Agreement And Plan Of Share Exchange

AGREEMENT AND PLAN OF SHARE EXCHANGE


PARTIES: COLUMBIA BANCORP ("Bancorp")


VALLEY COMMUNITY BANCORP ("VCB")


VALLEY COMMUNITY BANK ("Bank")


DATE: August 3, 1998


RECITALS


A. Bancorp is an Oregon corporation and bank holding company, and is the parent corporation of Columbia River Bank, an Oregon stock bank. Bancorp's principal office is at 420 East Third Street, The Dalles, Oregon 97058.


B. VCB is an Oregon corporation and bank holding company, and is the parent corporation of Valley Community Bank (the "Bank"), an Oregon stock bank. The principal place of business of VCB and the Bank is at 723 North Baker Street, McMinnville, Oregon 97128-0807.


C. As of June 30, 1998 there were 720,675 issued and outstanding shares of common stock of VCB (the "VCB Common Stock") held by 310 shareholders of record, and 205,800 issued and outstanding shares of preferred stock of VCB (the "VCB Preferred Stock") held by three shareholders of record.


D. VCB is the sole owner and holder of 906,475 shares of the common stock of the Bank (the "Bank Stock"), which is 100% of the issued and outstanding shares of the Bank. VCB is also the sole owner and holder of 100% of the issued and outstanding shares of Valley Community Mortgage Services, Inc., an Oregon corporation. The Bank is the sole owner and holder of 100% of the issued and outstanding shares of Valley Community Financial Services, Inc., an Oregon corporation.


E. Pursuant to ORS 60.484, the Board of Directors of Bancorp, of VCB and of the Bank have concluded that the acquisition of VCB by Bancorp under the terms set forth in this Agreement (the "Agreement") is in the best interests of the shareholders of Bancorp and of VCB.


NOW, THEREFORE, THE PARTIES AGREE:


1. THE ACQUISITION AND SHARE EXCHANGE.


1.1 Acquisition of Shares Through Share Exchange. Subject to the terms and conditions of the Agreement and of applicable law, on the Effective Date as defined herein Bancorp shall acquire 100% of the shares of the VCB Common Stock issued and outstanding on the Effective Date for an aggregate purchase price of $15,101,542.50 payable in cash at closing (the "Acquisition"). The Acquisition shall constitute a share exchange within the meaning of ORS 60.484, and the Agreement shall constitute a plan of share exchange.


1.2 Conversion of Preferred Stock. Prior to the Effective Date, and as a condition to the Acquisition, all holders of the VCB Preferred Stock shall have converted 100% of the issued and outstanding VCB Preferred Stock to VCB Common Stock, and VCB shall have received the conversion price of $.30 per share of VCB Preferred Stock.


1.3 Effective Date. The Acquisition shall become effective (the "Effective Date") on the date of the filing of Articles of Share Exchange with the Secretary of State of the State of Oregon pursuant to ORS 60.494. The Effective Date shall occur as soon as practicable after the Closing Date as defined in Section 2.1 of the Agreement.


1.4 Effect of Acquisition. On the Effective Date, VCB shall become a wholly owned subsidiary of


2 Bancorp, and Bancorp shall be the sole shareholder of VCB.


1.5 Bank Charter; Articles and Bylaws of Bank and VCB. The Charter of the Bank in effect immediately prior to the Effective Date shall be the Charter of the Bank on the Effective Date. The Articles of Incorporation and Bylaws of VCB and of the Bank in effect immediately prior to the Effective Date shall be the Articles of Incorporation and Bylaws of VCB and of the Bank on the Effective Date.


1.6 Officers - VCB and Bank. All officers of VCB and of the Bank serving immediately prior to the Effective Date shall be the officers of VCB and of the Bank on the Effective Date, all of whom shall continue in office until their respective successors are duly qualified and appointed.


