<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
COWLITZ BANCORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
WASHINGTON 6712 91-1529841
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
927 COMMERCE AVENUE, LONGVIEW, WASHINGTON 98632 (360) 423-9800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHARLES W. JARRETT, PRESIDENT AND CHIEF OPERATING OFFICER
COWLITZ BANCORPORATION
927 COMMERCE AVENUE, LONGVIEW, WASHINGTON 98632 (360) 423-9800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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DAVID R. WILSON STEPHEN M. KLEIN
BERNARD L. RUSSELL MARK C. LEWINGTON
FOSTER PEPPER & SHEFELMAN PLLC GRAHAM & DUNN PC
1111 THIRD AVENUE, SUITE 3400 1420 FIFTH AVENUE, SUITE 3300
SEATTLE, WASHINGTON 98101 SEATTLE, WASHINGTON 98101
(206) 447-4400 (206) 624-8300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
===========================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value............. 1,150,000 shares $13.00 $14,950,000 $4,531
===========================================================================================================
</TABLE>
(1) Includes 150,000 shares that may be purchased by the Underwriters to cover
over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(a).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 15, 1998
1,000,000 SHARES
LOGO
COWLITZ BANCORPORATION
COMMON STOCK
------------------------
All of the shares of Common Stock ("Common Stock") of Cowlitz
Bancorporation (the "Company") offered hereby (the "Offering") are being sold by
the Company. Prior to the Offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $11.00 and $13.00 per share of Common Stock. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has filed an application to list
the Common Stock for quotation on the Nasdaq National Market under the symbol
"CWLZ."
SEE "RISK FACTORS" COMMENCING ON PAGE 6 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
THE SHARES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER
OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE BANK INSURANCE FUND OF THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
======================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------
Per Share........................... $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3)............................ $ $ $
======================================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $300,000.
(3) The Company and the Selling Shareholders have granted to the Underwriters a
30-day option to purchase up to 133,000 and 17,000 additional shares of
Common Stock, respectively, on the same terms and conditions set forth above
solely to cover over-allotments, if any. If the Underwriters exercise this
option in full, the Price to Public will total $ , the Underwriting
Discount will total $ , the Proceeds to Company will total
$ and the Proceeds to Selling Shareholders will total $ .
See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, when, as and if delivered and accepted by the Underwriters and subject
to their right to reject any order in whole or in part. It is expected that the
delivery of the certificates representing such shares will be made against
payment therefor at the offices of Black & Company, Inc. on or about
, 1998.
------------------------
BLACK & COMPANY, INC. PACIFIC CREST SECURITIES INC.
The date of this Prospectus is , 1998.
<PAGE> 3
[PHOTOGRAPH OF COWLITZ FINANCIAL CENTER]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITY, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE OFFERING. SUCH TRANSACTIONS MAY BE EFFECTED IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
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<PAGE> 4
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, included elsewhere in this
Prospectus. Except as otherwise noted, all information in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option and (ii) reflects
an adjustment for all stock splits to the date of this Prospectus. Unless the
context requires otherwise, references to the "Company" mean Cowlitz
Bancorporation and its wholly-owned subsidiary, The Cowlitz Bank (the "Bank").
THE COMPANY
With its five full-service offices, the Company has the largest market
share of deposits among commercial banks in Cowlitz County, Washington, and The
Cowlitz Bank is the only community bank headquartered in the county. The Company
has grown from one branch with assets of $39.4 million, deposits of $31.0
million and shareholders' equity of $2.5 million at January 1, 1992 to five
branches with assets of $175.7 million, deposits of $139.1 million and
shareholders' equity of $13.3 million at September 30, 1997. The Company
emphasizes personal service and customer relationships and believes that such
emphasis is the primary reason for its rapid growth. The Bank's most recent
rating under the Community Reinvestment Act was "outstanding." In 1996, the
Independent Bankers Association of America listed the Bank as one of the top ten
banks in the United States with assets between $150 million and $300 million
based on return on shareholders' equity ("ROE").
The Company offers or makes available a broad range of financial services
to its customers, primarily small and medium-sized businesses, professionals and
retail customers. In addition to its normal commercial and personal banking
services, which include commercial and real estate lending, consumer lending,
mortgage origination and trust services, the Company has developed relationships
with a securities brokerage firm and an insurance agency with an estate planner
to provide its customers access to a variety of financial services which are
generally not available in community banks. In 1997, the Company established a
trust department to offer trust services to individuals, corporations and
institutions. It is the only such trust department located in Cowlitz County. By
combining its array of traditional commercial banking products with these
enhanced customer services, the Company is able to provide its customers with
similar banking services offered by its larger competitors while retaining the
character of a community bank and the level of personal service which larger
banks generally no longer provide.
Based on reports of the Federal Home Loan Bank of Seattle ("FHLB"), at June
30, 1996, the Company held approximately 25% of the deposits in commercial banks
in Cowlitz County, which was the largest share of deposits of any commercial
bank. Since June 30, 1996, the Company has taken several steps to increase its
market share in Cowlitz County. Historically, the Company operated from one
location in Longview. In November 1996, the Company opened a de novo branch in
neighboring Kelso, Washington. Two recent acquisitions of competitors in Cowlitz
County presented the Company with additional opportunities for in-market growth.
In 1996, Wells Fargo Bank acquired First Interstate Bank, which was a principal
competitor of the Company. The Company successfully bid for three Wells Fargo
branches in Cowlitz County and acquired those branches in July 1997. In the
second half of 1997, U.S. Bank was acquired by First Bank, which has recently
announced its intention to close the U.S. Bank branch in Kelso, Washington,
creating additional opportunities for the Company. The Company is aggressively
marketing to its new customers from the former Wells Fargo branches as well as
the customers of U.S. Bank in Kelso. The Company is introducing its full array
of financial products to these new customers while emphasizing personal service
as a way of increasing its market share within its existing market area.
Management believes that the Company's historical growth and recent successful
expansion activities strongly position the Company to continue to increase its
market share in Cowlitz County and to expand into other similar markets.
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<PAGE> 5
The Company's expansion since 1992 has been marked by the following
highlights:
<TABLE>
<S> <C> <C>
1992 - Arranged $2 million in long-term debt for capital infusion into Cowlitz
Bank
- Increased assets by 85% to $73.1 million
- Initiated quarterly dividends
- Began relationship with Robert Thomas Securities
1993 - Increased earnings per share by 96% over prior year
1994 - Increased loans by 35% over prior year
- Established mortgage department
- Sold $2.2 million of common stock in Regulation A offering
1995 - Increased loans by 40% over prior year
1996 - Opened Kelso branch
- Named by Independent Bankers Association as one of the top ten banks of
its size based on ROE
- Remodeled and expanded main branch to become the Cowlitz Financial Center
1997 - Acquired three Wells Fargo branches
- Opened trust department
- Began relationship with Commerce Business and Estate Services
</TABLE>
BUSINESS STRATEGY
The Company's goal is to maintain its position as the leading community
based provider of financial services in Cowlitz County and to become one of the
leading community based providers of financial services in other selected areas
of Washington and Oregon. The Company's growth strategy is based on providing
both exceptional personal service and a wide range of financial services to its
customers. The Company's strategy consists of the following:
- Emphasize personal service and develop strong community ties. Based on
its experience, the Company believes that providing a high level of
personal service and customer attention attracts and retains customers.
The Company's employees work with specific customers on an individual,
personalized basis. As a result of this level of customer attention, the
Company believes that it can make business decisions regarding its
customers more quickly and efficiently than its competitors. The
Company's philosophy is that of a true community bank -- to provide the
highest level of service to its communities. The Company's "outstanding"
Community Reinvestment Act ("CRA") rating is evidence of its commitment
to serve all the citizens in its communities. The Company believes that
its intense focus on customer service coupled with its deep community
relationships serve to differentiate the Company from its competitors.
- Provide a broad range of financial products and services. The Company
believes that offering a wide range of financial products and services is
an important competitive factor. In addition to deposit and loan products
typically offered by commercial banks, the Company has developed a real
estate loan division to originate mortgage loans and has established a
trust department. To execute this strategy, the Company has hired
experienced personnel to market and deliver these services. The Company
leases space in its main financial center to a securities brokerage firm
and an insurance agency in order to provide its customers with access to
a wider range of financial services. This combination of products and
services is designed to both increase its customer base and to enhance
cross-selling opportunities to its customer base.
- Increase business volume in existing market. The Company believes there
is an opportunity to increase its business volume in its existing market
area by promoting its complete array of financial products as well as
emphasizing personal service, especially in relationships with new
customers obtained in the acquisition of the Wells Fargo branches and by
establishing new customer relationships as a result of the announced
closure of a U.S. Bank branch in Kelso. The Company believes that
additional opportunities for growth exist in Cowlitz County as a result
of new business entrants such as
4
<PAGE> 6
BHP Coated Steel, Prudential Steel and Foster Farms. The Company
presently has the largest share of deposits held by commercial banks in
Cowlitz County and believes that its reputation for a high level of
personal service will help it attract new customers as the larger banks
continue their consolidation and reduction of personal service to their
customers.
- Explore opportunities for regional expansion through acquisition. The
Company intends to explore the acquisition of other community banks and
branches of larger banks in non-metropolitan communities in Washington
and Oregon. The Company intends to retain the local character of
institutions which it acquires and to promote deposit and asset growth in
the acquired institutions through implementation of its customer service
policies and product offerings. Although the Company is not presently
engaged in any acquisition discussions, it believes that such
opportunities are available and that its ability to consummate such
acquisitions will be enhanced by completion of this Offering and the
creation of a public market for the Company's Common Stock.
The Company was organized in 1991 under Washington law to become the
holding company for the Bank, a Washington state chartered bank that commenced
operations in 1978. The principal executive offices of the Company are located
at 927 Commerce Avenue, Longview, Washington 98632, and its telephone number is
(360) 423-9800.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company..................... 1,000,000 Shares
Common Stock to be outstanding after the Offering....... 3,619,872 Shares
Use of proceeds......................................... To repay approximately $1.1 million
of outstanding indebtedness, to
increase the capital of the Company
and for future acquisitions.
Directed Shares......................................... 100,000 shares, or 10.0% of the
Offering, have been reserved for
existing shareholders, employees
and customers and, subject to
availability, other residents of
Cowlitz County, consistent with the
local orientation of the Company.
Proposed Nasdaq National Market symbol.................. CWLZ
</TABLE>
5
<PAGE> 7
RISK FACTORS
This Prospectus contains certain forward-looking statements. Actual results
could differ materially from those projected in these forward-looking statements
as a result of certain of the risk factors set forth below and elsewhere in this
Prospectus. Prospective investors should carefully consider and evaluate all of
the information set forth in this Prospectus, including the Risk Factors set
forth below. This list of risk factors may not be exhaustive.
EXPOSURE TO LOCAL ECONOMY
The Company's performance is materially dependent upon and sensitive to the
economy of its market area consisting of Cowlitz County and the surrounding
areas in southwest Washington and northwest Oregon. Adverse economic
developments may affect loan demand and the collectibility of existing loans,
and have a negative effect on the Company's earnings and financial condition.
Historically, the economy of Cowlitz County depended primarily on the forest
products industry. Particularly in the 1980's, the Company's market area
experienced high unemployment as a result of the reduction in forest products
manufacturing jobs. While the forest products industry is still the leading
employer in Cowlitz County, the economy is becoming more diverse as
manufacturers enter the region and tourism centered around Mount St. Helens
expands. Subsequent developments have reduced the dependence of the local
economy on forest products manufacturing and have increased the number of
non-manufacturing jobs. There can be no assurance that future economic changes
will not have a significant adverse effect on the Company. See
"Business -- Market Area."
ABILITY TO EXPAND OPERATIONS
An important element of the Company's business strategy is to expand its
market area through acquisitions. The Company has not identified any specific
acquisition candidates. Although the Company has not acquired any whole banks in
the past, it successfully bid for and acquired three branches from Wells Fargo
Bank and believes it has successfully integrated those branches into its
operations. No assurance can be given that the Company will be able to enter
into and consummate any acquisitions or the timing of any acquisitions that may
occur. The rate of growth of the Company will be directly affected by its
ability to identify and consummate acquisitions. If the Company is not able to
consummate one or more acquisitions, it has no other current intended use for a
substantial portion of the offering proceeds, and pending application of those
proceeds, the Company's return on equity and earnings per share would be
adversely affected. No assurance can be given that such funds will be
effectively deployed in the future.
COMPETITION
In recent years, competition for deposits and loans has intensified. Two
super-regional banks in the Company's market area have been acquired by even
larger banks, although one has sold branches to the Company and the other has
announced it is closing one of its branches in Cowlitz County. These
institutions have competitive advantages over the Company in that they may have
higher public visibility and are able to maintain advertising and marketing
activities on a much larger scale than the Company can economically sustain.
Single-borrower lending limits imposed by law are dependent on the capital of
the financial institution, giving branches of larger banks an additional
competitive advantage with respect to loan applications which are in excess of
the Company's legal lending limits. Furthermore, competition from outside the
traditional banking system from credit unions, investment banking firms,
insurance companies and related industries offering bank-like products has
increased the competition for deposits and loans. In the Company's primary
market area, credit unions held approximately 51% of local deposits as of June
30, 1996. See "Business -- Competition."
CREDIT RISK
The Company, like other lenders, is subject to credit risk, which is the
risk of losing principal and interest due to customers' failure to repay loans
in accordance with their terms. Although the Company has established lending
criteria and most loans are secured by collateral, a downturn in the economy or
the real
6
<PAGE> 8
estate market in Cowlitz County or a rapid increase in interest rates could have
a negative effect on collateral values and borrowers' ability to repay. In
addition, seven of the Company's eleven loan officers were hired by the Company
within the last twelve months and accordingly, although these seven recent hires
are experienced loan officers, the Company's experience with these loan
officers' underwriting abilities is limited.
At September 30, 1997, the Company's nonperforming assets were $2.0
million, an increase of $1.4 million from December 31, 1996. This increase is
primarily due to management's decision to classify loans with four borrowers
with an aggregate principal balance of $1.1 million as nonperforming. Although
management believes that its allowance for loan losses at September 30, 1997 is
adequate, no assurance can be given that an additional provision for loan losses
will not be required. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Loans."
INTEREST RATE RISK
The Company's earnings are largely derived from net interest income, which
is interest income and fees earned on loans and investment income, less interest
expense paid on deposits and other borrowings. Interest rates are highly
sensitive to many factors which are beyond the control of the Company's
management, including general economic conditions, and the policies of various
governmental and regulatory authorities. As interest rates change, net interest
income is affected. With fixed rate assets (such as fixed rate loans) and
liabilities (such as certificates of deposit), the effect on net interest income
depends on the maturity of the asset or liability. Although the Company strives
to minimize interest rate risk through asset/liability management policies, from
time to time maturities are not balanced. Further, while rates have remained
stable in recent periods, an unanticipated rapid decrease or increase in
interest rates could have an adverse effect on the spreads between the interest
rates earned on assets and the rates of interest paid on liabilities, and
therefore on the level of net interest income.
The Company historically used borrowings from the FHLB and, to a lesser
extent, higher interest rate certificates of deposits, as a means of achieving
faster asset growth than would have been possible through normal deposit growth.
As a result of the acquisition of the Wells Fargo branches in July 1997, the
Company at September 30, 1997 had significantly reduced its dependence on FHLB
borrowings and higher interest rate certificates of deposits. The Company may
increase its use of FHLB borrowings and higher interest rate certificates of
deposit in the future if circumstances warrant. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation."
DEPENDENCE ON KEY PERSONNEL
The Company's success is dependent on the services of Benjamin Namatinia,
Chairman and Chief Executive Officer, and Charles W. Jarrett, President and
Chief Operating Officer. The loss of services of either of these executives, or
of certain other key officers, could adversely affect the Company. No assurance
can be given that replacement officers of comparable abilities could be found.
The Company maintains key person life insurance on these individuals. See
"Management."
OFFERING PRICE
The price of the shares being offered hereby will be determined by
negotiation between the Company and the representative of the Underwriters.
There can be no assurance that the market will sustain the offering price or
that the offering price necessarily indicates the fair value of the Common
Stock. See "Underwriting."
LIMITED MARKET FOR THE SHARES
Although shares of Common Stock are traded between shareholders from time
to time, there is currently no market for the Company's shares. The Company has
applied for inclusion of the Common Stock in the Nasdaq National Market System,
but no assurances can be made that an active public market will develop or be
maintained for the shares. Moreover, the market price could be subject to
significant fluctuations in response to variations in the Company's quarterly
operating results, general conditions of the banking industry and other factors.
In addition, the price of the shares may fluctuate substantially due to the
effect of supply
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<PAGE> 9
and demand in a limited market. Even if an active market for the shares does
develop, investors in this Offering cannot be assured of being able to resell
shares purchased in the Offering at or above the offering price.
REGULATION
The Company is subject to extensive regulations under federal and state
laws. These laws and regulations are intended primarily to protect depositors
and the deposit insurance fund, rather than shareholders. The Bank is a state
chartered commercial bank which is not a member of the Federal Reserve System
and is subject to primary regulation and supervision by the Director of
Financial Institutions of the State of Washington (the "Washington Director")
and by the Federal Deposit Insurance Corporation (the "FDIC"), which also
insures bank deposits. The Company is also subject to regulation and supervision
by the Board of Governors of the Federal Reserve System (the "Federal Reserve").
Federal and state regulations place banks at a competitive disadvantage compared
to less regulated competitors such as finance companies, credit unions, mortgage
banking companies and leasing companies. Although the Company has been able to
compete effectively in its market area in the past, there can be no assurance
that it will be able to continue to do so. Further, future changes in federal
and state banking regulations could adversely affect the Company's operating
results and ability to continue to compete effectively. See
"Business -- Regulation and Supervision."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Board of Directors has adopted an amendment to the Company's Articles
of Incorporation which, if adopted by the shareholders, would give the Board of
Directors the authority to issue up to 5,000,000 shares of Preferred Stock and
to determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the shareholders. The rights of the holders of Common Stock may be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change of control of the
Company without further action by shareholders and may adversely affect the
voting and other rights of the holders of Common Stock. The Company has no
present plans to issue shares of Preferred Stock. See "Description of Capital
Stock."
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<PAGE> 10
USE OF PROCEEDS
The net proceeds to the Company from the Offering, after deducting the
underwriting discount and estimated Offering expenses of $300,000, are estimated
to be $10,860,000 (approximately $12,344,280 if the Underwriters' over-allotment
option is exercised in full), based on the assumed initial public offering price
of $12.00 per share.
The net cash proceeds of the Offering will be used to repay approximately
$1,000,000 of outstanding subordinated notes which bear interest at 8.5% per
annum, to repay approximately $146,000 of bank debt which currently bears
interest at 9.5% per annum, to increase the capital of the Company and the Bank
in order to expand its existing business and for future acquisitions. The
Company is not presently a party to any acquisition discussions or agreements.
Initially, the Company plans to invest the proceeds in money-market accounts at
the Bank, which in turn will invest the funds in short-term investment
securities.
In the event that the Underwriters' over-allotment option is exercised, up
to 17,000 shares will be sold for the account of the Selling Shareholders. The
Company will not receive any proceeds from the sale of Shares by the Selling
Shareholders.
DIVIDEND POLICY
The Company has paid the following annual amounts on a per share basis as
dividends to its shareholders since 1993:
<TABLE>
<CAPTION>
YEAR AMOUNT
------------------------------------------------------------ ------
<S> <C>
1993........................................................ $.029
1994........................................................ .029
1995........................................................ .033
1996........................................................ .039
1997........................................................ .048
</TABLE>
The Board of Directors' dividend policy is to review the Company's
financial performance, capital adequacy, regulatory compliance and cash
resources, and if such review is favorable, to declare and pay a cash dividend
to shareholders quarterly. Although the Company anticipates payment of a regular
quarterly cash dividend, future dividends are subject to these limitations and
to the discretion of the Board of Directors, and could be reduced or eliminated.
The Company's ability to pay cash dividends to its shareholders is dependent on
earnings generated by the Bank. Washington and federal banking laws and
regulations place restrictions on the payment of dividends by a bank to its
shareholders. See "Business -- Regulation and Supervision."
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CAPITALIZATION
The following table sets forth, as of September 30, 1997, the total
capitalization of the Company on an actual basis and as adjusted to give effect
to the sale of Common Stock offered by the Company at an assumed initial public
offering price of $12.00 per share and the application of the estimated net
proceeds to the Company therefrom. This table should be read in conjunction with
the historical financial statements of the Company and the related notes thereto
included elsewhere in this Prospectus. See "Use of Proceeds" and "Selected
Historical Financial Information and Other Data."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1997
--------------------
AS
ACTUAL ADJUSTED
------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Shareholders' equity:
Preferred Stock, no par value; no shares authorized; no shares issued
and outstanding or as adjusted...................................... $ -- $ --
Common Stock, no par value; 3,937,500 shares
authorized; 2,602,215 shares issued and
outstanding; 3,602,215 shares issued and
outstanding as adjusted(1).......................................... 3,247 14,107
Additional paid-in capital............................................. 1,538 1,538
Net unrealized gain on available-for-sale securities................... 14 14
Retained earnings...................................................... 8,496 8,496
------- -------
Total shareholders' equity............................................. $13,295 $ 24,155
======= =======
Capital ratios(2):
Tier 1 capital ratio
(Regulatory minimum: 4.00%)............................................ 8.96% 17.24%
Total risk-based capital ratio
(Regulatory minimum: 8.00%)............................................ 10.69% 18.96%
Leverage capital ratio
(General regulatory minimum: 4.00-5.00%)............................... 7.57% 12.95%
</TABLE>
- ---------------
(1) Does not include 525,000 shares of Common Stock authorized for issuance
under the Company's stock option plan. See "Management -- 1997 Stock Option
Plan."
(2) Minimum ratios for the Company are established by Federal Reserve
regulations. See "Business -- Regulation and Supervision."
10
<PAGE> 12
DILUTION
The net tangible book value of the Company at September 30, 1997 was
approximately $11.4 million, or $4.38 per share of Common Stock. Net tangible
book value per share represents the Company's total tangible assets less its
total liabilities, divided by the total number of outstanding shares of Common
Stock. After giving effect to the sale of 1,000,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$12.00 per share and the application of the estimated net proceeds therefrom,
the pro forma net tangible book value of the Company at September 30, 1997 would
have been approximately $22.2 million or $6.16 per share of Common Stock. This
represents an immediate increase in such net tangible book value of $1.78 per
share to the existing shareholders of the Company and an immediate dilution in
net tangible book value of $5.84 per share to purchasers of Common Stock in the
Offering. The following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $12.00
Net tangible book value per share before the Offering............ $4.38
Increase per share attributable to new investors................. 1.78
-----
Pro forma net tangible book value per share after the Offering........ 6.16
------
Dilution per share to new investors................................... $ 5.84
======
</TABLE>
The following table sets forth, as of September 30, 1997, the number of
shares of Common Stock purchased, the total consideration paid therefor and the
average price paid per share by the existing shareholders of the Company and the
purchasers of Common Stock in the Offering, at an assumed initial public
offering price of $12.00 per share (before deducting the estimated underwriting
discount and offering expenses payable by the Company). The following table does
not include 133,000 shares of Common Stock which the Underwriters may purchase
from the Company pursuant to their over-allotment option. See "Underwriting."
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
--------------------- ----------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders........................... $2,602,215 72.2% $ 4,785 28.5% $ 1.84
New investors(1)................................ 1,000,000 27.8 12,000 71.5 $ 12.00
--------- ----- ------- -----
Total......................................... $3,602,215 100.0% $16,785 100.0% $ 4.66
========= ===== ======= =====
</TABLE>
- ---------------
(1) Purchasers of Common Stock in the Offering.
11
<PAGE> 13
SELECTED HISTORICAL FINANCIAL INFORMATION AND OTHER DATA
The following table sets forth certain information concerning the
consolidated financial condition, operating results, and key operating ratios
for the Company at the dates and for the periods indicated. The data for the
nine months ended September 30, 1996 and 1997 are derived from unaudited
consolidated financial statements, but in the opinion of management, reflect all
adjustments necessary for a fair presentation of the data for these periods.
Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1997. This information does not purport to be complete, and
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations, and the Consolidated Financial
Statements of the Company and Notes thereto included in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) UNAUDITED UNAUDITED
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1)
Interest income...................... $ 4,449 $ 6,015 $ 7,492 $ 10,644 $ 13,633 $ 10,096 $ 11,135
Interest expense..................... 2,191 2,720 2,841 4,548 6,174 4,546 5,233
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income.................. 2,258 3,295 4,651 6,096 7,459 5,550 5,902
Provision for loan loss.............. 333 310 533 694 281 175 300
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan loss...................... 1,925 2,985 4,118 5,402 7,178 5,375 5,602
Non-interest income.................. 396 449 287 877 296 126 534
Non-interest expense................. 1,494 2,016 2,363 3,093 3,682 2,747 3,839
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before provision for income
taxes.............................. 827 1,418 2,042 3,186 3,792 2,754 2,297
Provision for income taxes........... 332 442 697 1,088 1,295 937 781
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income........................... $ 495 $ 976 $ 1,345 $ 2,098 $ 2,497 $ 1,817 $ 1,516
========== ========== ========== ========== ========== ========== ==========
DIVIDENDS
Cash................................. $ 37 $ 49 $ 49 $ 80 $ 101 $ 75 $ 93
Ratio of dividends to net income..... 7.47% 5.02% 3.64% 3.81% 4.04% 4.13% 6.13%
PER SHARE DATA(2)
Net income per common share.......... $ 0.26 $ 0.51 $ 0.70 $ 0.77 $ 0.90 $ 0.65 $ 0.54
Cash dividends per common share...... $ 0.02 $ 0.03 $ 0.03 $ 0.03 $ 0.04 $ 0.03 $ 0.04
Weighted average shares
outstanding........................ 1,925,399 1,925,399 1,925,399 2,714,074 2,788,365 2,787,274 2,802,369
BALANCE SHEET DATA (AT PERIOD END)
Investment securities................ $ 13,505 $ 6,726 $ 3,565 $ 3,263 $ 5,391 $ 5,381 $ 8,378
Trading assets....................... 1,999 3,986 2,781 2,016 -- -- --
Loans, net........................... 43,674 55,887 75,564 105,900 124,657 121,983 130,703
Total assets......................... 73,141 76,383 94,728 131,348 159,157 148,746 175,658
Total deposits....................... 59,969 64,340 81,083 106,371 123,297 116,042 139,085
Total short-term borrowings.......... 6,400 4,525 1,350 2,625 550 1,200 475
Total long-term borrowings........... 3,409 3,255 6,811 12,393 22,842 19,288 22,096
Total shareholders' equity........... 2,959 3,886 5,182 9,391 11,813 11,134 13,295
SELECTED RATIOS
Return on average total assets....... 0.91% 1.26% 1.57% 1.90% 1.75% 1.74% 1.24%
Return on average shareholders'
equity............................. 19.02% 28.93% 30.21% 26.06% 23.93% 23.95% 16.16%
Net interest margin.................. 4.63% 4.67% 5.94% 5.91% 5.56% 5.63% 5.21%
Efficiency ratio(3).................. 56.29% 53.85% 47.85% 44.36% 47.48% 48.40% 59.65%
ASSET QUALITY RATIOS
Allowance for loan losses to:
Ending total loans................. 1.27% 1.33% 1.50% 1.64% 1.50% 1.50% 1.50%
Nonperforming assets(4)............ 234.73% 1,831.71% 548.57% 540.80% 328.82% 348.59% 101.12%
Nonperforming assets to ending total
assets............................. 0.33% 0.05% 0.22% 0.25% 0.36% 0.36% 1.12%
Net loan charge-offs to average
loans.............................. 0.19% 0.31% 0.20% 0.09% 0.13% 0.07% 0.16%
CAPITAL RATIOS
Average shareholders' equity to
average assets..................... 4.80% 4.36% 5.21% 7.30% 7.31% 7.25% 7.67%
Tier 1 capital ratio(5).............. 7.45% 7.80% 7.68% 9.86% 10.11% 9.93% 8.96%
Total risk based capital ratio(6).... 11.23% 11.06% 10.42% 11.96% 11.88% 11.89% 10.69%
</TABLE>
- ---------------
(1) Income statement data for the year ended December 31, 1992 is unaudited.
(2) Per share data has been adjusted to reflect all stock dividends and stock
splits to the date of the Prospectus. The Company had a 5 for 1 stock split
effective on October 17, 1997 and a 3.5 for 1 stock split effective on
January 12, 1998.
(3) Efficiency ratio is noninterest expense divided by the sum of net interest
income plus noninterest income.
(4) Nonperforming assets consist of nonaccrual loans, loans contractually past
due 90 days or more and other real estate owned.
(5) Tier 1 capital divided by risk-weighted assets.
(6) Total risk-based capital divided by risk-weighted assets.
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations includes a discussion of certain significant business
trends and uncertainties as well as other forward-looking statements and is
intended to be read in conjunction with and is qualified in its entirety by
reference to the consolidated financial statements of the Company and
accompanying notes included elsewhere in this Prospectus. For a discussion of
important factors that could cause actual results to differ materially from such
forward-looking statements, see "Risk Factors."
INTRODUCTION
The Company has grown from assets of $39.4 million and deposits of $31.0
million at January 1, 1992 to assets of $175.7 million and deposits of $139.1
million at September 30, 1997. Until November 1996, the Company had only one
location in Longview, Washington. The Company has operated very efficiently
during this period of rapid growth, in part due to operating from one location.
The Company has recently undertaken significant business changes to
strengthen its position as the leading bank in Cowlitz County. Beginning in
November 1996, the Company expanded its operating base by opening a branch in
Kelso, Washington. In July 1997, the Company acquired three Wells Fargo Bank
branches, located in Castle Rock, Kalama and Longview, Washington (the "Branch
Acquisition"). In this acquisition, the Company acquired the branch sites,
retained the existing employees and assumed approximately $25.2 million in
deposit liabilities, but did not acquire any loans or other revenue producing
assets. During 1997, the Company also established a trust department at its main
office in Longview. As a result of the recent expansion of the Company and the
associated increased staff costs and amortization of the core deposit premium
from the Branch Acquisition, non-interest expense for the first nine months of
1997 is substantially higher as a percentage of revenue than in prior periods.
Although the higher non-interest expense is partially offset by a lower cost of
funds due to increased deposits resulting from the establishment and acquisition
of branches, it is anticipated that net income per share will be lower for 1997
than for 1996. In addition, certain of the Company's performance ratios, such as
ROE and return on assets ("ROA"), will be lower in 1997 than in prior years as a
result of the investment of cash received in the Branch Acquisition in lower
yielding short-term investments pending utilization of these funds by the
Company, coupled with the increased noninterest expense described above. As a
result of the Branch Acquisition, however, the Company's reliance on borrowings
from the FHLB has decreased from 14.5% of total liabilities at December 31, 1996
to 12.8% of total liabilities at September 30, 1997.
RESULTS OF OPERATIONS
NET INTEREST INCOME
For financial institutions, the primary component of earnings is net
interest income. Net interest income is the difference between interest income,
principally from loans and investment securities portfolios, and interest
expense, principally on customer deposits. Changes in net interest income result
from changes in "volume," "spread" and "margin." Volume refers to the dollar
level of interest-earning assets and interest-bearing liabilities. Spread refers
to the difference between the yield on interest-earning assets and the cost of
interest-bearing liabilities. Net interest margin is the ratio of net interest
income to total interest-earning assets and is influenced by the level and
relative mix of interest-earning assets and interest-bearing liabilities.
For the Nine Months Ended September 30, 1997 and 1996
Net interest income for nine months ended September 30, 1997 was $5.9
million, an increase of $352,000 over the corresponding period in 1996. The
increase in net interest income is primarily attributable to a $19.4 million
increase in average earnings assets for the nine months ended September 30, 1996
compared to the nine months ended September 30, 1997. Interest expense increased
15.1% to $5.2 million for the first nine months of 1997 compared to $4.5 million
for the corresponding period in 1996. The increase in interest expense was
primarily a result of an increase of $17.6 million in average interest bearing
liabilities. The net interest spread decreased to 4.48% for the nine months
ended September 30, 1997 compared to 4.86% for the comparable period in the
prior year. The decrease in the spread is generally attributable to lower rates
on new loans due to current market conditions and increased competition for
loans in the Company's market area.
13
<PAGE> 15
Total interest-earning assets averaged $150.9 million for the nine months
ended September 30, 1997, compared to $131.5 million for the corresponding
period in 1996. Most of the increase was due to a 10.4% increase in average
outstanding loans. The average yield on interest earning assets, when adjusted
to reflect the tax benefits on certain types of investments, decreased to 9.84%
during the first nine months of 1997, compared to 10.24% for the corresponding
period in 1996, as a result of lower yields on loans and investment securities.
Interest bearing liabilities averaged $130.2 million and $112.6 million
during the first nine months of 1997 and 1996, respectively. The average cost of
these liabilities decreased slightly in the first nine months of 1997 to 5.36%
from 5.38% in the first nine months of 1996. The average cost of total interest
bearing liabilities and non-interest bearing deposits declined to 4.65% during
the first nine months of 1997 compared to 4.71% during the first nine months of
1996. The Company did not aggressively price certain higher interest rate
certificates of deposit following the Branch Acquisition.
Average Balances and Average Rates Earned and Paid. The following table
sets forth, for the periods indicated, information with regard to (i) average
balances of assets and liabilities, (ii) the total dollar amounts of interest
income on interest earning assets and interest expense on interest bearing
liabilities, (iii) resulting yields or costs, (iv) net interest income and (v)
net interest spread. Nonaccrual loans have been included in the tables as loans
carrying a zero yield. Loan fees are recognized as income using the interest
method over the life of the loan.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------
1997 1996
---------------------------------------- ----------------------------------------
AVERAGE AVERAGE
OUTSTANDING INTEREST OUTSTANDING INTEREST
BALANCE EARNED/PAID YIELD/RATE BALANCE EARNED/PAID YIELD/RATE
----------- ---------- ----------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Loans........................... $ 129,099 $ 10,131 10.46% $ 116,898 $ 9,397 10.72%
Taxable securities.............. 9,974 484 6.47% 6,566 332 6.74%
Nontaxable securities(1)........ -- -- -- 48 3 8.33%
Trading assets.................. -- -- -- 786 35 5.94%
Interest earning balances due
from banks.................... 11,867 520 5.84% 7,198 330 6.11%
-------- ----- -------- -----
Total interest earning
assets.................... $ 150,940 $ 11,135 9.84% $ 131,496 $ 10,097 10.24%
Cash and due from banks......... 7,122 5,940
Premises and equipment, net..... 4,843 2,091
Allowance for loan losses....... (1,920) (1,783)
Net intangibles................. 137 --
Other assets.................... 1,957 1,715
-------- --------
Total assets................ $ 163,079 $ 139,459
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings and interest-bearing
demand deposits............... $ 34,622 $ 867 3.34% $ 30,820 $ 814 3.52%
Certificates of deposit......... 72,917 3,288 6.01% 62,823 2,874 6.10%
Long-term borrowings............ 21,708 1,045 6.42% 16,140 758 6.26%
Short-term borrowings........... 982 33 4.48% 2,855 100 4.67%
-------- ----- ------- -------- ----- ------ -
Total interest-bearing
liabilities............... $ 130,229 $ 5,233 5.36% $ 112,638 $ 4,546 5.38%
Non-interest bearing deposits... 19,721 16,117
Other liabilities............... 622 587
-------- --------
Total liabilities........... 150,572 129,342
Shareholders' equity............ 12,507 10,117
-------- --------
Total liabilities &
shareholders' equity...... $ 163,079 $ 139,459
======== ========
Net interest income............. $ 5,902 $ 5,551
===== =====
Net interest spread............. 4.48% 4.86%
Average yield on earning
assets........................ 9.84% 10.24%
Interest expense to earning
assets........................ 4.63% 4.61%
Net interest income to earning
assets........................ 5.21% 5.63%
</TABLE>
- ---------------
(1) Interest earned on nontaxable securities has been computed on a 34 percent
tax equivalent basis.
14
<PAGE> 16
For the Years Ended December 31, 1996, 1995 and 1994
Net interest income for the year ended December 31, 1996, was $7.5 million,
an increase of $1.4 million compared to net interest income of $6.1 million in
1995, which was higher than the $4.7 million reported in 1994, due primarily to
increases in the volume of loans from period to period. The overall
tax-equivalent earning asset yield was 10.16% in 1996 compared to 10.31% in
1995, and 9.58% in 1994. During the same periods, average yields on loans were
10.69% in 1996, 10.86% in 1995, and 10.34% in 1994. Investment securities
comprised 5.6% of average earning assets in 1996, which was down from 7.8% in
1995, and 13.2% in 1994. Tax-equivalent interest yields on investment securities
have ranged from 8.33% in 1996 to 11.90% in 1995. The Company held no nontaxable
securities in 1994.
Interest expense as a percentage of earning assets increased to 4.60% in
1996 compared to 4.41% in 1995 and 3.63% in 1994. Local competitive pricing
conditions and funding needs for the Company's investments and loans were the
primary determinants of rates paid for deposits during 1996, 1995 and 1994.
Average Balances and Average Rates Earned and Paid. The following table
sets forth, for the periods indicated, information with regard to (i) average
balances of assets and liabilities, (ii) the total dollar amounts of interest
income on interest earning assets and interest expense on interest bearing
liabilities, (iii) resulting yields or costs, (iv) net interest income and (v)
net interest spread. Nonaccrual loans have been included in the tables as loans
carrying a zero yield. Loan fees are recognized as income using the interest
method over the life of the loan.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1996 1995
------------------------------------ ------------------------------------
AVERAGE AVERAGE
OUTSTANDING INTEREST OUTSTANDING INTEREST
BALANCE EARNED/PAID YIELD/RATE BALANCE EARNED/PAID YIELD/RATE
----------- ----------- ---------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Loans......... $ 118,957 $12,721 10.69% $ 91,616 $ 9,954 10.86%
Taxable
securities... 6,890 386 5.60% 5,570 269 4.83%
Nontaxable
securities(1). .. 36 3 8.33% 42 5 11.90%
Trading
assets...... 589 34 5.77% 2,454 129 5.26%
Federal funds
sold........ -- -- 0.00% 23 -- 0.00%
Interest
earning
balances due
from
banks....... 7,777 490 6.30% 3,534 289 8.18%
-------- ------- -------- -------
Total
interest
earning
assets.... $ 134,249 $13,634 10.16% $ 103,239 $10,646 10.31%
Cash and due
from
banks....... 6,021 5,728
Premises and
equipment,
net......... 2,309 1,696
Allowance for
loan
losses...... (1,801) (1,399)
Other
assets...... 1,861 1,010
-------- --------
Total
assets.... $ 142,639 $ 110,274
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings and
interest-bearing
demand
deposits.... $ 30,834 $ 1,031 3.34% $ 31,215 $ 1,061 3.40%
Certificates
of
deposit..... 64,863 3,960 6.11% 43,521 2,657 6.11%
Long-term
borrowings... 17,315 1,073 6.20% 9,186 653 7.11%
Short-term
borrowings... 2,359 110 4.66% 3,418 177 5.18%
-------- ------- -------- -------
Total
interest-bearing
liabilities... $ 115,371 $ 6,174 5.35% $ 87,340 $ 4,548 5.21%
Non-interest
bearing
deposits.... 16,196 14,396
Other
liabilities... 639 488
-------- --------
Total
liabilities... 132,206 102,224
Shareholders'
equity...... 10,433 8,050
-------- --------
Total
liabilities
and
shareholders'
equity.... $ 142,639 $ 110,274
======== ========
Net interest
income...... $ 7,460 $ 6,098
======= =======
Net interest
spread...... 4.81% 5.09%
Average yield
on earning
assets...... 10.16% 10.31%
Interest
expense to
earning
assets...... 4.60% 4.41%
Net interest
income to
earning
assets...... 5.56% 5.91%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994
------------------------------------
AVERAGE
OUTSTANDING INTEREST
BALANCE EARNED/PAID YIELD/RATE
----------- ----------- ----------
<S> <C> <C> <C>
ASSETS:
Loans......... $66,362 $ 6,862 10.34%
Taxable
securities... 6,939 322 4.64%
Nontaxable
securities(1).. -- -- 0.00%
Trading
assets...... 3,385 168 4.96%
Federal funds
sold........ -- -- 0.00%
Interest
earning
balances due
from
banks....... 1,551 140 9.03%
------- ------
Total
interest
earning
assets.... $78,237 $ 7,492 9.58%
Cash and due
from
banks....... 5,689
Premises and
equipment,
net......... 1,764
Allowance for
loan
losses...... (928)
Other
assets...... 693
-------
Total
assets.... $85,455
=======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings and
interest-bearing
demand
deposits.... $37,701 $ 1,253 3.32%
Certificates
of
deposit..... 20,138 1,073 5.33%
Long-term
borrowings... 5,146 371 7.21%
Short-term
borrowings... 4,214 144 3.42%
------- ------
Total
interest-bearing
liabilities... $67,199 $ 2,841 4.23%
Non-interest
bearing
deposits.... 13,488
Other
liabilities... 316
-------
Total
liabilities... 81,003
Shareholders'
equity...... 4,452
-------
Total
liabilities
and
shareholders'
equity.... $85,455
=======
Net interest
income...... $ 4,651
======
Net interest
spread...... 5.35%
Average yield
on earning
assets...... 9.58%
Interest
expense to
earning
assets...... 3.63%
Net interest
income to
earning
assets...... 5.94%
</TABLE>
- ---------------
(1) Interest earned on nontaxable securities has been computed on a 34 percent
tax equivalent basis.
15
<PAGE> 17
Analysis of Changes in Interest Differential. The following table shows the
dollar amount of the increase (decrease) in the Company's net interest income
and expense and attributes such dollar amounts to changes in volume as well as
changes in rates. Rate/volume variance have been allocated to volume changes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 VERSUS 1995 1995 VERSUS 1994
----------------------------- -----------------------------
INCREASE INCREASE
(DECREASE) DUE (DECREASE) DUE
TO TOTAL TO TOTAL
--------------- INCREASE/ --------------- INCREASE/
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
------ ----- ---------- ------ ---- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest earning balances due from
banks............................ $ 267 $ (66) $ 201 $ 162 $(13) $ 149
Trading account income.............. (108) 13 (95) (49) 10 (39)
Investment security income:
Taxable securities.................. 74 43 117 (66) 13 (53)
Nontaxable securities(1)............ (1) (1) (2) 5 -- 5
Loans, including fees on loans...... 2,923 (156) 2,767 2,747 345 3,092
------ ----- ------ ------ ---- ------
Total interest income(1).... 3,155 (167) 2,988 2,799 355 3,154
------ ----- ------ ------ ---- ------
Interest expense:
Savings and interest bearing
demand........................... (11) (19) (30) (222) 30 (192)
Certificates of deposit............. 1,303 -- 1,303 1,427 157 1,584
Short-term borrowings............... (49) (18) (67) (41) 74 33
Long-term borrowings................ 504 (84) 420 287 (5) 282
------ ----- ------ ------ ---- ------
Total interest expense...... 1,747 (121) 1,626 1,451 256 1,707
------ ----- ------ ------ ---- ------
Net interest spread(1)................ $1,408 $ (46) $1,362 $1,348 $ 99 $1,447
====== ===== ====== ====== ==== ======
</TABLE>
- ---------------
(1) Interest earned on nontaxable securities has been computed on a 34 percent
tax equivalent basis.
PROVISION FOR LOAN LOSSES
For the Nine Months Ended September 30, 1997 and 1996
The Company's allowance for loan loss was $2.0 million and $1.9 million,
respectively, as of September 30, 1997 and 1996. This equates to 1.5% of total
loans for both periods as management adjusts the allowance to keep pace with the
growth in the Company's overall loan portfolio. Losses on loans charged to the
allowance during the first nine months of 1997 and 1996 amounted to $229,000 and
$87,000, respectively. Such charge-offs have been partially offset by loan
recoveries of $19,000 and $7,000 for the same periods. The increase in
charge-offs from 1996 to 1997 was primarily the result of increased losses on
credit cards and one real estate loan. The provision for loan losses increased
from $175,000 to $300,000 reflecting continued growth in the loan portfolio and
the increased levels of net charge-offs and nonperforming assets in the first
nine months of 1997. See "-- Financial Condition -- Loans."
For the Years Ended December 31, 1996, 1995 and 1994
The loan loss provision decreased in 1996 compared to 1995 due to
management's desire to maintain the allowance at an adequate level relative to
total loans. Management believes the loan loss provision maintains the allowance
for loan losses at an appropriate level. The allowance for loan losses was $1.9
million at December 31, 1996 as compared to $1.8 million at December 31, 1995
and $1.2 million at December 31, 1994. The Company's ratio of allowance for loan
losses to total loans was 1.50% at December 31, 1996, compared to 1.64% at
December 31, 1995 and 1.50% at December 31, 1994.
Recoveries have been minimal over the past three-year period. Net
chargeoffs for 1996 were approximately $150,000 which compares to net
charge-offs of approximately $83,000 in 1995 and $132,000 in 1994. At December
31, 1996 nonaccrual loans totaled $407,000 compared to $237,000 at December 31,
1995 and $179,000 at the end of 1994. When a provision for loan losses is
recorded, the amount is based on past charge-off experience, a careful analysis
of the current portfolio, and evaluation of future economic trends in the
16
<PAGE> 18
Company's market area. Management continues to closely monitor the loan quality
of new and existing relationships.
NON-INTEREST INCOME
For the Nine Months Ended September 30, 1997 and 1996
Non-interest income, primarily consisting of service charges and related
fees, increased $408,000 to $534,000 for the nine-month period ended September
30, 1997 compared to $126,000 for the nine months ended September 30, 1996. The
increase was the result of a loss of $309,000 on sales of securities which
occurred during the nine months ended September 30, 1996, which did not recur in
1997. In addition, increasing deposit volumes and related service fees resulted
in an increase in service charges to $397,000 for the nine months ended
September 30, 1997 compared to $286,000 for the nine months ended September 30,
1996.
For the Years Ended December 31, 1996, 1995 and 1994
Total non-interest income over the three year period has ranged from
$296,000 in 1996 and $877,000 in 1995 to $287,000 in 1994. Service charges on
deposit accounts increased from $343,000 for the year ended December 31, 1994,
to $367,000 in 1995, to $387,000 in 1996, as a result of increased deposit
volumes. The differences in income between periods primarily reflects the
results of the Company's trading account which had a loss of $211,000 in 1994, a
gain of $258,000 in 1995 and a loss of $309,000 in 1996. The losses and gain
were due primarily to the volatility of interest rates during these periods.
