months), coupled with a reasonable assurance such performance will continue.

 

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COMPARATIVE PER SHARE DATA OF COLUMBIA (UNAUDITED)

Presented below for Columbia and Intermountain is historical, unaudited pro forma combined and pro forma equivalent per share financial data as of and for the year ended December 31, 2013 and as of and for the six months ended June 30, 2014. The information presented below should be read together with the historical consolidated financial statements of Columbia and Intermountain, including the related notes, filed by Columbia and Intermountain, as applicable, with the SEC and incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information.”

The unaudited pro forma and pro forma per equivalent share information gives effect to the merger as if the merger had been effective on December 31, 2013 or June 30, 2014 in the case of the book value data, and as if the merger had been effective as of January 1, 2013 in the case of the earnings per share and the cash dividends data. The unaudited pro forma data combines the historical results of Intermountain into Columbia’s consolidated statement of income. While certain adjustments were made for the estimated impact of fair value adjustments and other acquisition-related activity, they are not indicative of what could have occurred had the acquisition taken place on January 1, 2013.

The unaudited pro forma adjustments are based upon available information and certain assumptions that Columbia management believes are reasonable. The unaudited pro forma data, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the impact of factors that may result as a consequence of the merger or consider any potential impacts of current market conditions or the merger on revenues, expense efficiencies, asset dispositions, among other factors, nor the impact of possible business model changes. As a result, unaudited pro forma data is presented for illustrative purposes only and does not represent an attempt to predict or suggest future results. Upon completion of the merger, the operating results of Intermountain will be reflected in the consolidated financial statements of Columbia on a prospective basis.

 

		Columbia Historical				Intermountain Historical(1)				Pro Forma Combined				Per Equivalent Intermountain Share(2)
For the year ended December 31, 2013:
Basic earnings per share		$	1.24			$	1.57			$	1.42			$	0.91
Diluted earnings per share		$	1.21			$	1.55			$	1.39			$	0.89
Cash dividends declared(3)		$	0.41			$	—			$	0.41			$	0.26
Book value per share as of December 31, 2013		$	20.50			$	14.48			$	20.80			$	13.37
For the six months ended June 30, 2014:
Basic earnings per share		$	0.79			$	0.35			$	0.79			$	0.51
Diluted earnings per share		$	0.77			$	0.34			$	0.78			$	0.50
Cash dividends declared(2)		$	0.36			$	—			$	0.36			$	0.23
Book value per share as of June 30, 2014		$	20.71			$	15.25			$	21.07			$	13.54

 

(1)	For the year ended December 31, 2013, Intermountain basic and diluted earnings per share included a tax benefit of $6.1 million, or approximately $0.95 per basic share and $0.94 per diluted share, related to the reversal of a valuation allowance against its deferred tax assets.

(2)	Reflects Intermountain shares at the exchange ratio of 0.6426, which we refer to as the exchange ratio. This exchange ratio does not give effect for the cash consideration included in the transaction.

(3)	Pro forma combined cash dividends declared are based only upon Columbia’s historical amounts.

 

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MARKET PRICES, DIVIDENDS AND OTHER DISTRIBUTIONS

Stock Prices

The table below sets forth, for the calendar quarters indicated, the high and low sales price per share of, and the dividends declared on, Columbia common stock, which trades on the Nasdaq Global Select Market under the symbol “COLB,” and Intermountain common stock, which trades on the Nasdaq Capital Market under the symbol “IMCB.” Information in this table gives pro forma effect to Intermountain’s 1:10 reverse stock split of its common stock on October 5, 2012. As of August 21, 2014, there were approximately 2,428 registered holders of Columbia’s common stock and approximately 848 registered holders of Intermountain’s common stock.

 

		Columbia Common Stock												Intermountain Common Stock
		High				Low				Dividends				High				Low				Dividends
2012
First Quarter		$	23.35			$	19.65			$	0.37			$	13.80			$	9.00			$	0.00
Second Quarter		$	23.52			$	17.38			$	0.22			$	12.50			$	10.10			$	0.00
Third Quarter		$	19.85			$	17.22			$	0.30			$	11.80			$	10.30			$	0.00
Fourth Quarter		$	19.15			$	16.18			$	0.09			$	13.00			$	11.60			$	0.00
2013
First Quarter		$	22.08			$	18.27			$	0.10			$	13.50			$	11.31			$	0.00
Second Quarter		$	23.88			$	19.85			$	0.10			$	14.00			$	12.36			$	0.00
Third Quarter		$	25.59			$	23.17			$	0.10			$	16.25			$	13.15			$	0.00
Fourth Quarter		$	28.37			$	23.53			$	0.11			$	16.45			$	14.59			$	0.00
2014
First Quarter		$	30.36			$	24.75			$	0.12			$	25.30			$	14.53			$	0.00
Second Quarter		$	29.31			$	23.59			$	0.24			$	17.25			$	16.10			$	0.00

The following table sets forth the closing sale prices per share of Columbia common stock and Intermountain common stock on July 23, 2014, the last trading day completed before the public announcement of the signing of the merger agreement, and on [—], 2014, the latest practicable date before the date of this proxy statement/prospectus.

 

		Columbia Common Stock				Intermountain Common Stock
July 23, 2014		$	24.79			$	16.31
[—], 2014		$	[—]			$	[—]

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document, including information included or incorporated by reference in this document may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, (i) statements about the benefits of the merger, including future financial and operating results, cost savings, enhancements to revenue and accretion to reported earnings that may be realized from the merger; (ii) statements about our respective plans, objectives, expectations and intentions and other statements that are not historical facts; and (iii) other statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “prospects,” “projections,” or “potential,” future conditional verbs such as “will,” “would,” “should,” “could,” or “may” or words of similar meaning. These forward-looking statements are based on current beliefs and expectations of Columbia’s and Intermountain’s managements, and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond Columbia’s and Intermountain’s control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

In addition to factors previously disclosed in Columbia’s and Intermountain’s reports filed with the SEC and those identified elsewhere in this filing (including the section entitled “Risk Factors”), the following potential factors, among others, could cause actual results to differ materially from the anticipated results or other expectations in the forward-looking statements:

 

•

the merger may not close when expected or at all because required regulatory, shareholder or other approvals and other conditions to closing are not received on a timely basis or at all;

 

•

Columbia’s stock price could change, before closing of the merger, including as a result of broader stock market movements, and the performance of financial companies and peer group companies;

 

•

benefits from the merger may not be fully realized or may take longer to realize than expected, including as a result of changes in general economic and market conditions, interest and exchange rates, monetary policy, laws and regulations and their enforcement, and the degree of competition in the geographic and business areas in which Intermountain operates;

 

•

operating costs, customer losses and business disruption following the merger, including adverse developments in relationships with employees, may be greater than expected; and

 

•

management time and effort may be diverted to the resolution of merger-related issues.

All subsequent written and oral forward-looking statements concerning the proposed transaction or other matters attributable to Columbia or Intermountain or any person acting on behalf of Columbia or Intermountain are expressly qualified in their entirety by the cautionary statements above. Neither Columbia nor Intermountain undertakes any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

 

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THE MERGER

The following is a discussion of the merger and the material terms of the merger agreement between Columbia and Intermountain. You are urged to read carefully the merger agreement in its entirety, a copy of which is attached as Appendix A to this document and incorporated by reference herein. This summary may not contain all of the information about the merger agreement that is important to you. We encourage you to read the merger agreement carefully and in its entirety. Factual information about Columbia and Intermountain can be found elsewhere in this proxy statement/prospectus and in the public filings Columbia and Intermountain make with the SEC, as described in the section entitled “Where You Can Find More Information.”

Terms of the Merger

Transaction Structure

The merger agreement provides for the acquisition of Intermountain by Columbia through the merger of Intermountain, with and into Columbia, with Columbia continuing as the surviving corporation. As soon as reasonably practicable following the merger, Panhandle State Bank will be merged with and into Columbia State Bank, with Columbia State Bank as the surviving bank. We refer to the merger of Intermountain with and into Columbia as the merger, the merger of Panhandle State Bank with and into Columbia State Bank as the bank merger, and the two mergers together as the mergers.

 

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Merger Consideration

In the merger, Intermountain shareholders will have the right, with respect to each of their shares of Intermountain common stock, to elect to receive, subject to proration and adjustment as described below, cash, stock, or a unit consisting of a mix of 0.6426 of a share of Columbia common stock and $2.2930 in cash. The aggregate merger consideration is expected to be equal to the sum of (1) the product of the aggregate number of shares of Intermountain common stock outstanding immediately prior to the merger effective time (other than certain forfeited restricted stock awards) and 0.6426, which we refer to as the exchange ratio, or 4,233,707 shares of Columbia common stock (assuming the Intermountain warrants are not exercised), and (2) the product of the aggregate number of shares of Intermountain common stock outstanding immediately prior to the merger effective time (other than certain forfeited restricted stock awards) and $2.2930 in cash, or $15,107,206, in each case assuming the Intermountain warrants are not exercised. The value of the consideration to be received by Intermountain shareholders in the merger will vary with the trading price of Columbia common stock between now and the completion of the merger. The value of the per share consideration is determined by the sum of: (1) the product of: (i) the purchaser average closing price and (ii) 0.6426; and (2) $2.2930, which we refer to as the per share consideration. In connection with a recapitalization transaction in January 2012, Intermountain issued warrants to Castle Creek Capital Partners IV, LP, Stadium Capital Partners, L.P., and Stadium Capital Qualified Partners, L.P., which we refer to as the principal shareholders, which are exercisable for 170,000 shares of Intermountain common stock at an exercise price per share of $10.00. These warrants, which we refer to as the Intermountain warrants, expire in January 2015. If the merger closes prior to their termination or exercise, Columbia will pay the holders thereof immediately prior to the effective time an amount equal to the product of the per share consideration and the shares issuable upon the exercise of the Intermountain warrants less the exercise price in respect thereof. The following table sets forth information concerning the approximate aggregate and per share consideration that would be payable in the merger based on different purchaser average closing prices. The table does not reflect the fact that cash will be paid instead of fractional shares, and does not account for any adjustments that may be made to the total cash and stock amounts in certain circumstances.

 

Columbia Stock Price				Per Share Cash Consideration		Per Share Stock Consideration				Per Share Mixed Consideration						Aggregate Merger Consideration Plus Cash Out of Intermountain Warrants						Aggregate Transaction Value
Price		Change		Total Value		Shares of Stock		Total Value		Exchange Ratio		Cash		Total Value		Shares of Stock		Cash		Cash for Warrants
$28.51		15.0%		$20.6126		0.7230		$20.6126		0.6426		$2.2930		$20.6126		4,233,707		$15,107,206		$1,804,136		$137,607,981
$27.89		12.5%		$20.2143		0.7248		$20.2143		0.6426		$2.2930		$20.2143		4,233,707		$15,107,206		$1,736,433		$134,916,438
$27.27		10.0%		$19.8161		0.7267		$19.8161		0.6426		$2.2930		$19.8161		4,233,707		$15,107,206		$1,668,730		$132,224,895
$26.65		7.5%		$19.4178		0.7286		$19.4178		0.6426		$2.2930		$19.4178		4,233,707		$15,107,206		$1,601,027		$129,533,353
$26.03		5.0%		$19.0196		0.7307		$19.0196		0.6426		$2.2930		$19.0196		4,233,707		$15,107,206		$1,533,325		$126,841,810
$25.41		2.5%		$18.6213		0.7328		$18.6213		0.6426		$2.2930		$18.6213		4,233,707		$15,107,206		$1,465,622		$124,150,267
$24.79		Price on 7/23/14		$18.2231		0.7351		$18.2231		0.6426		$2.2930		$18.2231		4,233,707		$15,107,206		$1,397,927		$121,458,732
$24.17		-2.5%		$17.8248		0.7375		$17.8248		0.6426		$2.2930		$17.8248		4,233,707		$15,107,206		$1,330,216		$118,767,182
$23.55		-5.0%		$17.4266		0.7400		$17.4266		0.6426		$2.2930		$17.4266		4,233,707		$15,107,206		$1,262,514		$116,075,639
$22.93		-7.5%		$17.0283		0.7426		$17.0283		0.6426		$2.2930		$17.0283		4,233,707		$15,107,206		$1,194,811		$113,384,096
$22.31		-10.0%		$16.6300		0.7454		$16.6300		0.6426		$2.2930		$16.6300		4,233,707		$15,107,206		$1,127,108		$110,692,554
$21.69		-12.5%		$16.2318		0.7484		$16.2318		0.6426		$2.2930		$16.2318		4,233,707		$15,107,206		$1,059,406		$108,001,011
$21.07		-15.0%		$15.8335		0.7515		$15.8335		0.6426		$2.2930		$15.8335		4,233,707		$15,107,206		$991,703		$105,309,468

If the purchaser average closing price declines by more than 17.5% from the closing price of Columbia common stock on the day of the execution of the merger agreement, and Columbia’s common stock underperforms the Keefe Bruyette & Wood (KBW) Regional Banking Index by more than 17.5% during such period, Intermountain may terminate the merger agreement unless Columbia contributes sufficient additional cash consideration to offset any reduction in the value of the merger consideration attributable to such decline, as discussed in greater detail below.

If you are an Intermountain shareholder, whether you receive cash or Columbia common stock or a unit consisting of a mix of cash and stock as merger consideration, the value of the merger consideration that you will receive will fluctuate with the market price of Columbia common stock and will depend on

 

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the daily closing volume weighted average price of Columbia common stock for the 20 trading day period beginning on the 25^th trading day before the completion of the merger, and, if you receive Columbia common stock as merger consideration, on the market price of Columbia common stock when you receive the shares of Columbia common stock.

Cash Election

The merger agreement provides that each Intermountain shareholder who makes a valid cash election will have the right to receive, in exchange for each share of Intermountain common stock, subject to proration and adjustment as described below, an amount in cash equal to the per share consideration, which amount when paid only in cash is referred to as the per share cash consideration. For example, based on the volume weighted average price of Columbia common stock during the 20 trading day period ending [—], 2014, the last practicable date before the printing of this document, and assuming no adjustments to the aggregate merger consideration are required pursuant to the discussion above a greater than 17.5% decline in Columbia’s stock price, each Intermountain common shareholder who receives cash for such shareholder’s shares would have the right to receive approximately $[—] per share in cash. If an Intermountain shareholder makes a valid cash election, such holder’s shares are referred to as cash election shares.

Stock Election

The merger agreement provides that each Intermountain shareholder who makes a valid stock election will have the right to receive, in exchange for each share of Intermountain common stock, subject to proration and adjustment as described below, a fraction of a share of Columbia common stock equal to the quotient (rounded to the nearest ten-thousandth) obtained by dividing (a) the per share consideration by (b) the purchaser average closing price. We refer to this as the per share stock consideration. No fractional shares of Columbia common stock will be issued in the merger, and a holder of Intermountain common stock who would otherwise be entitled to a fractional share of Columbia common stock will receive cash in lieu thereof. For example, based on the volume weighted average price of Columbia common stock during the 20 trading day period ending [—], 2014, the last practicable date before the printing of this document, and assuming no adjustments to the aggregate merger consideration are required pursuant to the discussion above a greater than 17.5% decline in Columbia’s stock price, each Intermountain common shareholder who receives Columbia common stock for such shareholder’s shares would have the right to receive approximately [—] of a share of Columbia common stock. If an Intermountain shareholder makes a valid stock election, such shareholder’s shares are referred to as stock election shares.

Mixed Election

The merger agreement provides that each Intermountain shareholder who makes a valid mixed election will have the right to receive a unit consisting of 0.6426 of a share of Columbia common stock and $2.2930 in cash, which we refer to as per share mixed consideration. If an Intermountain shareholder makes a valid mixed election, the shares with respect to which such holder has the right to receive the per share mixed consideration are referred to as mixed election shares.

Non-Election

Intermountain shareholders who make no election to receive cash or shares of Columbia common stock in the merger, whose elections are not received by the exchange agent by the election deadline, or whose forms of election are improperly completed and/or are not signed will be deemed not to have made an election. Intermountain shareholders not making an election will be deemed to be, in whole or in part, shares of Columbia common stock with respect to which a mixed election has been made. Shares of Intermountain common stock with respect to which no election is deemed to have been made are referred to as non-election shares.

 

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Adjustment

The cash and stock elections are subject to adjustment to ensure that (1) the aggregate amount of cash that would be paid in the merger, excluding any cash amounts needed to purchase Intermountain warrants, is equal to the product of the aggregate number of shares of Intermountain common stock outstanding immediately prior to the merger effective time (excluding certain forfeited restricted stock awards) and $2.2930, and (2) the aggregate number of shares of Columbia common stock to be issued to holders of Intermountain common stock is equal to the product of the aggregate number of shares of Intermountain common stock outstanding, immediately prior to the merger effective time (excluding certain forfeited restricted stock awards) and 0.6426. As a result, even if an Intermountain shareholder makes a cash election or stock election, such Intermountain shareholder may nevertheless receive some stock consideration or some cash consideration, respectively. Mixed elections and non-elections will receive the per share mixed consideration and will not be subject to proration.

Proration Adjustment if Stock Consideration is Undersubscribed

Stock may be paid to shareholders who make cash elections if, after giving effect to the mixed elections and non-elections, the stock election is undersubscribed. The number of shares of Intermountain common stock that may be converted into shares of Columbia common stock after giving effect to the mixed elections and non-elections in the merger is equal to the “stock conversion number”, which is equal to the quotient of (1) the aggregate number of shares of Columbia common stock to be exchanged in the merger minus the product of 0.6426 and the aggregate number of mixed election shares and non-election shares, divided by (2) the per share consideration. If the stock election shares are less than the stock conversion number, the stock election is undersubscribed, in which case:

 

•

each stock election share will be converted into the right to receive the per share stock consideration;

 

•

the exchange agent will allocate the shares of Columbia common stock with respect to which a cash election is made other than cash election shares representing dissenting shares (as defined in the merger agreement), pro rata to the holders of such cash election shares in accordance with their respective numbers of cash election shares, a sufficient number of cash election shares so that the sum of such number and the number of all stock election shares equals as closely as practicable the stock conversion number, and each such allocated cash election share, which we refer to as a converted cash election share, will be converted into the right to receive the per share stock consideration; and

 

•

each cash election share that is not a converted cash election share will be converted into the right to receive the per share cash consideration.

Example of Undersubscription of Total Stock Consideration

As an example, assuming that:

 

•

the purchaser average closing price is $26.2041,

 

•

there are 6,588,402 shares of Intermountain common stock issued and outstanding (including unvested restricted stock awards),

 

•

there are 2,000,000 cash election shares,

 

•

there are 1,000,000 stock election shares,

 

•

there are 100,000 mixed election shares, and

 

•

there are 3,488,402 non-election shares,

then the stock conversion number is approximately 2,640,483 and an Intermountain shareholder that has made a valid cash election with respect to 1,000 shares of Intermountain common stock would receive the per share stock consideration with respect to 820 shares (as rounded to the nearest whole share) of Intermountain common

 

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stock and the per share cash consideration with respect to 180 shares (as rounded to the nearest whole share) of Intermountain common stock. Therefore, that Intermountain shareholder would receive 598 shares (as rounded to the nearest whole share) of Columbia common stock and $3,443 in cash (as rounded to the nearest dollar). This example does not reflect any cash that may be paid in lieu of fractional shares of Columbia common stock.

Proration Adjustment if Stock Consideration is Oversubscribed

Cash may be paid to shareholders who make stock elections if, after giving effect to the mixed elections and non-elections, the stock election is oversubscribed. If the stock election shares are greater than the stock conversion number, the stock election is oversubscribed, in which case:

 

•

all cash election shares will be converted into the right to receive the per share cash consideration;

 

•

the exchange agent will select first from among the stock election shares, by a pro rata selection process, a sufficient number of stock election shares, which we refer to as a converted stock election share, such that the difference of the number of stock election shares minus the number of converted stock election shares equals as closely as practicable the stock conversion number and each converted stock election share will be converted into the right to receive the per share cash consideration; and

 

•

each other stock election share that is not a converted stock election share will be converted into the right to receive the per share stock consideration.

Example of Oversubscription of Total Stock Consideration

As an example, assuming that:

 

•

the purchaser average closing price is $26.2041,

 

•

there are 6,588,402 shares of Intermountain common stock issued and outstanding,

 

•

there are 500,000 cash election shares,

 

•

there are 5,000,000 stock election shares,

 

•

there are 100,000 mixed election shares, and

 

•

there are 988,402 non-election shares,

then the stock conversion number is approximately 4,840,850 and an Intermountain shareholder making a stock election with respect to 1,000 shares of Intermountain common stock would receive the per share stock consideration with respect to 970 shares (as rounded to the nearest whole share) of Intermountain common stock and the per share cash consideration with respect to 30 shares of Intermountain common stock. Therefore, that Intermountain shareholder would receive 708 shares (as rounded to the nearest whole share) of Columbia common stock and $573.90 in cash. This example does not reflect any cash that may be paid in lieu of fractional shares.

No Adjustment if Stock Consideration is Sufficiently Subscribed

If after giving effect to the mixed elections and non-elections, the aggregate number of stock election shares is equal to the stock conversion number, then:

 

•

each stock election share will be converted into the right to receive the per share stock consideration; and

 

•

each cash election share and non-election share will be converted into the right to receive the per share cash consideration.

 

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Treatment of Intermountain Equity Awards

Restricted Stock Awards

Immediately prior to the effective time of the merger, all outstanding awards of Intermountain restricted stock (other than any forfeited restricted stock awards) will fully vest and convert to the right to receive, at the election of the holder, either the per share cash consideration, the per share stock consideration or the per share mixed consideration, subject to any applicable tax withholding.

Forfeited Restricted Stock Awards

Immediately prior to the effective time of the merger, the forfeited restricted stock awards will be forfeited pursuant to waiver agreements with the forfeited restricted stock award holders.

Stock Options

At least 60 days prior to the business day immediately preceding the closing date of the merger, Intermountain will provide a notice of termination to the holders of outstanding Intermountain stock options. From the date of the notice of termination until the business day immediately preceding the closing date of the merger, all outstanding Intermountain stock options will be fully vested and exercisable. At the effective time of the merger, any outstanding and unexercised options will be cancelled without consideration.

Conversion of Shares; Exchange of Certificates; Elections as to Form of Consideration

The conversion of Intermountain common stock into the right to receive the merger consideration will occur automatically at the effective time of the merger. As soon as reasonably practicable after the effective time of the merger, the exchange agent will exchange certificates representing shares of Intermountain common stock for merger consideration to be received in the merger pursuant to the terms of the merger agreement.

Election Statement

An election statement is being distributed by the exchange agent which will allow Intermountain shareholders to make a cash election, a stock election or a mixed election, or to make no election with respect to the type of merger consideration they wish to receive.

Holders of Intermountain common stock who wish to elect the type of merger consideration they will receive in the merger should carefully review and follow the instructions set forth in the election statement. Intermountain shareholders who hold their shares in “street name” should follow their broker’s instructions for making an election with respect to such shares. All election statements must be received by the exchange agent by 5:00 p.m., Pacific Time, on the day prior to the fifth business day before the completion of the merger. This date is referred to as the election deadline. Shares of Intermountain common stock as to which the holder has not made a valid election prior to the election deadline will be treated as though they had not made an election.

NOTE: The actual election deadline is not currently known. Columbia and Intermountain will issue a press release announcing the date of the election deadline at least five business days before that deadline. Additionally, Columbia and Intermountain will post the date of the election deadline on their respective websites, also at least five business days before that deadline.

To make an election, a holder of Intermountain common stock must submit a properly completed election statement so that it is actually received by the exchange agent at or prior to the election deadline in accordance with the instructions on the election statement. Neither Intermountain nor Columbia is under any obligation to notify any holder of defects in such holder’s election statement.

 

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Generally, an election may be revoked or changed, but only by written notice received by the exchange agent prior to the election deadline. If an election is revoked and unless a subsequent properly executed election statement is actually received by the exchange agent at or prior to the election deadline, the holder having revoked the election will be deemed to have made no election with respect to his or her shares of Intermountain common stock.

Holders will not be entitled to revoke or change their elections following the election deadline. As a result, holders who have made elections will be unable to revoke their elections.

Shares of Intermountain common stock as to which the holder has not made a valid election prior to the election deadline, including as a result of revocation, will be deemed to have made no election. If it is determined that any purported cash election, stock election or mixed election was not properly made, the purported election will be deemed to be of no force or effect and the holder making the purported election will be deemed not to have made an election for these purposes, unless a proper election is subsequently made on a timely basis.

Letters of Transmittal

Within five business days after the completion of the merger, the exchange agent will send a letter of transmittal and instructions for surrendering certificates or book-entry shares in exchange for the merger consideration, any cash in lieu of fractional shares of Columbia common stock (as described below), and any dividends or distributions to which a holder may be entitled (as described below), to each holder of record of certificates or book-entry shares which, immediately prior to the completion of the merger, represented shares of Intermountain common stock, whose shares were converted into the right to receive the merger consideration.

If a certificate for Intermountain common stock has been lost, stolen or destroyed, the exchange agent will issue the consideration properly payable under the merger agreement upon receipt of an affidavit as to that loss, theft or destruction and, if requested by the exchange agent, the posting of a bond to indemnify the exchange agent against any claim that may be made against it with respect to such certificate.

Cash in Lieu of Fractional Shares

No fractional shares of Columbia common stock will be issued upon the surrender of certificates or book-entry shares for exchange, and no dividend or distribution with respect to Columbia common stock will be payable on or with respect to any fractional share, and such fractional share interests will not entitle the owner thereof to vote or to any other rights of a shareholder of Columbia. In lieu of the issuance of any such fractional share, Columbia will pay to each former shareholder of Intermountain who otherwise would be entitled to receive such fractional share an amount in cash (rounded to the nearest cent) determined by multiplying (i) the purchaser average closing price by (ii) the fraction of a share (after taking into account all shares of Intermountain common stock held by such holder at the effective time of the merger and rounded to the nearest thousandth when expressed in decimal form) of Columbia common stock which such holder would otherwise be entitled to receive.

Dividends and Distributions

Until certificates or book-entry shares representing shares of Intermountain common stock are surrendered for exchange, any dividends or other distributions with a record date after the effective time of the merger with respect to Columbia common stock into which such shares of Intermountain common stock may have been converted will not be paid. Following surrender of any such certificates or book-entry shares, the record holder thereof will be entitled to receive, without interest, any dividends or other distributions with a record date after the effective time of the merger payable with respect to the whole shares of Columbia common stock represented by such certificates or book-entry shares and paid prior to the surrender date, and at the appropriate payment date, the amount of dividends or other distributions payable with respect to shares of Columbia common stock

 

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represented by such certificates or book-entry shares with a record date after the effective time of the merger but before the surrender date and with a payment date after the issuance of Columbia common stock issuable with respect to such certificates or book-entry shares.

After the effective time of the merger, there will be no transfers on the stock transfer books of Intermountain of any shares of Intermountain common stock. If certificates representing such shares are presented for transfer after the completion of the merger, they will be cancelled and exchanged for the merger consideration into which the shares represented by that certificate have been converted.

Dissenting Shares

Under Title 30, Chapter 1, Part 13 of the Idaho Business Corporation Act, which we refer to as the IBCA, Intermountain shareholders may be entitled to have the right to dissent from the merger and to receive payment in cash for the “fair value” of their shares of Intermountain common stock.

Intermountain shareholders electing to exercise dissenters’ rights must comply with the provisions of the Idaho appraisal laws in order to perfect their rights. The following is intended as a brief summary of the material provisions of the procedures that an Intermountain shareholder must follow in order to dissent from the merger and perfect dissenters’ rights. This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to the Idaho appraisal laws, the full text of which is set forth in Appendix D to this document. Intermountain shareholders are urged to read Title 30, Chapter 1, Part 13 of the IBCA.

A shareholder who wishes to assert dissenters’ rights must:

(1) deliver to Intermountain before the special meeting written notice of the shareholder’s intent to demand payment for the shareholder’s shares if the merger is completed, and

(2) not vote the shares in favor of the merger.

A shareholder wishing to deliver a notice asserting dissenters’ rights should hand deliver or mail the notice to the following address:

Intermountain Community Bancorp

PO Box 967

Sandpoint, ID 83864

Attention: Curt Hecker, Chief Executive Officer

A shareholder who wishes to exercise dissenters’ rights generally must dissent with respect to all of the shares the shareholder owns or over which the shareholder has the power to direct the vote. However, if a record shareholder is a nominee for several beneficial shareholders, some of whom wish to dissent and some of whom do not, then the record holder may dissent with respect to all the shares beneficially owned by any one person by notifying Intermountain in writing 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 Intermountain the record shareholder’s written consent and by dissenting with respect to all the shares of which the shareholder is the beneficial shareholder or over which the shareholder has power to direct the vote.

