Item 1.01.
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Entry into a Material Definitive Agreement
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The Merger Agreement
On January 9, 2017, Columbia Banking System, Inc., a Washington corporation, (
Columbia
) entered into an Agreement and Plan of Merger
(the
Merger Agreement
) with Pacific Continental Corporation, an Oregon corporation (
Pacific Continental
). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, an
Oregon corporation and a wholly owned subsidiary of Columbia (
Merger Sub
), will merge with and into Pacific Continental (the
First Merger
), with Pacific Continental continuing as the surviving corporation (the
Surviving Corporation
). Immediately following the First Merger and as a part of a single integrated transaction, the Surviving Corporation will merge with and into Columbia (the
Subsequent Merger
), with Columbia
as the surviving entity. Immediately following the Subsequent Merger, Pacific Continental Bank, an Oregon state-chartered bank and wholly-owned subsidiary of Pacific Continental will merge with and into Columbia State Bank, a Washington
state-chartered bank and wholly-owned subsidiary of Columbia (
Columbia Bank
), with Columbia Bank as the surviving bank (the
Bank Merger
, and together with the First Merger and the Subsequent Merger, the
Mergers
). The Merger Agreement was adopted by the board of directors of Columbia (the
Columbia Board
) and the board of directors of Pacific Continental (the
Pacific Continental Board
).
Subject to the terms and conditions of the Merger Agreement, at the date and time when the First Merger becomes effective (the
Effective
Time
), the Pacific Continental shareholders will have the right to receive, in respect of each share of common stock of Pacific Continental (
Pacific Continental Common Stock
), a number of common shares of Columbia
(
Columbia Common Stock
) equal to the Exchange Ratio (as defined below), subject to any adjustments set forth in the Merger Agreement (the
Merger Consideration
).
Exchange Ratio
means the
following: (i) if the average daily closing price of Columbia Common Stock on Nasdaq (the
Columbia Average Closing Price
) for the twenty (20) consecutive trading days prior to the fifth (5
th
) business day immediately prior to the closing date (the
Determination Period
) is greater than or equal to $27.76 and less than or equal to $37.56, then the Exchange Ratio will be
0.6430; (ii) if the Columbia Average Closing Price for the Determination Period is greater than $37.56, and the Columbia Average Closing Price for the Determination Period outperforms the Keefe, Bruyette & Woods Regional Banking Index
by greater than fifteen percent (15%), then the Exchange Ratio will be the quotient, rounded to the nearest
ten-thousandth,
obtained by dividing (A) $24.151 by (B) the Columbia Average Closing Price
for the Determination Period; (iii) if the Columbia Average Closing Price for the Determination Period is greater than $37.56, and the Columbia Average Closing Price for the Determination Period does not outperform the Keefe,
Bruyette & Woods Regional Banking Index by greater than fifteen percent (15%), then the Exchange Ratio will be 0.6430; (iv) if the Columbia Average Closing Price for the Determination Period is less than $27.76, and the Columbia Average
Closing Price for the Determination Period underperforms the Keefe, Bruyette & Woods Regional Banking Index by greater than fifteen percent (15%), then the Exchange Ratio will be (A) the quotient, rounded to the nearest
ten-thousandth,
obtained by dividing $17.850 by the Columbia Average Closing Price for the Determination Period if Columbia does not choose to adjust the Merger Consideration in accordance with the Merger Agreement,
or (B) 0.6430 if Columbia does choose to adjust the Merger Consideration as set forth in the Merger Agreement and described below; and (v) if the Columbia Average Closing Price for the Determination Period is less than $27.76, and the Columbia
Average Closing Price for the Determination Period does not underperform the Keefe, Bruyette & Woods Regional Banking Index by greater than fifteen percent (15%), then the Exchange Ratio will be 0.6430. In connection with clause
(iv) above, if Columbia chooses to adjust the Merger Consideration, which it may do in its sole discretion, the Merger Consideration will include an amount in cash equal to (A) $17.850 minus (B) (x) 0.6430 multiplied by (y) the Columbia
Average Closing Price for the Determination Period, and the Exchange Ratio will be 0.6430.
The Merger Agreement may be terminated in certain
circumstances, including: (i) by mutual written consent of the parties; (ii) by either party in the event that any required regulatory approval is not obtained; (iii) by either party in the event that, under certain circumstances, the
First Merger will not have been consummated by November 9, 2017 which may be extended to January 9, 2018 in certain circumstances; (iv) by either party in the event of a breach by the other party of any covenant or agreement or any
representation or warranty that would result in the failure of certain conditions to the Merger Agreement; (v) by either party if the requisite Columbia shareholder approval or Pacific Continental shareholder approval is not obtained;
(vi) by Columbia in the event Pacific Continental fails to recommend approval of the Merger Agreement to its shareholders; (vii) by Pacific Continental, prior to Pacific Continental shareholder approval, to enter into a superior proposal;
and (viii) by either party in the event the Columbia Average Closing Price for the Determination Period is less than $26.13; provided, however, if Columbia exercises its termination right described in clause (viii), Pacific Continental will
have the option of reinstating the First Merger by adjusting the Exchange Ratio to 0.6430 and adding to the per share Merger Consideration an amount in cash equal to $1.048.