NON-INTEREST EXPENSE
For the Nine Months Ended September 30, 1997 and 1996
Non-interest expense consists principally of employees' salaries and
benefits, occupancy costs, data processing and communication expenses, FDIC
insurance premiums, professional fees, and other non-interest expenses.
Non-interest expense increased 39.8% to $3.8 million for the nine months ended
September 30, 1997 from $2.7 million in the corresponding period in 1996,
primarily due to an increase in staffing costs, as well as increases in other
operating costs such as occupancy expense and amortization of the deposit
premium from the Branch Acquisition in July 1997. The Company had 87 and 61
full-time equivalent employees at September 30, 1997 and 1996, respectively.
A measure of the Company's ability to contain non-interest expenses is the
efficiency ratio. This statistic is derived by dividing total non-interest
expenses by total net interest income and non-interest income. For the nine
months ended September 30, 1997, the ratio increased to 59.7% compared to 48.4%
for the corresponding period of 1996, largely as a result of the Company's
expansion activities in late 1996 and in 1997.
For the Years Ended December 31, 1996, 1995 and 1994
Non-interest expense increased $589,000 or 19.0% to $3.7 million for the
year ended December 31, 1996 from $3.1 million for the year ended December 31,
1995. The increase is primarily attributable to an increase in staff costs due
to the opening of a new branch in Kelso in November 1996 which required hiring
additional employees beginning in April 1996. The Company's efficiency ratio for
the years ended December 31, 1996, 1995 and 1994 was 47.48%, 44.36% and 47.85%,
respectively.
Salaries and benefits expense of $2.1 million in 1996 represented an
increase of $428,000 from the $1.7 million reported in 1995 which was $543,000
or 46.6% higher than the $1.2 million reported in 1994. At December 31, 1996,
the Company had 63 full-time equivalent employees which compares to 54 and 46 at
December 31, 1995 and 1994, respectively.
Net occupancy expenses consist of depreciation on premises, lease costs and
equipment, maintenance and repair expenses, utilities and related expenses. The
Company's net occupancy expense in 1996 of $393,000 was $83,000 or 26.8% higher
than the $310,000 reported in 1995, which was $12,000 or 3.7% less than the
$322,000 reported in 1994. The increase in occupancy expense in 1996 was due
primarily to an expansion of the Company's main office facility in Longview and
the opening of a branch in Kelso.
17
<PAGE> 19
INCOME TAXES
The provision for income taxes for the nine month period ended September
30, 1997 was $781,000 representing an effective tax rate of 34.0% compared to
$937,000 or 34.3% for the nine month period ended September 30, 1996.
The provision for income taxes amounted to $1.3 million, $1.1 million, and
$697,000 for 1996, 1995, and 1994, respectively. The provision resulted in an
effective tax rate of 34.2% in 1996 and of 34.1% in each of 1995 and 1994.
LOAN LOSSES AND RECOVERIES
Management recorded a provision for loan losses of $281,000 in 1996 to
support loan portfolio growth. At September 30, 1997, management considered the
allowance for loan losses of $2.0 million sufficient to absorb possible losses
on loans which may become uncollectible based on evaluations by management.
The amount of the allowance for loan losses is assessed by management on a
regular basis to ensure that it is sufficient to cover potential future loan
losses. Management does not specifically allocate the allowance for loan losses
by loan category. The allowance balance and amount of provision charged to
operations is based primarily on management's evaluation of the entire
portfolio. This analysis includes review of the following factors: (a) the
volume and mix of the existing loan portfolio, including the volume and severity
of nonperforming loans and adversely classified credits, as well as analysis of
net charge-offs experienced on previously classified loans; (b) the extent to
which loan renewals and extensions are used to maintain loans on a current basis
and the degree of risk associated with such loans; (c) the nature and value of
the collateral securing a loan; (d) the trend in loan growth, including any
rapid increase in loan volume within a relatively short period of time; (e)
general and local economic conditions affecting the collectibility of the
Company's loans; (f) the relationship and trend over the past several years of
recoveries as a percentage of previous years' charge-offs; and (g) available
outside information of a comparable nature regarding the loan portfolios of
other banks, including peer group banks.
18
<PAGE> 20
The following table shows the Company's loan loss performance for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
----------------------------- SEPTEMBER 30,
1994 1995 1996 1997
------- -------- -------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans outstanding at end of period........................ $76,261 $107,633 $126,551 $ 132,687
Average loans outstanding during the period............... $66,362 $ 91,616 $118,957 $ 129,099
Allowance for loan losses, beginning of period............ $ 751 $ 1,152 $ 1,763 $ 1,894
Loans charged off:
Commercial.............................................. 106 5 36 137
Real estate............................................. -- -- 30 3
Consumer................................................ 8 9 22 23
Credit cards............................................ 60 99 70 66
------- -------- -------- --------
Total loans charged-off.............................. 174 113 158 229
------- -------- -------- --------
Recoveries:
Commercial.............................................. 37 24 5 2
Real estate............................................. -- -- -- --
Consumer................................................ 1 2 1 17
Credit cards............................................ 4 4 2
------- -------- -------- --------
Total recoveries..................................... 42 30 8 19
------- -------- -------- --------
Provision for loan losses................................. 533 694 281 300
------- -------- -------- --------
Allowance for loan losses, end of period.................. $ 1,152 $ 1,763 $ 1,894 $ 1,984
======= ======== ======== ========
Ratio of net loans charged-off to average loans
outstanding............................................. 0.26% 0.12% 0.13% 0.18%
Ratio of allowance for loan losses to loans at year end... 1.50% 1.64% 1.50% 1.50%
</TABLE>
FINANCIAL CONDITION
SUMMARY BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, INCREASE (DECREASE)
----------------------------- -----------------------------------------------
1994 1995 1996 12/31/94-12/31/95 12/31/95-12/31/96
------- -------- -------- --------------------- ---------------------
(DOLLARS) (PERCENT) (DOLLARS) (PERCENT)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks............... $ 8,073 $ 14,702 $ 20,905 $ 6,629 82.1% $ 6,203 42.2%
Investment securities................. 3,566 3,263 5,391 (303) (8.5)% 2,128 65.2%
Trading assets........................ 2,781 2,016 -- (765) (27.5)% (2,016) (100.0)%
Loans, net............................ 75,564 105,900 124,657 30,336 40.1% 18,757 17.7%
Other assets.......................... 4,744 5,467 8,204 723 15.2% 2,737 50.1%
------- -------- -------- ------- -------
Total assets........................ $94,728 $131,348 $159,157 $36,620 38.7% $27,809 21.2%
======= ======== ======== ======= =======
LIABILITIES
Non-interest-bearing
deposits............................ $15,362 $ 17,099 $ 16,821 $ 1,737 11.3% $ (278) (1.6)%
Interest-bearing deposits............. 65,721 89,272 106,476 23,551 35.8% 17,204 19.3%
Total deposits........................ 81,083 106,371 123,297 25,288 31.2% 16,926 15.9%
Other liabilities..................... 8,463 15,586 24,047 7,123 84.2% 8,461 54.3%
SHAREHOLDERS' EQUITY.................... 5,182 9,391 11,813 4,209 81.2% 2,422 25.8%
------- -------- -------- ------- -------
Total liabilities and shareholders'
equity.............................. $94,728 $131,348 $159,157 $36,620 38.7% $27,809 21.2%
======= ======== ======== ======= =======
<CAPTION>
INCREASE (DECREASE)
SEPTEMBER 30, ---------------------
1997 12/31/96-9/30/97
------------- ---------------------
(DOLLARS) (PERCENT)
<S> <C> <C> <C>
ASSETS
Cash and due from banks............... $ 24,810 $ 3,905 18.7%
Investment securities................. 8,378 2,987 55.4%
Trading assets........................ -- -- --
Loans, net............................ 130,703 6,046 4.9%
Other assets.......................... 11,767 3,563 43.4%
-------- -------
Total assets........................ $ 175,658 $16,501 10.4%
======== =======
LIABILITIES
Non-interest-bearing
deposits............................ $ 27,051 $10,230 60.8%
Interest-bearing deposits............. 112,034 5,558 5.2%
Total deposits........................ 139,085 15,788 12.8%
Other liabilities..................... 23,278 (769) (3.2)%
SHAREHOLDERS' EQUITY.................... 13,295 1,482 12.5%
-------- -------
Total liabilities and shareholders'
equity.............................. $ 175,658 $16,501 10.4%
======== =======
</TABLE>
19
<PAGE> 21
INVESTMENT SECURITIES
At September 30, 1997, the Company's portfolio of investment securities
totaled $8.4 million, a 55.6% increase when compared to a securities portfolio
of $5.4 million at December 31, 1996. Investment in FHLB stock was $2.6 million
at September 30, 1997.
Investment securities held at December 31, 1996, totaled $5.4 million
representing a 63.6% increase when compared to $3.3 million at December 31,
1995. At December 31, 1995, the Company held $2.0 million of trading assets. The
Company ceased its trading activities during 1996 and had no trading assets at
December 31, 1996.
The Company follows a financial accounting principle which requires the
identification of investment securities as held-to-maturity, available-for-sale
or trading assets. Securities designated as held-to-maturity are those that the
Company has the intent and ability to hold until they mature or are called.
Available-for-sale securities are those that management may sell if liquidity
requirements dictate or alternative investment opportunities arise. Trading
assets are purchased and held principally for the purpose of reselling them
within a short period of time. The mix of available-for-sale and
held-to-maturity investment securities is considered in the content of the
Company's overall asset-liability policy and illustrates management's assessment
of the relative liquidity of the Company. At September 30, 1997, the investment
portfolio consisted of 47.9% available-for-sale securities and 52.1%
held-to-maturity investments. At December 31, 1996, available-for-sale
securities were 37.3% and held-to-maturity investments were 62.7% of the
investment portfolio. At December 31, 1995, the Company had 100%
held-to-maturity investments. See Note 2 to the Consolidated Financial
Statements.
At September 30, 1997, the Company's investment portfolio had total net
unrealized gains of approximately $25,000. This compares to net unrealized gains
of approximately $18,000 at December 31, 1996, and $38,000 at December 31, 1995.
Unrealized gains and losses reflect changes in market conditions and do not
represent the amount of actual profits or losses the Company may ultimately
realize. Actual realized gains and losses occur at the time investment
securities are sold or redeemed.
In 1991, the Company became a member and shareholder in the Federal Home
Loan Bank of Seattle. At December 31, 1996, the Bank held $2.5 million in FHLB
stock. The Company's relationship and stock investment with the FHLB provides a
borrowing source for meeting liquidity requirements, in addition to dividend
earnings.
The following table provides the book value of the Company's portfolio of
investment securities as of December 31, 1996, 1995 and September 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
SEPTEMBER 30, 1997
1996 1995 UNAUDITED
------------------ ------------------ ------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
--------- ------ --------- ------ --------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury securities................ $ 2,001 $2,011 -- -- $ 4,000 $4,014
------ ------ ------ ------ ------ ------
Total......................... $ 2,001 $2,011 -- -- $ 4,000 $4,014
====== ====== ====== ====== ====== ======
HELD-TO-MATURITY
U.S. Treasury securities................ $ 1,998 $2,006 $ 1,996 $2,034 $ 2,977 $2,987
Municipal bond.......................... -- -- 80 80 -- --
Certificates of deposit................. 1,382 1,382 1,187 1,187 1,387 1,387
------ ------ ------ ------ ------ ------
Total......................... $ 3,380 $3,388 $ 3,263 $3,301 $ 4,364 $4,374
====== ====== ====== ====== ====== ======
</TABLE>
At September 30, 1997, net unrealized gains on available-for-sale
securities were $14,000 representing 0.17% of the total portfolio. Management
has no current plans to sell any of these securities.
20
<PAGE> 22
The following table summarizes the contractual maturities and weighted
average yields of investment securities at September 30, 1997:
<TABLE>
<CAPTION>
AFTER 5 DUE
ONE THROUGH THROUGH
ONE YEAR THROUGH 10 10
OR LESS YIELD 5 YEARS YIELD YEARS YIELD YEARS YIELD TOTAL YIELD
-------- ----- ------- ----- ------- ----- ------- ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S Treasury securities......... $1,002 5.88% $3,012 6.04% -- -- -- -- $4,014 6.00%
Other securities(1)(2).......... 1,387 6.01% 2,977 6.08% -- -- -- -- 4,364 6.06%
------ ------ ------ ---- ------ ---- ------
Total.................. $2,389 5.97% $5,989 6.06% -- -- -- -- $8,378 6.01%
====== ====== ====== ==== ====== ==== ======
</TABLE>
- ---------------
(1) Does not reflect anticipated maturity from prepayments on mortgage-based and
asset-based securities. Anticipated lives are shorter than contractual
maturities.
(2) Interest earned on nontaxable securities has been computed on a 34 percent
tax equivalent yield.
LOANS
Outstanding loans totaled $132.7 million at September 30, 1997,
representing an increase of 4.8% compared to $126.6 million at December 31,
1996. Loan commitments were $16.2 million at September 30, 1997. Loan
commitments amounted to $19.7 million at December 31, 1996 and $15.7 million at
September 30, 1996.
The following table presents the composition of the Company's loan
portfolio at the dates indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
---------------------------------------------------
SEPTEMBER 30, 1997
1995 1996 -----------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial.......................... $ 72,527 66.9% $ 86,161 67.7% $ 91,460 68.5%
Real estate construction............ 2,998 2.8 3,584 2.8 3,833 2.9
Real estate commercial.............. 2,272 2.1 2,721 2.1 4,029 3.0
Real estate mortgage................ 24,061 22.2 28,766 22.6 28,013 21.0
Consumer and other.................. 6,241 5.7 6,016 4.7 5,983 4.5
Contracts purchased................. 325 0.3 116 0.1 83 0.1
-------- ----- -------- ----- -------- -----
108,424 100.0% 127,364 100.0% 133,401 100.0%
Deferred loan fees.................. (761) (813) (714)
-------- -------- --------
Total loans................ 107,663 126,551 132,687
Allowance for loan losses........... (1,763) (1,894) (1,984)
-------- -------- --------
Total loans, net........... $105,900 $124,657 $130,703
======== ======== ========
</TABLE>
21
<PAGE> 23
The following table shows the maturities and sensitivity of the Company's
loans to changes in interest rates at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------------------------------------------ ------------------------------------------------------
DUE DUE
AFTER ONE AFTER ONE
DUE IN ONE THROUGH 5 DUE AFTER 5 DUE IN ONE THROUGH 5 DUE AFTER 5
YEAR OR LESS YEARS YEARS TOTAL LOANS YEAR OR LESS YEARS YEARS TOTAL LOANS
------------ ----------- ----------- ----------- ------------ ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial
loans......... $ 34,163 $46,942 $ 5,056 $ 86,161 $ 35,614 $49,433 $ 6,413 $ 91,460
Real estate
construction... 1,421 1,953 210 3,584 1,492 2,072 269 3,833
Real estate
commercial.... 1,079 1,482 160 2,721 1,569 2,178 282 4,029
Real estate
mortgage...... 11,406 15,672 1,688 28,766 10,908 15,141 1,964 28,013
Consumer and
other......... 2,385 3,278 353 6,016 2,330 3,234 419 5,983
Contracts
purchased..... 46 63 7 116 32 45 6 83
------- ------- ------ -------- ------- ------- ------ --------
$ 50,500 $69,390 $ 7,474 $ 127,364 $ 51,945 $72,103 $ 9,353 $ 133,401
======= ======= ====== ======== ======= ======= ====== ========
Loans with fixed
interest
rates......... $ 91,932 $ 97,430
Loans with
floating
interest
rates......... 35,432 35,971
-------- --------
Total... $ 127,364 $ 133,401
======== ========
</TABLE>
In May 1993, the Financial Accounting Standards Board (FASB) issued SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan" and in October 1996
issued SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition Disclosures, an amendment to SFAS No. 114." The Company measures
impaired loans based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair market value of the collateral
if the loan is collateral dependent. The Company excludes loans that are
currently measured at fair value or at lower of cost or fair value, leases and
certain large groups of smaller balance homogeneous loans that are collectively
measured for impairment.
Generally, no interest is accrued on loans when factors indicate collection
of interest is doubtful or when the principal or interest payment becomes 90
days past due, unless collection of principal and interest are anticipated
within a reasonable period of time and the loans are well secured. For such
loans, previously accrued but uncollected interest is charged against current
earnings, and income is only recognized to the extent payments are subsequently
received.
The Company manages the general risks inherent in the loan portfolio by
following loan policies and underwriting practices designed to result in prudent
lending activities. The following table presents information with respect to
nonperforming assets:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Loans on nonaccrual status................................. $ 407 $1,412
Loans past due greater than 90 days but not on nonaccrual
status................................................... 169 455
Other real estate owned.................................... -- 95
---- ------
Total nonperforming assets....................... $ 576 $1,962
==== ======
Percentage of nonperforming assets to total assets......... 0.36% 1.12%
</TABLE>
The increase in nonperforming loans from December 31, 1996 to September 30,
1997 is primarily the result of management's decision to classify loans with
four borrowers with an aggregate principal balance of $1.1 million as
nonperforming. Each of these loans is secured by real estate and management
believes that in each case the value of the collateral exceeds the principal
balance of the loan. Management does not believe that it will incur any loss
with respect to any of these four borrowers.
22
<PAGE> 24
DEPOSITS
The following table sets forth the average balances of the Company's
interest bearing liabilities, interest expense and average rates paid for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
NINE MONTHS ENDED
1995 1996 SEPTEMBER 30, 1997
---------------------------- ---------------------------- ----------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- ------- -------- ------- ------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing checking........ $ 13,897 $ 457 3.29% $ 16,209 $ 533 3.29% $ 19,923 $ 520 3.48%
Savings.......................... 17,318 604 3.49% 14,625 498 3.41% 14,699 347 3.15%
Certificates of deposit.......... 43,521 2,657 6.11% 64,863 3,960 6.11% 72,917 3,288 6.01%
Long-term borrowings............. 9,186 653 7.11% 17,315 1,073 6.20% 21,708 1,045 6.42%
Short-term borrowings............ 3,418 177 5.18% 2,359 110 4.66% 982 33 4.48%
-------- ------
Total interest-bearing
liabilities............ $ 87,340 $4,548 5.21% $115,371 $6,174 5.35% $130,229 $5,233 5.36%
===== ====== ======
Total noninterest-bearing
liabilities.................... 14,884 16,835 20,343
-------- -------- --------
Total interest and
noninterest-bearing
liabilities............ $102,224 $132,206 $150,572
======== ======== ========
</TABLE>
Deposits grew to $139.1 million at September 30, 1997, an increase of 12.8%
from December 31, 1996 primarily as a result of the Branch Acquisition in July
1997. The assumption added $25.2 million in deposits. Non-interest bearing
deposits continue to be a reliable and substantial portion of the Company's
deposit base, accounting for 19.4% of total deposits at September 30, 1997. The
Company did not aggressively price higher interest bearing time deposits over
$100,000 following the Branch Acquisition and accordingly the amount of such
deposits declined in the period ended September 30, 1997.
At December 31, 1996, total deposits were $123.3 million, an increase of
15.9%, from $106.4 million at December 31, 1995. Total deposits in 1995
increased by 31.2% over 1994. Deposit growth in 1996 and 1995 was due to
management's decision to promote an attractive pricing strategy, increased
marketing, and increased emphasis on implementing a sales culture within the
Company. The growth in deposit accounts has primarily been in time deposits.
Nonvolatile, non-interest bearing demand deposits, also referred to as core
deposits, continued to represent a significant percentage of the Company's
deposit base. To the extent that the Company is able to fund operations with
non-interest bearing core deposits, net interest spread, the difference between
interest income and interest expense, will improve. At December 31, 1996, these
non-interest bearing demand deposits accounted for 13.6% of total deposits which
was slightly down from 16.1% as of December 31, 1995.
Interest bearing deposits consist of NOW, money market, savings and time
certificate accounts. By their nature, interest bearing account balances will
tend to grow or decline as the Company reacts to changes in competitors' pricing
and interest payment strategies. At December 31, 1996, total interest bearing
deposit accounts of $106.5 million increased $17.2 million or 19.3% from
December 31, 1995. Deposit growth was primarily concentrated in interest bearing
checking and time deposit accounts.
The Company has from time to time funded its growth with higher interest
rate certificates of deposit over $100,000. At September 30, 1997, time
certificates of deposits in excess of $100,000 totaled $19.2 million or 28.6% of
total outstanding time deposits, compared to $26.0 million or 34.3% of total
outstanding time deposits at December 31, 1996, and 32.3% and 26.3% as of
December 31, 1995 and 1994, respectively. The lower percentage at September 30,
1997 reflects management's decision to allow these deposits to run-off following
the Branch Acquisition in July 1997.
23
<PAGE> 25
The following table sets forth, by time remaining to maturity, all time
certificates of deposit accounts outstanding at September 30, 1997:
<TABLE>
<CAPTION>
TIME DEPOSITS
OF $100,000 OR MORE(1) ALL OTHER TIME DEPOSITS(2)
---------------------- ----------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Reprice/Mature in three months or less............. $ 6,089 31.6% $ 13,292 27.7%
Reprice/Mature after three months through six
months........................................... 1,554 8.1 6,959 14.5
Reprice/Mature after six months through one year... 6,720 34.9 17,958 37.5
Reprice/Mature after one year through five years... 4,662 24.2 9,658 20.1
Reprice/Mature after five years.................... 220 1.2 105 0.2
------- ------- ------- -------
Total......................................... $ 19,245 100.00% $ 47,972 100.00%
======= ======= ======= =======
</TABLE>
- ---------------
(1) Time deposits of $100,000 or more represent 13.8% of total deposits as of
September 30, 1997.
(2) All other time deposits represent 34.5% of total deposits as of September
30, 1997.
As of September 30, 1997, other borrowings have the following times
remaining to maturity:
<TABLE>
<CAPTION>
DUE
AFTER
DUE IN 3 MONTHS DUE AFTER ONE DUE
3 MONTHS THROUGH YEAR THROUGH AFTER
OR LESS ONE YEAR 5 YEARS 5 YEARS TOTAL
-------- -------- ------------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Short-term borrowings.................. $475 $ -- $ -- $ -- $ 475
Long-term borrowings................... -- 3,000 17,253 1,843 22,096
---- ------ ------- ------ -------
Total borrowings.................. $475 $3,000 $17,253 $ 1,843 $22,571
==== ====== ======= ====== =======
</TABLE>
ASSET-LIABILITY MANAGEMENT/INTEREST RATE SENSITIVITY
The principal purpose of asset-liability management is to manage the
Company's sources and uses of funds to maximize net interest income under
different interest rate conditions with minimal risk. A part of asset-liability
management involves interest rate sensitivity, the difference between repricing
assets and repricing liabilities in a specific time period. The policy of the
Company is to control the exposure of the Company's earnings to changing
interest rates by generally maintaining a position within a narrow range around
an "earnings neutral" or "balanced" position. The Board of Directors has
established guidelines for maintaining the Company's earnings risk due to future
interest rate changes. This analysis provides an indication of the Company's
earnings risk due to future interest rate changes. At September 30, 1997, the
analysis indicated that the earnings risk was within the Company's policy
guidelines.
A key component of the asset-liability management is the measurement of
interest-rate sensitivity. Interest-rate sensitivity refers to the volatility in
earnings resulting from fluctuations in interest rates, variability in spread
relationships, and the mismatch of repricing intervals between assets and
liabilities. Interest-rate sensitivity management attempts to maximize earnings
growth by minimizing the effects of changing market rates, asset and liability
mix, and prepayment trends.
24
<PAGE> 26
The following table presents interest-rate sensitivity data as of September
30, 1997. The interest rate gaps reported in the table arise when assets are
funded with liabilities having different repricing intervals. Since these gaps
are actively managed and change daily as adjustments are made in interest rate
views and market outlook, positions at the end of any period may not be
reflective of the Company's interest rate view in subsequent periods. Active
management dictates that longer-term economic views are balanced against the
prospects of short-term interest rate changes in all repricing intervals.
<TABLE>
<CAPTION>
ESTIMATED MATURITY OR REPRICING AT SEPTEMBER 30, 1997
---------------------------------------------------------------------------
0-3 MONTHS 3-6 MONTHS 6-12 MONTHS 1-5 YEARS OVER 5 YEARS TOTAL
---------- ---------- ----------- --------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Interest earning balances due
from banks................ $ 16,050 $ - $ - $ - $ - $ 16,050
Investments
available-for-sale........ -- -- 1,002 3,012 -- 4,014
Investments
held-to-maturity.......... 297 694 396 2,977 -- 4,364
Federal Home Loan Bank stock
(1)....................... 2,605 -- -- -- -- 2,605
Loans, including fees........ 42,302 3,839 5,412 71,779 9,355 132,687
------- ------- -------- ------- ------- --------
Total interest
earning assets..... $ 61,254 $ 4,533 $ 6,810 $77,768 $ 9,355 $159,720
Allowance for loan losses...... (1,984)
Cash and due from banks........ 8,760
Other assets................... 9,162
--------
Total assets......... $175,658
========
Interest Bearing Liabilities:
Savings and interest bearing
demand deposits........... $ 25,976 $ -- $ -- $18,841 $ -- $ 44,817
Certificates of deposit...... 19,381 8,513 24,678 14,320 325 67,217
Borrowings................... 13,544 -- 3,000 4,184 1,843 22,571
------- ------- -------- ------- ------- --------
Total interest
bearing
liabilities........ 58,901 8,513 27,678 37,345 2,168 134,605
Other liabilities.............. 27,758
Shareholders' equity........... 13,295
--------
Total liabilities &
shareholders'
equity............. $175,658
========
Interest rate sensitivity
gap.......................... 2,353 (3,980) (20,868) 40,423 7,187 $ 25,115
------- ------- -------- ------- ------- --------
Cumulative interest rate
sensitivity gap.............. $ 2,353 $ (1,627) $ (22,495) $17,928 $ 25,115
======= ======= ======== ======= =======
</TABLE>
- ---------------
(1) Equity investments have been placed in the 0-3 month category
The table illustrates that the Company is asset-sensitive 0-3 months,
liability-sensitive from 3 months through 12 months and asset-sensitive
thereafter. In an environment of increasing interest rates, the theoretical net
interest margins of the Company would be adversely affected for the 12 months
following September 30, 1997, and favorably affected thereafter. Conversely, in
a declining interest-rate environment, the Company's theoretical net interest
margins would be favorably affected for the 12 month period following September
30, 1997, and adversely thereafter.
RETURN ON EQUITY AND ASSETS
Net income for the nine months ended September 30, 1997, totaled $1.5
million for an annualized return on average shareholders' equity of 16.16% and
an annualized return on average outstanding assets of 1.24%.
25
<PAGE> 27
These returns compare to a 23.95% return on average equity and 1.74% return on
average assets for the corresponding period in 1996. These declines reflect
lower income and increased assets for the nine months ended September 30, 1997
due to the Company's expansion activities.
Return on daily average assets and equity and certain other ratios for the
periods indicated are presented below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net income........................... $ 1,345 $ 2,098 $ 2,497 $ 1,817 $ 1,516
Average assets....................... $85,455 $110,274 $142,639 $139,459 $163,079
Return on average assets............. 1.57% 1.90% 1.75% 1.74% 1.24%
Net income........................... $ 1,345 $ 2,098 $ 2,497 $ 1,817 $ 1,516
Average equity....................... $ 4,452 $ 8,050 $ 10,433 $ 10,117 $ 12,507
Return on average equity............. 30.21% 26.06% 23.93% 23.95% 16.16%
Cash dividends paid per share........ $ 0.03 $ 0.03 $ 0.04 $ 0.03 $ 0.04
Net income per share................. $ 0.70 $ 0.77 $ 0.90 $ 0.65 $ 0.54
Dividend payout ratio................ 4.29% 3.90% 4.44% 4.62% 7.41%
Average equity....................... $ 4,452 $ 8,050 $ 10,433 $ 10,117 $ 12,507
Average assets....................... $85,455 $110,274 $142,639 $139,459 $163,079
Average equity to asset ratio........ 5.21% 7.30% 7.31% 7.25% 7.67%
</TABLE>
LIQUIDITY
Liquidity represents the ability to meet deposit withdrawals to fund loan
demand, while retaining the flexibility to take advantage of business
opportunities. The Company's primary sources of funds are customer deposits,
loan payments, sales of assets, advances from the FHLB and the use of the
federal funds market. As of September 30, 1997, approximately $2.4 million or
28.5% of the securities portfolio matures within one year.
Historically, unlike many commercial banking institutions, the Company has
utilized borrowings from the FHLB as an important source of funding for its
growth. The Company has borrowing lines established with the FHLB that permit it
to borrow up to 25% of qualified assets. Loans from the FHLB have terms ranging
from 1 through 15 years and at September 30, 1997 bear interest at rates from
5.39% to 8.80%. At September 30, 1997, $22.7 million in advances were
outstanding from the FHLB and the Company had additional borrowing capacity for
cash advances of $21.3 million. One effect of the Branch Acquisition in July
1997 is that the Company was able to reduce its borrowings from the FHLB as a
percentage of total liabilities. The Company may increase its percentage of
borrowings from the FHLB in the future if circumstances warrant.
26
<PAGE> 28
CAPITAL
The primary source of the Company's capital has historically been from the
retention of net profits. The Company's profitability has allowed it to enjoy a
strong capital position and to continue to grow its asset base.
In 1989, banking regulators adopted risk-based capital guidelines under
which one of four risk weights is applied to balance sheet assets, each with
different capital requirements based on the credit risk of the asset. The
Company is required to maintain minimum amounts of capital to "risk weighted"
assets, as defined by banking regulators. The Company is required to have Tier 1
and Total Capital ratios of 4.0% and 8.0%, respectively. At September 30, 1997,
the Company's ratios were 8.96% and 10.69%, respectively.
Management seeks to attain a level of capital consistent with appropriate
business risk and an ongoing need for financial flexibility. Adequacy of capital
depends on the assessment of a number of factors such as stability of earnings,
asset quality, liquidity and economic conditions. The ratio of average
shareholders' equity to average assets was 7.67% at September 30, 1997. With a
strong equity-to-assets ratio, the Company enjoys greater flexibility and less
dependence upon its deposit base to support loan and investment activities.
27
<PAGE> 29
BUSINESS
INTRODUCTION
With its five full-service offices, the Company has the largest market
share of deposits among commercial banks in Cowlitz County, Washington, and The
Cowlitz Bank is the only community bank headquartered in the county. The Company
has grown from one branch with assets of $39.4 million, deposits of $31.0
million and shareholders' equity of $2.5 million at January 1, 1992 to five
branches with assets of $175.7 million, deposits of $139.1 million and
shareholders' equity of $13.3 million at September 30, 1997. The Company
emphasizes personal service and customer relationships and believes that such
emphasis is the primary reason for its rapid growth. The Bank's most recent
rating under the Community Reinvestment Act was "outstanding." In 1996, the
Independent Bankers Association of America listed the Bank as one of the top ten
banks in the United States with assets between $150 million and $300 million
based on return on shareholders' equity ("ROE").
The Company offers or makes available a broad range of financial services
to its customers, primarily small and medium-sized businesses, professionals and
retail customers. In addition to its normal commercial and personal banking
services, which include commercial and real estate lending, consumer lending,
mortgage origination and trust services, the Company has developed relationships
with a securities brokerage firm and an insurance agency with an estate planner
to provide its customers access to a variety of financial services which are
generally not available in community banks. In 1997, the Company established a
trust department to offer trust services to individuals, corporations and
institutions. It is the only such trust department located in Cowlitz County. By
combining its array of traditional commercial banking products with these
enhanced customer services, the Company is able to provide its customers with
similar banking services offered by its larger competitors while retaining the
character of a community bank and the level of personal service which larger
banks generally no longer provide.
Based on reports of the FHLB, at June 30, 1996, the Company held
approximately 25% of the deposits in commercial banks in Cowlitz County, which
was the largest share of deposits of any commercial bank. Since June 30, 1996,
the Company has taken several steps to increase its market share in Cowlitz
County. Historically, the Company operated from one location in Longview. In
November 1996, the Company opened a de novo branch in neighboring Kelso,
Washington. Two recent acquisitions of competitors in Cowlitz County presented
the Company with additional opportunities for in-market growth. In 1996, Wells
Fargo Bank acquired First Interstate Bank, which was a principal competitor of
the Company. The Company successfully bid for three Wells Fargo branches in
Cowlitz County and acquired those branches in July 1997. In the second half of
1997, U.S. Bank was acquired by First Bank, which has recently announced its
intention to close the U.S. Bank branch in Kelso, Washington, creating
additional opportunities for the Company. The Company is aggressively marketing
to its new customers from the former Wells Fargo branches as well as the
customers of U.S. Bank in Kelso. The Company is introducing its full array of
financial products to these new customers while emphasizing personal service as
a way of increasing its market share within its existing market area. Management
believes that the Company's historical growth and recent successful expansion
activities strongly position the Company to continue to increase its market
share in Cowlitz County and to expand into other similar markets.
INDUSTRY OVERVIEW
The commercial banking industry continues to experience increased
competition, consolidation and change. Non-insured financial service companies
such as mutual funds, brokerage firms, insurance companies, mortgage companies
and leasing companies are offering alternative investment opportunities for
customers' funds and, in many cases, alternative sources from which to borrow to
meet their needs. Banks have been granted extended powers to better compete,
including the limited right to sell annuities and securities products. Despite
the expanded products and services offered by banks, the percentage of financial
transactions handled by commercial banks has dropped steadily. In addition,
although the dollar amount of bank deposits has remained steady, such deposits
represent less than 20% of household financial assets compared to over 35% 25
years ago. This trend represents a continuing shift to investments in stocks,
bonds,
28
<PAGE> 30
mutual funds and retirement accounts. To improve competitiveness, commercial
banks are reducing costs through operating efficiencies gained by consolidation
and implementation of alternative ways of providing bank products. Although new
banks continue to be organized, bank mergers substantially outnumber new bank
formations. In the last dozen years, the number of commercial banks nationwide
has dropped from 14,000 to 9,500. However, in recent years, relatively stable
interest rates and a growing economy have permitted the remaining segments of
the banking industry to improve net interest margins and returns on assets,
resulting in stronger balance sheets and earnings.
To deliver more effectively and efficiently their products, banks are
opening branches located inside retail stores, installing more ATMs, and
investing in technology to facilitate telephone, personal computer and Internet
banking. While all banks are experiencing the effects of the changing
environment, the manner in which banks choose to compete is increasing the
differences between larger super-regional banks and community banks. The
super-regional banks are striving to become regional "brands" providing a broad
selection of products at low cost with advanced technology. Community banks
provide most of the same products, but with a greater commitment to personal
service and to maintaining local ties to the communities they serve.
BUSINESS STRATEGY
The Company's goal is to maintain its position as the leading community
based provider of financial services in Cowlitz County and to become one of the
leading community based providers of financial services in other selected areas
of Washington and Oregon. The Company's growth strategy is based on providing
both exceptional personal service and a wide range of financial services to its
customers. The Company's strategy consists of the following:
- Emphasize personal service and develop strong community ties. Based on
its experience, the Company believes that providing a high level of
personal service and customer attention attracts and retains customers.
The Company's employees work with specific customers on an individual,
personalized basis. As a result of this level of customer attention, the
Company believes that it can make business decisions regarding its
customers more quickly and efficiently than its competitors. The
Company's philosophy is that of a true community bank -- to provide the
highest level of service to its communities. The Company's "outstanding"
Community Reinvestment Act ("CRA") rating is evidence of its commitment
to serve all the citizens in its communities. The Company believes that
its intense focus on customer service coupled with its deep community
relationships serve to differentiate the Company from its competitors.
- Provide a broad range of financial products and services. The Company
believes that offering a wide range of financial products and services is
an important competitive factor. In addition to deposit and loan products
typically offered by commercial banks, the Company has developed a real
estate loan division to originate mortgage loans and has established a
trust department. To execute this strategy, the Company has hired
experienced personnel to market and deliver these services. The Company
leases space in its main financial center to a securities brokerage firm
and an insurance agency in order to provide its customers with access to
a wider range of financial services. This combination of products and
services is designed to both increase its customer base and to enhance
cross-selling opportunities to its customer base.
- Increase business volume in existing market. The Company believes there
is an opportunity to increase its business volume in its existing market
area by promoting its complete array of financial products as well as
emphasizing personal service, especially in relationships with new
customers obtained in the acquisition of the Wells Fargo branches and by
establishing new customer relationships as a result of the announced
closure of a U.S. Bank branch in Kelso. The Company believes that
additional opportunities for growth exist in Cowlitz County as a result
of new business entrants such as BHP Coated Steel, Prudential Steel and
Foster Farms. The Company presently has the largest share of deposits
held by commercial banks in Cowlitz County and believes that its
reputation for a high level of
29
<PAGE> 31
personal service will help it attract new customers as the larger banks continue
their consolidation and reduction of personal service to their customers.
- Explore opportunities for regional expansion through acquisition. The
Company intends to explore the acquisition of other community banks and
branches of larger banks in non-metropolitan communities in Washington
and Oregon. The Company intends to retain the local character of
institutions which it acquires and to promote deposit and asset growth in
the acquired institutions through implementation of its customer service
policies and product offerings. Although the Company is not presently
engaged in any acquisition discussions, it believes that such
opportunities are available and that its ability to consummate such
acquisitions will be enhanced by completion of this Offering and the
creation of a public market for the Company's Common Stock.
ACQUISITION OF WELLS FARGO BRANCHES
On July 18, 1997, the Company completed the Branch Acquisition, which
included branches located in Castle Rock, Kalama and Longview, Washington. In
the acquisition, the Company purchased certain assets of the branches, including
cash on hand, owned real property, personal property, branch and tenant leases,
safe deposit agreements and records, assumed $25.2 million of deposit
liabilities and recorded a core deposit premium of $2.0 million. The Company did
not purchase any credit card relationships, loans or other revenue producing
assets. Management believes that it has successfully integrated these branches
into its operations and has begun an aggressive marketing campaign of its
products and services to the new customers obtained as a result of the Branch
Acquisition. Based on this success, the Company believes it is well positioned
to compete effectively for other branch acquisitions should the opportunity
arise.
PRODUCTS AND SERVICES
The Company offers a broad portfolio of products and services tailored to
meet the banking requirements of targeted customers in its market area. It
believes this portfolio is generally competitive with the products and services
of its competitors, including major regional and national banks. These include:
Deposit Products. The Company provides an array of deposit products for
customers, including non-interest-bearing checking accounts, interest-bearing
checking and savings accounts, money market accounts and certificates of
deposit. These accounts generally earn interest at rates established by
management based on competitive market factors and management's desire to
increase certain types or maturities of deposit liabilities. The Company does
not pay brokerage commissions to attract deposits. It strives to establish
customer relations to attract core deposits in non-interest-bearing
transactional accounts and thus to reduce its cost of funds.
Loan Products. The Company offers a broad array of loan products to its
small to medium size business customers. The Company maintains sound loan
underwriting standards with written loan policies, conservative individual and
branch limits and reviews by the Loan Committee. Further, in the case of
particularly large loan commitments or loan participations, loans are reviewed
by the Board of Directors. Underwriting standards are designed to achieve a
high-quality loan portfolio, compliance with lending regulations and the desired
mix of loan maturities and industry concentrations. Management seeks to minimize
credit losses by closely monitoring the financial condition of its borrowers and
the value of collateral.
Commercial Loans. The Company offers specialized loans for its business and
commercial customers, including equipment and inventory financing operating
lines of credit, and accounts receivable financing. Commercial lending is the
primary focus of the Company's lending activities, and a significant portion of
its loan portfolio consists of commercial loans. For regulatory reporting
purposes, a substantial portion of the Company's commercial loans are designated
as real estate loans, as the loans are secured by mortgages and trust deeds on
real property, although the loans may be made for purposes of financing
commercial activities, such as accounts receivable, equipment purchases and
inventory or other working capital needs. Lending decisions are based on careful
evaluation of the financial strength, management and credit history of the
borrower, and the quality of the collateral securing the loan. Commercial loans
secured by real property are
30
<PAGE> 32
limited to 70% of the value of the collateral. In some cases, the Company may
require personal guarantees and secondary sources of repayment.
Real Estate Loans. Real estate loans are available for construction,
purchasing and refinancing residential owner-occupied and rental properties.
Borrowers can choose from a variety of fixed and adjustable rate options and
terms. Real estate loans reflected in the loan portfolio also include loans made
to commercial customers that are secured by real property. The Company provides
customers access to long-term conventional real estate loans through its
mortgage loan department which makes FNMA-conforming loans and sells them in the
secondary market. The Company has been either the first or second largest
mortgage originator in Cowlitz County for each of the last four years.
Payments on loans are often dependent on the successful operation and
management of the properties securing the loans, and are therefore strongly
affected by the conditions of the local real estate market. Fluctuating land
values and local economic conditions make loans secured by real property
difficult to evaluate and monitor.
Consumer Loans. The Company provides loans to individual borrowers for a
variety of purposes, including secured and unsecured personal loans, home equity
and personal lines of credit and motor vehicle loans. Consumer loans can carry
significantly greater risks than other loan products, even if secured, if the
collateral consists of rapidly depreciating assets such as automobiles and
equipment. Repossessed collateral securing a defaulted consumer loan may not
provide an adequate source of repayment of the loan. Consumer loan collections
are dependent on borrowers' continuing financial stability, and are sensitive to
job loss, illness and other personal factors. The Company attempts to manage the
risks inherent in consumer lending by following strict credit guidelines and
conservative underwriting practices. The Company also offers Visa and Mastercard
credit cards to its customers.
The following table sets forth certain information about the Company's loan
portfolio at September 30, 1997, classified by distribution among type of
borrowers:
<TABLE>
<CAPTION>
TOTAL PERCENT OF
BORROWER CLASSIFICATION NUMBER OF LOANS LOAN BALANCE PORTFOLIO
------------------------------------- --------------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Real Estate.......................... 309 $ 33,898 25.4
Consumer............................. 632 30,444 22.8
Services............................. 91 13,372 10.0
Construction......................... 134 12,308 9.3
Retail Trade......................... 86 7,078 5.3
Transportation & Trucking............ 66 6,707 5.0
Forest and Timber.................... 48 5,352 4.0
Restaurants.......................... 46 4,941 3.7
Health Services...................... 33 4,222 3.2
Manufacturing........................ 39 3,878 2.9
Wholesale Trades..................... 41 2,425 1.8
Finance, Insurance................... 21 2,100 1.6
Other................................ 108 6,676 5.0
----- -------- ------
Total...................... 1,654 $133,401 100.00%
===== ======== ======
</TABLE>
Other Banking Products and Services. In support of its focus on
personalized service, the Company offers additional products and services for
the convenience of its customers. These include a recently introduced debit card
program, automated teller machines located at each of the Company's offices, and
an automated telephone banking service with 24-hour access to accounts that also
allows customers to speak directly with a customer service representative during
normal banking hours or leave a message after normal banking hours. The Company
does not currently charge fees for any of these services. The Company provides
drive-through facilities at three of its branches.
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<PAGE> 33
Trust Services. The Company has recently established a trust department,
which is the only one located in Cowlitz County. The trust department provides
trust services to individuals, partnerships, corporations and institutions and
acts as fiduciary of estates and conservatorships and as a trustee under various
wills, trusts and other plans. The Company believes this service will attract
additional customers to the Bank.
Other Financial Services. The Company believes that providing its customers
a full range of financial services is an important element of its strategy to
attract and retain customers. To this end, the Company has entered into lease
arrangements with Robert Thomas Securities, a securities broker affiliated with
Raymond James Securities, and Commerce Business & Estate Planning Services,
Inc., an insurance agency. Each of these organizations maintains an office on
the main floor of the Cowlitz Financial Center where the main office of the
Company is located and has access to space in the Company's other branches.
Representatives of these companies meet with clients at each of the Bank's
branches, thereby making these services available to all of the Company's
customers. The Company has no financial interest in either of these companies.
The Company believes that by making available through these relationships
brokerage and insurance services, it can increase foot traffic through its
branches and market more extensively its full line of core banking products and
services.
MARKET AREA
The Company's primary market area from which it accepts deposits and makes
loans is Cowlitz County, Washington, and the surrounding counties in Washington
and Oregon, including the greater Portland area. As a community bank, the
Company has certain competitive advantages due to its local focus, but is also
more closely tied to the local economy than many of its competitors which serve
a number of geographic markets.
Cowlitz County has a population of approximately 92,000 people. The
population is centered in the adjoining cities of Longview and Kelso, which
combined contain approximately one-half of the county's population. The rural
areas of Cowlitz County are growing at a somewhat faster rate than the urban
areas of the county as a result of the migration of people into the area from
urban areas in adjacent counties.
Over the past 10 years, the employment base of Cowlitz County has undergone
significant change. The forest products industry has historically been the
dominant employer in the county and remains so. Weyerhauser Company and Longview
Fiber Co. have major facilities in Cowlitz County. Cowlitz County has three port
facilities along the Columbia River, which specialize in moving dry bulk,
agricultural and forest products. The ports have also acted as centers for
attracting new industry to the county. In recent years, Cowlitz County has
attracted diverse industries, including Sonoco Products, BHP Coated Steel,
Prudential Steel and Daybreak Industries. Foster Farms is currently constructing
a processing plant in Kelso which is expected to create in excess of 500 new
jobs when it opens in 1998.
MANAGEMENT INFORMATION SYSTEMS
The Company maintains an in-house system for processing all core banking
applications, including loan servicing and deposit accounts. The system utilizes
Information Technology Systems, Inc. ("ITI") software and Unisys hardware. In
addition, ITI software is utilized for 24-hour telephone banking, shareholder
information, accounts payable and optical disk storage. The Company also
maintains a Novell network in all branches.
The Company maintains a Disaster Recovery Plan and has a contract with
Sungard Services to provide on-site processing after a disaster. Management is
presently evaluating its systems and software for potential Year 2000 problems.
Although this evaluation is not complete and no final cost estimate for
compliance is available, initial indications are that the Company will not incur
any extraordinary expense in addressing Year 2000 compliance issues.
COMPETITION
Competition in the banking industry has intensified for deposits and loans
with decreased interest rates over the last one to two years. Furthermore,
competition from outside the traditional banking system from
32
<PAGE> 34
credit unions, investment banking firms, insurance companies and related
industries offering bank-like products has widened the competition for deposits
and loans. Based on published reports, it is estimated that credit unions held
approximately 51% of deposits in the Company's market area as of June 30, 1996.