A shareholder who does not, prior to the special shareholders meeting, deliver to Intermountain a written 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.

 

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If the merger is completed, Columbia (as the surviving corporation) will, within 10 days after the effective date of the merger, deliver a written notice to all Intermountain shareholders who properly gave notice of their intent to exercise dissenters’ rights. The notice will, among other things:

 

•

state where the payment demand must be sent and when certificates for shares must be deposited;

 

•

supply a form for demanding payment;

 

•

set a date by which Columbia must receive the payment demand, which date will be between 40 and 60 days after notice is delivered;

 

•

state Columbia’s estimate of the “fair value” for the shares and the date by which any notice to withdraw (discussed below) must be received; and

 

•

state that within 10 days of the date by which demands for payment are due, if requested in writing, Columbia will provide to the requesting shareholder the number of shareholders who returned forms demanding payment and the total number of shares owned by such shareholders.

A shareholder wishing to exercise dissenters’ rights must at that time file the payment demand and deliver share certificates as required in the notice. Failure to do so will cause that person to lose their dissenters’ rights.

A shareholder who has complied with the requirements summarized in the previous paragraph may nevertheless decline to exercise dissenters’ rights and withdraw from the appraisal process by notifying Columbia by the date set forth in the written notice provided by Columbia following consummation of the merger. If the shareholder does not withdraw from the appraisal process by the specified date, he or she may not do so thereafter unless Columbia consents to such withdrawal in writing.

Within 30 days after the merger occurs or receipt of the payment demand, whichever is later, Columbia will pay each dissenter with properly perfected dissenters’ rights Columbia’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 shares of Intermountain prior to the public announcement of the merger, Columbia is not required to make the payment until 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. The rate of interest is required to be the rate on judgments in the state of Idaho.

Within 30 days of Columbia’s payment (or offer of payment in the case of shares acquired after public announcement of the merger) to a dissenting shareholder, a dissenter dissatisfied with Columbia’s estimate of the fair value may notify Intermountain of the dissenter’s own estimate of the fair value and demand payment of that amount. If Intermountain does not accept the dissenter’s estimate and the parties do not otherwise settle on a fair value, then Columbia must, within 60 days of receiving the estimate and demand, petition a court to determine the fair value.

In view of the complexity of the Idaho statutes governing dissenters’ rights of appraisal, Intermountain shareholders who wish to dissent from the merger and pursue appraisal rights should consult their legal advisors.

The failure of an Intermountain shareholder to comply strictly with the Idaho statutory requirements will result in a loss of dissenters’ rights. A copy of the relevant statutory provisions are attached as Appendix D. You should refer to this appendix for a complete statement concerning dissenters’ rights and the foregoing summary of such rights is qualified in its entirety by reference to that appendix.

Regulatory Approvals Required for the Merger

Each of Columbia and Intermountain has agreed to use its reasonable best efforts to obtain all regulatory approvals required to complete the merger and the other transactions contemplated by the merger agreement. These approvals include approval from the FDIC, Idaho Department of Finance and the Washington State

 

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Department of Financial Institutions, among others. As of the date of this proxy statement/prospectus, Columbia and Intermountain have submitted applications and notifications to obtain the required regulatory approvals.

Federal Deposit Insurance Corporation. The prior approval of the FDIC will be required under Section 18(c) of the Federal Deposit Insurance Act, which we refer to as the Bank Merger Act, to merge Panhandle State Bank with and into Columbia State Bank. In evaluating an application filed under the Bank Merger Act, the FDIC generally considers: (1) the competitive impact of the transaction, (2) financial and managerial resources of the banks party to the bank merger, (3) the banks’ effectiveness in combating money-laundering activities and (4) the extent to which the bank merger or mergers would result in greater or more concentrated risks to the stability of the U.S. banking or financial system. The FDIC also reviews the performance records of the relevant depository institutions under the Community Reinvestment Act of 1997, which we refer to as CRA, including their CRA ratings. In connection with its review under the Bank Merger Act, the FDIC will provide an opportunity for public comment on the application for the bank merger, and is authorized to hold a public meeting or other proceeding if it determines that would be appropriate.

Transactions approved by the FDIC generally may not be completed until 30 days after the approval of the FDIC is received, during which time the Department of Justice, which we refer to as the DOJ, may challenge the transaction on antitrust grounds. With the approval of the FDIC and the concurrence of the DOJ, 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 DOJ could analyze the merger’s effect on competition differently than the FDIC, and thus it is possible that the DOJ could reach a different conclusion than the FDIC does regarding the merger’s effects on competition. A determination by the DOJ not to object to the merger may not prevent the filing of antitrust actions by private persons or state attorneys general.

Federal Reserve Board. Columbia is a bank holding company under Section 3 of the Bank Holding Company Act of 1956, as amended, which we refer to as the BHC Act. Columbia will be requesting confirmation from the Federal Reserve that no application is required to the Federal Reserve under Section 3 of the BHC Act for the transactions contemplated by the merger agreement. Columbia expects such confirmation will be obtained, but if that were not the case, Columbia will need to obtain prior approval of the transactions contemplated by the merger agreement from the Federal Reserve. In considering the approval of a transaction such as the merger, the BHC Act requires the Federal Reserve Board to review, with respect to the bank holding companies and the banks concerned: (1) the competitive impact of the transaction, (2) the financial condition and future prospects, including capital positions and managerial resources, (3) the convenience and needs of the communities to be served and the record of the insured depository institution subsidiaries of the bank holding companies under the CRA, (4) the effectiveness of the companies’ and the depository institutions’ concerned in combating money laundering activities and (5) the extent to which the proposal would result in greater or more concentrated risks to the stability of the United States banking or financial system. In connection with such a review, the Federal Reserve Board will provide an opportunity for public comment on the application and is authorized to hold a public meeting or other proceeding if it determines such meeting or other proceeding would be appropriate.

Additional Regulatory Approvals and Notices. The transactions contemplated by the merger agreement are also subject to approval by the Idaho Department of Finance and the Washington State Department of Financial Institutions and notifications may be filed with various other regulatory agencies.

There can be no assurances that such approvals will be received on a timely basis, or as to the ability of Columbia and Intermountain to obtain the approvals on satisfactory terms or the absence of litigation challenging such approvals. There can likewise be no assurances that U.S. or state regulatory authorities will not attempt to challenge the merger on antitrust grounds or for other reasons, or, if such a challenge is made, as to the result of such challenge. The parties’ obligations to complete the transactions contemplated by the merger agreement are subject to a number of conditions, including the receipt of all requisite regulatory approvals.

 

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Accounting Treatment

In accordance with current accounting guidance, the merger will be accounted for using the business combination method. The result of this is that the recorded assets and liabilities of Columbia will be carried forward at their recorded amounts, the historical operating results will be unchanged for the prior periods being reported on and that the assets and liabilities of Intermountain will be adjusted to fair value at the date of the merger. In addition, all identified intangibles will be recorded at fair value and included as part of the net assets acquired. To the extent that the purchase price, consisting of cash plus the number of shares of Columbia common stock to be issued to former Intermountain shareholders at fair value, exceeds the fair value of the net assets including identifiable intangibles of Intermountain at the merger date, that amount will be reported as goodwill. In accordance with current accounting guidance, goodwill will not be amortized but, in general, will be evaluated for impairment annually. Identified intangibles will be amortized over their estimated lives. Further, the business combination method of accounting results in the operating results of Intermountain being included in the operating results of Columbia beginning from the date of completion of the merger.

Public Trading Markets

Columbia common stock is listed on the Nasdaq Global Select Market under the symbol “COLB.” Intermountain common stock is listed on the Nasdaq Capital Market under the symbol “IMCB.” Upon completion of the merger, Intermountain common stock will be delisted from the Nasdaq Capital Market and thereafter will be deregistered under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. The Columbia common stock issuable in the merger will be listed on the Nasdaq Global Select Market.

Resale of Columbia Common Stock

All shares of Columbia common stock received by Intermountain shareholders in the merger will be freely tradable for purposes of the Securities Act of 1933, as amended, which we refer to as the Securities Act, and the Exchange Act, except for shares of Columbia common stock received by any such holder who becomes an “affiliate” of Columbia after completion of the merger. This document does not cover resales of shares of Columbia common stock received by any person upon completion of the merger, and no person is authorized to make any use of this document in connection with any resale.

Background of the Merger

Since 2011, Intermountain has successfully improved asset quality and returned to profitability. Given moderate organic growth projections and continued narrow margins, Intermountain’s board of directors directed management to explore strategic alternatives including acquisitions of smaller institutions in order to attain growth and increase profitability.

Since then, management of Intermountain has from time to time explored and assessed, and has discussed with the Intermountain board of directors, various strategic options potentially available to Intermountain. These strategic discussions have focused on, among other things, the business environment facing financial institutions generally and Intermountain in particular, as well as conditions and ongoing consolidation in the financial services industry.

Columbia’s management and board of directors also regularly review the financial services industry environment, including the trend towards consolidation in the industry, and periodically discuss ways in which to enhance Columbia’s competitive position, including through the acquisition of other financial institutions.

Over the years, the Chief Executive Officers of Intermountain and Columbia have engaged in discussions concerning developments and trends in the Pacific Northwest banking industry and other matters, and have previously attended industry conferences together.

 

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In September 2013, Intermountain’s board of directors and executive management team conducted a strategic planning session in which they assessed various alternatives. These included expanding through organic growth, purchasing other financial institutions, and merging into other financial institutions. At this meeting, the board and executive management team discussed valuation of Intermountain under various scenarios. Based on the discussion, Curt Hecker, Chief Executive Officer of Intermountain, was directed to further investigate the various alternatives.

In October 2013, the board of directors formally established a Merger and Acquisition Subcommittee, which we refer to as the M&A Subcommittee, to more deeply evaluate potential strategic combinations. The M&A Subcommittee met several times in December to review the universe of potential acquirers, targets and strategic partners for Intermountain. The M&A Subcommittee also reviewed valuations relating to strategic combinations and received updates from Mr. Hecker on discussions with several investment bankers.

In November 2013, Intermountain redeemed its outstanding Capital Purchase Program, which we refer to as CPP, preferred shares, thereby ending any related restrictions imposed by the CPP.

Consistent with Intermountain’s board of directors’ direction, in late 2013 and early 2014, Mr. Hecker discussed with executives from several financial institutions, among other things, a potential merger transaction with Intermountain. One of these conversations was with Melanie Dressel, the President and Chief Executive Officer of Columbia, regarding general industry matters and the potential for a transaction between the two companies.

Intermountain’s management team continued to actively evaluate several options to acquire other institutions. In January 2014, Intermountain, with the assistance of Sandler O’Neill & Partners, L.P., which we refer to as Sandler O’Neill, presented a preliminary non-binding proposal to a potential strategic partner outlining a proposed combination with Intermountain to the Chief Executive Officer and key board members of such potential strategic partner. The preliminary proposal was not acceptable to the potential strategic partner and conversations between the two companies were put on hold indefinitely. Intermountain’s management team continued to discuss and analyze opportunities to acquire other institutions but it was determined that, at that time, none of the identified potential opportunities were achievable on terms that would be financially attractive to Intermountain. During this time, Mr. Hecker also continued discussions with both investment bankers and executives of larger companies interested in proposed transactions involving Intermountain. Based on feedback from Mr. Hecker, the board indicated its receptivity to entertaining formal proposals from certain interested parties. In February 2014, the M&A Subcommittee reviewed preliminary modeling on Columbia and another interested financial institution, which was larger than Intermountain. Based on this analysis, the M&A Subcommittee directed Mr. Hecker to pursue further discussions with Columbia and this second interested party and to continue reviewing other potential options. In late February, the M&A Subcommittee informed the board of current activity.

In March 2014, after executing confidentiality agreements with Columbia and the second potential party, Intermountain received preliminary non-binding proposals from Columbia and the second potential party, providing basic terms of a potential combination. In addition, Mr. Hecker and the board Chairman, Mr. Elsaesser, met personally with Ms. Dressel and the board Chairman of Columbia and the Chief Executive Officer and board Chairman of the second potential party. The M&A Subcommittee was apprised of these developments and directed Mr. Hecker to proceed to negotiate on a non-exclusive basis to improve the terms of the preliminary non-binding proposals from Columbia and the second potential party.

In early April 2014, executive management reconfirmed its financial forecasts for the board based on year-to-date results and provided additional comparative analyses of the various alternatives available to Intermountain, specifically a review of financial analysis and discussions with potential targets and strategic partners along with the preliminary non-binding proposals from Columbia and the second potential party. The Intermountain board directed Mr. Hecker to continue discussions with potential acquirers, including Columbia

 

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and the second potential party. During the month of April, Columbia and the second potential party were granted additional access to Intermountain information to allow them to refine the terms of their respective, initial preliminary proposals. In late April and early May, Columbia and the second potential party presented Intermountain with updated non-binding proposals indicating general terms of a potential merger.

In late April, the M&A Subcommittee directed Mr. Hecker to engage Sandler O’Neill to serve as financial advisor to assist Intermountain in evaluating its potential strategic alternatives. On May 1, 2014, Intermountain and Sandler O’Neill entered into an engagement letter. Also in late April 2014, Intermountain was contacted by a representative of a third potential party.

The M&A Subcommittee met on May 1, 2014 to discuss current activity. At the meeting, Sandler O’Neill provided the committee with a preliminary overview of strategic alternatives including a preliminary analysis of the non-binding proposals received from Columbia and the second potential party. In addition to Columbia and the second identified potential party, other potential parties were also discussed. Intermountain instructed Sandler O’Neill to contact the third potential party and determine its level of interest and ability to pursue an acquisition of Intermountain.

The M&A Subcommittee met again on May 8, 2014 to review additional information provided by Sandler O’Neill regarding the various options available, including the financial and strategic characteristics of other potential parties. The M&A Subcommittee directed Sandler O’Neill to assist management in negotiating improved proposals from Columbia and the second potential party and solicit a non-binding proposal from the third potential party.

On May 13, 2014, after a series of discussions with Intermountain management and Sandler O’Neill, the third potential party expressed that it was not prepared to proceed with an acquisition of Intermountain at that time.

On May 14, 2014, Intermountain management, the M&A Subcommittee and Sandler O’Neill updated the full board on discussions with Columbia and the second potential party as well as the other companies executive management had explored regarding a potential acquisition of Intermountain. Sandler O’Neill presented an updated financial analysis comparing the various strategic alternatives available to Intermountain.

In mid-May, Intermountain received updated non-binding proposals from Columbia and the second potential party. On May 21, 2014, the Intermountain board met to review the revised non-binding proposals. Sandler O’Neill presented an overview of the process and revised non-binding proposals received from Columbia and the second potential party. When comparing the non-binding proposals, the Intermountain board noted, among other things, the Columbia non-binding proposal included increased consideration for Intermountain’s shareholders. After evaluating the revised non-binding proposals from Columbia and the second potential party, the Intermountain board directed Mr. Hecker and Sandler O’Neill to pursue further negotiations with Columbia on specific deal points, including increased merger consideration. This led to a further revised non-binding proposal from Columbia received by Intermountain on May 29, 2014.

On May 30, 2014, the Intermountain board met to consider Columbia’s revised non-binding proposal. At this meeting, Sandler O’Neill highlighted the revisions to the non-binding proposal and the board authorized Mr. Hecker to execute a Letter of Intent, which was completed on June 2, 2014 and included aggregate consideration for all Intermountain common shares and common share equivalents (including the outstanding Intermountain warrants, but excluding the TARP warrant (as defined below in the section entitled “The Merger Agreement—Covenants and Agreements”)) consisting of approximately 4.6 million shares of Columbia common stock and $20.6 million in cash. This letter allowed each company to conduct more in-depth due diligence involving senior executives from both companies as well as their outside legal and financial advisors to further refine the offer. It also included an exclusivity period of 45 days, during which Intermountain would not solicit or consider other proposals.

 

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Over the next several weeks, the companies continued to discuss the transaction and conducted additional due diligence with respect to each other.

On June 27, 2014, Sullivan & Cromwell LLP, counsel to Columbia, which we refer to as Sullivan & Cromwell, provided Graham & Dunn, PC, counsel to Intermountain, which we refer to as Graham & Dunn, with the first draft of the merger agreement.

In late June, Columbia informed Intermountain that based on the results of Columbia’s due diligence related to the value of certain fixed assets, estimated cost saves, and future earnings projections, it had determined to make a downward adjustment to the consideration described in the Letter of Intent dated June 2, 2014. On July 1, 2014, representatives of Columbia including Columbia’s financial advisor Keefe Bruyette & Woods, which we refer to as KBW, and representatives of Intermountain and Sandler O’Neill met in–person to have a detailed discussion of Columbia’s diligence findings.

Following a meeting and at the direction of its board of directors, on July 7, 2014 Columbia provided Intermountain with a revised offer for aggregate consideration for all Intermountain common shares and common share equivalents (including the Intermountain warrants, but excluding the TARP warrant) consisting of approximately 4.2 million shares of Columbia common stock and approximately $16.5 million in cash. As part of the proposal, Columbia’s executive management indicated that the agreement was contingent upon the execution of voting and support agreements by the principal shareholders, as well as Intermountain directors. Columbia indicated that, if Intermountain elected to proceed with the revised terms that a definitive agreement could be negotiated and signed by July 23, 2014.

On July 9, 2014 the Intermountain board met to consider Columbia’s revised terms. Sandler O’Neill provided the Intermountain board with updated analysis related to Columbia’s revised terms, an overview of the terms of the non-binding proposal last received from the second potential party and an overview of other potential acquirers. The Intermountain board carefully considered the analysis and discussed in detail Columbia’s diligence findings. After considerable discussion and questions, the Intermountain board elected to proceed with Columbia on the basis of their revised terms and instructed Mr. Hecker to enter into a revised Letter of Intent with an exclusivity period to last until July 23, 2014.

On July 11, 2014, Sullivan & Cromwell provided Graham & Dunn with drafts of voting agreements for certain shareholders and directors. Between July 11, 2014 and July 23, 2014, representatives of Graham & Dunn and Sullivan & Cromwell negotiated the terms of the draft merger agreement and the shareholder and director agreements.

On July 23, 2014, the board of directors of Intermountain met to consider the proposed transaction, together with representatives of management, Sandler O’Neill, and Graham & Dunn corporate counsel to Intermountain. During the meeting, Intermountain management detailed the reports of the company’s due diligence review of Columbia. Sandler O’Neill reviewed with the board of directors additional information, including the financial terms of the proposed transaction, information regarding peer companies and comparable transactions, and a net present value analysis of Intermountain and Columbia. Sandler O’Neill rendered to the Intermountain board of directors its oral opinion (subsequently confirmed in writing), as described under “—Opinion of Intermountain’s Financial Advisor,” that, as of July 23, 2014, and based on the qualifications and assumptions set forth in its opinion, the merger consideration was fair to the holders of Intermountain common stock from a financial point of view.

Representatives of Graham & Dunn discussed with the Intermountain board of directors the legal standards applicable to its decisions and actions with respect to its evaluation of Columbia’s merger proposal, and reviewed the proposed merger agreement and the related agreements, including the various voting and support agreements to be entered into by the directors of Intermountain, and the principal shareholders (as described under “The Merger Agreement—Related Agreements”).

 

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Following these discussions, and review and discussion among the members of the Intermountain board of directors, including consideration of the factors described under “—Recommendation of the Intermountain Board of Directors and Reasons for the Merger,” the Intermountain board of directors determined that the merger, the merger agreement and the transactions contemplated by the merger agreement are advisable for, fair to and in the best interests of Intermountain and its shareholders, and the directors voted to adopt the merger agreement, on a nine-to-one vote. The one dissenting vote was based on the director’s belief that the current time was too soon for Intermountain to sell.

On July 23, 2014, Columbia’s board of directors met with members of Columbia’s executive management and Columbia’s legal and financial advisors to consider the proposed transaction. Columbia’s management provided information regarding operational and financial considerations relating to the proposed consolidation of the businesses of Columbia and Intermountain, and provided a review of Intermountain’s loans and loan policies based on Columbia’s due diligence review as well as a review conducted by an outside consulting firm.

Sullivan & Cromwell reviewed the fiduciary duties and responsibilities of the board of directors in considering the proposed transaction, provided the board of directors with an overview of the legal due diligence conducted by it, and summarized the merger agreement and related agreements. KBW reviewed certain financial aspects of the proposed transaction.

Following discussion with management and Columbia’s legal and financial advisors, Columbia’s board of directors determined that it is in the best interest of Columbia and its shareholders to proceed with the merger, and unanimously approved the merger agreement and the transactions contemplated by the merger agreement.

Following completion of the July 23, 2014 board meetings, the merger agreement and related agreements were executed and delivered and the transaction was announced in the evening of July  23, 2014 in a press release issued jointly by Columbia and Intermountain.

Recommendation of the Intermountain Board of Directors and Reasons for the Merger

In reaching its decision to adopt and approve the merger agreement and recommend that Intermountain shareholders approve the merger agreement, the Intermountain board of directors consulted with Intermountain’s management, as well as its legal and financial advisors, and considered a number of factors, including:

 

•

its knowledge of Intermountain’s business, operations, financial condition, asset quality, earnings and prospects, and of Columbia’s business, operations, financial condition, asset quality, earnings and prospects, taking into account the presentations made by Columbia officers, the results of Intermountain’s due diligence review of Columbia, and information provided by Intermountain’s financial advisor;

 

•

its knowledge of the current environment in the financial services industry, including national, regional and local economic conditions and the interest rate environment, continued consolidation, increased operating costs resulting from regulatory initiatives and compliance mandates, increasing nationwide and global competition, the current environment for community banks, particularly in Idaho and the Pacific Northwest, and current financial market conditions and the likely effects of these factors on the companies’ potential growth, development, productivity and strategic options, and the historical market prices, cash dividends and trading liquidity of Intermountain and Columbia common stock;

 

•

its belief that combining the two companies would create a larger and more diversified financial institution that is both better equipped to respond to economic and industry developments and better positioned to develop and build on its strong market share in Idaho, Oregon, Washington, and the Pacific Northwest;

 

•

the complementary aspects of Intermountain’s and Columbia’s businesses, including customer focus, geographic coverage, business orientation and compatibility of the companies’ management and operating styles;

 

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•

its understanding of Columbia’s commitment to enhancing its strategic position in the Pacific Northwest;

 

•

the potential expense-saving and revenue-enhancing opportunities in connection with the merger, the related potential impact on the combined company’s earnings and the fact that the nature of the merger consideration would give former Intermountain shareholders the opportunity to participate as Columbia shareholders in the benefits of such savings opportunities and the future performance of the combined company generally;

 

•

Columbia’s stock trading liquidity and history of regular and special cash dividends;

 

•

Columbia’s successful operating and acquisition track record, specifically Columbia’s history of efficiently closing and integrating acquisitions, and Intermountain’s board of directors’ belief that the combined enterprise would benefit from Columbia’s ability to take advantage of economies of scale and grow in the current economic environment, making Columbia an attractive partner for Intermountain;

 

•

its assessment of the likelihood that the merger would be completed in a timely manner and that the management team of the combined company would be able to successfully integrate and operate the businesses of the combined company after the merger;

 

•

the financial analyses presented by Sandler O’Neill to the Intermountain board of directors, and the opinion dated as of July 23, 2014, delivered to Intermountain by Sandler O’Neill to the effect that, as of that date, and subject to and based on the qualifications and assumptions set forth in the opinion, the consideration to be received by the holders of common stock of Intermountain in the merger was fair, from a financial point of view, to such shareholders;

 

•

the financial terms of the merger, including the fact that, based on the closing price on the Nasdaq Global Select Market of Columbia common stock on July 22, 2014 (the last trading day prior to the execution and announcement of the merger agreement), and based on the right of Intermountain shareholders to elect (subject to proration) to receive cash or Columbia common stock or a unit comprised of a mix of cash and Columbia common stock, the per share merger consideration as of July 22, 2014, represented an approximate 12.2 percent premium over the closing price of Intermountain shares on the Nasdaq Capital Market as of that date, a premium to tangible book value per share of 119 percent and a multiple to last twelve months earnings per share (assuming a normalized tax rate of 30%) of 31.71;

 

•

the structure of the merger and the terms of the merger agreement, including: the fact that Intermountain shareholders would have the right to elect to receive the merger consideration either in cash, Columbia common stock, or a unit comprised of a mix of cash and Columbia common stock (of which all-cash and all-stock elections are subject to adjustment), the no-solicitation and shareholder approval covenants, the termination fee provisions, and the ability of the Intermountain board of directors, under certain circumstances, to withdraw or materially and adversely modify its recommendation to Intermountain shareholders under certain circumstances, and to terminate the merger agreement in order to enter into a definitive agreement with respect to a superior proposal (subject to payment of a $5.5 million termination fee);

 

•

the expectation that the merger would qualify as a “reorganization” for U.S. federal income tax purposes;

 

•

the regulatory and other approvals required in connection with the merger and the likelihood that such approvals would be received in a timely manner and without unacceptable conditions;

 

1

For the last twelve months ended June 30, 2014, Intermountain’s reported earnings per share included a non-recurring tax benefit of $5.2 million related to the reversal of a valuation allowance against its deferred tax assets. Adjusted last twelve months earnings per share is calculated using Intermountain’s June 30, 2014 adjusted last twelve months net income of $3.8 million, which is equal to Intermountain’s June 30, 2014 last twelve months pre-tax earnings of $5.4 million taxed at a normalized tax rate of 30%.

 

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•

the potential risk of diverting management focus and resources from other strategic opportunities and from operational matters while working to implement the merger; and

 

•

the fact that the interests of some of the directors and officers of Intermountain may be different from those of Intermountain shareholders, and directors and officers of Intermountain may be participants in arrangements that are different from, or are in addition to, those of Intermountain shareholders. See the section of this document entitled “Interests of Intermountain Directors and Executive Officers in the Merger.”

The foregoing discussion of the factors considered by the Intermountain board of directors is not intended to be exhaustive, but, rather, includes the material factors considered by the Intermountain board of directors. In reaching its decision to adopt and approve the merger agreement, and the other transactions contemplated by the merger agreement, the Intermountain board of directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The Intermountain board of directors considered all these factors as a whole, including discussions with, and questioning of, Intermountain’s management and Intermountain’s financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination. The Intermountain board of directors also relied on the experience of Sandler O’Neill, its financial advisor, for analyses of the financial terms of the merger and for its opinion as to the fairness from a financial point of view of the consideration in the merger to Intermountain’s shareholders.

For the reasons set forth above, the Intermountain board of directors determined that the merger, the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of Intermountain and its shareholders, and approved and adopted the merger agreement. The Intermountain board of directors recommends that the Intermountain shareholders vote “FOR” the Merger proposal, “FOR” the Merger-Related Named Executive Officer Compensation proposal, and “FOR” the Adjournment proposal.

Opinion of Intermountain’s Financial Advisor

By letter dated May 1, 2014, Intermountain retained Sandler O’Neill & Partners, L.P., which we refer to as Sandler O’Neill, to act as financial advisor to Intermountain’s board of directors in connection with the board’s review of potential strategic alternatives, including as to a possible business combination with potential counterparties. Sandler O’Neill is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of its investment banking business, Sandler O’Neill is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

Sandler O’Neill acted as financial advisor to the Intermountain board of directors in connection with the proposed transaction and participated in certain of the negotiations leading to the execution of the merger agreement. At the July 23, 2014 meeting at which Intermountain’s board of directors considered and approved the merger agreement, Sandler O’Neill delivered to the board its oral opinion, which was subsequently confirmed in writing, that, as of such date, the merger consideration was fair to the holders of Intermountain common stock from a financial point of view. The full text of Sandler O’Neill’s opinion is attached as Appendix B to this proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the full text of the opinion. Holders of Intermountain common stock are urged to read the entire opinion carefully in connection with their consideration of the proposed merger.

Sandler O’Neill’s opinion speaks only as of the date of the opinion. The opinion was directed to Intermountain’s board and is directed only to the fairness of the merger consideration to the holders of Intermountain common stock from a financial point of view. It does not address the underlying business

 

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decision of Intermountain to engage in the merger or any other aspect of the merger and is not a recommendation to any holder of Intermountain common stock as to how such holder of Intermountain common stock should vote at the special meeting with respect to the merger or any other matter. Sandler O’Neill did not express any opinion as to the fairness of the amount or nature of the compensation to be received in the merger by Intermountain’s officers, directors, or employees, or class of such persons, relative to the per share consideration to be received by Intermountain’s shareholders.

