STOCK OPTION AGREEMENT, dated September 14, 1999, between Northern Bank
of
Commerce, a corporation chartered under the banking laws of the State of
Oregon
("ISSUER"), and Cowlitz Bancorporation, a Washington corporation
("GRANTEE").
WITNESSETH:
WHEREAS, Grantee, Issuer and Cowlitz Bank have entered into an
Agreement and
Plan of Merger of even date herewith (the "MERGER AGREEMENT"), which
agreement
has been executed by the parties hereto immediately prior to this Stock
Option
Agreement (this "AGREEMENT"); and
WHEREAS, as a condition to Grantee's entering into the Merger
Agreement and
in consideration therefor, Issuer has agreed to grant Grantee the Option
(as
hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants
and agreements set forth herein and in the Merger Agreement, the parties
hereto
agree as follows:
1. GRANT OF OPTION.
(a) Issuer hereby grants to Grantee an unconditional,
irrevocable option
(the "OPTION") to purchase, subject to the terms hereof, up to an
aggregate
of 243,893 fully paid and nonassessable shares of Issuer's Common
Stock, par
value $1.00 per share ("COMMON STOCK"), at a price of $4.625 per
share (the
"OPTION PRICE"); provided, however, that in no event shall the
number of
shares of Common Stock for which this Option is exercisable exceed
19.9% of
the Issuer's issued and outstanding shares of Common Stock without
giving
effect to any shares subject to or issued pursuant to the Option.
The number
of shares of Common Stock that may be received upon the exercise of
the
Option and the Option Price are subject to adjustment as herein set
forth.
(b) In the event that any shares of Common Stock are either (i)
issued
or otherwise become outstanding after the date of this Agreement
(other than
pursuant to this Agreement and other than pursuant to an event
described in
Section 5 hereof) or (ii) redeemed, repurchased, retired or
otherwise cease
to be outstanding after the date of this Agreement, the number of
shares of
Common Stock subject to the Option shall be increased or decreased,
as
appropriate, so that, after such issuance or such redemption,
repurchase,
retirement or other action, such number equals 19.9% of the number
of shares
of Common Stock then issued and outstanding without giving effect to
any
shares subject to or issued pursuant to the Option. Nothing
contained in
this Section 1(b) or elsewhere in this Agreement shall be deemed to
authorize Issuer or Grantee to issue, redeem, repurchase or retire
shares in
breach of any provision of the Merger Agreement.
2. EXERCISE OF OPTION.
(a) The Holder (as hereinafter defined) may exercise the Option,
in
whole or part, and from time to time, if both an Initial Triggering
Event
(as hereinafter defined) and a Subsequent Triggering Event (as
hereinafter
defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined); provided, that the
Holder shall
have sent written notice of such exercise (as provided in subsection
(e) of
this Section 2) within 90 days following such Subsequent Triggering
Event
(or such longer period as provided in Section 10); provided further,
however, that if the Option cannot be exercised on any day because
of any
injunction, order or similar restraint issued by a court of
competent
jurisdiction, the period during which the Option may be exercised
shall be
extended so that the Option shall expire no earlier than on the
tenth
business day after such injunction, order or restraint shall have
been
dissolved or
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when such injunction, order or restraint shall have become permanent
and no
longer subject to appeal, as the case may be. Each of the following
shall be
an "EXERCISE TERMINATION EVENT": (i) the Effective Time (as defined
in the
Merger Agreement); (ii) termination of the Merger Agreement in
accordance
with the provisions thereof if such termination occurs prior to the
occurrence of an Initial Triggering Event, except a termination by
Grantee
pursuant to Section 9.1(d) of the Merger Agreement (unless the
breach by
Issuer giving rise to such right of termination is non-volitional);
(iii) the passage of 12 months after termination of the Merger
Agreement if
such termination follows the occurrence of an Initial Triggering
Event or is
a termination by Grantee pursuant to Section 9.1(d) of the Merger
Agreement
(unless the breach by Issuer giving rise to such right of
termination is
non-volitional); provided, that if the Initial Triggering Event
continues or
occurs beyond such termination and prior to the passage of such 12-
month
period, the Exercise Termination Event shall be 12 months from the
expiration of the Last Triggering Event (as hereinafter defined) but
in no
event more than 18 months after such termination; or (iv) delivery
of a
written request for payment of termination fees pursuant to Section
9.2 of
the Merger Agreement (provided that no such Exercise Termination
Event shall
be deemed to have occurred unless such termination fees and any
reimbursement amounts are paid in accordance with such Section 9.2).
For
purposes of this Agreement, (A) "HOLDER" shall mean the holder or
holders of
the Option and (B) "Last Triggering Event" shall mean the last
Initial
Triggering Event to expire. Notwithstanding anything to the contrary
herein,
(i) the Option may not be exercised at any time when Grantee shall
be in
breach of any of its representations, warranties, covenants or
agreements
contained in the Merger Agreement such that Issuer would be entitled
to
terminate the Merger Agreement pursuant to Section 9.1(d) thereof
and
(ii) this Agreement shall automatically terminate upon the
termination of
the Merger Agreement pursuant to Section 9.1(d) thereof as a result
of the
breach by Grantee of its representations, warranties, covenants or
agreements contained in the Merger Agreement.