The banking industry in the market area is generally characterized by well
established branches of large banks with headquarters located out of the market
area and in many cases, out of the state. These large multi-bank holding company
branches located in the Longview-Kelso area have transferred a number of their
banking functions outside the local area. There are also thrift institutions,
including a branch of the country's largest thrift institution, and credit
unions within the market area that are very competitive in the deposit and
consumer lending areas.
The major competition for commercial banking services in Cowlitz County
comes from U.S. Bank, Key Bank, Bank of America (which does business in
Washington as Seafirst Bank) and Columbia State Bank. None of these competitors
are headquartered in Cowlitz County and many have relocated key functions (e.g.,
loan decisions) into regional offices outside of the area. Its local decision
making and strong community ties have allowed the Company to provide a level of
personal service and direct customer contact that management believes is
superior to that provided by other banks.
The offices of the major financial institutions have competitive advantages
over the Company in that they have high public visibility, may offer a wider
variety of products and are able to maintain advertising and marketing
activities on a much larger scale than the Company can economically maintain.
Since single borrower lending limits imposed by law are dependent on the capital
of the institution, the branches of larger institutions with substantial capital
bases also have an advantage with respect to loan applications which are in
excess of the Company's legal lending limits.
In competing for deposits, the Company is subject to certain limitations
not applicable to nonbank financial institution competitors. Previous laws
limiting the deposit instruments and lending activities of savings and loan
associations have been substantially eliminated, thus increasing the competition
from these institutions. See "Risk Factors -- Competition."
REGULATION AND SUPERVISION
The Company and the Bank are subject to extensive regulation under federal
and state laws. These laws, together with the regulations promulgated under
them, significantly affect respective activities of the Company and the Bank and
the competitive environment in which they operate. The laws and regulations are
primarily intended to protect depositors and the deposit insurance fund, rather
than shareholders.
The description of the laws and regulations applicable to the Company and
the Bank set forth in this prospectus does not purport to be a complete
description of the laws and regulations mentioned herein or of all such laws and
regulations. Any change in applicable laws or regulations may have a material
effect on the business and prospects of the Company and the Bank. The operations
of the Company and the Bank may be affected by legislative and regulatory
changes as well as by changes in the policies of various regulatory authorities.
The Company cannot accurately predict the nature or the extent of the effects
that such changes may have in the future on its business and earnings.
Bank Holding Company Regulation. The Company is a bank holding company
within the meaning of the Bank Holding Company Act of 1956, as amended ("BHCA")
and, as such, is subject to the regulations of the Federal Reserve. Bank holding
companies are required to file periodic reports with and are subject to periodic
examination by the Federal Reserve. The Federal Reserve has issued regulations
under the BHCA requiring a bank holding company to serve as a source of
financial and managerial strength to its subsidiary banks. It is the policy of
the Federal Reserve that, pursuant to this requirement, a bank holding company
should stand ready to use its resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity. Additionally,
under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), a bank holding company is required to guarantee the compliance of
any insured depository institution subsidiary that may become "undercapitalized"
(as defined in the statute) with the terms of any capital restoration plan filed
by such subsidiary with its appropriate federal banking agency up to
33
<PAGE> 35
the lesser of (i) an amount equal to 5% of the institution's total assets at the
time the institution became undercapitalized, or (ii) the amount that is
necessary (or would have been necessary) to bring the institution into
compliance with all applicable capital standards as of the time the institution
fails to comply with such capital restoration plan. Under the BHCA, the Federal
Reserve has the authority to require a bank holding company to terminate any
activity or relinquish control of a nonbank subsidiary (other than a nonbank
subsidiary of a bank) upon the Federal Reserve's determination that such
activity or control constitutes a serious risk to the financial soundness and
stability of any bank subsidiary of the bank holding company.
The Company is prohibited by the BHCA from acquiring direct or indirect
control of more than 5% of the outstanding shares of any class of voting stock
or substantially all of the assets of any bank or merging or consolidating with
another bank holding company without prior approval of the Federal Reserve.
Additionally, the Company is prohibited by the BHCA from engaging in or from
acquiring ownership or control of more than 5% of the outstanding shares of any
class of voting stock of any company engaged in a non-banking business unless
such business is determined by the Federal Reserve to be so closely related to
banking as to be a proper incident thereto. The BHCA does not place territorial
restrictions on the activities of such non-banking related activities.
Capital Adequacy Guidelines for Bank Holding Companies. The Federal Reserve
is the federal regulatory and examining authority for bank holding companies.
The Federal Reserve has adopted capital adequacy guidelines for bank holding
companies. These guidelines are similar to, although not identical with, the
guidelines applicable to banks. See "-- Bank Capital Requirements." As of
September 30, 1997, the Company's Tier 1 leverage capital ratio was 7.57%, its
Tier 1 risk-based capital ratio was 8.96% and its total risk-based capital ratio
was 10.69%.
Bank Regulation. The Bank is organized under the laws of the State of
Washington and is subject to the supervision of the Department of Financial
Institutions ("DFI"), whose examiners conduct periodic examinations of state
banks. The Bank is not a member of the Federal Reserve System, so its principal
federal regulator is the FDIC, which also conducts periodic examinations of the
Bank. The Bank's deposits are insured, to the maximum extent permitted by law,
by the Bank Insurance Fund ("BIF") administered by the FDIC and are subject to
the FDIC's rules and regulations respecting the insurance of deposits. See
"-- Deposit Insurance."
Both federal and state laws extensively regulate various aspects of the
banking business such as reserve requirements, truth-in-lending and
truth-in-savings disclosures, equal credit opportunity, fair credit reporting,
trading in securities and other aspects of banking operations. Current federal
law also requires banks, among other things, to make deposited funds available
within specified time periods.
Insured state-chartered banks are prohibited under FDICIA from engaging as
principal in activities that are not permitted for national banks, unless (i)
the FDIC determines that the activity would pose no significant risk to the
appropriate deposit insurance fund, and (ii) the bank is, and continues to be,
in compliance with all applicable capital standards. The Company does not
believe that these restrictions will have a material adverse effect on its
current operations.
Bank Capital Requirements. The FDIC has adopted risk-based capital ratio
guidelines to which the Bank is subject. The guidelines establish a systematic
analytical framework that makes regulatory capital requirements more sensitive
to differences in risk profiles among banking organizations. Risk-based capital
ratios are determined by allocating assets and specified off-balance sheet
commitments to four risk weighted categories, with higher levels of capital
being required for the categories perceived as representing greater risk.
These guidelines divide a bank's capital into two tiers. Tier 1 includes
common equity, certain noncumulative perpetual preferred stock (excluding
auction rate issues) and minority interest in equity accounts of consolidated
subsidiaries, less goodwill and certain other intangible assets (except mortgage
servicing rights and purchased credit card relationships, subject to certain
limitations). Supplementary (Tier 2) capital includes, among other items,
cumulative perpetual and long-term, limited-life, preferred stock, mandatory
convertible securities, certain hybrid capital instruments, term-subordinated
debt and the allowance for loan and lease losses, subject to certain
limitations, less required deductions. Banks are required
34
<PAGE> 36
to maintain a total risk-based capital ratio of 8%, of which 4% must be Tier 1
capital. The FDIC may, however, set higher capital requirements when a bank's
particular circumstances warrant. Banks experiencing or anticipating significant
growth are expected to maintain capital ratios, including tangible capital
positions, well above the minimum levels.
In addition, the FDIC has established guidelines prescribing a minimum Tier
1 leverage ratio (Tier 1 capital to adjusted total assets as specified in the
guidelines). These guidelines provide for a minimum Tier 1 leverage ratio of 3%
for banks that meet certain specified criteria, including that they have the
highest regulatory rating and are not experiencing or anticipating significant
growth. All other banks are required to maintain a Tier 1 leverage ratio of 3%
plus an additional cushion of at least 100 to 200 basis points.
Certain regulatory capital ratios for the Company and the Bank at September
30, 1997 are set forth below:
<TABLE>
<CAPTION>
COMPANY BANK
------- -----
<S> <C> <C>
Tier 1 Capital to Risk-Weighted Assets..................... 8.96% 9.09%
Total-Risk Based Capital to Risk-Weighted Assets........... 10.69% 10.34%
Tier 1 Leverage Ratio...................................... 7.57% 7.66%
</TABLE>
Dividends. The principal source of the Company's cash revenues is dividends
from the Bank. Under Washington law, the Bank may not pay dividends in an amount
greater than its retained earnings as determined by generally accepted
accounting principles. In addition, the DFI has the authority to require a
state-chartered bank to suspend payment of dividends. The FDIC has the authority
to prohibit a bank from paying dividends if, in its opinion, the payment of
dividends would constitute an unsafe or unsound practice in light of the
financial condition of the bank or if it would cause a bank to become
undercapitalized.
Lending Limits. Under Washington law, the total loans and extensions of
credit by a Washington-chartered bank to a borrower outstanding at one time may
not exceed 20% of such bank's capital and surplus. However, this limitation does
not apply to loans or extensions of credit which are fully secured by readily
marketable collateral having market value of at least 115% of the amount of the
loan or the extension of credit at all times.
Branches and Affiliates. Establishment of bank branches is subject to
approval of the DFI and FDIC and geographic limits established by state laws.
Washington's branch banking law permits a bank having its principal place of
business in the State of Washington to establish branch offices in any county in
Washington without geographic restrictions. A bank may also merge with any
national or state chartered bank located anywhere in the State of Washington
without geographic restrictions.
Under Oregon law, an out-of-state bank or bank holding company may merge
with or acquire an Oregon state chartered bank or bank holding company if the
Oregon bank, or in the case of a bank holding company, the subsidiary bank, has
been in existence for a minimum of three years, and the law of the state in
which the acquiring bank in located permits such merger. Branches may not be
acquired or opened separately, but once an out-of-state bank has acquired
branches in Oregon, either through a merger with or acquisition of substantially
all of the assets of an Oregon bank, the bank may open additional branches.
The Bank is subject to Sections 22(h), 23A and 23B of the Federal Reserve
Act, which restrict financial transactions between banks and affiliated
companies. The statute limits credit transactions between a bank and its
executive officers and its affiliates, prescribes terms and conditions for bank
affiliate transactions deemed to be consistent with safe and sound banking
practices, and restricts the types of collateral security permitted in
connection with a bank's extension of credit to an affiliate.
FDICIA. FDICIA required, among other things, federal bank regulatory
authorities to take "prompt corrective action" with respect to banks which do
not meet minimum capital requirements. For these purposes, FDICIA establishes
five capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
35
<PAGE> 37
The FDIC has adopted regulations to implement the prompt corrective action
provisions of FDICIA. Among other things, the regulations define the relevant
capital measures for the five capital categories. An institution is deemed to be
"well capitalized" if it has a total, risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6% or greater, and a leverage
ratio of 5% or greater, and is not subject to a regulatory order, agreement or
directive to meet and maintain a specific capital level for any capital measure.
The Bank currently exceeds all of the ratios.
FDICIA further directs that each federal banking agency prescribe standards
for depository institutions and depository institutions holding companies
relating to internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
management compensation, a maximum ratio of classified assets to capital,
minimum earnings sufficient to absorb losses, a minimum ratio of market value to
book value of publicly traded shares and such other standards as the agency
deems appropriate.
Deposit Insurance. The Bank's deposits are insured up to $100,000 per
insured account by the BIF. As an institution whose deposits are insured by BIF,
the Bank is required to pay deposit insurance premiums to BIF.
FDICIA required the FDIC to issue regulations establishing a system for
setting deposit insurance premiums based upon the risks a particular bank or
savings association poses to the deposit insurance funds. This system bases an
institution's risk category partly upon whether the institution is well
capitalized, adequately capitalized or less than adequately capitalized. Each
insured depository institution is also assigned to one of three "supervisory"
categories based on reviews by regulators, statistical analysis of financial
statements and other relevant information. An institution's assessment rate
depends upon the capital category and supervisory category to which it is
assigned. Annual assessment rates currently range from zero (subject to a
statutory annual minimum assessment of $2,000), for the highest rated
institution, to $0.27 per $100 of domestic deposits for an institution in the
lowest category. The Bank is currently in the class of the highest rated
institutions and, accordingly, pays the minimum assessment rate. Any increase in
insurance assessments could have an adverse effect on the Bank's earnings.
Additional Matters. In addition to the matters discussed above, the Company
and the Bank are subject to additional regulation of their activities, including
a variety of consumer protection regulations affecting their lending, deposit
and collection activities and regulations affecting secondary mortgage market
activities.
The earnings of financial institutions, including the Company and the Bank,
are also affected by general economic conditions and prevailing interest rates,
both domestic and foreign and by the monetary and fiscal policies of the U.S.
Government and its various agencies, particularly the Federal Reserve.
Additional legislation and administrative actions affecting the banking
industry may be considered by the United States Congress, the Washington
Legislature and various regulatory agencies, including those referred to above.
It cannot be predicted with certainty whether such legislation or administrative
action will be enacted or the extent to which the banking industry in general or
the Company and the Bank in particular would be affected thereby.
PROPERTIES
The Company owns its main office space at the Cowlitz Financial Center, 927
Commerce Avenue, Longview, Washington 98632. The Bank occupies approximately
27,500 square feet of this facility. The Company leases space in the Cowlitz
Financial Center to Robert Thomas Securities and to Commerce Business & Estate
Services, Inc., both of which provide services to the Bank's customers. The
Company also owns branches in Kelso, Kalama and Castle Rock, and leases
facilities for a branch in the Triangle Mall in Longview. The Company intends to
sell its Castle Rock facility and move the existing branch to a leased new
building which is under construction. Each branch has automated teller machines
and each branch except Kalama and Castle Rock has a drive-up facility. The new
building at Castle Rock will have a drive-up facility.
36
<PAGE> 38
EMPLOYEES
At December 31, 1997, the Company employed 99 full-time equivalent
employees. None of the employees are parties to a collective bargaining
agreement. Management considers its relations with its employees to be good.
LEGAL PROCEEDINGS
The Company may occasionally have pending routine litigation resulting from
the collection of the secured and unsecured indebtedness as part of its business
of providing financial services. In some cases, such litigation will involve
counterclaims or other claims against the Company. Such proceedings against
financial institutions sometimes also involve claims for punitive damages in
addition to other specific relief. Currently, the Company is not a party to any
litigation other than in the ordinary course of business. In the opinion of
management, the ultimate outcome of all pending legal proceedings will not
individually or in the aggregate have a material adverse effect on the financial
condition or the operations of the Bank.
37
<PAGE> 39
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and the Bank, their
respective ages and their respective positions with the Company and the Bank are
listed below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------------------
<S> <C> <C>
Benjamin Namatinia 54 Chairman & Chief Executive Officer, Cowlitz
Bancorporation; Director, Cowlitz Bank
Charles W. Jarrett 56 President & Chief Operating Officer & Director,
Cowlitz Bancorporation; President & Chief Executive
Officer & Director, Cowlitz Bank
Larry M. Larson(1)(2)(3) 58 Director, Cowlitz Bancorporation; Chairman, Cowlitz
Bank
Mark F. Andrews, Jr.(1)(2)(3) 65 Director, Cowlitz Bancorporation and Cowlitz Bank
E. Chris Searing(1)(2) 44 Director, Cowlitz Bancorporation & Cowlitz Bank
Donna P. Gardner 49 Vice President & Secretary/Treasurer, Cowlitz
Bancorporation; Executive Vice President & Chief
Financial Officer, Cowlitz Bank
James A. Wills 56 Vice President, Cowlitz Bancorporation; Executive Vice
President & Chief Operating Officer, Cowlitz Bank
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Board Development Committee.
Benjamin Namatinia has served as Chairman of Cowlitz Bancorporation since
its incorporation in 1991 and was appointed Chief Executive Officer effective
November 1994. He has served as a director of Cowlitz Bank since 1991. Since
1990, Mr. Namatinia has been the President as well as bond trader for BMN, INC.,
a brokerage firm owned by Mr. Namatinia. Mr. Namatinia also owns a securities
brokerage franchise of Robert Thomas Securities, which leases space from the
Company in the Cowlitz Financial Center. From 1984 to 1989, he was Senior Vice
President and trader for Prudential Securities. From 1989 to 1990, he was Senior
Vice President and head of the investment department for Shearson Lehman.
Charles W. Jarrett has served as a director of Cowlitz Bancorporation since
its incorporation in 1991. He held the position of President and Chief Executive
Officer of Cowlitz Bancorporation from 1992 until November 1994, at which time
he became President and Chief Operating Officer. Mr. Jarrett joined Cowlitz Bank
in 1986 and has served as President and Chief Executive Officer and as a
director since 1989.
Larry M. Larson has served as a director of Cowlitz Bancorporation since
its incorporation in 1991. Mr. Larson has served as a director of Cowlitz Bank
since 1984. He served as Secretary of the Board from 1987 to 1988, Vice Chairman
from 1988 to 1990, and has served as Chairman since 1990. Mr. Larson's principal
occupation is his position as longshoreman for the Port of Longview. He also
serves in an elected position on the Port Commission for the Port of Longview.
He owns the Bridgeview Tobacco Shop located in Rainier, Oregon.
Mark F. Andrews, Jr. has served as a director of Cowlitz Bancorporation
since its incorporation in 1991. He has served as a director of Cowlitz Bank
since 1988 and as Secretary of Cowlitz Bank since 1990. Mr. Andrews' principal
occupation is the management and operation of his tree farms. In addition, Mr.
Andrews serves as a court commissioner for Cowlitz County and he is also a
retired attorney.
E. Chris Searing has served as a director of Cowlitz Bancorporation since
its incorporation in 1991. Mr. Searing has served as a Director of Cowlitz Bank
since 1986. He served as Secretary of the Board from 1988 to 1990 and has served
as Vice Chairman since 1990. Mr. Searing owns Searing Electric & Plumbing, Inc.
located in Longview, Washington.
38
<PAGE> 40
Donna P. Gardner has served as an executive officer for Cowlitz
Bancorporation since its incorporation in 1991 and currently holds the position
of Vice President and Secretary/Treasurer. Mrs. Gardner joined Cowlitz Bank in
1981 and served as Cashier from 1989 to 1993, Vice President from 1993 to 1997
and is currently serving as Executive Vice President and Chief Financial
Officer.
James A. Wills has served as Vice President of Cowlitz Bancorporation since
its incorporation in 1991. Mr. Wills joined Cowlitz Bank in 1988. He has served
as an executive officer of the Bank since 1989 and currently holds the position
of Executive Vice President and Chief Operating Officer.
Each of the Company's directors is elected annually by the Company's
shareholders. All Directors hold office until the expiration of their terms and
the election and qualification of their successors.
COMMITTEES OF THE BOARD
The Board has established an Audit Committee, a Compensation Committee and
a Board Development Committee. The Audit Committee recommends the selection of
the Company's independent auditors and consults with the independent auditors on
the Company's internal accounting controls. The Compensation Committee
recommends to the Board salaries and bonuses for the Company's executive
officers and administers the Company's Stock Option Plan and Employee Stock
Purchase Plan. The Board Development Committee identifies and recommends
potential candidates for both the Company's and the Bank's Boards of Directors.
DIRECTOR FEES
Effective January 1, 1998, directors of the Company will receive a fee of
$900 per month except that Mr. Namatinia as Chairman of the Board will receive a
fee of $1,000 per month. Directors of the Bank receive a fee of $600 per month
and the Chairman, Mr. Larry Larson, receives a fee of $1,800 per month.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation provide that the liability of the
directors of the Company for monetary damages will be eliminated in an action
brought by or in the right of the Company for breach of a director's duties to
the Company or its shareholders except for liability in circumstances involving
(i) any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) any unlawful
distribution to stockholders, or (iv) any transaction from which the director
derived an improper personal benefit. This provision does not limit or eliminate
the rights of the Company or any shareholder to seek non-monetary relief, such
as an injunction or rescission, in the event of a breach of a director's duty of
care. This provision also does not affect the director's responsibilities under
any other laws, such as the federal or state securities or environmental laws.
The Articles of Incorporation also provide that the Company shall
indemnify, to the fullest extent permitted under Washington law, any person who
has been made, or is threatened to be made, a party to an action, suit or legal
proceeding by reason of the fact that the person is or was a director of the
Corporation. The Company may provide similar indemnification to officers,
employees and agents at the discretion of the Board. The Company intends to
enter into separate indemnification agreements with each of its directors. These
agreements will require the Company to indemnify its directors to the fullest
extent permitted by law, including circumstances in which indemnification would
otherwise be discretionary. Among other things, the agreements require the
Company to indemnify directors against certain liabilities that may arise by
reason of their status or service as a director and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. The Company also has insurance on behalf of it executive officers
and directors for certain liabilities arising out of their actions in such
capacities. The Company believes that these contractual arrangements, the
provisions in its Articles of Incorporation and Bylaws and insurance coverage
are necessary to attract and retain qualified persons as directors and officers.
39
<PAGE> 41
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the annual compensation earned during 1997
for the Company's chief executive officer and each of the Company's other
executive officers who earned in excess of $100,000 in salary and bonus during
the last fiscal year (the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION COMPENSATION(1)
- ------------------------------------------ -------- ------- ------------- ---------------
<S> <C> <C> <C> <C>
Benjamin Namatinia........................ $178,224 $20,000 -- $14,258
Chairman and Chief Executive Officer
Charles W. Jarrett........................ $161,532 $40,975 -- $12,923
President and Chief Operating Officer
James A. Wills............................ $ 98,556 $24,585 -- $ 7,884
Vice President
</TABLE>
- ---------------
(1) Company contribution to 401(k) Plan
STOCK OPTIONS
The following table sets forth information concerning the award of stock
options to the Named Executive Officers during fiscal 1997:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(1)
OPTIONS/SARS EMPLOYEES EXERCISE OR BASE EXPIRATION -----------------------
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE 5%($) 10%($)
- --------------------- ------------ ---------------- ---------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Benjamin Namatinia... 192,500 50% $ 5.71 9/30/07 $2,663,570 $4,892,370
Charles W. Jarrett... 192,500 50% $ 5.71 9/30/07 $2,663,570 $4,892,370
James A. Wills....... -- -- n/a n/a n/a n/a
</TABLE>
- ---------------
(1) Initial value of Common Stock equal to $12.00 per share, the assumed initial
offering price of the Common Stock.
The table below provides information on exercises of options during 1997 by
the Named Executive Officers and information with respect to unexercised options
held by the Named Executive Officers at December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS AT
OPTIONS/SARS AT FISCAL YEAR-END
FISCAL YEAR-END (#) ($)
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
- ---------------------------- ---------------- ----------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Benjamin Namatinia.......... -- -- 52,500/140,000 $330,225/$880,600
Charles W. Jarrett.......... -- -- 52,500/140,000 $330,225/$880,600
James A. Wills.............. -- -- -- --
</TABLE>
- ---------------
(1) Fair market value of Common Stock equal to $12.00 per share, the assumed
initial offering price of the Common Stock.
40
<PAGE> 42
EMPLOYMENT AGREEMENTS
Messrs. Namatinia and Jarrett will enter into employment agreements with
the Company prior to the Offering. Under the employment agreements, both Mr.
Namatinia and Mr. Jarrett will receive a base annual salary of $200,000. Mr.
Jarrett will also receive an annual cash bonus equal to the sum of five percent
(5%) of the Company's net profits in excess of a one percent (1%) Return on
Assets of the Bank ("ROA") for the calendar year and seven and one-half percent
(7.5%) of the Bank's net profits in excess of one and one-half percent (1.5%)
ROA for the calendar year. Mr. Namatinia's annual cash bonus will be determined
by the Company's Board of Directors based on the growth, profitability and
performance of the Company, the expansion of services provided by the Company
and the market value of the Company's Common Stock.
The agreements will contain a covenant not to compete for a period of
eighteen months in the event of termination of employment for any reason. If
employment is terminated by the Company without cause or by death or disability,
the employee will receive a lump sum equal to three times the employee's annual
base salary for the calendar year in which such employment terminates plus the
amount of cash bonus earned prior to termination. Upon termination without
cause, the employee will receive such benefits to which he has become entitled
under the terms of the Company's 1997 Stock Option Plan, the Supplemental
Executive Retirement Plan and any other benefit plan or program.
Upon a change in control of the Company, if employment is terminated by the
Company without cause or by the employee for good reason within three years
after such change in control, the employee will be entitled to his full base
salary through the date of termination and a lump sum payment equal to three
times the employee's annual base salary in effect immediately prior to the
termination date. The employee will also receive such benefits to which he has
become entitled under the terms of the Company's 1997 Stock Option Plan, the
Supplemental Executive Retirement Plan, and any other benefit plan or program.
1997 STOCK OPTION PLAN
The Board of Directors has adopted the 1997 Stock Option Plan (the "1997
Plan") which authorizes up to 525,000 shares of Common Stock for issuance
thereunder. The 1997 Plan is subject to shareholder approval at the annual
meeting of shareholders to be held in February 1998. The 1997 Plan is
administered by the Compensation Committee. Under the 1997 Plan, options may be
granted to the Company's employees, directors and consultants. Only employees
may receive "incentive stock options," which are intended to qualify for certain
tax treatment; both employees and nonemployees, including nonemployee directors,
may receive "nonstatutory stock options," which do not qualify for such
treatment. The exercise price of incentive stock options under the 1997 Plan
must at least equal the fair market value of the Common Stock on the date of
grant. The exercise price of the nonstatutory options may be greater than or
less than the fair market value of the Common Stock on the date of grant at the
discretion of the Compensation Committee. All incentive stock options granted
under the 1997 Plan will expire ten years from the date of grant unless
terminated sooner pursuant to the provisions of the 1997 Plan. The number of
shares of Common Stock authorized under the 1997 Plan may be adjusted upon
subdivision or consolidation of the Company including reclassification, stock
split or reverse stock split of the Company's Common Stock. In the event of a
change of control of the Company, including a merger or sale of substantially
all of the Company's assets, outstanding options and stock purchase rights must
be assumed by any successor corporation, or equivalent options or rights must be
substituted, or they will become fully vested and exercisable.
At the date hereof, options to purchase 192,500 shares have been granted
under the 1997 Plan to each of Mr. Namatinia and Mr. Jarrett. Under the terms of
each grant, options to purchase 52,500 shares vested at the date of grant and
the remaining options vest ratably over a five year period.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Board of Directors has adopted the Cowlitz Bancorporation Supplemental
Executive Retirement Plan (the "SERP"), effective January 1, 1998. Participants
in the SERP are designated by the Company's Board of Directors. Currently, only
Messrs. Namatinia and Jarrett are participants in the SERP. The Company has
obtained a life insurance policy on the life of each of Mr. Namatinia and Mr.
Jarrett. Each
41
<PAGE> 43
policy has a $3,000,000 death benefit, payable to the Company. Upon retirement
after the age of 62 and before the age of 70, the SERP provides that, at the
option of the participant, the Company will transfer to the participant the life
insurance policy on such participant's life or will pay the participant either a
lump sum of $1,022,499 or annual payments of $130,830 for the ten year period
following retirement, which payments may be funded from the cash value of the
life insurance policies. Under the SERP, one-half of any death benefit payable
to the Company will be paid to the estate of the participant. Each participant
is also entitled to full payment of benefits under the SERP in the event his
employment is terminated following a change of control of the Company as defined
in the participant's employment agreement. All premiums on the life insurance
are paid by the Company.
EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has adopted the Cowlitz Bancorporation Employee
Stock Purchase Plan (the "ESPP"). Commencing on July 10, 1996 and every three
months thereafter, all eligible employees are granted options to purchase shares
of the Company's Common Stock that, in the aggregate, have an exercise price
that does not exceed 15% of the employee's compensation during each Exercise
Period (a three month period that begins on the date the option is granted and
ends on the ninth day of the succeeding calendar quarter) or $10,000 in each
calendar year. The exercise price is determined by the Compensation Committee of
the Company's Board of Directors, but may not be less than 85% of the fair
market value of the Common Stock at the date of grant. Each option not exercised
during the Exercise Period expires and may not be subsequently exercised. The
maximum aggregate number of shares of Stock that may be issued under the ESPP is
175,000 shares, subject to increases and adjustment by the Board of Directors.
At the date hereof, 33,565 shares of Common Stock have been purchased under the
ESPP.
CERTAIN TRANSACTIONS
At December 31, 1997, the Company had outstanding loans to officers,
directors, their spouses, associates and related organizations in the principal
amount of $1,856,000. All such loans were made in the ordinary course of
business, have been made on substantially the same terms and conditions,
including collateral required, as comparable transactions with unaffiliated
parties and did not involve more than the normal risk of collectibility or
present other unfavorable features. Directors and executive officers are charged
the same rates of interest and loan fees as are charged to employees of the
Company, which interest rates and fees are slightly lower than charged to
non-employee borrowers. All such loans are presently in good standing and are
being paid in accordance with their terms.
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<PAGE> 44
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company and as adjusted to reflect the sale
of shares offered hereby, with respect to (i) each person known by the Company
to beneficially own more than 5% of the outstanding shares of Common Stock, (ii)
each person who is a director or Named Executive Officer of the Company and
(iii) all directors and executive officers of the Company as a group. Each
beneficial owner has the sole power to vote and to dispose of all shares of
Common Stock owned by such beneficial owner.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING SHARES TO BE SOLD AFTER THE OFFERING
---------------------- IN THE ----------------------
NAME OF BENEFICIAL OWNER SHARES PERCENTAGE OFFERING(2) SHARES PERCENTAGE
- --------------------------------------- --------- ---------- ----------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Benjamin Namatinia(1).................. 719,652 27.0% -- 719,652 19.6%
Charles W. Jarrett(1).................. 264,127 9.9 -- 264,127 7.2
Mark F. Andrews, Jr.................... 37,065 1.4 -- 37,065 1.0
Larry M. Larson........................ 250,215 9.6 -- 250,215 6.9
E. Chris Searing....................... 16,467 * -- 16,467 *
Donna P. Gardner....................... 44,268 1.7 -- 44,268 1.2
James A. Wills......................... 99,631 3.8 -- 99,631 2.8
All directors and executive officers as
a group (7 persons).................. 1,431,425 52.5 -- 1,431,425 38.4
Harry R. Calbom, Jr.................... 122,500 4.7 8,500 114,000 3.1
Wallace C. Trotter..................... 126,105 4.8 8,500 117,605 3.2
</TABLE>
- ---------------
* Less than 1%.
(1) Includes presently exercisable options to purchase 52,500 shares each of
Common Stock. Does not include options to purchase 140,000 shares each of
Common Stock which vest ratably over a five year period commencing December
31, 1998.
(2) The Selling Shareholders have granted the Underwriters a 30-day option to
purchase these shares to cover over-allotments following the closing of the
Offering.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 3,619,872 shares of
Common Stock outstanding. The 1,000,000 shares sold in the Offering (1,150,000
shares if the Underwriters' over-allotment option is exercised in full) will be
freely tradable on the public market without restriction or further registration
under the Securities Act, except to the extent that such shares are held by an
affiliate of the Company. Of the remaining 2,619,872 outstanding shares of
Common Stock, 1,757,997 shares were issued and sold by the Company in private
transactions, and public sale thereof will be restricted except to the extent
such shares are registered under the Securities Act or sold in accordance with
an exemption from such registration. The 1,757,997 restricted shares of Common
Stock will be eligible for public sale pursuant to Rule 144 under the Securities
Act commencing 90 days after the date of this Prospectus. The holders of
1,681,605 shares have entered into agreements (the "Lock-Up Agreements") with
the Underwriters not to offer, sell or otherwise dispose of any equity
securities of the Company for 180 days after the date of this Prospectus (the
"lock-up period") without the prior written consent of Black & Company. Black &
Company may, in its sole discretion, at any time without notice, release all or
any part of the shares subject to the Lock-Up Agreements during the lock-up
period.
In general, Rule 144, as currently in effect, provides that any person who
has beneficially owned shares for at least one year, including an "affiliate"
(as defined in Rule 144), is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of (i) the average weekly
trading volume during the four calendar weeks preceding the sale or (ii) 1% of
the shares of Common Stock then outstanding. Sales under Rule 144 are subject to
certain manner of sale restrictions, notice requirements and availability of
43
<PAGE> 45
current public information concerning the Company. A person who is not an
affiliate of the Company, and who has not been an affiliate within three months
prior to the sale, generally may sell shares without regard to the limitations
of Rule 144 provided that the person has held such shares for a period of at
least two years.
Any employee, director or officer of the Company holding shares purchased
pursuant to a written compensatory plan or contract (including options) entered
into prior to the Offering is entitled to rely on the resale provisions of Rule
701, which permit nonaffiliates to sell such shares without having to comply
with the public information, holding period, volume limitations or notice
requirements of Rule 144 and permit affiliates to sell their Rule 701 shares
without having to comply with the holding period restrictions of Rule 144, in
each case commencing 90 days after the date of this Prospectus.
Prior to the Offering, there has been no public market for the Common Stock
and no prediction can be made of the effect, if any, that the sale or
availability for sale of shares of Common Stock will have on the market price of
the Common Stock. Nevertheless, sales of substantial amounts of such shares in
the public market could adversely affect the market price of the Common Stock.
DESCRIPTION OF CAPITAL STOCK
The following summary description of the Company's capital stock and of
certain provisions of the Articles and Bylaws are summaries and do not purport
to be complete and are subject to and qualified in their entirety by reference
to the Articles and Bylaws, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. Reference is made to
such exhibit for a detailed description of the provisions summarized below.
The Company's authorized capital stock consists of 3,937,500 shares of
Common Stock, no par value per share. The Company is seeking approval at its
annual meeting of shareholders to be held in February 1998 to amend the Articles
to, among other things, increase the number of authorized common shares to
25,000,000 and to create a class of 5,000,000 shares of preferred stock, no par
value per share (the "Preferred Stock").
On the date of this Prospectus, there were 2,619,872 shares of Common Stock
outstanding. Upon the closing of the Offering, there will be 3,619,872 shares of
Common Stock outstanding and no shares of Preferred Stock outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
to be voted on by the shareholders. There are no cumulative voting rights.
Accordingly, the holders of a majority of the shares of Common Stock voting for
the election of directors can elect all the directors if they choose to do so.
Holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." In the event of the
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of the
Company's liabilities. Holders of Common Stock have no preemptive rights and the
Common Stock is neither redeemable nor convertible into any other securities. As
of December 31, 1997, there were 289 record holders of the Common Stock.
PREFERRED STOCK
Assuming the amendment to the Articles is adopted by the shareholders, the
Company will be authorized to issue "blank check" Preferred Stock, which may be
issued from time to time in one or more series upon authorization by the
Company's Board of Directors. The Board of Directors, without further approval
of the shareholders, will be authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms, liquidation
preferences, and any other rights, preferences, privileges and restrictions and
applicable to each series of the Preferred Stock. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, among other things, could adversely affect the voting
power of the holders of Common Stock and, under certain circumstances, make it
more difficult for a third party to gain control of the Company, discourage bids
for the Company's
44
<PAGE> 46
Common Stock at a premium to the prevailing market price or otherwise adversely
affect the market price of the Common Stock.
ANTITAKEOVER RESTRICTIONS
STATUTORY PROVISIONS
Washington law contains certain provisions that may have the effect of
delaying, deterring or preventing a change in control of the Company. Chapter
23B.19 of the WBCA prohibits the Company, with certain exceptions, from engaging
in certain significant business transactions with an "acquiring person" (defined
as a person who acquires 10% or more of the Company's voting securities without
the prior approval of the Company's Board of Directors) for a period of five
years after such acquisition. The prohibited transactions include, among others,
a merger with, disposition of assets to, or issuance or redemption of stock to
or from, the acquiring person, or otherwise allowing the acquiring person to
receive any disproportionate benefit as a shareholder. The Company may not
exempt itself from coverage of this statute. These statutory provisions may have
the effect of delaying, deterring or preventing a change in control of the
Company.
ARTICLE PROVISIONS
If the amendment to the Articles is approved by the Company's shareholders,
the Board of Directors will have the authority to issue up to 5,000,000 shares
of Preferred Stock with such rights and preferences as the Board of Directors
may determine. The issuance of such shares may have the effect of delaying,
deterring or preventing a change in control of the Company. See "-- Preferred
Stock."
The Articles do not provide for cumulative voting in the election of
directors. The Articles provide that a director may only be removed "for cause"
and only with the approval of holders of at least 75% of the Company's voting
stock. The Articles prohibit shareholders from calling a special meeting of
shareholders. A special meeting of shareholders may be called only by a majority
of the Board of Directors, the Chairman of the Board or the President.
These provisions in the Articles described above make it more difficult for
shareholders, including those holding a majority of the outstanding shares to
effect an immediate change in a majority of the members of the Board of
Directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Article VII of the Articles limits the personal liability of directors to
the Company or its shareholders for monetary damages for conduct as a director
in circumstances involving (i) any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) any
unlawful distribution to stockholders, or (iv) any transaction from which the
director derived an improper personal benefit. Article X of the Articles
provides that the Company shall to the full extent permitted by Washington law,
indemnify and advance or reimburse the reasonable expenses incurred by any
person made a party to a proceeding because that person is or was a director of
the Company. In addition, permits the Company's Board of Directors to indemnify
the Company's officers, employees and agents to the full extent permitted by
Washington law.
The Company plans to enter indemnification agreements with its directors.
The Company has insurance on behalf of its executive officers and directors for
certain liabilities arising out of their actions in such capacities.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is .
45
<PAGE> 47
UNDERWRITING
The underwriters named below (the "Underwriters"), for which Black &
Company, Inc. and Pacific Crest Securities Inc. are acting as representatives
(the "Representatives"), have severally agreed, subject to the terms and
conditions set forth in the Underwriting Agreement, to purchase from the Company
the number of shares of Common Stock indicated below opposite their respective
names:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Black & Company, Inc..............................................
Pacific Crest Securities Inc......................................
------
Total........................................................
======
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the shares of Common Stock listed above are subject to
the approval of certain legal matters by counsel and various other conditions.
The Underwriting Agreement also provides that the Underwriters are committed to
purchase all of the shares of Common Stock offered hereby, if any are purchased
(except for any shares that may be purchased through exercise of the
Underwriters' over-allotment option which may be exercised by the Underwriters
in whole or in part).
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the public offering price
set forth on the cover of this Prospectus and to certain dealers at such price
less a concession not in excess of $ per share. After the Offering, the
public offering price and other selling terms may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters, and to certain other conditions, including the right to
reject orders in whole or in part.
Prior to this Offering, there has been only a limited public market for the
Common Stock. Accordingly, the public offering price has been determined by
negotiation between the Company and the Representatives. Among the factors
considered in determining the public offering price were the recent bid prices
quoted by market makers in the Common Stock, the Company present and historical
results of operations, the Company's current financial condition, estimates of
the business potential and prospects of the Company, economic conditions in the
Company's market area, the experience of the Company's management, the economics
of the industry in general, the general condition of the equity markets at the
time of the Offering and other relevant factors. There can be no assurance that
an active trading market will develop for the Common Stock, that purchasers in
the Offering will be able to sell their shares at or above the Offering price,
or as to the price at which the Common Stock may trade in the public market from
time to time subsequent to the Offering.
The Company and the Selling Shareholders have granted the Underwriters an
option, exercisable during the 30-day period after the date of this Prospectus,
to purchase up to 133,000 and 17,000 additional shares of Common Stock,
respectively, at the public offering price set forth on the cover page of this
Prospectus, less underwriting discounts and commissions. To the extent the
Underwriters exercise the option, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase such number of additional shares of
Common Stock as is proportionate to such Underwriter's initial commitment to
purchase shares from the Company. The Underwriters may exercise such option
solely to cover over-allotments, if any, incurred in connection with the sale of
shares of Common Stock offered hereby.
The Underwriting Agreement provides that the Company (and the Selling
Shareholders to the extent the Underwriters exercise the overallotment option)
has agreed to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities Act"),
or to contribute to payments that the Underwriters may be required to make in
respect thereof.
All of the executive officers and directors of the Company and the Bank
have agreed, that, for a period of 180 days after the day on which the
Registration Statement becomes effective by order of the Commission, they will
not, without the prior written consent of Black & Company, Inc. directly or
indirectly, offer for sale,
46
<PAGE> 48
sell, contract to sell, or grant any option to sell (including, without
limitation, any short sale), pledge, establish an open "put-equivalent position"
within the meaning of Rule 16a-1(h) under the Exchange Act, transfer, assign or
otherwise dispose of any shares of the Common Stock or securities exchangeable
for or convertible into shares of the Common Stock, or any option, warrant or
other right to acquire such shares, or publicly announce the intention to do any
of the foregoing.
During and after the offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock; and syndicate share positions involve
the sale of the Underwriters of a greater number of shares of Common Stock than
they are required to purchase from the Company in the offering. The Underwriters
also may impose a penalty bid, whereby selling concessions allowed to syndicate
members or other broker-dealers in respect of the Common Stock sold in the
offering for their account may be reclaimed by the syndicate if such securities
are repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Common Stock which may be higher than the price that might otherwise prevail in
the open market, and these activities, if commenced, may be discontinued at any
time. These transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.
Mr. Benjamin Namatinia, Chairman of the Board and Chief Executive Officer
of the Company, is the sole shareholder of Robert Thomas Securities, which is a
member of the selling group for this Offering.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales of Common Stock offered by this Prospectus to any
accounts over which they exercise discretionary authority.
The Company has applied for inclusion of the Common Stock in the Nasdaq
National Market under the symbol "CWLZ."
The foregoing is a brief summary of the provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. A copy of the form of Underwriting Agreement has been filed as an
exhibit to the Registration Statement.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1995, and for each of the years in the three year period ended December
31, 1996, included in this Prospectus and in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
LEGAL MATTERS
The validity of the Company's Common Stock being offered hereby will be
passed upon for the Company to Foster Pepper & Shefelman PLLC, Seattle,
Washington. Certain legal matters will be passed upon for the Underwriters by
Graham & Dunn PC, Seattle, Washington.
ADDITIONAL INFORMATION
The Company has filed a registration statement on Form S-1 (together with
all amendments and exhibits thereto, the "Registration Statement") with the
Commission under the Securities Act with respect to the Common Stock being
offered hereby. This Prospectus is part of the Registration Statement. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all of the information set forth in the Registration Statement. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement. A copy of the
Registration Statement may be
47
<PAGE> 49
examined without charge at the Commission's principal offices at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at 7 World Trade Center, Suite 1300, New York, New York
10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of all or any part thereof may be obtained from the Public Reference Section of
the Commission upon payment of certain fees prescribed by the Commission. Copies
of such materials may also be obtained from the website that the Commission
maintains at http://www.sec.gov. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily complete and,
in such instance, reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by an independent public accounting
firm.
48
<PAGE> 50
INDEX TO FINANCIAL STATEMENTS
COWLITZ BANCORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Income..................................................... F-4
Consolidated Statements of Shareholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 51
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of Cowlitz Bancorporation:
We have audited the accompanying consolidated balance sheets of Cowlitz
Bancorporation (a Washington corporation) and Subsidiary as of December 31, 1996
and 1995 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cowlitz Bancorporation and
Subsidiary as of December 31, 1996 and 1995 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Portland, Oregon,
January 16, 1997,
(except with respect to the matters discussed
in Note 16, as to which the
date is January 12, 1998).