In connection with rendering its opinion dated July 23, 2014, Sandler O’Neill reviewed and considered, among other things:

 

•

the merger agreement;

 

•

certain financial statements and other historical financial information of Intermountain that Sandler O’Neill deemed relevant;

 

•

certain financial statements and other historical financial information of Columbia that Sandler O’Neill deemed relevant;

 

•

internal financial estimates for Intermountain’s earnings per share for the years ending December 31, 2014 and December 31, 2015 as provided by senior management of Intermountain and an estimated long-term annual earnings per share growth rate for the years ending December 31, 2016 through December 31, 2018 as provided by senior management of Intermountain;

 

•

publicly available mean analyst earnings estimates for Columbia for the years ending December 31, 2014 and December 31, 2015 and an estimated long-term annual earnings per share growth rate for the years ending December 31, 2016 through December 31, 2018 as discussed with senior management of Columbia;

 

•

the pro forma financial impact of the merger on Columbia based on assumptions relating to transaction expenses, purchase accounting adjustments, accounting treatment, cost savings and other synergies as determined by the senior management of Columbia;

 

•

a comparison of certain financial and other information for Intermountain and Columbia with similar publicly available information for certain other banking institutions, the securities of which are publicly traded;

 

•

the terms and structures of other recent merger and acquisition transactions in the banking sector;

 

•

the current market environment generally and in the banking sector in particular; and

 

•

such other information, financial studies, analyses and investigations and financial, economic and market criteria as Sandler O’Neill considered relevant.

Sandler O’Neill also discussed with certain members of the senior management of Intermountain the business, financial condition, results of operations and prospects of Intermountain and held similar discussions with the senior management of Columbia regarding the business, financial condition, results of operations and prospects of Columbia.

In performing its reviews and analyses and in rendering its opinion, Sandler O’Neill relied upon the accuracy and completeness of all of the financial and other information that was available to Sandler O’Neill from public sources, that was provided to Sandler O’Neill by Intermountain or Columbia or their respective representatives or that was otherwise reviewed by Sandler O’Neill and Sandler O’Neill assumed such accuracy and completeness for purposes of rendering its opinion. Sandler O’Neill further relied on the assurances of the senior management of each of Intermountain and Columbia that they were not aware of any facts or circumstances that would make any of such information inaccurate or misleading in any material respect. Sandler O’Neill was not asked to undertake, and did not undertake an independent verification of any of such information and Sandler O’Neill assumes no responsibility or liability for the accuracy or completeness thereof. Sandler

 

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O’Neill did not make an independent evaluation or appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of Intermountain or Columbia or any of their subsidiaries. Sandler O’Neill did not make an independent evaluation of the adequacy of the allowance for loan losses of Intermountain and Columbia and Sandler O’Neill did not review any individual credit files relating to Intermountain or Columbia. Sandler O’Neill assumed that the respective allowances for loan losses for Intermountain and Columbia are adequate to cover such losses and will be adequate on a pro forma basis.

With respect to internal financial projections and a long-term earnings growth rate provided by senior management of Intermountain and publicly available mean earnings per share estimates and an estimated long-term annual earnings per share growth rate for Columbia used by Sandler O’Neill in its analyses, the senior managements of Intermountain and Columbia confirmed to Sandler O’Neill that those projections reflected the best currently available estimates and judgments of such respective managements of the respective future financial performances of Intermountain and Columbia. With respect to the purchase accounting adjustments, accounting treatment, cost savings and other synergies determined by the senior management of Columbia, such management confirmed that they reflected the best currently available estimates. Sandler O’Neill expresses no opinion as to such financial projections or estimates or the assumptions on which they are based. Sandler O’Neill has also assumed that there has been no material change in the assets, financial condition, results of operations, business or prospects of Intermountain and Columbia since the date of the most recent financial data made available to Sandler O’Neill. Sandler O’Neill assumed in all respects material to its analysis that Intermountain and Columbia would remain as going concerns for all periods relevant to Sandler O’Neill’s analyses. Finally, Sandler O’Neill has expressed no opinion as to any legal, accounting and tax matters relating to the Merger and the other transactions contemplated by the merger agreement.

Sandler O’Neill’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Sandler O’Neill as of, the date of its opinion. Events occurring after the date thereof could materially affect its opinion. Sandler O’Neill has not undertaken to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring after the date of its opinion. Sandler O’Neill expressed no opinion as to the prices at which the common stock of Intermountain or Columbia may trade at any time or the impact of the change in price of Columbia common stock on the per share consideration. Sandler O’Neill was not asked to and did not contact any additional potential merger partners related to this transaction.

In rendering its opinion dated July 23, 2014, Sandler O’Neill performed a variety of financial analyses. The following is a summary of the material analyses performed by Sandler O’Neill, but is not a complete description of all the analyses underlying Sandler O’Neill’s opinion. The summary includes information presented in tabular format. In order to fully understand the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. The process, therefore, is not necessarily susceptible to a partial analysis or summary description. Sandler O’Neill believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses to be considered without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion. Also, no company included in Sandler O’Neill’s comparative analyses described below is identical to Intermountain or Columbia and no transaction is identical to the merger. Accordingly, an analysis of comparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values or merger transaction values, as the case may be, of Intermountain and Columbia and the companies to which they are being compared.

In performing its analyses, Sandler O’Neill also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which cannot be predicted

 

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and are beyond the control of Intermountain, Columbia and Sandler O’Neill. The analysis performed by Sandler O’Neill is not necessarily indicative of actual values or future results, both of which may be significantly more or less favorable than suggested by such analyses. Sandler O’Neill prepared its analyses solely for purposes of rendering its opinion and provided such analyses to the Intermountain board of directors at the board of directors’ July 23, 2014 meeting. Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different. Accordingly, Sandler O’Neill’s analyses do not necessarily reflect the value of Intermountain’s common stock or the prices at which Intermountain’s common stock may be sold at any time. The analyses of Sandler O’Neill and its opinion were among a number of factors taken into consideration by Intermountain’s board of directors in making its determination to approve Intermountain’s entry into the merger agreement and the analyses described below should not be viewed as determinative of the decision made by Intermountain’s board of directors or management with respect to the fairness of the merger.

In arriving at its opinion, Sandler O’Neill did not attribute any particular weight to any analysis or factor that it considered. Rather, it made qualitative judgments as to the significance and relevance of each analysis and factor. Sandler O’Neill did not form an opinion as to whether any individual analysis or factor (positive or negative) considered in isolation supported or failed to support its opinions; rather, Sandler O’Neill made its determination as to the fairness of the merger consideration on the basis of its experience and professional judgment after considering the results of all its analyses taken as a whole.

Summary of Proposal.

Sandler O’Neill reviewed the financial terms of the proposed transaction. As described in the merger agreement, Intermountain shareholders will receive, subject to allocation procedures, in exchange for each share of Intermountain stock either: (i) 0.6426 of a share of Columbia common stock plus $2.2930 in cash; (ii) an amount of cash equal to the per share consideration or (iii) a number of Columbia shares equal to the per share stock consideration. Based upon 6,540,902 shares of Intermountain common stock outstanding, 170,000 in-the-money Intermountain warrants outstanding with a weighted average strike price of $10.00 per share, 160,000 unvested restricted stock awards assumed to vest upon change in control, and a Columbia trading price of $24.79 as of July 22, 2014, Sandler O’Neill calculated a per share consideration of $18.22 and aggregate consideration of approximately $123.5 million. Based upon financial information as or for the twelve month period ended June 30, 2014, Sandler O’Neill calculated the following transaction ratios:

 

Transaction Value Per Share / Tangible Book Value Per Share:			119	%
Transaction Value Per Share / Adjusted Tangible Book Value Per Share(1):			132	%
Transaction Value Per Share / Last Twelve Months Earnings Per Share(2):			31.7	x
Tangible Book Premium to Core Deposits(3):			3.0	%
Adjusted Tangible Book Premium to Core Deposits(1),(3):			4.5	%
Transaction Value Per Share / Intermountain Stock Price (July 22, 2014):			12.1	%

 

(1)	Tangible book value per share adjusted to reflect market value of owned facilities, negative pre-tax mark of $13.7 million

(2)

For the last twelve months ended June 30, 2014, Intermountain’s reported earnings per share included a non-recurring tax benefit of $5.2 million related to the reversal of a valuation allowance against its deferred tax assets. Adjusted last twelve months earnings per share is calculated using Intermountain’s June 30, 2014 adjusted last twelve months net income of $3.8 million, which is equal to Intermountain’s June 30, 2014 last twelve months pre-tax earnings of $5.4 million taxed at a normalized tax rate of 30%

(3)	Core deposits equals total deposits less time deposits >$100,000

 

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Intermountain—Comparable Company Analysis.

Sandler O’Neill used publicly available information to compare selected financial information for Intermountain and a group of financial institutions as selected by Sandler O’Neill. The Intermountain peer group consisted of NYSE and NASDAQ-traded western region headquartered banks with assets as of March 31, 2014 unless otherwise noted, between $600 million and $1.75 billion. The group excluded thrifts and merger targets.

 

Bank of Commerce Holdings		Oak Valley Bancorp(1)
Bridge Capital Holdings		Pacific Continental Corporation
Central Valley Community Bancorp(1)		Pacific Mercantile Bancorp
Heritage Commerce Corporation		Pacific Premier Bancorp
Heritage Oaks Bancorp		Sierra Bancorp(1)
Northrim Bancorp		United Security Bancshares(1)

 

(1)	Financial information based on GAAP or regulatory financial data as of June 30, 2014

The analysis compared publicly available financial information for Intermountain and the mean and median financial and market trading data for the Intermountain peer group as of or for the period ended March 31, 2014 unless otherwise noted above, with pricing data as of July 22, 2014. The table below sets forth the data for Intermountain and the median data for the Intermountain peer group.

Comparable Company Analysis

 

		Intermountain(1)				Comparable Group Median				Comparable Group Mean
Total Assets (in millions)		$	920			$	1,337			$	1,265
Market Capitalization (in millions)		$	109			$	188			$	183
Price / Tangible Book Value			107	%			129	%			137	%
Price / Last Twelve Months Earnings Per Share			28.3	x			16.4	x			17.4	x
Price / Estimated 2014 Earnings Per Share			NA				15.6	x			15.4	x
Dividend Yield			0.0	%			1.45	%			1.24	%
One-Year Total Stock Return			18.2	%			8.4	%			14.2	%
Last Twelve Months Net Interest Margin			3.51	%			4.12	%			4.09	%
Last Twelve Months Efficiency Ratio			86	%			67	%			70	%
Last Twelve Months Return on Average Assets			0.41	%			0.87	%			0.75	%
Tangible Common Equity / Tangible Assets			10.8	%			10.4	%			10.3	%
Loans / Deposits			76.4	%			76.2	%			78.1	%
Non-Performing Assets / Total Assets			0.77	%			1.03	%			1.81	%

 

(1)

For the last twelve months ended June 30, 2014, Intermountain’s reported earnings per share included a non-recurring tax benefit of $5.2 million related to the reversal of a valuation allowance against its deferred tax assets. Adjusted last twelve months earnings per share is calculated using Intermountain’s June 30, 2014 adjusted last twelve months net income of $3.8 million, which is equal to Intermountain’s June 30, 2014 last twelve months pre-tax earnings of $5.4 million taxed at a normalized tax rate of 30%

 

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Columbia—Comparable Company Analysis.

Sandler O’Neill used publicly available information to compare selected financial information for Columbia and a group of financial institutions as selected by Sandler O’Neill. The Columbia peer group consisted of NYSE and NASDAQ-traded western region headquartered banks with assets as of March 31, 2014, unless otherwise noted, between $4.25 billion and $12 billion. The group excluded thrifts and merger targets.

 

Banner Corporation		First Interstate BancSystem(1)
BBCN Bancorp(1)		Glacier Bancorp
Cathay General Bancorp		Westamerica Bancorporation(1)
Central Pacific Financial Corp.		Western Alliance Bancorporation(1)
CVB Financial Corporation

 

(1)	Financials based on GAAP or regulatory financial data as of June 30, 2014

The analysis compared publicly available financial information for Columbia and the mean and median financial and market trading data for the Columbia peer group as of or for the period ended March 31, 2014 unless otherwise noted, with pricing data as of July 22, 2014. The table below sets forth the data for Columbia and the median data for the Columbia peer group.

Comparable Company Analysis

 

		Columbia(1)				Comparable Group Median				Comparable Group Mean
Total Assets (in millions)		$	7,297			$	6,903			$	7,231
Market Capitalization (in millions)		$	1,304			$	1,268			$	1,423
Price / Tangible Book Value			179	%			180	%			200	%
Price / Last Twelve Months Earnings Per Share			14.9	x			18.5	x			18.8	x
Price / Estimated 2014 Earnings Per Share			14.9	x			16.3	x			16.4	x
Price / Estimated 2015 Earnings Per Share			13.8	x			15.1	x			15.0	x
Dividend Yield			3.87	%			1.97	%			1.93	%
One-Year Total Return			-1.5	%			8.2	%			8.8	%
Last Twelve Months Net Interest Margin			4.86	%			3.69	%			3.80	%
Last Twelve Months Efficiency Ratio			64	%			50	%			56	%
Last Twelve Months Return on Average Assets			1.25	%			1.19	%			1.14	%
Tangible Common Equity / Tangible Assets			10.4	%			11.0	%			10.4	%
Loans / Deposits			78.8	%			72.7	%			78.3	%
Non-Performing Assets / Total Assets			0.63	%			1.59	%			1.65	%

 

(1)	Last twelve months earnings per share adjusted to exclude acquisition-related expenses associated with non-interest expense

Intermountain—Stock Price Performance

Sandler O’Neill reviewed the history of the publicly reported trading prices of Intermountain’s common stock in a very limited trading market for the one-year and three-year periods ended July 22, 2014. Sandler O’Neill then compared the relationship between the movements in the price of Intermountain’s common stock against the movements in the prices of Intermountain’s peer group (as described on page [—]), S&P 500 Index and NASDAQ Index.

 

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Intermountain’s One-Year Stock Performance

 

		Beginning Index Value July 22, 2013				Ending Index Value July 22, 2014
Intermountain			100	%			118	%
Intermountain Peer Group			100	%			107	%
S&P 500 Index			100	%			117	%
NASDAQ Index			100	%			124	%

Intermountain’s Three-Year Stock Performance

 

		Beginning Index Value July 22, 2011				Ending Index Value July 22, 2014
Intermountain			100	%			145	%
Intermountain Peer Group			100	%			157	%
S&P 500 Index			100	%			148	%
NASDAQ Index			100	%			157	%

Columbia—Stock Price Performance

Sandler O’Neill reviewed the history of the publicly reported trading prices of Columbia’s common stock for the one-year and three-year periods ended July 22, 2014. Sandler O’Neill then compared the relationship between the movements in the price of Columbia’s common stock against the movements in the prices of Columbia’s peer group (as described on page [—]), S&P 500 Index and NASDAQ Index.

Columbia’s One Year Stock Performance

 

		Beginning Index Value July 22, 2013				Ending Index Value July 22, 2014
Columbia			100	%			99	%
Columbia Peer Group			100	%			109	%
S&P 500 Index			100	%			117	%
NASDAQ Index			100	%			124	%

Columbia’s Three Year Stock Performance

 

		Beginning Index Value July 22, 2011				Ending Index Value July 22, 2014
Columbia			100	%			140	%
Columbia Peer Group			100	%			170	%
S&P 500 Index			100	%			148	%
NASDAQ Index			100	%			157	%

Intermountain—Net Present Value Analysis.

Sandler O’Neill performed an analysis that estimated the net present value per share of Intermountain common stock under various circumstances. The analysis assumed that Intermountain performed in accordance to internal financial estimates for earnings per share provided by Intermountain’s senior management for the years ending December 31, 2014 and December 31, 2015 and the estimated long-term annual earnings per share growth rate for the years ending December 31, 2016 through December 31, 2018 as well as assumptions for annual common dividend payments, in each case as discussed with, and confirmed by, senior management of Intermountain. To approximate the terminal value of Intermountain common stock at December 31, 2018,

 

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Sandler O’Neill applied price to earnings multiples ranging from 12.0x to 22.0x and multiples of tangible book value ranging from 100% to 150%. The terminal values were then discounted to present values using different discount rates ranging from 10.0% to 16.0% chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of Intermountain’s common stock.

During the Intermountain board of directors meeting on July 23, 2014, Sandler O’Neill noted that the terminal value analysis is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.

As illustrated in the following tables, the analysis indicates an imputed range of values per share of Intermountain common stock of $7.84 to $17.57 when applying multiples of earnings to the applicable amounts indicated in the Intermountain projections and $9.84 to $18.33 when applying multiples of tangible book value to the applicable amounts indicated in the Intermountain projections.

Earnings Per Share Multiples

 

Discount Rate		12.0x				14.0x				16.0x				18.0x				20.0x				22.0x
10.0%		$	9.93			$	11.46			$	12.99			$	14.51			$	16.04			$	17.57
12.0%		$	9.16			$	10.57			$	11.98			$	13.39			$	14.80			$	16.21
14.0%		$	8.47			$	9.77			$	11.07			$	12.37			$	13.67			$	14.97
16..0%		$	7.84			$	9.04			$	10.24			$	11.44			$	12.65			$	13.85

Tangible Book Value Multiples

 

Discount Rate		100%				110%				120%				130%				140%				150%
10.0%		$	12.48			$	13.65			$	14.82			$	15.99			$	17.16			$	18.33
12.0%		$	11.52			$	12.59			$	13.67			$	14.75			$	15.83			$	16.91
14.0%		$	10.64			$	11.64			$	12.63			$	13.63			$	14.62			$	15.62
16.0%		$	9.84			$	10.77			$	11.69			$	12.61			$	13.53			$	14.45

Sandler O’Neill also considered and discussed with the Intermountain board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income. To illustrate this impact, Sandler O’Neill performed a similar analysis assuming Intermountain’s net income varied from 20% above projections to 20% below projections. This analysis resulted in the following range of per share values for Intermountain common stock, using the same price to earnings multiples of 12.0x to 22.0x and a discount rate of 12.87%.

Earnings Per Share Multiples

 

Annual Budget Variance		12.0x				14.0x				16.0x				18.0x				20.0x				22.0x
(20.0%)		$	7.22			$	8.31			$	9.40			$	10.49			$	11.57			$	12.66
(10.0%)		$	8.04			$	9.26			$	10.49			$	11.71			$	12.93			$	14.16
0.0%		$	8.85			$	10.21			$	11.57			$	12.93			$	14.29			$	15.66
10.0%		$	9.67			$	11.17			$	12.66			$	14.16			$	15.66			$	17.15
20.0%		$	10.49			$	12.12			$	13.75			$	15.38			$	17.02			$	18.65

The following table describes a discount rate calculation for Intermountain prepared by Sandler O’Neill. The discount rate equals the sum of the risk free rate, the equity risk premium and the size premium.

 

Risk Free Rate			4.00	%		Normalized 20yr UST
Equity Risk Premium			5.00	%		Duff & Phelps
Size Premium			3.87	%		Duff & Phelps
Discount Rate			12.87	%

 

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Columbia—Net Present Value Analysis.

Sandler O’Neill also performed an analysis that estimated the net present value per share of Columbia common stock under various circumstances. The analysis assumed that Columbia performed in accordance with publicly available analyst earnings estimates for the years ending December 31, 2014 and December 31, 2015 and an estimated long-term annual growth rate for the years ending December 31, 2016 through December 31, 2018 as well as assumptions for annual common dividend payments, in each case as discussed with senior management of Columbia.

To approximate the terminal value of Columbia common stock at December 31, 2018, Sandler O’Neill applied price to earnings multiples ranging from 13.0x to 18.0x and multiples of tangible book value ranging from 150% to 250%. The terminal values were then discounted to present values using different discount rates ranging from 8.0% to 12.0% chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of Columbia’s common stock.

At the July 23, 2014 Intermountain board of directors meeting, Sandler O’Neill noted that the net present value analysis is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.

As illustrated in the following tables, the analysis indicates an imputed range of values per share of Columbia common stock of $20.25 to $30.99 when applying earnings multiples to the applicable amounts indicated in the Columbia projections and $19.55 to $35.06 when applying multiples of tangible book value to the applicable amounts indicated in the Columbia projections.

Earnings Per Share Multiples

 

Discount Rate		13.0x				14.0x				15.0x				16.0x				17.0x				18.0x
8.0%		$	23.56			$	25.04			$	26.53			$	28.02			$	29.50			$	30.99
9.0%		$	22.67			$	24.09			$	25.52			$	26.95			$	28.37			$	29.80
10.0%		$	21.82			$	23.19			$	24.56			$	25.93			$	27.30			$	28.67
11.0%		$	21.02			$	22.33			$	23.65			$	24.96			$	26.27			$	27.59
12.0%		$	20.25			$	21.51			$	22.78			$	24.04			$	25.30			$	26.56

Tangible Book Value Multiples

 

Discount Rate		150%				170%				190%				210%				230%				250%
8.0%		$	22.73			$	25.20			$	27.66			$	30.13			$	32.60			$	35.06
9.0%		$	21.88			$	24.24			$	26.61			$	28.98			$	31.34			$	33.71
10.0%		$	21.07			$	23.34			$	25.61			$	27.88			$	30.15			$	32.42
11.0%		$	20.29			$	22.47			$	24.65			$	26.83			$	29.01			$	31.19
12.0%		$	19.55			$	21.65			$	23.74			$	25.83			$	27.93			$	30.02

Sandler O’Neill also considered and discussed with the Intermountain board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income. To illustrate this impact, Sandler O’Neill performed a similar analysis assuming Columbia net income varied from 20% above projections to 20% below projections. This analysis resulted in the following range of per share values for Columbia common stock, using the same price to earnings multiples of 13.0x to 18.0x and a discount rate of 9.95%:

 

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Earnings Per Share Multiples

 

Annual Budget Variance		13.0x				14.0x				15.0x				16.0x				17.0x				18.0x
(20.0%)		$	18.30			$	19.40			$	20.49			$	21.59			$	22.69			$	23.79
(10.0%)		$	20.08			$	21.32			$	22.55			$	23.79			$	25.02			$	26.25
0.0%		$	21.87			$	23.24			$	24.61			$	25.98			$	27.35			$	28.72
10.0%		$	23.65			$	25.16			$	26.66			$	28.17			$	29.68			$	31.19
20.0%		$	25.43			$	27.08			$	28.72			$	30.37			$	32.01			$	33.66

The following table describes a discount rate calculation for Columbia prepared by Sandler O’Neill. The discount rate equals the product of the two year beta and equity risk premium plus the risk free rate.

 

Risk Free Rate			4.00	%		Normalized 20yr UST
Equity Risk Premium			5.00	%		Duff & Phelps
2 Year Beta			1.19			Bloomberg
Discount Rate			9.95	%

Analysis of Selected Merger Transactions.

Sandler O’Neill reviewed two groups of comparable merger and acquisition transactions. The groups of merger and acquisition transactions included: (i) five transactions announced between January 1, 2013 and July 22, 2014 involving western region banks with transaction values greater than $50 million, target assets between $600 million and $1.75 billion (excluding MOE transactions); and (ii) 18 transactions announced between July 22, 2013 and July 22, 2014 involving nationwide banks with announced deal values greater than $50 million, target assets between $600 million and $1.75 billion, and tangible common equity to tangible assets greater than 8.0% (excluding MOE transactions). The western region transaction group was composed of the following transactions:

CU Bancorp/1^st Enterprise Bank

First Interstate BancSystem, Inc./Mountain West Financial Corporation

TriCo Bancshares/ North Valley Bancorp

Cascade Bancorp/Home Federal Bancorp, Inc.

Heritage Financial Corporation/Washington Banking Company

The nationwide transaction group was composed of the following transactions:

Eagle Bancorp, Inc./Virginia Heritage Bank

National Penn Bancshares, Inc./TF Financial Corporation

Simmons First National Corporation/Liberty Bancshares, Inc.

Valley National Bancorp/1^st United Bancorp, Inc.

Southside Bancshares, Inc./OmniAmerican Bancorp, Inc.

Seacoast Banking Corporation of Florida/BANKshares, Inc.

First Interstate BancSystem, Inc./Mountain West Financial Corporation

Bank of the Ozarks, Inc./Summit Bancorp, Inc.

CenterState Banks, Inc./First Southern Bancorp, Inc.

BancorpSouth, Inc./Central Community Corporation

TriCo Bancshares/ North Valley Bancorp

IBERIABANK Corporation/Teche Holding Company

Old National Bancorp/United Bancorp, Inc.

Cascade Bancorp/Home Federal Bancorp, Inc.

Heritage Financial Corporation/Washington Banking Company

Huntington Bancshares Incorporated/Camco Financial Company

East West Bancorp, Inc./MetroCorp Bancshares, Inc.

Old National Bancorp/Tower Financial Corporations

 

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Sandler O’Neill reviewed the following multiples: transaction price to tangible book value, transaction price to last twelve months earnings per share, tangible book premium to core deposits and transaction price to seller’s stock price two days before transaction announcement. As illustrated in the following table, Sandler O’Neill compared the proposed merger multiples to the median and mean multiples of comparable transaction groups.

 

		Intermountain / Columbia				Median Regional Transactions				Mean Regional Transactions
Transaction Value Per Share /
Tangible Book Value Per Share:			119	%			149	%			147	%
Adjusted Tangible Book Value Per Share(1):			132	%			149	%			147	%
Last Twelve Months Earnings Per Share(2):			31.7	x			17.0	x			19.9	x
Tangible Book Premium to Core Deposits(3):			3.0	%			7.8	%			8.6	%
Adjusted Tangible Book Premium to Core Deposits(1),(3):			4.5	%			7.8	%			8.6	%
Intermountain Stock Price (July 22, 2014):			12.1	%			27.4	%			26.9	%

 

(1)	Tangible book value per share adjusted to reflect market value of owned facilities, negative pre-tax mark of $13.7 million

(2)

For the last twelve months ended June 30, 2014, Intermountain’s reported earnings per share included a non-recurring tax benefit of $5.2 million related to the reversal of a valuation allowance against its deferred tax assets. Adjusted last twelve months earnings per share is calculated using Intermountain’s June 30, 2014 adjusted last twelve months net income of $3.8 million, which is equal to Intermountain’s June 30, 2014 last twelve months pre-tax earnings of $5.4 million taxed at a normalized tax rate of 30%

(3)	Tangible book premium to core deposits calculated as (deal value—tangible equity) / (core deposits) Selected multiples and ratios adjusted for one-time items and tax reversals, where applicable

 

		Intermountain / Columbia				Median Nationwide Transactions				Mean Nationwide Transactions
Transaction Value Per Share /
Tangible Book Value Per Share:			119	%			164	%			161	%
Adjusted Tangible Book Value Per Share(1):			132	%			164	%			161	%
Last Twelve Months’ Earnings Per Share(2):			31.7	x			20.8	x			21.5	x
Tangible Book Premium to Core Deposits(3):			3.0	%			11.9	%			10.8	%
Adjusted Tangible Book Premium to Core Deposits(1), (3):			4.5	%			11.9	%			10.8	%
Intermountain Stock Price (July 22, 2014):			12.1	%			35.7	%			32.8	%

 

(1)	Tangible book value per share adjusted to reflect market value of owned facilities, negative pre-tax mark of $13.7 million

(2)	Intermountain’s last twelve months pre-tax earnings tax effected at a 30% rate in order to normalize the impact of a $6.1 million tax benefit in the fourth quarter of 2013 as a result of the reversal of a valuation allowance against its deferred tax assets

(3)	Tangible book premium to core deposits calculated as (deal value—tangible equity) / (core deposits) Selected multiples and ratios adjusted for one-time items and tax reversals, where applicable

Pro Forma Results and Capital Ratios

Sandler O’Neill analyzed certain potential pro forma effects of the merger, assuming the following as provided by Columbia: (i) the merger closes on December 31, 2014; (ii) aggregate consideration value of $123.5 million, based on Columbia’s closing stock price on July 22, 2014 of $24.79; (iii) Columbia would be able to achieve cost savings of 27% of Intermountain’s projected operating expense and such savings would be 50% realized in 2015 and fully realized in 2016 and thereafter; (iv) pre-tax transaction costs and expenses would total approximately $15.8 million, with 50% of Columbia’s expenses recognized prior to close; (v) a core deposit

 

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intangible of approximately $9.4 million (eight year, sum-of-years-digits amortization method); (vi) pretax opportunity cost of cash of 2.50%; Columbia’s performance was calculated in accordance with publicly available mean analyst estimates (vii) various purchase accounting adjustments, including a mark-to-market adjustment on Intermountain’s loan portfolio, securities portfolio and fixed assets. The analyses indicated that for the year ending December 31, 2015, the merger (excluding transaction expenses) would be accretive to Columbia’s projected earnings per share and, at December 31, 2014 the merger would be dilutive to Columbia’s tangible book value per share. The analyses also indicated that as of December 31, 2014, the merger would maintain Columbia’s regulatory capital ratios in excess of the regulatory guidelines for “well capitalized” status. The actual results achieved by the combined company, however, may vary from projected results and the variations may be material.

