ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("AGREEMENT") is made and entered into as of
the day
of , , by and among COWLITZ BANCORPORATION, a
Washington
corporation ("COWLITZ"), COWLITZ BANK, a corporation chartered under the
banking
laws of the State of Washington ("COWLITZ BANK"), NORTHERN BANK OF
COMMERCE, a
corporation chartered under the banking laws of the State of Oregon
("NORTHERN"), and , as escrow agent (the "ESCROW AGENT").
RECITALS
WHEREAS, Cowlitz, Cowlitz Bank and Northern have entered into an
Agreement
and Plan of Merger dated as of September 14, 1999 (the "MERGER
AGREEMENT"),
pursuant to which Northern has agreed to merge with and into Cowlitz
Bank with
Cowlitz Bank being the surviving entity (the "MERGER");
WHEREAS, Section 3.2.(b) of the Merger Agreement provides that an
amount
equal to the product of (1) the Cash Consideration (as defined in the
Merger
Agreement) and (2) the Initial Nondissenting Shares (as defined below),
or
Dollars ($ ) (the "ESCROWED FUNDS"), to be paid
by
Cowlitz to the holders of Northern Shares other than holders of Final
Dissenting
Shares (as defined below) (the "ESCROW STOCKHOLDERS") shall be delivered
to
(the "EXCHANGE AGENT") at the Effective Time;
WHEREAS, the Exchange Agent shall be instructed to deliver the
Escrowed
Funds to the Escrow Agent to be held in escrow to ensure that Cowlitz
Bank shall
be properly reimbursed for certain losses;
WHEREAS, pursuant to Section 3.2.(b) of the Merger Agreement,
and have been appointed by Northern as representatives of
the Escrow
Stockholders (the "NORTHERN MEMBERS"), and and
have been
appointed by Cowlitz Bank as representatives of Cowlitz Bank (the
"COWLITZ BANK
MEMBERS," and together with the Northern Members, the "COMMITTEE"), to
take all
actions called for by Section 3.2.(b) of the Merger Agreement on behalf
of the
Committee; and
WHEREAS, Cowlitz, Cowlitz Bank, Northern and the Escrow Agent desire
to
enter into this Agreement to establish the terms and conditions under
which the
Escrow Agent will hold and disburse the Escrowed Funds;
NOW, THEREFORE, in consideration of the mutual covenants, conditions
and
agreements contained in this Agreement, and for other valuable
consideration,
the receipt and sufficiency of which are hereby acknowledged, Cowlitz,
Cowlitz
Bank, Northern and the Escrow Agent agree as follows:
1. DEFINITIONS.
a. "ADDITIONAL ESCROWED FUNDS" has the meaning given in Section 3.
(c).
b. "ADDITIONAL EXPENSES" has the meaning giving in Section 5.(c).
c. "ADDITIONAL NONDISSENTING SHARES" means the total number of
Northern
Shares outstanding as of the Effective Time less the sum of (i) the
Initial
Nondissenting Shares and (ii) the Final Dissenting Shares.
d. "AGGREGATE UNUSED FINAL THRESHOLD AMOUNT" has the meaning given
in
Section 7.(b).
e. "COMMITTEE" has the meaning given in the Recitals.
f. "COMMITTEE MEMBER" means a Northern Member or Cowlitz Bank
Member.
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g. "COURT ORDER" means a final order of a court of competent
jurisdiction
resolving a dispute hereunder and directing disposition of a portion of
the
Escrowed Funds, from which no appeal is or can be taken.
h. "COWLITZ" has the meaning given in the Introduction.
i. "COWLITZ BANK" has the meaning given in the Introduction.
j. "COWLITZ BANK MEMBERS" has the meaning given in the Recitals.
k. "DOUBTFUL" with respect to an Identified Loan has the meaning
assigned
to such term in Schedule 1 attached.
l. "EFFECTIVE TIME" means the date and time when the Merger becomes
effective.
m. "ESCROW AGENT" has the meaning given in the Introduction.
n. "ESCROW EXPIRATION DATE" has the meaning given in Section 5.(a).
o. "ESCROW PERIOD" has the meaning given in Section 5.(a).
p. "ESCROW STOCKHOLDERS" has the meaning given in the Recitals.
q. "ESCROWED FUNDS" has the meaning given in the Recitals.
r. "EXCHANGE AGENT" has the meaning given in the Recitals.
s. "FINAL APPOINTED EXAMINER" has the meaning given in Section 7.
(e).
t. "FINAL DISPUTE NOTICE" has the meaning given in Section 7.(e).
u. "FINAL DISSENTING SHARES" means all Northern Shares held by
Northern
stockholders who shall have finally perfected their rights to appraisal
and
payment under Sections 711.175-.185 of Title 53 of the Oregon Revised
Statutes
and received payment for such Northern Shares in accordance therewith
after the
Effective Time.
v. "FINAL MEETING" has the meaning given in Section 7.(c).
w. "FINAL MEETING DEADLINE DATE" has the meaning given in Section
7.(c).
x. "FINAL MEETING NOTICE" has the meaning given in Section 7.(c).
y. "FINAL SETTLEMENT STATEMENT" has the meaning given in Section 7.
(a).
z. "GAAP" means generally accepted accounting principles.
aa. "IDENTIFIED LOANS" means the loans set forth on Schedule 2
attached.
bb. "INITIAL NONDISSENTING SHARES" means the total number of
Northern Shares
outstanding as of the Effective Time, excluding all Northern Shares held
by
Stockholders who, as of the Effective Time, (i) voted against the Merger
or sent
or delivered notices of dissent, (ii) are eligible to and have demanded
appraisal rights with respect thereto in accordance with Sections
711.175-.185
of Title 53 of the Oregon Revised Statutes and (iii) as of the Effective
Time,
shall not have effectively withdrawn or lost their rights to appraisal
and
payment under Sections 711.175-.185 of Title 53 of the Oregon Revised
Statutes.
cc. "INTEREST" has the meaning given in Section 3.(a).
dd. "INTERIM APPOINTED EXAMINER" has the meaning given in Section 5.
(f).
ee. "INTERIM COMMITTEE MEETING" has the meaning given in Section 5.
(d).
ff. "INTERIM MEETING DEADLINE DATE" has the meaning given in
Section 5.(d).