1.7 Directors - VCB and Bank. Except as otherwise provided herein, all directors of VCB and of the Bank serving immediately prior to the Effective Date shall be the directors of VCB and of the Bank on the Effective Date, all of whom shall continue in office until their respective successors are duly qualified and elected as provided in the Articles of Incorporation and Bylaws of VCB and of the Bank; provided, that promptly after the Effective Date the number of director positions on the Board of Directors of the Bank shall be reduced to no more than seven (7), and the director positions shall be filled at a special Bank shareholder meeting called for that purpose.


1.8 Special VCB Stockholders' Meeting. VCB's Board of Directors shall, in accordance with its Articles of Incorporation, Bylaws and applicable law:


1.8.1 Hold a special meeting (the "VCB Special Meeting") of VCB stockholders for the purpose of considering and taking action upon the Acquisition. The Special Meeting shall be scheduled as soon as practicable after the date of the Agreement;


1.8.2 Include in the proxy statement for the Special Meeting (the "VCB Proxy Statement") a statement that the Board of Directors of VCB recommends that stockholders vote in favor of the Acquisition; and


1.8.3 Use its best efforts to obtain the requisite approval of the Acquisition by the stockholders of VCB.


1.9 Dissenters' Rights. Any VCB stockholder who properly exercises the stockholder's dissenters' rights under ORS 60.511, et seq. shall be entitled to receive for the stockholder's shares the value of such shares in accordance with applicable law.


2. CLOSING.


2.1 Closing Date. Subject to the satisfaction or waiver of all conditions set forth in Section 8 of the Agreement, the closing of the Acquisition (the "Closing") shall occur on a date (the "Closing Date") not later than thirty (30) business days after the Acquisition has been approved by all relevant regulatory authorities and all required waiting periods have elapsed. Notwithstanding the foregoing, the Closing Date shall not be earlier than September 1, 1998 or later than January 1, 1999 unless (i) the January 1, 1999 date is extended by a written amendment to the Agreement, or (ii) the effective date of any required final approval of a regulatory authority has not occurred as of January 1, 1999, in which event the Closing Date shall be automatically extended beyond January 1, 1999 to a date which is as soon as practicable following the effective date of such approval.


2.2 Actions to Take Place at Closing. At the Closing, (a) Bancorp, VCB and the Bank shall execute and deliver the closing certificates of executive officers, opinions, agreements and other documents required of each of them under the Agreement; (b) Bancorp shall have deposited the amount of $15,101,542.50 into a designated account of a payment agent ("Payment Agent"), acceptable to the parties and paid by Bancorp, with instructions to pay the appropriate amounts under the Agreement to each VBC shareholder; and (c) the VCB shareholders shall, upon surrender by each of them to the Payment Agent of all such shareholder's certificates representing shares of VCB stock held of record (or upon delivery of an appropriate affidavit of loss and at the


3 discretion of Bancorp either a bond or an undertaking of indemnity if any such certificates have been lost, stolen, or destroyed), be entitled to receive cash, without interest, in the amount to which each of them are entitled.


2.3 Time and Place of Closing. The Closing shall take place at the head office of Bancorp, 420 East Third Street, The Dalles, Oregon commencing at 9:00 a.m., or at such other date, time and place agreed to by the parties.


3. REPRESENTATIONS AND WARRANTIES OF VCB AND OF THE BANK


VCB and the Bank each represent and warrant that the following are true as of the date of the Agreement, except as described in any Schedule referred to below and attached hereto.


3.1 Organization. VCB and the Bank are duly organized, validly existing and in good standing under the laws of the states of their organization and under applicable federal law, and have all requisite corporate power and authority to own and operate their properties and assets, to lease the leased properties used in their businesses, and to carry on their businesses as now conducted. VCB and the Bank own or possess all charters, franchises, licenses, permits, branch certificates, consents, approvals, waivers and other authorizations, governmental or otherwise, which are necessary for them to conduct their businesses as now conducted, none of which will lapse or be adversely affected by reason of the consummation of the transactions contemplated by the Agreement. VCB and the Bank are duly qualified and licensed to do business and are in good standing in every jurisdiction in which such qualification or license is required or where the failure to be so qualified or licensed could result in liability or adversely affect the business or operations of VCB or the Bank in any material respect.