(b) The term "INITIAL TRIGGERING EVENT" shall mean any of the
following
events or transactions occurring after the date hereof:
(i) Issuer or any of its Significant Subsidiaries, as defined
in
Rule 1-02 of Regulation S-X promulgated by the Securities and
Exchange
Commission (each an "ISSUER SUBSIDIARY"), without having received
Grantee's prior written consent, shall have entered into an
agreement to
engage in an Acquisition Transaction (as hereinafter defined)
with any
person (the term "person" for purposes of this Agreement having
the
meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "1934 ACT"), and
the
rules and regulations thereunder) other than Grantee or any of
its
Subsidiaries (each a "GRANTEE SUBSIDIARY") or the Board of
Directors of
Issuer shall have recommended that the stockholders of Issuer
approve or
accept any Acquisition Transaction with any person other than
Grantee or
a Subsidiary of Grantee. For purposes of this Agreement,
"ACQUISITION
TRANSACTION" shall mean (x) a merger or consolidation, or any
similar
transaction, involving Issuer or any Issuer Subsidiary, (y) a
purchase,
lease or other acquisition or assumption of all or a substantial
portion
of the assets or deposits of Issuer or any Issuer Subsidiary, or
(z) a
purchase or other acquisition (including by way of merger,
consolidation,
share exchange or otherwise) of securities representing 10% or
more of
the voting power of Issuer; provided, however, that in no event
shall any
merger, consolidation, purchase or similar transaction involving
only
Issuer and one or more of Issuer Subsidiaries or involving only
two or
more of Issuer Subsidiaries, be deemed to be an Acquisition
Transaction,
provided that any such transaction is not entered into in
violation of
the terms of the Merger Agreement;
(ii) (A) Issuer or any Issuer Subsidiary, without having
received
Grantee's prior written consent, shall have authorized,
recommended,
proposed or publicly announced its intention to authorize,
recommend or
propose, to engage in an Acquisition Transaction with any person
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other than Grantee or a Grantee Subsidiary, or (B) the Board of
Directors
of Issuer shall have failed to make its recommendation that the
stockholders of Issuer approve the transactions contemplated by
the
Merger Agreement, or (C) the Board of Directors of Issuer shall
have
publicly withdrawn or modified, or publicly announced its
interest to
withdraw or modify, in any manner adverse to Grantee, its
recommendation
that the stockholders of Issuer approve the transactions
contemplated by
the Merger Agreement;
(iii) Any person, other than Grantee, any Grantee Subsidiary
or any
Issuer Subsidiary acting in a fiduciary capacity in the ordinary
course
of its business, shall have acquired beneficial ownership or the
right to
acquire beneficial ownership of 10% or more of the outstanding
shares of
Common Stock, except that the beneficial ownership by Irwin
Holtzman and
his affiliates of up to 15% of the outstanding shares of Common
Stock
shall be excluded from this clause (iii) (the term "BENEFICIAL
OWNERSHIP"
for purposes of this Agreement having the meaning assigned
thereto in
Section 13(d) of the 1934 Act, and the rules and regulations
thereunder);
(iv) After any person other than Grantee or any Grantee
Subsidiary
shall have made a bona fide proposal to Issuer or its
stockholders by
public announcement or written communication that is or becomes
the
subject of public disclosure to engage in an Acquisition
Transaction, the
approval of Issuer's stockholders required by Section 8.1(a) of
the
Merger Agreement is not obtained;
(v) After an overture is made by a third party to Issuer or
its
stockholders to engage in an Acquisition Transaction (whether
such
overture becomes the subject of public disclosure or not), Issuer
shall
have willfully breached any covenant or obligation contained in
the
Merger Agreement or willfully breached any representation or
warranty
contained in the Merger Agreement and such breach (x) would
entitle
Grantee to terminate the Merger Agreement and (y) shall not have
been
cured prior to the Notice Date (as defined below);
(vi) Any person other than Grantee or any Grantee Subsidiary,
other
than in connection with a transaction to which Grantee has given
its
prior written consent, shall have filed an application or notice
with the
Federal Deposit Insurance Corporation ("FDIC"), the Federal
Reserve
Board, or other federal or state bank regulatory authority, which
application or notice has been accepted for processing, for
approval to
engage in an Acquisition Transaction; or
(vii) Any person other than Grantee or any Grantee Subsidiary
commences or publicly announces its intention to commence a
tender offer
or exchange offer for securities representing 10% or more of the
voting
power of Issuer.
(c) The term "SUBSEQUENT TRIGGERING EVENT" shall mean either of
the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of
25% or
more of the then outstanding shares of Common Stock; or
(ii) The occurrence of the Initial Triggering Event described
in
Section 2(b)(i) hereof, except that the percentage referred to in
subsection (z) thereof shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of
any Initial Triggering Event or Subsequent Triggering Event of which
it has
notice, it being understood that the giving of such notice by Issuer
shall
not be a condition to the right of the Holder to exercise the
Option.