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gg. "INTERIM MEETING NOTICE" has the meaning given in Section 5.(d).
hh. "JOINT INSTRUCTIONS" means written instructions executed by (i)
a
majority of the Committee Members regarding delivery of a portion of the
Escrowed Funds (except as otherwise provided in Sections 5.(d) and 7.
(c)) or
(ii) in the case of written instructions delivered by the Committee
under
Section 5.(f) or 7.(e), the Interim Appointed Examiner or Final
Appointed
Examiner, as the case may be, and two (2) Committee Members.
ii. "LOAN EXAMINER" means a person or entity that is a loan
examiner, loan
reviewer or loan auditor (other than a current employee, officer or
director of
Cowlitz or Cowlitz Bank) with at least ten (10) years experience in
commercial
lending, banking and/or bank examining, including at least two (2) years
experience as a loan examiner, loan reviewer or loan auditor.
jj. "LOSS" with respect to an Identified Loan has the meaning
assigned to
such term in Schedule 1 attached.
kk. "LOSS AMOUNT" has the meaning given in Section 5.(b).
ll. "MEETING EXPENSES" has the meaning given in Section 2.(c).
mm. "MERGER" has the meaning given in the Recitals.
nn. "MERGER AGREEMENT" has the meaning given in the Recitals.
oo. "NORTHERN" has the meaning given in the Introduction.
pp. "NORTHERN MEMBERS" has the meaning given in the Recitals.
qq. "NORTHERN SHARES" means the shares of Northern common stock, par
value
per share $1.00.
rr. "RECOVERED AMOUNT" has the meaning given in Section 6.(a).
ss. "REIMBURSABLE LOSS" has the meaning given in Section 5.(a).
tt. "SPECIAL MENTION" with respect to an Identified Loan has the
meaning
assigned to such term in Schedule 1 attached.
uu. "STANDARDS" with respect to a decision or action taken by a Loan
Examiner or Committee Member hereunder relating to an Identified Loan,
means a
decision (i) made in good faith and (ii) (A) in accordance with Cowlitz
Bank's
internal loan policies as in effect from time to time or (B) in
accordance with
a determination by any applicable state or federal banking regulatory
agency
that a loss should be taken with respect to such Identified Loan.
vv. "SUBSTANDARD" with respect to an Identified Loan has the meaning
assigned to such term in Schedule 1 attached.
ww. "THRESHOLD AMOUNT" means, with respect to an Identified Loan,
the
threshold amount, if any, allocated to such Identified Loan as set forth
in
Schedule 2 attached as such amount may be adjusted pursuant to this
Agreement.
xx. "UNUSED FINAL THRESHOLD AMOUNT" has the meaning given in Section
7.(b).
2. APPOINTMENT OF ESCROW AGENT; ACTIONS OF THE COMMITTEE.
a. Northern, Cowlitz and Cowlitz Bank hereby appoint the Escrow
Agent
to serve in accordance with the terms of this Agreement, and the
Escrow
Agent hereby accepts such appointment and agrees to act in such
capacity
upon the express terms, conditions and provisions hereinafter set
forth in
this Agreement.
b. Three (3) Committee Members shall constitute a quorum in
order to
take any actions called for by this Agreement, except as otherwise
provided
in Sections 5.(d) and 7.(c). When a
F-3
quorum exists, actions may be taken by the Committee by an
affirmative vote
of at least three (3) of the Committee Members present (except as
otherwise
provided in Sections 5.(d) and 7.(c)), and such approval shall be
evidenced
in writing signed by at least two Committee Members on behalf of the
Committee. Committee Members may participate in meetings of the
Committee in
person or by telephone conference call. All notices to be sent to
the
Committee shall be sent to each of the Committee Members.
c. Cowlitz Bank shall have the right, from time to time and in
its sole
discretion, to appoint a substitute Cowlitz Bank Member upon written
notice
to the Escrow Agent and the Northern Members. If a Northern Member
should
prior to the Effective Time become unable or unwilling to serve on
the
Committee, such Northern Member shall give Northern and Cowlitz
prompt prior
written notice thereof, and Northern shall have the right, in its
sole
discretion, to appoint a substitute Northern Member no later than
the
earlier of (A) the Effective Time or (B) five (5) business days
after
delivery of such notice. If a Northern Member should become after
the
Effective time unable or unwilling to continue to serve on the
Committee,
such Northern Member shall give Cowlitz Bank, the remaining Northern
Member
and the Escrow Agent prior written notice thereof, and within five
(5) business days after delivery of such notice, the remaining
Northern
Member shall have the right, in his or her sole discretion, to
appoint a
substitute Northern Member; PROVIDED, that such substitute Northern
Member
(i) must have been a Shareholder at the Effective Time, (ii) (A)
must have
been a director or officer of Northern at the Effective Time or (B)
in the
remaining Northern Member's reasonable judgment, must be a
sophisticated
financial investor, and (iii) is not an employee, director or
officer of
Cowlitz or Cowlitz Bank.
d. Each Northern Member shall receive compensation for his or
her
service on the Committee in the amount of $1,000 for each 12-month
period
during the term of this Agreement, payable within thirty (30) days
of the
first and second anniversaries of the Effective Time; PROVIDED,
HOWEVER,
that if such Northern Member is not serving on the Committee at the
first
anniversary date or Escrow Expiration Date, as the case may be, then
no fee
shall be due or payable to him or her. Such fee shall be payable
from the
Interest, if any, remaining at the first anniversary date or Escrow
Expiration Date, as the case may be; PROVIDED, HOWEVER, that such
fee shall
be paid if and only to the extent there is sufficient Interest
therefor. In
addition, the reasonable out-of-pocket expenses, if any, incurred by
a
Northern Member in participating in Committee meetings hereunder
("MEETING
EXPENSES") may be reimbursed from the Interest at the Escrow
Expiration Date
in accordance with Section 7.(d) or (f), as the case may be, but in
no event
shall any such reimbursement exceed the Interest remaining at such
date. If
at any time the Interest is insufficient to make any payments due
and
payable to the Northern Members in accordance with this Agreement,
the
amount available from the Interest to make such payments at such
time shall
be divided equally between the Northern Members entitled to payment.
e. No Northern Member or Cowlitz Bank Member shall have any
liability
to any party hereto (except the Escrow Agent). The Cowlitz Bank
Members
shall not have any duty to represent the interest of holders of
Northern
Common Stock and shall have no liability whatsoever to such holders.