F-2
<PAGE> 52
COWLITZ BANCORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
UNAUDITED
<S> <C> <C> <C>
ASSETS:
Cash and due from banks............................ $ 24,810 $ 20,905 $ 14,702
Trading assets..................................... -- -- 2,016
Investment securities:
Investments available-for-sale (at fair value,
cost of $4,000, $2,001 and $0 at September 30,
1997 and December 31, 1996 and 1995,
respectively)................................. 4,014 2,011 --
Investments held-to-maturity (at amortized cost,
fair value of $4,374, $3,388 and $3,301 at
September 30, 1997 and December 31, 1996 and
1995, respectively)........................... 4,364 3,380 3,263
-------- -------- --------
Total investment securities................ 8,378 5,391 3,263
Loans.............................................. 132,687 126,551 107,663
Allowance for loan losses.......................... (1,984) (1,894) (1,763)
-------- -------- --------
Loans, net................................. 130,703 124,657 105,900
Premises & equipment, net of accumulated
depreciation of $1,189, $1,073 and $1,209 at
December 31, 1996, 1995 and September 30, 1997,
respectively.................................... 5,745 4,437 1,831
Federal Home Loan Bank stock....................... 2,605 2,463 2,283
Intangible asset, net of accumulated amortization
of $29, $0, and $0 at September 30, 1997 and
December 31, 1996 and 1995, respectively........ 1,940 -- --
Other assets....................................... 1,477 1,304 1,353
-------- -------- --------
Total assets............................... $ 175,658 $159,157 $131,348
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand.......................................... $ 27,051 $ 16,821 $ 17,099
Savings and interest-bearing demand............. 44,817 30,768 31,697
Certificates of deposit......................... 67,217 75,708 57,575
-------- -------- --------
Total deposits............................. 139,085 123,297 106,371
Short-term borrowings.............................. 475 550 2,625
Other liabilities.................................. 707 655 568
Long-term borrowings............................... 22,096 22,842 12,393
-------- -------- --------
Total liabilities.......................... 162,363 147,344 121,957
-------- -------- --------
SHAREHOLDERS' EQUITY:
Common stock, no par value; 3,937,500 authorized;
2,602,215, 2,590,403 and 2,585,608 shares issued
and outstanding at September 30, 1997 and
December 31, 1996 and 1995, respectively........ 3,247 3,195 3,176
Additional paid-in-capital......................... 1,538 1,538 1,538
Retained earnings.................................. 8,496 7,073 4,677
Net unrealized gains on investments available for
sale............................................ 14 7 --
-------- -------- --------
Total shareholders' equity................. 13,295 11,813 9,391
-------- -------- --------
Total liabilities and shareholders'
equity................................... $ 175,658 $159,157 $131,348
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 53
COWLITZ BANCORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- ---------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans.............. $ 10,131 $ 9,397 $ 12,721 $ 9,954 $ 6,862
Interest on taxable investment
securities........................... 484 332 386 269 322
Interest on non-taxable investment
securities........................... -- 2 2 3 --
Trading account interest................ -- 35 34 129 168
Interest from other banks............... 520 330 490 289 140
--------- --------- --------- --------- ---------
Total interest income........... 11,135 10,096 13,633 10,644 7,492
--------- --------- --------- --------- ---------
INTEREST EXPENSE:
Savings and interest-bearing demand..... 867 814 1,031 1,061 1,253
Certificates of deposits................ 3,288 2,874 3,960 2,657 1,073
Short-term borrowings................... 33 100 110 177 144
Long-term borrowings.................... 1,045 758 1,073 653 371
--------- --------- --------- --------- ---------
Total interest expense.......... 5,233 4,546 6,174 4,548 2,841
--------- --------- --------- --------- ---------
Net interest income before
provision for loan losses..... 5,902 5,550 7,459 6,096 4,651
PROVISION FOR LOAN LOSSES................. (300) (175) (281) (694) (533)
--------- --------- --------- --------- ---------
Net interest income after
provision for loan losses..... 5,602 5,375 7,178 5,402 4,118
--------- --------- --------- --------- ---------
NON-INTEREST INCOME:
Service charges on deposit accounts..... 397 286 387 367 343
Other income............................ 137 149 218 252 155
Net gains (losses) on sales of
securities........................... -- (309) (309) 258 (211)
--------- --------- --------- --------- ---------
Total non-interest income....... 534 126...... 296 877 287
--------- --------- --------- --------- ---------
NON-INTEREST EXPENSE:
Salaries and employee benefits.......... 2,060 1,612 2,137 1,709 1,166
Net occupancy and equipment expense..... 521 272 393 310 322
Other operating expense................. 1,258 863 1,152 1,074 875
--------- --------- --------- --------- ---------
Total non-interest expense...... 3,839 2,747 3,682 3,093 2,363
--------- --------- --------- --------- ---------
Income before income tax
expense....................... 2,297 2,754 3,792 3,186 2,042
INCOME TAX EXPENSE........................ 781 937 1,295 1,088 697
--------- --------- --------- --------- ---------
Net income...................... $ 1,516 $ 1,817 $ 2,497 $ 2,098 $ 1,345
========= ========= ========= ========= =========
NET INCOME PER SHARE OF COMMON STOCK...... $ 0.54 $ 0.65 $ 0.90 $ 0.77 $ 0.70
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING............................. 2,802,369 2,787,274 2,788,365 2,714,074 1,925,399
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 54
COWLITZ BANCORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
GAINS
(LOSSES)
COMMON STOCK ADDITIONAL ON INVESTMENTS TOTAL
------------------- PAID-IN- RETAINED AVAILABLE- SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS FOR-SALE EQUITY
--------- ------ ---------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993........... 1,723,733 $ 985 $ 1,538 $1,363 $ -- $ 3,886
Net income........................... -- -- -- 1,345 -- 1,345
Cash dividends paid ($.03 per
share)............................. -- -- -- (49) -- (49)
--
--------- ------ ------ ------ -------
BALANCE AT DECEMBER 31, 1994........... 1,723,733 985 1,538 2,659 -- 5,182
Issuance of common stock for cash.... 861,875 2,191 -- -- -- 2,191
Net income........................... -- -- -- 2,098 -- 2,098
Cash dividends paid ($.03 per
share)............................. -- -- -- (80) -- (80)
--
--------- ------ ------ ------ -------
BALANCE AT DECEMBER 31, 1995........... 2,585,608 3,176 1,538 4,677 -- 9,391
Issuance of common stock for cash.... 4,795 19 -- -- -- 19
Net income........................... -- -- -- 2,497 -- 2,497
Cash dividends paid ($.04 per
share)............................. -- -- -- (101) -- (101)
Net changes in unrealized
gains/(losses) on investments
available-for-sale, net of deferred
taxes of $3........................ -- -- -- -- 7 7
--
--------- ------ ------ ------ -------
BALANCE AT DECEMBER 31, 1996........... 2,590,403 3,195 1,538 7,073 7 11,813
Issuance of common stock for cash
(unaudited).......................... 11,812 52 -- -- -- 52
Net income (unaudited)................. -- -- -- 1,516 -- 1,516
Cash dividends paid ($.04 per share)
(unaudited).......................... -- -- -- (93) -- (93)
Net changes in unrealized
gains/(losses) on investments
available-for-sale, net of deferred
taxes of $3 (unaudited).............. -- -- -- -- 7 7
--
--------- ------ ------ ------ -------
BALANCE AT SEPTEMBER 30, 1997
(unaudited).......................... 2,602,215 $3,247 $ 1,538 $8,496 $ 14 $13,295
========= ====== ====== ====== == =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 55
COWLITZ BANCORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
--------------------------- ----------------------------------
1997 1996 1996 1995 1994
----------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $ 1,516 $ 1,817 $ 2,497 $ 2,098 $ 1,345
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.......... 316 129 191 152 180
Provision for loan losses.............. 300 175 281 694 533
Net losses (gains) on sales of
securities........................... -- 309 309 (258) 211
Net amortization of investment security
premiums and accretion of
discounts............................ (2) (2) (3) (4) (87)
Decrease (increase) in other assets.... (2,112) (866) 49 (446) (327)
Increase (decrease) in other
liabilities.......................... 52 111 87 266 (75)
Federal Home Loan Bank stock
dividends............................ (142) (131) (180) (138) (182)
Purchases of trading securities........ -- (64,500) (64,500) (40,305) (5,863)
Sales of trading securities............ -- 66,204 66,204 41,328 6,857
-------- -------- --------
Net cash provided by (used for)
operating activities............ (72) 3,246 4,935 3,387 2,592
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment
securities:
Held-to-maturity....................... 3,487 2,567 2,860 1,970 10,262
Purchases of investment securities:
Available-for-sale..................... (1,994) (2,006) (2,006) -- --
Held-to-maturity....................... (4,461) (2,672) (2,969) (1,663) (7,016)
Net increase in loans..................... (6,346) (16,258) (19,038) (31,030) (20,210)
Purchases of premises and equipment....... (1,635) (804) (2,797) (291) (71)
-------- -------- --------
Net cash used in investing
activities...................... (10,949) (19,173) (23,950) (31,014) (17,035)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, savings
and interest-bearing demand deposits... 24,279 (838) (1,207) 114 (3,422)
Net increase (decrease) in certificates of
deposit................................ (8,491) 10,509 18,133 25,174 20,165
Dividends paid............................ (93) (75) (101) (80) (49)
Net increase (decrease) in short-term
borrowings............................. (75) (1,425) (2,075) 1,275 (3,175)
Net proceeds (repayment) of long-term
borrowings............................. (746) 6,895 10,449 5,582 3,556
Issuance of common stock for cash......... 52 -- 19 2,191 --
-------- -------- --------
Net cash provided by financing
activities...................... 14,926 15,066 25,218 34,256 17,075
-------- -------- --------
Net increase (decrease) in cash
and due from banks.............. 3,905 (861) 6,203 6,629 2,632
CASH AND DUE FROM BANKS AT BEGINNING OF
PERIOD.................................... 20,905 14,702 14,702 8,073 5,441
-------- -------- --------
CASH AND DUE FROM BANKS AT END OF PERIOD.... $ 24,810 $ 13,841 $ 20,905 $ 14,702 $ 8,073
======== ======== ========
CASH PAID FOR INTEREST...................... $ 5,253 $ 4,444 $ 6,143 $ 4,533 $ 2,644
======== ======== ========
CASH PAID FOR INCOME TAXES.................. $ 755 $ 917 $ 1,245 $ 1,138 $ 969
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 56
COWLITZ BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations
Cowlitz Bancorporation (the Company) is a single bank holding company
located in southwest Washington. The Company's wholly owned subsidiary, Cowlitz
Bank (the Bank), a Washington state chartered commercial bank, is the only
locally owned community bank in Cowlitz County and offers commercial banking
services primarily to small and medium-sized businesses, professionals and
retail customers.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiary, the Bank. All significant intercompany
transactions and balances have been eliminated.
Investment Securities
Investment securities are classified as either trading, available for sale
or held to maturity. Securities are classified as held-to-maturity when the
Company has the positive intent and ability to hold those securities to
maturity. Securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading securities. Securities
not classified as either held-to-maturity or trading are classified as
available-for-sale. Trading securities are carried at fair value. Net unrealized
gains and losses on trading securities are included in the consolidated
statements of income. Trading securities consisted of certain obligations of the
U.S. Treasury. Available for sale securities are carried at fair value with
unrealized gains and losses, net of any tax effect, added to or deducted from
shareholders' equity. Held to maturity securities are carried at amortized cost.
Loans
Interest income on simple interest loans is accrued daily on the principal
balance outstanding. Generally, no interest is accrued on loans when factors
indicate that collection of interest is doubtful or when principal or interest
payments become 90 days past due, unless collection of principle and interest
are anticipated within a reasonable period of time and the loans are well
secured. For such loans, previously accrued but uncollected interest is charged
against current earnings, and income is only recognized to the extent payments
are subsequently received. Loan fees are offset against operating expense to the
extent these fees cover the direct expense of originating loans. Fees in excess
of origination costs are deferred and amortized to income over the related loan
period.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", requires
disclosures about stock-based compensation arrangements regardless of the method
used to account for them. The Company has opted to continue to apply the
accounting provisions of Opinion No. 25, and therefore will disclose the
difference between compensation cost included in net income and the related cost
measured by the fair value based method defined by SFAS No. 123, including tax
effects, that would have been recognized in the income statement if the fair
value method had been used.
Allowance for Loan Losses
The allowance for loan losses is based on management's estimates.
Management determines the adequacy of the allowance based upon reviews of
individual loans, recent loss experience, current economic
F-7
<PAGE> 57
COWLITZ BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
conditions, the risk characteristics of the various categories of loans and
other pertinent factors. Actual losses may vary from the current estimates.
These estimates are reviewed periodically and adjusted as deemed necessary.
Loans deemed uncollectable are charged to the allowance. Provisions for loan
losses and recoveries on loans previously charged off are added to the
allowance.
A loan is impaired when it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. Impaired loans are measured based on the present value of expected
future cash flows, discounted appropriately. As a practical expedient,
impairment may be measured based on the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
The provision for depreciation is computed on the straight-line method over the
estimated useful lives for the majority of the assets, which range from 3 to
39.5 years.
Improvements are capitalized and depreciated over the lesser of their
estimated useful lives or the life of the lease. When property is replaced or
otherwise disposed of, the cost of such assets and the related accumulated
depreciation are removed from their respective accounts.
Other Borrowings
Federal funds purchased and securities sold under agreements to repurchase
generally mature within one to four days from the transaction date. Other
short-term borrowed funds mature within one year from the transaction date,
other long-term borrowed funds extend beyond one year.
Income Taxes
Income taxes are accounted for using the asset and liability method. Under
this method, a deferred tax asset or liability is determined based on the
enacted tax rates which will be in effect when the differences between the
financial statement carrying amounts and tax bases of existing assets and
liabilities are expected to be reported in the Company's income tax returns. The
deferred tax provision for the year is equal to the net change in the deferred
tax asset or liability from the beginning to the end of the year, less amounts
applicable to the change in value related to investments available-for-sale. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
Earnings Per Share
Earnings per share computations are computed using the weighted average
number of common and dilutive common equivalent shares (stock options) assumed
to be outstanding during the period, using the treasury stock method. The
Company's stock options which were granted during the twelve month period prior
to its initial public offering have been considered outstanding for all periods
presented.
Supplemental Cash Flow Information
For the purpose of presentation in the statements of cash flows, cash and
cash equivalents are defined as those amounts in the balance sheet caption "Cash
and due from banks" and include cash on hand, amounts due from banks and federal
funds sold. Federal funds sold generally mature the day following purchase.
F-8
<PAGE> 58
COWLITZ BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit, commitments under credit card arrangements and standby letters of
credit. Such financial instruments are recorded in the financial statements when
they become payable.
Recently Issued Accounting Standards
In February 1997, the FASB issued SFAS No. 128 "Earnings Per Share" which
the Company is required to adopt for both interim and annual periods ending
after December 15, 1997. This statement specifies the computation, presentation,
and disclosure requirements of earnings per share. Management has determined the
effect of the adoption of this statement on the consolidated earnings per share
calculation for the Company will not be material.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
which the Company is required to adopt for years beginning after December 15,
1997. This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. When adopted, the
unrealized gain or loss on available-for-sale securities will be recognized as a
component of comprehensive income.
Prior Year Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
F-9
<PAGE> 59
COWLITZ BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
2. INVESTMENT SECURITIES:
The amortized cost and estimated fair values of investment securities at
December 31 are shown below:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1996 COST GAINS LOSSES VALUE
--------------------------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. government and agency securities........ $ 2,001 $ 10 $ -- $ 2,011
--
------ --- ------
Total.............................. $ 2,001 $ 10 $ -- $ 2,011
====== === == ======
</TABLE>
<TABLE>
<CAPTION>
HELD-TO-MATURITY
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. government and agency securities........ $ 1,998 $ 8 $ -- $ 2,006
Certificates of deposit...................... 1,382 -- -- 1,382
-- --
------ ------
Total.............................. $ 3,380 $ 8 $ -- $ 3,388
====== == == ======
</TABLE>
<TABLE>
<CAPTION>
HELD-TO-MATURITY
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1995 COST GAINS LOSSES VALUE
--------------------------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. government and agency securities........ $ 1,996 $ 38 $ -- $ 2,034
Municipal Bond............................... 80 -- -- 80
Certificates of deposit...................... 1,187 -- -- 1,187
--
------ --- ------
Total.............................. $ 3,263 $ 38 $ -- $ 3,301
====== === == ======
</TABLE>
Gross gains of $379, $397, and $51 and gross losses of $688, $139, $262
were realized on sales of investment securities in 1996, 1995, and 1994
respectively.
Maturities of Investments:
The carrying amount and estimated fair value of debt securities by
contractual maturity at December 31, 1996, are shown below. Expected maturities
may differ from contractual maturities because borrowers may have the right to
call or prepay obligations.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------------ -----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less..................... $ -- $ -- $2,380 $2,388
Due after one year through five years....... 2,001 2,011 1,000 1,000
------ ------ ------ ------
Total............................. $ 2,001 $2,011 $3,380 $3,388
====== ====== ====== ======
</TABLE>
At December 31, 1996 and 1995, a security with a par value of $1 million
was pledged to secure the treasury, tax and loan account with the Federal
Reserve.
F-10
<PAGE> 60
COWLITZ BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
3. LOANS AND ALLOWANCE FOR LOAN LOSSES:
The loan portfolio as of December 31 consists of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Commercial loans............................. $ 86,161 $ 72,527
Real estate -- construction.................. 3,584 2,998
Real estate -- mortgage...................... 28,766 24,061
Real estate -- commercial.................... 2,721 2,272
Installment and other consumer............... 6,016 6,241
Contracts purchased.......................... 116 325
-------- --------
127,364 108,424
Less:
Deferred loan fees......................... (813) (761)
Allowance for loan losses.................. (1,894) (1,763)
-------- --------
Total loans, net........................ $124,657 $105,900
======== ========
</TABLE>
An analysis of the change in the allowance for loan losses for the years
ended December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
Balance, beginning of period...................... $1,763 $1,152 $ 751
Provision for loan loss......................... 281 694 533
Loans charged to the allowance.................. (158) (114) (174)
Recoveries credited to the allowance............ 8 31 42
------ ------ ------
Balance, end of period............................ $1,894 $1,763 $ 1,152
====== ====== ======
</TABLE>
Loans on which the accrual of interest has been discontinued amounted to
approximately $407, $237 and $179 at December 31, 1996, 1995 and 1994,
respectively. Interest income foregone on non-accrual loans was approximately
$41, $1 and $3 in 1996, 1995 and 1994, respectively.
4. PREMISES AND EQUIPMENT:
Premises and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Land........................................... $ 583 $ 519
Buildings and improvements..................... 3,445 1,345
Furniture and equipment........................ 1,417 1,040
Construction in process........................ 181 --
------ ------
5,626 2,904
Accumulated depreciation....................... (1,189) (1,073)
------ ------
Total................................ $ 4,437 $ 1,831
====== ======
</TABLE>
Depreciation included in net occupancy and equipment expense amounted to
$191, $152, and $180 for the years ended December 31, 1996, 1995, and 1994
respectively.
F-11
<PAGE> 61
COWLITZ BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
5. BORROWINGS:
Short-term borrowings consist of Federal Funds Purchased of $550 and $2,625
at December 31, 1996 and 1995, respectively.
Long-term borrowings consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Notes payable to Federal Home Loan Bank, interest from 4.48
percent to 8.62 percent at December 31, 1996, payable in
monthly installments plus interest, due 1998 to 2009, secured
by certain investment securities and mortgage loans.......... $21,297 $10,699
Note payable to a bank, due January 1999, interest at prime
plus 1 percent, interest not to fall below 8.5 percent or to
exceed 14 percent (9.25 percent at December 31, 1996),
principal payable in annual installments from $146 to $173,
interest payable in quarterly installments, secured by bank
stock........................................................ 478 625
Subordinated promissory notes, due February 2000, interest at
8.5 percent, interest payable semiannually on June 30 and
December 31.................................................. 1,000 1,000
Contract payable to private party, interest at 9.0 percent,
payable in monthly installments plus interest through October
2010......................................................... 67 69
------- -------
$22,842 $12,393
======= =======
</TABLE>
The aggregate maturities of notes payable subsequent to December 31, 1996,
are as follows:
<TABLE>
<S> <C>
1997............................................. $ 942
1998............................................. 3,956
1999............................................. 663
2000............................................. 6,933
2001............................................. 9,284
Thereafter....................................... 1,064
-------
$22,842
=======
</TABLE>
Provisions of the note payable to a bank require maintenance of certain
operating ratios such as Tier 2 risk-based capital of not less than 2 percent
above the minimum set by the banking regulators and allowance for loan losses of
at least 1.1 percent of total loans. The note agreement also places limitations
on the Company's indebtedness and capital expenditures. The Company was in
compliance with these covenants as of December 31, 1996.
The Company in whole or in part under certain circumstances may prepay the
subordinated promissory notes at any time after December 15, 1997.
6. INCOME TAXES:
The components of the provision for income taxes for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current............................................ $1,274 $1,158 $ 807
Deferred........................................... 21 (70) (110)
------ ------ -----
Total provision for income taxes......... $1,295 $1,088 $ 697
====== ====== =====
</TABLE>
F-12
<PAGE> 62
COWLITZ BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
The federal income tax statutory rate and financial tax rate of the
provision do not vary substantially.
The tax effect of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................................... $607 $550
Loan origination fees....................................... 56 94
Other....................................................... 2 4
---- ----
665 648
---- ----
Deferred tax liabilities:
Cash basis adjustments...................................... (58) (87)
Unrealized gains on trading securities...................... 0 (4)
Accumulated depreciation.................................... (53) (45)
Federal Home Loan Bank stock dividends...................... (330) (269)
Unrealized gains on available-for-sale securities........... (3) --
Other....................................................... (2) --
---- ----
(446) (405)
---- ----
Net deferred tax asset.............................. $219 $243
==== ====
</TABLE>
7. CERTIFICATES OF DEPOSIT:
Included in certificates of deposit are certificates in denominations of
$100 or greater totaling $26,003 and $18,595 at December 31, 1996 and 1995,
respectively. Interest expense relating to certificates of deposits in
denominations of $100 or greater was $1,360, $719, and $270 for the years ended
December 31, 1996, 1995, and 1994, respectively.
8. SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL:
Dividends are paid by the Company from its retained earnings, which are
principally provided through dividends and income from its subsidiary. However,
state agencies restrict the amount of funds the Company's subsidiary may
transfer to the Company in the form of cash dividends, loans or advances.
Transfers are limited by the subsidiary's retained earnings, which were $5,975
at December 31, 1996.
The Company and the Bank are subject to various regulatory capital
requirements as established by the applicable federal or state banking
regulatory authorities. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities and certain off-balance-sheet items. The quantitative
measures for capital adequacy require the Company and the Bank to maintain
minimum amounts and ratios of total and Tier 1 capital to risk weighted assets
and of Tier 1 capital to average assets (leverage). The Company's and Bank's
capital components, classification, risk weightings and other factors are also
subject to qualitative judgments by regulators. Failure to meet minimum capital
requirements can initiate certain actions by regulators that, if undertaken,
could have a material effect on the Company's financial statements. Management
believes that as of December 31, 1996, the Company and the Bank meet all minimum
capital adequacy requirements to which they are subject. The most recent
notification from the Federal Deposit Insurance Corporation categorized the Bank
as well-capitalized under the regulatory
F-13
<PAGE> 63
COWLITZ BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
framework for prompt corrective action. Management believes that no events or
changes in conditions have occurred subsequent to such notification to change
the Bank's category.
The following table presents selected capital information for the Company
(consolidated) and the Bank as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
----------------- ---------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total risk-based capital:
Consolidated........... $13,872 11.88% $9,345 8.00% $11,682 10.00%
Bank................... 13,693 11.72 9,345 8.00 11,681 10.00
Tier 1 risk-based capital:
Consolidated........... 11,806 10.11 4,673 4.00 7,009 6.00
Bank................... 12,228 10.47 4,672 4.00 7,008 6.00
Tier 1 (leverage) capital:
Consolidated........... 11,806 7.75 6,097 4.00 7,621 5.00
Bank................... 12,228 8.05 6,075 4.00 7,593 5.00
As of December 31, 1995:
Total risk-based capital:
Consolidated........... $11,395 11.96% $7,625 8.00% $ 9,531 10.00%
Bank................... 10,660 11.18 7,631 8.00 9,538 10.00
Tier 1 risk-based capital:
Consolidated........... 9,397 9.86 3,812 4.00 5,719 6.00
Bank................... 9,461 9.92 3,815 4.00 5,723 6.00
Tier 1 (leverage) capital:
Consolidated........... 9,397 7.48 5,025 4.00 6,281 5.00
Bank................... 9,461 7.57 5,001 4.00 6,251 5.00
</TABLE>
9. CONTINGENT LIABILITIES AND COMMITMENTS WITH OFF-BALANCE-SHEET RISK:
The Company's consolidated financial statements do not reflect various
commitments and contingent liabilities of the Bank that arise in the normal
course of business and that involve elements of credit risk, interest rate risk
and liquidity risk. These commitments and contingent liabilities are commitments
to extend credit, credit card arrangements and standby letters of credit. A
summary of the Bank's undisbursed commitments and contingent liabilities at
December 31, 1996, is as follows:
<TABLE>
<S> <C>
Commitments to extend credit....................... $16,497
Credit card commitments............................ 2,694
Standby letters of credit.......................... 561
-------
Total.................................... $19,752
=======
</TABLE>
Commitments to extend credit, credit card arrangements and standby letters
of credit all include exposure to some credit loss in the event of
nonperformance of the customer. The Bank's credit policies and procedures for
credit commitments and financial guarantees are the same as those for extension
of credit that are recorded on the consolidated balance sheets. Because these
instruments have fixed maturity dates and
F-14
<PAGE> 64
COWLITZ BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
many of them expire without being drawn upon, they do not generally present any
significant liquidity risk to the Bank.
Most of the Bank's lending activity is with customers located in Cowlitz
County, Washington. An economic downturn in Cowlitz County would likely have a
negative impact on the Bank's results of operations, depending on the severity
of the downturn. The Bank maintains a diversified portfolio and does not have
significant on- or off-balance-sheet concentrations of credit risk in any one
industry.
10. BALANCES WITH THE FEDERAL RESERVE BANK:
The Bank is required to maintain reserves in cash or with the Federal
Reserve Bank equal to a percentage of its reservable deposits. Required reserves
were approximately $580, $581, and $683 at December 31, 1996, 1995, and 1994,
respectively.
11. RELATED-PARTY TRANSACTIONS:
As of December 31, 1996 and 1995, the Bank had loan commitments of $2,001
and $1,833 to persons serving as directors and executive officers and their
spouses, associates and related organizations, with amounts outstanding totaling
$1,318 and $1,393, respectively. During 1996 and 1995, new loans to such related
parties amounted to $656 and $1,445 and repayments amounted to $731 and $725,
respectively. All such loans were made in the ordinary course of business and
have been made on substantially the same terms and conditions, including
collateral required, as comparable transactions with unaffiliated parties.
Directors and executive officers are charged the same rates of interest and loan
fees as are charged to employees of the Company, which interest rates and fees
are slightly lower than charged to non-employee borrowers.
The Chairman of the Company owns a securities brokerage franchise of Robert
Thomas Securities which leases space from the Company.
12. EMPLOYEE BENEFIT PLANS:
The Bank has a contributory retirement savings plan covering substantially
all full-time and part-time employees. The amount of the Bank's annual
contribution is at the discretion of the Board of Directors. The Bank
contributed $97 and $90 to the plan for the years ended December 31, 1996 and
1995, respectively.
The Company adopted an employee stock purchase plan during 1996. The
Company may sell up to 175,000 shares of common stock to its eligible employees
under the plan. During 1996, the Company sold 4,795 shares of stock under the
plan. The Company sells shares at fair market value on the date the employee is
granted the right to purchase the stock, as determined by the Board of
Directors. These grants are made to qualified employees each quarter and expire
after 90 days.
Proforma net income and earnings per share as if compensation cost for this
plan had been determined consistent with SFAS No. 123, would not differ from
reported amounts in the statements of income.
13. FAIR VALUES OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires the disclosure of the fair value of financial instruments. A financial
instrument is defined as cash, evidence of an ownership interest in an entity,
or a contract that conveys or imposes the contractual right or obligation to
either receive or deliver cash or another financial instrument. Examples of
financial instruments included in the Company's balance sheet are cash, federal
funds sold or purchased, debt and equity securities, loans, demand, savings and
other
F-15
<PAGE> 65
COWLITZ BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
interest-bearing deposits, notes and debentures. Examples of financial
instruments, which are not included in the Company's balance sheet, are
commitments to extend credit and standby letters of credit.
Fair value is defined as the amount at which a financial instrument could
be exchanged in a current transaction between willing parties, other than in a
forced sale or liquidation, and is best evidenced by a quoted market price if
one exists.
The statement requires the fair value of deposit liabilities with no stated
maturity, such as demand deposits, NOW and money market accounts, to equal the
carrying value of these financial instruments and does not allow for the
recognition of the inherent value of core deposit relationships when determining
fair value. While the statement does not require disclosure of the fair value of
nonfinancial instruments, such as the Company's premises and equipment, its
banking and trust franchises and its core deposit relationships, the Company
believes these nonfinancial instruments have significant fair value.
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate
that value:
- CASH AND DUE FROM BANKS -- For these short-term instruments, the carrying
amount is a reasonable estimate of fair value.
- INVESTMENT SECURITIES -- For securities held for investment purposes,
fair values are based on quoted market prices or dealer quotes. For other
securities, fair value equals quoted market price, if available. If a
quoted market price is not available, fair value is estimated using
quoted market prices for similar securities.
- LOANS -- For certain variable rate loans, fair value is estimated at
carrying value, as these loans reprice to market frequently. The fair
value of other types of loans is estimated by discounting the future cash
flows, using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
- DEPOSIT LIABILITIES -- The fair value of demand deposits, savings
accounts and certain money market deposits is the amount payable on
demand at the reporting date. The fair value of fixed-maturity
Certificates of Deposit is estimated by discounting the future cash
flows, using the rates currently offered for deposits of similar
remaining maturities.
- SHORT-TERM BORROWINGS -- The carrying amounts of borrowings under
repurchase agreements and short-term borrowings approximate their fair
values.
- LONG-TERM BORROWINGS -- Rates currently available to the Bank for debt
with similar terms and remaining maturities are used to estimate fair
value of existing debt.
- COMMITMENTS TO EXTEND CREDIT, CREDIT CARD COMMITMENTS AND STANDBY LETTERS
OF CREDIT -- The fair values of commitments to extend credit, credit card
commitments and standby letters of credit were not material as of
December 31, 1996 and 1995.
F-16
<PAGE> 66
COWLITZ BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
The estimated fair values of the Bank's financial instruments at December
31 were as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks............... $ 20,905 $ 20,905 $ 14,702 $ 14,702
Trading assets........................ -- -- 2,016 2,016
Investment securities................. 5,391 5,399 3,263 3,301
Loans, net of allowance for loan
losses............................. 124,657 124,202 105,900 107,225
Federal Home Loan Bank stock.......... 2,463 2,463 2,283 2,283
Financial liabilities:
Demand................................ 16,821 16,821 17,099 17,099
Savings and interest-bearing demand... 30,768 30,768 31,697 31,697
Certificates of deposit............... 75,708 76,032 57,575 57,751
Short-term borrowings................. 550 550 2,625 2,625
Long-term borrowings.................. 22,842 22,544 12,393 12,361
</TABLE>
14. PARENT COMPANY ONLY FINANCIAL DATA:
The following sets forth the condensed financial information of Cowlitz
Bancorporation on a stand-alone basis:
STATEMENT OF CONDITION
(UNCONSOLIDATED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
ASSETS:
Cash and due from depository institutions.............. $ 1,061 $ 1,525
Investment in bank subsidiary.......................... 12,234 9,461
Other assets........................................... 7 46
------- -------
Total assets................................... $13,302 $11,032
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Long-term borrowings................................... $ 1,478 $ 1,625
Other liabilities...................................... 11 16
------- -------
Total Liabilities.............................. 1,489 1,641
Shareholders' Equity..................................... 11,813 9,391
------- -------
Total liabilities and shareholders' equity..... $13,302 $11,032
======= =======
</TABLE>
F-17
<PAGE> 67
COWLITZ BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
STATEMENT OF INCOME
(UNCONSOLIDATED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Income:
Dividends from subsidiary...................... $ 56 $ 238 $ 299
------ ------ ------
Total income........................... 56 238 299
Expenses:
Interest expense............................... 130 148 151
Other expense.................................. 334 245 115
------ ------ ------
Total Expense.......................... 464 393 266
Income (loss) before income taxes and equity in
undistributed earnings of bank................. (408) (155) 33
Income tax benefit............................... 138 108 90
------ ------ ------
Net income (loss) before equity in
undistributed earnings of bank.............. (270) (47) 123
Equity in undistributed earnings of the bank..... 2,767 2,145 1,222
------ ------ ------
Net Income............................. $2,497 $2,098 $1,345
====== ====== ======
</TABLE>
STATEMENT OF CASH FLOWS
(UNCONSOLIDATED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $2,497 $2,098 $1,345
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of the bank.......... (2,767) (2,145) (1,222)
Decrease in other assets.................... 39 29 24
Increase (decrease) in other liabilities.... (5) 13 53
------ ------ ------
Net cash provided (used) by operating
activities................................ (236) (5) 200
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital contributions to bank.................. -- (500) --
------ ------ ------
Net cash (used for) investing activities.... -- (500) --
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on long-term borrowings........... (146) (134) (126)
Proceeds from issuance of common stock......... 19 2,191 --
Dividends paid................................. (101) (80) (49)
------ ------ ------
Net cash provided by (used for) financing
activities................................ (228) 1,977 (175)
Net (decrease) increase in cash and due from
depository institutions........................ (464) 1,472 25
Cash and due from depository institutions at
beginning of year.............................. 1,525 53 28
------ ------ ------
Cash and due from depository institutions at end
of year........................................ $1,061 $1,525 $ 53
====== ====== ======
</TABLE>
F-18
<PAGE> 68
COWLITZ BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1996 MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
-------------------------------------------- --------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Interest income............................. $ 3,219 $3,342 $ 3,491 $3,581
Interest expense............................ 1,425 1,465 1,613 1,671
------ ------ ------ ------
Net interest income......................... 1,794 1,877 1,878 1,910
Provision for loan losses................... (16) (77) (82) (106)
Noninterest income.......................... (138) 133 141 160
Noninterest expense......................... 907 917 931 927
------ ------ ------ ------
Income before income taxes.................. 733 1,016 1,006 1,037
Provision for income taxes.................. 249 346 342 358
------ ------ ------ ------
Net income.................................. $ 484 $ 670 $ 664 $ 679
====== ====== ====== ======
Earnings per common share................... $ 0.17 $ 0.25 $ 0.24 $ 0.24
</TABLE>
<TABLE>
<CAPTION>
1995 MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
-------------------------------------------- --------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Interest income............................. $ 2,290 $2,505 $ 2,767 $3,082
Interest expense............................ 929 1,063 1,191 1,365
------ ------ ------ ------
Net interest income......................... 1,361 1,442 1,576 1,717
Provision for loan losses................... (126) (126) (236) (206)
Noninterest income.......................... 223 236 182 236
Noninterest expense......................... 820 759 688 826
------ ------ ------ ------
Income before income taxes.................. 638 793 834 921
Provision for income taxes.................. 219 263 288 318
------ ------ ------ ------
Net income.................................. $ 419 $ 530 $ 546 $ 603
====== ====== ====== ======
Earnings per common share................... $ 0.15 $ 0.20 $ 0.20 $ 0.22
</TABLE>
16. SUBSEQUENT EVENTS:
On September 30, 1997, the Company authorized 525,000 options and granted
options to purchase a total of 385,000 shares of the Company's common stock to
two executives. Currently, a total of 105,000 options are exercisable
immediately with the remaining options vesting equally over the next five years.
The options were granted at the fair market value on the date of grant.
On October 17, 1997 the Company had a 5 for 1 stock split and subsequently
on January 12, 1998 had a 3.5 for 1 stock split. All share and per share amounts
have been restated to retroactively reflect the stock splits as well as all
previous stock splits.
On July 18, 1997 the Company purchased and assumed substantially all of the
deposit liabilities of three branches from Wells Fargo Bank N.A. San Francisco.
In connection with the acquisition of such deposit liabilities and related cash
balances, the Company also acquired certain other assets of the branches,
including real estate, furniture and fixtures. All assets constituting premises
and equipment or other physical property will continue to be used in the banking
business. Wells Fargo Bank retained all other revenue producing assets,
including all loans, which had originated from these branches.
F-19
<PAGE> 69
COWLITZ BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
A summary of the deposit liabilities and limited assets acquired by the
Company is shown below:
<TABLE>
<S> <C>
Total deposits (liabilities) acquired...................... $25,217
Less assets acquired
Cash..................................................... 716
Premises and equipment................................... 362
Less premium paid for deposits............................. 1,970
-------
Net cash received by the Company
for the deposits acquired................................ $22,169
=======
</TABLE>
The deposit premium is classified as an intangible asset in the unaudited
September 30, 1997 consolidated balance sheet and is being amortized using an
accelerated method over a ten year life.
F-20
<PAGE> 70
MAP OF WASHINGTON WITH COWLITZ COUNTY HIGHLIGHTED SHOWING THE LOCATION OF THE
COMPANY'S BRANCHES
<PAGE> 71
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATING THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary............................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 9
Dividend Policy....................... 9
Capitalization........................ 10
Dilution.............................. 11
Selected Historical Financial
Information and Other Data.......... 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 13
Business.............................. 28
Management............................ 38
Certain Transactions.................. 42
Principal and Selling Shareholders.... 43
Shares Eligible for Future Sale....... 43
Description of Capital Stock.......... 44
Underwriting.......................... 46
Experts............................... 47
Legal Matters......................... 47
Additional Information................ 47
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
1,000,000 SHARES
LOGO
COWLITZ
BANCORPORATION
COMMON STOCK
------------------------
PROSPECTUS
------------------------
BLACK & COMPANY, INC.
PACIFIC CREST SECURITIES INC.
, 1998
======================================================
<PAGE> 72
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the Common Stock offered hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 4,531
NASD Filing Fee................................................... 1,995
Nasdaq National Market Listing Fee................................ 27,500
*Printing and Engraving Expenses.................................. 40,000
*Legal Fees and Expenses.......................................... 100,000
*Accounting Fees and Expenses..................................... 100,000
Blue Sky Fees and Expenses (including fees of counsel)............ 5,000
Transfer Agent and Registrar Fee.................................. 5,000
Miscellaneous Expenses............................................ 15,974
--------
Total................................................... $300,000
========
</TABLE>
- ---------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act authorize a court to award, or a corporation's board of
directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article X of the Registrant's Amended and Restated Articles
of Incorporation (Exhibit 3.1 hereto) provides for indemnification of the
Registrant's directors to the maximum extent permitted by Washington law, and
also permits the Registrant's board of directors to indemnify the Registrant's
officers, employees and agents. The directors and officers of the Registrant
also may be indemnified against liability they may incur for serving in such
capacity pursuant to a liability insurance policy maintained by the Company for
such purpose.
Section 23B.08.320 of the Washington Business Corporation Act authorizes a
corporation to limit a director's liability to the corporation or its
Shareholders for monetary damages for acts or omissions as a director. Article
VII of the Registrant's Amended and Restated Articles of Incorporation contains
provisions implementing such limitations on a director's liability to the
Registrant and its Shareholders, except in certain circumstances involving (i)
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) any unlawful distribution to stockholders,
or (iv) any transaction from which the director derived an improper personal
benefit.
The proposed form of Underwriting Agreement (Exhibit 1.1 hereto) contains
certain provisions regarding the indemnification of officers and directors of
the Registrant by the Underwriters.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 14 of this Registration
Statement, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion
II-1
<PAGE> 73
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On January 31, 1995, the Registrant sold 49,250 shares of its Common Stock
(861,875 shares post-split) to 47 individuals that were then shareholders of the
Registrant. The Registrant received $2,229,547 in the offering. These sales were
exempt under Regulation A of the Securities Act.
Between October 9, 1996 and the date hereof, the Registrant has sold 33,565
shares post-split to 50 employees of the Registrant pursuant to the Cowlitz
Bancorporation Employee Stock Purchase Plan. The Registrant has received
$157,814 in this offering. The sales are exempt under Section 4(2) and Section
3(a)(11) of the Securities Act.
On September 30, 1997, the Company granted to each of Benjamin Namatinia
and Charles Jarrett, executive officers of the Company, options to acquire
192,500 shares of common stock of the Company at a price of $5.71 per share. The
grant was exempt under Section 4(2) of the Securities Act.
In December 1997, the Company sold 350 shares (post-split) each to two
directors of the Bank at a price of $5.71 per share. The sales were exempt under
Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement among the Registrant, the Selling Shareholders and
the Underwriters.
3.1 Form of Restated and Amended Articles of Incorporation of Registrant.
3.2 Bylaws of Registrant.
5.1 Opinion of Foster Pepper & Shefelman PLLC.
10.1 Advances Security and Deposit Agreement dated March 29, 1991 between Federal Home
Loan Bank of Seattle and Cowlitz Bank.
10.2 Federal Home Loan Bank of Seattle Form of Promissory Note (Credit Line Fixed Rate
Advance).
10.3 Federal Home Loan Bank of Seattle Promissory Note No. 75494 dated May 7, 1997 (Cash
Management Advance Credit Line).
10.4 Promissory Note dated January 15, 1992 between Key Bank of Washington and Cowlitz
Bancorporation.
10.5 Form of 8 1/2% Subordinated Promissory Note due February 15, 2000.
10.6 Purchase and Assumption Agreement dated as of March 5, 1997 between Wells Fargo
Bank, N.A. and Cowlitz Bank.
10.7 Lease Agreement dated October 7, 1963 between Twin City Development Co. and Bank of
Cowlitz County.
10.8 Assignment of Lease dated March 4, 1976 between Bank of the West and Old National
Bank of Washington.
10.9 Assignment of Lease dated March 30, 1979 between Old National Bank of Washington
and Pacific National Bank of Washington.
10.10 Extension of Lease dated April 1, 1989 between Triangle Development Company and
First Interstate Bank of Washington, N.A.
10.11 Employment Agreement dated January 1, 1998 between Cowlitz Bancorporation and
Charles W. Jarrett.
</TABLE>
II-2
<PAGE> 74
<TABLE>
<C> <S>
10.12 Employment Agreement dated January 1, 1998 between Cowlitz Bancorporation and Ben
Namatinia.
10.13 Cowlitz Bancorporation Supplemental Executive Retirement Plan dated January 1,
1998.
10.14 Cowlitz Bancorporation 1997 Stock Option Plan.
10.15 Form of Stock Option Agreement.
10.16 Cowlitz Bancorporation Employee Stock Purchase Plan.
11.1 Computation of Per Share Earnings.
21.1 List of all Subsidiaries of the Registrant.
23.1 Consent of Foster Pepper & Shefelman PLLC (contained in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney from officers and directors (contained on signature page).
27 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 75
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Longview, State of
Washington, on January 8, 1998.
COWLITZ BANCORPORATION
By /s/ CHARLES W. JARRETT
------------------------------------
Charles W. Jarrett, President
POWER OF ATTORNEY
Each person whose individual signature appears below hereby constitutes and
appoints Benjamin Namatinia, and Charles W. Jarrett and each of them severally,
as his true and lawful attorney-in-fact with full power of substitution to
execute in the name and on behalf of such person, individually and in each
capacity stated below, and to file, any and all amendments to this Registration
Statement, including any and all post-effective amendments.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------- ----------------
<S> <C> <C>
/s/ BENJAMIN NAMATINIA Chairman, Chief Executive January 8, 1998
- --------------------------------------------- Officer and Director
Benjamin Namatinia
/s/ CHARLES W. JARRETT President, Chief Operating January 8, 1998
- --------------------------------------------- Officer and Director
Charles W. Jarrett
/s/ DONNA P. GARDNER Vice President -- January 8, 1998
- --------------------------------------------- Secretary/Treasurer (Chief
Donna P. Gardner Financial Officer and Principal
Accounting Officer,
/s/ MARK F. ANDREWS, JR. Director January 8, 1998
- ---------------------------------------------
Mark F. Andrews, Jr.
/s/ LARRY M. LARSON Director January 8, 1998
- ---------------------------------------------
Larry M. Larson
/s/ E. CHRIS SEARING Director January 8, 1998
- ---------------------------------------------
E. Chris Searing
</TABLE>
II-4
<PAGE> 76
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ -------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1* Form of Underwriting Agreement among the Registrant, the Selling
Shareholders and the Underwriters.
3.1 Form of Restated and Amended Articles of Incorporation of Registrant.
3.2 Bylaws of Registrant.
5.1 Opinion of Foster Pepper & Shefelman PLLC.
10.1 Advances Security and Deposit Agreement dated March 29, 1991 between
Federal Home Loan Bank of Seattle and Cowlitz Bank.
10.2 Federal Home Loan Bank of Seattle Form of Promissory Note (Credit Line
Fixed Rate Advance).
10.3 Federal Home Loan Bank of Seattle Promissory Note No. 75494 dated May 7,
1997 (Cash Management Advance Credit Line).
10.4 Promissory Note dated January 15, 1992 between Key Bank of Washington and
Cowlitz Bancorporation.
10.5 Form of 8 1/2% Subordinated Promissory Note due February 15, 2000.
10.6 Purchase and Assumption Agreement dated as of March 5, 1997 between Wells
Fargo Bank, N.A. and Cowlitz Bank.
10.7 Lease Agreement dated October 7, 1963 between Twin City Development Co.
and Bank of Cowlitz County.
10.8 Assignment of Lease dated March 4, 1976 between Bank of the West and Old
National Bank of Washington.
10.9 Assignment of Lease dated March 30, 1979 between Old National Bank of
Washington and Pacific National Bank of Washington.
10.10 Extension of Lease dated April 1, 1989 between Triangle Development
Company and First Interstate Bank of Washington, N.A.
10.11 Employment Agreement dated January 1, 1998 between Cowlitz Bancorporation
and Charles W. Jarrett.
10.12 Employment Agreement dated January 1, 1998 between Cowlitz Bancorporation
and Ben Namatinia.
10.13 Cowlitz Bancorporation Supplemental Executive Retirement Plan dated
January 1, 1998.
10.14 Cowlitz Bancorporation 1997 Stock Option Plan.
10.15 Form of Stock Option Agreement.
10.16 Cowlitz Bancorporation Employee Stock Purchase Plan.
11.1 Computation of Per Share Earnings.
21.1 List of all Subsidiaries of the Registrant.
23.1 Consent of Foster Pepper & Shefelman PLLC (contained in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney from officers and directors (contained on signature
page).
27 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 3.1
RESTATED
ARTICLES OF INCORPORATION
OF
COWLITZ BANCORPORATION
ARTICLE I
Name
The name of this corporation is Cowlitz Bancorporation (the
"Corporation").
ARTICLE II
Purposes and Powers
The purposes for which the Corporation is organized are to engage in any
lawful business, trade or activity for which a corporation may be organized
under the Act, and the Corporation shall have the same powers as an individual
to do all things necessary or convenient to carry out its business and affairs,
including, but not limited to, the powers specified in the Act or which may be
hereafter granted by such law.
ARTICLE III
Shares
Section 3.1 Authorized Shares. The aggregate number of shares which the
Corporation shall have the authority to issue is as follows:
A. 25,000,000 shares of common stock, no par value ("Common
Stock"); and
B. 5,000,000 shares of preferred stock, no par value ("Preferred
Stock").
Unless the context requires otherwise, the term "share" and
"shareholder" shall include shares and holders of both Common Stock and
Preferred Stock.
Section 3.2 Voting Rights. Each outstanding Common Share shall have one
vote. Holders of Common Shares shall not have the right to cumulate votes in the
election of directors.
<PAGE> 2
Section 3.3 Dividends. The holders of Common Shares shall be entitled to
receive, when and as declared by the Board of Directors, out of any assets of
the Corporation legally available therefor, such dividends as may be declared
from time to time by the Board of Directors. Nothing herein shall be construed
as obligating the Board of Directors at any time to declare any dividend even
though the Corporation may have assets legally available to pay such a dividend.
Section 3.4 Redemption. The Corporation may repurchase its Common Shares
with funds legally available therefor and to the extent permitted by the Act,
subject to any provision to the contrary contained in any Amendment to these
Articles.
Section 3.5 Liquidation. Upon the liquidation, dissolution or winding up
of the Corporation, the net assets of the Corporation after having discharged or
made adequate provision for discharging all of its liabilities, shall be
distributed to the holders of the Common Shares according to their interests.
Section 3.6 Preemptive Rights. No holder of any Common Shares shall be
entitled to any preemptive right to purchase or subscribe for any unissued or
treasury shares of the Corporation.
Section 3.7 Removal of Directors. Subject to the rights of holders of
any series of Preferred Stock then outstanding, any director, or the entire
Board of Directors, may be removed from office only for cause and only by the
affirmative vote of the holders of at least 75% of the shares entitled to vote
on the removal of such member of the Board of Directors. As used herein, "for
cause" means either (i) conviction of a felony by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal, or (ii)
adjudication for gross negligence or dishonest conduct in the performance of a
director's duty to this corporation by a court of competent jurisdiction and
such adjudication is no longer subject to direct appeal. Notwithstanding
anything to the contrary, this Section of the Articles may be altered or
eliminated only by amendment to this Section of the Articles approved by
two-thirds of the votes entitled to be cast by each voting group entitled to
vote on such amendment.
Section 3.8 Special Meetings of Shareholders. The shareholders of this
corporation shall have no right to call a special meeting of the shareholders of
this corporation for any purpose or purposes. Special meetings of shareholders
of this corporation may only be called by a majority of the Board of Directors,
the Chairman of the Board of Directors or the President.