Sandler O’Neill’s Relationship.

Sandler O’Neill acted as the financial advisor to Intermountain’s board of directors in connection with the merger and will receive a transaction fee in connection with the merger, all of which is subject to the closing of the merger. Sandler O’Neill received a fee associated with the delivery of its fairness opinion which became payable upon Sandler O’Neill’s rendering its fairness opinion. Intermountain has also agreed to reimburse Sandler O’Neill for reasonable out-of-pocket expenses incurred in connection with its engagement and to indemnify Sandler O’Neill and its affiliates and their respective partners, directors, officers, employees and agents against certain expenses and liabilities, including liabilities under applicable federal or state law.

In the ordinary course of its broker and dealer business, Sandler O’Neill may purchase securities from and sell securities to Intermountain and Columbia and their respective affiliates. Sandler O’Neill may also actively trade the debt securities of Intermountain or Columbia or their respective affiliates for its own account and for the accounts of its customers and, accordingly may at any time hold a long or short position in such securities. Sandler O’Neill has provided investment banking services to, and received fees for such services from, Intermountain, most recently, in connection with acting as a placement agent in Intermountain’s private placement of equity.

Columbia’s Reasons for the Merger

In reaching its decision to adopt and approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, the Columbia board of directors consulted with Columbia management, as well as its financial and legal advisors, and considered a number of factors, including the following material factors:

 

•

each of Columbia’s and Intermountain’s business, operations, financial condition, asset quality, earnings and prospects. In reviewing these factors, the Columbia board of directors considered its view that Intermountain’s business and operations complement those of Columbia resulting in additional enhancement of Columbia’s diversified revenue stream, well-balanced loan portfolio and attractive funding base;

 

•

its understanding of the current and prospective environment in which Columbia and Intermountain operate, including national and local economic conditions, the competitive environment for financial institutions generally, and the likely effect of these factors on Columbia both with and without the proposed transaction;

 

•

its review and discussions with Columbia’s management concerning the due diligence examination of Intermountain;

 

•

the complementary nature of the cultures of the two companies, which management believes should facilitate integration and implementation of the transaction;

 

•

management’s expectation that Columbia will retain its strong capital position upon completion of the transaction;

 

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•

the financial and other terms of the merger agreement, including the aggregate consideration, tax treatment and deal protection and termination fee provisions, which it reviewed with its outside financial and legal advisors;

 

•

the potential risks associated with achieving anticipated cost synergies and savings and successfully integrating Intermountain’s business, operations and workforce with those of Columbia;

 

•

the potential risk of diverting management attention and resources from the operation of Columbia’s business and towards the completion of the merger;

 

•

the regulatory and other approvals required in connection with the merger and the expectation that such regulatory approvals will be received in due course and without the imposition of unacceptable conditions; and

 

•

the potential risk of losing other acquisition opportunities while Columbia remains focused on completing the merger.

The foregoing discussion of the information and factors considered by the Columbia board of directors is not intended to be exhaustive, but includes the material factors considered by the Columbia board of directors. In reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, the Columbia board of directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The Columbia board of directors considered all these factors as a whole, including discussions with, and questioning of, Columbia’s management and Columbia’s financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination.

For the reasons set forth above, the Columbia board of directors unanimously determined that the merger agreement and the transactions contemplated by the merger agreement, including the issuance of Columbia common stock in connection with the merger, are advisable and in the best interests of Columbia and its shareholders.

Management and Board of Directors of Columbia After the Merger

Upon completion of the merger, the board of directors of Columbia will consist of the directors serving on the board of directors of Columbia prior to the effective time of the merger plus one independent director from the board of directors of Intermountain, to be selected by Columbia’s Nominating and Corporate Governance Committee (who will also be invited to join the board of directors of Columbia State Bank).

The remaining current directors and senior officers of Columbia are expected to continue in their current positions, other than as has been or may be publicly announced by Columbia in the normal course of business. Information about the current Columbia directors and executive officers can be found in the documents listed under “Where You Can Find More Information” included elsewhere in this proxy statement/prospectus.

Interests of Intermountain Directors and Executive Officers in the Merger

In considering the recommendations of the board of directors of Intermountain, Intermountain shareholders should be aware that certain directors and executive officers of Intermountain have interests in the merger that may differ from, or may be in addition to, the interests of Intermountain shareholders generally. These interests are described in more detail and quantified below. The board of directors of Intermountain was aware of these interests and considered them, among other matters, when it adopted the merger agreement and in making its recommendations that the Intermountain shareholders approve the Merger proposal. For purposes of all Intermountain agreements and plans described below, the completion of the transactions contemplated by the merger agreement will constitute a change of control, change in control or term of similar meaning.

 

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Board Membership. Under the merger agreement, Columbia’s Nominating and Corporate Governance Committee will recommend to Columbia’s board of directors one person from Intermountain’s board of directors to serve on Columbia’s board of directors and the board of directors of Columbia State Bank following the completion of the merger.

Indemnification and Insurance. Under the merger agreement, Columbia will provide or purchase director and officer liability insurance for a period of six years following the effective time of the merger to reimburse each present and former director and officer of Intermountain or its subsidiaries with respect to claims arising from facts or events occurring before the effective time of the merger, which insurance will contain at least the same coverage provided by Intermountain to the present and former directors and officers of Intermountain or its subsidiaries immediately prior to the completion of the merger, provided that Columbia is not required to expend, in the aggregate for such six-year period, an amount in excess of 150% of the aggregate annual premiums paid as of the date of the merger agreement by Intermountain for any such insurance. Prior to the effective time of the merger, and in lieu of the foregoing, Intermountain will use reasonable best efforts to purchase a tail policy for directors’ and officers’ liability insurance on the terms described in the prior sentence and fully pay for such policy prior to the effective time of the merger, at an aggregating cost up to, but not exceeding 150% of the current annual premiums for such insurance.

Treatment of Intermountain Equity Awards.

Outstanding Stock Options. Intermountain has awarded stock options to acquire Intermountain common stock to certain executive officers and directors, all of which are fully vested. In connection with the merger, any outstanding stock options may be exercised on the date of notice of termination through the business day immediately preceding closing. Any Intermountain stock options that remain unexercised as of the effective time of the merger shall be cancelled without consideration.

Restricted Shares. Intermountain has awarded shares of Intermountain common stock to certain executive officers that are subject to vesting restrictions that, in connection with the completion of the merger, will vest in full and become free of all restrictions and the holder will be entitled to receive the merger consideration with respect to each such share of Intermountain common stock. Pursuant to waiver agreements, each of Mr. Hecker, Mr. Wright and Ms. Rasmussen have agreed to waive their rights, immediately prior to the closing of the merger and contingent upon the closing of the merger, with respect to their 2014 restricted stock awards of 50,000, 35,000 and 27,500 shares, respectively, which we refer to as the forfeited restricted stock awards. Based upon equity compensation holdings as of August 22, 2014, the number of unvested Intermountain restricted shares held by the executive officers, excluding the forfeited restricted stock awards are as follows: Mr. Hecker, 17,500; Mr. Wright, 15,000; Ms. Rasmussen 3,750; and David Dean 10,500. As of August 22, 2014, no directors held restricted stock awards.

Non-Compete and Employment Arrangements of Intermountain Executive Officers and Directors.

Non-Compete Arrangements.

In addition to any other restrictive covenants described below, in connection with the merger certain directors were asked to, and did, enter into Voting and Non-Competition Agreements pursuant to which they agreed, among other things, for a two-year period following the closing of the merger, not to directly or indirectly become involved in any competing business, which is defined as any depository, wealth management or trust business company or holding company thereof within the State of Idaho, and certain counties in Washington, subject to certain exceptions. The agreement also prohibits the directors from soliciting any employees or customers of Columbia and its subsidiaries for a two-year period following the closing of the merger. See “The Merger Agreement—Related Agreements” included elsewhere in this proxy statement/prospectus.

 

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Curt Hecker Amended Employment Agreement with Intermountain.

Concurrently with the execution of the merger agreement, Intermountain and Panhandle State Bank entered into a Second Amendment of Employment Agreement with Curt Hecker. The Second Amendment of Employment Agreement dated July 23, 2014 amends the Employment Agreement between Mr. Hecker and Intermountain and Panhandle State Bank entered into on January 1, 2014, as amended by the July 14, 2014 Amendment of Employment Agreement.

Mr. Hecker’s amendment provides that his employment agreement terminates immediately following the effective time of the merger. In addition, Mr. Hecker’s amendment provides that (i) upon termination of employment (other than if employment is terminated for cause or under similar circumstances as described in Article 5 of the Salary Continuation Agreement, as defined below), Mr. Hecker shall be entitled to the Early Termination benefit described in Section 2.2 of the Salary Continuation Agreement, as amended and restated, among Panhandle State Bank and Mr. Hecker, dated January 1, 2008, which we refer to as the Salary Continuation Agreement, and shall not be entitled to any other benefits under the Salary Continuation Agreement and (ii) at the effective time of the merger and subject to Mr. Hecker’s continued employment through the effective time of the merger, Mr. Hecker shall be entitled to a lump-sum payment in cash equal to $800,000. The amendment prohibits Mr. Hecker from competing with Intermountain, Panhandle State Bank or Columbia as a consultant, officer, director, organizer, employee or shareholder in the States of Idaho, Washington and Oregon for a period of three years after the later of the effective time of the merger or termination of employment. Mr. Hecker is also prohibited from soliciting any employee, independent contractor, customer, business partner or joint venture of Intermountain, Panhandle State Bank or Columbia during such time period.

Employment Agreement with Mr. Hecker with Columbia.

In connection with the execution of the merger agreement, Mr. Hecker entered into an employment agreement with Columbia. The employment agreement will be effective immediately following the effective time of the merger and provides that Mr. Hecker will serve as the Idaho Group Manager. Mr. Hecker will have an initial annual base salary of $325,000 and be eligible to participate in incentive plans that Columbia may establish from time to time, as determined by Columbia. The employment agreement also provides that Columbia will assume the Salary Continuation Agreement and the Split Dollar Agreement between Mr. Hecker and Panhandle State Bank, dated January 1, 2002.

The employment agreement prohibits Mr. Hecker from competing with Columbia in any manner in the States of Idaho, Washington and Oregon for a period of three years after the later of the effective time of the merger or termination of employment. Mr. Hecker is also prohibited from soliciting any employee, independent contractor, customer, business partner or joint venture of Intermountain, Panhandle State Bank or Columbia during such time period.

As consideration for Mr. Hecker’s covenant not to compete, and subject to Mr. Hecker’s continued employment through the effective time of the merger, Mr. Hecker will receive $1,700,000 payable by Columbia, twenty-five percent (25%) of which shall be payable within thirty (30) days of the date that Mr. Hecker’s employment with Columbia terminates for any reason and the remaining seventy-five percent (75%) of which shall be payable in thirty-six (36) equal monthly payments commencing within thirty (30) days following such termination.

Doug Wright Amended Employment Agreement with Intermountain.

Concurrently with the execution of the merger agreement, Intermountain and Panhandle State Bank entered into a Second Amendment of Employment Agreement with Doug Wright. The Second Amendment of Employment Agreement dated July 23, 2014 amends the Employment Agreement between Mr. Wright and Intermountain and Panhandle State Bank entered into on January 1, 2014, as amended by the July 14, 2014 Amendment of Employment Agreement.

 

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Mr. Wright’s amendment provides that at the effective time of the merger and subject to Mr. Wright’s continued employment through the effective time of the merger, Mr. Wright shall be entitled to a lump-sum payment in cash equal to $580,000. The amendment prohibits Mr. Wright from competing with Intermountain, Panhandle State Bank or Columbia as a consultant, officer, director, organizer, employee or shareholder in the State of Idaho and certain counties in the State of Washington for a period of three years after the later of the effective time of the merger or termination of employment. Mr. Wright is also prohibited from soliciting any employee, independent contractor, customer, business partner or joint venture of Intermountain, Panhandle State Bank or Columbia during that period.

As consideration for Mr. Wright’s covenant not to compete, and subject to Mr. Wright’s continued employment through the effective time of the merger, Mr. Wright will receive $1,100,000 payable by Columbia, twenty-five percent (25%) of which shall be payable within thirty (30) days of the date that Mr. Wright’s employment with Columbia terminates for any reason and the remaining seventy-five percent (75%) of which shall be payable in thirty-six (36) equal monthly payments commencing within thirty (30) days following such termination.

Pamela Rasmussen Amended Severance Agreement with Intermountain.

Concurrently with the execution of the merger agreement, Intermountain and Panhandle State Bank entered into a Second Amendment of Severance Agreement with Pamela Rasmussen. The Second Amendment of Severance Agreement dated July 23, 2014 amends the Severance Agreement between Ms. Rasmussen and Intermountain and Panhandle State Bank entered into on January 1, 2014, as amended by the July 14, 2014 Amendment of Severance Agreement.

The amendment prohibits Ms. Rasmussen from competing with Intermountain, Panhandle State Bank or Columbia as a consultant, officer, director, organizer, employee or shareholder in the State of Idaho and certain counties in the State of Washington for a period of thirty (30) months after the later of the effective time of the merger or termination of employment. Ms. Rasmussen is also prohibited from soliciting any employee, independent contractor, customer, business partner or joint venture of Intermountain, Panhandle State Bank or Columbia during that period.

As consideration for Ms. Rasmussen’s covenant not to compete, and subject to Ms. Rasmussen’s continued employment through the effective time of the merger, Ms. Rasmussen will receive $525,000, payable by Columbia in thirty (30) equal monthly payments commencing on the date Ms. Rasmussen’s employment with Columbia terminates for any reason. In the event Ms. Rasmussen experiences a qualifying termination of employment in connection with the merger, Ms. Rasmussen will receive a lump-sum payment equal to two times Ms. Rasmussen’s annual compensation.

Merger-Related Compensation for Intermountain’s Named Executive Officers

The following table and the related footnotes provide information about the compensation to be paid to Intermountain’s named executive officers that is based on or otherwise relates to the merger. The compensation shown in this table and described in these footnotes is the subject of a non-binding advisory vote of the Intermountain shareholders at the Intermountain special meeting, as described in “Intermountain Proposals—Merger-Related Named Executive Officer Compensation Proposal.” The figures in the table are estimated based on compensation levels as of the date of this document and an assumed effective date of November 1, 2014 for both the merger and, where applicable, termination of the named executive officer’s employment. The amounts reported below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant date, including assumptions described in this document, and do not reflect certain compensation actions that may occur before the completion of the merger (such as the payment of 2014 bonuses). All amounts below are determined using the per share value of Intermountain common stock have been calculated based on a per share price of Intermountain common stock of $18.39 (the average closing market price of Intermountain common stock over the first five business days following the public announcement of the merger on July 23, 2014, as reported by NASDAQ). As a result of the foregoing assumptions, the actual amounts, if any, to be received by a named executive officer may materially differ from the amounts set forth below.

 

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GOLDEN PARACHUTE COMPENSATION

 

Name		Cash ($)(1)				Equity ($)(2)				Pension/ NQDC ($)(3)				Perquisites/ Benefits ($)(4)				Tax Reimbursement ($)				Other ($)(5)				Total ($)
Curt Hecker			800,000				321,825				0				0				0				1,800,000				2,921,825
Douglas Wright			580,000				275,850				0				21,207				0				1,175,000				2,052,057
Pamela Rasmussen			500,000				68,963				0				12,552				0				575,000				1,156,515

 

(1)

For Messrs. Hecker and Wright, represents “single-trigger” change in control benefits under the named executive officer’s employment agreement, as amended, and for Mr. Rasmussen, represents “double-trigger” severance payable on a qualifying termination under her severance agreement, as amended. For Messrs. Hecker and Wright, the cash payment is due in a lump sum upon the merger and is not conditioned on employment termination. For Ms. Rasmussen, the lump sum cash payment is conditioned on employment termination by Intermountain without cause occurring within six months before the merger or an employment termination by Intermountain (or the combined company) without cause or by Ms. Rasmussen for good reason occurring within 24 months after the merger (a “Qualifying Termination”). The actual cash severance payable to Ms. Rasmussen under her severance agreement would equal, in the event of a Qualifying Termination, two times the sum of (A) Ms. Rasmussen’s base salary when the merger occurs or, if greater, when employment termination occurs and (B) Ms. Rasmussen’s cash bonus or cash incentive compensation for the calendar year immediately before the calendar year in which the merger occurs or, if greater, for the calendar year immediately before the calendar year in which employment termination occurs.

(2)

Represents “single-trigger” restricted stock awards that will fully vest upon the merger as set forth in the merger agreement, based on a $18.39 per share price of Intermountain Community Bancorp common stock multiplied by 17,500 restricted shares outstanding in the case of Mr. Hecker, 15,000 restricted shares outstanding for Mr. Wright, and 3,750 restricted shares outstanding for Ms. Rasmussen. These amounts do not include the 2014 restricted stock awards that the named executive officers agreed to forfeit immediately prior to, and contingent upon the closing of, the merger pursuant to waiver agreements as described above in “Interests of Intermountain Directors and Executive Officers in the Merger—Treatment of Intermountain Equity Awards—Restricted Shares.”

(3)

Mr. Hecker continues to be entitled to an early termination benefit under his Salary Continuation Agreement with Panhandle State Bank, dated January 1, 2008, as amended and restated. That benefit is not based on or related to the merger, however, and for that reason is not included in this table. The amount of the benefit and the timing of the benefit payment are not affected by the merger.

(4)

Represents the estimated value of “double-trigger” continued medical and dental insurance benefits payable under Mr. Wright’s employment agreement, as amended, and Ms. Rasmussen’s severance agreement, as amended, for up to 36 months (in the case of Mr. Wright) or 24 months (in the case of Ms. Rasmussen) following an involuntary termination without cause or termination by the named executive officer for good reason.

(5)

Represents for each named executive officer, (A) the full amount of the cash retention bonus payment received at the end of 2013, and (B) the noncompetition payments to which he or she is entitled after employment termination subject to compliance with restrictive covenants. Messrs. Hecker and Wright and Ms. Rasmussen received cash retention bonuses in the amounts of $100,000, $75,000 and $50,000, respectively, in December 2013. By the terms of the retention awards, these amounts must be repaid by the named executive officer upon a voluntary employment termination before December 31, 2014; however, this repayment obligation will no longer apply following the merger. Twenty-five percent of the noncompetition payments to each of Mr. Hecker and Mr. Wright is payable within 30 days of termination of employment, and the remaining 75% is payable in 36 equal monthly payments commencing within 30 days of termination of employment, subject to compliance with noncompetition and non-solicitation covenants for such 36 month period. Mr. Rasmussen’s noncompetition payment is payable in 30 equal monthly installments commencing within 30 days of her termination of employment, subject to compliance with noncompetition and nonsolicitation covenants for such 30 month period. Mr. Hecker has entered into an employment agreement with Columbia effective upon the merger, and his noncompetition payment would be made under that agreement.

 

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THE MERGER AGREEMENT

Effects of the Merger

As a result of the merger, Intermountain will merge with and into Columbia, with Columbia continuing as the surviving corporation. As soon as reasonably practicable following the merger, Panhandle State Bank will merge with and into Columbia State Bank, with Columbia State Bank as the surviving bank.

As a result of the merger, there will no longer be any publicly held shares of Intermountain common stock. Intermountain shareholders will no longer have any direct interest in the surviving company. Those Intermountain shareholders who receive all of the merger consideration in the form of cash will not participate in the future earnings and potential growth of the combined company following the merger, and will no longer bear the risk of any losses incurred in the operation of the combined company’s business or of any decreases in the value of that business. Those Intermountain shareholders receiving shares of Columbia common stock as merger consideration will only participate in the combined company’s future earnings and potential growth through their ownership of Columbia common stock. All of the other incidents of direct stock ownership in Intermountain, such as the right to vote on certain corporate decisions, to elect directors and to receive dividends and distributions from Intermountain, will be extinguished upon completion of the merger.

Effective Time of the Merger

The closing of the merger will occur at 10:00 a.m., Pacific Time, on the first business day of the first calendar month that follows the month in which the last of the closing conditions to be satisfied is satisfied (other than those conditions that by their nature are to be satisfied or waived at the closing), unless the parties mutually agree to extend the closing. If, however, the last of the closing conditions to be satisfied or waived is so satisfied or waived after November 1, 2014 but prior to December 31, 2014, then the closing will take place on January 2, 2015 or such other date as the parties may mutually agree. The merger will be completed legally at the date and time specified in the articles of merger to be filed by Columbia with the Secretary of State of the State of Washington. As of the date of this document, the parties expect that the merger will be effective during the fourth calendar quarter of 2014. However, there can be no assurance as to when or if the merger will occur.

As described below, if the merger is not completed by June 1, 2015, the merger agreement may be terminated by either Intermountain or Columbia, unless the failure of the closing to occur by such date is due to the failure of the party seeking to terminate the merger agreement to perform or observe the covenants and agreements of such party set forth in the merger agreement.

Covenants and Agreements

Conduct of Businesses Prior to the Completion of the Merger. Intermountain has agreed that, except as previously disclosed, as expressly contemplated by or permitted by the merger agreement, as required by applicable law, or with the prior written consent of Columbia, prior to the effective time of the merger, it will, and will cause each of its subsidiaries to, conduct its business, and cause its subsidiaries to conduct their respective businesses, in the ordinary course consistent with past practice in all material respects and use commercially reasonable efforts to maintain and preserve intact its business organization and advantageous business relationships, and goodwill with government entities, customers, suppliers, distributors, creditors, lessors, officers and employees and business associates and keep available the services of Intermountain and its subsidiaries’ present employees and agents. Intermountain and Columbia have agreed to take no action (and to cause their subsidiaries to take no action) that is intended to or would reasonably be expected to adversely affect or materially delay the ability to obtain any necessary approvals of any regulatory agency or other governmental entity required for the transactions contemplated by the merger agreement or to perform the covenants and agreements in the merger agreement or to consummate the transactions contemplated by the merger agreement.

 

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In addition to the general covenants above, Intermountain has agreed that prior to the effective time of the merger, except as previously disclosed, subject to specified exceptions, it will not, and will not permit its subsidiaries to, without the prior written consent of Columbia (which shall not be unreasonably withheld):

 

•

issue, sell or otherwise permit to become outstanding, or dispose of or encumber or pledge, or authorize or propose the creation of, any additional shares of its capital stock, or securities convertible or exchangeable into, or exercisable for, any shares of its capital stock, or any options, warrants or other rights of any kind to acquire any shares of such capital stock or such convertible or exchangeable securities or receive a cash payment based on the value of any shares of such capital stock, or permit any additional shares of its capital stock, or securities convertible or exchangeable into, or exercisable for, any shares of its capital stock, or any options, warrants or other rights of any kind to acquire any shares of such capital stock or such convertible or exchangeable securities or receive a cash payment based on the value of any shares of such capital stock, to become subject to new grants, in each case except as required pursuant to the exercise or settlement of Intermountain stock options or Intermountain company restricted stock awards outstanding in accordance with the terms of the applicable Intermountain stock plan, or as required under the terms of the Intermountain warrants;

 

•

make, declare, pay or set aside for payment any dividend on or in respect of, or declare or make any distribution on any shares of its stock (other than authorized dividends from its wholly owned subsidiaries to it or another of its wholly owned subsidiaries), or directly or indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise acquire, any shares of its stock;

 

•

amend or modify the material terms of, waive, release or assign any rights under, terminate, renew or allow to renew automatically, make any payment not then required under, knowingly violate the terms of or enter into (i) any material contract, lease, regulatory agreement, any contract that would be a material contract if it were in existence on the date hereof or other binding obligation that is material to Intermountain and its subsidiaries, taken as a whole, (ii) any material restriction on the ability of Intermountain or its subsidiaries to conduct its business as it is presently being conducted or (iii) any contract governing the terms of Intermountain common stock or rights associated therewith or any other outstanding capital stock or any outstanding instrument of indebtedness;

 

•

sell, transfer, mortgage, lease, guarantee, encumber, license, let lapse, cancel, abandon or otherwise create any lien or otherwise dispose of or discontinue any of its assets, deposits, business or properties (other than sales of loans which are governed as described below), except for sales, transfers, mortgages, leases, guarantees, encumbrances, licenses, lapses, cancellations, abandonments or other dispositions or discontinuances in the ordinary course of business and in a transaction that, together with other such transactions, is not material to Intermountain and its subsidiaries, taken as a whole;

 

•

acquire (other than by way of foreclosures or acquisitions of control in a fiduciary or similar capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary course of business) all or any portion of the assets, business, deposits or properties of any other entity (other than purchases of loans which are governed as set forth below) except in the ordinary course of business and in a transaction that, together with other such transactions, is not material to Intermountain and its subsidiaries, taken as a whole, and would not reasonably be expected to present a material risk that the closing of the merger will be materially delayed or that the requisite regulatory approvals will be more difficult to obtain;

 

•

amend the Intermountain articles of incorporation or bylaws, or similar governing documents of any of its subsidiaries;

 

•

subject to certain exceptions, including as required under applicable law or the terms of any benefit plan in effect as of the date of the merger agreement, (i) increase in any manner the compensation or benefits of any of the current or former directors, officers, employees or other service providers of Intermountain or its subsidiaries, except for ordinary course merit-based increases in the base salary of employees (other than directors or executive officers of, or individuals who are party to an employment

 

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agreement or change of control agreement with Intermountain or its subsidiaries) consistent with past practice, (ii) become a party to, establish, amend, alter a prior interpretation of in a manner that enhances rights or materially increases costs, commence participation in, terminate or commit itself to the adoption of any benefit plan or plan that would be a benefit plan if in effect as of the date of the merger agreement, other than de minimis amendments in the ordinary course of business consistent with past practice, (iii) grant any new equity award, (iv) grant, pay or increase (or commit to grant, pay or increase) any retention bonus, severance, retirement or termination pay, other than in connection with terminations of employment in the ordinary course of business consistent with past practice (v) accelerate the payment or vesting of, or lapsing of restrictions with respect to, any stock-based compensation, long-term incentive compensation or any bonus or other incentive compensation, (vi) cause the funding of any rabbi trust or similar arrangement or take any action to fund or in any other way secure the payment of compensation or benefits under any benefit plan, (vii) terminate the employment or services of any executive officer or employee who is party to a change in control agreement other than for cause, (viii) enter into any collective bargaining or other agreement with a labor organization, (ix) forgive or issue any loans to any current or former officer, employee or director of Intermountain or its subsidiaries or (x) hire any officer, employee, independent contractor or consultant, except in the ordinary course of business for non-executive officer positions for a base salary not in excess of $100,000;

 

•

take, or omit to take, any action that would prevent or impede, or could reasonably be expected to prevent or impede, the mergers, taken together, from qualifying as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended;

 

•

incur or guarantee any indebtedness for borrowed money other than in the ordinary course of business, or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other person;

 

•

enter into any new line of business or materially change its lending, investment, underwriting, risk and asset liability management and other banking and operating policies, except as required by law or requested by a regulatory agency;

 

•

(i) other than in accordance with the investment policies of Intermountain or any of its subsidiaries in effect on the date of the merger agreement or in securities transactions as provided in (ii) below, make any investment either by contributions to capital, property transfers or purchase of any property or assets of any person or (ii) other than purchases of direct obligations of the United States of America or obligations of United States government agencies which are entitled to the full faith and credit of the United States of America, in any case with a remaining maturity at the time of purchase of one year or less, purchase or acquire securities of any type; provided, however, that in the case of investment securities Intermountain may purchase investment securities if, within two business days after Intermountain requests in writing (which request must describe in detail the investment securities to be purchased and the price thereof) that Columbia consent to making of any such purchase, Columbia has approved such request in writing or has not responded in writing to such request;

 

•

enter into any settlement, compromise or similar agreement with respect to, any action, suit, claim, proceeding, order or investigation to which Intermountain or any of its subsidiaries is or become a party after the date of the merger agreement, which settlement, compromise, agreement or action, suit, claim, proceeding, order or investigation that is settled in an amount and for consideration not in excess of $50,000 individually or $100,000 in the aggregate and that would not (i) impose any material restriction on the business of Intermountain or its subsidiaries or (ii) create adverse precedent for claims that are reasonably likely to be material to Intermountain or its subsidiaries;

 

•

other than as determined to be necessary or advisable by Intermountain in the good faith exercise of its discretion based on changes in market conditions, alter materially its interest rate or pricing fee or fee pricing policies with respect to depository accounts of any of its subsidiaries or waive any material fees with respect thereto;

 

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•

except as required by applicable law or by a regulatory agency, (i) implement or adopt any material change in its interest rate and other risk management policies, procedures or practices or (ii) fail to follow in all material respects, Intermountain’s or its applicable subsidiary’s existing policies or practices with respect to managing its exposure to interest rate and other risk;

 

•

enter into any securitizations of any loans or create any special purpose funding or variable interest entity other than on behalf of clients;

 

•

invest in any mortgage-backed or mortgage related securities which would be considered “high-risk” securities under applicable regulatory pronouncements;

 

•

except for loans or commitments for loans that have been approved by Intermountain prior to the date of the merger agreement, without prior consultation with Columbia, make any loan or loan commitment to any person which would, when aggregated with all outstanding loans or loan commitments or any renewals or extensions thereof, result in total credit exposure to the applicable borrower (and its affiliates) in excess of $1,500,000 or purchase or sell any loan or loan participation in excess of $1,500,000, in each case, without first submitting a copy of the loan write up containing the information customarily submitted to the Loan Committee of Panhandle State Bank, to the chief credit officer of Columbia two full business days prior to taking such action; provided, that, if Columbia objects in writing to such loan or loan commitment or such purchase or sale within two full business days after receiving such loan write up, Intermountain shall obtain the approval of a majority of the members of the Loan Committee of Panhandle State Bank prior to making such loan or loan commitment or such purchase or sale;

 

•

make application for the opening, relocation or closing of any, or open, relocate or close any, branch office, loan production office or other significant office or operations facility;

 

•

make any capital expenditures other than capital expenditures in the ordinary and usual course of business consistent with past practice in amounts not exceeding $50,000 individually or $150,000 in the aggregate;

 

•

pay, loan or advance any amount to, or sell, transfer or lease any properties, rights or assets (real, personal or mixed, tangible or intangible) to, or enter into any arrangement or agreement with, any of its officers or directors or any of their family members, or any affiliates or associates (as defined under the Exchange Act) of any of its officers or directors, other than loans originated in the ordinary course of business and, in the case of any such arrangements or agreements relating to compensation, fringe benefits, severance or termination pay or related matters, only as otherwise permitted pursuant to the merger agreement;

 

•

take any action or omit to take any action that is intended to or would reasonably be likely to result in (i) any of Intermountain’s representations and warranties set forth in the merger agreement being or becoming untrue in any material respect at any time at or prior to the effective time, (ii) any of the closing conditions to the merger not being satisfied or (iii) a material violation of any provision of the merger agreement, except as may be required by applicable law;

 

•

make or change any material tax elections, change or consent to any change in Intermountain’s or its subsidiaries’ method of accounting for tax purposes (except as required by applicable tax law), take any material position on any material tax return filed on or after the date of the merger agreement, settle or compromise any material tax liability, claim or assessment, enter into any closing agreement, waive or extend any statute of limitations with respect to a material amount of taxes, surrender any right to claim a refund for a material amount of taxes, or file any material amended tax return; or

 

•

agree to take, make any commitment to take, or adopt any resolutions of its board of directors in support of, any of the above prohibited actions.