The
Northern Members have been appointed to represent the interests of
the
holders of Northern Common Stock, but no Northern Member shall have
any
liability to any holder of Northern Common Stock with respect to
acts or
omissions in his or her capacity as a member of the Committee,
unless it is
established in a final judicial determination by clear and
convincing
evidence that any decision or action was undertaken with deliberate
intent
to injure the holders of Northern Common Stock or with reckless
disregard
for the best interest of such holders, and in any event, the
liability shall
be limited to actual, proximate, quantifiable damages.
F-4
3. DELIVERY INTO ESCROW.
a. The Exchange Agent shall be instructed by Cowlitz to deliver
to the
Escrow Agent the Escrowed Funds. The Escrow Agent agrees to hold the
Escrowed Funds, including any interest or other income received on
such
investment or reinvestment of the Escrowed Funds ("INTEREST"), in
escrow as
agent for the Exchange Agent on behalf of the Escrow Stockholders,
and to
distribute the Escrowed Funds as provided herein. For purposes of
this
Agreement, the Escrowed Funds shall not be deemed to include the
Interest.
The Interest shall be separately accounted for and may only be used
(i) for
final distribution to the Exchange Agent and (ii) to pay those fees
and
expenses specified herein as payable from the Interest. The Escrowed
Funds
shall be invested by the Escrow Agent in (A) direct obligations of,
or
obligations fully guaranteed by, the United States of America with
maturities no greater than three (3) months, (B) insured
certificates of
deposit, or time deposits, issued by commercial banks having a
combined
capital and surplus of not less than $500,000,000, with maturities
no
greater than three (3) months, and (C) money market mutual funds
authorized
solely to invest in direct obligations of, or obligations fully
guaranteed
by, the United States of America; PROVIDED, HOWEVER, that at all
times
during the term of this Agreement, at least the greater of (x)
twenty
percent (20%) of the Escrowed Funds or (y) $100,000 shall be
invested in
(C) above, unless the Escrowed Funds total less than $100,000, in
which case
all remaining Escrowed Funds shall be invested in (C) above.
b. The Escrow Agent shall have no duty or right to invest the
Escrowed
Funds until it receives written investment instructions from the
Northern
Members in accordance with Section 3.(a). The Escrow Agent shall not
be
liable for any loss from said investments. The Escrow Agent is
authorized to
redeem any such investments as necessary to make any payments or
disbursements required hereunder and shall be held harmless by the
Northern
Members and Cowlitz Bank, jointly and severally, with respect to any
losses
or penalties incurred thereby. The Escrow Agent shall, at least ten
(10) days prior to the maturity of any investment, notify the
Northern
Members of such impending maturity.
c. As soon as reasonably practicable after Cowlitz has
determined the
number of Final Dissenting Shares, if any, Cowlitz shall deliver to
the
Exchange Agent an amount equal to the product of the Cash
Consideration (as
defined in the Merger Agreement) and the Additional Nondissenting
Shares
(the "ADDITIONAL ESCROWED FUNDS"), plus interest thereon from the
period
starting on the Effective Time through the date of delivery of the
Additional Escrowed Funds into escrow hereunder, to be held in
escrow as
part of the Escrowed Funds hereunder (it being understood and agreed
that
such interest shall be deemed to be part of the Interest held in
escrow
hereunder). The interest rate applicable to the Additional Escrowed
Funds
shall be equal to the average interest rate in effect with respect
to the
Escrowed Funds during such period. The Exchange Agent shall be
instructed to
deliver the Additional Escrowed Funds and the interest thereon to
the Escrow
Agent hereunder to be held in escrow as part of the Escrowed Funds
and the
Interest, respectively, in accordance with the terms and conditions
of this
Agreement. In the event that the number of Additional Nondissenting
Shares
is zero, Cowlitz shall not be required to deliver any Additional
Escrowed
Funds hereunder.
4. TAX MATTERS. The Exchange Agent shall be instructed by Cowlitz
to
deliver to the Escrow Agent any necessary tax forms or other necessary
documents
from each Shareholder no later than [10] days after the Effective Time.
Cowlitz
Bank and the Northern Members shall cooperate in obtaining such tax
forms to the
extent they are not in the possession of the Exchange Agent, and Cowlitz
Bank
shall use its reasonable best efforts to obtain the cooperation of the
Exchange
Agent, if necessary. The Escrow Agent will treat the Escrow Stockholders
as
beneficial owners of the Escrowed Funds and the Interest for tax
purposes and
will report annually to the Escrow Stockholders and the relevant tax
authorities
each Escrow Shareholder's share of the Interest received by the Escrow
Agent in
accordance with such Escrow Shareholder's proportionate share of the
total
number of Northern
F-5
Shares held by the Escrow Stockholders as of such time relative to the
number of
Northern Shares held by such Escrow Shareholder as of the Effective
Time.
5. PURPOSE; INTERIM COMMITTEE MEETINGS; REIMBURSEMENT.
a. Cowlitz Bank shall be entitled to be reimbursed from the
Escrowed
Funds for (x) any loss incurred by it during the period (the "ESCROW
PERIOD") beginning on the date hereof and ending on the 24-month
anniversary
of such date (the "ESCROW EXPIRATION DATE") relating to an
Identified Loan
in the manner provided in this Section 5 and (y) any loss expected
to be
incurred by it after the Escrow Expiration Date relating to an
Identified
Loan in the manner provided in Section 7 (each, a "REIMBURSABLE
LOSS");
PROVIDED, HOWEVER, that in no event shall the aggregate of such
reimbursements exceed the Escrowed Funds. A loss incurred by Cowlitz
Bank
during the Escrow Period related to an Identified Loan shall be from
time to
time deemed to occur and to be a Reimbursable Loss if (i) Cowlitz
Bank, in
accordance with the Standards, determines that a specific reserve is
necessary for such Identified Loan in excess of the then Threshold
Amount
for such Identified Loan (regardless of whether such Identified Loan
is in
default); (ii) Cowlitz Bank, in accordance with the Standards,
determines
that the value of such Identified Loan should be written down on the
books
of Cowlitz Bank (regardless of whether such Identified Loan is in
default);
(iii) Cowlitz Bank suffers a loss as a result of a good faith sale,
other
disposition or payoff of such Identified Loan; or (iv) such
Identified Loan
is in default for 90 days or more and after using commercially
reasonable
efforts to obtain payment on such Identified Loan, Cowlitz Bank, in
accordance with the Standards, determines that such Identified Loan
is
classified as Special Mention, Substandard, Doubtful or Loss. A
Reimbursable
Loss shall include, without limitation, a loss incurred by Cowlitz
Bank
relating to an Identified Loan to the extent the net amount actually
received by Cowlitz Bank upon the sale of the collateral securing
such
Identified Loan is less than the amount previously estimated by the
Committee in its determination of an earlier Reimbursable Loss with
respect
to such Identified Loan.