Section 3.9 Quorum at Shareholder Meetings. For all meetings of
shareholders, one-third of the votes entitled to be cast by each voting group
with respect to a matter shall constitute a quorum of that voting group for
action on that matter.
Section 3.10 Preferred Stock. The shares of Preferred Stock may be
divided into and issued in series. The Board of Directors of the corporation
shall have the authority to establish series; to fix and determine the
variations in the relative rights and preferences as between series
<PAGE> 3
and as between holders of the same series; to amend the relative rights and
preferences of any series that is wholly unissued; and to designate the number
of shares of each series and the designation thereof. The Board of Directors of
the corporation may, after the issue of shares of a series, amend the resolution
establishing the series to decrease (but not below the number of shares of such
series then outstanding) the number of shares of that series, and the number of
shares constituting the decrease shall resume the status which they had before
the adoption of the resolution establishing the series.
The rights and preferences which may be established by the Board of
Directors may include, without limitation:
A. The right to vote, or limitations upon the right to vote, and
in the absence of any such provision with respect to a particular series
no shares of that series shall have any right to vote, and no right to
vote as a class, for any purpose except as may be required by law;
B. The right of the corporation to redeem any of such shares at a
price and upon terms fixed by the resolution establishing the series,
including sinking fund provisions, if any;
C. The right to receive dividends including whether any such
dividend is cumulative, noncumulative, or partially cumulative;
D. Preference over any other class or classes of shares, or over
any other series of this or any other class or classes of shares, as to
the payment of dividends;
E. Preference in the assets of the corporation over any other
class or classes of shares, or over any other series of this or any
other class or classes of shares, upon the voluntary or involuntary
liquidation of the corporation;
F. The Right to convert the shares into shares of any other class
or into shares of any series of the same or any other class, except a
class having prior or superior rights and preferences as to dividends or
distribution of assets upon liquidation.
Article X is hereby amended so that it reads in its entirety as follows:
ARTICLE IV
<PAGE> 4
Registered Office and Agent
The name of the registered agent of the Corporation and the address of
its initial registered office are as follows:
James A. Wills
927 Commerce Avenue
Longview, Washington 98632
ARTICLE V
Amendment of Bylaws
The Board of Directors is expressly authorized to make, repeal, alter,
amend or rescind any or all of the Bylaws of the Corporation. The Bylaws of the
Corporation shall not be made, repealed, altered, amended or rescinded by the
Shareholders of the Corporation except by the vote of holders of not less than
two-thirds of all outstanding shares of the Corporation entitled to vote in the
election of directors, considered for purposes of this Article V as one class.
ARTICLE VI
Directors
The Board of Directors shall consist of five directors.
ARTICLE VII
Limitations on Liability of Directors
Section 7.1 Limitations and Exceptions. No director of the Corporation
shall be personally liable to the Corporation or its shareholders for monetary
damages for conduct as a director, except that this provision shall not
eliminate or limit the liability of a director for:
(a) Any act or omission occurring prior to the date of adoption of this
Article;
(b) Any breach of the director's duty of loyalty to the Corporation or
its shareholders;
(c) Acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
<PAGE> 5
(d) Any distribution to shareholders which is unlawful under the Act or
successor statute; or
(e) Any transaction from which the director derived an improper
personal benefit.
Section 7.2 Amendment or Repeal. No amendment to or repeal of this
section shall apply to or have any effect on the liability or alleged liability
of any director of the Corporation for or with respect to any acts or omissions
prior to such amendment or repeal.
Section 7.3 Statutory Amendments. If the Act is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Act, as so amended. Any amendment to or repeal
of the Article or amendment to the Act shall not adversely affect any right or
protection of a director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
ARTICLE VIII
Incorporator
The name and address of the incorporator is as follows;
Larry M. Larson
927 Commerce Avenue
Longview, Washington 98632
Telephone: (360) 423-9800
ARTICLE IX
Transactions With Interested Shareholders
The Corporation elects to be covered by the provisions of the Act
concerning transactions with interested shareholders, as therein defined,
whether or not the Corporation may at any time have fewer than three hundred
holders of record of its shares.
ARTICLE X
Indemnification of Officers and Directors
<PAGE> 6
Section 10.1 Indemnification. The corporation shall indemnify any
individual made a party to a proceeding because that individual is or was a
director of the corporation and shall advance or reimburse the reasonable
expenses incurred by such individual in advance of final disposition of the
proceeding, without regard to the limitations in RCW 23B.08.510 through
23B.08.550 of the Washington Business Corporation Act, or any other limitation
which may hereafter be enacted to the extent such limitation may be disregarded
if authorized by the articles of incorporation, to the full extent and under all
circumstances permitted by applicable law.
The corporation may indemnify any individual made a party to a
proceeding because that individual is or was an officer, employee or agent of
the corporation or a fiduciary with respect to any employee benefit plan of the
corporation or serves or served at the request of the corporation as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
and shall advance or reimburse the reasonable expenses incurred by such
individual in advance of final disposition of the proceeding, without regard to
the limitations in RCW 23B.08.510 through 23B.08.550 of the Washington Business
Corporation Act, or any other limitation which may hereafter be enacted to the
extent such limitation may be disregarded if authorized by the articles of
incorporation, to the full extent and under all circumstances permitted by
applicable law.
Any repeal or modification of this Article by the shareholders of this
corporation shall not adversely affect any right of any individual who is or was
a director of the corporation which existed at the time of such repeal or
modification.
Section 10.2 Advancement of Expenses. Expenses incurred by a person
indemnified hereunder in defending a civil, criminal, administrative or
investigative action, suit or proceeding (including all appeals) or threat
thereof, may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of such person to repay such expenses if it shall ultimately be determined that
the person is not entitled to be indemnified by the Corporation and a written
affirmation of the person's good faith belief that he or she has met the
applicable standard of conduct. The undertaking must be a general personal
obligation of the party receiving the advances but need not be secured and may
be accepted without reference to financial ability to make repayment.
DATED this ___ day of January, 1998.
COWLITZ BANCORPORATION
By: _____________________________________
Benjamin Namatinia
Chairman and Chief Executive Officer
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
COWLITZ BANCORPORATION
ARTICLE I.
Shareholders' Meetings
Section 1.1 Annual Meeting. The annual meeting of the shareholders shall
be held on or before May 15 of every year at the principal office of the
corporation or at such other time or place as may be determined by the board of
directors. At such meeting the shareholders entitled to vote shall elect a board
of directors and transact such other business as may come before the meeting.
Section 1.2 Special Meetings. Special meetings of the shareholders may
be held at any time on request of the president or on request of the board of
directors or on demand in writing by shareholders of record holding not less
than 25 percent of the shares of the corporation entitled to vote; provided,
however, that if the corporation becomes a public company as that term is
defined by the Act, the demand in writing must be by holders of not less than a
simple majority of the shares of the corporation entitled to vote.
Section 1.3 Voting. Each shareholder shall be entitled to one vote, in
person or by proxy, for each share entitled to vote outstanding in such
shareholder's name on the books of the corporation, except as otherwise provided
in the Articles of Incorporation. In order to vote by proxy at any meeting of
the shareholders, the proxy must be received in the office of the
secretary-treasurer of the corporation not less than the close of business on
the second business day before the day specified in the notice of meeting as the
date of the meeting in order to give the corporation sufficient time to validate
the proxies to be voted at the meeting.
Section 1.4 Quorum. Unless otherwise provided in the Articles of
Incorporation, a majority of the shares entitled to vote, represented by
shareholders in person or by proxies, shall constitute a quorum at any meeting
of the shareholders. If a quorum is present, the affirmative vote of the
majority of the shares represented at the meeting and entitled to vote on the
subject matter shall be the act of the shareholders, unless the vote of a
greater number or voting by classes is required by the Act, the Articles of
Incorporation or these Bylaws.
Section 1.5 Notice. Except as provided below, written or printed notice
stating the place, day and hour of the meeting, and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than ten nor more than 60 days before the date of the
meeting, either personally or by mail, by or at the direction of the president,
the secretary-treasurer, or the persons calling the meeting, to each shareholder
of record entitled to vote at such meeting. The notice shall be delivered not
less than 20 days nor more than 60 days before the meeting if the shareholders'
meeting is called to act on an amendment to the articles of incorporation, a
plan of merger or share exchange, a proposed sale of assets other than in the
regular course of business or the dissolution of the corporation. If mailed, the
notice shall be deemed to be delivered when deposited in the United States mail
addressed to the shareholder at the shareholder's address as it appears on the
share transfer books of the corporation, with postage prepaid.
Section 1.6 Record Date. The board of directors shall fix in advance a
record date in order to determine the shareholders entitled to notice of and to
vote at a meeting of shareholders. The record date shall not be more than 70
days before the meeting.
Section 1.7 List of Shareholders for Meeting. After fixing the record
date for a meeting of shareholders, the secretary-treasurer shall prepare an
alphabetical list of the names of all of the shareholders who are entitled to
notice of the meeting. The list shall show the address of and number of shares
held by each shareholder. The shareholders list must be available for inspection
by any shareholder, beginning ten days prior to the meeting and continuing
through the meeting, at the corporation's principal office or at the place
identified
<PAGE> 2
in the meeting notice in the city where the meeting will be held. The
corporation shall make the shareholders list available at the meeting, and any
shareholder or any agent or attorney of a shareholder shall be entitled to
inspect the list at any time during the meeting or any adjournment.
ARTICLE II.
Board of Directors
Section 2.1 Number and Term of Office. The number of directors of the
corporation shall be five. The number of directors of the corporation may be
changed from time to time to not less than five nor more than twenty directors
by a Bylaw or amendment thereof duly adopted by the board of directors or by the
shareholders acting in accordance with Article XI hereof. The terms of the
initial directors shall expire at the first meeting of shareholders at which
directors are elected. The terms of all other directors shall expire at the next
annual meeting of shareholders following their election. Despite the expiration
of a director's term, the director shall continue to serve until the director's
successor is elected and qualified or until there is a decrease in the number of
directors. All nominations of director shall be filed with the secretary-
treasurer of the corporation at least 30 days prior to the date of the annual
meeting of shareholders.
Section 2.2 Vacancies. Any vacancy occurring in the board of directors
may be filled by the affirmative vote of a majority of the remaining directors,
unless otherwise provided in the Articles of Incorporation. A director elected
to fill a vacancy may be elected for the unexpired term of his predecessor in
office, subject to prior death, resignation or removal.
Section 2.3 Annual Meeting. There shall be an annual meeting of the
board of directors which may be held without notice immediately after the
adjournment of the annual meeting of the shareholders or at another time
designated by the board of directors upon notice in the same manner as provided
in Section 2.5. The annual meeting shall be held at the principal office of the
corporation or at such other place as the board of directors may designate.
Section 2.4 Regular Meetings. The board of directors may by resolution
provide for regular meetings. Each director then in office shall be provided
written notice of the scheduled date, hour and place of each regular meeting,
personally delivered or mailed by United States mail, first class postage
prepaid, addressed to each director at the director's address appearing on
records of the corporation, not less than five days prior to the date of the
first regular meeting held after the adoption or modification of the resolution
providing for regular meetings.
Section 2.5 Special Meetings. Special meetings of the board of directors
may be called by the president, the chief executive officer or any three members
of the board of directors. Each director shall be given notice of each special
meeting which shall be actually delivered, orally or in writing, not less than
24 hours prior to the meeting or mailed by deposit in the United States mail,
first class postage prepaid, addressed to the director at the director's address
appearing on the records of the corporation not less than 72 hours prior to the
meeting. Special meetings of the directors may also be held at any time when all
members of the board of directors are present and consent to a special meeting.
Special meetings of the directors shall be held at the principal office of the
corporation or at any other place designated by a majority of the board of
directors.
Section 2.6 Quorum. A majority of the number of directors fixed by these
Bylaws shall constitute a quorum for the transaction of business.
Section 2.7 Voting. The act of the majority of the directors present at
a meeting at which a quorum is present shall be the act of the board of
directors, unless otherwise provided by the Articles of Incorporation or these
Bylaws.
Section 2.8 Powers of Directors. The board of directors shall have sole
responsibility for the management of the business of the corporation. In the
management and control of the property, business and affairs of the corporation,
the board of directors is vested with all of the powers possessed by the
corporation itself, so far as this delegation of power is not inconsistent with
the Act, the Articles of Incorporation, or these Bylaws. The
<PAGE> 3
board of directors shall have power to determine what constitutes net earnings,
profits and surplus; what amount shall be reserved for working capital and for
any other purpose; and what amount shall be declared as dividends; and such
determinations by the board of directors shall be final and conclusive except as
otherwise provided by the Act and the Articles of Incorporation. The board of
directors shall designate one or more officers of the corporation who shall have
the power, to sign all deeds, leases contracts, mortgages, deeds of trust and
other instruments and documents executed by and binding upon the corporation. In
the absence of the designation of any other officer or officers, the chief
executive officer shall be the officer so designated.
Section 2.9 Executive Committee. A majority of the board of directors
may designate from among its members an executive committee of two or more
members. The executive committee shall have such powers and shall perform such
duties as may be delegated and assigned to the executive committee by the board
of directors. The executive committee shall not have the authority of the board
of directors with reference to (1) amending the Articles of Incorporation; (2)
declaring dividends or distributions except at a rate or in periodic amount
determined by the board of directors; (3) approving or recommending to
shareholders actions or proposals required by the Act to be approved by
shareholders; (4) filling vacancies on the board of directors or any committee
thereof; (5) amending the Bylaws; (6) authorizing or approving the reacquisition
of shares unless pursuant to a general formula or method specified by the board
of directors; (7) fixing the compensation of any director for serving on the
board of directors or on any committee; (8) adopting a plan of merger,
consolidation or exchange not requiring shareholder approval; (9) reducing
earned or capital surplus; (10) appointing other committees of the board of
directors or the members thereof; or (11) taking any other action prohibited by
the Act. A majority of the members of the executive committee may fix its rules
of procedure. All actions by the executive committee shall be by a majority of
those then serving on the committee or, if taken without a meeting, by unanimous
written approval. The executive committee shall keep written records of its
activities and proceedings. All action by the executive committee shall be
reported to the board of directors at the next meeting following the action and
the board of directors may ratify or may revise or alter such action, provided
that no rights or acts of third parties shall be affected by any such revision
or alteration. Meetings of the executive committee shall be called, from time to
time, at the direction and upon the request of any member of the committee.
Notice of each meeting, unless waived, shall be given to each member of the
committee and shall be actually delivered, orally or in writing, not less than
24 hours prior to the meeting or mailed by deposit in the United States mail,
first class postage prepaid, addressed to the member at the member's address
appearing on the records of the corporation not less than 72 hours prior to the
meeting. All meetings shall be held at the principal office of the corporation
or, upon consent of all members of the committee, at any other place.
Section 2.10 Other Committees. The chairman of the board of directors or
a majority of the board of directors may designate other committees from among
its members. The committees shall have the powers and duties designated by the
board of directors, except that no committee shall have any power which may not
be granted to an executive committee under the terms of Section 2.10.
Section 2.11 Chairman of the Board. The board of directors may elect one
of its members chairman of the board of directors. The chairman shall advise and
consult with the board of directors and the officers of the corporation as to
the determination of policies of the corporation, shall preside at all meetings
of the board of directors and of the shareholders, and shall perform such other
functions and responsibilities as the board of directors shall designate from
time to time.
Section 2.12 Vice-Chairman of the Board. The board of directors may
elect one of its members vice-chairman of the board of directors. The
vice-chairman shall preside at all meetings in the absence of the chairman and
shall perform such other functions and responsibilities as the board directors
may designate from time to time.
<PAGE> 4
ARTICLE III.
Officers
Section 3.1 Composition. The officers of this corporation shall consist
of a president, one or more vice-presidents, a secretary-treasurer, each of whom
shall be elected by the board of directors at the annual meeting of the board of
directors. Such other officers and assistant officers and agents as may be
deemed necessary may be elected or appointed by the board of directors, and any
vacancies occurring in any office of this corporation may be filled by election
or appointment by the board of directors at any regular meeting or any special
meeting called for that purpose. All officers shall hold their office until the
next annual meeting of the board of directors and until their successors are
elected and qualified, subject to prior death, resignation or removal. Any two
or more offices may be held by the same person, except the offices of president
and secretary-treasurer, except that if all of the issued and outstanding shares
of the corporation is owned of record by one shareholder one person may hold all
or any combination of offices.
Section 3.2 President. At the request of the chairman of the board of
directors or in the absence of the chairman and vice-chairman, the president
shall preside at meetings of the board of directors and of the shareholders. The
president shall sign such documents and instruments of the corporation as may be
required by the Articles of Incorporation, these Bylaws or by the Act, or as may
be requested by the chief executive officer, and shall perform such other duties
as may be prescribed by the board of directors.
Section 3.3 Vice-President. The vice-president shall have all of the
powers and perform all of the duties of the president during the absence or
disability of the president, and shall perform such other duties as may be
prescribed by the board of directors. If there shall be more than one
vice-president, the board of directors may designate the order of seniority in
which the vice-presidents shall act.
Section 3.4 Secretary-Treasurer. The secretary-treasurer shall keep the
minutes and records of all the meetings of the shareholders and directors and
other official business of the corporation. The secretary-treasurer shall give
notice of meetings to the shareholders and directors and shall perform such
other duties as may be prescribed by the board of directors. It shall be the
duty of the secretary-treasurer to receive all moneys and funds of the
corporation and to deposit the same in the name and to the account of the
corporation in the bank or banks designated by the board of directors. The
secretary-treasurer shall keep accurate books of account and shall make reports
of financial transactions of the corporation to the board of directors and shall
perform such other duties as may be prescribed by the board of directors. If the
board of directors elects a vice-president of finance, the financial duties of
the office of secretary-treasurer may rest in that officer.
Section 3.5 Chief Executive Officer. The board of directors shall
designate one of the officers of the corporation or the chairman of the board of
directors to serve as the chief executive officer of the corporation. In the
absence of a designation of any other officer, the president shall also be the
chief executive officer of the corporation. The chief executive officer shall be
responsible for implementing the policies and goals of the corporation as stated
by the board of directors; shall have general supervision over the property,
business and affairs of the corporation; and shall have authority to hire and
fire personnel and take such other actions as are necessary and appropriate to
implement the policies, goals and directions of the board of directors.
Section 3.6 Removal. The directors, at any regular meeting or any
special meeting called for that purpose, may remove any officer or agent from
office whenever in its judgment the best interest of the corporation will be
served thereby, provided, however, that no removal shall impair the contract
rights, if any, of the officer removed or of this corporation or of any other
person or entity. Election or appointment of an officer or agent shall not of
itself create contract rights.
<PAGE> 5
ARTICLE IV.
Shares and Other Securities
Section 4.1 Certificates. All common shares and other securities of this
corporation shall be represented by certificates which shall be signed by the
chairman, vice-chairman, president or a vice-president and the
secretary-treasurer or an assistant secretary of the corporation, and may be
sealed with the seal of the corporation or a facsimile thereof.
Section 4.2 Transfer Agent and Registrar. The board of directors may
from time to time appoint one or more transfer agents and one or more registrars
for the shares and other securities of the corporation. The signatures of the
president or a vice-president and the secretary-treasurer or an assistant
secretary upon a certificate may be facsimiles if the certificate is manually
signed by a transfer agent, or registered by a registrar, and the transfer agent
or registrar is neither the corporation itself nor an employee of the
corporation.
Section 4.3 Transfer. Title to a certificate and to the interest in this
corporation represented by that certificate can be transferred only: (a) by
delivery of the certificate endorsed either in blank or to a specified person or
(b) by delivery of the certificate and a separate document containing a written
assignment of the certificate or a power of attorney to sell, assign or transfer
the same, either in blank or to a specified person, (c) in both cases signed by
the person appearing by the certificate to be the owner of the interest
represented thereby.
Section 4.4 Necessity for Registration. Prior to presentment for
registration upon the transfer books of the corporation of a transfer of shares
or other securities of this corporation, the corporation or its agent for
purposes of registering transfers of its securities may treat the registered
owner of the security as the person exclusively entitled to vote, to receive any
notices, to receive payment of any interest on a security, or of any ordinary,
extraordinary, partial liquidating, final liquidating, or other dividend, or of
any other distribution, whether paid in cash or in securities or in any other
form, or otherwise to exercise or enjoy any or all of the rights and powers of
an owner.
Section 4.5 Closing Transfer Books. For the purpose of determining the
registered owners of shares or other securities entitled to notice of or to vote
at any meeting of the shareholders or any adjournment thereof, or to receive
payment of any interest on a security, or of any ordinary, extraordinary,
partial liquidating, final liquidating, or other dividend, or of any other
distribution, whether paid in cash or in securities or in any other form, or
otherwise to exercise or enjoy any or all of the rights and powers of an owner,
or in order to make a determination of registered owners for any other proper
purpose, the board of directors may provide that the transfer books shall be
closed for a stated period of not more than 60 days. If the transfer books shall
be closed for the purpose of determining the registered owners entitled to
notice of or to vote at a meeting of the shareholders or an adjournment thereof,
such books shall be closed for a stated period of not more than 60 days nor less
than 10 days immediately preceding such meeting.
Section 4.6 Fixing Record Date. In lieu of closing the transfer books,
the board of directors may fix in advance a date as record date for any
determination of registered owners for which the transfer books might have been
closed as provided in Section 4.5.
Section 4.7 Lost Certificates. In case of the loss or destruction of a
certificate of shares or other security of this corporation, a duplicate
certificate may be issued in its place upon such conditions as the board of
directors shall prescribe.
ARTICLE V.
Waiver of Notice
Whenever any notice is required to be given to any shareholder or
director of the corporation by these Bylaws or the Articles of Incorporation, or
by the Act, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent to the required notice. Attendance of a director at any
meeting shall constitute a waiver of any notice required for that meeting,
<PAGE> 6
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE VI.
Action Without Meeting: Meetings by Telephone
Section 6.1 Action Without Meeting. Any action required or permitted to
be taken at a meeting of the shareholders, the directors or a committee of this
corporation, may be taken without a meeting if a consent in writing setting
forth the action so taken shall be signed by all of the shareholders, directors,
or members of the' committee entitled to vote with respect to the action to be
taken. The action shall be effective as of the date on which the last signature
is placed on the consent, or at such earlier time set forth in the consent. The
consent shall have the same force and effect as a unanimous vote of the
shareholders, directors, or committee and may be stated as such in any document.
Section 6.2 Meetings by Telephone. Members of the board of directors,
any committee designated by the board of directors or the shareholders may
participate in a meeting of the board of directors, the committee or the
shareholders by conference telephone or by similar communications equipment by
means of which all of the persons participating in the meeting can hear each
other at the same time. Participation by such means shall constitute presence in
person at the meeting.
ARTICLE VII.
Indemnification and Insurance
Section 7.1 Definitions. As used in this section:
(a) "Director" means any person who is or was a director of
this corporation and any person who, while a director of the
corporation, is or was serving at the request of this corporation as a
director, officer, partner, trustee, employee, or agent of another
foreign or domestic corporation, partnership, joint venture, trust,
other enterprise, or employee benefit plan.
(b) "Corporation" includes any domestic or foreign predecessor
entity of a corporation in a merger, consolidation, or other transaction
in which the predecessor's existence ceased upon consummation of such
transaction.
(c) "Expenses" includes attorneys fees.
(d) "Official capacity" means: (i) When used with respect to a
director, the office of director in the corporation, and (ii) when used
with respect to a person other than a director as contemplated in
section 7.10, the elective or appointive office in the corporation held
by the officer or the employment or agency relationship undertaken by
the employee or agent in behalf of the corporation, but in each case
does not include service for any other foreign or domestic corporation
or any partnership, joint venture, trust, other enterprise, or employee
benefit plan.
(e) "Party" includes a person who was, is, or is threatened to
be, made a named defendant or respondent in a proceeding.
(f) "Proceeding" means any threatened, pending, or completed
action, suit or proceeding whether civil, criminal, administrative, or
investigative.
Section 7.2 Non-Derivative Actions. The corporation shall indemnify any
person made a party to any proceeding (other than a proceeding referred to in
section 7.3) by reason of the fact that he is or was a director against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by him in connection with such proceeding in accordance with this
Article 7 if:
<PAGE> 7
(a) He conducted himself in good faith, and: (i) In the case of
conduct in his own official capacity with the corporation, he reasonably
believed his conduct to be in the corporation's best interests, or (ii)
in all other cases, he reasonably believed his conduct to be at least
not opposed to the corporation's best interests; and
(b) In the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful.
The termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, be determinative that the person did not meet the requisite standard of
conduct set forth in this section.
Section 7.3 Derivative Actions. The corporation shall indemnify any
person made a party to any proceeding by or in the right of the corporation by
reason of the fact that he is or was a director against reasonable expenses
actually incurred by him in connection with such proceeding in accordance with
this Article 7 if he conducted himself in good faith, and:
(a) In the case of conduct in his official capacity with the
corporation, he reasonably believed his conduct to be in its best
interests; or
(b) In all other cases, he reasonably believed his conduct to be
at least not opposed to its best interests; provided, that no
indemnification shall be made pursuant to this section in respect of any
proceeding in which such person shall have been adjudged to be liable to
the corporation.
Section 7.4 Improper Personal Benefit. A director shall not be
indemnified under sections 7.2 or 7.3 of this Article in respect of any
proceeding charging improper personal benefit to him, whether or not involving
action in his official capacity, in which he shall have been adjudged to be
liable on the basis that personal benefit was improperly received by him.
Section 7.5 Successful Defense, Court Order. Unless otherwise limited by
the Articles of Incorporation:
(a) A director who has been wholly successful, on the merits or
otherwise, in the defense of any proceeding referred to in sections 7.2
or 7.3 shall be indemnified against reasonable expenses incurred by him
in connection with the proceeding; and
(b) A court of appropriate jurisdiction, upon application of a
director and such notice as the court shall require shall have authority
to order indemnification in the following circumstances:
(1) If the court determines a director is entitled to
reimbursement under (a) of this subsection, the court shall order
indemnification in which case the director shall be entitled to
recover the expenses of securing such reimbursement; or
(2) If the court determines that the director is fairly and
reasonably entitled to indemnification in view of all the
relevant circumstances, whether or not he has met the standards
of conduct set forth in sections 7.2 or 7.3 or has been adjudged
liable under section 7.4, the court may order such
indemnification as the court shall deem proper, except that
indemnification with respect to any proceeding referred to in
section 7.3 and with respect to any proceeding in which liability
shall have been adjudged pursuant to section 7.4 shall be limited
to expenses.
A court of appropriate jurisdiction may be the same court in which the
proceeding involving the director's liability took place.
<PAGE> 8
Section 7.6 Determination of Right to Indemnification. No
indemnification under section 7.2 or 7.3 shall be made by the corporation unless
authorized in the specific case after a determination that indemnification of
the director is permissible in the circumstances because he has met the standard
of conduct set forth in the applicable subsection. Such determination shall be
made:
(a) By the board of directors by a majority vote of a quorum
consisting of directors not at the time parties to such proceeding; or
(b) If such a quorum cannot be obtained, then by a majority vote
of a committee of the board, duly designated to act in the matter by a
majority vote of the full board (in which designation directors who are
parties may participate), consisting solely of two or more directors not
at the time parties to such proceeding; or
(c) In a written opinion by legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been
retained by or who has performed services within the past three years
for the corporation or any party to be indemnified, selected by the
board of directors or a committee thereof by vote as set forth in
subsections (a) or (b) of this section 7.6, or if the requisite quorum
of the full board cannot be obtained therefor and such committee cannot
be established, by a majority vote of the full board (in which selection
directors who are parties may participate); or
(d) By the shareholders.
Authorization of indemnification and determination as to reasonableness
of expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination that
indemnification is permissible is made by such legal counsel, authorization of
indemnification and determination as to reasonableness of expenses shall be made
in the manner specified in subsection (c) of this section 7.6 for the selection
of such counsel. Shares held by directors who are parties to the proceeding
shall not be voted on the subject matter under this section.
Section 7.7 Reimbursement in Advance. Reasonable expenses incurred by a
director who is party to a proceeding shall be paid or reimbursed by the
corporation in advance of the final disposition of such proceeding:
(a) After a determination, made in the manner specified by
section 7.6 that the information then known to those making the
determination (without undertaking further investigation for purposes
thereof) does not establish that indemnification would not be
permissible under sections 7.2 or 73; and
(b) Upon receipt by the corporation of:
(1) A written affirmation by the director of his good
faith belief that he has met the standard of conduct necessary
for indemnification by the corporation as authorized in this
section; and
(2) A written undertaking by or on behalf of the director
to repay such amount if it shall ultimately be determined that he
has not met such standard of conduct.
The undertaking required by subsection (b)(2) of this section 7.7 shall
be an unlimited general obligation of the director but need not be secured and
may be accepted without reference to financial ability to make the repayment.
Payments under this section may be authorized in the manner specified in section
7.6.
Section 7.8 No Conflict with Law or Articles. No provision for the
corporation to indemnify a director who is made a party to a proceeding, whether
contained in the Articles of Incorporation, the Bylaws, a resolution of
shareholders or directors, an agreement, or otherwise (except as contemplated by
section 7.11), shall be valid unless consistent with the Act, or, to the extent
that indemnity hereunder is limited by the Articles of
<PAGE> 9
Incorporation, consistent therewith. Nothing contained in this section shall
limit the corporation's ability to reimburse expenses incurred by a director in
connection with his appearance as a witness in a proceeding at a time when he
has not been made a named defendant or respondent in the proceeding.
Section 7.9 Employee Benefit Plans. For purposes of this section, the
corporation shall be deemed to have requested a director to serve an employee
benefit plan where the performance by him of his duties to the corporation also
imposes duties on, or otherwise involves services by, him to the plan or
participants or beneficiaries of the plan; excise taxes assessed on a director
with respect to an employee benefit plan pursuant to applicable law shall be
deemed "fines"; and action taken or omitted by him with respect to an employee
benefit plan in the performance of his duties for a purpose reasonably believed
by him to be in the interest of the participants and beneficiaries of the plan
shall be deemed to be for a purpose which is not opposed to the best interests
of the corporation.
Section 7.10 Indemnification of Officers, Employees and Agents. Unless
otherwise limited by the Articles of Incorporation:
(a) An officer of the corporation shall be indemnified as and
to the extent provided in section 7.5 for a director and shall be
entitled to seek indemnification pursuant to section 7.5 to the same
extent as a director;
(b) The corporation may provide indemnification including
advances of expenses, to an officer, employee, or agent of the
corporation to the same extent that it may indemnify directors pursuant
to this Article except that section 7.12 shall not apply to any person
other than a director; and
(c) The corporation, in addition, shall have the power to
indemnify an officer who is not a director, as well as employees and
agents of the corporation who are not directors, to such further extent,
not inconsistent with law, the corporation's Articles of Incorporation,
nor these Bylaws, by contract or resolution approved by the board of
directors.
Section 7.11 Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is, or was a director, officer, employee,
or agent of the corporation or is or was serving at the request of the
corporation as an officer, employee or agent of another corporation,
partnership, joint venture, trust, other enterprise, or employee benefit plan
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the corporation
may indemnify him against such liability under the provisions of this Article.
Section 7.12 Report Regarding Indemnification of Director. Any
indemnification of a director in accordance with this Article, including any
payment or reimbursement of expenses, shall be reported to the shareholders with
the notice of the next shareholders' meeting or prior thereto in a written
report containing a brief description of the proceedings involving the director
being indemnified and the nature and extent of such indemnification.
ARTICLE VIII.
Corporate Seal
The seal of the corporation shall be circular in form and shall have
inscribed thereon the name of the corporation and the words "Washington" and
"Corporate Seal".
ARTICLE IX.
Amendments
Unless otherwise provided in the Articles of Incorporation, the Bylaws
of this corporation may be altered, amended or repealed by the directors,
subject to repeal or change by action of the shareholders, at any regular
<PAGE> 10
meeting or at any special meeting called for that purpose, provided notice of
the proposed change is given in the notice of the meeting or notice thereof is
waived in writing.
ARTICLE X.
Severability
If any provision of these Bylaws shall be found, in any action, suit or
proceeding, to be invalid or ineffective, the validity and the effect of the
remaining provisions shall not be affected.
<PAGE> 1
EXHIBIT 5.1
January 14, 1998
Board of Directors
Cowlitz Bancorporation
927 Commerce Avenue
Longview, Washington 98632
Gentlemen:
We have acted as counsel for Cowlitz Bancorporation (the "Company"), a
Washington corporation, in connection with the (i) authorization and issuance of
1,000,000 shares of common stock of the Company, no par value per share (the
"Issuer Shares"), (ii) the possible sale of an additional 133,000 shares of
common stock of the Company pursuant to an over-allotment option granted to the
underwriters (the "Option Shares"), (iii) the possible sale of 17,000 shares of
common stock of the Company by existing shareholders pursuant to an
over-allotment option granted to the underwriters ("the Selling Shareholder
Shares") and (iv) the preparation of a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act of 1933, as amended. We have
examined the Registration Statement, the records of the Company and such other
documents as we deem necessary for the purpose of this opinion.
Based on the foregoing, we are of the opinion that:
1. Upon effectiveness of the Registration Statement, due execution by
the Company and the registration by the Company's registrar of the Issuer Shares
and the Option Shares and the receipt by the Company of the consideration from
the sale of the Issuer Shares and the Option Shares as contemplated by the
Registration Statement, each of the Issuer Shares and the Option Shares will be
duly authorized, validly issued, fully paid and non-assessable.
2. The Selling Stockholder Shares are validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Prospectus
included in the Registration Statement under the caption "Legal Matters."
Very truly yours,
FOSTER PEPPER & SHEFELMAN PLLC
<PAGE> 1
EXHIBIT 10.1
FEDERAL HOME LOAN BANK OF SEATTLE
SEATTLE WASHINGTON
ADVANCES, SECURITY AND DEPOSIT AGREEMENT
March 29, 1991
This Advances, Security and Deposit Agreement ("Agreement") is made as
of the above date and is between the Federal Home Loan Bank of Seattle,
including its successors ("Bank"), and Cowlitz Bank, including its
successors("Member"). Except as to Members which have not signed prior
Agreements, it renews, amends and restates prior contracts between the parties
or their predecessors entitled "Advances Agreement, Pledge Agreement and
Security Agreement" and "Deposit Account Resolution."
RECITALS
A. The Bank is authorized by the Federal Home Loan Bank Act, as
amended, and related regulations and directives ("Act"), and by the Bank's own
policies, to make loans to the Member ("Advances"). The Bank is also
authorized to provide demand and time deposit accounts to the Member
("Accounts") and to perform additional services, all of which may create
obligations from the Member to the Bank ("Other Obligations"). Other
Obligations may include, without limitations, debts by reason of interest rate
swap agreements, letters of credit, overdrafts, NOW accounts, settlements, and
wire transfers.
B. This Agreement, and related policies which are, from time to
time, sent by the Bank to its Members, specifies the terms and conditions under
which the Bank may make Advances available to the Member; open and use
Accounts; and collateralize such Advances and other Obligations.
AGREEMENTS
1. Prior to or at the time of the execution and delivery of this
Agreement, the Member has provided the Bank with a certified copy of a
resolution adopted by the Member's Board of Directors or other governing body
("Resolution") approving this Agreement and authorizing designated officers or
employees of the Member to obtain Advances, open and use Accounts, and incur
Other Obligations. The Bank may rely upon, and the Member is estopped from
denying, the authority of the persons designated in the Resolution.
2. The Member may request Advances from the Bank by applying to
the Bank in such form as it shall require.
3. Each Advance shall be evidenced by a promissory note ("Note")
or by another confirming document as required by the Bank. The applicable
terms and conditions of this Agreement are
-1-
<PAGE> 2
incorporated therein as well as in other agreements, if any, that relate to
Other Obligations.
4. On the first day of each month or at such other times that
payments of principal and/or interest are due, the Member agrees to pay, or to
authorize a charge to the Member's Account for the principal and/or interest
that is due on each outstanding Advance, Note or Other Obligation. Interest
shall be charged at the rate set forth in the Note or other instrument
evidencing the Indebtedness. Delinquent principal and/or interest may bear
interest, at the option of the Bank, equal to the Bank's then-current Flexible
Balance advance rate.
5. As collateral ("Security") for the payment of all Advances,
Notes or Other Obligations (collectively, "Indebtedness") of the Member to the
Bank, the Member hereby assigns, pledges and grants security interests to the
Bank ("Security Interests") in the following: (a) its stock in the Bank; (b)
its funds on deposit with the Bank; (c) its notes or other instruments
representing obligations of third parties, including the proceeds thereof, and
any related mortgages or deeds of trust ("Mortgages") securing any of them
and/or any securities representing an interest in such Mortgages; (d)
securities issued, insured or guaranteed by the United States government or by
any agency thereof, (e) other real estate-related collateral; and (f) its
instruments, accounts, general intangibles, inventory, equipment and other
property in which a security interest can be granted by the Member to the Bank.
Upon the withdrawal from membership in the Bank, and as the final part of the
plan of liquidation of the Member's Indebtedness to the Bank, the stock of such
Member may be redeemed and credited upon the Indebtedness of the Member, in
whole or in part, for an amount equal to the par value of the stock which would
otherwise be paid to the Member by the Bank.
6. The Member agrees that it holds the Security for the benefit
of, and subject to the direction and control of, the Bank; including, without
limitation, the following: (a) Security and Security Interests shall include
and extend to after-acquired Security; (b) the Member may use, commingle or
dispose of all or part of the Security or proceeds thereof if, at all times it
owns and maintains Security of the types and kinds specified by the Act and as
required to meet the requirements thereof, free and clear of pledges, liens or
other encumbrances of third parties, in such amount of the outstanding
Indebtedness as may be specified by the Bank from time to time; (c) at its
expense and as soon as possible upon demand by the Bank, the Member will
assemble, segregate and/or deliver such portions of the Security as are
directed by the Bank at or to a location designated by it; will allow the Bank
to participate in such assembly, segregation or delivery and to verify or audit
such Security, including, without limitation, access to the Member's premises
and records for such purposes, and will protect and promptly disclose to the
Bank any material change in value of the Security so assembled, segregated or
delivered; (d) the Member promptly will make, execute and deliver to the Bank
such
-2-
<PAGE> 3
assignments, listings, powers or other documents as the Bank may reasonably
request concerning the Security; (e) at its expense, the Member promptly will
provide to the Bank such reports, audits and confirmations regarding the
Security as the Bank may reasonably request; and (f) the Member shall pay to
the Bank any reasonable fees associated with the processing, control, and
maintenance of such Security.
7. Upon the occurrence or any one or more of the following events
("Default"), the Bank may, without notice, declare and thereby cause all
Indebtedness of the Member to be due and payable immediately: (a) failure of
the Member to make any payment due on any Indebtedness, or breach of or
failure, to perform any other duty as provided herein or in any other agreement
to which the Member and the Bank are parties; (b) any taking over of the Member
or any of its assets by a supervising agency, or an application for or the
appointment of a conservator, receiver, trustee or liquidator for it or any of
its assets; (c) an adjudication of the Member's bankruptcy or insolvency; (d)
an assignment by the Member for the benefit of creditors, a general transfer of
its assets for any purpose or any other form of liquidation, merger, sale of
assets or dissolution of or by the Member; (e) existence of facts indicating a
representation, statement or warranty made or furnished to the Bank by or on
behalf of the Member in connection with all or part of any Indebtedness or
other transaction was or is false in any material respect; (f) damage, loss,
sale or encumbrance of any of the Security except as permitted by this
Agreement; (g) any levy, seizure, garnishment (as the debtor), execution,
attachment or other process issued against the Member; (h) any event which
results in acceleration of the maturity of any debt of the Member to others;
(i) good faith determination by the Bank that the Member's ability to repay any
Indebtedness has become impaired or that a material adverse change has occurred
in the financial condition of the Member from that disclosed to the Bank at the
time of creation of any Indebtedness or subsequently; (j) any increase in the
creditor liabilities of the Member, other than its liabilities to the Bank, to
an amount exceeding five percent (5%) of the Member's net assets; (k)
termination of the Member's membership in the Bank; or (l) good faith
determination by the Bank that there is a reasonable possibility that the
Indebtedness would not be paid in full from the proceeds of a liquidation of
the Security if the Bank did not declare a Default.
8. At any time after Default, the Member may not substitute
Security without permission of the Bank,and the Bank shall have all of the
rights and remedies of a secured party under the Act, the Uniform Commercial
Code of the State of Washington and/or as otherwise provided by law, by this
Agreement or by any other agreement between the parties ("Default Rights")
including, without limitation, the Bank's right to take immediate possession of
any or all Security wherever located and to dispose of the Security in
accordance with applicable law. If any notice of disposition of Security is
required by law, such notification shall be deemed reasonable, and properly
given if mailed, postage prepaid, at least
-3-
<PAGE> 4
five calendar days before such disposition to the last address of the Member
then appearing on the records of the Bank. The proceeds of any disposition of
Security shall be applied in the following order to payment of: (a) all
reasonable expenses incurred by or on behalf of the Bank for the collection,
care, safekeeping, sale, foreclosure, delivery or other disposition of Security
including, without limitation, insurance, commissions, guarantees, security
valuation fees, expenses, costs and reasonable attorneys' fees incurred in
connection therewith; (b) interest on all Indebtedness, whether due or accrued;
(c) the principal amount of all Indebtedness; (d) any secondarily secured debt
of the Member to any third party who proves its subordinate security interest
in the Security to the reasonable satisfaction of the Bank; and (e) any
remainder to the Member. If there is a deficiency, the Member shall be liable
to the Bank therefor. No delay by the Bank in the exercise of its Default
Rights shall operate as a waiver, and a waiver of any specific Default Right
shall not constitute a waiver of any other Default Right not specifically
waived. The Member hereby irrevocably appoints the Bank and/or its designee as
its true and lawful attorney in fact to deal in any manner with the Security in
the event of a Default.
9. The Member may open Accounts with the Bank subject to the
Regulations of the Bank. Any Member's funds deposited in Accounts shall be
subject to withdrawal or charge at any time and from time to time upon checks,
wire transfers, or any other orders for the payment of money when made and
drawn on behalf of the Member by a person or persons authorized by the Member
on a signature card or cards. The Bank is authorized to pay any such checks,
wire transfers, or other orders, provided they are in the form prescribed by
it, and to charge the Member's Accounts therefor, without inquiry as to the
circumstances of issue or the disposition of the proceeds, even if drawn to the
individual order of an authorized person or payable to others for his account.
10. The Bank, if it acts in good faith and with ordinary care (and
without liability if it does so act), can charge the Accounts with orders
received by the Bank from any person acting for or purporting to act for the
Member by telephone, or otherwise orally, for the transfer of funds to others,
including the person giving such instructions, or payable to others for his
account, or between Accounts of the Member. All authorized Bank charges and
fees will be charged monthly to such Accounts.
11. Unless otherwise provided, all checks, drafts, money orders or
other negotiable items or withdrawal clearing through the Accounts shall be
truncated. Original items will be retained by the Bank or its designee for a
period of ninety (90) days. At any time, the Member may request a photostatic
copy of any item processed within the past seven years, and the Bank or its
designee will furnish such copy as soon thereafter as is reasonably possible.
-4-
<PAGE> 5
12. The Member shall maintain a net positive collected balance in all
of its Accounts. The Bank shall have the option of closing or restricting the
use of Accounts in which positive balances are not maintained. For each day
the aggregate collected balance of an Account is negative, the Member shall pay
such charges as are consistent with the Bank's published schedules.
13. The Member agrees to provide to the Bank, within five days after
a request, its business plans and other financial data. In connection with,
and as an extension of, any other informational rights of the Bank relating to
examination of the Member by a supervising agency and reports relating thereto,
the Member agrees that all Security shall always be subject to audit and
verification, at the Member's expense, by or on behalf of the Bank and that the
Bank shall have access to the Member's premises and records for that purpose.
14. If the services of an attorney, either with or without suit, are
engaged by the Bank in connection with any Default or any dispute relating to
this Agreement, the Member agrees to pay the Bank's reasonable attorneys' fees,
expenses and costs incurred in connection therewith.
15. This Agreement shall be construed and enforced according to the
laws of the State of Washington and the Act. If any provision hereof is
inconsistent with the Act, this Agreement shall be deemed amended to the end
that such provision is not in conflict with the Act. In the event any such
provision cannot be so amended and is found to be contrary to law, the balance
of this Agreement shall remain in full force and effect if so elected by the
Bank.
16. This Agreement shall continue until terminated by written notice
from one party to the other, provided that this Agreement shall remain
applicable to all then outstanding Indebtedness and duties of the Member and to
the documents relating thereto.
Cowlitz Bank
- --------------------------------------
(Name of Member)
By Charles W. Jarrett President and Chief Executive Officer
------------------------------------------------------------
(Name) (Title)
/s/
----------------------------------
(Signature)
Its Chief Executive Officer Date: March 29, 1991
------------------------------------ --------------
(Title)
and
By Donna Gardner Cashier and Operations Manager
----------------------- -------------------------------
(Name) (Title)
-5-
<PAGE> 6
/s/
---------------------------------
(Signature)
Its Cashier and Operations Date: March 29, 1991
Manager --------------
---------------------------------
(Title)
FEDERAL HOME LOAN BANK OF SEATTLE
By
--------------------------------------
(Name) (Title)
- ----------------------------------------
(Signature)
Its Date: , 199
---------------------------------- ------------- --
(Title)
-6-
<PAGE> 1
EXHIBIT 10.2
FEDERAL HOME LOAN BANK OF SEATTLE
Seattle, Washington 98101
PROMISSORY NOTE NO. 74049
Fixed Rate Advance / Special Financing Program *
For purposes of this promissory note the:
Issue Date shall be: August 6, 1996
Maturity Date shall be: August 6, 1998
Principal sum shall be: THREE MILLION and NO/100 DOLLARS
($3,000,000.00)
Interest Rate shall be: SIX AND FOURTEEN HUNDREDTHS PER CENTUM PER ANNUN
(6.14000%) calculated on the actual number of days in
the year
For value received, on Maturity Date, the undersigned maker ("Customer")
promises to pay to the order of the FEDERAL HOME LOAN BANK OF SEATTLE ("Bank")
the Principal Sum, with interest from Issue Date on the unpaid principal as
follows: Interest Rate, payable at the Bank's office on the first day of each
month that is a business day for the Bank. The final interest payment is
payable on the last day this note is outstanding.