Columbia has agreed to a more limited set of restrictions on its business prior to the completion of the merger. Specifically, Columbia has agreed that prior to the effective time of the merger, except as expressly

 

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permitted by the merger agreement, it will not, and will not permit its subsidiaries to, except as may be required by applicable law or policies imposed by any governmental entity, without the prior written consent of Intermountain (which shall not be unreasonably withheld):

 

•

take any action that would reasonably be expected to prevent, materially impede or materially delay the consummation of the transactions contemplated by the merger agreement; or

 

•

take, or omit to take, any action that is reasonably likely to result in any of the conditions to the merger not being satisfied.

Regulatory Matters. Columbia and Intermountain have agreed to reasonably promptly prepare and use their commercially reasonable efforts to file with the SEC on or prior to August 22, 2014, and in any event as soon as reasonably practicable thereafter, a registration statement on Form S-4, in which this proxy statement/prospectus are included. Each of Columbia and Intermountain has agreed to use its commercially reasonable efforts to have the Form S-4 declared effective under the Securities Act as promptly as practicable after such filing, and Intermountain agreed to then mail or deliver the proxy statement/prospectus to its shareholders. Columbia has also agreed to use its reasonable best efforts to obtain all necessary state securities law or “blue sky” permits and approvals required to carry out the transactions contemplated by the merger agreement, and Intermountain has agreed to furnish all information concerning Intermountain and the holders of Intermountain common stock as may be reasonably requested in connection with any such action.

Columbia and Intermountain have agreed to cooperate with each other and use their respective commercially reasonable efforts to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and governmental entities that are necessary or advisable to consummate the merger, the bank merger and the other transactions contemplated by the merger agreement as soon as reasonably possible, and to comply with the terms and conditions of all such permits, consents, approvals, and authorizations of all such third parties or governmental entities. Columbia agreed to use its commercially reasonable efforts to make all initial requisite regulatory filings on or before August 15, 2014 and in any event as soon as reasonably practicable thereafter (other than any notice to the Federal Reserve under its regulations, which will be filed in accordance with the timing contemplated by such regulations). Intermountain and Columbia have the right to review in advance and, to the extent practicable, each will consult the other on, in each case subject to applicable laws, all the non-confidential information relating to Intermountain or Columbia (excluding any confidential financial information relating to individuals), as the case may be, and any of their respective subsidiaries, that appear in any filing made with, or written materials submitted to, any third party or any governmental entity in connection with the transactions contemplated by the merger agreement. In exercising this right, each of the parties has agreed to act reasonably and as promptly as practicable. Intermountain and Columbia will consult with each other with respect to the obtaining of all permits, consents, approvals and authorizations of all third parties and governmental entities necessary or advisable to consummate the merger, the bank merger and the other transactions contemplated by the merger agreement and each party will keep the other reasonably apprised of the status of matters relating to such approvals and the completion of the merger, the bank merger and the other transactions contemplated by the merger agreement. Each party will consult with the other in advance of any meeting or conference with any governmental entity in connection with the merger, the bank merger and the other transactions contemplated by the merger agreement.

Additionally, each of Columbia and Intermountain has agreed to furnish to the other, upon request, all information concerning itself, its subsidiaries, directors, officers and shareholders and such other matters as may be reasonably necessary or advisable in connection with this proxy statement/prospectus, the Form S-4 or any other statement, filing, notice or application made by or on behalf of Columbia.

Each of Columbia and Intermountain has agreed to cooperate with the other and use its reasonable best efforts in good faith to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or desirable, or advisable on its part under the merger agreement or under applicable laws to consummate

 

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and make effective the merger, and the other transactions contemplated as promptly as practicable, including the satisfaction of the closing conditions set forth in the merger agreement.

Neither Columbia nor any of its subsidiaries are required to take any action, or commit to take any action, or agree to any condition or restriction, in connection with obtaining any permits, consents, approvals and authorizations of any governmental entities that would reasonably be likely, in each case following the effective time (but regardless when the action, condition or restriction is taken or implemented), to have a material adverse effect on Columbia (measured on a scale relative to Intermountain), a material adverse effect on Intermountain or materially restrict or impose a material burden on Columbia or any of its subsidiaries (including, after the merger effective time, Intermountain and its subsidiaries) in connection with the transactions contemplated by the merger agreement or with respect to the business or operation of Columbia or any of its subsidiaries (including, after the merger effective time, Intermountain and its subsidiaries), which we refer to as a materially burdensome regulatory condition.

Each of Columbia and Intermountain will promptly advise the other upon receiving any communication from any governmental entity the consent or approval of which is required for consummation of the merger, the bank merger, and the other transactions contemplated by the merger agreement that causes such party to believe that there is a reasonable likelihood that any requisite regulatory approval will not be obtained or that the receipt of any such approval may be materially delayed.

Shareholder Approval. Intermountain’s board of directors has resolved to recommend to the Intermountain shareholders that they approve the merger agreement and to submit to Intermountain shareholders the merger agreement and any other matters required to be approved by Intermountain shareholders in order to carry out the intentions of the merger agreement, subject to certain exceptions if, following the receipt of a company superior proposal (as defined below), the board of directors of Intermountain concludes in good faith (and based on the advice of counsel) that the failure to withdraw its recommendation or terminate the merger agreement would more likely than not result in a violation of the board’s fiduciary duties under applicable law.

NASDAQ Listing. Columbia has agreed to file with NASDAQ any required notices or forms with respect to the shares of Columbia common stock to be issued in the merger.

Employee Matters. The merger agreement provides that for the period beginning on the effective time (as defined in the merger agreement) and ending on the 15 month anniversary of the closing date Columbia will provide each employee who is actively employed by Intermountain and its subsidiaries on the closing date with (i) base salary no less favorable than the base salary provided to such continuing employees immediately prior to the effective time; and (ii) employee benefits which, in the aggregate, are no less favorable than employee benefits provided by Columbia to its similarly situated employees of Columbia, provided that until Columbia causes such continuing employees to participate in the benefit plans of Columbia, participating in the benefit plans of Intermountain satisfies this provision. Intermountain will cooperate with Columbia to ensure that from the closing date through the next open enrollment date for Columbia’s group health, dental, vision and life insurance plans, continuing employees will be covered by Intermountain’s group health, dental, vision and life insurance plans, provided that Intermountain will terminate, effective as of the effective time, its plans and programs with respect to long term care and health savings accounts.

The merger agreement provides that for the period beginning at the effective time and ending on the 15 month anniversary of the effective time Columbia will, or will cause the surviving company to, maintain without amendment the severance policy of Intermountain and its subsidiaries applicable to continuing employees as of the date of the merger agreement and provide each continuing employee who is not party to an individual employment, severance or change of control agreement at the time of his or her termination of employment whose employment is terminated (other than under circumstances that constitute a termination for “cause”) with the severance payments and/or benefits, if any, to which the continuing employee would have been entitled under Intermountain’s severance policy immediately prior to the effective time, taking into account the continuing employee’s length of service with Intermountain and its subsidiaries as provided in the merger agreement.

 

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Upon continuing employees’ enrollment in Columbia’s employee benefit plans, such continuing employees will, consistent with the provision in the merger agreement, become participants in all of Columbia’s employee benefit plans, practices, and policies on the same terms and conditions as similarly situated employees of Columbia. Without limiting the generality of the foregoing, prior service credit for each of continuing employee’s service with Intermountain, except as expressly provided otherwise herein, shall be given by Columbia with respect to all of Columbia’s retirement plans, employee benefit plans, practices, and policies to the extent that such crediting of service does not result in duplication of benefits, but not for accrual of benefits under any defined benefit. If any continuing employee becomes eligible to participate in any Columbia employee benefit plan, practice, or policy that provides medical, hospitalization or dental benefits, Columbia will (A) use commercially reasonably best efforts to cause any pre-existing condition limitations or eligibility waiting periods under such benefit plan to be waived with respect to such continuing employee and his or her covered dependents to the extent such limitation would have been waived or satisfied under the employee benefit plan in which such continuing employee participated immediately prior to the effective time, and (B) recognize for purposes of annual deductible and out-of-pocket limits under their health plans applicable to continuing employees, deductible and out-of-pocket expenses incurred by such continuing employee and his or her covered dependents under any employee benefit plan on or prior to the closing date.

The merger agreement provides that from and after the effective time, subject to the requirements of applicable law, Columbia will assume the written agreements of continuing employees, on the one hand, and Intermountain and its subsidiaries, on the other hand.

If requested in writing by Columbia prior to the effective time, Intermountain will take (or cause to be taken) all actions reasonably determined by Columbia to be necessary or appropriate to terminate, effective immediately prior to the effective time, any employee benefit plans that contain a cash or deferred arrangement intended to qualify under Section 401(k) of the Internal Revenue Code.

From and after the date hereof, prior to making any written or oral communications to officers or employees of Intermountain or any of its subsidiaries pertaining to compensation, benefit or other employment-related matters that are affected by the transactions contemplated by the merger agreement, Intermountain will provide Columbia with a copy of the intended communication, Columbia will have a reasonable period of time to review and comment on the communication, and Columbia and Intermountain will cooperate in providing any such mutually agreeable communication.

Indemnification and Directors’ and Officers’ Insurance. From and after the effective time of the merger, Columbia and the surviving corporation will indemnify and hold harmless each present and former director and officer of Intermountain and its subsidiaries (in each case, when acting in such capacity) 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 actions or omissions occurring at or prior to the effective time, including the transactions contemplated by the merger agreement, to the extent they are indemnified on the date of the merger agreement, to the fullest extent permitted under applicable law. Columbia and the surviving corporation have also agreed to advance expenses as incurred to the fullest extent permitted under applicable law, which will be repaid if it is ultimately determined that such person is not entitled to indemnification.

In addition, for a period of six years following the effective time of the merger, Columbia will provide director’s and officer’s liability insurance that serves to reimburse the present and former officers and directors of Intermountain or any of its subsidiaries as of the effective time of the merger (providing only for the Side A coverage where the existing policies also include Side B coverage for Intermountain) with respect to claims against such directors and officers arising from facts or events occurring before the effective time of the merger (including the transactions contemplated by the merger agreement), which insurance will contain at least the same coverage and amounts, and contain terms and conditions no less advantageous to such persons as that coverage currently provided by Intermountain, except that Columbia or the surviving corporation is not required to expend in the aggregate for such six-year period, an amount in excess of 150% of the aggregate annual

 

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premiums paid as of the date of the merger agreement by Intermountain for any such insurance, if any such annual expense at any time would exceed that amount, then Columbia will cause to be maintained policies of insurance which provide the maximum coverage available at an annual premium equal to that amount, and that officers and directors of Intermountain may be required to make application and provide customary representations and warranties to the surviving corporation’s insurance carrier for the purpose of obtaining such insurance. Prior to the effective time of the merger, and in lieu of the foregoing, Intermountain will use reasonable best efforts to purchase a six-year prepaid tail policy for directors’ and officers’ liability insurance on the terms described in the prior sentence and subject to certain other specifications agreed to by the parties, and fully pay for such policy prior to the effective time of the merger, at an aggregate cost up to, but not exceeding 150% of the current annual premium for such insurance.

No Solicitation. The merger agreement provides that Intermountain and none of it or any of its subsidiaries nor any of their respective officers, directors and employees will, and will cause its and its subsidiaries’ officers, directors, agents, representatives, advisors and affiliates not to, initiate, solicit, encourage or knowingly facilitate any inquiries or the making of proposals with respect to, or engage in any negotiations concerning, or provide any confidential or nonpublic information or data to, or have any discussions with, any person relating to, any company acquisition proposal (as defined below) or otherwise facilitate any effort to attempt or make or implement a company acquisition proposal. However, if at any time after the date of the merger agreement and prior to, but not after, obtaining the approval of the merger agreement by Intermountain shareholders, Intermountain receives an unsolicited bona fide company acquisition proposal and the board of directors of Intermountain concludes in good faith that such company acquisition proposal constitutes, or is reasonably expected to result in, a company superior proposal (as defined below), then Intermountain and its board of directors may, and may permit its subsidiaries and Intermountain’s and its subsidiaries’ representatives to, furnish or cause to be furnished nonpublic information and participate in such negotiations or discussions to the extent that the board of directors of Intermountain concludes in good faith (and based on the advice of counsel) that failure to take such actions would be more likely than not to result in a violation of its fiduciary duties under applicable law; provided that prior to providing any such nonpublic information or engaging in any such negotiations, Intermountain must have entered into a confidentiality agreement with such third party on terms no less favorable to Intermountain than the confidentiality agreement between Intermountain and Columbia, and which expressly permits Intermountain to comply with its obligations pursuant to the merger agreement. Intermountain will immediately cease and cause to be terminated any activities, discussions or negotiations conducted before the date of the merger agreement with any persons other than Columbia with respect to any company acquisition proposal and will use its reasonable best efforts, subject to applicable law, to (i) enforce any confidentiality or similar agreement relating to a company acquisition proposal and (ii) within 10 business days after the date hereof, request and confirm the return or destruction of any confidential information provided to any person (other than Columbia and its affiliates) pursuant to any such confidentiality or similar agreement. Intermountain must promptly (and in any event within 24 hours) advise Columbia following receipt of any company acquisition proposal, any discussions or negotiations are sought to be initiated or continued or any request for nonpublic information or inquiry that would reasonably be expected to lead to any company acquisition proposal and the substance thereof (including the identity of the person making such company acquisition proposal), and keep Columbia promptly apprised of any related developments, discussions and negotiations (including the terms and conditions of any such request, inquiry or company acquisition proposal, or all amendments or proposed amendments thereto) on a current basis (it being understood that for the avoidance of doubt that no such communications to Columbia will be deemed an adverse change of recommendation, as defined below). Intermountain agrees that it will contemporaneously provide to Columbia any confidential or nonpublic information concerning Intermountain or any of its subsidiaries that may be provided to any other person in connection with any company acquisition proposal which has not previously been provided to Columbia.

As used in the merger agreement, “company acquisition proposal” means a tender or exchange offer, proposal for a merger, consolidation or other business combination involving Intermountain or any of its subsidiaries or any proposal or offer to acquire in any manner more than 24.9% of the voting power in, or more

 

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than 24.9% of the fair market value of the business, assets or deposits of, Intermountain or any of its subsidiaries or any public announcement of a proposed plan or intention to do any of the foregoing or any agreements to engage in any of the foregoing, other than the transactions contemplated by the merger agreement and any sale of whole loans and securitizations in the ordinary course. As used in the merger agreement, “company superior proposal” means an unsolicited bona fide written company acquisition proposal that the board of directors of Intermountain concludes in good faith to be more favorable from a financial point of view to its shareholders than the merger and the other transactions contemplated by the merger agreement and to be reasonably capable of being consummated on the terms proposed, (i) after receiving the advice of its financial advisors (who must be a nationally recognized investment banking firm), (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 counsel), financial (including the financing terms of any such proposal), regulatory and other aspects of such proposal (including any expense reimbursement provisions and conditions to closing) and any other relevant factors permitted under applicable law, and after taking into account any amendment or modification to the merger agreement agreed to by Columbia; provided that for purposes of the definition of “company superior proposal,” the references to “more than 24.9%” in the definition of company acquisition proposal will be deemed to be references to “50%.”

None of the members of the board of directors of Intermountain may, except as expressly permitted by the merger agreement, withdraw or materially and adversely modify his or her recommendation that Intermountain shareholders vote to approve the merger agreement, or recommend to Intermountain shareholders a company acquisition proposal other than the merger, which we refer to as an adverse change of recommendation, or cause or commit Intermountain to enter into any agreement or understanding other than the confidentiality agreement referred to above relating to any company acquisition proposal made to Intermountain. Nevertheless, in the event that Intermountain receives a company acquisition proposal that Intermountain board of directors concludes in good faith constitutes a company superior proposal, the board of directors of Intermountain may make an adverse change of recommendation or terminate the merger agreement, if it concludes in good faith (and based on the advice of counsel) that failure to take such actions would be more likely than not to result in a violation of its fiduciary duties under applicable law, as long as Intermountain gives Columbia prior written notice at least five business days before taking such action and during such five (5) business day period Intermountain negotiates in good faith with Columbia to enable Columbia to make an improved offer that is at least as favorable to the shareholders of Columbia as such alternative company acquisition proposal.

TARP Purchase. Intermountain and Columbia have agreed to reasonably cooperate to negotiate the purchase on terms reasonably satisfactory to Columbia from the United States Department of the Treasury of the warrant to purchase shares of Intermountain common stock, we refer to this as the TARP purchase, issued to the Treasury Department on December 19, 2008, which we refer to the TARP warrant. Each of Intermountain and Columbia will use its reasonable best efforts to facilitate the TARP purchase. Intermountain will provide, and will cause its subsidiaries and its and their representatives to provide, all reasonable cooperation and take all reasonable actions as may be requested by Columbia in connection with the TARP purchase, including by entering into any agreement with the United States Department of the Treasury as may be necessary to effect the TARP purchase and as Columbia may reasonably request. Columbia will make all determinations with respect to the price proposed for the TARP purchase. Prior to and at the closing of the merger, each of Intermountain and Columbia will take such actions as may be reasonably required in connection with the TARP purchase.

Representations and Warranties

The merger agreement contains representations and warranties made by Intermountain to Columbia relating to a number of matters, including the following:

 

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corporate organization, qualification to do business, and subsidiaries;

 

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capitalization;

 

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•

requisite corporate authority to enter into the merger agreement and to complete the contemplated transactions;

 

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absence of conflicts with, or violations of, organizational documents or other obligations as a result of the merger;

 

•

required regulatory consents, approvals and filings necessary in connection with the merger;

 

•

reports to regulatory authorities and the accuracy of the information contained therein;

 

•

financial statements, and the absence of undisclosed liabilities;

 

•

broker’s fees payable in connection with the merger;

 

•

the absence of certain changes or events;

 

•

compliance with applicable law, including the existence of orders, consent agreements or similar communications with governmental entities;

 

•

inapplicability of certain state takeover statutes;

 

•

employee benefit matters;

 

•

absence of knowledge of any reason why required regulatory approvals should not be obtained on a timely basis;

 

•

opinion from financial advisor;

 

•

accuracy of Intermountain information provided in this proxy statement/prospectus;

 

•

legal proceedings;

 

•

certain material contracts;

 

•

environmental matters;

 

•

tax matters;

 

•

absence of action or circumstance that would impede the mergers, taken together, from qualifying as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended;

 

•

intellectual property matters;

 

•

real property matters;

 

•

insurance matters;

 

•

accounting and internal controls;

 

•

absence of derivative securities;

 

•

loan matters;

 

•

CRA compliance;

 

•

investment securities matters;

 

•

related party transactions; and

 

•

labor matters.

The merger agreement also contains representations and warranties made by Columbia to Intermountain relating to a number of matters, including the following:

 

•

corporate organization, qualification to do business, and subsidiaries;

 

•

capitalization;

 

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•

requisite corporate authority to enter into the merger agreement and to complete the contemplated transactions;

 

•

absence of conflicts with, or violations of, organizational documents or other obligations as a result of the merger;

 

•

required regulatory consents, approvals and filings necessary in connection with the merger;

 

•

reports to regulatory authorities and the accuracy of the information contained therein;

 

•

financial statements, and the absence of undisclosed liabilities;

 

•

broker’s fees payable in connection with the merger;

 

•

the absence of certain changes or events;

 

•

compliance with applicable law, including the existence of orders, consent agreements or similar communications with governmental entities;

 

•

absence of knowledge of any reason why required regulatory approvals should not be obtained on a timely basis;

 

•

accuracy of Columbia information provided in this proxy statement/prospectus;

 

•

legal proceedings;

 

•

accounting and internal controls; and

 

•

related party transactions.

Certain of these representations and warranties are qualified as to “materiality” or “material adverse effect.” For purposes of the merger agreement, a “material adverse effect” with respect to Intermountain or Columbia, as the case may be, means a material adverse effect on (a) the business, assets or deposit liabilities, properties, operations, condition (financial or otherwise) or results of operations of such party and its subsidiaries taken as a whole; provided, however, that, with respect to clause (a), a “material adverse effect” does not include effects arising out of, relating to or resulting from (A) changes after the date of the merger agreement in applicable GAAP or regulatory accounting requirements generally affecting other companies in the banking industries in which such party and its subsidiaries operate, (B) changes after the date of the merger agreement in laws, rules or regulations of general applicability to companies of similar size in the banking industries in which such party and its subsidiaries operate, (C) changes after the date of the merger agreement in global, national or regional political conditions or general economic or market conditions (including changes in prevailing interest rates, credit availability and liquidity, currency exchange rates, and price levels or trading volumes in the United States or foreign securities markets) affecting other companies in the banking industries in which such party and its subsidiaries operate, (D) changes after the date of the merger agreement in the credit markets, any downgrades in the credit markets, or adverse credit events resulting in deterioration in the credit markets generally and including changes to any previously correctly applied asset marks resulting therefrom, (E) a decline in the trading price of a party’s common stock or a failure, in and of itself, to meet earnings projections, but not, in either case, including any underlying causes thereof, (F) the public disclosure of the merger agreement or the transactions contemplated hereby or the consummation of the transactions contemplated hereby, (G) any outbreak or escalation of hostilities, declared or undeclared acts of war or terrorism, or (H) actions or omissions taken with the prior written consent of the other party or expressly required by the merger agreement except that effects attributable to or resulting from any of the changes, events, conditions or trends described in clauses (A), (B), (C), (D) and (G) are not excluded to the extent of any disproportionate impact they have on such party and its subsidiaries, taken as a whole, as compared to other companies in the banking industry in which such party and its subsidiaries operate; or (b) the ability of such party to timely consummate the transactions contemplated by the merger agreement.

The representations and warranties in the merger agreement do not survive the effective time of the merger and, as described below under “—Effect of Termination,” if the merger agreement is validly terminated, there will be no liability under the representations and warranties of the parties, unless a party knowingly breached the merger agreement.

 

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This summary and the copy of the merger agreement attached to this document as Appendix A are included solely to provide investors with information regarding the terms of the merger agreement. They are not intended to provide factual information about the parties or any of their respective subsidiaries or affiliates. The merger agreement contains representations and warranties by Columbia and Intermountain, which were made only for purposes of that agreement and as of specific dates. The representations, warranties and covenants in the merger agreement were made solely for the benefit of the parties to the merger agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the merger agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those generally applicable to investors. In reviewing the representations, warranties and covenants contained in the merger agreement or any descriptions thereof in this summary, it is important to bear in mind that such representations, warranties and covenants or any descriptions thereof were not intended by the parties to the merger agreement to be characterizations of the actual state of facts or condition of Columbia, Intermountain or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in Columbia’s and Intermountain’s public disclosures. For the foregoing reasons, the representations, warranties and covenants or any descriptions of those provisions should not be read alone and should instead be read in conjunction with the other information contained in the reports, statements and filings that Columbia and Intermountain publicly file with the SEC. For more information regarding these documents, see the section entitled “Where You Can Find More Information” included elsewhere in this proxy statement/prospectus.

Conditions to the Merger

Conditions to Each Party’s Obligations. The respective obligations of each of Columbia and Intermountain to complete the merger are subject to the satisfaction of the following conditions:

 

•

receipt of Intermountain shareholder approval of the merger agreement;

 

•

the effectiveness of the registration statement on Form S-4, of which this document is a part, and the absence of a stop order suspending the effectiveness of the Form S-4 or any proceeding initiated or threatened by the SEC for that purpose; and

 

•

the absence of any order, injunction or decree issued by any court or agency of competent jurisdiction or other law preventing or making illegal the consummation of the merger or the other transactions contemplated by the merger agreement.

Conditions to Obligations of Columbia. The obligation of Columbia to complete the merger is also subject to the satisfaction, or waiver by Columbia, at or prior to the effective time, of the following conditions:

 

•

the accuracy of the representations and warranties of Intermountain as of the closing date of the merger, other than, in most cases, those failures to be true and correct that (disregarding any materiality, material adverse effect and similar qualifying terms), individually or in the aggregate, would not reasonably be expected to result in a material adverse effect on Intermountain, and the receipt by Columbia of an officer’s certificate to such effect;

 

•

performance in all material respects by Intermountain of the obligations required to be performed by it at or prior to the closing date of the merger, and the receipt by Columbia of an officer’s certificate to such effect;

 

•

receipt by Columbia of an opinion of Sullivan & Cromwell LLP as to certain tax matters;

 

•

the receipt of all requisite regulatory approvals of governmental entities, including the necessary regulatory approvals from the FDIC, Idaho Department of Finance, the Washington State Department of Financial Institutions and the Federal Reserve Board and the expiration of all statutory waiting periods in respect thereof and any other regulatory approvals set forth in the merger agreement the

 

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failure of which to be obtained would reasonably be expected to have a material adverse effect on Columbia or Intermountain, in each case required to consummate the transactions contemplated by the merger agreement, including the merger and the bank merger and none of such consents, registrations, approvals, permits and authorizations contain any materially burdensome regulatory condition;

 

•

holders of not more than 10% of the outstanding shares of Intermountain common stock have duly exercised dissenters’ rights under Title 30, Chapter 1, Part 13 of the IBCA;

 

•

no occurrence since the date of the merger agreement of any event or circumstance that, individually or taken together with all other facts, circumstances or events, has had or is reasonably likely to have a material adverse effect with respect to Intermountain; and

 

•

the receipt of certain third party consents.