b. The amount (the "LOSS AMOUNT") required to reimburse Cowlitz
Bank
for a Reimbursable Loss shall be estimated by Cowlitz Bank in good
faith,
and the Loss Amount generally shall include, without limitation, (x)
the
amount of any additional reserve described in clause (i) of Section
5.(a) or
clause (i) of Section 7.(b); (y) the amount of any write-down or
loss
described in clause (ii) or (iii) of Section 5.(a) or clause (ii) or
(iii) of Section 7.(b) in excess of the Identified Loan's then
Threshold
Amount and (z) in the case of loans described in clause (iv) of
Section 5.(a) or clause (iv) or (v) of Section 7.(b), the amount of
loss
expected by Cowlitz in excess of the then Threshold Amount the
unpaid
principal and interest on such Identified Loan (less the net amount
actually
received, if any, by Cowlitz Bank upon the sale of any collateral
securing
such Identified Loan) and Cowlitz Bank's out-of-pocket expenses
incurred in
its attempts to obtain payment on such Identified Loan, including
without
limitation, reasonable attorneys' fees, which expenses shall be
incurred
consistently with Cowlitz Bank's customary collection practices.
c. From time to time during the term of this Agreement, Cowlitz
Bank
may incur certain expenses in its attempts to (i) obtain payment
with
respect to an Identified Loan in order to prevent such Identified
Loan from
becoming a Reimbursable Loss and/or (ii) prevent a loss from
becoming larger
or to reduce the size of a potential Reimbursable Loss. To the
extent any of
such expenses have not previously been reimbursed to Cowlitz Bank as
a
Reimbursable Loss from the Escrowed Funds ("ADDITIONAL EXPENSES"),
Cowlitz
Bank shall be entitled to be reimbursed for such Additional Expenses
from
the Escrowed Funds by including such Additional Expenses in the
Final
Settlement Statement provided such expenses have been incurred
consistently
with Cowlitz Bank's customary collection practices. Additional
Expenses may
include, without limitation, reasonable attorneys' fees, outside
collateral
appraisals and court fees and costs. The Loss Amount with respect to
Additional Expenses shall be equal to Cowlitz Bank's estimate in
good faith
of such Additional Expenses.
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d. If at any time during the Escrow Period Cowlitz Bank has a
good
faith belief that a Reimbursable Loss has occurred, Cowlitz Bank
shall give
written notice (an "INTERIM MEETING NOTICE") to the Committee
setting forth
in reasonable detail Cowlitz Bank's basis for such Reimbursable Loss
and the
estimated Loss Amount, and of its desire to convene a meeting of the
Committee Members (an "INTERIM COMMITTEE MEETING") on a date no
earlier than
five (5) business days after the date of such Interim Meeting
Notice. After
receipt of such Interim Meeting Notice, each Committee Member shall
promptly
communicate to Cowlitz Bank such Committee Member's availability on
the
meeting date specified in such Interim Meeting Notice and his or her
availability during the seven (7) calendar days following such
meeting date.
Upon Cowlitz Bank's determination of a time, date and location for
such
Interim Committee Meeting which is acceptable to all four (4)
Committee
Members, Cowlitz Bank shall promptly give written confirmation
thereof to
each Committee Member; PROVIDED, HOWEVER, that if such date is
beyond the
seventh (7th) calendar day (the "INTERIM MEETING DEADLINE DATE")
following
the initial meeting date specified in the Interim Meeting Notice,
then if
Cowlitz Bank determines that there is a date on or prior to the
Interim
Meeting Deadline Date on which three (3) Committee Members are able
to
participate, Cowlitz Bank shall have the right to set such Interim
Committee
Meeting on such earlier date, even though all Committee Members may
be
unable to participate on such date. Notwithstanding the foregoing,
if at the
Interim Committee Meeting, neither Northern Committee Member is
present,
then the Committee shall adjourn and Cowlitz Bank shall set a second
Interim
Committee Meeting date as soon as possible after the adjourned
meeting using
the procedure set forth in the preceding sentence; PROVIDED,
HOWEVER, that
if neither Northern Committee Member is present at such second
Interim
Committee Meeting, then two (2) Committee Members shall constitute a
quorum
for purposes of such Interim Committee Meeting, action may be taken
at such
meeting by an affirmative vote of the two (2) Committee Members
present and
Joint Instructions may be executed by the two (2) Committee Members
present.
e. At such Interim Committee Meeting, the Committee shall
determine, in
accordance with the Standards, the applicable Loss Amount for such
Reimbursable Loss, if any, and upon such determination, the
Committee shall
deliver Joint Instructions to the Escrow Agent with respect thereto.
In
making its determination, the Committee shall have the discretion to
determine, in accordance with the Standards, the applicable
classification
of the Identified Loan and the estimated net amount anticipated to
be
received by Cowlitz Bank upon the sale of any collateral securing
such
Identified Loan. The Escrow Agent shall, immediately after receipt
of the
Joint Instructions, deliver to Cowlitz Bank from the Escrowed Funds
cash in
the amount specified therein.
f. If the Committee is unable to make such determination after
meeting
for one (1) day, the Committee shall appoint a Loan Examiner to
resolve such
dispute. If after one (1) day, the Committee is unable to agree on a
Loan
Examiner, then (i) the Northern Members shall jointly appoint a Loan
Examiner, (ii) the Cowlitz Bank Members shall jointly appoint a Loan
Examiner, and (iii) such appointed Loan Examiners shall jointly
appoint a
third Loan Examiner to resolve such dispute. The Loan Examiner
appointed in
accordance with this Section 5.(f) (the "INTERIM APPOINTED
EXAMINER") shall
make his or her decision in accordance with the Standards. The
decision of
the Interim Appointed Examiner shall be final and binding on Cowlitz
Bank
and the Committee. The fees of the Interim Appointed Examiner (and
the fees,
if any, of the Loan Examiners appointed pursuant to (i) and (ii)
above)
shall be paid one-half by Cowlitz Bank, from its own funds, and the
remaining one-half shall be paid, first, from the Interest and
second, from
the Escrowed Funds. Upon resolution of the dispute, the Committee
shall
deliver Joint Instructions to the Escrow Agent with respect thereto,
after
which the Escrow Agent shall immediately pay such portion of the
Escrowed
Funds which related to such dispute in accordance with the Joint
Instructions.