This Note is governed by and is subject to the agreements, terms and conditions
contained in an instrument entitled "Advances, Security and Deposit Agreement"
between the Customer and the Bank, the provisions of which are incorporated
herein by reference. Advances are to be used for sound business purposes.
Non-qualified thrift Lenders use funds for activities which support housing
related purposes. Any Savings Association which does not meet qualified thrift
Lender requirements is to notify the Bank of its ineligibility.
This Note may be prepaid in whole or in part. The Bank will charge a
prepayment fee equal to the present value, at the time of such prepayment
("Prepayment Date"), of the difference between (a) the interest that would have
been payable on the amount prepaid at the rate provided herein from the
Prepayment Date to the maturity date of this Note ("Maturity Date") and (b) the
interest that would be chargeable on an advance equal to the amount prepaid at
a rate ("CO Rate") quoted by the Bank on the Prepayment Date for Federal Home
Loan Bank Consolidated Obligations with similar remaining terms to maturity.
In the event that the Maturity Date is not the same as the term of any
consolidated obligation then offered by the Bank, the rate present value shall
be computed using such CO Rate as the discount rate, compounded monthly.
*Note: "CO Rate" quoted by the Bank for Special Financing Program will be
based on specific costs related to the special financing and will typically be
lower than Federal Home Loan Bank Consolidated Obligations with similar
remaining terms to maturity.
IN WITNESS WHEREOF, the Customer, by authority of its Board of Directors or
other governing body, confirms its application for the Advance evidenced hereby
and has caused this Note to be executed and delivered by its duly designated
and authorized Officers.
Cowlitz Bank, Longview, WA 09014
(Customer)
<TABLE>
<S> <C>
By: /s/ Donna P. Gardner , its Senior Vice President and Chief Financial Officer
---------------------------- -------------------------------------------------
(Signature) (Title)
Donna P. Gardner
-----------------------------
(Typed name)
Attest: /s/ Charles W. Jarrett , its President and Chief Executive Officer
------------------------ -------------------------------------------------
(Signature) (Title)
Charles W. Jarrett
------------------------
(Typed name)
</TABLE>
<PAGE> 1
EXHIBIT 10.3
FEDERAL HOME LOAN BANK OF SEATTLE
Seattle, Washington 98101
PROMISSORY NOTE NO. 75494
Cash Management Advance
For purposes of this promissory note the:
Issue Date shall be: May 7, 1987
Maturity Date shall be: May 7, 1998
Maximum Borrowing Amount shall be: FIFTEEN MILLION NINE HUNDRED FIFTEEN
THOUSAND ONE HUNDRED and NO/100
DOLLARS ($15,915,100.00)
Index shall be: Cash Management Advance Rate, as quoted by the Bank
Interest Rate shall be: Index calculated on an actual/360 basis
For value received, on each business day, the undersigned maker ("Customer")
hereby promises to pay to the order of the FEDERAL HOME LOAN BANK OF SEATTLE
("Bank") the Principal Sum of the Maximum Borrowing Amount or, if less, the
aggregate unpaid principal and interest amount of all Advances made by the Bank
pursuant to the Cash Management Agreement Letter outstanding on the Maturity
Date. The Maturity Date of the Note shall mean the earlier of the Maturity Date
or the date on which the Bank demands in writing that the Customer pay the
unpaid principal amount hereof. The Customer acknowledges that such demand may
be made whether or not a Default has occurred.
The Customer also promises to pay interest on the daily unpaid principal amount
of each Advance from the date of each Advance until payment in full, payable at
the Bank's office on the first day of each month that is a business day for the
Bank, at a rate per annum equal to the "Cash Management Advance Rate" quoted by
the Bank from time to time. Each change in interest rate will take effect
simultaneously with the corresponding change in the Cash Management Advance
Rate. Upon occurrence of a Default, interest and principal on each Advance shall
be payable as provided in the Advances, Security, and Deposit Agreement.
All Advances made by the Bank to the Customer pursuant to the Cash Management
Agreement Letter and all payments on account of principal thereof shall be
recorded by the Bank with reference to this Promissory Note number.
This Promissory Note is the Note referred to in, and is entitled to the benefits
of the Cash Management Agreement Letter as the same may be amended, modified or
supplemented from time to time, between the Bank and the Customer. This
Promissory Note is also governed by and is subject to the agreements, terms and
conditions contained in an instrument entitled "Advances, Security, and Deposit
Agreement" between the Customer and the Bank, the provisions of which are
incorporated herein by reference. Capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Cash Management Agreement Letter
and the Advances, Security and Deposit Agreement. Advances are to be used for
sound business purposes. Non-qualified thrift lenders use funds for activities
which support housing related purposes. Any Savings Association which does not
meet qualified thrift lender requirements is to notify the Bank of its
ineligibility.
The Customer may repay the principal amount hereof, in whole or in part without
prior day's notice to the Bank or additional fee.
IN WITNESS WHEREOF, the Customer, by authority of its Board of Directors or
other governing body, confirms its application for the Advance evidenced hereby
and has caused this Note to be executed and delivered by its duly designated and
authorized Officers.
Cowlitz Bank, Longview, WA 09014
(Customer)
By: /s/ Donna P. Garder , its Sr. Vice President & Chief Financial Officer
-------------------------- --------------------------------------------
(Signature) (Title)
Donna P. Gardner
--------------------------
(Typed Name)
By: /s/ Charles W. Jarrett , its President & Cheife Executive Officer
--------------------------- --------------------------------------------
(Signature) (Title)
Charles W. Jarrett
---------------------------
(Typed Name)
<PAGE> 1
EXHIBIT 10.4
PROMISSORY NOTE
<TABLE>
<CAPTION>
==============================================================================================================================
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000.00 01-15-1992 01-16-1999 9001 2A2 STK 4009577 40DXT
==============================================================================================================================
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
==============================================================================================================================
</TABLE>
Borrower: COWLITZ BANKCORPORATION LENDER: KEY BANK OF WASHINGTON
927 COMMERCIAL AVENUE CORPORATE BANKING
LONGVIEW, WA 98632 700 FIFTH AVENUE
P.O. BOX 90
SEATTLE, WA 98111-0090
- --------------------------------------------------------------------------------
Principal Amount: $1,000,000.00 Date of Note: January 15, 1992
PROMISE TO PAY. COWLITZ BANCORPORATION ("Borrower") promises to pay to KEY BANK
OF WASHINGTON ("Lender"), or order, in lawful money of the United States of
America, the principal amount of One Million & 00/100 Dollars ($1,000,000.00),
together with interest on the unpaid principal balance from January 16, 1992,
until paid in full. The interest rate will not increase above 14.000%.
PAYMENT. Subject to any payment changes resulting from changes in the Index,
Borrower will pay this loan in accordance with the following payment
schedule:
28 consecutive quarterly interest payments, beginning April 16, 1992,
with interest calculated on the unpaid principal balances at an
interest rate of 1.000 percentage points over the index described
below; 1 principal payment of $115,000.00 on January 16, 1993, with
interest calculated on the unpaid principal balances at an interest
rate of 1.000 percentage points over the index described below; 1
principal payment of $124,775.00 on January 16, 1994, with interest
calculated on the unpaid principal balances at an interest rate of
1.000 percentage points over the Index described below; 1 principal
payment of $135,380.88 on January 16, 1995, with interest calculated on
the unpaid principal balances at an interest rate of 1.000 percentage
points over the index described below; 1 principal payment of
$146,888.25 on January 16, 1996, with interest calculated on the unpaid
principal balances at an interest rate of 1.000 percentage points over
the index described below; 1 principal payment of $159,373.75 on
January 16, 1997, with interest calculated on the unpaid principal
balances at an interest rate of 1.000 percentage points over the index
described below; 1 principal payment of $172,920.52 on January 16,
1998, with interest calculated on the unpaid principal balances at an
interest rate of 1.000 percentage points over the index described
below; and 1 principal payment of $145,661.60 on January 16, 1999, with
interest calculated on the unpaid principal balances at an interest
rate of 1.000 percentage points over the index described below. This
estimated final payment is based on the assumption that all payments
will be made exactly as scheduled and that the index does not change;
the actual final payment will be for all principal and accrued interest
not yet paid, together with any other unpaid amounts under this Note.
Interest on this Note is computed on a 365/360 simple interest basis; that is,
by applying the ratio of the annual interest rate over a year of 360 days, times
the outstanding principal balance, times the actual number of days the principal
balance is outstanding. Borrower will pay Lender at Lender's address shown above
or at such other place as Lender may designate in writing. Unless otherwise
agreed or required by applicable law, payments will be applied first to accrued
unpaid interest, then to principal, and any remaining amount to any unpaid
collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the Lender's announced prime
rate (the "Index"). The interest rate will change on the date of each announced
change of the Index within Key Bank of Washington. The Index is not necessarily
the lowest rate charged by Lender on its loans and is set by Lender in its sole
discretion. If the Index becomes unavailable during the term of this loan, the
Lender may designate a substitute index after notifying Borrower. Lender will
tell Borrower the current Index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each day that the Index
changes. The Index currently is 6.500% per annum. The interest rate or rates to
be applied to the unpaid principal balance of this Note will be the rate or
rates set forth in the "Payment" section. Notwithstanding any other provision of
this Note, after the first payment stream, the interest rate for each subsequent
payment stream will be effective as of the last payment date of the just-ending
payment stream. Notwithstanding the foregoing, the variable interest rate or
rates provided for in this Note will be subject to the following minimum and
maximum rates. NOTICE: Under no circumstances will the interest rate on this
Note be less than 8.500% per annum or more than (except for any higher default
rate shown below) the lesser of 14.000% per annum or the maximum rate allowed by
applicable law. Whenever increases occur in the interest rate, Lender, at its
option, may do one or more of the following: (a) increase Borrower's payments to
ensure Borrower's loan will pay off by its original final maturity date, (b)
increase Borrower's payments to cover accruing interest, (c) increase the number
of Borrower's payments, and (d) increase the final payment.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even upon
full prepayment of this Note, Borrower understands that Lender is entitled to a
minimum interest charge of $50.00. Other than Borrower's obligation to pay any
minimum interest charge, Borrower may pay without penalty all or a portion of
the amount owed earlier than it is due. Early payments will not, unless agreed
to by Lender in writing, relieve Borrower of Borrower's obligation to continue
to make payments under the payment schedule. Rather, they will reduce the
principal balance due and may result in Borrower's making fewer payments.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $10.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this Note or any agreement related to
this Note, or in any other agreement or loan Borrower has with Lender. (c) Any
representation or statement made or furnished lo Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect. (d) Borrower
becomes insolvent, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (e) Any creditor tries to take any of Borrower's property on or
in which Lender has a lien or security interest. This includes a garnishment of
any of Borrower's accounts with Lender. (f) Any of the events described in this
default section occurs with respect to any guarantor of this Note.
<PAGE> 2
01-15-1992 PROMISSORY NOTE Page 2
Loan No 9001 (Continued)
- --------------------------------------------------------------------------------
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note by 5.000
percentage points. The interest rate will not exceed the maximum rate permitted
by applicable law. Lender may hire or pay someone else to help collect this Note
if Borrower does not pay. Borrower also will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender's attorneys' fees
and legal expenses whether or not there is a lawsuit, including attorneys' fees
and legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. If not prohibited by applicable law, Borrower
also will pay any court costs, in addition to all other sums provided by law.
This Note has been delivered to Lender and accepted by Lender in the State of
Washington. If there is a lawsuit, Borrower agrees upon Lender's request to
submit to the jurisdiction of the courts of KING County, the State of
Washington. This Note shall be governed by and construed in accordance with the
laws of the State of Washington.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $10.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts. Borrower authorizes Lender, to the extent permitted by applicable law,
to charge or setoff all sums owing on this Note against any and all such
accounts.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew, extend (repeatedly and for any length of time) or modify this loan,
or release any party or guarantor or collateral; or impair, fail to realize upon
or perfect Lender's security interest in the collateral; and take any other
action deemed necessary by Lender without the consent of or notice to anyone.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
COWLITZ BANCORPORATION
By: /s/ Charles W. Jarrett By: /s/ James A. Wills
----------------------------------- ------------------------------
CHARLES W. JARRETT, PRESIDENT & CEO JAMES A. WILLS, VICE PRESIDENT
<PAGE> 1
EXHIBIT 10.5
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY
BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE
PERIOD OF TIME.
COWLITZ BANCORPORATION
8-1/2% SUBORDINATED PROMISSORY NOTE
DUE FEBRUARY 15, 2000
$_________________________ Longview, Washington
COWLITZ BANCORPORATION, a Washington corporation, having its principal
office at 927 Commerce Avenue, Longview, Washington 98632 (the "Company"), for
value received, promises to pay to the order of
________________________________________________________________ or his, her,
or their assigns (the "Holder"), on or before February 15, 2000, unless
redeemed earlier or accelerated after an Event of Default (as defined in
Section 4 hereof), in accordance with the provisions hereof, at such place as
the Holder may from time to time designate, the principal sum of
________________ THOUSAND DOLLARS ($_______________), in such coin or currency
of the United States of America as at the time of payment shall be legal tender
for public and private debts, and to pay from and after the date hereof interest
on the unpaid balance of the principal amount, in such coin or currency, at the
rate of eight and one-half percent (8-1/2%) per annum.
THIS NOTE DOES NOT CONSTITUTE OR REPRESENT A DEPOSIT OR A SAVINGS
ACCOUNT WITH THE COMPANY OR ITS BANK SUBSIDIARY "THE COWLITZ BANK," AND IS NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER FEDERAL OR
STATE AGENCY. THIS NOTE IS UNSECURED.
The following is a statement of the rights of the Holder and the
conditions to which this Note is subject, to which the Holder hereof, by the
acceptance of this Note, agrees:
1. Payments of Interest and Principal. Interest shall accrue on
the outstanding principal balance of this Note, which shall be the above-stated
principal sum less the amount of any prepayments of principal made hereon by
the Company in accordance with the terms of this Note. Interest shall be
computed on the outstanding principal balance at the rate per annum stated
above, and on the basis of a 365- or 366-day year as the case may be for the
number of actual days elapsed. Interest shall not be compounded. Interest
accrued on this Note shall be paid semiannually in arrears, and shall be due
and payable on the last day of June and December of each year starting June 30,
1993 ("Interest Payment Date"). Interest will accrue from the most recent
Interest Payment Date or, if no interest has been paid, from the date of issue.
The outstanding principal balance of this Note shall be due and payable in full
on February 15, 2000.
-1-
<PAGE> 2
Interest due after the occurrence of an Event of Default (as set forth in
Section 4 hereof) shall be payable on demand.
2. Subordination. THE INDEBTEDNESS EVIDENCED BY THIS NOTE SHALL
BE SENIOR TO THE LIQUIDATION AND OTHER SIMILAR RIGHTS OF EXISTING AND FUTURE
COMMON AND PREFERRED SHAREHOLDERS OF THE COMPANY, BUT IS HEREBY EXPRESSLY
SUBORDINATED IN RIGHT OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF ALL THE
COMPANY'S SENIOR INDEBTEDNESS AS HEREINAFTER DEFINED.
"Senior Indebtedness" shall mean all indebtedness owed to general
creditors of the Company, whether secured or unsecured now owing or hereafter
incurred, including but not limited to the principal and unpaid interest, on
(i) indebtedness of the Company or with respect to which the Company is a
guarantor, whether outstanding on the date hereof or hereafter created, to
banks, insurance companies or other financial or lending institutions,
regularly engaged in the business of lending money, whether or not secured and
(ii) any deferrals, renewals or extensions of any such indebtedness or any
debentures, notes or other evidence of indebtedness issued in exchange for such
Senior Indebtedness.
Upon any receivership, insolvency, assignment for the benefit of
creditors, bankruptcy, reorganization, or arrangements with creditors (whether
or not pursuant to bankruptcy or other insolvency laws), sale of all or
substantially all of the assets, dissolution, liquidation, or any other
marshalling of the assets and liabilities of the Company or in the event any
Senior Indebtedness shall be declared due and payable upon the occurrence of an
Event of Default (as defined in Section 4 hereof), (i) no amount shall be paid
by the Company in respect of the principal of or interest on this Note at the
time outstanding, unless and until the principal of and interest on the Senior
Indebtedness then outstanding shall be paid in full, and (ii) no claim or proof
of claim shall be filed with the Company by or on behalf of the Holder which
shall assert any right to receive any payments in respect of the principal of
and interest on this Note except subject to the payment in full of the
principal of and interest on all of the Senior Indebtedness then outstanding.
In the instance of an event of default relating to payments of
principal or interest in any amount exceeding $10,000 which has been declared
in writing with respect to any senior Indebtedness then, unless and until such
event of default shall have been cured or waived or shall have ceased to exist,
no payment shall be made in respect of the principal of or interest on this
Note.
Nothing contained in this Section 2 shall impair, as between the
Company and the Holder, the obligation of the Company, which is absolute and
unconditional, to pay to the Holder hereof the principal hereof and interest
hereon as and when the same become due and payable, or shall prevent the
Holder, upon default under this Note, from exercising all rights powers and
remedies otherwise, provided herein or by applicable law, all subject to the
rights, if any, of the holders of Senior Indebtedness.
-2-
<PAGE> 3
The Company in its sole discretion may issue additional subordinated
promissory notes in the future without restriction.
3. PREPAYMENT. THE COMPANY MAY, UPON RECEIPT OF ANY REQUIRED
PRIOR WRITTEN APPROVAL FROM THE FEDERAL RESERVE BOARD, AT ANY TIME AFTER
DECEMBER 15, 1997, AND FROM TIME TO TIME THEREAFTER, PREPAY THIS NOTE, IN WHOLE
OR IN PART, IN ACCORDANCE WITH THE TERMS OF THIS SECTION 3. THE COMPANY MAY,
IN ITS SOLE DISCRETION, ELECT TO PREPAY THIS NOTE IN WHOLE OR IN PART, WITHOUT
BEING OBLIGATED TO PREPAY OTHER NOTES ISSUED AS PART OF THIS OFFERING.
LIKEWISE, SHOULD COMPANY ELECT TO PREPAY OTHER NOTES ISSUED AS PART OF THE
OFFERING, COMPANY SHALL NOT BE OBLIGATED TO PREPAY THIS NOTE ON THE SAME TERMS
OFFERED THE HOLDERS OF OTHER NOTES WHICH ARE BEING PREPAID OR TO PREPAY ANY
AMOUNT TO THE HOLDER OF THIS NOTE. EXCEPT IN THE EVENT OF DEFAULT AS DEFINED
IN SECTION 4, HOLDER SHALL HAVE NO RIGHT TO CALL FOR PAYMENT PRIOR TO MATURITY.
3.1 Election to Prepay.
(a) Partial Prepayment. All amounts prepaid by the
Company on this Note shall be in increments of $1,000.
(b) Prepayment Notice. In the event that the Company
elects to prepay this Note, whether in whole or in part, upon receipt from the
Federal Reserve Board of any required written approval of such prepayment, the
Company shall, not less than 30 nor more than 60 days prior to the date fixed
for prepayment (the "Prepayment Date"), provide a notice of prepayment to the
Holder (the "Prepayment Notice"). The Prepayment Notice shall state:
(1) the Prepayment Date;
(2) the aggregate principal amount to be prepaid on this Note;
(3) that on the Prepayment Date, the principal amount of the Note
being prepaid, together with accrued interest thereon, shall
be due to the Holder and payable by the Company, and that the
interest on such principal amount prepaid shall cease to
accrue on and after such date; and
(4) the place or places where the Note may be surrendered for
payment.
3.2 Notes Payable on Prepayment Date. The Prepayment
Notice having been given as aforesaid, the amount of the Note so to be prepaid
shall, on the Prepayment Date, become due and payable together with all accrued
interest thereon, and on such date (unless the Company shall default on its
prepayment obligations) the portion of the Note being prepaid shall cease to
bear interest. If any portion of the Note called for prepayment shall not be
so paid upon surrender thereof for such prepayment, the principal shall, until
paid, bear interest from the Prepayment date in accordance with the terms of
Section 1 hereof.
-3-
<PAGE> 4
3.3 Note Prepaid in Part. If the Note is to be prepaid
only in part, it shall be surrendered by the Holder in the manner specified in
the Prepayment Notice and the Company shall execute and deliver to the Holder a
new Note with a principal amount equal to the portion of the Note which is not
prepaid by the Company.
4. Events of Default. If any of the following events shall occur
(herein individually referred to as an "Event of Default"), the Holder may
declare the entire unpaid principal and accrued interest on the Note
immediately due and payable, by a notice in writing to the Company:
4.1 Default for at least 30 days in the payment of
interest on the Note; default in payment of the principal on the Note when due
and payable at maturity, acceleration or otherwise and such default continues
for at least 30 days; or
4.2 The institution by the Company of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by it to institution of
bankruptcy or insolvency proceedings against it or the filing by it of a
petition or answer or consent seeking reorganization or release under the
Federal Bankruptcy Act, or any other applicable federal or state law, or the
consent by it to the filing of any such petition or the appointment of a
receiver, liquidator, assignee, trustee, or other similar official, of the
Company, or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due or the taking of
corporate action by the Company in furtherance of any such action; or
4.3 If, within 60 days after the commencement of an
action against the Company seeking any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, such action shall not have been dismissed or all orders or
proceedings thereunder affecting the operations or the business of the Company
stayed, or if the stay of any such order or proceeding shall thereafter be set
aside, or if, within 60 days after the appointment without the consent or
acquiescence of the Company of any trustee, receiver or liquidator of the
Company or of all or any substantial part of the properties of the Company,
such appointment shall not have been vacated.
Holder shall have no other right to call for payment prior to
maturity.
A default under the provisions of this Note shall not constitute a
default under the provisions of other Notes which were issued as part of this
offering. Likewise, a default under the provisions of other Notes which were
issued as part of this offering shall not constitute a default under the
provisions of this Note.
5. Transfer and Registration. This is a registered Note. In
order to properly transfer this Note on the books of the Company, the Holder
must surrender this Note together with (a) an opinion of counsel to the
Purchaser, in form and substance reasonably acceptable, to the Company, to the
effect that the proposed transfer of the Note is not in violation of the
Securities Act of 1933; and (b) a notice to the Company, which shall be
notarized and which shall state the name and address of the person or entity to
whom the Note is being assigned.
-4-
<PAGE> 5
The Company shall then execute and deliver to the assignee, a new Note in
accordance with the instructions in such notice. The Holder may only assign
the Note in its entirety and may not assign a portion thereof. The Company may
deem and treat the person or entity in whose name this Note shall be registered
as the absolute owner of such Note for the purpose of receiving payments of
principal and interest and for all other purposes and the Company shall not be
affected by any notice not in the form specified in this Section 5.
6. Waiver and Amendment. Any provision of this Note may be
amended, waived or modified upon the written consent of the Company and the
Holder.
7. Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally, by
registered first-class mail, postage prepaid, by telex, by telecopier or by
overnight courier, addressed to the Company or the Holder, as the case may be,
at such party's address set forth below, or at such other address as to which
such party shall have notified the other party as provided herein. All such
notices and other communications shall be deemed to have been duly given: at
the time delivered by hand, if personally delivered; five business days after
being sent by registered mail, return receipt requested, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day if timely delivered to a courier guaranteeing overnight
delivery. Notice shall be sent to the following addresses:
To The Company: Charles W. Jarrett, President
Cowlitz Bancorporation
P.O. Box 1518
927 Commerce Avenue
Longview, Washington 98632
Telex: 1-206-423-1821
To The Holder: ______________________________
______________________________
______________________________
8. Governing Law. This Note shall be governed by and construed
in accordance with Washington law, without regard to principles of conflict of
laws.
9. Attorney's Fees. If this Note is not paid in accordance with
its terms and is placed in the hands of an attorney for collection, or if suit
be instituted hereon, the Company shall pay to the Holder, in addition to
principal and unpaid accrued interest, all costs of collection of the principal
and such unpaid accrued interest, including, without limitation, reasonable
attorney's fees for the enforcement of payment of this Note.
10. Waivers. The Company hereby expressly waives presentment,
protest, and demand, notice of protest, demand, dishonor and nonpayment of this
Note, and all other notices of any kind.
-5-
<PAGE> 6
11. Use as Collateral. This Note may not be used its collateral
for any loan made to Holder by either the Company or by The Cowlitz Bank.
12. Security for Note. This Note is unsecured.
IT WITNESS WHEREOF, the Company has caused this Note to be signed on
its behalf by the undersigned, thereunto duly authorized, as of the date and
year first above written.
COWLITZ BANCORPORATION,
a Washington corporation
By:_______________________________
Charles W. Jarrett, President
-6-
<PAGE> 1
EXHIBIT 10.6
PURCHASE AND ASSUMPTION AGREEMENT
dated as of
March 5, 1997
between
WELLS FARGO BANK, N.A.
and
COWLITZ BANK
<PAGE> 2
List of Schedules
SCHEDULE 1.1(a) Assumed Severance Obligations
SCHEDULE 1.1(b) Branches/Real Properties
SCHEDULE 3.6(a) Form of Deed
SCHEDULE 3.6(b) Form of Bill of Sale
SCHEDULE 3.6(c) Form of Assignment and Assumption Agreement
SCHEDULE 3.6(d) Form of Assignment of Lease and Assumption
SCHEDULE 3.6(e) Form of Landlord Consent
SCHEDULE 3.6(g) Form of Certificate of Officer
Wells Fargo Bank, National Associations
SCHEDULE 3.7(d) Form of Certificate of Officer [Purchaser]
SCHEDULE 4.11 Compensation to Seller for Certain Post Closing Services
SCHEDULE 5.4 Tenant Leases
SCHEDULE 5.6 Litigation and Undisclosed Liabilities
SCHEDULE 5.16 Environmental Matters
SCHEDULE 8.1 Outstanding Tax Liabilities
<PAGE> 3
This PURCHASE AND ASSUMPTION AGREEMENT, dated as of this 5th day of
March, 1997 (this "Agreement"), is by and between Wells Fargo Bank, N.A.
("Seller") and Cowlitz Bank ("Purchaser").
RECITALS
A. Seller. As of the date hereof, Seller is a national banking
association, organized under the laws of the United States, with its principal
office located in San Francisco, California.
B. Purchaser. Purchaser is a corporation, organized under the
laws of Washington State, with its principal office located in Longview,
Washington.
C. Purchaser desires to acquire from Seller, and Seller desires
to transfer to Purchaser, certain banking premises and certain deposits
associated therewith, located in the State of Washington, all in accordance
with and subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and obligations set forth herein, the parties agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
1.1 Certain Definitions. The terms set forth below are used in
this Agreement with the following meanings:
"Accrued Interest" means, as of any date, with respect to a Deposit,
interest which is accrued on such Deposit to but excluding such date and not
yet posted to the relevant deposit account
"ACH Direct Deposit Cut-Off Date" has the meaning set forth in Section
4.3.
"Adjusted Payment Amount" has the meaning set forth in Section 3.3
"Adjustment Date" has the meaning set forth in Section 3.3.
"Affiliate" means, with respect to any person, any other person
directly or indirectly controlling, controlled by or under common control with
such person.
"Agreement" means this Purchase and Assumption Agreement, including
all schedules, exhibits and addenda, each as amended from time to time in
accordance with the terms hereof.
"Allocation Statement" has the meaning set forth in Section 3.4(a).
-1-
<PAGE> 4
"Asbestos Hazard" means the presence of asbestos in a parcel of Owned
Real Property or the improvements thereon as of the date hereof which, under
applicable laws, must be immediately remediated in order to allow continuation
of the current operation of the Branch within such Owned Real Property using
the current improvements thereon and the cost of such remediation, as
reasonably determined by the Environmental Consultant, shall be more than One
Hundred Thousand Dollars ($100,000).
"Assets" has the meaning set forth in Section 2.1(a).
"Assignment and Assumption Agreement" has the meaning set forth in
Section 3.6(c).
"Assumed Severance Obligations" means those duties, responsibilities,
obligations and liabilities of Seller or of its Affiliates under the severance
and similar plans described in Schedule 1.1(a) to pay severance and provide
benefits to any Branch Employee or Transferred Employee.
"Branch Employees" means, the employees of the Seller working at the
Branches on the Closing Date (including, without limitation, those employees
who on the Closing Date are on family and medical leave, military leave or
personal or pregnancy leave and who are eligible to return to work under
Seller's policies), subject to any transfers permitted pursuant to Section 7.1
and replacement in the ordinary course of business of employees who may leave
Seller's employ between the date hereof and the Closing Date.
"Branch Leases" means the leases under which Seller leases land and/or
buildings used as Branches, including without limitation ground leases.
"Branches" means each of the branch banking offices of Seller at the
locations identified on Schedule 1.1(b) hereto.
"Burdensome Condition" has the meaning set forth in Section 9.1(a).
"Business Day" means a day on which banks are generally open for
business and which is not a Saturday or Sunday.
"Cash on Hand" means, as of any date, all petty cash, vault cash,
teller cash, ATM cash, prepaid postage and cash equivalents held at a Branch.
"Closing" and "Closing Date" refer to the closing of the P&A
Transaction, which is to be held at such time and date as provided in Article 3
hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Deeds" has the meaning set forth in Section 3.6(a).
"Deposit(s)" means deposit liabilities with respect to deposit
accounts booked by Seller at the Branches, as of the close of business of the
day prior to the Closing Date, which
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constitute "deposits" for purposes of the Federal Deposit Insurance Act. 12
U.S.C. Section 1813, including collected and uncollected deposits and Accrued
Interest, BUT EXCLUDING: (a) all Excluded Deposits; (b) deposit liabilities
with respect to accounts registered in the name of a trust for which Seller
serves as trustee (other than non-excluded IRA and SEP accounts); (c) deposit
liabilities with respect to accounts booked by Seller at any Branch for which
Seller serves as guardian or custodian (other than non-excluded IRA and SEP
accounts); (d) all Keogh Accounts; (e) any IRA and SEP accounts which hold
investments in non-deposit instruments; (f) any deposit account associated with
any merchant card banking relationship; (g) any deposit account which serves as
security for a loan or which serves as security for any credit card or
overdraft protection; (h) any remittance account; and (i) any deposit account
which has an automatic sweep to a third party.
"Draft Closing Statement" means a draft closing statement, prepared by
Seller, as of the close of business of the third (3rd) business day preceding
the Closing Date setting forth an estimated calculation of both the Purchase
Price and the Estimated Payment Amount.
"Encumbrances" means all mortgages, claims, charges, liens,
encumbrances, easements, limitations, restrictions, commitments and security
interests, except for statutory liens securing tax and/or other payments not
yet due, liens incurred in the ordinary course of business, including without
limitation liens in favor of mechanics or materialmen, and such other liens,
charges, security interests or encumbrances as do not materially detract from
the value or materially and adversely affect the use of the properties or
assets subject thereto or affected thereby or which otherwise do not materially
impair the value of or business operations at such properties and except for
obligations pursuant to escheat and unclaimed property laws relating to the
Escheat Deposits.
"Environmental Consultant" has the meaning specified in Section
10.1(b).
"Environmental Hazard" means the presence of any Hazardous Substance
in violation of, and reasonably likely to require material remediation costs
under, applicable Environmental Laws; provided, however, that the definition of
Environmental Hazard shall not include asbestos and asbestos-containing
materials, unless, with respect to any single parcel of Owned Real Property,
the cost of remediation, as reasonably determined by the Environmental
Consultant, shall be more than One Hundred Thousand Dollars ($100,000). Any
such determination shall be based upon a "risk-based approach" of what would be
necessary to obtain the equivalent of a "no further action letter" from the
applicable regulatory agency or agencies with no deed restrictions which would
adversely affect the commercial use of the parcel of Owned Real Property.
"Environmental Law" means any Federal or state law, statute, rule,
regulation, code, order, judgment, decree, injunction or agreement with any
Federal or state governmental authority, (x) relating to the protection,
preservation or restoration of the environment (including, without limitation,
air, water vapor, surface water, groundwater, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource) or
to human health or safety or (y) the exposure to, or the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of
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hazardous substances, in each case as amended and now in effect. Environmental
Laws include, without limitation, the Clean Air Act (42 U.S.C. Section 7401 et
seq.); the Comprehensive Environmental Response Compensation and Liability Act
(42 U.S.C. Sections 9601 et seq.); the Resource Conservation and Recovery Act
(42 U.S.C. Section 96901 et seq.); the Federal Water Pollution Control Act (33
U.S.C. Sections 1251 et seq.); the Occupational Safety and Health Act (29
U.S.C. Section 651 et seq.); provided, however, that the definition of
"Environmental Law" shall not include any Federal or state law, statute, rule,
regulation, code, order, judgment, decree, injunction or agreement with any
governmental authority relating to asbestos or asbestos-containing materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escheat Deposits" means, as of any date, Deposits and safe deposit
box contents, in each case held on such date at the Branches which become
subject to escheat, in the calendar year in which the Closing occurs, pursuant
to applicable escheat and unclaimed property laws.
"Estimated Payment Amount" has the meaning set forth in Section
3.2(a).
"Estimated Purchase Price" means the Purchase Price as set forth on
the Draft Closing Statement.
"Excluded IRA/Keogh Account Deposits" has the meaning set forth in
Section 2.4(c).
"Excluded Deposits" means: (i) all wholesale commercial deposits
(i.e., with account analysis or cash management services); and (ii) certain
business related deposit liabilities excluded by Seller.
"FDIA" means the Federal Deposit Insurance Act, as amended.
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Funds Rate" on any day means the per annum rate of interest
(rounded upward to the nearest 1/100 of 1%) which is the weighted average of
the rates on overnight federal funds transactions arranged on such day or, if
such day is not a Business Day, the previous Business Day, by federal funds
brokers computed and released by the Federal Reserve Bank of New York (or any
successor) in substantially the same manner as such Federal Reserve Bank
currently computes and releases the weighted average it refers to as the
"Federal Funds Effective Rate" at the date of this Agreement.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System.
"FedWire Direct Deposit Cut-off Date" has the meaning set forth in
Section 4.3.
"Final Closing Statement" means a final closing statement, prepared by
Seller, as of the ninetieth (90th) day following the Closing Date setting forth
both the Purchase Price and the Adjusted Payment Amount.
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"Hazardous Substance" means any substance, whether liquid, solid or
gas (a) listed, identified or designated as hazardous or toxic to a level which
requires remediation under any Environmental Law; (b) which, applying criteria
specified in any Environmental Law, is hazardous or toxic; or (c) the use or
disposal of which is regulated under Environmental Law.
"IRA" means an "individual retirement account" or similar account
created by a trust for the exclusive benefit of an individual or his
beneficiaries in accordance with the provisions of Section 408 of the Code.
"IRS" means the Internal Revenue Service.
"Keogh Account" means an account created by a trust for the benefit of
employees (some or all of whom are owner-employees) and that complies with the
provisions of Section 401 of the Code. No Keogh Accounts are being sold.
"Landlord Consents" has the meaning set forth in Section 3.6(e).
"Lease Agreement" means a lease entered into pursuant to Section
10.1(c) upon such specific terms and conditions as contemplated by such Section
and such other commercially reasonable terms and conditions as are customary in
a "triple net" lease of a bank branch facility.
"Lease Assignment" has the meaning set forth in Section 3.6(d).
"Liabilities" has the meaning set forth in Section 2.2.
"Loss" means the amount of losses, liabilities, damages (including
forgiveness or cancellation of obligations) and expenses (including reasonable
expenses of investigation and reasonable attorneys' fees and expenses in
connection with any action, suit or proceeding) incurred or suffered by the
indemnified party or its Affiliates in connection with the matters described in
Section 12.1, less the amount of the economic benefit (if any) to the
indemnified party or its Affiliates occurring or reasonably anticipated to
occur in connection with any such damage, loss, liability or expense (including
Tax benefits obtainable under applicable law, amounts recovered under insurance
policies net of deductibles, recovery by setoffs or counterclaims, and other
economic benefits).
"Material Adverse Effect" means (a) with respect to Seller, a material
adverse effect on the business or direct economic results of operations of the
Branches, taken as a whole, or on the ability of Seller timely to consummate
the P&A Transaction as contemplated by this Agreement, and (b) with respect to
Purchaser, a material adverse effect on the ability of Purchaser to perform any
of its financial or other obligations under this Agreement, including the
ability of Purchaser timely to consummate the P&A Transaction contemplated by
this Agreement. In determining whether there has occurred a Material Adverse
Effect there shall be excluded the effect of any change in Federal or state
banking laws or regulations, any change in GAAP or regulatory accounting
principles, any adverse change in general economic
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conditions, including without limitation the interest rate environment, or in
the depository institution industry generally.
"OCC" means the Office of the Comptroller of the Currency.
"Order" has the meaning set forth in Section 9.1(b).
"Owned Real Property" means Real Property where Seller owns both the
real property and improvements thereon that are used for Branches.
"P&A Transaction" means the purchase and sale of Assets and the
assumption of Liabilities described in Sections 2.1 and 2.2.
"Personal Property" means the personal property of Seller, located in
the Branches, which is defined on the personal property and fixed assets list
previously provided to Purchaser; PROVIDED, HOWEVER, NONE OF THE FOLLOWING ARE
BEING SOLD: (1) teller terminals, Teller Vision and related equipment; (2)
phone equipment and related equipment; and (3) personal property or equipment
subject to Personal Property Lease, each of which such Personal Property Lease
shall be terminated as of the Closing. In addition, all ATM's at the Branches
may be replaced, at the option of Seller, with IBM (Model Number 3624-12) or
similar machine prior to Closing. Such replacement ATM's ("Replacement ATM's")
will be sold at a fixed price per ATM unit of $10,000.00. If, prior to the
Closing Date, an item of Personal Property is stolen, destroyed or otherwise
lost, such item shall be excluded from the P&A Transaction, and the term
"Personal Property" as used herein shall exclude such item. If, prior to the
Closing Date, an item of Personal Property is damaged by fire or other
casualty, such item, if reasonably repairable shall be sold to Purchaser (in
accordance with the provisions hereof) and the insurance proceeds relating to
such item shall be assigned to Purchaser, it being understood that if such item
is not reasonably repairable or is underinsured or uninsured, it shall be
excluded from the P&A Transaction. Personal Property, for purposes of what is
being sold hereunder, does not include any personal property of Seller located
in the Real Property which is not in the branch banking office and is not
necessary to the operation of the branch banking office (e.g., personal
property associated with non-branch banking offices of Seller which may be
located in the Real Property).
"Personal Property Leases" means the leases under which Seller leases
certain Personal Property in the Branch. Seller shall cancel all such Personal
Property Leases as of the Closing.
"Purchase Price" has the meaning set forth in Section 2.3.
"Real Property" means the parcels of real property on which the
Branches listed on Schedule 1.1(b) are located, including any improvements and
tenant improvements and trade fixtures thereon, which Schedule indicates
whether or not such real property is Owned Real Property.
"Records" means all paper records and original documents, or where
reasonable and appropriate copies thereof, in Seller's possession that pertain
to and are utilized by Seller to
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administer, reflect, monitor, evidence or record information respecting the
business or conduct of the Branches (including transaction tickets through the
Closing Date and all records for closed accounts located in Branches and
excluding any other transaction tickets and records for closed accounts) and
all such records and original documents, or where reasonable and appropriate
copies thereof, regarding the Assets, or the Deposits, or to comply with
applicable laws and governmental regulations to which the Deposits are subject,
including but not limited to unclaimed property and escheat laws.
Notwithstanding the above, Seller may provide copies of all Records. Seller is
not required to deliver any data processing or electronic/image type records
commingled with other records of Seller unrelated to the Branches and Seller is
not required to deliver any account history which is prior to forty-five (45)
days prior to Closing. In addition, Seller is not required to deliver any
risk-management information regarding customers, including without limitation
credit-scoring formulas, daylight over draft limits, stop payment or overdraft
history more than forty-five (45) days prior to Closing.
"Regulatory Approvals" means all approvals, authorizations, waivers or
consents of or notices to any governmental agencies or authorities required for
or in connection with consummation of the P&A Transaction.
"Safe Deposit Agreements" means the agreements relating to safe
deposit boxes located in the Branches.
"Seller's Knowledge" or other similar phrases means information that
is actually known to any officer of Seller who holds the title of Senior Vice
President or above and has responsibility with respect to management of
operations conducted at the Branches.
"Tax Returns" means any return or other report required to be filed
with respect to any Tax, including declaration of estimated tax and information
returns.
"Taxes" means any federal, state, local, or foreign taxes, including
but not limited to taxes on or measured by income, estimated income, franchise,
capital stock, employee's withholding, non-resident alien withholding, backup
withholding, social security, occupation, unemployment, disability, value added
taxes, taxes on services, real property, personal property, sales, use, excise,
transfer, gross receipts, inventory and merchandise, business privilege, and
other taxes or governmental fees or charges or amounts required to be withheld
and paid over to any government in respect of any tax or governmental fee or
charge, including any interest, penalties, or additions to tax on the foregoing
whether or not disputed.
"Tenant Leases" means leases or subleases between Seller and tenants,
if any, listed on Schedule 5.4.
"Title Company" has the meaning set forth in Section 3.10(a).
"Title Policy" has the meaning set forth in Section 3.1O(b).
"Title Reports" has the meaning set forth in Section 3.1O(a).
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"Transaction Account" means any account at a Branch in respect of
which deposits therein are withdrawable in practice upon demand or upon which
third party drafts may be drawn by the depositor, including checking account,
negotiable order of withdrawal accounts and money market deposit accounts.
"Transferred Employees" means Branch Employees employed by Purchaser on
and after the Closing Date.
1.2 Accounting Terms. All accounting terms not otherwise defined
herein shall have the respective meanings assigned to them in accordance with
consistently applied generally accepted accounting principles as in effect from
time to time in the United States of America ("GAAP").
1.3 Interpretation. The captions or headings in this Agreement
are for convenience of reference only and in no way define, limit or describe
the scope or intent of any provisions or Sections of this Agreement. All
references in this Agreement to particular Articles or Sections are references
to the Articles or Sections of this Agreement, unless some other reference is
clearly indicated. In this Agreement, unless the context otherwise requires,
(i) words describing the singular number shall include the plural and vice
versa, (ii) words denoting any gender shall include all genders and (iii) the
word "including" shall mean "including without limitation." The rule of
construction against the draftsman shall not be applied in interpreting and
construing this Agreement.
ARTICLE 2
THE P&A TRANSACTION
2.1 Purchase and Sale of Assets. (a) Subject to the terms and
conditions set forth in this Agreement, at the Closing, Seller shall grant,
sell, convey, assign, transfer and deliver to Purchaser, and Purchaser shall
purchase and accept from Seller, all of Seller's right, title and interest, as
of the Closing Date, in and to the following (collectively, the "Assets"):
(i) Cash on Hand;
(ii) the Owned Real Property;
(iii) the Personal Property;
(iv) the Branch Leases and Tenant Leases;
(v) the Safe Deposit Agreements; and
(vi) the Records
(b) Purchaser understands and agrees that it is purchasing only
the Assets (and assuming only the Liabilities) specified in this Agreement and,
except as may be expressly provided for in this Agreement, Purchaser has no
interest in or right to any other business relationship which Seller may have
with any customer of the Branches, including without limitation: (i) any
deposit account or other service of Seller at any other office of Seller which
may be linked to the Deposits; (ii) any deposit account which sweeps from the
Branch to a third party; (iii) any merchant card banking business or any
deposit account associated with
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any merchant card banking relationship; and/or (iv) any cash management service
(e.g., sweep accounts, cash concentrator accounts, controlled disbursement
accounts) which Seller may provide to any customer of the Branches. No credit
card relationships are being sold. No loans are being sold. No right to the
use of any name, trade name, trademark or service mark, if any, of Seller,
Wells Fargo & Company (parent of Seller) or any of their respective Affiliates
is being sold.
2.2 Assumption of Liabilities. (a) Subject to the terms and
conditions set forth in this Agreement, at the Closing, Purchaser shall assume,
pay, perform and discharge all duties, responsibilities, obligations or
liabilities of Seller (whether accrued, contingent or otherwise) to be
discharged, performed, satisfied or paid on or after the Closing Date, with
respect to the following (collectively, the "Liabilities"):
(i) the Deposits, including the IRA and SEP
accounts (except those IRA and SEP accounts
which are excluded under the definition of
Deposits) to the extent contemplated by
Section 2.4;
(ii) the Branch Leases, and Tenant Leases;
(iii) the Safe Deposit Agreements; and
(iv) the Assumed Severance Obligations.
(b) Notwithstanding anything to the contrary in this Agreement,
Purchaser shall not assume or be bound by any duties, responsibilities,
obligations or liabilities of Seller, or of any of Seller's Affiliates, of any
kind or nature, known, unknown, contingent or otherwise, other than the
Liabilities.
2.3 Purchase Price. The purchase price ("Purchase Price") for the
Assets shall be the sum of:
(a) An amount equal to 7.50% of the average daily balance
(including Accrued Interest) of the Deposits for the period commencing thirty
(30) days prior to and inclusive of the day prior to the Closing Date and
ending on the day prior to the Closing Date;
(b) The aggregate amount of Cash on Hand as of the Closing Date;
(c) The aggregate net book value of all the Assets, other than
Cash on Hand, as reflected on the books of Seller as of the close of business
of the month-end day most recently preceding the Closing Date;
(d) The sum of $10,000.00 for each Replacement ATM; and
(e) If, through no material fault of the Seller, the Closing has
not occurred by September 18, 1997, the sum of $75,000.00 per Branch.
Purchaser has, concurrently with Seller's execution of this Agreement, made a
good faith deposit to Seller, as consideration for entering into this
Agreement, in the amount of Seventy-Five Thousand Dollars ($75,000) per branch
for each Branch which is the subject of this
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Agreement. Such good faith deposit shall be applied against the Purchase Price
upon Closing unless, through no material fault of the Seller, the Closing does
not occur on or before July 18, 1997, in which case, Seller shall retain such
deposit. Such good faith deposit shall be returned to Purchaser if this
agreement is terminated for a reason other than the default of Purchaser. Such
good faith deposit is consideration for entering into this Agreement, is not
intended as liquidated damages and shall not in any way limit Seller's remedies
is a default by Purchaser hereunder. No interest shall be paid on such
good-faith deposit.