(e) In the event the Holder is entitled to and wishes to
exercise the
Option, it shall send to Issuer a written notice (the date of which
being
herein referred to as the "NOTICE DATE") specifying (i) the total
number of
shares it will purchase pursuant to such exercise and (ii) a place
and date
not earlier than three business days nor later than 60 business days
from
the Notice Date for the
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closing of such purchase (the "CLOSING DATE"); provided that if
prior
notification to or approval of any regulatory or antitrust agency is
required in connection with such purchase, the Holder shall promptly
file
the required notice or application for approval, shall promptly
notify
Issuer of such filing and shall expeditiously process the same and
the
period of time that otherwise would run pursuant to this sentence
shall run
instead from the date on which any required notification periods
have
expired or been terminated or such approvals have been obtained and
any
requisite waiting period or periods shall have passed. Any exercise
of the
Option shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section
2, the
Holder shall pay to Issuer the aggregate purchase price for the
shares of
Common Stock purchased pursuant to the exercise of the Option in
immediately
available funds by wire transfer to a bank account designated by
Issuer,
provided that failure or refusal of Issuer to designate such a bank
account
shall not preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of
immediately
available funds as provided in subsection (f) of this Section 2,
Issuer
shall deliver to the Holder a certificate or certificates
representing the
number of shares of Common Stock purchased by the Holder and, if the
Option
should be exercised in part only, a new Agreement for an Option
evidencing
the rights of the Holder thereof to purchase the balance of the
shares
purchasable hereunder, and the Holder shall deliver to Issuer this
Agreement
and a letter agreeing that the Holder will not offer to sell or
otherwise
dispose of such shares in violation of applicable law or the
provisions of
this Agreement.
(h) Upon the giving by the Holder to Issuer of the written
notice of
exercise of the Option provided for under subsection (e) of this
Section 2
and the tender of the applicable purchase price in immediately
available
funds, the Holder shall be deemed to be the holder of record of the
shares
of Common Stock issuable upon such exercise, notwithstanding that
the stock
transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually
delivered to the Holder. Issuer shall pay all expenses, and any and
all
United States federal, state and local taxes and other charges that
may be
payable in connection with the preparation, issue and delivery of
stock
certificates under this Section 2 in the name of the Holder or its
assignee,
transferee or designee.
3. CERTAIN ISSUER ACTIONS. Issuer agrees: (i) that it shall at all
times
maintain, free from preemptive rights, sufficient authorized but
unissued or
treasury shares of Common Stock so that the Option may be exercised
without
additional authorization of Common Stock after giving effect to all
other
options, warrants, convertible securities and other rights to purchase
Common
Stock; (ii) that it will not, by charter amendment or through
reorganization,
consolidation, merger, dissolution or sale of assets, or by any other
voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed
hereunder by
Issuer; (iii) promptly to take all action as may from time to time be
required
(including (x) complying with all premerger notification, reporting and
waiting
period requirements specified in 15 U.S.C. Section 18a and regulations
promulgated thereunder and (y) in the event, under any federal or state
law or
regulation, prior approval of or notice to any regulatory authority is
necessary
before the Option may be exercised, cooperating fully with the Holder in
preparing such applications or notices and providing such information to
such
regulatory authority as they may require) in order to permit the Holder
to
exercise the Option and Issuer duly and effectively to issue shares of
Common
Stock pursuant hereto; and (iv) promptly to take all action provided
herein to
protect the rights of the Holder against dilution.
4. EXCHANGE. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon
presentation
and surrender of this Agreement at the principal office of Issuer, for
other
Agreements providing for Options of different denominations
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entitling the holder thereof to purchase, on the same terms and subject
to the
same conditions as are set forth herein, in the aggregate the same
number of
shares of Common Stock purchasable hereunder. The terms "AGREEMENT" and
"OPTION"
as used herein include any Stock Option Agreements and related Options
for which
this Agreement (and the Option granted hereby) may be exchanged. Upon
receipt by
Issuer of evidence reasonably satisfactory to it of the loss, theft,
destruction
or mutilation of this Agreement, and (in the case of loss, theft or
destruction)
of reasonably satisfactory indemnification, and upon surrender and
cancellation
of this Agreement, if mutilated, Issuer will execute and deliver a new
Agreement
of like tenor and date. Any such new Agreement executed and delivered
shall
constitute an additional contractual obligation on the part of Issuer,
whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at
any time
be enforceable by anyone.
5. ADJUSTMENT OF SHARES. In addition to the adjustment in the
number of
shares of Common Stock that are purchasable upon exercise of the Option
pursuant
to Section 1 of this Agreement, the number of shares of Common Stock
purchasable
upon the exercise of the Option and the Option Price shall be subject to
adjustment from time to time as provided in this Section 5. In the event
of any
change in, or distributions in respect of, the Common Stock by reason of
stock
dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions,
conversions, exchanges of shares, distributions on or in respect of the
Common
Stock that would be prohibited under the terms of the Merger Agreement,
or the
like, the type and number of shares of Common Stock purchasable upon
exercise
hereof and the Option Price shall be appropriately adjusted in such
manner as
shall fully preserve the economic benefits provided hereunder and proper
provision shall be made in any agreement governing any such transaction
to
provide for such proper adjustment and the full satisfaction of Issuer's
obligations hereunder.