F-7
g. If at any time prior to the Escrow Expiration Date the
Escrowed
Funds shall be insufficient to comply with a Joint Instruction or
Court
Order, the Escrow Agent shall: (i) pay to the Exchange Agent the
Interest
(after payment of all expenses payable out of the Interest in
accordance
with this Agreement), for distribution by the Exchange Agent to the
Escrow
Stockholders in accordance with Section 3.2.(b) of the Merger
Agreement;
(ii) pay the entire Escrowed Funds to Cowlitz Bank; and (iii) advise
Cowlitz
Bank and the Committee in writing of the amount of such payments.
h. The Threshold Amount of an Identified Loan shall be subject
to
adjustment from time to time. In the event that Cowlitz Bank suffers
with
respect to an Identified Loan any loss described in clauses (ii) or
(iii) in Section 5.(a) or in clauses (ii), (iii) or (iv) in Section
7.(b),
then the Threshold Amount for such Identified Loan will be reduced
by the
amount of such loss but in no event will the Threshold Amount be
less than
$0. By way of example, if an Identified Loan has a Threshold Amount
of
$1,000 and such Identified Loan is then written down by $600,
Cowlitz Bank
would be entitled to no payment out of the Escrow Fund because the
amount of
the write-down did not exceed the Threshold Amount. However, as a
result of
the write-down, the Threshold Amount would be adjusted to $400. If
Cowlitz
Bank subsequently took another write-down of $700 on such Identified
Loan,
Cowlitz Bank would be entitled to receive $300 out of the Escrow and
the
Threshold Amount would be adjusted to $0.
6. RECOVERY BY COWLITZ BANK.
a. If at any time prior to the Escrow Expiration Date, Cowlitz
Bank
recovers any payment with respect to a Reimbursable Loss for which
Cowlitz
Bank had previously received payment therefor from the Escrowed
Funds (a
"RECOVERED AMOUNT"), then within ten (10) business days after
receipt of
such Recovered Amount, Cowlitz Bank shall deliver to the Escrow
Agent an
amount in cash equal to such Recovered Amount, plus interest thereon
from
the period starting on the date Cowlitz Bank had previously received
the
original payment from the Escrowed Funds with respect to such
Reimbursable
Loss through the date such Recovered Amount was received by it, to
be held
in escrow as part of the Escrowed Funds hereunder (it being
understood and
agreed that such interest shall be deemed to be part of the Interest
held in
escrow hereunder). The interest rate applicable to a Recovered
Amount shall
be equal to the average interest rate in effect with respect to the
Escrowed
Funds during such period.
b. If at any time after the Escrow Expiration Date, Cowlitz
Bank
receives any Recovered Amount, then such Recovered Amount shall be
the sole
property of Cowlitz Bank, the Northern Members shall have no claim
or right
to such Recovered Amount and Cowlitz Bank shall have no obligations
whatsoever to the Exchange Agent, Northern Members or Escrow
Stockholders
with respect to such Recovered Amount, including without limitation,
any
obligation to deliver such Recovered Amount to the Escrow Agent
hereunder.
7. FINAL RELEASE OF THE ESCROWED FUNDS. The Escrowed Funds and the
Interest will be released as of the Escrow Expiration Date as follows:
a. No later than thirty (30) days prior to the Escrow
Expiration Date,
Cowlitz Bank shall prepare and deliver to the Committee and the
Escrow Agent
a statement (the "FINAL SETTLEMENT STATEMENT") setting forth all
outstanding
Identified Loans which, as determined by Cowlitz Bank, in accordance
with
the Standards, are classified as Special Mention, Substandard,
Doubtful or
Loss as of the Escrow Expiration Date. The Final Settlement
Statement shall
also set forth Cowlitz Bank's good faith estimate of the Final Loss
Amount
and the Additional Expenses which have not been previously
reimbursed to
Cowlitz Bank from the Escrowed Funds as of the Escrow Expiration
Date, if
any. The "FINAL LOSS AMOUNT" shall be equal to (i) the aggregate
Loss
Amounts for the Identified Loans that Cowlitz Bank (A) has incurred
which
have not been previously reimbursed to
F-8
Cowlitz Bank from the Escrowed Funds or (B) reasonably expects to
incur
through and after the Escrow Expiration Date, less (ii) the
Aggregate Unused
Final Threshold Amount.
b. For purposes of the Final Settlement Statement, a
Reimbursable Loss
related to an Identified Loan shall be deemed to occur if, as of the
Escrow
Expiration Date: (i) Cowlitz Bank, in accordance with the Standards,
determines that an additional specific reserve is necessary for such
Identified Loan (regardless of whether such Identified Loan is in
default);
(ii) Cowlitz Bank, in accordance with the Standards, determines that
the
value of such Identified Loan should be written down on the books of
Cowlitz
Bank (regardless of whether such Identified Loan is in default);
(iii) Cowlitz Bank suffers a loss as a result of a good faith sale,
other
disposition or payoff of such Identified Loan; (iv) such Identified
Loan is
in default and Cowlitz Bank, in its reasonable judgment, determines
that the
collateral securing such Identified Loan is inadequate; or (v) such
Identified Loan is in default for 90 days or more and after using
commercially reasonable efforts to obtain payment on such Identified
Loan,
Cowlitz Bank, in accordance with the Standards, determines that such
Identified Loan is classified as Special Mention, Substandard,
Doubtful or
Loss. The Final Settlement Statement shall also include Cowlitz
Bank's
calculation of the Aggregate Unused Final Threshold Amount. The
"Unused
Final Threshold Amount" for an Identified Loan shall mean (i) the
Threshold
Amount (after being adjusted as provided herein) in the case of an
Identified Loan which has been paid off, has been sold or otherwise
has been
disposed of and (ii) the excess of the Threshold Amount (after being
adjusted as provided herein) over the specific reserve of the
Identified
Loan. "Aggregate Unused Final Threshold Amount" shall mean the sum
of the
Unused Final Threshold Amount for all Identified Loans (whether or
not such
loans are on the books of Cowlitz Bank as of the Escrow Expiration
Date). By
way of example, assume there are four Identified Loans (Loan A, Loan
B, Loan
C and Loan D, respectively), each with an initial threshold Amount
of $1000.