2.4 Assumption of IRA Account Deposits. (a) With respect to
Deposits in IRAs and SEPs (except those IRA and SEP accounts which are excluded
under the definition of Deposits), Seller will use reasonable efforts and will
cooperate with Purchaser in taking any action reasonably necessary to
accomplish either the appointment of Purchaser as successor custodian or the
delegation to Purchaser (or an Affiliate of Purchaser) of Seller's authority
and responsibility as custodian of all such IRA deposits except self-directed
IRA deposits, including, but not limited to, sending to the depositors thereof
appropriate notices, cooperating with Purchaser (or such Affiliate) in
soliciting consents from such depositors, and filing any appropriate
applications with applicable regulatory authorities. If any such delegation is
made to Purchaser (or such Affiliates), Purchaser (or such Affiliate) will
perform all of the duties so delegated and comply with the terms of Seller's
agreement with the depositor of the IRA deposits affected thereby.
(b) If, notwithstanding the foregoing, as of the Closing Date,
Purchaser shall be unable to retain deposit liabilities in respect of an IRA
Account, such deposit liabilities shall be excluded from Deposits for purposes
of this Agreement and shall constitute "Excluded IRA Account Deposits." No
Keogh Accounts are being sold.
ARTICLE 3
CLOSING PROCEDURE; ADJUSTMENTS
3.1 Closing. (a) The Closing will be held at the offices of
Seller at 420 Montgomery Street, San Francisco or such place as may be agreed
to by the parties.
(b) The Closing Date shall be July 18, 1997, or, if the Closing
cannot occur on such date, on a date and time as soon thereafter as
practicable, which shall be no later than thirty (30) Business Days after
receipt of all Regulatory Approvals.
3.2 Payment at Closing. (a) At Closing, Seller shall pay to
Purchaser the amount by which the aggregate balance (including Accrued
Interest) of the Deposits exceeds the Estimated Purchase Price (the "Estimated
Payment Amount") or, Purchaser shall pay to Seller the amount by which the
Estimated Purchase Price exceeds the aggregate balance (including Accrued
Interest) of the Deposits, each as set forth on the Draft Closing Statement as
agreed upon between Seller and Purchaser.
(b) All payments to be made hereunder by one party to the other
shall be made by wire transfer of immediately available funds (in all cases to
an account specified in writing by
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Seller or Purchaser, as the case may be, to the other not later than the third
(3rd) Business Day prior to the Closing Date) on or before 11:00 A.M. local
time on the date of payment. If any payment to be made hereunder on the
Closing Date (or any other date) shall not be made on or before 11:00 A.M.
local time on such date, and the amount thereof shall have been agreed to in
writing by the parties at the Closing Date (or such other payment date), the
party responsible therefor may make such payment on or before 11:00 A.M. local
time on the next Business Day together with interest thereon at the Federal
Funds Rate applicable from the Closing Date (or such other payment date) to the
date such payment is actually made, which in no event shall be later than the
fifth (5th) business day after such payment was due.
(c) If any instrument of transfer contemplated herein shall be
recorded in any public record before the Closing and thereafter the Closing is
not completed, then at the request of such transferring party the other party
will deliver (or execute and deliver) such instruments and take such other
action as such transferring party shall reasonably request to revoke such
purported transfer.
3.3 Adjustment of Purchase Price. (a) On or before 12:00 noon on
the sixtieth (60th) day following the Closing Date (the "Adjustment Date"),
Seller shall deliver to Purchaser the Final Closing Statement and shall make
available such work papers, schedules and other supporting data as may be
reasonably requested by Purchaser to enable it to verify the amounts set forth
in the Final Closing Statement. The Final Closing Statement shall also set
forth the amount (the "Adjusted Payment Amount") by which the aggregate amount
of Deposits (including Accrued Interest) shown on the Final Closing Statement
differs from the Estimated Purchase Price.
(b) The determination of the Adjusted Payment Amount shall be
final and binding on the parties hereto unless within thirty (30) days after
receipt by Purchaser of the Final Closing Statement, Purchaser shall notify the
Seller in writing of its disagreement with any amount included therein or
omitted therefrom, in which case, if the parties are unable to resolve the
disputed items within ten (10) Business Days of the receipt by Seller of notice
of such disagreement, such items shall be determined by an independent
accounting firm selected by mutual agreement between Seller and Purchaser;
provided, however, that in the event the fees of such firm as estimated by such
firm would exceed fifty percent (50%) of the net amount in dispute, the parties
agree that such firm will not be engaged by either party and that such net
amount in dispute will be equally apportioned between Seller and Purchaser.
Such accounting firm shall be instructed to resolve the disputed items within
ten (10) Business Days of engagement, to the extent reasonably practicable.
The determination of such accounting firm shall be final and binding on the
parties hereto. The fees of any such accounting firm shall be divided equally
between Seller and Purchaser.
(c) On or before 12:00 Noon on the tenth (10th) Business Day after
the Adjustment Date or, in the case of a dispute, the date of the resolution of
the dispute pursuant to subsection 3.3 (b) above, Seller shall pay to Purchaser
an amount equal to the amount by which the Adjusted Payment Amount exceeds the
Estimated Payment Amount, plus interest on such excess amount from the Closing
Date to but excluding the payment date, at the Federal Funds Rate or, if the
Estimated Payment Amount exceeds the Adjusted Payment Amount, Purchaser
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shall pay to Seller an amount equal to such excess, plus interest from the
Closing Date to but excluding the payment date, at the Federal Funds Rate. Any
payments required by Section 3.5 shall be made contemporaneously with the
foregoing payment.
3.4 Allocation of Purchase Price. (a) Purchaser and Seller agree
that upon final determination of the Purchase Price, the Purchase Price shall
be allocated in a manner as determined by Purchaser subject to Seller's consent
(which consent shall not be unreasonably withheld or delayed), after taking
into account any applicable Treasury Regulations and the fair market value of
such items and to be set forth in a statement, dated the Adjustment Date (the
"Allocation Statement") prepared by Purchaser.
(b) Purchaser and Seller shall report the transaction contemplated
by this Agreement (including income tax reporting requirements imposed pursuant
to Section 1060 of the Code) in accordance with the allocation specified in the
Allocation Statement. In the event any party hereto receives notice of an
audit in respect of the allocation of the Purchase Price specified herein, such
party shall immediately notify the other party in writing as to the date and
subject of such audit.
(c) If any Tax Return filed by Purchaser or Seller relating to the
transactions contemplated hereby is challenged by the taxing authority with
which such Tax Return was filed on the basis of the allocation set forth in the
Allocation Statement, as finally adjusted, the filing party shall assert and
maintain in good faith the validity and correctness of such allocation during
the audit thereof until the issuance by the taxing authority of a "30 Day
Letter", or a determination of liability equivalent thereto, to such party;
provided, however, that at any time such party shall, in its sole discretion,
have the right to pay, compromise, settle, dispute or otherwise deal with its
alleged tax liability. If such a Tax Return is challenged as herein described,
the party filing such Tax Return shall keep the other party apprised of its
decisions and the current status and progress of all administrative and
judicial proceedings, if any, that are undertaken at the election of such
party.
3.5 Proration: Other Closing Date Adjustments. (a) Except as
otherwise specifically provided in this Agreement, it is the intention of the
parties that Seller will operate the Branches for its own account until 11:59
P.M., California time, the day prior to the Closing Date, and that Purchaser
shall operate the Branches, hold the Assets and assume the Liabilities for its
own account on and after the Closing Date. Thus, except as otherwise
specifically provided in this Agreement, items of income and expense, as
defined herein, shall be prorated as of 11:59 P.M., California time, the day
prior to the Closing Date, and settled between Seller and Purchaser on the
Closing Date, whether or not such adjustment would normally be made as of such
time. Items of proration will be handled at Closing as an adjustment to the
Purchase Price unless otherwise agreed by the parties hereto.
(b) For purposes of this Agreement, items of proration and other
adjustments shall include, without limitation: (i) rental payments and security
deposits under the Branch Leases and the Tenant Leases; (ii) sales and use
taxes and personal and real property taxes and assessments; (iii) FDIC: deposit
insurance assessments; (iv) wages, salaries and employee benefits and expenses;
(v) trustee or custodian fees on IRA Accounts; (vi) adjustments
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reflecting exclusions from the Personal Property as provided for in the
definition thereof; and (vii) other prepaid expenses and items and accrued but
unpaid liabilities, as of the close of business on the day prior to the Closing
Date. Safe deposit rental payments previously received by Seller shall not be
prorated.
3.6 Seller Deliveries. At the Closing, Seller shall deliver to
Purchaser:
(a) Deeds in substantially the form of Schedule 3.6(a) (except as
otherwise required by local state law), pursuant to which the Owned Real
Property shall be transferred to Purchaser "AS IS", "WHERE IS" and with all
faults (the "Grant Deeds");
(b) A bill of sale in substantially the form of Schedule 3.6(b)
(except as otherwise required by local state law), pursuant to which the
Personal Property shall be transferred to Purchaser "AS IS", "WHERE IS" and
with all faults;
(c) An assignment and assumption agreement in substantially the
form of Schedule 3.6(c) (except as otherwise required by local state law), with
respect to the Liabilities (the "Assignment and Assumption Agreement");
(d) Lease assignment and assumption agreements in substantially
the form of Schedule 3.6(d) (except as otherwise required by local state law)
with respect to each of the Branch Leases (the "Lease Assignments");
(e) Subject to the provisions of Section 7.4, such consents of
landlords under the Branch Leases, as shall be required pursuant to the terms
of such Branch Leases, to the assignment of the Branch Leases to Purchaser in
substantially the form of Schedule 3.6(e) (except as otherwise required by
local state law), (the "Landlord Consents");
(f) Subject to the provisions of Section 7.4, such consents as
shall be required pursuant to the terms of the Tenant Leases and the Personal
Property Leases in connection with the assignments thereof to Purchaser;
(g) An Officer's Certificate in substantially the form of Schedule
3.6(g);
(h) An opinion of Seller's in-house counsel, dated the Closing
Date, in form and substance reasonably satisfactory to Purchaser substantially
to the effect that:
(i) Seller is a national banking association, duly
organized and validly existing under the laws of the United States,
with all requisite corporate power and authority to execute, deliver
and perform this Agreement;
(ii) all Regulatory Approvals required to have been
obtained by Seller or its Affiliates have been obtained and are in
full force and effect; and
(iii) this Agreement has been duly authorized, executed and
delivered by Seller and (assuming due authorization, execution and
delivery by Purchaser) is a valid
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and legally binding obligation of Seller enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent
transfers, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to
general equity principles;
(i) The Draft Closing Statement;
(j) Seller's resignation as trustee or custodian, as applicable,
with respect to each IRA Account included in the Deposits and designation of
Purchaser as successor trustee or custodian with respect thereto as
contemplated by Section 2.4;
(k) All documentation required to exempt Seller from the
withholding requirement of Section 1445 of the Code, consisting of an affidavit
from Seller to Purchaser under penalty of perjury that Seller is not a foreign
person and providing Seller's U.S. taxpayer identification number; and
(l) Such other documents as the parties determine are reasonably
necessary to consummate the P&A Transaction as contemplated hereby.
3.7 Purchaser Deliveries. Al the Closing, Purchaser shall deliver
to Seller:
(a) The Assignment and Assumption Agreement;
(b) Purchaser's acceptance of its appointment as successor trustee
or custodian, as applicable, of the IRA Accounts included in the Deposits and
assumption of the fiduciary, obligations of the trustee or custodian with
respect thereto, as contemplated by Section 2.4;
(c) The Lease Assignments and, as contemplated by Section 7.4,
such other instruments and documents as any landlord under a Branch Lease may
reasonably require as necessary or desirable for providing for the assumption
by Purchaser of a Branch Lease, each such instrument and document in the form
and substance reasonably satisfactory to the parties and dated as of the
Closing Date;
(d) An Officer's Certificate in the form of Schedule 3.7(d)
attached hereto;
(e) An opinion of Purchaser's in-house or outside counsel, dated
the Closing Date, in form and substance reasonably satisfactory to Seller,
substantially to the effect that:
(i) Purchaser is a corporation, duly organized and
validly existing under the laws of Washington State, with all
requisite corporate power and authority to execute, deliver and
perform this Agreement;
(ii) all Regulatory Approvals required to have been
obtained by Purchaser or its Affiliates have been obtained and are in
full force and effect; and
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(iii) this Agreement has been duly authorized, executed and
delivered by Purchaser and (assuming due authorization, execution and
delivery by Seller) is a valid and legally binding obligation of
Purchaser enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles; and
(f) Such other documents as the polls determine are reasonably
necessary to consummate the P&A Transaction as contemplated hereby.
3.8 [intentionally left blank]
3.9 Owned Real Property Filings. On or prior to the Closing Date,
Seller shall file or record, or cause to be filed or recorded, any and all
documents (including, without limitation, deeds) necessary in order that the
legal and equitable title to Owned Real Property shall be duly vested in
Purchaser as of the Closing Date. Any expenses or documentary transfer taxes
with respect to such filings and all escrow closing costs shall be borne by
Purchaser.
3.10 Title Policies. (a) Purchaser has previously been provided by
Seller, at its own expense, a preliminary title report (the "Title Reports")
for all the Owned Real Property issued by Chicago Title Company (the "Title
Company"), Purchaser has had an opportunity to review such Title Reports and
Purchaser hereby approves the condition of title with respect to all the Owned
Real Property being purchased hereunder.
(b) Purchaser shall, at its own expense, obtain as of the Closing
Date an ALTA (standard coverage) title insurance policy (i.e., the equivalent
of a CLTA owner's title policy) from the Title Company (a "Title Policy") with
respect to all the Owned Real Property. Seller will cooperate with Purchaser
in assisting Purchaser to obtain (at Purchaser's expense) such Title Policies,
including without limitation only such endorsements as may be reasonably
necessary to insure that such Owned Real Property is free and clear of any
Encumbrance not shown on the Title Reports which would materially and adversely
affect the value or marketability of title thereto.
ARTICLE 4
TRANSITIONAL MATTERS
4.1 Transitional Arrangements. Seller and Purchaser agree to
cooperate and to proceed as follows to effect the transfer of account record
responsibility for the Branches:
(a) Not later than thirty (30) days after the signing of this
Agreement, Seller will meet with Purchaser to investigate, confirm and agree
upon mutually acceptable transaction settlement procedures and specifications,
files, procedures and schedules, for the transfer of account record
responsibility; provided, however it being understood and agreed that Seller is
not obligated under this Agreement to provide Purchaser any system conversion
files regarding
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<PAGE> 18
the Deposits other than a standard format IBM compatible standard label tape
conversion tape (i.e., not one which is specifically formatted for Purchaser's
systems specifications); and provided, further, that Seller is not obligated to
provide Purchaser with any information regarding Seller's relationship with the
customers outside of the Branch (e.g., other customer products, householding
information).
(b) [intentionally left blank]
4.2 Customers. (a) Not later than thirty (30) days prior to the
Closing Date (unless earlier required by law).
(i) Seller will notify the holders of Deposits to be transferred
on the Closing Date that, subject to the terms and conditions of this
Agreement, Purchaser will be assuming liability for such Deposits;
(ii) each of Seller and Purchaser shall provide, or join in
providing where appropriate, all notices to customers of the Branches
and other persons that Seller or Purchaser, as the case may be, is
required to give under applicable law or the terms of any other
agreement between Seller and any customer in connection with the
transactions contemplated hereby; and
(iii) following or concurrently with the notice referred to in
clause (i) above, Purchaser may communicate with and deliver
information, brochures, bulletins and other communications to
depositors and other customers of the Branches concerning the P&A
Transaction and the business of Purchaser. A party proposing to send
or publish any notice or communication pursuant to any paragraph of
this Section 4.2 shall furnish to the other party a copy of the
proposed form of such notice or communication at least five (5) days
in advance of the proposed date of the first mailing, posting, or
other dissemination thereof to customers, and shall not unreasonably
refuse to amend such notice to incorporate any changes that the other
such party proposes as necessary to comply with applicable law. All
costs and expenses of any notice or communication sent or published by
Purchaser or Seller shall be the responsibility of the party sending
such notice or communication and all costs and expenses of any joint
notice or communication shall be shared equally by Seller and
Purchaser. As soon as reasonably practicable and in any event within
forty-five (45) days of the date hereof, Seller shall provide to
Purchaser a report of the names and addresses of the owners of the
Deposits and the lessees of the safe deposit boxes in connection with
the mailing of such materials, which report shall be current as of the
date hereof.
(b) Following the giving of any notice described in paragraph (a)
above, Purchaser and Seller shall deliver to each new customer at any of the
Branches such notice or notices as may be reasonably necessary to notify such
new customers of Purchaser's pending assumption of liability for the Deposits
and to comply with applicable law. The cost of such notices shall be paid by
Purchaser. As soon as practicable after the execution of this Agreement,
Seller will provide Purchaser with account information, including complete
mailing addresses for each of the depositors of the Deposits as of a recent
date, and upon reasonable request shall provide
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an updated version of such records; provided, however, that Seller shall not be
obligated to provide such updated records more than twice.
(c) Notwithstanding the provisions of Section 7.6, neither
Purchaser nor Seller shall object to the use, by depositors of the Deposits, of
payment orders issued to or ordered by such depositors on or prior to the
Closing Date, which payment orders bear the name, or any logo, trademark,
service mark, trade name or the proprietary mark of Wells Fargo Bank or any of
its Affiliates.
4.3 Direct Deposits. Seller will use all reasonable efforts to
transfer to Purchaser On the Closing Date all of those automated clearing house
and FedWire direct deposit arrangements related (by agreement or other standing
arrangement) to Deposits. On each Business Day for a period of four (4) months
following the Closing, in the case of automated clearing house direct deposits
to accounts containing Deposits (the final Business Day of such period being
the "ACH Direct Deposit Cut-Off Date"), Seller shall transfer to Purchaser all
received ACH Direct Deposits three times each Business Day at: 6:30 a.m., 2:30
p.m. and midnight, Pacific Standard Time. Such transfers shall contain Direct
Deposits effective for that Business Day only. On each Business Day, for a
period of thirty (30) days following the Closing Date (the final Business Day
of such period being the "FedWire Direct Deposit Cut-Off Date"), FedWires
received by Seller shall be returned (as soon as is possible after receipt) to
the originator with an indication of Purchaser's correct Wire Room contact
information and an instruction that such wire should be sent to Purchaser.
Compensation for ACH direct deposits or FedWire direct deposits not forwarded
to Purchaser on the same Business Day as that on which Seller has received such
deposits will be handled in accordance with the rules established by the United
States Council on International Banking. After the applicable Direct Deposit
Cut-Off Date, Seller may discontinue accepting and forwarding automated
clearing house and FedWire entries and funds and return such direct deposits to
the originators marked "Account Closed." Seller shall not be liable for any
overdrafts that may thereby be created. Purchaser and Seller shall agree on a
reasonable period of time prior to the Closing during which Seller will no
longer be obligated to accept new direct deposit arrangements related to the
Branches. At the time of each Direct Deposit Cut-off Date, Purchaser will
provide automated clearing housing originators with account numbers relating to
Deposits.
4.4 Direct Debit. As soon as practicable after execution of this
Agreement, and after the notice provided in Section 4.2(a), Purchaser will send
appropriate notice to all customers having accounts constituting Deposits the
terms of which provide for direct debit of such accounts by third parties,
instructing such customers concerning transfer of customer direct debit
authorizations from Seller to Purchaser. Seller shall cooperate in soliciting
the transfer of such authorizations. Such notice shall be in a form agreed to
by the parties. For a period of four (4) months following the Closing Date,
Seller shall transfer to Purchaser all received direct debits on accounts
constituting Deposits three times each Business Day: at 6:30 am; 2:30 p.m.; and
midnight, Pacific Standard Time. Such transfers shall contain direct debits
effective for that Business Day only. Thereafter, Seller may discontinue
forwarding such entries and return them to the originators marked "Account
Closed." Purchaser and Seller shall agree on a reasonable period of time prior
to the Closing during which Seller will no longer be obligated to accept new
direct debit arrangements related to the Branches. On the Closing Date,
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Purchaser will provide automated clearing house originators of such direct
debits with account numbers.
4.5 Escheat Deposits. After Closing no currently escheated
deposits are being sold. Purchaser shall be solely responsible for the proper
reporting and transmission to the appropriate of such Escheat Deposits.
4.6 Maintenance of Records. Through the Closing Date, Seller will
maintain the Records relating to the Assets and Liabilities in the same manner
and with the same care that the Records have been maintained prior to the
execution of this Agreement. Purchaser may, at its own expense, make such
copies of and excerpts from the Records as it may deem desirable. All Records,
whether held by Purchaser or Seller, shall be maintained for such periods as
are required by law, unless the parties shall, applicable law permitting, agree
in writing to a different period. From and after the Closing Date, each of the
parties shall permit the other reasonable access to any applicable Records in
its possession relating to matters arising on or before the Closing Date and
reasonably necessary in connection with any claim, action, litigation or other
proceeding involving the party requesting access to such Records or in
connection with any legal obligation owed by such party to any present or
former depositor or other customer.
4.7 Interest Reporting and Withholding. (a) Seller will report to
applicable taxing authorities and holders of Deposits, with respect to the
period from January 1 of the year in which the Closing occurs through the
Closing Date, all interest (including for purposes hereof dividends and other
distributions with respect to money market accounts) credited to, withheld from
and any early withdrawal penalties imposed upon the Deposits. Purchaser will
report to the applicable taxing authorities and holders of Deposits, with
respect to all periods from the day after the Closing Date, all such interest
credited to, withheld from and early withdrawal penalties imposed upon such
Deposits. Any amounts required by any governmental agencies to be withheld
from any of the Deposits through the Closing Date will be withheld by Seller in
accordance with applicable law or appropriate notice from any governmental
agency and will be remitted by Seller to the appropriate agency on or prior to
the applicable due date. Any such withholding required to be made subsequent
to the Closing Date shall be withheld by Purchaser in accordance with
applicable law or the appropriate notice from any governmental agency and will
be remitted by Purchaser to the appropriate agency on or prior to the
applicable due date. Promptly after the Closing Date, but in no event later
than the date Purchaser is obligated to remit such amounts to the applicable
governmental agency, Seller will pay to Purchaser that portion of any sums
theretofore withheld by Seller from any Deposits which are required to be
remitted by Purchaser pursuant to the foregoing and shall directly remit to the
applicable governmental agency that portion of any such sums which are required
to be remitted by Seller.
(b) Seller shall be responsible for delivering to payees all IRS
notices with respect to information reporting and tax identification numbers
required to be delivered through the Closing Date with respect to the Deposits,
and Purchaser shall be responsible for delivering to payees all such notices
required to be delivered following the Closing Date with respect to the
Deposits. Purchaser and Seller shall, prior to the Closing Date, consult and
Seller shall take
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reasonable actions as are necessary to permit Purchaser timely to deliver such
IRS notices required to be delivered following the Closing Date.
4.8 Negotiable Instruments. Seller will remove any supply of
Seller's money orders, official checks, gift checks, travelers' checks or any
other negotiable instruments located at each of the Branches on the Closing
Date.
4.9 ATM/Debit Cards; POS Cards. Seller will provide Purchaser
with a list of ATM access/debit cards and Point-of-Sale ("POS") cards issued by
Seller to depositors of any Deposits, and a record thereof in a format
reasonably agreed to by the parties containing all addresses therefor, as soon
as practicable after execution of this Agreement. At or promptly after the
Closing, Seller will provide Purchaser with a revised record through the
Closing. In instances where a depositor of a Deposit made an assertion of
error regarding an account constituting Deposits pursuant to the Electronic
Funds Transfer Act and Federal Reserve Board Regulation E, and Seller, prior to
the Closing, recredited the disputed amount to the relevant account during the
conduct of the error investigation, Purchaser agrees to comply with a written
request from Seller to debit such account in a stated amount and remit such
amount to Seller, to the extent of the balance of funds available in the
accounts. Seller agrees to indemnify Purchaser for any claims or losses that
Purchaser may incur as a result of complying with such request from Seller.
Seller will not be required to disclose to Purchaser customers' PINs or
algorithms or logic used to generate PINs. Purchaser shall reissue ATM
access/debit cards to depositors of any Deposits prior to the Closing Date,
which cards shall be effective as of the Closing Date. Purchaser and Seller
agree to settle any and all ATM transactions and POS transactions effected on
or before the Closing Date, but processed after the Closing Date, as soon as
practicable. In addition, Purchaser assumes responsibility for and agrees to
pay on presentation all POS transactions initiated before or after the Closing
with Visa Gold Check Cards and MasterMoney Cards issued by Seller to access
Transaction Accounts.
4.10 Leasing of Personal Property. Seller shall cancel or
terminate any Personal Property Leases as of the Closing Date.
4.11 Handling of Certain Items. (a) As soon as practicable after
the Closing Date, Purchaser shall mail to each depositor in respect of a
Transaction Account (i) a letter approved by Seller requesting that such
depositor promptly cease writing Seller's drafts against such Transaction
Account and (ii) new drafts which such depositor may draw upon Purchaser for
the purpose of effecting transactions with respect to such Transaction
Accounts. The parties hereto shall use their best efforts to develop
procedures which cause Seller's drafts against Transaction Accounts which are
received after the Closing Date to be cleared through Purchaser's then-current
clearing procedures. During the ninety (90) day period after the Closing Date,
if it is not possible to clear Transaction Account drafts through Purchaser's
then- current clearing procedures, Seller shall forward to Purchaser as soon as
practicable but in no event more than three (3) Business Days after receipt all
Transaction Account drafts drawn against Transaction Accounts. Seller shall
have no obligation to pay such forwarded Transaction Account drafts. Upon the
expiration of such ninety (90) day period, Seller shall cease forwarding drafts
against Transaction Accounts. Seller shall be compensated for its
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processing of the drafts during the ninety (90) day period following the
Closing Date in accordance with Schedule 4.11 hereto.
(b) Any items that were credited for deposit to or cashed against
a Deposit prior to the Closing and are returned unpaid on or within sixty (60)
days after the Closing Date ("Returned Items") will be handled as set forth
herein. If Seller's bank account is charged for the Returned Item, Seller
shall forward such Returned Item to Purchaser. If upon Purchaser's receipt of
such Returned Item there are sufficient funds in the Deposit to which such
Returned Item was credited or any other Deposit transferred at the Closing
standing in the name of the party liable for such Returned Item, Purchaser will
debit any or all of such Deposits an amount equal in the aggregate to the
Returned Item, and shall repay that amount to Seller. If there are not
sufficient funds in the Deposit because of Purchaser's failure to honor holds
placed on such Deposit, Purchaser shall repay the amount of the Returned Item
to Seller. Any items that were credited for deposit to or cashed against an
account at the Branches to be transferred at the Closing prior to the Closing
and are returned unpaid more than sixty (60) days after the Closing will be the
responsibility of Purchaser, except that for a period of eighteen (18) months
after the Closing checks drawn on the United States Treasury, checks issued by
state governments and municipalities and checks returned for endorsement
irregularities will be the responsibility of Seller.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
5.1 Corporate Organization and Authority. As of the date hereof,
Seller is a national banking association, duly organized and validly existing
in good standing under the laws of the United States of America and has the
requisite power and authority to conduct the business now being conducted at
the Branches. Seller has the requisite corporate power and authority and has
taken all corporate action necessary in order to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. This
Agreement is a valid and binding agreement of Seller enforceable in accordance
with its terms subject, as to enforcement, to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
5.2 No Conflicts. The execution, delivery and performance of this
Agreement by Seller does not, and will not, (i) violate any provision of its
charter or by-laws or (ii) violate or constitute a breach of, or default under,
any law, rule, regulation, judgment, decree, ruling or order of any court,
government or governmental agency to which Seller is subject or under any
agreement or instrument of Seller, or to which Seller is subject or by which
Seller is otherwise bound, which violation, breach, contravention or default
referred to in this clause (ii), individually or in the aggregate, would have a
Material Adverse Effect (assuming the receipt of any required consents of
lessors under the Branch Leases and Personal Property Leases). Seller has all
material licenses, franchises, permits, certificates of public convenience,
orders
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and other authorizations of all federal, state and local governments and
governmental authorities necessary for the lawful conduct of its business at
each of the Branches as now conducted and all such licenses, franchises,
permits, certificates of public convenience, orders and other authorizations,
are valid and in good standing and, to Sellers' knowledge, are not subject to
any suspension, modification or revocation or proceedings related thereto.
5.3 Approvals and Consents. Other than the Regulatory Approvals
or as otherwise disclosed in writing to Purchaser by Seller prior to the date
hereof, no notices, reports or other filings are required to be made by Seller
with, nor are any consents, registrations, approvals, permits or authorizations
required to be obtained by Seller from, any governmental or regulatory
authorities of the United States or the several States in connection with the
execution and delivery of this Agreement by Seller and the consummation of the
transactions contemplated hereby by Seller, the failure to make or obtain any
or all of which, individually or in the aggregate, would have a Material
Adverse Effect.
5.4 Tenants. Except for the tenants listed on Schedule 5.4
attached hereto, there are no tenants or other occupants of the Real Property.
5.5 Leases. Each Branch Lease and each Personal Property Lease is
the valid and binding obligation of Seller and, to Seller's knowledge, of each
other party thereto; and there does not exist with respect to Seller's
obligations thereunder, or, to Seller's knowledge, with respect to the
obligations of the lessor thereof, any material default, or event or condition
which constitutes, or, after notice or passage of time or both, would
constitute a material default on the part of Seller or the lessor under any
such Branch Lease or Personal Property Lease. As used in the immediately
preceding sentence, the term "lessor" includes any sub-lessor of the property
to Seller. Each Branch Lease and each material Personal Property Lease is
current and all rents, expenses and charges payable by Seller thereunder have
been paid or accrued pursuant to the terms thereof (except for any payments not
yet delinquent or as to which the obligation to make such payment is being
contested in good faith). Accurate copies of each Branch Lease have heretofore
been made available to Purchaser.
5.6 Litigation and Undisclosed Liabilities. Except as set forth
in Schedule 5.6, there are no actions, suits or proceedings that have a
reasonable likelihood of an adverse determination pending or, to Seller's
knowledge, threatened against Seller or any of the Branches, or obligations or
liabilities (whether or not accrued, contingent or otherwise) or to Seller's
knowledge, facts or circumstances that could reasonably be expected to result
in any claims against or obligations or liabilities of Seller that,
individually or in the aggregate, would have a Material Adverse Effect.
5.7 Regulatory Matters. (a) Except as previously disclosed in
writing to Purchaser, there are no pending, or to Seller's knowledge
threatened, disputes or controversies between Seller and any federal, state or
local governmental agency or authority that, individually or in the aggregate,
would have a Material Adverse Effect.
(b) Seller is not a party to any written order, decree, agreement
or memorandum or understanding with, or commitment letter or similar submission
to, any federal or state
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governmental agency or authority charged with the supervision or regulation of
depository institutions, nor has Seller been advised by any such agency or
authority that it is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree, agreement,
memorandum of understanding, commitment letter of submission, in each case
which, individually or in the aggregate, would have a Material Adverse Effect.
5.8 Compliance With Laws. The banking business of the Branches
has been conducted in compliance with all federal, state and local laws,
regulations and ordinances applicable thereto, except for any failures to
comply that would not, individually or in the aggregate, result in a Material
Adverse Effect.
5.9 [intentionally omitted]
5.10 Financial and Deposit Data. To Seller's knowledge, all
written financial and Deposit information regarding the Assets and Liabilities
provided to Purchaser by Seller was accurate in all material respects as of the
date thereof.
5.11 Records. The Records respecting the operations of the
Branches and the Assets and Liabilities accurately reflect in all material
respects the net book value of the Assets and Liabilities being transferred to
Purchaser hereunder. The Records include all information reasonably necessary
to service the Deposits on an ongoing basis.
5.12 Title to Assets. Subject to the terms and conditions of this
Agreement, on the Closing Date Purchaser will acquire, good and marketable
title to all of the material Assets, free and clear of any Encumbrances;
provided, however, that this representation does not cover Owned Real Property
(with respect to which Seller has provided a Title Report and Purchaser is to
obtain its own Title Policy pursuant to Section 3.10), Branch Leases or Tenant
Leases.
5.13 Branch Leases. The Branch Leases give Seller the right to
occupy the building and land comprising the related Branch. Accurate copies of
all Branch Leases and all attachments, amendments and addenda thereto have
heretofore been made available to Purchaser. To Seller's knowledge, the Branch
Leases constitute valid and legally binding leasehold interests of Seller.
Except as described on Schedule 5.4, there are no leases, subleases,
occupancies, tenancies or rights of first refusal relating to any Branch
created or suffered to exist by Seller or, to Seller's knowledge, created or
suffered to exist by any other person.
5.14 Deposits. All of the Deposit accounts have been administered
and, to Seller's knowledge, originated, compliance with the documents governing
the relevant type of Deposit account and all applicable laws. The Deposit
accounts are insured by the Bank Insurance Fund of the FDIC up to the current
applicable maximum limits, and no action is pending or, to Seller's knowledge,
threatened by the FDIC with respect to the termination of such insurance.
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5.15 Environmental Laws: Hazardous Substances. To Seller's
knowledge, except as disclosed on Schedule 5.16, or as would not, individually
or in the aggregate, have a Material Adverse Effect, each parcel of Real
Property:
(a) has been operated by Seller in compliance with all applicable
Environmental Laws;
(b) is not the subject of any pending written notice from any
governmental authority alleging the violation of any applicable Environmental
Laws;
(c) is not currently subject to any court order, administrative
order or decree arising under any Environmental Law;
(d) has not been used during the period of Seller's ownership or
occupancy of such Real Property for the disposal of Hazardous Substances and is
not contaminated with any Hazardous Substances requiring remediation under any
applicable Environmental Law; and
(e) has not, during the period of Seller's ownership or occupancy
of such Real Property, had any release of Hazardous Substances except as
permitted under applicable Environmental Laws.
For purposes of this Section 5.16, with respect to the parcels which
are subject to Branch Leases and Tenant Leases, "Seller's knowledge" shall mean
that an officer of Seller who holds the title of Senior Vice President or above
and has responsibility with respect to management of operations conducted at
the Branches on such parcels has received actual written notice from the
landlord that any one of the representations in (a) through (e) above is not
correct.
5.16 Broker's Fees. Except for Montgomery Securities, no broker
has been employed by or on behalf of Seller in connection with the transactions
contemplated by this Agreement. Seller will pay the fees of Montgomery
Securities.
5.17 Limitations on Representations and Warranties.
Notwithstanding anything to the contrary contained herein Seller makes no
representations or warranties to Purchaser in this Agreement or in any
agreement, instrument or other document executed in connection with any of the
transactions contemplated hereby or provided or prepared pursuant hereto or in
connection with any of the transactions contemplated hereby:
(a) As to title to Owned Real Property or as to the physical
condition (including, without limitation, ability to withstand seismic events)
of the Branches or Personal Property, all of which are being sold "AS IS",
"WHERE IS" and with all faults at the Closing Date; or
(b) As to whether, or the length of time during which, any
accounts will be maintained by the depositors at the Branches after the Closing
Date.
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ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
6.1 Corporate Organization and Authority. Purchaser is Cowlitz
Bank, duly organized and validly existing under the laws of Washington State
and has the requisite power and authority to conduct the business conducted at
the Branches substantially as currently conducted by Seller. Purchaser has the
requisite corporate power and authority and has taken all corporate action
necessary in order to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement is a valid and binding
agreement of Purchaser enforceable in accordance with its terms subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
6.2 No Conflicts. The execution, delivery and performance of this
Agreement by Purchaser does not, and will not, (i) violate any provision of its
charter or by-laws or (ii) violate or constitute a breach of, or default under,
any law, rule, regulation, judgment, decree, ruling or order of any court,
government or governmental agency to which Purchaser is subject or under any
agreement or instrument of Purchaser, or to which Purchaser is subject or by
which Purchaser is otherwise bound, which violation, breach, contravention or
default referred to in this clause (ii), individually or in the aggregate,
would have a Material Adverse Effect.
6.3 Approvals and Consents. Other than the Regulatory Approvals
or as otherwise disclosed in writing to Seller by Purchaser prior to the date
hereof, no notices, reports or other filings are required to be made by
Purchaser with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by Purchaser from any governmental or
regulatory authorities of the United States, the several States or any foreign
jurisdictions in connection with the execution and delivery of this Agreement
by Purchaser and the consummation of the transactions contemplated hereby by
Purchaser, the failure to make or obtain any or all of which, individually or
in the aggregate, would have a Material Adverse Effect.
6.4 Regulatory Matters. (a) Except as previously disclosed in
writing to Seller, there are no pending, or to Purchaser's knowledge
threatened, disputes or controversies between Purchaser and any federal, state
or local governmental agency or authority that, individually or in the
aggregate, would have a Material Adverse Effect.
(b) Purchaser is not a party to any written order, decree,
agreement or memorandum of understanding with, or commitment letter or similar
submission to, any federal or state governmental agency or authority charged
with the supervision or regulation of depository institutions, nor has
Purchaser been advised by any such agency or authority that it is contemplating
issuing or requesting (or is considering the appropriateness of issuing or
requesting) any such order decree, agreement, memorandum of understanding,
commitment
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letter or submission, in each case which, individually or in the aggregate,
would have a Material Adverse Effect.
(c) Purchaser is, and on a pro forma basis giving effect to the
P&A Transaction will be, (i) at least "adequately capitalized", as defined for
purposes of the FDIA, and (ii) in compliance with all capital requirements,
standards and ratios required by each state or federal bank regulator with
jurisdiction over Purchaser, including, without limitation, any such higher
requirements, standard or ratio as shall apply to institutions engaging in the
acquisition of insured institution deposits, assets or branches, and no such
regulator is likely to, or has indicated that it will, condition any of the
Regulatory Approvals upon an increase in Purchaser's capital or compliance with
any capital requirements, standard or ratio.
(d) Purchaser has no knowledge that it will be required to divest
deposit liabilities, branches, loans or any business or line of business as a
condition to the receipt of any of the Regulatory Approvals.
(e) Each of the subsidiaries or Affiliates of Purchaser that is an
insured depository institution was rated "Satisfactory" or "Outstanding"
following its most recent Community Reinvestment Act examination by the
regulatory agency responsible for its supervision. Purchaser has received no
notice of and has no knowledge of any planned or threatened objection by any
community group to the transactions contemplated hereby.
6.5 Litigation and Undisclosed Liabilities. There are no actions,
suits or proceedings that have a reasonable likelihood of an adverse
determination pending or, to Purchaser's knowledge, threatened against
Purchaser, or obligations or liabilities (whether or not accrued, contingent or
otherwise) or, to Purchaser's knowledge, facts or circumstances that could
reasonably be expected to result in any claims against or obligations or
liabilities of Purchaser that, individually or in the aggregate, would have a
Material Adverse Effect.
6.6 Financing Available. Purchaser's ability to consummate the
transactions contemplated by this Agreement is not contingent on raising any
equity capital, obtaining specific financing thereof, consent of any lender or
any other matter.
6.7 Broker's Fees. Purchaser has not employed any broker or
finder or incurred any liability for any brokerage fees, commissions or
finder's fees in connection with the transactions contemplated by this
Agreement, except for fees and commissions for which Purchaser shall be solely
liable.
ARTICLE 7
COVENANTS OF THE PARTIES
7.1 Activity in the Ordinary Course. Until the Closing Date, (a)
Seller shall conduct the business of the Branches (including, without
limitation, filling open positions at the Branches and job-posting in the
Branches for open positions at other offices of Seller) in the ordinary and
usual course of business consistent with past practice and giving effect to the
fact
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that Seller is engaged in certain systems conversions and office closings
arising out of its recent merger with First Interstate Bank, and (b) Seller
shall not, without the prior written consent of Purchaser:
(i) Increase or agree to increase the salary, remuneration or
compensation of any Branch Employee (or make any material increase or
decrease in the number of such persons, or transfer such persons to or
from any Branch) other than in accordance with Seller's existing
customary policies generally applicable to employees having similar
rank or duties, or pay or agree to pay any uncommitted bonus to any
Branch Employee other than regular bonuses granted in the ordinary
course of Seller's business (which bonuses, in any event, shall be the
responsibility of Seller); or, except at the request of such Branch
Employee, transfer any Branch Employee to another branch or office, of
Seller or any of its Affiliates;
(ii) Offer interest rates or terms on any category of deposits at a
Branch except as determined in a manner consistent with Seller's
practice with respect to its branches which are not being sold;
(iii) Transfer to or from any Branch to or from any of Seller's
other operations or branches any material Assets or any Deposits,
except (A) in the ordinary course of business or as contemplated in
this Agreement, or (B) upon the unsolicited request of a depositor or
customer;
(iv) Sell, transfer, assign, encumber or otherwise dispose of or
enter into any contract, agreement or understanding to sell, transfer,
assign, encumber or dispose of any of the Assets existing on the date
hereof, except in the ordinary course of business and in an immaterial
aggregate amount; provided, however, that in any event, Seller shall
not knowingly take any action that would create any Encumbrance on any
of the Real Property or the Branch Leases;
(v) Make or agree to make any material improvements to the Owned
Real Property, except with respect to commitments for such made on or
before the date of this Agreement (and heretofore disclosed in writing
to Purchaser) and normal maintenance, repair or refurbishing purchased
or made in the ordinary course of business;
(vi) File any application or give any notice to relocate or close
any Branch or relocate or close any Branch;
(vii) Amend, terminate or extend in any material respect any Branch
Lease, Tenant Lease or Personal Property Lease; provided, however,
Seller may extend any Branch Lease, Tenant Lease or Personal Property
Lease, in its reasonable business judgment (including without
limitation pursuant to the terms and conditions of any contractual
option to extend in any Branch Lease, Tenant Lease or Personal
Property Lease) if Seller determines such extension is necessary to
deliver the Branch on the Closing Date as a fully operative branch
banking operation.
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7.2 Access and Confidentiality. (a) Until the Closing Date,
Seller shall afford to Purchaser and its officers and authorized agents and
representatives reasonable access to the properties, books, records, contracts,
documents, files and other information of or relating to the Assets and
Liabilities. Purchaser and Seller each will identify to the other, within ten
(10) days after the date hereof, a selected group of their respective salaried
personnel that shall constitute a "transition group" who will be available to
Seller and Purchaser, respectively, at reasonable times (limited to normal
operating hours) to provide information and assistance in connection with
Purchaser's investigation of matters relating to the Assets and Liabilities.
Seller shall cause other personnel to be reasonably available during normal
business hours, to an extent not disruptive of ongoing operations, for the same
purposes. Any investigation pursuant to this Section 7.2 shall be conducted in
such manner as not to interfere unreasonably with the conduct of the Seller's
business. Notwithstanding the foregoing, Seller shall not be required to
provide access to or disclose information where such access or disclosure would
impose an unreasonable burden on Seller, or any employee of Seller or would
violate or prejudice the rights of customers, jeopardize any attorney-client
privilege or contravene any law, rule, regulation, order, judgment, decree,
fiduciary duty or binding agreement entered into prior to the date of this
Agreement. The parties hereto shall make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply.
(b) EACH PARTY TO THIS AGREEMENT SHALL HOLD, AND SHALL CAUSE ITS
RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, CONSULTANTS AND ADVISORS TO
HOLD, IN STRICT CONFIDENCE, UNLESS DISCLOSURE TO A BANK REGULATORY AUTHORITY IS
NECESSARY OR DESIRABLE IN CONNECTION WITH ANY REGULATORY APPROVAL OR UNLESS
COMPELLED TO DISCLOSE BY JUDICIAL OR ADMINISTRATIVE PROCESS OR, IN THE WRITTEN
OPINION OF ITS COUNSEL, BY OTHER REQUIREMENTS OF LAW OR THE APPLICABLE
REQUIREMENTS OF ANY REGULATORY AGENCY OR RELEVANT STOCK EXCHANGE, ALL
NON-PUBLIC RECORDS, BOOKS, CONTRACTS, INSTRUMENTS, COMPUTER DATA AND OTHER DATA
AND INFORMATION (COLLECTIVELY, "INFORMATION") CONCERNING THE OTHER PARTY (OR,
IF REQUIRED UNDER A CONTRACT WITH A THIRD PARTY, SUCH THIRD PARTY) FURNISHED IT
BY SUCH OTHER PARTY OR ITS REPRESENTATIVES PURSUANT TO THIS AGREEMENT (EXCEPT
TO THE EXTENT THAT SUCH INFORMATION CAN BE SHOWN TO HAVE BEEN (i) PREVIOUSLY
KNOWN BY SUCH PARTY ON A NON-CONFIDENTIAL BASIS, (ii) IN THE PUBLIC DOMAIN
THROUGH NO FAULT OF SUCH PARTY OR (iii) LATER LAWFULLY ACQUIRED FROM OTHER
SOURCES BY THE PARTY TO WHICH IT WAS FURNISHED), AND NEITHER PARTY SHALL
RELEASE OR DISCLOSE SUCH INFORMATION TO ANY OTHER PERSON, EXCEPT ITS AUDITORS,
ATTORNEYS, FINANCIAL ADVISORS, BANKERS, OTHER CONSULTANTS AND ADVISORS AND, TO
THE EXTENT PERMITTED ABOVE, TO BANK REGULATORY AUTHORITIES.
7.3 Regulatory Approvals. As soon as practicable after the date
of this Agreement. Purchaser shall prepare and file any applications, notices
and filings required in order to obtain the Regulatory Approvals. Purchaser
shall use all reasonable efforts to obtain each such
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approval as promptly as reasonably practicable and, to the extent possible, in
order to permit the Closing to occur not later than July 18, 1997. Seller will
cooperate in connection therewith (including the furnishing of any information
and any reasonable undertaking or commitments which may be required to obtain
the Regulatory Approvals). Each party will provide the other with copies of
any applications and all correspondence relating thereto prior to filing, other
than material filed in connection therewith under a claim of confidentiality.
7.4 Consents. Seller agrees to use reasonable commercial efforts
(such efforts not to include making payments to third parties) to obtain from
lessors and any other parties to any Branch Leases or Personal Property Leases
any required consents to the assignment of the Branch Leases and Personal
Property Leases to Purchaser on the Closing Date; provided, however, Seller
shall not be obligated to incur any monetary obligations or expenditures to the
parties whose consent is required in connection with the utilization of its
reasonable efforts to obtain any such required consents. If any such required
consent cannot be obtained, notwithstanding any other provision hereof, the
Assets and Liabilities associated with the subject Branch, other than any such
Branch Lease or any Personal Property Lease or as to which consent cannot be
obtained, shall nevertheless be transferred to Purchaser at the Closing and the
parties shall negotiate in good faith and Seller and Purchaser shall use
reasonable efforts (such efforts not to include making payments to third
parties) to make alternative arrangements reasonably satisfactory to Seller and
Purchaser. In the event Seller does not obtain consent from the lessors and
any other parties to any Branch Lease or Personal Property Lease, Seller shall
not be obligated to deliver physical possession of the subject Branch or the
personal property subject to such Personal Property Lease to Purchaser at the
Closing.