3.2 Articles of Incorporation and Bylaws. The copies of the Articles of Incorporation, as amended, and the Bylaws, as amended, of VCB and the Bank delivered to Bancorp are true, correct and complete copies thereof. Neither VCB nor the Bank are in material violation of any provision of their Articles of Incorporation or Bylaws. The minute books of VCB and the Bank which have been or will be made available for inspection by Bancorp contain minutes of all meetings and consents in lieu of meetings of the Board of Directors (and any committee thereof) and of the stockholders of each of them, all of which are accurate in all material respects.


3.3 Execution and Performance of Agreement. VCB and the Bank have all requisite corporate power and authority to execute and deliver the Agreement and to consummate the transactions contemplated by the Agreement. The execution and delivery of the Agreement, compliance with its terms and the consummation of the transactions contemplated by the Agreement have been duly and validly authorized by the Board of Directors of VCB and the Bank, and no other corporate actions of either of them are necessary to authorize the Agreement or to consummate the transactions contemplated, other than the approval of the Acquisition by VCB's stockholders.


3.4 Binding Obligation. The Agreement has been duly and validly executed and delivered by VCB and the Bank and constitutes the valid, legal and binding agreement of each enforceable in accordance with its terms.


3.5 Corporate Structure. VCB and the Bank are not owned or controlled, directly or indirectly, by a bank holding company or by any other corporation or entity, other than VCB's ownership of the Bank. VCB and the Bank do not own or control, directly or indirectly, any shares of capital stock of any other corporation or entity, other than (i) VCB's ownership of 100% of the shares of the Bank, (ii) VCB's ownership of 100% of Valley Community Mortgage Services, Inc., an Oregon corporation, (iii) the Bank's ownership of 100% of the issued and outstanding shares of Valley Community Financial Services, Inc., an Oregon corporation, (iv) shares held in a fiduciary or custodial capacity in the ordinary course of business, (v) shares acquired in partial or full satisfaction of any debts owed to VCB or the Bank, and (vi) the shares described in the attached Schedule 3.5.


3.6 Capital Structure of the Bank. The authorized capital stock of the Bank consists of 2,000,000 shares of common stock, par value of $1.00 per share, of which 906,475 shares were issued and outstanding as of July 6, 1998. All of the Bank Stock has been duly authorized and validly issued in compliance with applicable law


4 including, without limitation, federal and state securities laws, and are fully paid and nonassessable. None of the Bank Stock has been issued in violation of the preemptive rights of any stockholder. No Bank Stock shall be issued between the date of the Agreement and the Effective Date.


3.7 Capital Structure of VCB. The authorized capital stock of VCB consists of (i) 2,000,000 shares of common stock, par value of $1.00 per share, of which 720,675 shares were issued and outstanding as of June 30, 1998, and (ii) 500,000 shares of preferred stock, par value of $1.00 per share, of which 205,800 shares were issued and outstanding as of June 30, 1998. All of the foregoing shares have been duly authorized and validly issued in compliance with applicable law including, without limitation, federal and state securities laws, and are fully paid and nonassessable. None of the foregoing shares have been issued in violation of the preemptive rights of any stockholder. No shares of VCB stock shall be issued between the date of the Agreement and the Effective Date, other than the issuance of shares of VCB Common Stock upon the conversion of VCB Preferred Stock.


3.8 Consents and Approvals. Except for the applications and approvals required by the Federal Reserve Bank and any other state or federal governmental agency that may have or assert jurisdiction over the transaction or the actions contemplated herein, no consents, approvals or authorizations of any public body or regulatory agency are necessary for the consummation of the Acquisition and the other transactions provided under the Agreement.