Conditions to Obligations of Intermountain. The obligation of Intermountain to complete the merger is also subject to the satisfaction, or waiver by Intermountain, at or prior to the effective time, of the following conditions:

 

•

the accuracy of the representations and warranties of Columbia as of the closing date of the merger, other than, in most cases, those failures to be true and correct that (disregarding any materiality, material adverse effect and similar qualifying terms), individually or in the aggregate, would not reasonably be expected to result in a material adverse effect on Columbia, and the receipt by Intermountain of an officer’s certificate to such effect;

 

•

performance in all material respects by Columbia of the obligations required to be performed by it at or prior to the closing date of the merger, and the receipt by Intermountain of an officer’s certificate to such effect;

 

•

the receipt of all requisite regulatory approvals obtained and remain in full force and effect and all statutory waiting periods in respect thereof expired; and

 

•

no occurrence since the date of the merger agreement of any event or circumstance that, individually or taken together with all other facts, circumstances or events, has had or is reasonably likely to have a material adverse effect with respect to Columbia;

Termination; Termination Fee

The merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after approval of the merger agreement by Intermountain shareholders:

 

•

by mutual written consent of Columbia and Intermountain;

 

•

by either Columbia or Intermountain, if a requisite regulatory approval is denied and such denial has become final and non-appealable, or if a governmental entity of competent jurisdiction has issued a final, non-appealable order, injunction or decree permanently enjoining or otherwise prohibiting or making illegal the consummation of the transactions contemplated by the merger agreement;

 

•

by either Columbia or Intermountain, if the merger has not closed by June 1, 2015, unless the failure of the closing to occur by such date is due to the failure of the party seeking to terminate the merger agreement to perform or observe the covenants and agreements of such party set forth in the merger agreement;

 

•

by either Columbia or Intermountain, if there is a breach by the other party of any of its covenants, agreements, representations or warranties that would, individually or in the aggregate with other breaches by such party, result in the failure of a closing condition of the other party, and such breach is not cured within thirty days following written notice to the party committing the breach, or the breach, by its nature, cannot be cured within such time (provided that the terminating party is not then in material breach of any representation, warranty, covenant, or other agreement contained in the merger agreement);

 

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•

by either Columbia or Intermountain, if the Intermountain shareholders have not approved the merger agreement and the transactions contemplated thereby at the duly convened Intermountain special meeting or at any adjournment or postponement thereof, provided that the failure to obtain such shareholder approval was not caused by the terminating party’s material breach of any of its obligations under the merger agreement;

 

•

by Columbia prior to obtaining the Intermountain shareholder approval, in the event (A) Intermountain breaches in any material respect the merger agreement; (B) Intermountain or the board of directors of Intermountain make an adverse change of recommendation; (C) at any time after the end of 15 business days following receipt of a company acquisition proposal, the board of directors of Intermountain fails to reaffirm its Company Board Recommendation as promptly as practicable (but in any event within five business days) after receipt of any written request to do so by Columbia; or (D) a tender offer or exchange offer for outstanding shares of Intermountain common stock is publicly disclosed (other than by Columbia or one of its affiliates) and the board of directors of Intermountain recommends that its shareholders tender their shares in such tender or exchange offer or, within 10 business days after the commencement of such tender or exchange offer, the board of directors of Intermountain fails to recommend unequivocally against acceptance of such offer, which we refer to as a termination due to no company recommendation;

 

•

by Intermountain, prior to obtaining Intermountain shareholder approval, in order to enter into a definitive agreement providing for a company superior proposal (as defined above) (provided that Intermountain is not in material breach of any of the terms of the merger agreement and Intermountain pays Columbia a termination fee in advance of or concurrently with such termination, as described below), which we refer to as a termination due to a company superior proposal; or

 

•

by Intermountain, by written notice to Columbia on the business day immediately following the fifth business day prior to closing, effective as of the date that is three business days following the date of such written notice, in the event that: (1) the parent average closing price is less than $21.6184 (with a proportionate adjustment in the event of certain changes in Columbia’s capitalization); and (2) the number obtained by dividing the parent average closing price by $26.2041 is less than the number obtained by (a) dividing the average closing price of the Keefe Bruyette & Woods Regional Banking Index during the twenty (20) day period ending on the date that is five (5) business days prior to the closing date of the merger by $76.75 and then (b) subtracting 0.175. If Intermountain elects to terminate in this way and provides such written notice to Columbia, then within two business days following Columbia’s receipt of such notice, Columbia may elect by written notice to Intermountain to adjust the merger consideration by increasing the per share cash amount dollar for dollar by the amount of the difference between (A) $13.8920 and (B) 0.6426 multiplied by the parent average closing price. If Columbia makes such election to increase the cash consideration, no termination will occur and the merger agreement will remain in effect according to its terms (except as the per share cash amount has been increased).

Intermountain must pay Columbia a termination fee of $5,500,000 in the event that:

 

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the merger agreement is terminated by Intermountain in order to enter into a definitive agreement providing for a company superior proposal;

 

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Columbia terminates the merger agreement due to no company recommendation; or

 

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any person has made a company acquisition proposal, which proposal has been publicly announced, disclosed or proposed and not withdrawn, and: (1) thereafter the merger agreement is terminated (a) by either party pursuant to the termination provision for delay or pursuant to the termination provision for no approval by Intermountain shareholders or (b) by Columbia pursuant to the termination provision for breach; and (2) within 12 months after such termination of the merger agreement, a company acquisition proposal is consummated or any definitive agreement with respect to a company acquisition proposal is entered into (provided that references to 24.9% in the definition of company acquisition proposal are deemed to be references to 50%).

 

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Effect of Termination

If the merger agreement is validly terminated, the merger agreement will become void and have no effect, and none of Intermountain, Columbia, any of their respective subsidiaries or any of the officers or directors of any of them will have any liability of any nature whatsoever under the merger agreement, or in connection with the transactions contemplated by the merger agreement, except that (i) the provisions of the merger agreement relating to confidentiality obligations of the parties, the termination fees, publicity and certain other technical provisions will continue in effect notwithstanding termination of the merger agreement and (ii) neither Intermountain nor Columbia will be relieved or released from any liabilities or damages arising out of its knowing breach of the merger agreement (which, in the case of Intermountain includes the loss to Intermountain’s shareholders of the economic benefits of the merger).

Amendments, Extensions and Waivers

The merger agreement may be amended by the parties, by action taken or authorized by their respective boards of directors, at any time before or after approval of the matters presented in connection with the merger by the shareholders of Intermountain or Columbia, in writing signed on behalf of each of the parties, provided that after any approval of the transactions contemplated by the merger agreement by such shareholders, there may not be, without further approval of such shareholders, any amendment of the merger agreement that requires further approval under applicable law.

At any time prior to the effective time of the merger, the parties, by action taken or authorized by their respective boards of directors, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties contained in the merger agreement or (c) waive compliance with any of the agreements or conditions contained in the merger agreement. Any agreement on the part of a party to any extension or waiver must be in writing signed on behalf of such party. Any such extension or waiver or failure to insist on strict compliance with an obligation, covenant, agreement or condition will not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

Stock Market Listing

In the merger agreement, Columbia has agreed to file with NASDAQ any required notices or forms with respect to the shares of Columbia common stock to be issued in the merger.

Fees and Expenses

Except for the termination fee, as described elsewhere in this document, all fees and expenses incurred in connection with the merger, the merger agreement, and the transactions contemplated by the merger agreement (including costs and expenses of printing and mailing this document) will be paid by the party incurring such fees or expenses, whether or not the merger is completed.

Related Agreements

Warrant Transfer, Voting and Support Agreements. Each of Castle Creek Capital Partners IV, LP, Stadium Capital Qualified Partners, LP and Stadium Capital Partners, LP, which we collectively refer to as the principal shareholders, have entered into Warrant Transfer, Voting and Support Agreements, which we refer to as shareholder agreements, with Columbia. As of the record date for the Intermountain special meeting, the parties to the shareholder agreements have the right to vote, in the aggregate, 4,075,370 outstanding shares of Intermountain common stock, which represents approximately 60.82% of outstanding shares of Intermountain common stock, consisting of 645,503 shares of Intermountain voting common stock, which represents 22.56% of the outstanding Intermountain voting common stock, and 3,429,807 shares of Intermountain non-voting common stock, which represents 89.33% of the outstanding Intermountain non-voting common stock. Pursuant to such agreements, the principal shareholders have agreed to transfer to Columbia the Intermountain warrants issued to

 

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the principal shareholders by Intermountain in exchange for an amount of cash specified in the shareholder agreements. The principal shareholders have also agreed to vote their shares of Intermountain common stock in favor of approval of (i) the merger agreement and the transactions contemplated thereby; (ii) any other matter that is required to facilitate the transactions contemplated by the merger agreement; and (iii) any proposal to adjourn or postpone the Intermountain special meeting to a later date if there are not sufficient votes to approve the merger agreement. The principal shareholders have also agreed to vote against any action or agreement submitted for approval to the shareholders of Intermountain that would (i) result in breach of any covenant, representation or warranty or any other obligation or agreement of Intermountain under the merger agreement, (ii) result in any of the conditions to the consummation of the merger under the merger agreement not being fulfilled, or (iii) impair the ability of Columbia or Intermountain to complete the merger, or that otherwise would be inconsistent with, prevent, impede or delay the consummation of the transactions contemplated by the merger agreement.

The shareholder agreements also provide that the principal shareholders will not (except in connection with the merger and receiving the merger consideration, or transfers to a controlled affiliate) transfer the shares of Intermountain common stock or Intermountain warrants that they own or grant any proxy with respect to a transfer of such shares until the earlier of the closing of the merger or the termination of such shareholder agreements in accordance with its terms.

The shareholder agreements further provide that during the term of such agreements each Principal Shareholder will not, without the prior written consent of Columbia (and will cause its principals, directors, members, general partners, managers, officers and controlled affiliates not to), individually or in concert with others, acquire or agree to acquire or otherwise knowingly facilitate the acquisition of any beneficial ownership of capital stock of Columbia that would result in such principal shareholder and its controlled affiliates beneficially owning in excess of the greater of (i) an amount equal to 4.9% of the total outstanding Columbia common stock immediately following the closing of the merger, and (ii) the aggregate beneficial ownership, as a percentage, of the principal shareholder and its controlled affiliates of Columbia common stock immediately following the closing of the merger, giving effect to the merger and the transactions contemplated by the merger agreement.

The shareholder agreements also provide that during the term of such agreements the principal shareholders will not, individually or in concert with others, (i) make or participate in the solicitation of any proxies with respect to any shares of Columbia stock; (ii) propose any shareholder resolutions in respect of Columbia; (iii) seek to call any meeting of shareholders of Columbia: (iv) seek to take any action by written consent of the shareholders of Columbia; or (v) seek to advise or influence any other person or entity with respect to the voting of Columbia common stock. Further, each principal shareholder agrees that it will not (i) deposit any Columbia shares into a voting trust or subject them to any voting arrangement or agreement (except pursuant to pledges and as contemplated by the shareholder agreement), (ii) join any group acting in concert for the purpose of acquiring, holding, voting or disposing of any Columbia shares owned by such principal shareholder, or (iii) without the prior written consent of Columbia, individually or in concert with others seek or propose to effect control of the management, board of directors or policies of Columbia.

The shareholder agreements automatically terminate upon the termination of the merger agreement in accordance with its terms.

The shareholder agreements provide for limited indemnification of the principal shareholders by Columbia for out-of-pocket legal defense costs and related expenses (including reasonable attorneys’ fees and disbursements), in connection with claims made prior to the one year anniversary of the effective time of the merger arising out of or resulting from the principal shareholder’s entry into the shareholder agreement and performance of its obligations under the agreement. Columbia’s aggregate indemnification of all three principal shareholders is subject to a $200,000 cap.

 

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Intermountain Voting and Non-Competition Agreements. Certain directors of Intermountain have entered into either a Voting and Non-Competition Agreement or a Voting and Non-Solicitation Agreement with Columbia and Intermountain pursuant to which such directors have agreed, until the earlier of the closing of the merger and the termination of the merger agreement in accordance with its terms, to vote their shares of Intermountain common stock in favor of approval of (i) the merger agreement and the transactions contemplated thereby; (ii) any other matter that is required to facilitate the transactions contemplated by the merger agreement; and (iii) any proposal to adjourn or postpone the Intermountain special meeting to a later date if there are not sufficient votes to approve the merger agreement. Such directors have also agreed to vote against any action or agreement submitted for approval to the shareholders of Intermountain that would (i) result in breach of any covenant, representation or warranty or any other obligation or agreement of Intermountain under the merger agreement, (ii) result in any of the conditions to the consummation of the merger under the merger agreement not being fulfilled, or (iii) impair the ability of Columbia or Intermountain to complete the merger, or that otherwise would be inconsistent with, prevent, impede or delay the consummation of the transactions contemplated by the merger agreement. The Voting and Non-Competition Agreement and the Voting and Non-Solicitation Agreement apply solely to the directors in their capacities as Intermountain shareholders, and do not prevent them from discharging their fiduciary duties with respect to their roles on the board of directors of Intermountain. As of the record date for the Intermountain special meeting, the directors who are parties to the Voting and Non-Competition Agreement and the Voting and Non-Solicitation Agreement have the right to vote, in the aggregate, 232,466 outstanding shares of Intermountain voting common stock, which represents approximately 3.5% of outstanding shares of Intermountain common stock and 8.12% of the outstanding shares of Intermountain voting common stock.

The Voting and Non-Competition Agreement and the Voting and Non-Solicitation Agreement also provide that the directors will not transfer (other than for estate planning or philanthropic purposes) the shares of Intermountain common stock that they own until the earlier of the closing of the merger and the termination of the merger agreement in accordance with its terms.

One director of Intermountain has entered into a Non-Competition and Non-Solicitation Agreement with Columbia and Intermountain. Pursuant to the Voting and Non-Competition Agreement and the Non-Competition and Non-Solicitation Agreement certain directors have agreed, subject to certain exceptions (including for passive investment interests) for a two-year period following the closing of the merger, to not, directly or indirectly, become involved in any competing business, which is defined as any depository, wealth management or trust business company or holding company thereof (including without limitation, any start-up bank or bank in formation) operating within the State of Idaho and certain counties listed within the State of Washington, subject to certain exceptions.

The Voting and Non-Competition Agreement, the Voting and Non-Solicitation Agreement and the Non-Competition and Non-Solicitation Agreement also prohibit the directors for a two-year period following the closing of the merger from (a) soliciting or attempting to solicit (i) any employees or independent contractors of the combined company to participate in a competing business, (ii) any customers, business partners or joint venturers of the combined company to transfer their business to a competing business or to reduce their business or cease conducting business with the combined company, or (iii) the termination of an employment or contractual relationship between the combined company and any employee, independent contractor, customer, business partner or joint venturer, (b) hiring any employees or (c) in any other way interfering with or disrupting the combined company’s relationship with any of its employees, independent contractors, customers, business partners or joint venturers.

Pursuant to the Voting and Non-Competition Agreement, the Voting and Non-Solicitation Agreement and the Non-Competition and Non-Solicitation Agreement, the Intermountain directors party thereto have agreed to tender their resignations form the board of directors of Intermountain, subject to and effective upon the closing of the merger.

 

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The Voting and Non-Competition Agreement, the Voting and Non-Solicitation Agreement and the Non-Competition and Non-Solicitation Agreement terminate (other than certain technical provisions and provisions relating to confidential information) automatically in the event that the merger agreement is terminated in accordance with its terms.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

The following section summarizes the anticipated material U.S. federal income tax considerations of the merger generally applicable to U.S. holders (as defined below) of Intermountain common stock. These opinions and the following discussion are based on, and subject to, the Code, the treasury regulations promulgated under the Code, existing interpretations, court decisions, and administrative rulings, all of which are in effect as of the date of this statement, and all of which are subject to change, possibly with retroactive effect. Any such change could affect the continuing validity of the discussion.

This summary only addresses the material U.S. federal income tax consequences of the merger to the Intermountain shareholders that hold Intermountain common stock as a capital asset within the meaning of Section 1221 of the Code. This summary does not address all aspects of U.S. federal income taxation that may be applicable to Intermountain shareholders in light of their particular circumstances or to Intermountain shareholders subject to special treatment under U.S. federal income tax law, such as:

 

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shareholders who are not U.S. holders;

 

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pass-through entities or investors in pass-through entities;

 

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financial institutions;

 

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insurance companies;

 

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tax-exempt organizations;

 

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brokers, banks or dealers in securities or currencies;

 

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traders in securities that elect to use a mark-to-market method of accounting;

 

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persons whose functional currency is not the U.S. dollar;

 

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persons who purchased or sell their shares of Intermountain common stock as part of a wash sale;

 

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shareholders who hold their shares of Intermountain common stock as part of a hedge, straddle, constructive sale or conversion transaction; and

 

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shareholders who acquired their shares of Intermountain common stock pursuant to the exercise of employee stock options or otherwise acquired shares as compensation or through a tax-qualified retirement plan.

In addition, the discussion does not address any alternative minimum tax or any state, local or foreign tax consequences of the merger.

U.S. Holders

For purposes of this summary, the term “U.S. holder” means a beneficial holder of Intermountain common stock that is:

 

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a citizen or resident of the U.S.;

 

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a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the U.S. or any of its political subdivisions;

 

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a trust that (i) is subject to both the primary supervision of a court within the U.S. and the control of one or more U.S. persons; or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or

 

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an estate that is subject to U.S. federal income tax on its income regardless of its source.

 

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If a partnership (including any entity or arrangement, domestic or foreign, that is treated as a partnership for U.S. federal income tax purposes) holds Intermountain common stock, the tax treatment of a partner will generally depend on the status of the partners and the activities of the partnership. Partnerships and partners in such a partnership should consult their tax advisers about the tax consequences of the merger to them.

The Merger

Columbia and Intermountain have structured the merger to qualify as a reorganization within the meaning of Section 368(a) of the Code. It is expected that Columbia will receive an opinion from Sullivan & Cromwell LLP dated the closing date, to the effect that, on the basis of the facts, representations and assumptions set forth in the opinion, the merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. In addition, in connection with the filing of the registration statement of which this document is a part, Sullivan & Cromwell LLP has delivered an opinion to Columbia to the same effect, on the basis of the facts, representations and assumptions set forth in the opinion. These opinions are not binding on the IRS or the courts, and neither Columbia nor Intermountain intends to obtain a ruling from the IRS with respect to the tax consequences of the merger. Accordingly, each Intermountain shareholder should consult its tax advisor with respect to the particular tax consequences of the merger to such holder.

Tax Implications to Intermountain’s Shareholders

The following discussion summarizes the material U.S. federal income tax consequences of the merger to U.S. holders of Intermountain common stock, assuming the merger qualifies as a reorganization within the meaning of Section 368(a) of the Code.

The tax consequences of the merger to a U.S. holder of Intermountain common stock will generally depend upon the form of consideration such U.S. holder receives in the merger.

Exchange for solely Columbia Common Stock. Pursuant to the merger agreement, upon exchanging all of your shares of Intermountain common stock for solely Columbia common stock (and cash instead of fractional shares of Columbia common stock), you will generally not recognize gain or loss, except with respect to cash received instead of fractional shares of Columbia common stock (see “Cash Instead of Fractional Shares” below).

Exchange for solely Cash. Pursuant to the merger agreement, upon exchanging all of your shares of Intermountain common stock for solely cash, you will generally recognize gain or loss equal to the difference between the amount of cash you receive and your cost basis in your Intermountain common stock. Any recognized gain will generally be long-term capital gain if, as of the effective date of the merger, your holding period with respect to the surrendered Intermountain common stock exceeds one year.

Exchange for Columbia Common Stock and Cash. Pursuant to the merger agreement, upon exchanging all of your shares of Intermountain common stock for a combination of Columbia common stock and cash, you will generally recognize gain (but not loss) in an amount equal to the lesser of: (1) the amount of cash treated as received in exchange for Intermountain common stock in the merger (excluding any cash received in lieu of fractional shares of Columbia common stock) and (2) the excess, if any, of (a) the sum of the amount of cash treated as received in exchange for Intermountain common stock in the merger (excluding any cash received in lieu of fractional shares of Columbia common stock) plus the fair market value of Columbia common stock (including the fair market value of any fractional share) received in the merger, over (b) your basis in the Intermountain common stock exchanged. If you acquired different blocks of Intermountain common stock at different times or at different prices, you should consult your individual tax advisor regarding the manner in which gain or loss should be determined.

Any recognized gain will generally be long-term capital gain if, as of the effective date of the merger, your holding period with respect to the surrendered Intermountain common stock exceeds one year. The aggregate tax basis of the Columbia common stock you receive as a result of the merger (including any fractional shares of Columbia common stock deemed received) will be the same as your aggregate tax basis in Intermountain

 

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common stock you surrender in the merger, decreased by the amount of cash you receive that is treated as received in exchange for Intermountain common stock (excluding any cash received in lieu of a fractional share of Columbia common stock) and increased by the amount of gain, if any, you recognize in the exchange (excluding any gain resulting from cash received in lieu of a fractional share of Columbia common stock). The holding period of the Columbia common stock you receive as a result of the exchange will include the holding period of Intermountain common stock you surrendered in the merger.

Cash Instead of Fractional Shares. If you receive cash in the merger instead of a fractional share interest in Columbia common stock, you will be treated as having received such fractional share in the merger, and then as having received cash in exchange for such fractional share. Gain or loss would be recognized in an amount equal to the difference between the amount of cash received and your adjusted tax basis allocable to such fractional share. Except as described in the section entitled “Dividend Treatment” below, this gain or loss will generally be a capital gain or loss, and will be long-term capital gain or loss if, as of the effective date of the merger, you have held your shares of Intermountain common stock for more than one year.

Dividend Treatment. There are certain circumstances in which all or part of the gain recognized by you will be treated as a dividend rather than as capital gains. In general, such determination depends on upon whether, and to what extent, the merger reduces your deemed percentage share ownership interest in Columbia. Because the possibility of dividend treatment depends primarily upon your particular circumstances, including the application of certain constructive ownership rules, you should consult your own tax advisor regarding the potential tax consequences of the merger to you.

Dissenting Stockholders and Appraisal Rights. If you perfect your appraisal rights with respect to your shares of Intermountain common stock you will generally recognize capital gain or loss equal to the difference between your tax basis in those shares and the amount of cash received in exchange for those shares. The tax consequences of cash received may vary depending upon your individual circumstances. Each holder of Intermountain common stock who contemplates exercising statutory appraisal rights should consult its tax advisor as to the possibility that all or a portion of the payment received pursuant to the exercise of such rights will be treated as dividend income.

Backup Withholding and Information Reporting

In general, information reporting requirements may apply to the cash payments made to a U.S. holder in connection with the merger, unless an exemption applies. Backup withholding may be imposed on the above payments if a U.S. holder (1) fails to provide a taxpayer identification number or appropriate certificates or (2) otherwise fails to comply with all applicable requirements of the backup withholding rules.

Any amounts withheld from payments to a U.S. holder under the backup withholding rules are not an additional tax and will be allowed as a refund or credit against its applicable U.S. federal income tax liability, provided the required information is furnished to the IRS. U.S. holders should consult their own tax advisors regarding the application of backup withholding based on their particular circumstances and the availability and procedure for obtaining an exemption from backup withholding.

Medicare Tax

A U.S. holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, is subject to a 3.8% tax on the lesser of (1) the U.S. holder’s “net investment income” (or “undistributed net investment income” in the case of an estate or trust) for the relevant taxable year and (2) the excess of the U.S. holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals is between $125,000 and $250,000, depending on the individual’s circumstances). A holder’s net investment income generally will include net gains recognized from the disposition of Intermountain common stock in the merger. If you are a U.S. holder that is an individual, estate or trust, you are urged to consult your tax advisors regarding the applicability of the Medicare tax to your gains in respect of any Intermountain common stock you dispose in the merger.

 

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The foregoing discussion is for general information purposes only and is not intended to be a complete analysis or description of all potential U.S. federal income tax consequences of the merger. The discussion does not address tax consequences which may vary with, or are contingent on, your individual circumstances. Moreover, the discussion does not address any non-income tax or any foreign, state or local tax consequences of the merger. Accordingly, you are strongly encouraged to consult with your own tax advisor as to the tax consequences of the merger in your particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local or foreign and other tax laws and of changes in those laws.

 

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DESCRIPTION OF COLUMBIA’S CAPITAL STOCK

Columbia’s authorized capital stock consists of 63,032,681 shares of common stock, no par value per share, and 2,000,000 shares of preferred stock, no par value per share, of which 78,898 were designated Fixed Rate Cumulative Perpetual Preferred Stock, Series A, which we refer to as Columbia Series A Preferred Stock, and 8,782 were designated as Mandatorily Convertible Cumulative Participating Preferred Stock, Series B, which we refer to as Columbia Series B Preferred Stock.

Common Stock

General. The holders of Columbia common stock have one vote per share on all matters submitted to a vote of Columbia’s shareholders. There are no cumulative voting rights for the election of directors. Holders of common stock are entitled to receive ratably such dividends as may be declared by the board of directors out of legally available funds, subject to preferences that may be applicable to any outstanding series of preferred stock. In the event of a liquidation, dissolution or winding up of Columbia, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any outstanding preferred stock. Holders of shares of Columbia common stock have no preemptive, subscription, redemption, sinking fund or conversion rights.

Dividends. The holders of Columbia common stock are entitled to receive dividends declared by Columbia’s board of directors out of funds legally available therefor. Holders of preferred stock and debt securities, however, have a priority right to distributions and payment over Columbia common stock. Columbia’s ability to pay dividends basically depends on the amount of dividends paid to us by Columbia’s subsidiaries. The payment of dividends is subject to government regulation, in that regulatory authorities may prohibit banks and bank holding companies from paying dividends in a manner that would constitute an unsafe or unsound banking practice. In addition, a bank may not pay cash dividends if doing so would reduce the amount of its capital below that necessary to meet minimum regulatory capital requirements. State laws also limit a bank’s ability to pay dividends. Accordingly, the dividend restrictions imposed on Columbia’s subsidiaries by statute or regulation effectively may limit the amount of dividends Columbia can pay.

Columbia common stock is listed for trading on The Nasdaq Global Select Market under the symbol “COLB.”

For additional information concerning Columbia’s common stock, see “Comparison of Rights of Holders of Columbia and Intermountain Common Stock” below.

Preferred Stock

Under Columbia’s amended and restated articles of incorporation, Columbia’s board of directors has the authority, without any further vote or action by Columbia’s shareholders, to issue 2,000,000 shares of preferred stock.

Series A Preferred Stock. On August 11, 2010, Columbia redeemed all 76,898 shares of its Columbia Series A Preferred Stock originally issued to the U.S. Department of Treasury on November 21, 2008 for approximately $76.9 million in capital under its Capital Purchase Program. As of the date of this proxy statement/prospectus, there are no shares of Columbia Series A Preferred Stock issued and outstanding.

Series B Preferred Stock. In connection with the acquisition of West Coast Bancorp, Columbia issued 8,782 shares of preferred stock of Columbia Series B Preferred Stock. Columbia Series B Preferred Stock is not subject to the operation of a sinking fund. Columbia Series B Preferred Stock is not redeemable by Columbia and is perpetual with no maturity. The holders of Columbia Series B Preferred Stock have no general voting rights. If Columbia declares and pays a dividend to its common shareholders, it must declare and pay to its holders of Columbia Series B Preferred Stock, on the same date, a dividend in an amount per share of the Columbia Series

 

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B Preferred Stock that is intended to provide such holders dividends in the amount they would have received if shares of Columbia Series B Preferred Stock had been converted into Columbia common stock as of that date. The outstanding shares of Columbia Series B Preferred Stock are convertible into 102,363 shares of Columbia common stock.

Authorized Shares and Liquidation Preference. The number of authorized shares of Columbia Series B Preferred Stock is 8,782. Shares of Columbia Series B Preferred Stock have no par value and the liquidation preference of the Columbia Series B Preferred Stock is $100 per share.

Ranking. The Columbia Series B Preferred Stock, with respect to dividend rights and rights on liquidation, winding-up and dissolution, rank (i) on a parity with Columbia’s other authorized series of preferred stock and with each other class or series of preferred stock, established after the date of issuance of the Columbia Series B Preferred Stock, the terms of which do not expressly provide that such class or series will rank senior or junior to the Columbia Series B Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of Columbia, and (ii) senior to Columbia common stock and each other class or series of capital stock outstanding or established after the date the Columbia Series B Preferred Stock is first issued, the terms of which expressly provide that it ranks junior to the Columbia Series B Preferred Stock as to dividend rights and/or as to rights on liquidation, winding-up and dissolution of Columbia. Columbia has the right to authorize and/or issue additional shares or classes or series of junior securities or parity securities without the consent of the holders of Columbia Series B Preferred Stock.

