THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN PROVISIONS CONTAINED
HEREIN AND TO RESALE RESTRICTIONS UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
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 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
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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 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 Xxxxx Xxxxxxxx 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
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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 Ini ial 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 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.
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(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 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
5
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
6
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 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
7
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.
(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
8
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.
(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
9
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 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
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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 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
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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:
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(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.
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
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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 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.
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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.
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.
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NORTHERN BANK OF COMMERCE
By:
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Name:
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Title:
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COWLITZ BANCORPORATION
By:
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Name:
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Title:
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