3.9 No Violations. Subject to compliance with the regulatory approvals described in Section 3.8 of the Agreement, neither the execution and delivery of the Agreement nor the consummation of the transactions contemplated hereby, nor compliance by VCB and the Bank with any of the provisions hereof will (i) conflict with or result in any breach of any provision of their respective Articles of Incorporation or Bylaws, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, lease, agreement or other instrument or obligation of VCB or the Bank or by which either of them or any of their properties or assets may be bound, or (iii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to VCB or the Bank, or any of their properties or assets.


3.10 Books and Records. The books and records of VCB and the Bank accurately reflect the transactions to which they are parties or by which their assets and properties are subject or bound. Such books and records have been properly kept and maintained, are in compliance in all material respects with all legal regulatory and accounting requirements applicable to them, and have been maintained on a consistent basis in accordance with generally accepted accounting principles applicable to VCB and the Bank.


3.11 Financial Statements. VCB and the Bank have delivered to Bancorp true copies of their balance sheets, statements of income, statements of changes in financial position, and statements of changes in stockholders' equity, and all notes thereto, for each of the calendar and fiscal years 1994, 1995, 1996 and 1997, and shall deliver the same for the first two quarters of the 1998 fiscal and calendar year as soon as practicable after the full execution of the Agreement and in any event no later than August 15, 1998. All of the foregoing (the "Financial Statements"), except as disclosed in Schedule 3.11, (i) are in accordance with the books and records of VCB and the Bank, (ii) fairly present the financial position, results of operation, changes in financial position and stockholders' equity of VCB and the Bank for the periods covered thereby, (iii) have been prepared and maintained in accordance with generally accepted accounting principles ("GAAP") on a consistent basis, and (iv) reflect all material liabilities, contingent or otherwise, of each of them for the periods covered thereby, except for liabilities not required to be reflected thereon under GAAP. Neither VCB nor the Bank party have been notified by any regulatory authority that such authority regards the Financial Statements as deficient in any material respect.


3.12 Proxy Statements and Other Materials. VCB has delivered to Bancorp copies of all of VCB's reports and communications to its shareholders since January 1, 1995, including all proxy statements, financial reports and notices of meetings. Any proxy statements or other materials communicated to the shareholders of VCB in connection with the Agreement shall comply in all material respects with applicable law, and shall not on the date of their distribution contain any untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they are made, not false


5 or misleading, except those statements or omissions in the proxy statement that may be made in reliance on information provided by Bancorp.


3.13 Policies and Procedures. VCB and the Bank have delivered to Bancorp or made available for inspection all manuals, booklets and other materials that set forth the policies and procedures of VCB and the Bank. All actual policies and procedures of VCB and the Bank are substantially as represented in such materials.


3.14 Collective Bargaining Agreements. Neither VCB nor the Bank is a party to or bound by any collective bargaining agreements with respect to any employees. There has not been, nor to the knowledge of VCB or the Bank was there or is there threatened, any strike, slowdown, picketing or work stoppage by any union or other organized group of employees against VCB or the Bank or any of their premises, any material dispute regarding wages, hours or conditions of employment, or any other labor dispute or other occurrence, event or condition of a similar character within five (5) years prior to June 1, 1998 that had or is expected to have a materially detrimental effect on VCB's or the Bank's operations. Neither VCB nor the Bank is aware of any attempts to organize a collective bargaining unit to represent any employee groups of the Bank.