Loan A has been disposed of with a loss of $1500. Its Threshold
Amount is $0
and Cowlitz Bank has been reimbursed $500 out of the Escrow Fund.
Loan B has
been disposed of with a loss of $500. Its Threshold Amount has been
adjusted
to $500 and Cowlitz Bank received no reimbursement from the Escrow
Fund.
Loan C has a specific reserve of $1000, but Cowlitz Bank determines
that an
addition of $1200 to the reserve is required. Loan D has a specific
reserve
of $1000, but Cowlitz Bank determines that a specific reserve of
$600 is
sufficient. Loan A has an Unused Final Threshold Amount of $0; Loan
B has an
Unused Final Threshold Amount of $500; Loan C has an Unused Final
Threshold
Amount of $0; and Loan D has an Unused Final Threshold Amount of
$400. The
Final Settlement Statement would indicate a Loss Amount of $1200 for
Loan C.
The Aggregate Unused Final Threshold Amount would be $900.
Accordingly, the
Final Loss Amount would equal $300 (the sum of the Loss Amounts less
the
Aggregate Unused Final Threshold Amount).
c. Concurrently with delivery of the Final Settlement
Statement,
Cowlitz Bank shall also deliver written notice (the "FINAL MEETING
NOTICE")
to convene a meeting of the Committee to discuss the Final
Settlement
Statement (the "FINAL MEETING") on a date no earlier than five (5)
business
days after the date of such Final Meeting Notice. After receipt of
the Final
Meeting Notice, each Committee Member shall promptly communicate to
Cowlitz
Bank such Committee Member's availability on the meeting date
specified in
the Final Meeting Notice and his or her availability during the
seven
(7) calendar days following such meeting date. Upon Cowlitz Bank's
determination of a time, date and location for such Final Committee
Meeting
which is acceptable to all four (4) Committee Members, Cowlitz Bank
shall
promptly give written confirmation thereof to each Committee Member;
PROVIDED, HOWEVER, that if such date is beyond the seventh (7th)
calendar
day (the "FINAL MEETING DEADLINE DATE") following the initial
meeting date
specified in the Final Meeting Notice, then if Cowlitz Bank
determines that
there is a date on or prior to the Final Meeting Deadline Date on
which
three (3) Committee Members are able to participate, Cowlitz Bank
shall have
the right to set such Final Committee Meeting on such earlier date,
even
though all Committee Members may be unable to participate on such
date.
Notwithstanding the foregoing,
F-9
if at the Final Committee Meeting, neither Northern Committee Member
is
present, then the Committee shall adjourn and Cowlitz Bank shall set
a
second Final Committee Meeting date as soon as possible after the
adjourned
meeting using the procedure set forth in the preceding sentence;
PROVIDED,
HOWEVER, that if neither Northern Committee Member is present at
such second
Final Committee Meeting, then two (2) Committee Members shall
constitute a
quorum for purposes of the Final Committee Meeting, action may be
taken at
such meeting by an affirmative vote of the two (2) Committee Members
present
and Joint Instructions may be executed by the two (2) Committee
Members
present.
d. At the Final Meeting, the Committee shall determine, in
accordance
with the Standards, the Final Loss Amount and upon such
determination, the
Committee shall deliver Joint Instructions to the Escrow Agent with
respect
thereto. In making its determination of the Final Loss Amount, the
Committee
shall have the discretion to determine, in accordance with the
Standards,
the applicable classification of each Identified Loan and the
estimated net
amount anticipated to be received by Cowlitz Bank upon the sale of
any
collateral securing such Identified Loan. The Escrow Agent shall,
immediately upon receipt of such Joint Instructions:
(i) retain for its own account an amount equal to the accrued
and
unpaid fees of the Escrow Agent through the Termination Date,
first, from
the Interest and second, from the Escrowed Funds;
(ii) deliver $1,000 from the remaining Interest, if any, to
each
Northern Member as compensation for his or her service on the
Committee
for the year ending on the Escrow Expiration Date, PROVIDED that
such
Northern Member is serving on the Committee on such date, and
PROVIDED
FURTHER that if the remaining Interest is not sufficient to make
such
payment, the amount available from the remaining Interest shall
be
divided equally between the Northern Members entitled to payment;
(iii) deliver a portion of the remaining Interest, if any, to
each
Northern Member equal to the Meeting Expenses, if any, incurred
by such
Northern Member;
(iv) deliver a portion of the Escrowed Funds to Cowlitz Bank
equal to
the Final Loss Amount as set forth in such Joint Instructions;
and
(v) deliver to the Exchange Agent the remaining balance of
the
Escrowed Funds and the Interest (after (i) through (iv) above
have been
deducted or retained therefrom), if any, for distribution by the
Exchange
Agent to the Escrow Stockholders in accordance with Section 3.2.
(b) of
the Merger Agreement.
e. If the Committee is unable to make such determination after
meeting
for one (1) day, the Committee shall (i) deliver written notice (the
"FINAL
DISPUTE NOTICE") of the disputed Final Loss Amount (as set forth in
the
Meeting Notice for the Final Meeting) to the Escrow Agent and (ii)
appoint a
Loan Examiner to resolve such dispute. If after one (1) day, the
Committee
is unable to agree on a Loan Examiner, then (A) the Northern Members
shall
jointly appoint a Loan Examiner, (B) the Cowlitz Bank Members shall
jointly
appoint a Loan Examiner, and (C) such appointed Loan Examiners shall
jointly
appoint a third Loan Examiner to resolve such dispute. The Loan
Examiner
appointed in accordance with this Section 7.(e) (the "FINAL
APPOINTED
EXAMINER") shall make his or decision in accordance with the
Standards. The
decision of the Final Appointed Examiner shall be final and binding
on
Cowlitz Bank and the Committee. The fees of the Final Appointed
Examiner
(and the fees, if any, of the Loan Examiners appointed pursuant to
(A) and
(B) above) shall be paid one-half by Cowlitz Bank, from its own
funds, and
the remaining one-half shall be paid, first, from the Interest and
second,
from the Escrowed Funds. Upon resolution of the dispute, the
Committee shall
deliver Joint Instructions to the Escrow Agent.