The Merger Agreement provides that at the Effective Time, all outstanding restricted stock units of Pacific
Continental (
Pacific Continental Restricted Stock Units
), whether vested or unvested, will automatically and without any action on the part of the holders thereof, be cancelled and will only entitle the holders of such Pacific
Continental Restricted Stock Units to receive (without interest), an amount in cash equal to (i) the number of shares of Pacific Continental Common Stock subject to such Pacific Continental Restricted Stock Units immediately prior to the
Effective Time multiplied by (ii) (A) the Exchange Ratio multiplied by (B) the Columbia Average Closing Price for the Determination Period (the
Equity Award Cashout Price
), less applicable taxes required to be withheld
with respect to such payment. The Merger Agreement provides that at the Effective Time, any vesting conditions applicable to any Pacific Continental outstanding restricted stock awards will automatically and without any action on the part of the
holders thereof, accelerate in full and will be converted into, and become exchangeable for, the Merger Consideration (less applicable taxes required to be withheld with respect to such vesting). The Merger Agreement provides that at the Effective
Time, all outstanding stock options of Pacific Continental (
Pacific Continental Stock Options
), whether vested or unvested, will automatically and without any action on the part of the holders thereof, be cancelled and will only
entitle the holders of such Pacific Continental Stock Options to receive (without interest), an amount in cash equal to the product of (i) the number of shares of Pacific Continental Common Stock subject to such Pacific Continental Stock
Options immediately prior to the Effective Time, multiplied by (ii) the excess, if any of (A) the Equity Award Cashout Price over (B) the exercise price per share of Pacific Continental Common Stock of such Pacific Continental Stock
Options less applicable taxes required to be withheld with respect to such payment. The Merger Agreement provides that at the Effective Time, all stock appreciation rights of Pacific Continental (
Pacific Continental Stock Appreciation
Rights
), whether cash-settled or stock-settled, vested or unvested, will automatically and without any action on the part of the holders thereof, be cancelled and will only entitle the holders of such Pacific Continental Stock Appreciation
Rights to receive (without interest) an amount in cash equal to the product of (i) the number of shares of Pacific Continental Common Stock subject to such Pacific Continental Stock Appreciation Rights immediately prior to the Effective Time,
multiplied by (ii) the excess, if any, of (A) the Equity Award Cashout Price over (B) the reference price per share of Pacific Continental Common Stock of such Pacific Continental Stock Appreciation Right less applicable taxes
required to be withheld with respect to such payment.
Consummation of the First Merger is subject to customary conditions, including, among others,
approval by the Pacific Continental shareholders and the Columbia shareholders and receipt of required regulatory approvals.
Upon consummation of the
First Merger, the Columbia Board will consist of the directors serving on the Columbia Board prior to the Effective Time plus one community-based independent director from the Pacific Continental Board recommended by Columbias Nominating and
Corporate Governance Committee.
The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by
reference to the full text of the Merger Agreement, which is attached hereto as Exhibit 2.1 and is incorporated herein by reference. The Merger Agreement should not be read alone, but should instead be read in conjunction with the other information
regarding Columbia, Pacific Continental, their respective affiliates or their respective businesses, the Merger Agreement and the Mergers that will be contained in, or incorporated by reference into, the Registration Statement on Form
S-4
that will include a Joint Proxy Statement of Pacific Continental and Columbia and a Prospectus of Columbia, as well as in the Forms
10-K,
Forms
10-Q
and other filings that each of Columbia and Pacific Continental make with the Securities and Exchange Commission (the
SEC
).
The Merger Agreement has been included to provide investors with information regarding its terms. It is not intended to provide any other factual information
about Pacific Continental, Columbia or their respective subsidiaries or affiliates. The representations, warranties and covenants contained in the Merger Agreement were made only for purposes of the Merger Agreement and as of specific dates, were
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 applicable to investors. Investors are not third-party
beneficiaries under the Merger Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto or any of their
respective subsidiaries or affiliates. Moreover, information concerning the subject matter of representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in Pacific
Continentals and Columbias public disclosures.
Additional Agreements
Concurrently with the execution of the Merger Agreement, the directors of Pacific Continental have entered into a Voting and
Non-Competition
Agreement with Columbia pursuant to which such directors have agreed, among other things, to vote their shares of Pacific Continental Common Stock in favor of the Merger Agreement and the
transactions contemplated thereby, and to become subject to certain transfer,
non-competition
and
non-solicitation
restrictions. In addition, concurrently with the
execution of the Merger Agreement, the directors of Columbia have entered into a Voting Agreement with Pacific Continental, pursuant to which such directors have agreed, among other things, to
vote their shares of Columbia Common Stock in favor of approval of the issuance of Columbia Common Stock pursuant to the Merger Agreement and to become subject to certain transfer restrictions. The foregoing summary of the agreements described above
does not purport to be complete and is qualified in its entirety by the text of such agreements, which are attached as Exhibit 99.1 (Form of Voting and
Non-Competition
Agreement by and among Columbia and the
members of the Pacific Continental Board dated January 9, 2017) and Exhibit 99.2 (Form of Voting Agreement by and among Pacific Continental, and the members of the Columbia Board, dated January 9, 2017) hereto and are incorporated herein
by reference.