3.15 Employee Benefit Plans. Neither VCB nor the Bank has (i) any liability, (ii) any funding deficiency, or (iii) any funding waivers outstanding or applied for to the Pension Benefit Guaranty Corporation or to the IRS with respect to any pension plan qualified under Section 401 of the Internal Revenue Code. The value of accrued vested benefits with respect to any such pension plan do not exceed the value of the total assets of such plan. All "Employee Benefit Plans," as defined in Section 3(3) of ERISA that cover one or more employees employed by either VCB or the Bank ("Employee Benefit Plans") comply in all material respects with ERISA and, where applicable, for tax-qualified or tax-favored treatment, with the Internal Revenue Code. Neither the Employee Benefit Plans nor any trustee or administrator thereof has engaged in a "prohibited transaction" within Section 406 of ERISA or, where applicable, Section 4975 of the Internal Revenue Code for which no exemption is applicable, nor have there been any "reportable events" within Section 4043 of ERISA which are required to be reported but were not timely reported. There is not and has not been any violation of the Consolidated Omnibus Budget Reconciliation Act of 1986. Neither VCB nor the Bank has contributed to, is not obligated to contribute to, and has not been a sponsor of a multi-employer plan. VCB and the Bank have made available to Bancorp true, complete and accurate copies (or, with respect to oral arrangements, accurate written summaries) of all pension, retirement, stock purchase, stock bonus, stock ownership, stock option, performance share, stock appreciation right, phantom stock, savings and profit-sharing plans; any employment, deferred compensation, incentive compensation, bonus, consulting and group insurance contracts; any other incentive, welfare, life insurance, death or survivor's benefit, health insurance, sickness, disability, medical, surgical, hospital, severance, layoff and vacation plans, contracts or arrangements; and employee benefit plans or agreements sponsored, maintained or contributed to by VCB and the Bank for employees of the Bank.


3.16 Employment Contracts. Except for the contracts described in Schedule 3.16, there are no employment contracts, deferred compensation agreements or other arrangements (including, without limitation, contracts or arrangements providing for severance or termination pay or benefits or increased or accelerated compensation in the event of a merger, acquisition, consolidation, reorganization or change of control with respect to VCB or the Bank or any other event affecting the ownership, control or management of either VCB or the Bank) with any officer, director, employee, consultant or stockholder of VCB or the Bank. VCB and the Bank shall be responsible for the payment of all sums that may be due a terminated employee of VCB or the Bank pursuant to an employment contract or otherwise prior to the Effective Date.


3.17 Insurance. VCB and the Bank carry insurance with reputable insurers, including Bankers Blanket Bond Coverage, in such amounts as are reasonable and are consistent with typical and reasonable industry practices. All such policies of insurance are in full force and effect, and no notice of cancellation has been received. Both of them have delivered to Bancorp a list of all policies of insurance currently in force. All such policies (or policies affording equivalent coverage) will be maintained in effect through the Effective Date.


3.18 Properties. VCB and the Bank own or lease all property upon which their continued business


6 operations are dependent. With respect to properties owned, each possesses good and marketable title to and owns, free of any encumbrance (other than liens for taxes not yet due and statutory rights of redemption with respect to properties acquired through foreclosure and encumbrances of record as of the date of the Agreement), all such real, personal and intangible properties and other assets. The leases pursuant to which each lease real or personal property are valid and effective in accordance with their respective terms, and there is not, under any such lease, any existing default or any event that, with the giving of notice or lapse of time or otherwise, would constitute a default. The real and personal property leased by each is free from any adverse claim that would materially interfere with the business or operations of VCB or the Bank.