Dividends. Holders of Columbia Series B Preferred Stock are entitled to receive, when, as and if declared by Columbia’s board of directors, dividends in the amount determined as set forth below.

If Columbia’s board of directors declares and pays a cash dividend in respect of any shares of common stock, then Columbia’s board of directors is required to declare and pay to the holders of the Columbia Series B Preferred Stock a cash dividend in an amount per share of Columbia Series B Preferred Stock equal to the product of (i) the per share dividend declared and paid in respect of each share of common stock and (ii) the number of shares of common stock into which such share of Columbia Series B Preferred Stock is then convertible.

Restrictions on Repurchase of Junior Securities. For so long as the Columbia Series B Preferred Stock remains outstanding, subject to limited exceptions, Columbia is prohibited from paying dividends on any share of common stock or other junior securities and from redeeming, repurchasing or acquiring any shares of common stock or other junior securities if and for so long as declared dividends on the Columbia Series B Preferred Stock for the then-current dividend period have not been paid in full (or alternatively, declared and a sum sufficient for the payment thereof set aside for all outstanding shares of Columbia Series B Preferred Stock).

Rights Upon Liquidation. In the event Columbia voluntarily or involuntarily liquidates, dissolves or winds up, the holders of the Columbia Series B Preferred Stock will be entitled, for each share of the Columbia Series B Preferred Stock held, to (1) the liquidation preference per share of Columbia Series B Preferred Stock, plus any accrued but unpaid dividends, plus (2) an amount equal to the liquidation amount payable on an as-converted basis on the number of shares of common stock into which such shares of Columbia Series B Preferred Stock could have been converted on a date at least ten business days before the first liquidating distribution is made on the Columbia Series B Preferred Stock.

In the event the assets of Columbia available for distribution to shareholders upon any liquidation, dissolution or winding-up of the affairs of Columbia, whether voluntary or involuntary, are insufficient to pay in full the amounts payable with respect to all outstanding shares of the Columbia Series B Preferred Stock and the corresponding amounts payable on any parity securities, holders of Columbia Series B Preferred Stock and the holders of parity securities will share ratably in any distribution of assets of Columbia in proportion to the full respective liquidating distributions to which they would otherwise be respectively entitled.

 

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Redemption. The Columbia Series B Preferred Stock is not redeemable.

Mandatory Conversion. Each share of Columbia Series B Preferred Stock mandatorily converts into shares of Columbia common stock upon the completion of the transfer of that share to a third party in (1) a widespread public distribution, (2) a transfer in which no transferee (or group of associated transferees) would receive more than 2% of any class of voting securities of Columbia or (3) a transfer to a transferee that would control more than 50% of the voting securities of Columbia without any transfer from the holder. To the extent that conversion of the Columbia Series B Preferred Stock would cause the holder to be subject to the receipt of required regulatory approvals, delivery of Columbia common stock would be delayed until any required regulatory approvals are obtained.

The number of shares of Columbia common stock into which a share of Columbia Series B Preferred Stock will be convertible will be determined by dividing the base value by the then applicable conversion price. No fractional shares of common stock will be issued. Upon conversion, cash will be paid in lieu of fractional shares based on the closing price of the common stock determined as of the second trading day immediately preceding the date of the mandatory conversion. The initial conversion price of the Columbia Series B Preferred Stock per share of common stock into which it is converted is equal to the quotient obtained by dividing $10.00 by the exchange ratio (as defined in the section entitled “The Merger—Terms of the Merger”), and the initial number of shares of Columbia common stock into which one share of Columbia Series B Preferred Stock is convertible is equal to the product obtained by multiplying 10 by the exchange ratio.

Anti-Dilution Provision. The conversion price of the Columbia Series B Preferred Stock is also subject to customary anti-dilution adjustments, which will be made (subject to certain exceptions) in the event that we take certain actions, such as:

 

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pay dividends or other distributions on Columbia common stock in shares of common stock;

 

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subdivide, split or combine the shares of Columbia common stock;

 

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subject to certain exceptions and limitations, issue to holders of Columbia common stock rights or warrants entitling them to purchase Columbia common stock at less than the then-current market price;

 

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distribute to holders of Columbia common stock indebtedness, shares of capital stock, securities, cash or other assets (other than cash dividends and certain other transactions);

 

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make a cash distribution to holders of Columbia common stock, other than (1) cash dividends to the extent a corresponding dividend is paid on the Columbia Series B Preferred Stock, (2) cash distributed in a reorganization event or spin-off, (3) upon liquidation, dissolution or winding-up and (4) in connection with a tender or exchange offer by us; and

 

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complete a tender or exchange offer for Columbia common stock where the consideration exceeds the closing price (as defined in the articles of amendment for the Columbia Series B Preferred Stock) per share of Columbia common stock.

Reorganization Events. If Columbia enters into a transaction constituting a consolidation or merger of Columbia or similar transaction or any sale or other transfer of all or substantially all of the consolidated assets of Columbia and its subsidiaries, taken as a whole (in each case pursuant to which Columbia common stock will be converted into cash, securities or other property) or for certain reclassifications or exchanges of Columbia common stock, then each holder of Columbia Series B Preferred Stock will have the right to convert such Preferred Stock, effective on the date such transaction is consummated (or, if later, the date applicable regulatory approvals are obtained), into the securities, cash and other property receivable in the transaction by the holder of the number of shares of common stock into which such Columbia Series B Preferred Stock would then be convertible, assuming receipt of any applicable regulatory approval.

Voting Rights. Except as set forth below, holders of the Columbia Series B Preferred Stock will not have any voting rights.

 

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So long as any shares of Columbia Series B Preferred Stock are outstanding, in addition to any other vote or consent of shareholders required by law or by Columbia’s amended and restated articles of incorporation, the vote or consent of the holders of three-quarters of the outstanding shares of Columbia Series B Preferred Stock voting as a single class with all other classes and series of parity stock having similar voting rights then outstanding, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, will be necessary for (1) any amendment of Columbia’s amended and restated articles of incorporation to authorize, or increase the authorized amount of, any shares of any class or series of capital stock ranking senior to the Columbia Series B Preferred Stock with respect to the payment of dividends or the distribution of assets on Columbia’s liquidation, (2) any amendment, alteration or repeal (including by means of a merger, consolidation or otherwise) of any provision of Columbia’s amended and restated articles of incorporation or Columbia’s amended and restated bylaws that would alter or change the rights, preferences or privileges of the Columbia Series B Preferred Stock so as to affect them significantly and adversely or (3) the consummation of a binding share exchange or reclassification involving the Columbia Series B Preferred Stock or a merger or consolidation of Columbia with another entity, except that holders will have no right to vote under this provision if Columbia has complied with certain requirements with respect to such transaction.

The Columbia board of directors is authorized, without further shareholder action, to issue preferred stock shares with such designations, preferences and rights as the Columbia board of directors may determine.

 

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COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF COLUMBIA AND INTERMOUNTAIN COMMON STOCK

General

Intermountain is incorporated under the laws of the State of Idaho and the rights of Intermountain shareholders are governed by the laws of the State of Idaho, Intermountain’s amended and restated articles of incorporation and Intermountain’s amended and restated bylaws. As a result of the merger, Intermountain shareholders who receive shares of Columbia common stock will become Columbia shareholders. Columbia is incorporated under the laws of the State of Washington and the rights of Columbia shareholders are governed by the laws of the State of Washington, Columbia’s amended and restated articles of incorporation and Columbia’s amended and restated bylaws. Thus, following the merger, the rights of Intermountain shareholders who become Columbia shareholders in the merger will no longer be governed by the laws of the State of Idaho, Intermountain’s amended and restated articles of incorporation and Intermountain’s amended and restated bylaws and instead will be governed by the laws of the State of Washington, as well as by Columbia’s amended and restated articles of incorporation and amended and restated bylaws.

Comparison of Shareholders’ Rights

Set forth below is a summary comparison of material differences between the rights of Columbia shareholders under the Columbia amended and restated articles of incorporation and amended and restated bylaws, and Washington law (right column), and the rights of Intermountain shareholders under Intermountain’s amended and restated articles of incorporation and amended and restated bylaws, and Idaho law (left column). The summary set forth below is not intended to provide a comprehensive discussion of each company’s governing documents. This summary is qualified in its entirety by reference to the full text of Columbia’s amended and restated articles of incorporation and amended and restated bylaws, Intermountain’s amended and restated articles of incorporation and amended and restated bylaws, the Idaho Business Corporations Act, which we refer to as the IBCA, and the Washington Business Corporation Act, which we refer to as the WBCA.

 

Intermountain		Columbia
Authorized Capital Stock
Intermountain’s amended and restated articles of incorporation authorize Intermountain to issue up to 30,000,000 shares of voting common stock, no par value per share, 10,000,000 shares of non-voting common stock, no par value, and 1,000,000 shares of preferred stock, no par value. As of Intermountain’s record date, there were [—] shares of Intermountain voting common stock, [—] shares of Intermountain non-voting common stock, a TARP warrant to purchase [—] shares of Intermountain common stock, warrants to purchase a total of 170,000 shares of Intermountain common stock issued to certain principal shareholders, and no shares of preferred stock outstanding.		Columbia’s amended and restated articles of incorporation authorize Columbia to issue 63,032,681 shares of common stock, no par value per share, and 2,000,000 shares of preferred stock, no par value per share. As of the Columbia record date, there were [—] shares of Columbia common stock outstanding and [—] shares of Columbia Series B Preferred Stock outstanding.
Voting Rights
Intermountain’s amended and restated articles of incorporation provide that each holder of voting common stock will be entitled one vote for each share of voting common stock held of record by such holder on all matters on which shareholders are generally entitled		Columbia’s amended and restated bylaws provide that each holder of common stock will be entitled one vote for each share of common stock held of record by such holder on all matters on which shareholders are generally entitled to vote.

 

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Intermountain		Columbia
to vote. However, except as otherwise provided by law, holders of voting common stock will not be entitled to vote on any amendment to the amended and restated articles of incorporation that relates solely to the terms of one or more outstanding series of preferred stock if the holders of the affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the amended and restated articles of incorporation or under the IBCA.   Intermountain’s amended and restated articles of incorporation provide that the holders of non-voting common stock will have no voting power and will not be entitled to vote on any matter except as otherwise required by law or as otherwise expressly provided by Intermountain’s amended and restated articles of incorporation.		Columbia’s amended and restated articles of incorporation provide that the holders of Columbia Series B Preferred Stock have no general voting rights and will not be entitled to vote on any matter except as otherwise required by law or as otherwise expressly provided by Columbia’s amended and restated articles of incorporation.
Number of Directors
Intermountain’s amended and restated articles of incorporation provide that the number of directors will not be fewer than five (5) or more than fifteen (15), with the exact number to be fixed by resolution of the board of directors. Intermountain’s board of directors currently has ten (10) directors.		Columbia’s amended and restated bylaws provide that the number of directors will not be fewer than five (5) or more than seventeen (17), with the exact number to be fixed by resolution of the board of directors. Columbia’s board of directors currently has eleven (11) directors.
Removal of Directors
Intermountain’s amended and restated articles of incorporation provide that shareholders may remove a director from office only for cause, at a special meeting called for the purpose of removing the director. Cause is defined as (1) receipt of a financial benefit to which a director is not entitled, (2) an intentional infliction of harm to Intermountain or its shareholders, (3) a violation of § 30-1-833 of the Idaho Code relating to unlawful distributions or (4) an intentional violation of criminal law.		Under the WBCA, a director may be removed from office with or without cause if the number of votes cast to remove the director exceeds the number cast not to remove the director at a special meeting called for the purpose of removing the director.
Filling Vacancies on the Board of Directors
Pursuant to Intermountain’s amended and restated articles of incorporation any vacancy occurring on the board may be filled only by the affirmative vote of a majority of the remaining directors whether or not less than a quorum of the board.		Columbia’s amended and restated bylaws provide that any vacancy occurring on the board may be filled by the affirmative vote of a majority of the remaining directors whether or not less than a quorum. If the vacant office was held by a director elected by holders of one or more authorized classes or series of shares, only the holders of those classes or series of shares are entitled to vote to fill the vacancy

 

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Intermountain		Columbia
Shareholder Proposals and Nominations
Intermountain’s amended and restated bylaws establish an advance notice procedure for shareholders to make nominations of candidates for election as directors, or to bring other business before an annual meeting of shareholders. Only persons who are nominated by, or at the direction of, Intermountain’s board of directors, or by a shareholder who has given timely written notice to the corporate secretary prior to the meeting at which directors are to be elected, are eligible for election as directors of Intermountain. The business to be conducted at an annual meeting is limited to business brought before the meeting by, or at the direction of, the Intermountain board of directors or by a shareholder who has given timely written notice to the secretary of his or her intention to bring such business before such meeting.   Notice of a shareholder nomination or other business to be brought before an annual meeting will be timely only if it is delivered to Intermountain not less than one hundred twenty (120) days in advance of the first anniversary of the date Intermountain’s proxy statement was mailed to shareholders for the preceding year’s annual meeting.   A shareholder’s notice proposing to nominate a person for election as a director must contain specified information, including, without limitation:   •    the identity and address of the nominating shareholder;   •    the class and number of shares of Intermountain which are owned beneficially by the nominating shareholder;   •    the identity, age, and address of each person to be nominated;   •    the principal occupation or employment of the person to be nominated;   •    the class and number of shares of Intermountain which are beneficially owned by the person to be nominated;   •    a description of all arrangements or understandings between such shareholder and each proposed nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by such shareholder; and		Columbia’s amended and restated bylaws provide for an advance notice procedure for shareholders to make nominations of candidates for election as directors, or to bring other business before an annual meeting of shareholders. Only persons who are nominated by, or at the direction of, Columbia’s board of directors, or by a shareholder who has given timely written notice to the corporate secretary prior to the meeting at which directors are to be elected, are eligible for election as directors of Columbia. The business to be conducted at an annual meeting is limited to business brought before the meeting by, or at the direction of, the Columbia board of directors or by a shareholder who has given timely written notice to the secretary of his or her intention to bring such business before such meeting.   Notice of a shareholder nomination or other business to be brought before an annual meeting will be timely only if it is delivered to Columbia no earlier than the 150th day and no later than the 120th day prior to the first anniversary of the preceding annual meeting, provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice must be delivered not earlier than the close of business on the 150th day prior to the date of such annual meeting and not later than the close of business on the later of the 120th day prior to the date of such annual meeting or, if the first public announcement of the date of such annual meeting is less than one hundred (100) days prior to the date of such annual meeting, within ten (10) days after the first public disclosure of the date of the annual meeting.   •    the identity and address of the nominating shareholder;   •    the identity and address of each person to be nominated;   •    a representation that such shareholder is a holder of record of shares of Columbia entitled to vote at such meeting and intends to appear at the meeting in person or by proxy to nominate the person or persons specified in the notice as directors;   •    a description of all arrangements or understandings between such shareholder and

 

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Intermountain		Columbia
•    such other information regarding the proposed nominee that would be required to be included in a proxy statement soliciting proxies for the proposed nominee.   A shareholder’s notice relating to the conduct of business other than the nomination of directors must contain specified information about that business and about the proposing shareholder, including, without limitation:   •    a brief description of the business the shareholder proposes to bring before the meeting;   •    the name and address of the shareholder;   •    the class and number of shares of Intermountain which are owned beneficially by the shareholder;   •    any material interest of the shareholder in the business so proposed; and   •    such other information that would be required to be included in a proxy statement soliciting proxies for the proposal.		each proposed nominee and any other person or persons pursuant to which the nomination or nominations are to be made by such shareholder;   •    description of ownership of shares and derivative securities and any transactions related to such shares and derivative securities;   •    such other information regarding the proposed nominee that would be required to be included in a proxy statement soliciting proxies for the proposed nominee;   •    a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made; and   •    the consent of each proposed nominee to serve as a director of the corporation if so elected.   A shareholder’s notice relating to the conduct of business other than the nomination of directors must contain specified information about that business and about the proposing shareholder, including, without limitation:   •    a brief description of the business the shareholder proposes to bring before the meeting;   •    the name and address of the shareholder;   •    description of ownership of shares and derivative securities and any transactions related to such shares and derivative securities; and   •    any material interest of the shareholder in the business so proposed.
Voting Rights in an Extraordinary Transaction
Intermountain’s amended and restated articles of incorporation impose heightened shareholder approval requirements for merger or share exchanges that would result in a change in control of Intermountain requiring the affirmative vote of 66 2/3% of shares entitled to be voted. This provision of the amended and restated articles of incorporation may not be amended or repealed unless such amendment or repeal receives the affirmative vote of 66 2/3% of all classes of stock entitled to vote.		In accordance with the WBCA, Columbia’s amended and restated articles of incorporation impose heightened shareholder requirements for certain Business Combinations (as defined in the amended and restated articles of incorporation). These provisions are described below under “Anti-Takeover Provisions and Other Shareholder Protections.”

 

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Intermountain		Columbia
Anti-Takeover Provisions and Other Shareholder Protections
The Idaho Control Share Act, which we refer to as the ICSA, codified in 30-1601 to 30-1614 of the IBCA, regulates the process by which a person may acquire control of certain Idaho-based corporations without the consent and cooperation of the board of directors.   The ICSA provisions restrict a shareholder’s ability to vote shares of stock acquired in certain transactions that cause the acquiring person to gain control of a voting position exceeding one-fifth, one-third or one-half of the votes entitled to be vast in an election of directors. Shares acquired in a control share acquisition have no voting rights except as authorized by a resolution of shareholders approved by the affirmative vote of the holders of 66 2/3% of the voting power of all shares entitled to vote excluding all interested shares.   Except under certain circumstances, the Idaho Business Combination Act, codified at 30-1701 to 30-1710 of the IBCA, also prohibits a “business combination” (defined broadly to include mergers or consolidations, certain sales, sales of assets, liquidation or dissolution, and other specified transactions) between a corporation and an “interested shareholder” (defined generally as a person or group that beneficially owns, directly or indirectly, 10% or more of the outstanding voting stock) within three (3) years of the shareholder becoming an interested shareholder.   A business combination between a corporation and an interested shareholder is prohibited unless (i) prior to the date the person became an interested shareholder, the board of directors approved either the business combination or the transaction which resulted in the person becoming an interested shareholder, (ii) the business combination is approved by the affirmative vote of at least 66 2/3% of the outstanding voting stock not owned by the interested shareholder no earlier than three (3) years after the interested shareholder’s share acquisition date or (iii) the business combination meets certain conditions including that the consideration meet certain criteria as to amount and form and the business combination is consummated no earlier than three (3) years after the interested shareholder’s share acquisition date.   Intermountain’s amended and restated articles of incorporation allow the Intermountain board of directors to consider non-monetary factors in evaluating certain takeover bids. Specifically, the amended and restated		Washington law prohibits corporations that have a class of voting stock registered under the Securities Exchange Act of 1934, such as Columbia, from engaging in any “Significant Business Transaction” (defined to include mergers or consolidations, certain sales, termination of 5% or more of a corporation’s employees, sales of assets, liquidation or dissolution, and other specified transactions) with a person or group that beneficially owns 10% or more of a corporation’s outstanding voting stock, which we refer to as an acquiring person, for a period of five (5) years after such person or group becomes an acquiring person, unless the Significant Business Transaction or the acquisition by which such person became an acquiring person is approved prior to the time the person became an acquiring person by a majority vote of the board of directors, or the Significant Business Combination is approved by a majority vote of the board of directors and approved at an annual or special meeting of shareholders by the affirmative vote of at least two-thirds (2/3) of the outstanding voting shares (excluding shares beneficially owned by or under the voting control of the acquiring person).   Columbia’s amended and restated articles of incorporation include certain provisions that could make more difficult the acquisition of Columbia by means of a tender offer, a proxy contest, merger or otherwise. These provisions include: (i) certain non-monetary factors that the Columbia board of directors may consider when evaluating a takeover offer, and (ii) a requirement that any “Business Combination” (as defined in the amended and restated articles of incorporation) be approved by the affirmative vote of not less than 66 2/3% of the total shares attributable to persons other than a “Control Person” (as defined in the amended and restated articles of incorporation), unless certain conditions are met, including that a majority of the Continuing Directors (as defined in the amended and restated articles of incorporation) has approved the transaction or certain other conditions concerning (among other things) non-discrimination among shareholders and receipt of fair value are satisfied.   In addition, the authorization of preferred stock, which is intended primarily as a financing tool and not as a defensive measure against takeovers, may

 

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Intermountain		Columbia
articles of incorporation allow the board of directors, in determining what is in the best interests of Intermountain and its shareholders, to consider social, legal and economic effects on employees, customers and suppliers of Intermountain and its subsidiaries, and on the communities and geographical areas in which Intermountain and its subsidiaries operate, the economy of the state and the nation, the long-term as well as short-term interests of Intermountain and its shareholders, including the possibility that these interests may be best served by the continued independence of Intermountain and other relevant facts.		potentially be used by management to make more difficult uninvited attempts to acquire control of Columbia (for example, by diluting the ownership interest of a substantial shareholder, increasing the amount of consideration necessary for a shareholder to obtain control, or selling authorized but unissued shares to friendly third parties).   Columbia’s amended and restated articles of incorporation allow the Columbia board of directors to consider non-monetary factors in evaluating certain takeover bids. Specifically, the amended and restated articles of incorporation allow the board of directors, in determining what is in the best interests of Columbia and its shareholders, to consider all relevant factors, including the social and economic effects on its employees, customers, suppliers and other constituents of Columbia and its subsidiaries and on the communities in which Columbia and its subsidiaries operate or are located.   The matters described above may have the effect of increasing the amount of time required for a person to acquire control of Columbia through a tender offer, proxy contest, or otherwise, and may deter any potentially unfriendly offers or other efforts to obtain control of Columbia. This could deprive Columbia’s shareholders of opportunities to realize a premium for their Columbia stock, even in circumstances where such action was favored by a majority of Columbia shareholders.
Indemnification of Directors and Officers
Under Idaho law, a corporation must indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he or she was a party because he or she was a director of the corporation against reasonable expenses incurred by him or her in connection with the proceeding.   Under Idaho law, a corporation may indemnify a director if he or she conducted himself in good faith and reasonably believed (a) in the case of conduct in his official capacity, that his or her conduct was in the best interests of the corporation, and (b) in all cases, that his or her conduct was at least not opposed to the best interests of the corporation, and in the case of any criminal proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful, or he or she engaged in conduct for which broader indemnification has been made permissible or obligatory under a provision of the articles of incorporation		Under the WBCA, a corporation may indemnify a director for (i) actions taken in good faith; and (ii) when acting in the director’s capacity as a director, actions that the individual reasonably believed to be in the best interests of the corporation, and in all other cases, actions that the director reasonably believed were at least not opposed to the corporation’s best interests. In the case of a criminal proceeding, the individual must not have had any reasonable cause to believe the conduct was unlawful. A director may not be indemnified in connection with a proceeding by or in the right of the corporation in which the director was found liable to the corporation, or a proceeding in which the director was found to have improperly received a personal benefit. Washington law provides for mandatory indemnification of directors for reasonable expenses incurred when the indemnified party is wholly

 

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Intermountain		Columbia
Intermountain’s amended and restated articles of incorporation provide that Intermountain must indemnify each of its directors and officers to the fullest extent permissible under the IBCA, provided, however, no that Intermountain will not indemnify any director from or on account of (1) receipt of a financial benefit to which he or she is not entitled, (2) an intentional infliction of harm on Intermountain or its shareholders, (3) a violation of § 30-1-833 of the Idaho Code relating to unlawful distributions or (4) an intentional violation of criminal law.   Intermountain’s amended and restated articles of incorporation provide that Intermountain may, but is not be required to, pay for or reimburse the reasonable expenses incurred by a director or officer who is a party to a proceeding in advance of the final disposition of the proceeding to the fullest extent permitted by the IBCA.		successful in the defense of the proceeding. A corporation may indemnify officers to the same extent as directors.   Columbia’s amended and restated articles of incorporation provide, among other things, for the indemnification of directors, and authorize the board of directors to pay reasonable expenses incurred by, or satisfy a judgment or fine against, a current or former director in connection with any legal liability incurred by the individual while acting for Columbia within the scope of his or her employment and which was not the result of conduct finally adjudged to be “egregious” conduct. “Egregious” conduct is defined to include intentional misconduct, a knowing violation of law or participation in any transaction from which the person will receive a benefit in money, property or services to which that person is not legally entitled.   Columbia’s amended and restated articles of incorporation also include a provision that limits the liability of directors from any personal liability to Columbia or its shareholders for conduct not to have been found egregious.
Amendments to Articles of Incorporation and Bylaws
Under the IBCA, the articles of incorporation of Intermountain may be amended if the proposed amendment is adopted by the board of directors and approved upon the affirmative vote of at least a majority of the votes entitled to be cast on the amendment. The provisions of Intermountain’s amended and restated articles of incorporation impose heightened shareholder approval requirements for merger or share exchanges that would result in a change in control of Intermountain requiring an affirmative vote of 66 2/3% of shares entitled to be voted. This provision of the amended and restated articles of incorporation may not be amended or repealed unless such amendment or repeal receives the affirmative vote of 66 2/3% of all classes of stock entitled to vote. The Intermountain board of directors may make certain amendments, as listed in the IBCA, to the articles of incorporation without shareholder approval, unless specifically prohibited by the articles of incorporation. Intermountain’s amended and restated articles of incorporation permit amendments to the articles of incorporation by the board of directors to the extent permitted by law.   Under the IBCA, a corporation’s board of directors may amend or repeal the corporation’s bylaws unless the		Under the WBCA, the articles of incorporation of Columbia, as a “public” company, may be amended if (subject to certain exceptions if the board of directors determines that it has a conflict of interest) the amendment is recommended by the board of directors to the shareholders and approved upon the affirmative vote of the holders of a majority of Columbia’s outstanding voting stock. The provisions of Columbia’s amended and restated articles of incorporation relating to Business Combinations (as defined in the articles of incorporation) may not be amended or repealed without the affirmative vote of 66 2/3% of Columbia’s outstanding voting stock (excluding any shares owned by a Control Person). The Columbia board of directors may make certain amendments, as listed in the WBCA, to the articles of incorporation without shareholder approval.   Under the WBCA, a corporation’s board of directors may amend or repeal the corporation’s bylaws unless the corporation’s articles of incorporation or Washington law reserves the power to amend the bylaws exclusively to the shareholders in whole or in part, or the shareholders, in amending or repealing a particular bylaw, provide expressly that the board of

 

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Intermountain		Columbia
corporation’s articles of incorporation or Idaho law reserves the power to amend the bylaws exclusively to the shareholders in whole or in part, or the shareholders, in amending or repealing a particular bylaw, provide expressly that the board of directors may not amend or repeal that bylaw. A corporation’s shareholders may also amend or repeal the bylaws. Intermountain’s amended and restated bylaws provide that the board of directors may amend Intermountain’s bylaws.		directors may not amend or repeal that bylaw. A corporation’s shareholders may also amend or repeal the bylaws. Columbia’s amended and restated bylaws provide that the board of directors may, by a majority vote of the whole board of directors, amend Columbia’s bylaws.
Dissenters’ Rights
Under Idaho law, a shareholder is entitled to appraisal rights and to obtain payment of the fair value of the shareholder’s shares in the event of any of the following corporate acts: (i) consummation of a merger to which the corporation is a party if shareholder approval is required for the merger by the Idaho Code and the shareholder is entitled to vote on the merger, except that appraisal rights will not be available to any shareholder of the corporation with respect to shares of any class or series that remain outstanding after consummation of the merger, or if the corporation is a subsidiary that is merged with its parent; (ii) consummation of a 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 exchange, except that appraisal rights will not be available to any shareholder of the corporation with respect to any class or series of shares of the corporation that is not exchanged; (iii) consummation of a disposition 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 disposition; (iv) an amendment to the articles of incorporation with respect to a class or series of shares that reduces the number of shares of a class or series owned by the shareholder to a fraction of a share if the corporation has the obligation or right to repurchase the fractional share so created; or (v) any other amendment to the articles of incorporation, merger, share exchange or disposition of assets to the extent provided by the articles of incorporation, bylaws or a resolution of the board of directors.   Appraisal rights are not available for the holders of shares of any class or series of shares which (a) are listed on the New York stock exchange or the American stock exchange or designated as a national market system security on an interdealer quotation system by the financial industry regulatory authority; or (b) are not so listed or designated, but have at least two thousand		Under Washington law, a shareholder is entitled to dissent from, and obtain payment of the fair value of the shareholder’s shares only in the event of, any of the following corporate acts: (i) consummation of a plan of merger to which the corporation is a party if shareholder approval is required and the shareholder is entitled to vote on the merger or if the corporation is a subsidiary that is merged with its parent; (ii) 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; (iii) 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, unless the sale is pursuant to a court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds will be distributed to shareholders within one year; (iv) an amendment of the articles of incorporation if the amendment effects the redemption or cancellation of all of the shareholder’s shares in exchange for cash or other consideration other than shares of the corporation; or (v) 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.