6. REGISTRATION RIGHTS. If the Option Shares (as hereinafter
defined) are
not exempt from the registration requirements of the Securities Act of
1933, as
amended (the "1933 ACT"), upon the occurrence of a Subsequent Triggering
Event
that occurs prior to an Exercise Termination Event, Issuer shall, at the
request
of Grantee (whether on its own behalf or on behalf of any subsequent
holder of
this Option (or part thereof) or any of the shares of Common Stock
issued
pursuant hereto) deliver within six months of such Subsequent Triggering
Event
(or such longer period as provided in Section 10), promptly prepare,
file and
keep current a shelf registration statement under the 1933 Act covering
this
Option and any shares issued and issuable pursuant to this Option and
shall use
its reasonable best efforts to cause such registration statement to
become
effective and remain current in order to permit the sale or other
disposition of
this Option and any shares of Common Stock issued upon total or partial
exercise
of this Option ("OPTION SHARES") in accordance with any plan of
disposition
requested by Grantee, unless, in the written opinion of securities
counsel to
Issuer, addressed to Grantee or any transferee, registration under the
1933 Act
or any other applicable federal or state securities laws is not
otherwise
required for the sale and distribution of such Option Shares. Issuer
will use
its reasonable best efforts to cause such registration statement first
to become
effective and thereafter to remain effective for such period not in
excess of
180 days from the day such registration statement first becomes
effective or
such shorter time as may be reasonably necessary to effect such sales or
other
dispositions. Grantee shall have the right to demand two such
registrations. The
foregoing notwithstanding, if, at the time of any request by Grantee for
registration of the Option or Option Shares as provided above, Issuer is
in
registration with respect to an underwritten public offering of shares
of Common
Stock, and if in the good faith judgment of the managing underwriter or
managing
underwriters, or, if none, the sole underwriter or underwriters, of such
offering the inclusion of the Option or Option Shares would interfere
with the
successful marketing of the shares of Common Stock offered by Issuer,
the number
of Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced; provided, however, that after any
such
required reduction the number of Option Shares to be included in such
offering
for the account of the Holder shall constitute at least 25% of the total
number
of shares to be sold by the Holder and Issuer in the aggregate; and
provided
further, however, that if such reduction occurs, then Issuer shall file
a
G-5
registration statement for the balance as promptly as practicable and no
reduction shall thereafter occur. Each such Holder shall provide all
information
reasonably requested by Issuer for inclusion in any registration
statement to be
filed hereunder. If requested by any such Holder in connection with such
registration, Issuer shall become a party to any underwriting agreement
relating
to the sale of such shares, but only to the extent of obligating itself
in
respect of representations, warranties, indemnities and other agreements
customarily included in secondary offering underwriting agreements for
Issuer.
Upon receiving any request under this Section 6 from any Holder,
Issuer
agrees to send a copy thereof to any other person known to Issuer to be
entitled
to registration rights under this Section 6, in each case by promptly
mailing
the same, postage prepaid, to the address of record of the persons
entitled to
receive such copies. Notwithstanding anything to the contrary contained
herein,
in no event shall Issuer be obligated to effect more than two
registrations
pursuant to this Section 6 by reason of the fact that there shall be
more than
one Grantee as a result of any assignment or division of this Agreement.
7. REPURCHASE RIGHT.
(a) (i) Following the occurrence of a Repurchase Event (as
defined
below), and following a request of the Holder delivered prior to an
Exercise
Termination Event, Issuer (or any successor thereto) shall
repurchase the
Option from the Holder at a price (the "OPTION REPURCHASE PRICE")
equal to
the amount by which (A) the Market/Offer Price (as defined below)
exceeds
(B) the Option Price, multiplied by the number of shares for which
this
Option may then be exercised; and (ii) at the request of the owner
of Option
Shares from time to time (the "OWNER"), delivered within 90 days of
such
occurrence (or such longer period as provided in Section 10), Issuer
shall
repurchase such number of the Option Shares from the Owner as the
Owner
shall designate at a price (the "OPTION SHARE REPURCHASE PRICE")
equal to
the Market/Offer Price multiplied by the number of Option Shares so
designated.
The term "MARKET/OFFER PRICE" shall mean the highest of (i) the
price per
share of Common Stock at which a tender offer or exchange offer therefor
has
been made, (ii) the price per share of Common Stock to be paid by any
third
party pursuant to an agreement with Issuer, (iii) the highest closing
price for
shares of Common Stock within the six-month period immediately preceding
the
date the Holder gives notice of the required repurchase of the Option or
the
Owner gives notice of the required repurchase of Option Shares, as the
case
maybe, or (iv) in the event of a sale of all or a substantial portion of
Issuer's assets, the sum of the price paid in such sale for such assets
and the
current market value of the remaining assets of Issuer as determined by
a
nationally recognized investment banking firm selected by the Holder or
the
Owner, as the case may be, and reasonably acceptable to Issuer, divided
by the
number of shares of Common Stock of Issuer outstanding at the time of
such sale.
In determining the Market/Offer Price, the value of consideration other
than
cash shall be determined by a nationally recognized investment banking
firm
selected by the Holder or the Owner, as the case may be, and reasonably
acceptable to Issuer.
(b) The Holder or the Owner, as the case may be, may exercise
its right
to require Issuer to repurchase the Option or any Option Shares
pursuant to
this Section 7 by surrendering for such purpose to Issuer, at its
principal
office, this Agreement or certificates for Option Shares, as
applicable,
accompanied by a written notice or notices stating that the Holder
or the
Owner, as the case may be, elects to require Issuer to repurchase
the Option
and/or the Option Shares in accordance with the provisions of this
Section 7. As promptly as practicable, and in any event within five
business
days after the surrender of the Option and/or certificates
representing
Option Shares and the receipt of such notice or notices relating
thereto,
Issuer shall deliver or cause to be delivered to the Holder the
Option
Repurchase Price and/or to the Owner the Option Share Repurchase
Price
therefor or the portion thereof that Issuer is not then prohibited
under
applicable law and regulation from so delivering.