3.19 Hazardous Wastes. To their best knowledge and belief, the properties owned by VCB and the Bank are in good condition, free from any defects (including asbestos and toxic materials) that would materially interfere with the continued use thereof in the conduct of each party's normal operations. Without limiting the foregoing and to the best knowledge of the directors and officers of the parties, neither VCB nor the Bank, nor any other person having an interest in any property which VCB or the Bank owns, or has owned (the "Property"), has engaged in the generation, use, manufacture, treatment, transportation, storage (in tanks or otherwise), or disposal of hazardous material on or from any Property. Individually or in the aggregate, there has been no: (i) presence, use, generation, handling, treatment, storage, release, threatened release, migration or disposal of hazardous material in violation of applicable law; (ii) condition that could result in any use, ownership or transfer restriction; or (iii) condition of nuisance on or from any Property, any of which individually or collectively would have a material adverse effect on the business, assets, earnings, operation or condition (financial or otherwise) of VCB or the Bank. Neither VCB nor the Bank have received notice of, or has reason to know of, a condition that could give rise to any private or governmental suit, claim, action, proceeding or investigation against either of them any such other person or such Property as a result of any of the foregoing events. For the purpose of this Section, "Hazardous Material" means any chemical, substance, material, object, condition or waste harmful to human health or safety or to the environment due to its radioactivity, ignitability, corrosivity, reactivity, explosivity, toxicity, carcinogenicity, infectiousness or other harmful or potentially harmful properties or effects, including without limitation, petroleum or petroleum products, and all of those chemical substances, materials, objects, conditions, wastes or combinations of them that are now or become listed, defined or regulated in any manner by federal, state or local law based, directly or indirectly upon such properties or effects, but excluding such amounts commonly stored and used in routine cleaning and maintenance.


3.20 Tax Matters. Except as disclosed in Schedule 3.20 all tax returns required to be filed by or on behalf of VCB and the Bank have been timely filed with the appropriate governmental agencies in all jurisdictions in which such returns are required to be filed. All returns filed are complete, accurate and properly reflect the taxes of each for the periods covered thereby. All taxes shown on filed returns have been timely paid. As of the date of the Agreement, there is no audit, examination, deficiency or refund litigation or tax claim or any notice of assessment or proposed assessment by any taxing authority, or to the best knowledge and belief of VCB and the Bank any other matter in controversy with respect to any taxes that might result in a determination adverse to VCB or the Bank. All taxes, assessments, interest, additions, deficiencies, fees, penalties and other governmental charges or impositions due with respect to completed and settled examinations or concluded litigation have been property accrued or paid. The tax returns for VCB and the Bank will be subject to review by Bancorp's accountants. Any unpaid taxes, interest or penalties shall be paid or accrued by VCB or the Bank prior to the Effective Date. Neither VCB nor the Bank have executed an extension or waiver of any statute of limitations on the assessment or collection of any tax due that is currently in effect. All applicable withholding taxes, Social Security taxes, unemployment insurance, Workers Compensation premiums and other withholdings due or payable by VCB or the Bank have been withheld, accounted for and paid as required by law.


3.21 Compliance with Law. Neither VCB nor the Bank are in violation of any applicable law or ordinance or any order, rule or regulation of any governmental agency, in any material respect, and are not in default with respect to any order, writ, injunction or decree of any court, or in default under any order, license, regulation or demand of any governmental agency, any of which violations or defaults might have a materially adverse effect on the business or properties of either of them. Neither VCB nor the Bank have received any claim or notice of violation with respect thereto, except as disclosed in any Schedule to the Agreement.


7
3.22 Compliance with Lending Laws and Regulations. Without limiting any other representation or warranty contained herein, VCB and the Bank represent and warrant to Bancorp based upon their best knowledge and belief that:


a. The conduct by VCB and the Bank of their business and the operation by each of the properties or other assets owned or leased by them do not violate or infringe any domestic or foreign laws, statutes, ordinances, rules or regulations, the enforcement of which individually or in the aggregate would materially and adversely affect either of them. Specifically, but without limiting any other representations or warranty herein, each of VCB and the Bank are in compliance in all material respects with every local, state or federal law or ordinance and any regulation or order issued thereunder now in effect and applicable to either governing or pertaining to Fair Housing Anti-Redlining, Equal Credit Opportunity, Truth-in-Lending, Real Estate Settlement procedures, Fair Credit reporting, and every other prohibition against unlawful discrimination in residential lending or governing consumer credit including, but not limited to, the Community Reinvestment Act, the Consumer Credit Protection Act, Truth-in-Lending Act (and Regulation Z promulgated by the Federal Reserve Board), the Real Estate Settlement Procedures Act of 1974 and the Home Mortgage Disclosure Act. All loans, lea ...