F-10
f. In the event the Escrow Agent receives a Final Dispute
Notice from
the Committee, then the Escrow Agent shall retain custody of a
portion of
the Escrowed Funds equal to the Final Loss Amount as set forth in
the Final
Dispute Notice until the first to occur of the following:
(i) receipt by the Escrow Agent of Joint Instructions
resolving such
dispute; or
(ii) receipt by the Escrow Agent of a Court Order resolving
such
dispute and directing disposition of such portion of the Escrowed
Funds;
after which the Escrow Agent shall immediately:
(iii) retain for its own account an amount equal to the
accrued and
unpaid fees of the Escrow Agent through the Termination Date,
first, from
the Interest and second, from the Escrowed Funds;
(iv) deliver $1,000 from the remaining Interest, if any, to
each
Northern Member as compensation for his or her service on the
Committee
for the year ending on the Escrow Expiration Date, PROVIDED that
such
Northern Member is serving on the Committee on such date, and
PROVIDED
FURTHER that if the remaining Interest is not sufficient to make
such
payment, the amount available from the remaining Interest shall
be
divided equally between the Northern Members entitled to payment;
(v) deliver a portion of the remaining Interest, if any, to
each
Northern Member equal to the Meeting Expenses, if any, incurred
by such
Northern Member;
(vi) deliver a portion of the Escrowed Funds to Cowlitz Bank
equal to
the Final Loss Amount as set forth in such Joint Instructions or
Court
Order, as the case may be; and
(vii) deliver to the Exchange Agent the remaining balance of
the
Escrowed Funds and the Interest (after (iii) through (vi) above
have been
deducted or retained therefrom), if any, for distribution by the
Exchange
Agent to the Escrow Stockholders in accordance with Section 3.2.
(b) of
the Merger Agreement.
g. If at the Escrow Expiration Date, the Escrowed Funds shall
be
insufficient to comply with such Joint Instructions or Court Order,
as the
case may be, the Escrow Agent shall make payments in the order set
forth in
(d) or (f) above, as the case may be, to the extent such payments
can be
made in accordance therewith, and advise Cowlitz Bank and the
Committee in
writing of the amounts of each such payment made.
8. TERMINATION. This Agreement will terminate upon the later to
occur of
(i) the Escrow Expiration Date or (ii) release of all of the Escrowed
Funds and
the Interest by the Escrow Agent as provided in this Agreement (the
"TERMINATION
DATE").
9. DUTY AND LIABILITY OF THE ESCROW AGENT.
a. The sole duty of the Escrow Agent, other than as herein
specified,
shall be to receive the Escrowed Funds and hold them subject to
release in
accordance with the terms of this Agreement. The Escrow Agent's
rights,
duties and obligations are strictly limited to those expressly set
forth in
this Agreement and the Escrow Agent shall be under no implied
obligations
nor subject to take notice of any defaults or any other matter, nor
be bound
nor required to give notice on demand, nor required to take any
action
whatever except as herein expressly provided. The Escrow Agent shall
not be
liable for any loss or damage unless caused by its own gross
negligence, bad
faith or willful misconduct.
b. The Escrow Agent may conclusively rely upon and shall be
protected
in acting upon any statement, certificate, notice, request, consent,
order
or other document believed by it to be genuine and to have been
signed or
presented by the proper party or parties. The Escrow Agent
F-11
shall have no duty or liability to verify any such statement,
certificate,
notice, request, consent, order or other document and its sole
responsibility shall be to act only as expressly set forth in this
Agreement. The Escrow Agent shall be under no obligation to
institute or
defend any action, suit or proceeding in connection with this
Agreement. The
Escrow Agent may consult counsel in respect of any question arising
under
this Agreement, and the Escrow Agent shall not be liable for any
action
taken or omitted in good faith upon advice of such counsel.
c. The Northern Members and Cowlitz Bank jointly and severally
agree to
indemnify and hold harmless the Escrow Agent from loss, damage or
any loss
made against the Escrow Agent arising out of or relating to this
Agreement,
such indemnification to include all costs and expenses incurred by
the
Escrow Agent, including but not limited to reasonable attorneys'
fees;
PROVIDED, HOWEVER, that such indemnification shall not include
losses
against the Escrow Agent which are occasioned by gross negligence,
bad faith
or willful misconduct; PROVIDED, FURTHER, that the indemnification
obligations of the Northern Members hereunder shall be limited to
the
Interest and the Escrowed Funds.
d. The Escrow Agent may conclusively rely on Joint Instructions
as to
the disposition of funds, assets, documents, or other property held
in
escrow.
10. ESCROW AGENT'S FEE AND EXPENSES.
a. The fees of the Escrow Agent, which are set forth in
Schedule 3
attached hereto, shall be paid first, from the Interest and, second,
from
the Escrowed Funds. The fee for services rendered hereunder is
intended as
full compensation for the Escrow Agent's services as contemplated by
this
Agreement. In addition, Cowlitz Bank, out if its own funds, agrees
to pay
one-half of the Escrow Agent's reasonable expenses and
disbursements,
including, but not limited to, the actual cost of legal services
should the
Escrow Agent deem it necessary to retain an attorney, and the
remaining
one-half shall be paid, first, from the Interest and, second, from
the
Escrowed Funds. Should litigation instituted by or against any of
the
parties require additional duties of the Escrow Agent or appearance
in
court, the Escrow Agent shall be reimbursed by the nonprevailing
party for
its services and for its expenses incurred therein, or in the event
such
litigation is settled, as agreed among the parties.
b. If any controversy arises between the parties hereto or with
any
third person, the Escrow Agent shall not be required to resolve the
same or
to take any action to do so but may, at its discretion, institute
such
interpleader or other proceedings as it deems proper. Any costs and
expenses, including reasonable counsel fees incurred by the Escrow
Agent in
connection with such dispute, shall be paid by the nonprevailing
party or as
otherwise agreed by the parties.