 

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(2,000) shareholders and the outstanding shares of such class or series have a market value of at least twenty million dollars ($20,000,000), exclusive of the value of such shares held by its subsidiaries, senior executives, directors and beneficial shareholders owning more than ten percent (10%) of such shares.

 

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INFORMATION CONCERNING COLUMBIA

General

Headquartered in Tacoma, Washington, Columbia is the holding company of Columbia State Bank, a Washington state-chartered full service commercial bank. As of June 30, 2014, Columbia had 139 branches, including 64 branches in western Washington, 15 branches in eastern Washington, 50 branches in western Oregon, and 9 branches in eastern Oregon. At June 30, 2014, Columbia had total assets of approximately $7.3 billion, total net loans of approximately $4.6 billion, total deposits of approximately $6.0 billion, and approximately $1.1 billion in shareholders’ equity.

Columbia’s principal office is located at 1301 “A” Street, Tacoma, Washington 98402, and its telephone number at that location is (253) 305-1900. Columbia’s internet address is www.columbiabank.com. Additional information about Columbia is included in documents incorporated by reference in this document. See “Where You Can Find More Information” and “Documents Incorporated by Reference.”

Columbia’s goal is to continue to be a leading Pacific Northwest regional community banking company while consistently increasing shareholder value. Its business strategy is to provide customers with the financial sophistication and product depth of a regional banking company while retaining the appeal and service level of a community bank. Columbia continually evaluates its existing business processes while focusing on maintaining asset quality through diverse loan and investment portfolios, building on its strong core deposit base, expanding total revenue and controlling expenses in an effort to improve its operating leverage resulting in improved return on average equity. Columbia believes that, as a result of its strong commitment to highly personalized, relationship-oriented customer service, its varied products, strategic branch locations and the long-standing community presence of its managers, banking officers and branch personnel, it is well positioned to attract and retain new customers and to increase its market share of loans, deposits and other financial services. Columbia is committed to increasing market share in the communities it serves by continuing to leverage its existing branch network and considering business combinations that are consistent with its expansion strategy throughout the Pacific Northwest. Columbia has grown its franchise over the past decade through a combination of acquisitions and organic growth.

Columbia’s stock is traded on the Nasdaq Global Select Market under the symbol “COLB.”

Financial and other information relating to Columbia is set forth in its Annual Report on Form 10-K for the year ended December 31, 2013, and its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2014, and June 30, 2014. Information regarding the names, ages, positions, and business backgrounds of the executive officers and directors of Columbia, as well as additional information, including executive compensation, and certain relationships and related person transactions, is set forth in or incorporated by reference in Columbia’s 10-K and in its proxy statement for its 2014 annual meeting of shareholders. See “Documents Incorporated by Reference.”

 

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INTERMOUNTAIN SPECIAL SHAREHOLDERS’ MEETING

General

The Intermountain board of directors is using this document to solicit proxies from the holders of shares of Intermountain common stock for use at the Intermountain special meeting.

Together with this document, Intermountain is also sending you a notice of the special meeting and a form of proxy that is solicited by the Intermountain board of directors. The Intermountain special meeting will be held at 414 Church Street, Sandpoint, Idaho 83864 at [—], Pacific Time, on [—], 2014. On or about [—], 2014, Intermountain commenced mailing this document and the enclosed form of proxy to its shareholders entitled to vote at the Intermountain special meeting.

Purpose of Intermountain Special Meeting

At the Intermountain special meeting, Intermountain shareholders will be asked to:

 

•

approve the merger agreement, a copy of which is attached as Appendix A to this document, which is referred to as the Merger proposal;

 

•

approve, on a non-binding, advisory basis, the compensation to be paid to Intermountain’s named executive officers that is based on or otherwise relates to the merger, discussed under the section entitled “The Merger—Interests of Intermountain’s Directors and Executive Officers in the Merger” beginning on page [—], which is referred to as the Merger-Related Named Executive Officer Compensation proposal; and

 

•

approve one or more adjournments of the Intermountain special meeting, if necessary or appropriate, including adjournments to permit further solicitation of proxies in favor of the Merger proposal, which is referred to as the Adjournment proposal.

Recommendation of the Intermountain Board of Directors

The Intermountain board of directors recommends that you vote “FOR” the Merger proposal, “FOR” the Merger-Related Named Executive Officer Compensation proposal and “FOR” the Adjournment proposal. See “The Merger—Recommendation of the Intermountain Board of Directors and Reasons for the Merger” on page [—].

Intermountain Record Date and Quorum

The Intermountain board of directors has fixed the close of business on [—], 2014 as the record date for determining the holders of Intermountain stock entitled to receive notice of and to vote at the Intermountain special meeting.

As of the Intermountain record date, there were [—] shares of Intermountain common stock outstanding and entitled to vote at the Intermountain special meeting held by [—] holders of record. Each share of Intermountain common stock entitles the holder to one vote at the Intermountain special meeting on each proposal to be considered at the Intermountain special meeting.

Certain of the directors and principal shareholders of Intermountain have agreed to vote all of their shares of Intermountain common stock in favor of approval of the merger agreement. A total of 4,307,836, or 64.29%, of the outstanding shares of Intermountain common stock entitled to vote at the special meeting are covered by such voting agreements, which shares consist of 877,969, or 30.69% shares of the outstanding shares of Intermountain voting common stock, and 3,429,867 or 89.33%, of the outstanding shares of Intermountain non-voting common stock. See “The Merger Agreement—Related Agreements.” [As of the record date, Columbia beneficially held [—] shares of Intermountain common stock.]

 

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The representation (in person or by proxy) of holders of at least a majority of the votes entitled to be cast on each of the matters to be voted on at the Intermountain special meeting constitutes a quorum for action on that matter at the Intermountain special meeting. All shares of Intermountain common stock present in person or represented by proxy, including abstentions and broker non-votes, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the Intermountain special meeting.

Required Vote

Required Vote to Approve the Merger Proposal

The affirmative vote of (a) two-thirds (2/3) of all the votes entitled to be cast by the holders of outstanding voting common stock and non-voting common stock considered together and (ii) a majority of votes cast by each of the voting common stock and non-voting common stock considered separately, is required to approve the Merger proposal.

Required Vote to Approve the Merger-Related Named Executive Officer Compensation Proposal

The Merger-Related Named Executive Officer Compensation proposal will be approved if the votes cast in favor of the proposal exceed the votes cast against it.

Required Vote to Approve the Adjournment Proposal

The Adjournment Proposal will be approved if the votes cast in favor of the proposal exceed the votes cast against it.

Treatment of Abstentions; Failure to Vote

For purposes of the Intermountain special meeting, an abstention occurs when an Intermountain shareholder attends the Intermountain special meeting, either in person or by proxy, but abstains from voting.

For the Merger proposal, an abstention or a failure to vote will have the same effect as a vote cast “AGAINST” this proposal.

For the Merger-Related Named Executive Officer Compensation proposal, an abstention or a failure to vote will have no effect on the outcome of the vote on this proposal.

For the Adjournment proposal, an abstention or a failure to vote will have the same effect as a vote cast “AGAINST” this proposal.

Voting on Proxies; Incomplete Proxies

Giving a proxy means that an Intermountain shareholder authorizes the persons named in the enclosed proxy card to vote its shares at the Intermountain special meeting in the manner it directs. An Intermountain shareholder may vote by proxy or in person at the Intermountain special meeting. If you hold your shares of Intermountain common stock in your name as a shareholder of record, to submit a proxy, you, as an Intermountain shareholder, may use one of the following methods:

 

•

By telephone: Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week by calling [—]. Have your proxy card handy when you call and follow the instructions.

 

•

Through the Internet: Use the Internet to vote your proxy 24 hours a day, 7 days a week at [—]. Have your proxy card handy when you access the website and follow the instructions.

 

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By mail: Complete and return the proxy card in the enclosed envelope. The envelope requires no additional postage if mailed in the United States.

 

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Intermountain requests that Intermountain shareholders vote by telephone, over the Internet or by completing and signing the accompanying proxy and returning it to Intermountain as soon as possible in the enclosed postage-paid envelope. When the accompanying proxy is returned properly executed, the shares of Intermountain stock represented by it will be voted at the Intermountain special meeting in accordance with the instructions contained on the proxy card.

If any proxy is returned without indication as to how to vote, the shares of Intermountain common stock represented by the proxy will be voted as recommended by the Intermountain board of directors. Unless an Intermountain shareholder checks the box on its proxy card to withhold discretionary authority, the proxyholders may use their discretion to vote on other matters relating to the Intermountain special meeting.

If an Intermountain shareholder’s shares are held in “street name” by a broker, bank or other nominee, the shareholder should check the voting form used by that firm to determine whether it may vote by telephone or the Internet.

Every Intermountain shareholder’s vote is important. Accordingly, each Intermountain shareholder should sign, date and return the enclosed proxy card, or vote via the Internet or by telephone, whether or not the Intermountain shareholder plans to attend the Intermountain special meeting in person.

Shares Held in Street Name

If you are an Intermountain shareholder and your shares are held in “street name” through a broker, bank or other holder of record, you must provide the record holder of your shares with instructions on how to vote the shares. Please follow the voting instructions provided by the bank or broker. You may not vote shares held in street name by returning a proxy card directly to Intermountain or by voting in person at the Intermountain special meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or other nominee. Further, brokers, banks or other nominees who hold shares of Intermountain common stock on behalf of their customers may not give a proxy to Intermountain to vote those shares with respect to any of the proposals without specific instructions from their customers, as brokers, banks and other nominees do not have discretionary voting power on these matters. Therefore, if you are an Intermountain shareholder and you do not instruct your broker, bank or other nominee on how to vote your shares:

 

•

your broker, bank or other nominee may not vote your shares on the Merger proposal, which broker non-votes will have the same effect as a vote “AGAINST” this proposal;

 

•

your broker, bank or other nominee may not vote your shares on the Merger-Related Named Executive Officer Compensation proposal, which broker non-votes will have no effect on the vote count for this proposal; and

 

•

your broker, bank or other nominee may not vote your shares on the Adjournment proposal, which broker non-votes will have the same effect as a vote cast “AGAINST” this proposal.

Revocability of Proxies and Changes to an Intermountain Shareholder’s Vote

An Intermountain shareholder has the power to change its vote at any time before its shares of Intermountain common stock are voted at the Intermountain special meeting by:

 

•

sending a notice of revocation to Intermountain’s corporate secretary at 414 Church Street, Sandpoint, Idaho 83864 stating that you would like to revoke your proxy;

 

•

logging onto the Internet website specified on your proxy card in the same manner you would to submit your proxy electronically or by calling the telephone number specified on your proxy card, in each case if you are eligible to do so and following the instructions on the proxy card;

 

•

sending a completed proxy card bearing a later date than your original proxy card; or

 

•

attending the Intermountain special meeting and voting in person if your shares of Intermountain common stock are registered in your name rather than in the name of a broker, bank or other nominee.

 

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•

If you choose either of the first two methods, you must take the described action no later than the beginning of the Intermountain special meeting. If you choose to send a completed proxy card bearing a later date than your original proxy card, the new proxy card must be received before the beginning of the Intermountain special meeting. If you have instructed a broker, bank or other nominee to vote your shares of Intermountain common stock, you must follow the directions you receive from your broker, bank or other nominee in order to change or revoke your vote.

Solicitation of Proxies

The cost of solicitation of proxies will be borne by Intermountain. Intermountain will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of common stock. In addition to solicitations by mail, Intermountain directors, officers and regular employees may solicit proxies personally or by telephone without additional compensation.

Delivery of Proxy Materials to Shareholders Sharing an Address

As permitted by the Exchange Act, only one copy of this proxy statement/prospectus is being delivered to multiple shareholders of Intermountain sharing an address unless Intermountain has previously received contrary instructions from one or more such shareholders. Shareholders who hold shares in “street name” can request further information on householding through their brokers, banks or other holders of record. On written or oral request to [—][, Intermountain’s proxy solicitor], at [—], toll-free at [—] (banks and brokers call collect at [—]), [—] will deliver promptly a separate copy of this document to a shareholder at a shared address to which a single copy of the document was delivered.

Attending the Intermountain Special Meeting

Subject to space availability, all Intermountain shareholders as of the record date, or their duly appointed proxies, may attend the Intermountain special meeting. Since seating is limited, admission to the Intermountain special meeting will be on a first-come, first-served basis. Registration and seating will begin at [—], Pacific Time.

If you hold your shares of Intermountain common stock in your name as a shareholder of record and you wish to attend the Intermountain special meeting, please bring your proxy and evidence of your stock ownership, such as your most recent account statement, to the Intermountain special meeting. You should also bring valid picture identification.

If your shares of Intermountain common stock are held in “street name” in a stock brokerage account or by a bank or nominee and you wish to attend the Intermountain special meeting, you need to bring a copy of a bank or brokerage statement to the Intermountain special meeting reflecting your stock ownership as of the record date. You should also bring valid picture identification.

 

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INTERMOUNTAIN PROPOSALS

Merger Proposal

As discussed throughout this document, Intermountain is asking its shareholders to approve the Merger proposal. Holders of Intermountain common stock should read carefully this document in its entirety, including the appendices, for more detailed information concerning the merger agreement and the merger. In particular, holders of Intermountain common stock are directed to the merger agreement, a copy of which is attached as Appendix A to this document.

The Intermountain board of directors recommends a vote “FOR” the Merger proposal.

Merger-Related Named Executive Officer Compensation Proposal

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Rule 14a-21(c) of the Exchange Act, Intermountain is seeking non-binding, advisory shareholder approval of the compensation of Intermountain’s named executive officers that is based on or otherwise relates to the merger as disclosed in “The Merger—Interests of Intermountain Directors and Executive Officers in the Merger—Merger-Related Compensation for Intermountain’s Named Executive Officers” beginning on page [—]. The proposal gives Intermountain’s shareholders the opportunity to express their views on the merger-related compensation of Intermountain’s named executive officers. Accordingly, Intermountain is requesting that shareholders adopt the following resolution, on a non-binding, advisory basis:

“RESOLVED, that the compensation that may be paid or become payable to Intermountain’s named executive officers, in connection with the merger, and the agreements or understandings pursuant to which such compensation may be paid or become payable, in each case as disclosed pursuant to Item 402(t) of Regulation S-K in “The Merger—Interests of Intermountain Directors and Executive Officers in the Merger—Merger Related Compensation for Intermountain Named Executive Officers” are hereby APPROVED.”

The vote on this proposal is a vote separate and apart from the vote to approve the merger agreement. Accordingly, you may vote not to approve this proposal on merger-related named executive officer compensation and vote to approve the merger agreement and vice versa. You also may abstain from this proposal and vote on the Merger proposal, or vice versa. Because the vote is advisory in nature, it will not be binding on Intermountain, regardless of whether the merger agreement is approved. Approval of the non-binding, advisory proposal with respect to the compensation that may be received by Intermountain’s named executive officers in connection with the merger is not a condition to completion of the merger, and failure to approve this advisory matter will have no effect on the vote to approve the merger agreement. The merger-related named executive officer compensation to be paid in connection with the merger is based on contractual arrangements with the named executive officers and accordingly the outcome of this advisory vote will not affect the obligation to make these payments.

The Intermountain board of directors recommends a vote “FOR” the Merger-Related Named Executive Officer Compensation proposal.

Adjournment Proposal

The Intermountain special meeting may be adjourned to another time or place, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Intermountain special meeting to approve the Merger proposal.

If, at the Intermountain special meeting, the number of shares of Intermountain common stock present or represented and voting in favor of the Merger proposal is insufficient to approve the Merger proposal, Intermountain intends to move to adjourn the Intermountain special meeting in order to enable the Intermountain

 

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board of directors to solicit additional proxies for approval of the merger agreement. In that event, Intermountain will ask its shareholders to vote only upon the Adjournment proposal, and not the Merger proposal or the Merger-Related Named Executive Officer Compensation proposal.

In this proposal, Intermountain is asking its shareholders to authorize the holder of any proxy solicited by the Intermountain board of directors to vote in favor of granting discretionary authority to the proxy holders, and each of them individually, to adjourn the Intermountain special meeting to another time and place for the purpose of soliciting additional proxies. If the Intermountain shareholders approve the Adjournment proposal, Intermountain could adjourn the Intermountain special meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from Intermountain shareholders who have previously voted.

The Intermountain board of directors recommends a vote “FOR” the Adjournment proposal.

Other Matters To Come Before the Intermountain Special Meeting

No other matters are intended to be brought before the Intermountain special meeting by Intermountain, and Intermountain does not know of any matters to be brought before the Intermountain special meeting by others. If, however, any other matters properly come before the Intermountain special meeting, the persons named in the proxy will vote the shares represented thereby in accordance with the judgment of management on any such matter.

INFORMATION CONCERNING INTERMOUNTAIN

General

Intermountain Community Bancorp is a bank holding company headquartered in Sandpoint, Idaho. Intermountain’s principal business activities are conducted through its full-service commercial bank subsidiary, Panhandle State Bank, an Idaho state-chartered bank with deposits insured by the FDIC. At June 30, 2014, Panhandle State Bank had facilities in 18 cities and towns in Idaho, Washington, and Oregon, operating a total of 19 full-service branches. At June 30, 2014, Intermountain had total assets of approximately $920.2 million, total net loans of approximately $520.3 million, total deposits of approximately $693.9 million, and approximately $99.0 million in shareholders’ equity.

Intermountain’s stock is traded on the Nasdaq Capital Market under the symbol “IMCB”.

Intermountain’s principal office is located at 414 Church Street, Sandpoint, Idaho 83864, and its telephone number at that location is (208) 263-0505. Intermountain’s internet address is www.intermountainbank.com. Additional information about Intermountain is included in documents incorporated by reference in this document. See “Where You Can Find More Information” and “Documents Incorporated by Reference.”

 

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CERTAIN LEGAL MATTERS

The validity of the Columbia common stock to be issued in the merger will be passed upon for Columbia by Graham & Dunn PC, Seattle, Washington. Sullivan & Cromwell LLP will pass upon certain federal income tax matters for Columbia.

EXPERTS

The consolidated financial statements incorporated in this proxy statement/prospectus by reference from Columbia’s Annual Report on Form 10-K for the year ended December 31, 2013, and the effectiveness of Columbia’s internal control over financial reporting have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their reports, which are incorporated herein by reference. Such consolidated financial statements have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.

The financial statements of Intermountain as of December 31, 2013 and 2012 and for the years then ended, and management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2013, incorporated by reference in this proxy statement/prospectus of Columbia have been so incorporated in reliance on the reports of BDO USA, LLP, an independent registered public accounting firm, incorporated herein by reference, given on the authority of said firm as experts in auditing and accounting.

INTERMOUNTAIN ANNUAL MEETING SHAREHOLDER PROPOSALS

Intermountain held its 2014 annual meeting of shareholders on April 2, 2014. If the merger is completed, Intermountain will not have public shareholders and there will be no public participation in any future meeting of shareholders. Any shareholder nominations or proposals for other business intended to be presented at Intermountain’s next annual meeting must be submitted to Intermountain as set forth below.

Under the SEC’s rules, any shareholder proposal intended for inclusion in Intermountain’s proxy statement and proxy card relating to its 2015 annual meeting of shareholders must be submitted in writing to the Corporate Secretary of Intermountain at 414 Church Street, Sandpoint, Idaho 83864, no later than November 12, 2014 if Intermountain’s 2015 annual meeting is held within 30 days of April 2, 2015. Nothing in this paragraph shall be deemed to require Intermountain to include in its proxy statement and proxy card for such meeting any shareholder proposal which does not meet the requirements of the Securities and Exchange Commission in effect at the time. Any such proposal will be subject to 17 C.F.R. § 240.14a-8 of the rules and regulations promulgated by the Securities and Exchange Commission under the Exchange Act.

In addition, Intermountain’s amended and restated bylaws establish an advance notice procedure with regard to director nominations and other business proposals by shareholders intended to be presented at the 2015 annual meeting but not included in the 2015 annual meeting proxy materials. For these nominations or other business proposals to be properly brought before the 2015 annual meeting by a shareholder, the shareholder must have delivered written notice to us one hundred twenty (120) days in advance of the first anniversary of the date Intermountain’s proxy statement was mailed to shareholders for the 2014 annual meeting. Such nominations and other business proposals must comply with all requirements set forth in Intermountain’s amended and restated bylaws and Idaho law.

 

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COLUMBIA ANNUAL MEETING SHAREHOLDER PROPOSALS

Columbia held its 2014 annual meeting of shareholders on April 23, 2014. Any shareholder nominations or proposals for other business intended to be presented at Columbia’s next annual meeting must be submitted to Intermountain as set forth below.

In order for a shareholder proposal to be raised from the floor during next year’s annual meeting, or for a shareholder to nominate a person or persons as a director, written notice must be received by Columbia no earlier than the 150th day and no later than the 120th day prior to the first anniversary of the 2014 annual meeting (meaning no earlier than November 24, 2014 and no later than December 24, 2014), and should contain such information as required under Columbia’s amended and restated bylaws. However, if the date of the 2015 annual meeting is more than 30 days before or more than 60 days after the anniversary of the 2014 annual meeting, notice must be delivered no earlier than the 150th day and no later than the 120th day prior to the date of the 2013 annual meeting or, if the first public announcement of the 2015 annual meeting date is less than one hundred (100) days before the meeting date, notice must be delivered no later than the 10th day following the date of Columbia’s first public announcement of the 2015 annual meeting date.

To be in proper form, a shareholder’s notice must include the specified information concerning the proposal or director nominee as described by Columbia’s amended and restated bylaws. Columbia will not consider any proposal or nomination that is not timely or otherwise does not meet the requirements of Columbia’s amended and restated bylaws or the SEC for submitting a proposal or nomination.

Notice of intention to present proposals at the 2015 annual meeting, or correspondence to obtain a copy of the detailed procedures regarding notice requirements for proposals or director nominations, should be directed to Columbia’s Corporate Secretary, 1301 “A” Street, Tacoma, Washington 98402.

 

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DOCUMENTS INCORPORATED BY REFERENCE

The SEC allows Columbia and Intermountain to “incorporate by reference” information into this proxy statement/prospectus, which means that the companies can disclose important information to you by referring you to another document filed separately by them with the SEC. The information incorporated by reference is deemed to be part of this proxy statement/prospectus, except for any information superseded by any information in this proxy statement/prospectus.

This document incorporates by reference the following documents that have previously been filed with the SEC by Columbia:

 

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Annual Report on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2013;

 

•

Definitive Proxy Statement on Schedule 14A for Columbia’s 2014 Annual Meeting of Shareholders;

 

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Quarterly Reports on Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014; and

 

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Current Reports on Form 8-K filed February 6, 2014; April 24, 2014; April 28, 2014; June 5, 2014 (as amended by the 8-K/A filed on July 30, 2014); and July 24, 2014 (first filing only) (other than the portions of those documents deemed not to be filed); and

This document also incorporates by reference the following documents that have previously been filed with the SEC by Intermountain:

 

•

Annual Report on Form 10-K for the year ended December 31, 2013;

 

•

Definitive Proxy Statement on Schedule 14A for Intermountain’s 2014 Annual Meeting of Shareholders;

 

•

Quarterly Reports on Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014; and

 

•

Current Reports on Form 8-K filed February 25, 2014; April 4, 2014; July 24, 2014; and July 28, 2014 (other than the portions of those documents not deemed to be filed).

In addition, Columbia and Intermountain are incorporating by reference any documents they may file under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this document and prior to the date of the respective special meetings of the Columbia shareholders and the Intermountain shareholders, provided, however, that Columbia and Intermountain are not incorporating by reference any information furnished (but not filed), except as otherwise specified herein.

Both Columbia and Intermountain file annual, quarterly and special reports, proxy statements and other business and financial information with the SEC. You may obtain the information incorporated by reference and any other materials Columbia or Intermountain file with the SEC without charge by following the instructions in the section entitled “Where You Can Find More Information” in the forepart of this document.

Neither Columbia nor Intermountain has authorized anyone to give any information or make any representation about the merger or its companies that is different from, or in addition to, that contained in this document or in any of the materials that have been incorporated into this document. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this document or the solicitation of proxies is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this document does not extend to you. The information contained in this document speaks only as of the date of this document unless the information specifically indicates that another date applies.

 

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Appendix A

EXECUTION VERSION

AGREEMENT AND PLAN OF MERGER

by and between

COLUMBIA BANKING SYSTEM, INC.

and

INTERMOUNTAIN COMMUNITY BANCORP

Dated as of July 23, 2014

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TABLE OF CONTENTS

 

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ARTICLE I MERGER					A-2
1.1		The Merger			A-2
1.2		Effective Time			A-2
1.3		Effects of the Merger			A-2
1.4		Conversion of Stock			A-2
1.5		Company Restricted Stock Awards			A-4
1.6		Company Stock Options			A-5
1.7		Company Board Action			A-5
1.8		Articles of Incorporation and Bylaws			A-5
1.9		Parent Board of Directors			A-5
1.10		Bank Merger			A-5
ARTICLE II DELIVERY OF MERGER CONSIDERATION					A-6
2.1		Election and Proration Procedures			A-6
2.2		Delivery of Merger Consideration			A-7
2.3		Exchange Procedures			A-8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY					A-10
3.1		Corporate Organization			A-10
3.2		Capitalization			A-11
3.3		Authority; No Violation			A-12
3.4		Consents and Approvals			A-13
3.5		Reports			A-13
3.6		Financial Statements			A-14
3.7		Broker’s Fees			A-14
3.8		Absence of Changes			A-15
3.9		Compliance with Applicable Law			A-15
3.10		State Takeover Laws			A-16
3.11		Employee Benefit Plans			A-16
3.12		Approvals			A-19
3.13		Opinion			A-19
3.14		Company Information			A-19
3.15		Legal Proceedings			A-19
3.16		Material Contracts			A-19
3.17		Environmental Matters			A-21
3.18		Taxes			A-21
3.19		Reorganization			A-22
3.20		Intellectual Property			A-22
3.21		Properties			A-23
3.22		Insurance			A-24
3.23		Accounting and Internal Controls			A-25
3.24		Derivatives			A-25
3.25		Loan Matters			A-25
3.26		Community Reinvestment Act Compliance			A-27
3.27		Investment Securities			A-27
3.28		Related Party Transactions			A-27
3.29		Labor			A-28
3.30		No Additional Representations			A-28

 

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				Page
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT					A-29
4.1		Corporate Organization			A-29
4.2		Capitalization			A-29
4.3		Authority; No Violation			A-30
4.4		Consents and Approvals			A-31
4.5		Reports			A-31
4.6		Financial Statements			A-32
4.7		Broker’s Fees			A-32
4.8		Absence of Changes			A-32
4.9		Compliance with Applicable Law			A-32
4.10		Approvals			A-32
4.11		Parent Information			A-32
4.12		Legal Proceedings			A-32
4.13		Accounting and Internal Controls			A-33
4.14		Related Party Transactions			A-33
4.15		No Additional Representations			A-34
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS					A-34
5.1		Conduct of Businesses Prior to the Effective Time			A-34
5.2		Company Forbearances			A-34
5.3		Parent Forbearances			A-37
ARTICLE VI ADDITIONAL AGREEMENTS					A-38
6.1		Regulatory Matters			A-38
6.2		Reasonable Best Efforts			A-39
6.3		Access to Information			A-39
6.4		Shareholder Approval			A-40
6.5		Nasdaq Listing			A-40
6.6		Employee Matters			A-41
6.7		Indemnification; Directors’ and Officers’ Insurance			A-42
6.8		Exemption from Liability Under Rule 16(b)-3			A-43
6.9		No Solicitation			A-43
6.10		Takeover Laws			A-45
6.11		Financial Statements and Other Current Information			A-45
6.12		Notification of Certain Matters			A-45
6.13		Parent’s Board of Directors			A-45
6.14		Company Trust Preferred Securities; FHLB Borrowings			A-46
6.15		Third-Party Agreements			A-46
6.16		TARP Purchase			A-47
ARTICLE VII CONDITIONS PRECEDENT					A-47
7.1		Conditions to Each Party’s Obligation to Effect the Merger			A-47
7.2		Conditions to Obligations of Parent			A-47
7.3		Conditions to Obligations of Company			A-48
ARTICLE VIII TERMINATION AND AMENDMENT				&n