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(c) To the extent that Issuer is prohibited under applicable law
or
regulation from repurchasing the Option and/or the Option Shares in
full,
Issuer shall immediately so notify the Holder and/or the Owner and
thereafter deliver or cause to be delivered, from time to time, to
the
Holder and/or the Owner, as appropriate, the portion of the Option
Repurchase Price and the Option Share Repurchase Price,
respectively, that
it is no longer prohibited from delivering, within five business
days after
the date on which Issuer is no longer so prohibited; provided,
however, that
if Issuer at anytime after delivery of a notice of repurchase
pursuant to
subsection (b) of this Section 7 is prohibited under applicable law
or
regulation or through commencement of regulatory enforcement action
from
delivering to the Holder and/or the Owner, as appropriate, the
Option
Repurchase Price and the Option Share Repurchase Price,
respectively, in
full (and Issuer hereby undertakes to use its best efforts to obtain
all
required regulatory and legal approvals and to file any required
notices as
promptly as practicable in order to accomplish such repurchase), the
Holder
or the Owner may revoke its notice of repurchase of the Option or
the Option
Shares either in whole or to the extent of the prohibition,
whereupon, in
the latter case, Issuer shall promptly (i) deliver to the Holder
and/or the
Owner, as appropriate, that portion of the Option Repurchase Price
or the
Option Share Repurchase Price that Issuer is not prohibited from
delivering;
and (ii) deliver, as appropriate, either (A) to the Holder, a new
Agreement
evidencing the right of the Holder to purchase that number of shares
of
Common Stock obtained by multiplying the number of shares of Common
Stock
for which the surrendered Agreement was exercisable at the time of
delivery
of the notice of repurchase by a fraction, the numerator of which is
the
Option Repurchase Price less the portion thereof theretofore
delivered to
the Holder and the denominator of which is the Option Repurchase
Price, or
(B) to the Owner, a certificate for the Option Shares it is then so
prohibited from repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall be
deemed
to have occurred (i) upon the consummation of any merger,
consolidation or
similar transaction involving Issuer or any purchase, lease or other
acquisition of all or a substantial portion of the assets of Issuer,
other
than any such transaction which would not constitute an Acquisition
Transaction pursuant to the provisos to the final sentence of
Section 2(b)(i) hereof or (ii) upon the acquisition by any person of
beneficial ownership of 50% or more of the then outstanding shares
of Common
Stock, provided that no such event shall constitute a Repurchase
Event
unless a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event.
8. SUBSTITUTE OPTION.
(a) In the event that prior to an Exercise Termination Event,
Issuer
shall enter into an agreement (i) to consolidate with or merge into
any
person, other than Grantee or one of its Subsidiaries, and shall not
be the
continuing or surviving corporation of such consolidation or merger,
(ii) to permit any person, other than Grantee or one of its
Subsidiaries, to
merge into Issuer and Issuer shall be the continuing or surviving
corporation, but, in connection with such merger, the then
outstanding
shares of Common Stock shall be changed into or exchanged for stock
or other
securities of any other person or cash or any other property or the
then
outstanding shares of Common Stock shall after such merger represent
less
than 50% of the outstanding voting shares and voting share
equivalents of
the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or
one of
its Subsidiaries, then, and in each such case, the agreement
governing such
transaction shall make proper provision so that the Option shall,
upon the
consummation of any such transaction and upon the terms and
conditions set
forth herein, be converted into, or exchanged for, an option (the
"SUBSTITUTE OPTION"), at the election of the Holder, of either (x)
the
Acquiring Corporation (as hereinafter defined) or (y) any person
that
controls the Acquiring Corporation.
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(b) The following terms have the meanings indicated:
(1) "ACQUIRING CORPORATION" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer
(if other
than Issuer), (ii) Issuer in a merger in which Issuer is the
continuing
or surviving person, or (iii) the transferee of all or
substantially all
of Issuer's assets.
(2) "SUBSTITUTE COMMON STOCK" shall mean the common stock
issued by
the issuer of the Substitute Option upon exercise of the
Substitute
Option.
(3) "ASSIGNED VALUE" shall mean the Market/Offer Price, as
defined in
Section 7.
(4) "AVERAGE PRICE" shall mean the average closing price of a
share
of the Substitute Common Stock for the one year immediately
preceding the
consolidation, merger or sale in question, but in no event higher
than
the closing price of the shares of Substitute Common Stock on the
day
preceding such consolidation, merger or sale; provided that if
Issuer is
the issuer of the Substitute Option, the Average Price shall be
computed
with respect to a share of common stock issued by the person
merging into
Issuer or by any company which controls or is controlled by such
person,
as the Holder may elect.