11. BINDING AGREEMENT AND SUBSTITUTION OF ESCROW AGENT. The terms
and
conditions of this Agreement shall be binding on the heirs, executors
and
assigns, creditors, transferees, or successors in interest of the
parties
hereto, regardless of whether such interest is obtained by operation of
law or
otherwise, including without limitation by consolidation, transfer,
assignment
or merger. Any corporation into which the Escrow Agent may merge, sell,
or
transfer its escrow business shall automatically be and become successor
Escrow
Agent hereunder, vested with all powers as was its predecessor without
the
execution or filing of any instruments, or any further act, deed, or
conveyance
on the part of the parties hereto. If, for any reason, the Escrow Agent
named
herein should be unable or unwilling to continue to serve as such Escrow
Agent,
the Escrow Agent shall give the Northern Members and Cowlitz Bank thirty
(30) days prior written notice thereof. Upon the effective date of such
resignation, the Escrow Agent shall have no further duties or
obligations
hereunder. The Northern Members and Cowlitz Bank shall within that
thirty
(30) days appoint another escrow agent by a writing signed by the
Northern
Members and Cowlitz Bank, a copy of which shall be delivered to the
withdrawing
Escrow Agent. If the Escrow Agent is not notified within thirty (30)
days of a
successor Escrow Agent then the Escrow Agent shall be entitled to
transfer all
of the Escrowed Funds to a court
F-12
of competent jurisdiction with a request to have a successor appointed.
The
Escrow Agent shall promptly thereafter execute all documents necessary
to
transfer the Escrowed Funds to the substitute escrow agent.
12. GENERAL.
a. MODIFICATION. No waiver or modification of this Agreement
shall be
valid unless in writing and duly executed by all parties hereto. No
evidence
of any waiver or modification shall be offered or received in
evidence in
any proceedings, arbitration, or litigation between any of the
parties
arising out of or affecting this Agreement, or the rights or
obligations of
the parties hereunder, unless such waiver or modification is in
writing and
duly executed by all parties hereto. The parties further agree that
the
provisions of this Section 12.(a) may not be waived except as set
forth
herein.
b. NO WAIVER. Failure or delay on the part of any party in
exercising
any rights, power or privileges under this Agreement shall not be
deemed a
waiver of any exercise of any right, power or privilege of such
party.
c. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
upon
and inure to the benefit of the parties and their respective
successors and
assigns.
d. NOTICES. All notices, demands and other communications
called for
or required by this Agreement shall be in writing and shall be
addressed to
the parties at their respective addresses stated below or to such
other
address as a party may subsequently designate by ten days' advance
written
notice to the other parties. Communications hereunder shall be
deemed to
have been received (i) upon delivery in person, (ii) five days after
mailing
it by certified mail, return receipt requested and postage prepaid,
(iii) the second business day after depositing it with a commercial
overnight carrier which provides written verification of delivery or
(iv) the day of transmission by telefacsimile if sent before 2:00
p.m.
recipient's time (or if the day of transmittal is not a business day
for the
recipient, the next business day), provided that a copy of such
notice is
sent on the same day by certified mail, return receipt requested and
postage
prepaid, with an indication that the original was sent by facsimile
and the
date of its transmittal.
To Cowlitz or Cowlitz Bank: Cowlitz Bancorporation
Attention: President
927 Commerce Avenue
Longview, WA 98632
Phone: (360) 423-9800
Fax: (360) 423-5461
To the Cowlitz Bank Members: Cowlitz Bancorporation
Attention: and
927 Commerce Avenue
Longview, WA 98632
Phone: (360) 423-9800
Fax: (360) 423-5461
in each case with a copy to: Heller Ehrman White & McAuliffe
Attention: Bernard L. Russell
6100 Columbia Center
701 Fifth Avenue
Seattle, WA 98104
Phone: (206) 447-0900
Fax: (206) 447-0849
F-13
To the Northern Members: -------------------
-------------------
-------------------
-------------------
-------------------
-------------------
Phone: -------------
Phone: -------------
Fax: --------------- Fax:
---------------
with a copy to: Davis Wright Tremaine LLP
Attention: David C. Baca
Suite 2300
1300 SW Fifth Avenue
Portland, OR 97201
Phone: (503) 778-5306
Fax: (503) 778-5299
To the Escrow Agent: -------------------
-------------------
-------------------
Phone: -------------
Fax: ---------------
e. FULL UNDERSTANDING. In executing this Agreement, each party
fully,
completely, and unconditionally acknowledges and agrees that it (a)
has had
an equal opportunity to participate in drafting this Agreement, (b)
has
consulted with, and had the advice and counsel of a duly licensed
and
competent attorney and that it has executed this Agreement after
independent
investigation, voluntarily and without fraud, duress, or undue
influence,
(c) expressly consents that this Agreement be given full force and
effect
according to each and every of its express terms and provisions and
(d) agrees that no ambiguity shall be construed against any party
based upon
a claim that such party drafted the applicable language.
f. ENTIRE AGREEMENT. This Agreement and the Merger Agreement
contain
all of the terms and conditions agreed upon by the parties relating
to the
subject matter hereof and supersede and cancel all other prior
agreements,
negotiations, correspondence, undertakings, communications and
understandings of the parties, whether written or oral, respecting
that
subject matter.
g. CAPTIONS AND CONSTRUCTION. Captions in this Agreement are
for the
convenience of the reader and are not to be considered in the
interpretation
of the terms.
h. SEVERABILITY. If any one or more of the provisions of this
Agreement, or the applicability of any such provision to a specific
situation, shall be held invalid or unenforceable, such provision
shall be
modified to the minimum extent necessary to make it or its
application valid
and enforceable, and the validity and enforceability of all other
provisions
of this Agreement and all other applications of any such provision
shall not
be affected thereby.
i. GOVERNING LAW. This Agreement shall be governed by the laws
of the
State of , without regard to its conflicts of law principles.
j. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same
agreement,
and shall become a binding agreement when one or more counterparts
have been
signed by each of the parties and either original or facsimile
counterparts
have been delivered to the other party.
F-14
IN WITNESS WHEREOF, the parties hereto have entered into and signed
this
Agreement as of the date and year first written above.
--------------------------------------,
as Escrow Agent
By
--------------------------------------
Its
--------------------------------------
COWLITZ BANCORPORATION
By
--------------------------------------
Its
--------------------------------------
COWLITZ BANK
By
--------------------------------------
Its
--------------------------------------
NORTHERN BANK OF COMMERCE
By
--------------------------------------
Its