(c) The Substitute Option shall have the same terms as the
Option,
provided, that if the terms of the Substitute Option cannot, for
legal
reasons, be the same as the Option, such terms shall be as similar
as
possible and in no event less advantageous to the Holder. The issuer
of the
Substitute Option shall also enter into an agreement with the then
Holder or
Holders of the Substitute Option in substantially the same form as
this
Agreement (after giving effect for such purpose to the provisions of
Section 9), which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number
of shares
of Substitute Common Stock as is equal to the Assigned Value
multiplied by
the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the
Substitute Option per share of Substitute Common Stock shall then be
equal
to the Option Price multiplied by a fraction, the numerator of which
shall
be the number of shares of Common Stock for which the Option is then
exercisable and the denominator of which shall be the number of
shares of
Substitute Common Stock for which the Substitute Option is
exercisable.
(e) In no event, pursuant to any of the foregoing subsections,
shall the
Substitute Option be exercisable for more than 19.9% of the shares
of
Substitute Common Stock outstanding prior to exercise of the
Substitute
Option.
In the event that the Substitute Option would be exercisable for
more than
19.9% of the shares of Substitute Common Stock outstanding prior to
exercise but
for this subsection (e), the issuer of the Substitute Option (the
"SUBSTITUTE
OPTION ISSUER") shall make a cash payment to the Holder equal to the
excess of
(i) the value of the Substitute Option without giving effect to the
limitation
in this subsection (e) over (ii) the value of the Substitute Option
after giving
effect to the limitation in this subsection (e). This difference in
value shall
be determined by a nationally recognized investment banking firm
selected by the
Holder or the Owner, as the case may be, and reasonably acceptable to
the
Acquiring Corporation.
(f) Issuer shall not enter into any transaction described in
subsection
(a) of this Section 8 unless the Acquiring Corporation and any
person that
controls the Acquiring Corporation assume in writing all the
obligations of
Issuer hereunder.
9. REPURCHASE OF SUBSTITUTE OPTION.
(a) At the request of the holder of the Substitute Option (the
"SUBSTITUTE OPTION HOLDER") delivered prior to an Exercise
Termination
Event, the Substitute Option Issuer shall repurchase the
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Substitute Option from the Substitute Option Holder at a price (the
"SUBSTITUTE OPTION REPURCHASE PRICE") equal to the amount by which
(i) the
Highest Closing Price (as hereinafter defined) exceeds (ii) the
exercise
price of the Substitute Option, multiplied by the number of shares
of
Substitute Common Stock for which the Substitute Option may then be
exercised, and at the request of the owner (the "SUBSTITUTE SHARE
OWNER") of
shares of Substitute Common Stock (the "SUBSTITUTE SHARES"), the
Substitute
Option Issuer shall repurchase the Substitute Shares at a price (the
"SUBSTITUTE SHARE REPURCHASE PRICE") equal to the Highest Closing
Price
multiplied by the number of Substitute Shares so designated. The
term
"HIGHEST CLOSING PRICE" shall mean the highest closing price for
shares of
Substitute Common Stock within the six-month period immediately
preceding
the date the Substitute Option Holder gives notice of the required
repurchase of the Substitute Option or the Substitute Share Owner
gives
notice of the required repurchase of the Substitute Shares, as
applicable.
(b) The Substitute Option Holder or the Substitute Share Owner,
or both,
as the case may be, may exercise its respective right to require the
Substitute Option Issuer to repurchase the Substitute Option or the
Substitute Shares, as applicable, pursuant to this Section 9 by
surrendering
for such purpose to the Substitute Option Issuer, at its principal
office,
the agreement for such Substitute Option (or, in the absence of such
an
agreement, a copy of this Agreement) and/or certificates for
Substitute
Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case
may be,
elects to require the Substitute Option Issuer to repurchase the
Substitute
Option and/or the Substitute Shares in accordance with the
provisions of
this Section 9. As promptly as practicable, and in any event within
five
business days after the surrender of the Substitute Option and/or
certificates representing Substitute Shares and the receipt of such
notice
or notices relating thereto, the Substitute Option Issuer shall
deliver or
cause to be delivered to the Substitute Option Holder the Substitute
Option
Repurchase Price and/or to the Substitute Share Owner the Substitute
Share
Repurchase Price therefor or, in either case, the portion thereof
which the
Substitute Option Issuer is not then prohibited under applicable law
and
regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is
prohibited under
applicable law or regulation or through commencement of regulatory
enforcement action from repurchasing the Substitute Option and/or
the
Substitute Shares in part or in full, the Substitute Option Issuer
following
a request for repurchase pursuant to this Section 9 shall
immediately so
notify the Substitute Option Holder and/or the Substitute Share
Owner and
thereafter deliver or cause to be delivered, from time to time, to
the
Substitute Option Holder and/or the Substitute Share Owner, as
appropriate,
the portion of the Substitute Option Repurchase Price and Substitute
Share
Repurchase Price, respectively, which it is no longer prohibited
from
delivering, within five business days after the date on which the
Substitute
Option Issuer is no longer so prohibited; provided, however, that if
the
Substitute Option Issuer is at any time after delivery of a notice
of
repurchase pursuant to subsection (b) of this Section 9 prohibited
under
applicable law or regulation or through commencement of regulatory
enforcement action from delivering to the Substitute Option Holder
and/or
the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase
Price and the Substitute Share Repurchase Price, respectively, in
full (and
the Substitute Option Issuer shall use its best efforts to receive
all
required regulatory and legal approvals as promptly as practicable
in order
to accomplish such repurchase), the Substitute Option Holder or the
Substitute Share Owner may revoke its notice of repurchase of the
Substitute
Option or the Substitute Shares either in whole or to the extent of
the
prohibition, whereupon, in the latter case, the Substitute Option
Issuer
shall promptly (i) deliver to the Substitute Option Holder or the
Substitute
Share Owner, as appropriate, that portion of the Substitute Option
Repurchase Price or the Substitute Share Repurchase Price that the
Substitute Option Issuer is not prohibited from delivering; and
(ii) deliver, as appropriate, either (A) to the Substitute Option
Holder, a
new Substitute Option evidencing the right of the Substitute Option
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Holder to purchase that number of shares of the Substitute Common
Stock
obtained by multiplying the number of shares of the Substitute
Common Stock
for which the surrendered Substitute Option was exercisable at the
time of
delivery of the notice of repurchase by a fraction, the numerator of
which
is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the
denominator of
which is the Substitute Option Repurchase Price, or (B) to the
Substitute
Share Owner, a certificate for the Substitute Shares it is then so
prohibited from repurchasing.
10. EXTENSION OF CERTAIN PERIODS. The 90-day or six-month period,
as the
case may be, for exercise of certain rights under each of Sections 2, 6,
7 and
14 shall be extended: (i) to the extent necessary to obtain all
regulatory
approvals for the exercise of such rights (for so long as the Holder,
Owner,
Substitute Option Holder or Substitute Share Owner, as the case may be,
is using
its reasonable best efforts to obtain such regulatory approval) and for
the
expiration of all statutory waiting periods; and (ii) to the extent
necessary to
avoid liability under Section 16(b) of the 1934 Act by reason of such
exercise.
11. ISSUER REPRESENTATIONS AND WARRANTIES. Issuer hereby
represents and
warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and
deliver
this Agreement and to consummate the transactions contemplated
hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly
authorized by
the Board of Directors of Issuer and no other corporate proceedings
on the
part of Issuer are necessary to authorize this Agreement or to
consummate
the transactions so contemplated. This Agreement has been duly and
validly
executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize
and
reserve and to permit it to issue, and at all times from the date
hereof
through the termination of this Agreement in accordance with its
terms will
have reserved for issuance upon the exercise of the Option, that
number of
shares of Common Stock equal to the maximum number of shares of
Common Stock
at any time and from time to time issuable hereunder, and all such
shares,
upon issuance pursuant hereto, will be duly authorized, validly
issued,
fully paid, nonassessable, and will be delivered free and clear of
all
claims, liens, encumbrance and security interests and not subject to
any
preemptive rights.
(c) Issuer has taken all action (including, if required,
redeeming all
of the Rights or amending or terminating the Polar Bear Rights
Agreement) so
that the entering into of this Agreement, the acquisition of shares
of
Common Stock hereunder and the other transactions contemplated
hereby do not
and will not result in the grant of any rights to any person under
the Polar
Bear Rights Agreement or enable or require the Polar Bear Rights to
be
exercised, distributed or triggered.
12. GRANTEE REPRESENTATIONS AND WARRANTIES. Grantee hereby
represents and
warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to
enter
into this Agreement and, subject to any approvals or consents
referred to
herein, to consummate the transactions contemplated hereby. The
execution
and delivery of this Agreement and the consummation of the
transactions
contemplated hereby have been duly authorized by all necessary
corporate
action on the part of Grantee. This Agreement has been duly executed
and
delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or
other
securities acquired by Grantee upon exercise of the Option will not
be,
acquired with a view to the public distribution thereof and will not
be
transferred or otherwise disposed of except in a transaction
registered or
exempt from registration under the 1933 Act.
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13. LIMITATION ON TOTAL PROFIT.
(a) Notwithstanding anything to the contrary contained herein,
in no
event shall Grantee's Total Profit (as defined in subsection (c) of
this
Section 13) exceed $425,000.
(b) Notwithstanding anything to the contrary contained herein,
the
Option may not be exercised for a number of shares as would, as of
the date
of exercise, result in a Notional Total Profit (as defined in
subsection
(d) of this Section 13) of more than $425,000.
(c) As used herein, the term "TOTAL PROFIT" shall mean the
aggregate
amount (before taxes) of the following: (i) the amount received by
Grantee
pursuant to Issuer's repurchase of the Option (or any portion
thereof)
pursuant to Section 7 hereof, (ii) (x) the amount received by
Grantee
pursuant to Issuer's repurchase of Option Shares pursuant to Section
7
hereof, less (y) Grantee's purchase price for such Option Shares,
(iii) (x) the net cash amounts received by Grantee pursuant to the
sale of
Option Shares (or any other securities into which such Option Shares
shall
be converted or exchanged) to any unaffiliated party, less (y)
Grantee's
purchase price for such Option Shares, (iv) any amounts received by
Grantee
on the transfer of the Option (or any portion thereof) to any
unaffiliated
party, (v) any equivalent amount with respect to the Substitute
Option,
including pursuant to Section 8(e); and (vi) the amount of any
termination
fee (which is exclusive of any reimbursement amounts) actually
received by
Grantee pursuant to Section 9.2 of the Merger Agreement. For
purposes of
this Section 13, references to Grantee shall be deemed to include
references
to any affiliate of the Grantee.
(d) As used herein, the term "NOTIONAL TOTAL PROFIT" with
respect to any
number of shares as to which Grantee may propose to exercise the
Option
shall be the Total Profit determined as of the date of such proposed
exercise assuming that the Option were exercised on such date for
such
number of shares and assuming that such shares, together with all
other
Option Shares held by Grantee and its affiliates as of such date,
were sold
for cash at the closing market price for the Common Stock as of the
close of
business on the preceding trading day (less customary brokerage
commissions).
14. ASSIGNMENT. Neither of the parties hereto may assign any of
its rights
or obligations under this Agreement or the Option created hereunder to
any other
person, without the express written consent of the other party, except
that in
the event a Subsequent Triggering Event shall have occurred prior to an
Exercise
Termination Event, Grantee, subject to the express provisions hereof,
may assign
in whole or in part its rights and obligations hereunder within 90 days
following such Subsequent Triggering Event (or such longer period as
provided in
Section 10); provided, however, that until the date 15 days following
the date
on which the Federal Reserve Board, the FDIC, and/or any other federal
or state
bank regulatory authority, as applicable, approves an application by
Grantee to
acquire the shares of Common Stock subject to the Option (if such
approval is
required by law), Grantee may not assign its rights under the Option
except in
(i) a widely dispersed public distribution, (ii) a private placement in
which no
one person acquires the right to purchase in excess of 2% of the voting
shares
of Issuer, (iii) an assignment to a single person (e.g., a broker or
investment
banker) for the purpose of conducting a widely dispersed public
distribution on
Grantee's behalf, or (iv) any other manner approved by the Federal
Reserve
Board, the FDIC, and/or any other federal or state bank regulatory
authority, as
applicable.
15. FILINGS. Each of Grantee and Issuer will use its best efforts
to make
all filings with, and to obtain consents of, all third parties and
governmental
authorities necessary to the consummation of the transactions
contemplated by
this Agreement, including without limitation making application to list
the
shares of Common Stock issuable hereunder on the Nasdaq Stock Market
upon
official notice of issuance and applying to the Federal Reserve Board,
the FDIC,
and/or any other federal or state bank regulatory authority, as
applicable, for
approval to acquire the shares issuable hereunder, but Grantee
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shall not be obligated to apply to state banking authorities for
approval to
acquire the shares of Common Stock issuable hereunder until such time,
if ever,
as it deems appropriate to do so.
16. EQUITABLE REMEDIES. The parties hereto acknowledge that
damages would
be an inadequate remedy for a breach of this Agreement by either party
hereto
and that the obligations of the parties hereto shall be enforceable by
either
party hereto through injunctive or other equitable relief.
17. VALIDITY. If any term, provision, covenant or restriction
contained in
this Agreement is held by a court or a federal or state regulatory
agency of
competent jurisdiction to be invalid, void or unenforceable, the
remainder of
the terms, provisions and covenants and restrictions contained in this
Agreement
shall remain in full force and effect, and shall in no way be affected,
impaired
or invalidated. If for any reason such court or regulatory agency
determines
that the Holder is not permitted to acquire, or Issuer is not permitted
to
repurchase pursuant to Section 7, the full number of shares of Common
Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or
5
hereof), it is the express intention of Issuer to allow the Holder to
acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
18. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when
delivered
in person, by cable, telegram, telecopy or telex, or by registered or
certified
mail (postage prepaid, return receipt requested) at the respective
addresses of
the parties set forth in the Merger Agreement.
19. GOVERNING LAW. This Agreement shall be governed by and
construed in
accordance with the laws of the State of Oregon, regardless of the laws
that
might otherwise govern under applicable principles of conflicts of laws
thereof.
20. COUNTERPARTS. This Agreement may be executed in two
counterparts, each
of which shall be deemed to be an original, but all of which shall
constitute
one and the same agreement.
21. EXPENSES. Except as otherwise expressly provided herein, each
of the
parties hereto shall bear and pay all costs and expenses incurred by it
or on
its behalf in connection with the transactions contemplated hereunder,
including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
22. ENTIRE AGREEMENT. Except as otherwise expressly provided
herein or in
the Merger Agreement, this Agreement contains the entire agreement
between the
parties with respect to the transactions contemplated hereunder and
supersedes
all prior arrangements or understandings with respect thereof, written
or oral.
The terms and conditions of this Agreement shall inure to the benefit of
and be
binding upon the parties hereto and their respective successors and
permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to
confer
upon any party, other than the parties hereto, and their respective
successors
and permitted assigns, any rights, remedies, obligations or liabilities
under or
by reason of this Agreement, except as expressly provided herein.
23. CAPITALIZED TERMS. Capitalized terms used in this Agreement
and not
defined herein shall have the meanings assigned thereto in the Merger
Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be
executed on its behalf by its officers thereunto duly authorized, all as
of the
date first above written.
NORTHERN BANK OF
COMMERCE
By:
/s/ John H. Holloway, Jr.
---------------------------------------
Name: John H. Holloway, Jr.
-----------------------------------
Title:
President and Chief Executive Officer
-----------------------------------
COWLITZ BANCORPORATION
By:
/s/ Charles W. Jarrett
---------------------------------------
Name: Charles W. Jarrett
-----------------------------------
Title:
President and Chief Operating Officer
-----------------------------------