7.5 Efforts to Consummate; Further Assurances. (a) Purchaser and
Seller agree to use all reasonable efforts to satisfy or cause to be satisfied
as soon as practicable their respective obligations hereunder and the
conditions precedent to the Closing.
(b) Seller will duly execute and deliver such assignments, bills
of sale, deeds, acknowledgments and other instruments of conveyance and
transfer as shall at any time be necessary or appropriate to vest in Purchaser
the full legal and equitable title to the Assets.
(c) On and after the Closing Date, each party will promptly
deliver to the other all mail and other communications properly addressable or
deliverable to the other as a consequence of the P&A Transaction; and without
limitation of the foregoing, on and after the Closing Date, Seller shall
promptly forward any mail, communications or other material relating to the
Deposits or the Assets transferred on the Closing Date, including, but not
limited to, that portion of any IRS "B" tapes that relates to such Deposits, to
such employees of Purchaser at such addresses as may from time to time be
specified by Purchaser in writing.
(d) The costs incurred by a party in performing its obligations to
the other (x) under Sections 7.5(a) and (c) shall be borne by the initial
recipient and (y) otherwise under this Section 7.5 shall be bona by Purchaser.
Seller will cooperate with Purchaser to minimize the costs referred to in
clause (y).
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7.6 Solicitation. (a) Until the Closing Date and for an
additional six (6) months following the Closing Date, Seller agrees that it
will not solicit deposits (but may solicit loans, mutual fund purchases or
other investment products, or other business) from or to persons or entities
who were depositors at the Branches on the date hereof by personal contact, by
telephone, by facsimile, by mail or other similar solicitation, or in any other
way except for general solicitations and solicitations that are not directed
primarily to persons or entities who were depositors of the Branches on the
date hereof provided, however, (i) Seller may, prior to Closing, solicit those
customers whose accounts are not domiciled in the Branches, but who regularly
use the Branches for their deposit and withdrawal transactions, to move their
Deposit accounts into the Branches prior to Closing, (ii) Seller may solicit
depositors who as of the date of this Agreement have existing accounts
originating at branches or other offices of Seller or its Affiliates other than
the Branches pursuant to solicitations which arise from their status as a
customer at such other branches or offices; and (iii) Seller may solicit major
or statewide depositors (such as, for example, a company with more than one
location or the state government or any agency or instrumentality thereof
without restriction hereunder.
(b) Prior to the Closing Date, Purchaser agrees that it will not
attempt to solicit Branch customers through advertising nor transact its
business in a way which would induce such Branch customers to close any account
and open accounts directly with Purchaser or would otherwise result in a
transfer of all or a portion of an existing account from Seller to Purchaser or
to any other financial institution. Notwithstanding the foregoing sentence,
Purchaser and its Affiliates shall be permitted to: (i) engage in advertising,
solicitations or marketing campaigns not primarily directed to or targeted at
such Branch customers; (ii) engage in lending, deposit, safe deposit, trust or
other financial services relationships existing as of the date hereof which
such Branch customers through other branch offices of Purchaser; (iii) respond
to unsolicited inquiries by such Branch customers with respect to banking or
other financial services; and (iv) provide notices or communications relating
to the transactions contemplated hereby in accordance with the provisions
hereof.
7.7 Insurance. Seller will maintain in effect until the Closing
Date all casualty and public liabilities policies relating to the Branches and
maintained by Seller on the date hereof or procure comparable replacement
policies and maintain such replacement policies in effect until the Closing
Date. Purchaser shall provide all casualty and public liability insurance for
the Branches subsequent to the Closing Date.
7.8 No Servicing and Maintenance Contracts. No existing contracts
of Seller with respect to the service, maintenance and physical operation of
the Branches will be assumed at the Closing by Purchaser. All such service and
maintenance shall be provided by Purchaser, subsequent to the Closing, pursuant
to its own contracts.
7.9 Signage. Purchaser shall, at its own expense, remove and
dispose of all Wells Fargo Bank signage as soon as practicable after the
Closing.
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ARTICLE 8
TAXES AND EMPLOYEE BENEFITS
8.1 Tax Representations. Seller represents and warrants to
Purchaser as follows:
(a) Except as set forth in Schedule 8.1, all Tax Returns with
respect to the Assets or income therefrom, the Liabilities or payments in
respect thereof or the operation of the Branches, that are required to be filed
(taking into account any extension of time within which to file) before the
Closing Date, have been or will be duly filed, and all Taxes shown to be due on
such Tax Returns have been or will be paid in full.
(b) With respect to the Deposits, Seller is in compliance with the
Code and regulations thereunder relative to obtaining form depositors of the
Deposits executed IRS Forms W-8 and W-9. With respect to the Deposits opened
after December 31, 1983, Seller has either obtained a properly completed Form
W-8 or W-9 (or a substitute form meeting applicable requirements) or is back-up
withholding on such account.
8.2 Proration of Taxes. Except as otherwise agreed to by the
parties, whenever it is necessary to determine the liability for Taxes for a
portion of a taxable year or period that begins before and ends on or after the
Closing Date, the determination of the Taxes for the portion of the year or
period ending on, and the portion of the year or period beginning on or after,
the Closing Date shall be determined by assuming that the taxable year or
period ended at 11:59 P.M. California time on the day prior to the Closing
Date.
8.3 Sales and Transfer Taxes. Except as set forth in Section 3.9,
all excise, sales, use and transfer taxes that are payable or that arise as a
result of the consummation of the purchase and sale contemplated by this
Agreement shall be paid by Purchaser and Purchaser shall indemnify and hold
Seller harmless from and against any such taxes.
8.4 Information Returns. At the Closing or as soon thereafter as
is practicable, Seller shall provide Purchaser with a list of all Deposits for
which Seller has not received a properly completed Form W-8 and W-9 (or a
substitute form meeting applicable requirements) or on which Seller is back-up
withholding as of the Closing Date. Seller agrees to indemnify Purchaser in an
amount equal to any penalty and interest imposed upon Purchaser by the IRS
which Purchaser is thereafter required to, and does, pay to the IRS where such
penalty and interest arises out of actions taken or omitted to be taken by
Purchaser in reasonable reliance upon information provided under this Section
8.4 and such penalty and interest does not result from an act or omission of
Purchaser not made in reasonable reliance upon such information. The term
"interest" for purposes of this Section 8.4 means interest accrued prior to the
receipt by Purchaser of a notice of Penalty from the IRS regarding Forms W-8 or
W-9 for the Deposits. Purchaser shall timely notify Seller of such penalty
notice prior to Purchaser's payment of any penalty or interest. Seller has the
right, at its own expense, to protest such penalty and interest. Purchaser
shall cooperate fully with respect to Seller's protest, including furnishing
all relevant information, records, and documents.
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8.5 Payment of Amount Due Under Article 8. Any payment by Seller
to Purchaser, or to Seller from Purchaser, under this Article 8 (other than
payments required by Section 8.3) to the extent due at the Closing may be
offset against any payment due the other party at the Closing. All subsequent
payments under this Article 8 shall be made as soon as determinable and shall
be made and bear interest from the date due to the date of payment as provided
in Section 3.2(b).
8.6 Assistance and Cooperation. After the Closing Date, each of
Seller and Purchaser shall:
(a) Make available to the other and to any taxing authority as
reasonably requested all relevant information, records, and documents relating
to Taxes with respect to the Assets or income therefrom, the Liabilities or
payments in respect thereof, or the operation of the Branches;
(b) Provide timely notice to the other in writing of any pending
or proposed Tax audits (with copies of all relevant correspondence received
from any Taxing authority in connection with any Tax audit or information
request) or Tax assessments with respect to the Assets or the income therefrom,
the Liabilities or payments in respect thereof, or the operation of the
Branches for taxable periods for which the other may have a liability under
this Article 8; and
(c) The party requesting assistance or cooperation shall bear the
other party's out-of-pocket expenses in complying with such request to the
extent that those expenses are attributable to fees and other costs of
unaffiliated third party service providers.
8.7 Employees. (a) As soon as reasonably practicable and in any
event within thirty (30) days of the date hereof, Seller shall deliver to
Purchaser a true and complete list of all Branch Employees by name, date of
hire and position, as of the date hereof, together with their most recent
performance evaluations, current salaries and other compensation arrangements;
provided, however, that Seller shall not release a performance evaluation
without having first obtained the written consent of the respective Branch
Employee. Purchaser may, at its discretion, interview any and all Branch
Employees. Purchaser shall make employment available to all Branch Employees
on the Closing Date upon the terms and conditions described below. Seller
shall promptly inform Purchaser of any Branch Employee who resigns prior to the
Closing Date. On and after the Closing Date, Branch Employees employed by
Purchaser shall be defined as Transferred Employees for all purposes hereof.
Subject to the provisions of this Section 8.7, Transferred Employees shall be
subject to the employment terms, conditions and rules applicable to other
employees of Purchaser. Nothing contained in this Agreement shall be construed
as an employment contract between Purchaser and any Branch Employee or
Transferred Employee.
(b) Purchaser may interview Branch Employees during normal working
hours. Purchaser shall be solely responsible for any activity in connection
with interviewing Branch Employees. Purchaser indemnifies and holds Seller
harmless from and against any claim,
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liability, losses, costs or expenses, including reasonable attorneys' fees,
resulting or arising from Purchaser's acts or omissions in connection with said
interviews.
(c) Purchaser shall be responsible for the Assumed Severance
Obligations with respect to all Branch Employees.
(d) Each Transferred Employee shall be provided employment subject
to the following terms and conditions:
(i) Base salary rate shall be at least equivalent to the
rate of base salary paid by Seller to such Transferred Employee as of
the close of business on the day prior to the Closing Date.
(ii) Except as specifically provided herein, Transferred
Employees shall be provided employee benefits that are no less
favorable in the aggregate than those provided to similarly situated
employees of Purchaser. Purchaser shall provide such Transferred
Employee with credit for the Transferred Employee's period of service
with Seller (including any service credited from First Interstate Bank
as a predecessor entity to Seller) towards the calculation of
eligibility for such purposes as vacation, severance and other
benefits and participation and vesting in Purchaser's qualified
pension or profit sharing plan, as such plans may exist (but, except
as set forth in (v) below and for vacation, not for purpose of benefit
accruals, including without limitation, funding of accrued pension or
profit sharing plans for such Transferred Employee with respect to any
period prior to the Closing Date).
(iii) Each Transferred Employee shall be eligible to
participate in the medical, dental or other welfare plans of
Purchaser, as such plans may exist, effective as of the Closing Date
and any pre-existing conditions provisions of such plans shall be
waived with respect to such Transferred Employee; provided, however,
that if Purchaser's relevant health or disability insurance policy or
plan has a pre-existing condition limitation and a Transferred
Employee's condition is being excluded (as a pre-existing condition)
under Seller's plan as of the Closing Date, Purchaser may treat such
condition as a pre-existing condition for the period such condition
would have been treated as a preexisting condition under Seller's plan
under which such Transferred Employee would have been covered.
(iv) With respect to any Transferred Employee on a
short-term disability or temporary leave of absence, upon conclusion
of his or her short-term disability or temporary leave of absence,
subject to the terms and conditions of the Purchaser's plans and
policies and applicable law, each Transferred Employee on such leave
shall receive the salary and vacation benefits in effect when he or
she went on leave, shall otherwise be treated as a Transferred
Employee and, to the extent practicable, shall be offered by Purchaser
the same or a substantially equivalent position to his or her position
with Seller prior to having gone on leave.
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(v) Until April 1, 1998, each Transferred Employee shall
be eligible for benefits under the severance and similar plans
referred to in Schedule 1.1(a) copies of which have been provided to
Purchaser (the "Assumed Severance Obligations"). After April 1, 1998,
each Transferred Employee, who is continuously employed by Purchaser
as of the Closing Date, shall be eligible for benefits under any
severance or similar plans maintained by Purchaser with credit for the
period of years of credited service with Seller towards the
calculation of benefits.
(e) Except as provided herein, Seller shall pay, discharge and be
responsible for (i) all salary and wages, arising out of or relating to the
employment of the Branch Employees before the Closing Date and (ii) any
employee benefits (including, but not limited to, accrued vacation) arising
under Seller's employee benefit plans and employee programs prior to the
Closing Date (but not including any future retiree medical benefits), including
benefits with respect to claims incurred prior to the Closing Date but reported
after the Closing Date. From and after the Closing Date, Purchaser shall pay,
discharge and be responsible for all salary, wages and benefits arising out of
or relating to the employment of the Transferred Employees by Purchaser on and
after the Closing Date, including, without limitation, all claims for welfare
benefit plans incurred on or after the Closing Date. Claims are incurred as of
the date services are provided or disability payments are accrued,
notwithstanding when the injury or illness may have occurred.
(f) To the extent permitted under Purchaser's 401(k) plan, Seller
and Purchaser shall cooperate in arranging for the transfer to Purchaser's
401(k) plan, as soon as practicable after the Closing Date and in a manner that
satisfies sections 414(l) and 411(d)(6) of the Code, of those accounts held
under Seller's 401(k) plan on behalf of Transferred Employees.
(g) For a period of twelve (12) months following the Closing Date,
Seller shall not solicit any Transferred Employee hired by Purchaser as of the
Closing Date to again become an employee of Seller or any of its Affiliates;
provided, however, that Seller shall not be prohibited from hiring a
Transferred Employee if such Transferred Employee contacts Seller to seek such
hiring or retention, whether in response to general advertising or otherwise.
For purposes of this Section 8.7, the term "Seller" shall include Wells Fargo &
Company, a Delaware corporation and their Affiliates.
8.8 Branch Employee Representations. (a) Seller represents and
warrants to Purchaser, to Seller's knowledge, as follows:
(i) none of the Branch Employees is a member of any labor
union;
(ii) Seller is not a party to any individual contract
written or oral, express or implied, for the employment of any Branch
Employee, and Seller is not subject to any collective bargaining
arrangement with respect to any Branch Employee;
(iii) Seller's 401(k) Plan is in compliance in all material
respects with applicable law;
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(iv) no liabilities exist or are reasonably expected to
exist under any employee benefit plan of Seller that, individually or
in the aggregate, would have a Material Adverse Effect; and
(v) Seller has not entered into any individual agreement
or otherwise made any individual commitment to any Branch Employee
with respect to continued employment by Purchaser.
(b) Seller shall indemnify and hold Purchaser harmless from and
against any claims, losses, damages or expenses (including attorney's fee)
suffered as a result of any failure to give any notice to its Branch Employees
required by the Worker Adjustment and Retraining Notification Act (the "WARN
Act"), provided such notice is required as a result of action by Seller prior
to the Closing Date.
ARTICLE 9
CONDITIONS TO CLOSING
9.1 Conditions to Obligations of Purchaser. Unless waived in
writing by Purchaser, the obligation of Purchaser to consummate the P&A
Transaction is conditioned upon satisfaction of each of the following
conditions:
(a) Regulatory Approvals. All consent, approvals and
authorizations required to be obtained prior to the Closing from governmental
and regulatory authorities in connection with the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby to
be consummated at the Closing, including the Regulatory Approvals, shall have
been made or obtained, and shall remain in full force and effect, and all
waiting periods applicable to the consummation of the P&A Transaction shall
have expired or been terminated; provided, however, that no Regulatory Approval
shall have imposed any condition or requirement (a "Burdensome Condition") that
would (i) result in any Material Adverse Effect or (ii) require Purchaser to
effect any divestiture that would constitute a substantial portion of the
business or properties of the Branches, taken as a whole.
(b) Orders. No court or governmental authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) (any of the foregoing, an "Order") which
is in effect and prohibits or makes illegal the consummation of the P&A
Transaction or would otherwise result in a Material Adverse Effect.
(c) Representations and Warranties; Covenants. Each of the
representations and warranties of Seller contained in this Agreement shall be
true in all material respects when made and as of the Closing Date, with the
same effect as though such representations and warranties had been made on and
as of the Closing Date (except that representations and warranties relating to
Assets and Liabilities transferred at the Closing Date shall only be made, and
need only be true in all material respects, on and as of the Closing Date).
Purchaser shall have received at Closing a certificate to that effect dated as
of such Closing Date and executed
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by the President or any Executive Vice President of Seller. Each of the
covenants and agreements of Seller to be performed on or prior to the Closing
Date shall have been duly performed in all material respects. Purchaser shall
have received at Closing a certificate to that effect dated as of such Closing
Date and executed by the President or any Executive Vice President of Seller.
Notwithstanding any other provision of this Agreement, if there shall
be a failure of any condition specified in this Section 9.1 to the obligations
of Purchaser in respect of the acquisition of any specific Branch or Branches
the aggregate Deposits of which as of the date hereof shall constitute less
than 25% of the Deposits in all of the Branches subject to this Agreement as of
the date hereof, Purchaser nevertheless shall be obligated to consummate the
P&A Transaction but may, upon written notice to Seller, exclude from the
transaction the Branch or Branches in respect of which the failure of condition
shall exist, in which case, appropriate adjustment shall be made in the
schedules hereto and the other documents to be delivered pursuant hereto so as
to duly reflect the deletion of such Branch or Branches from the transactions
contemplated hereby (and, consequently, to the calculation of the Estimated
Purchase Price, Estimated Payment Amount, Purchase Price and Adjusted Payment
Amount). If any Branch is excluded from this Agreement or if Purchaser
nevertheless elects to purchase any Branch which would otherwise be so excluded
and such Branch is transferred to Purchaser at the Closing (subject to
Purchaser's rights under Section 12.1(a)), any event that would otherwise
constitute a breach of warranty or failure of condition in respect of such
Branch arising solely from or relating to the operation of this paragraph shall
not constitute a breach of warranty or failure of condition.
9.2 Conditions to Obligations of Seller. Unless waived in writing
by Seller, the obligation of Seller to consummate the P&A Transaction is
conditioned upon satisfaction of each of the following conditions:
(a) Regulatory Approvals. All consents, approvals and
authorizations required to be obtained prior to the Closing from governmental
and regulatory authorities in connection with the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby to
be consummated at the Closing, including the Regulatory Approvals, shall have
been made or obtained, and shall remain in full force and effect, and all
statutory waiting periods applicable to the consummation of the P&A Transaction
shall have expired or been terminated.
(b) Orders. No Order shall be in effect that prohibits or makes
illegal the consummation of the P&A Transaction.
(c) Representations and Warranties; Covenants. Each of the
representations and warranties of Purchaser contained in this Agreement shall
be true in all material respects when made and as of the Closing Date, with the
same effect as though such representations and warranties had been made on and
as of the Closing Date (except that representations and warranties that we made
as of a specific date need be true in all material respects only as of such
date). Seller shall have received at Closing a certificate to that effect
dated as of such Closing Date and executed by the President or any Executive
Vice President of Purchaser.
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Each of the covenants and agreements of Purchaser to be performed on or prior
to the Closing Date shall have been duly performed in all material respects.
Seller shall have received at Closing a certificate to that effect dated as of
such Closing Date and executed by the President or any Executive Vice President
of Purchaser.
ARTICLE 10
ENVIRONMENTAL MATTERS
10.1 Environmental Matters. (a) Seller has provided to Purchaser
and Purchaser hereby acknowledges receipt of copies of Phase I environmental
site assessments for all Owned Real Property and asbestos reports with respect
to all the Real Property, except for Real Property where the improvements have
been completed after December 31, 1978. Such Phase I environmental site
assessments for all Owned Real Property have been dated (or supplemented) on or
after January 1, 1996.
(b) If such Phase I site assessments and asbestos reports
reasonably indicate the necessity or desirability of further investigation to
determine whether or not an Environmental Hazard or an Asbestos Hazard exists
at such Real Property, Purchaser may elect, not later than thirty (30) days
after the signing of this Agreement, to have Clayton Environmental or Building
Analytics (the "Environmental Consultant"), to the extent reasonable and
appropriate, conduct Phase II environmental site assessments and additional
asbestos investigations, the cost of which shall be shared equally by the
parties. Any such further investigation or testing shall be conducted in such
a manner so as not to interfere with the normal operation of the Branch(s)
involved. All such Phase II environmental site assessments and additional
asbestos reports shall be treated as information subject to Section 7.2(b) and
shall be completed not less than ninety (90) days after the signing of this
Agreement.
(c) In the event that the Environmental Consultant has discovered
an Environmental Hazard, and/or Asbestos Hazard, during any such Phase II
environmental site assessment at any single parcel of Owned Real Property, the
remediation of which, in the reasonable judgment of the Environmental
Consultant, is or would be the responsibility of Seller, or Purchaser should it
acquire such Owned Real Property, and will cost $100,000 or more for such
single parcel of Owned Real Property, Purchaser shall lease from Seller such
single parcel of Owned Real Property pursuant to a Lease Agreement that shall
provide as follows:
(i) Such Lease Agreement shall be for a term of two (2)
years, with no obligation or right to renew (it being the intention of
Seller that Purchaser locate an alternative branch site during such
two years), at a rental equal to a fair market rental value;
(ii) Seller may sell such Owned Real Property to any
person, subject to such Lease Agreement, for any price;
(iii) During the term of such Lease Agreement, in the event
that Seller shall deliver to Purchaser a report of a qualified
environmental engineer or consultant
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certifying that the Environmental Hazard, and/or Asbestos Hazard, at
or on any such leased parcel of Owned Real Property has been
remediated to the extent required under applicable Environmental Laws,
Purchaser shall be required to purchase such parcel of Owned Real
Property at the net book value as of the close of business of the
month-end day most recently preceding the Closing Date; and
(iv) Other terms and conditions of the Lease Agreement
shall be typical to such branch leases in the market as negotiated
between Seller and Purchaser.
If the remediation cost is less than $100,000 for any single parcel of
Owned Real Property, Purchaser shall acquire such parcel and such cost shall be
borne by Purchaser without indemnity or price adjustment under this Agreement.
(d) Purchaser agrees that it and its Environmental Consultant
shall conduct any Phase II environmental site assessments or other
investigations pursuant to this Section with reasonable care and subject to
customary practices among environmental consultants and engineers, including,
without limitation, following completion thereof, the restoration of any site
to the extent practicable to its condition prior to such site assessment or
investigation and the removal of all monitoring wells.
(e) Any lease of a parcel of Owned Real Property under Section
10.1(c) shall in no way affect the transfer of any Assets or Liabilities, other
than such parcel of Owned Real Property, to the Purchaser at the Closing.
ARTICLE 11
TERMINATION
11.1 Termination. This Agreement may be terminated at any time
prior to the Closing Date:
(a) By the mutual Written agreement of Purchaser and Seller;
(b) By Seller or Purchaser, in the event of a material breach by
the other of any representation, warranty or agreement contained herein which
is not cured or cannot be cured within thirty (30) days after written notice of
such termination has been delivered to the breaching party; provided, however,
that termination pursuant to this Section 11.1(b) shall not relieve the
breaching party of liability arising out of or related to such breach;
(c) By Seller or Purchaser, in the event that the Closing has not
occurred by November 30, 1997 unless the failure to so consummate by such time
is due to a breach of this Agreement by the party seeking to terminate;
(d) By Seller or Purchaser at any time after the denial or
revocation of any Regulatory Approval or by Purchaser if any such approval has
been obtained which contains a Burdensome Condition; or
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<PAGE> 40
(e) By Seller if, at any time prior to the Closing Date, an
appropriate official of any governmental agency or authority whose consent,
approval or authorization is required in order for Purchaser to consummate the
transactions contemplated hereby shall have advised that such authority will
not grant such consent, approval or authorization or will grant the same only
subject to a Burdensome Condition (unless Purchaser shall have waived the
condition provided for in the proviso to Section 9.1(a)), or where there shall
be in effect any Order, or if there shall exist any proceeding which, in
Seller's reasonable judgment, would result in an Order; provided, however, that
Purchaser shall have fifteen (15) days following receipt of notice from Seller
to remedy any such situation or to provide assurances reasonably acceptable to
Seller that such situation will be remedied by the Closing Date.
11.2 Effect of Termination. In the event of termination of this
Agreement and abandonment of the transactions contemplated hereby pursuant to
Section 11.1, no party hereto (or any of its directors, officers, employees,
agents or Affiliates) shall have any liability or further obligation to any
other party, except as provided in Section 7.2(b) and except that nothing
herein will relieve any party from liability for any breach of this Agreement.
ARTICLE 12
INDEMNIFICATION AND OTHER REMEDIES
12.1 Indemnification. (a) Subject to Section 13.1, Seller shall
indemnify and hold harmless Purchaser and any person directly or indirectly
controlling Purchaser from and against any and all Losses which Purchaser may
suffer, incur or sustain arising out of or attributable to (i) any breach of
any representation or warranty made by Seller in this Agreement, (ii) any
material breach of any covenant or agreement to be performed by Seller pursuant
to this Agreement, (iii) any claim, penalty asserted, legal action or
administrative proceeding based upon any action taken or omitted to be taken by
Seller or conditions existing prior to the Closing Date, relating in any such
case to the operation of the Branches, the Assets or the Liabilities; or (iv)
any liability, obligation or duty of Seller that is not a Liability.
(b) Subject to Section 13.1, Purchaser shall indemnify and hold
harmless Seller and any person directly or indirectly controlling Seller from
and against any and all Losses which Seller may suffer, incur or sustain
arising out of (i) any breach of any representation or warranty made by
Purchaser in this Agreement, (ii) any material breach of any covenant or
agreement to be performed by Purchaser pursuant to this Agreement, including,
without limitation, the covenants contained in Section 10.2 above, or (iii) any
claim, penalty asserted, legal action or administrative proceeding based upon
any action taken or omitted to be taken by Purchaser on or after the Closing
Date, relating in any such case to the operation of the Branches or the Assets,
or (iv) the Liabilities.
(c) To exercise its indemnification rights under this Section 12.1
as a result of the assertion against it of any claim or potential liability for
which indemnification is provided, the indemnified party shall promptly notify
the indemnifying party of the assertion of such claim, discovery of any such
potential liability or the commencement of any action or proceeding in respect
of which indemnity may be sought hereunder; PROVIDED, HOWEVER, in no event
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shall notice of original claim for indemnification under this Agreement be
given later than the expiration of one (1) year from the Closing Date
(excluding only claims related to the covenants in Section 10.2 above). The
indemnified party shall advise the indemnifying party of all facts relating to
such assertion within the knowledge of the indemnified party, and shall afford
the indemnifying party the opportunity, at the indemnifying party's sole cost
and expense, to defend against such claims for liability. In any such action
or proceeding, the indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at its own expense
unless (i) the indemnifying party and the indemnified party mutually agree to
the retention of such counsel or (ii) the named parties to any such suit,
action, or proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party, and in the reasonable judgment of
the indemnified party, representation of the indemnifying party and the
indemnified party by the same counsel would be inadvisable due to actual or
potential differing defenses or conflicts of interests between them.
(d) The indemnified party shall have the right to settle or
compromise any claim or liability subject to indemnification under this
Section, and to be indemnified from and against all Losses resulting therefrom,
unless the indemnifying party, within sixty (60) calendar days after receiving
written notice of the claim or liability in accordance with Section 12.1 (c)
above, notifies the indemnified party that it intends to defend against such
claim or liability and undertakes such defense, or, if required in a shorter
time than sixty (60) calendar days, the indemnifying party makes the requisite
response to such claim or liability asserted.
(e) Notwithstanding anything to the contrary contained in this
Agreement, an indemnifying party shall not be liable under this Section 12.1
for any Losses sustained by the indemnified party unless and until the
aggregate amount of all indemnifyable Losses sustained by the indemnified party
shall exceed Twenty-Five Thousand Dollars ($25,000) times the number of
Branches being purchased hereunder, in which event the indemnifying party shall
provide indemnification hereunder in respect of all such indemnifiable Losses
in excess of Twenty-Five Thousand Dollars ($25,000) times the number of
Branches being purchased hereunder, provided, however, that the aggregate
amount of indemnification payments payable pursuant to this Section 12.1, shall
in no event exceed the amount of the Purchase Price. An indemnifying party
shall not be liable under this Section 12.1 for any settlement effected,
without its consent, of any claim or liability or proceeding for which
indemnity may be sought hereunder except in the case of a settlement in an
amount which does not exceed Twenty-Five Thousand Dollars ($25,000) times the
number of Branches being purchased hereunder; provided, however, the provisions
of this Section 12.1(e) shall not apply to Purchaser's obligation to indemnify
Seller for a breach of Purchaser's covenants contained in Section 10.2 above.
In no event shall either party hereto be entitled to consequential or punitive
damages or damages for lost profits in any action relating to the subject
matter of this Agreement.
12.2 Purchase Price Adjustment. Any amount paid by Seller or
Purchaser under this Article 12 will be treated as an adjustment to the
Purchase Price unless and to the extent that a "determination" (as defined in
Section 1313(a) of the Code) causes any such amount not to constitute an
adjustment to the Purchase Price for federal Tax purposes.
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12.3 Exclusivity. After the Closing, Article 12 will provide the
exclusive remedy for any misrepresentation, breach of warranty, covenant or
other agreement or other claim arising out of this Agreement or the
transactions contemplated hereby.
12.4 AS-IS Sale; Waiver of Warranties. Except as otherwise
expressly set forth in this Agreement, Purchaser acknowledges that the Assets
and Liabilities are being sold and accepted on an "AS-IS-WHERE-IS" basis, and
are being accepted without any representation or warranty. As part of
Purchaser's agreement to purchase and accept the Assets and Liabilities
AS-IS-WHERE-IS, and not as a limitation on such agreement, TO THE FULLEST
EXTENT PERMITTED BY LAW, SELLER HEREBY DISCLAIMS AND PURCHASER HEREBY
UNCONDITIONALLY AND IRREVOCABLY WAIVES AND RELEASES ANY AND ALL ACTUAL OR
POTENTIAL RIGHTS PURCHASER MIGHT HAVE AGAINST SELLER OR ANY PERSON DIRECTLY OR
INDIRECTLY CONTROLLING SELLER REGARDING ANY FORM OF WARRANTY, EXPRESS OR
IMPLIED, OF ANY KIND OR TYPE, RELATING TO THE ASSETS AND LIABILITIES EXCEPT
THOSE SET FORTH IN ARTICLE 5 AND SECTIONS 8.1 AND 8.8. SUCH WAIVER AND RELEASE
IS, TO THE FULLEST EXTENT PERMITTED BY LAW, ABSOLUTE, COMPLETE, TOTAL AND
UNLIMITED IN EVERY WAY. SUCH WAIVER AND RELEASE INCLUDES TO THE FULLEST EXTENT
PERMITTED BY LAW, BUT IS NOT LIMITED TO, A WAIVER AND RELEASE OF EXPRESS
WARRANTIES (EXCEPT THOSE SET FORTH IN ARTICLE 5 AND SECTIONS 8.1 AND 8.8),
IMPLIED WARRANTIES, WARRANTIES OF FITNESS FOR A PARTICULAR USE, WARRANTIES OF
MERCHANTABILITY, WARRANTIES OF HABITABILITY, STRICT LIABILITY RIGHTS AND CLAIMS
OF EVERY KIND AND TYPE, INCLUDING BUT NOT LIMITED TO CLAIMS REGARDING DEFECTS
WHICH WERE NOT OR ARE NOT DISCOVERABLE, ALL OTHER EXTANT OR LATER CREATED OR
CONCEIVED OF STRICT LIABILITY OR STRICT LIABILITY TYPE CLAIMS AND RIGHTS.
ARTICLE 13
MISCELLANEOUS
13.1 Survival. (a) The parties' respective representations and
warranties contained in this Agreement shall survive until the first
anniversary of the Closing Date, and thereafter neither party may claim any
Loss in relation to a breach thereof. The agreements and covenants contained
in this Agreement shall not survive the Closing except to the extent expressly
set forth herein.
(b) No claim based on any breach of any representation or warranty
shall be valid or made unless written notice with respect thereto is given to
Seller in accordance with this Agreement on or before the date specified in
Section 12.1(c); provided, however, that the provisions of this Section shall
not apply to claims based on Purchaser's breach of Section 10.2 above.
13.2 Assignment. Neither this Agreement nor any of the rights,
interests or obligations of ether party may be assigned by either of the
parties hereto without the prior
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written consent of the other party, and any purported assignment in
contravention of this Section 13.2 shall be void.
13.3 Binding Effect. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
13.4 Public Notice. Prior to the Closing Date, neither Purchaser
nor Seller shall directly or indirectly make or cause to be made any press
release for general circulation, public announcement or disclosure or issue any
notice or general communication to employees with respect to any of the
transactions contemplated hereby without the prior written consent of the other
party (which consent shall not be unreasonably withheld or delayed). Purchaser
agrees that, without Seller's prior written consent, it shall not release or
disclose any of the terms or conditions of the transactions contemplated herein
to any other person. Notwithstanding the foregoing, each party may make such
public disclosure as, in the opinion of its counsel, may be required by law or
as necessary to obtain the Regulatory Approvals.
13.5 Notices. All notices, requests, demands, consents and other
communications given or required to be given under this Agreement and under the
related documents shall be in writing and delivered to the applicable party at
the address indicated below:
If to Seller, to: Wells Fargo Bank, National Association
420 Montgomery Street
San Francisco, CA 94104
Attention: Guy Rounsaville, Jr., Esq.
Executive Vice President,
Chief Counsel & Secretary
Fax: (415) 975-7151
If to Purchaser, to: Cowlitz Bank
927 Commerce Avenue
Longview, WA 98632
Attention: Charles W. Jarrett
or, as to each party at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section. Any notices shall be in writing, including telegraphic or
facsimile communication, and may be sent by registered or certified mail,
return receipt requested, postage prepaid, or by fax, or by overnight delivery
service. Notice shall be effective upon actual receipt thereof
13.6 Expenses Except as expressly provided otherwise in this
Agreement, each party shall bear any and all costs and expenses which it
incurs, or which may be incurred on its behalf, in connection with the
preparation of this Agreement and consummation of the transactions described
herein, and the expenses, fees, and costs necessary for any approvals of the
appropriate regulatory authorities.
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13.7 Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California.
13.8 Entire Agreement; Amendments. (a) This Agreement contains the
entire understanding of and all agreements between the parties hereto with in
respect to the subject matter hereof and supersedes any prior or
contemporaneous agreement or understanding, oral or written, pertaining to any
such matters which agreements or understandings shall be of no force or effect
for any purpose; provided, however, that the terms of any confidentiality
agreement between the parties hereto previously entered into, to the extent not
inconsistent with any provisions of this Agreement, shall continue to apply.
(b) This Agreement may not be amended or supplemented in any
manner except by mutual agreement of the parties and as set forth in a writing
signed by the parties hereto or their respective successors in interest. The
waiver of any breach of any provision under this Agreement by any party shall
not be deemed to be a waiver of any preceding or subsequent breach under this
Agreement. No such waiver shall be effective unless in writing.
13.9 Third Party Beneficiaries. This Agreement shall not benefit
or create any right or cause of action in or on behalf of any person other than
Seller and Purchaser.
13.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.11 Headings. The headings used in this Agreement are inserted
for purposes of convenience of reference only and shall not limit or define the
meaning of any provisions of this Agreement.
13.12 Consent to Jurisdiction; Waiver of Jury Trial. (a) EACH PARTY
HERETO HEREBY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF
CALIFORNIA AND THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
CALIFORNIA, AS WELL AS TO THE JURISDICTION OF ALL COURTS FROM WHICH AN APPEAL
MAY BE TAKEN OR OTHER REVIEW SOUGHT FROM THE AFORESAID COURTS, FOR THE PURPOSE
OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF SUCH PARTY'S OBLIGATIONS
UNDER OR WITH RESPECT TO THIS AGREEMENT OR ANY OF THE AGREEMENTS, INSTRUMENTS
OR DOCUMENTS CONTEMPLATED HEREBY, AND, TO THE EXTENT IT LAWFULLY MAY DO SO,
EXPRESSLY WAIVES ANY AND ALL OBJECTIONS IT MAY HAVE AS TO VENUE IN ANY OF SUCH
COURTS.
(b) EACH PARTY HERETO HEREBY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY CONCERNED
WITH THIS AGREEMENT OR ANY OF THE AGREEMENTS, INSTRUMENTS OR DOCUMENTS
CONTEMPLATED HEREBY. NO PARTY HERETO, NOR ANY ASSIGNEE OR SUCCESSOR OF A PARTY
HERETO, SHALL SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY
OTHER
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<PAGE> 45
LITIGATION PROCEDURE BASED UPON, OR ARISING OUT OF, THIS AGREEMENT OR ANY OF
THE AGREEMENTS, INSTRUMENTS OR DOCUMENTS CONTEMPLATED HEREBY. NO PARTY WILL
SEEK TO CONSOLIDATE ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH
ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE
PROVISIONS OR THIS SECTION HAVE BEEN FULLY CONSIDERED BY THE PARTIES HERETO,
AND THE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN ANY WAY
AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS
SECTION WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
13.13 Severability. If any provision of this Agreement, as applied
to any party or circumstance, shall be judged by a court of competent
jurisdiction to be void, invalid or unenforceable, the same shall in no way
effect any other provision of this Agreement, the application of any such
provision and any other circumstances or the validity or enforceability of the
other provisions of this Agreement.
13.14 Legal Action. If either Seller or Purchaser shall institute
any legal action to enforce this Agreement or any provision hereof, it is
agreed that the prevailing party shall be entitled to collect reasonable
attorneys fees and costs incurred in connection therewith.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the date and year first
above written.
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: ______________________________
Name:_________________________
Title:________________________
By: ______________________________
Name:_________________________
Title:________________________
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<PAGE> 46
PURCHASER
COWLITZ BANK
By:____________________________________
Name: Charles W. Jarrett
Title: President & CEO
By:____________________________________
Name: Donna P. Gardner
Title: Senior Vice President & CEO
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SCHEDULE 1.1(a)
Assumed Severance Obligations
1. First Interstate Bancorp Broad-Based Change in Control
Severance Pay Plan.
2. First Interstate Bancorp Middle Management Change in Control
Severance pay Plan.
3. Wells Fargo & Company Separation Pay Plan, as amended.
<PAGE> 48
SCHEDULE 1.1(b)
Branches/Real Properties
<TABLE>
<CAPTION>
Branch Name Branch Address City Lease/Own
----------- -------------- ---- ---------
<S> <C> <C> <C>
Castle Rock 20 Cowlitz St. W. Castle Rock Owned
Kalama 195 NE 1st Street Kalama Owned
Longview 800 Triangle Mall Longview Leased
</TABLE>
<PAGE> 49
SCHEDULE 1.1(c)
(DELETED)
<PAGE> 50
SCHEDULE 1.1(d)
(DELETED)
<PAGE> 51
SCHEDULE 3.6(a)
Form of Deed
Recording Requested by:
When Recorded Mail to:
DOCUMENTARY TRANSFER TAX $____________
( ) COMPUTED ON FULL VALUE OF PROPERTY CONVEYED, OR () COMPUTED ON FULL VALUE
LESS LIENS AND ENCUMBRANCES REMAINING THEREON AT TIME OF SALE.
Signature of declarant or agent determining tax - Firm Name
( ) Unincorporated Area ( ) City of _____________
Assessor's parcel No. __________________
WELLS FARGO BANK, NATIONAL ASSOCIATION with its principal office
located in San Francisco, California, the undersigned grantor, for a valuable
consideration, receipt of which is hereby acknowledged, does hereby remise,
release and forever grant to [NAME OF GRANTEE(S)] a ___________________, with
its principal office located in ______________, all of the real property in the
City of __________________, County of __________________, State of
_____________________, described in Attachment A hereto.
Date: __________________________ WELLS FARGO BANK, NATIONAL
ASSOCIATION
By:____________________________________
Name:
Title:
MAIL TAX STATEMENTS TO GRANTEE
AT ADDRESS ABOVE
<PAGE> 52
Attachment A
Property
<PAGE> 53
SCHEDULE 3.6(b)
Form of Bill of Sale
BILL OF SALE, dated as of ____________________, 1997 by WELLS FARGO
BANK, NATIONAL ASSOCIATION, with its principal office located in San Francisco,
California ("Seller"), to ________________________, with its principal office
located in _________________________, ("Purchaser"). Capitalized terms not
otherwise defined herein shall have the same meanings as set forth in the
Purchase and Assumption Agreement, dated as of _____________________, 1997 (the
"P&A Agreement"), between Seller and Purchaser, unless the context herein
otherwise requires.
W I T N E S S E T H:
WHEREAS, subject to the terms and conditions set forth in the P&A
Agreement, Seller has agreed to transfer to Purchaser the Assets;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Seller does hereby convey, grant,
bargain, sell, transfer, set over, assign, alienate, remise, release, deliver
and confirm unto Purchaser, its successors and assigns, forever, all of
Seller's right, title, interest and claim in and to the Personal Property
(including without limitation, the items described in Attachment A hereto), as
of 11:59 P.M., California time, the day prior to the date hereof.
TO HAVE AND TO HOLD all and singular of the foregoing (the
"Transferred Properties") unto Purchaser, its successors and assigns, to its
and their own use and enjoyment forever.
SELLER FURTHER COVENANTS AND AGREES AS FOLLOWS:
1. This instrument shall not constitute an assignment of any
covenant, obligation, liability contract agreement, license, lease or
commitment pertaining to the Transferred Properties if an attempted assignment
thereof without the consent of any other party thereto or with an interest
therein would constitute a breach thereof or would materially and adversely
affect the rights of Seller thereunder. If any such consent is not obtained
with respect to any such covenant, obligation, liability, contract, agreement,
license, lease or commitment, or if an attempted assignment with respect
thereto would be ineffective or would impair the rights of Seller thereunder so
that Purchaser would not in fact receive the benefit of all such rights, then
Seller, its successors and assigns, shall act as Purchaser's agent in order to
obtain for Purchaser, its successors and assigns, the benefits thereunder, and
Seller will cooperate with Purchaser in any other reasonable arrangement
designed to provide such benefits for Purchaser.
2. The Transferred Properties are being delivered "AS IS", "WHERE
IS" and with all faults.
<PAGE> 54
3. From time to time, Seller, its successor and assigns, shall
execute and deliver all such further bills of sale, assignments or other
instruments of conveyance and transfer as Purchaser, its successors or assigns,
may reasonably request more effectively to transfer to and vest in Purchaser
all of Seller's interest in the Transferred Properties.
4. This Bill of Sale is made pursuant to the provisions of the
P&A Agreement, and, except as herein otherwise provided, the transfer of
property hereunder is made subject to the terms and provisions of the P&A
Agreement.
5. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California applicable to contracts
made and to be performed entirely within such State.
IN WITNESS WHEREOF, Seller has duly executed and delivered this Bill
of Sale as of the day and year first above written.
WELLS FARGO BANK, NATIONAL ASSOCIATION
By:____________________________________
Name:
Title:
PURCHASER:
By:____________________________________
Name:
Title:
<PAGE> 55
Attachment A
Personal Property
[To be provided]
<PAGE> 56
SCHEDULE 3.6(c)
Form of Assignment and Assumption Agreement
ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of ______________, 1997
(this "Agreement"), between WELLS FARGO BANK, NATIONAL ASSOCIATION, organized
under the laws of the United States, with its principal office located in San
Francisco, California ("Seller"), and ________________________, with its
principal office located in ___________________________, ("Purchaser").
Capitalized terms not otherwise defined herein shall have the meanings set
forth in the Purchase and Assumption Agreement, dated as of
__________________________, (the "P&A Agreement"), between Seller and
Purchaser, unless the context herein otherwise requires.
W I T N E S S E T H:
WHEREAS, subject to the terms and conditions set forth in the P&A
Agreement, Seller has agreed to assign, and Purchaser has agreed to assume, the
Liabilities;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Seller hereby sells, assigns, conveys, transfers and delivers,
and Purchaser assumes, without warranty or representation, express or implied,
or recourse to, Seller, except as expressly provided in the P&A Agreement, the
Liabilities, other than the Branch Leases, as set forth in the P&A Agreement.
2. Seller hereby (a) resigns as the trustee or custodian of each
Deposit in an IRA of which it is the trustee or custodian, and (b) the extent
permitted by the documentation governing such IRA, appoints Purchaser as
successor trustee or custodian of each such IRA, and Purchaser hereby accepts
each such trusteeship or custodianship and assumes all fiduciary obligations
with respect thereto.
3. This Agreement shall not constitute an assignment or
assumption of any covenant, fiduciary or other obligation, liability, contract,
agreement, license, lease or commitment pertaining to any Liability if an
attempted assignment or assumption thereof without the consent of any other
party thereto or with an interest therein would constitute a breach thereof or
would materially and adversely affect the rights of Seller thereunder. If any
such consent is not obtained with respect to any such covenant, fiduciary or
other obligation, liability, contract, agreement, license, lease or commitment,
or if an attempted assignment or assumption of any covenant, fiduciary or other
obligation, liability, contract, agreement, license, lease or commitment
pertaining to any Liability would be ineffective or would impair the rights of
Seller thereunder so that Purchaser would not in fact receive the benefit of
all such rights, then Seller, its successors and assigns shall act as
Purchaser's agent in order to obtain for
<PAGE> 57
Purchaser, its successors and assigns, the benefits thereunder, and Seller will
cooperate with Purchaser in any other reasonable arrangement designed to
provide such benefits for Purchaser.
4. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their
respective permitted successors and permitted assigns; provided, that neither
this Agreement nor any of the rights, interests or obligations of either party
may be assigned by either party hereto without the prior written consent of the
other party, and any purported assignment in contradiction of this Section 4
shall be void.
5. This Agreement is made pursuant to the provisions of the P&A
Agreement and except as herein otherwise provided, the assignment and
assumption of any other Liabilities hereunder are made subject to the terms and
provisions of the P&A Agreement.
6. Except as otherwise provided herein, all of the transactions
provided for herein shall be effective as of 11:59 p.m., California time, the
day prior to the date hereof.
7. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California applicable to contracts
made and to be performed entirely within such State.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the day and year first above written.
WELLS FARGO BANK, NATIONAL ASSOCIATION
By:____________________________________
Name:
Title:
[PURCHASER]:
By:____________________________________
Name:
Title:
<PAGE> 58
SCHEDULE 3.6(d)
Form of Assignment of Lease and Assumption
KNOW THAT WELLS FARGO BANK, NATIONAL ASSOCIATION, a national bank,
organized under the laws of the United States, having its principal office in
San Francisco, California ("Assignor"), in consideration of One Dollar ($1.00)
and other good and valuable consideration paid by _______________________, with
its principal office located in ___________________________, ("Assignee"),
hereby assigns unto the Assignee all of Assignor's right, title and interest as
tenant under a certain lease more particularly described on Attachment A
hereto, covering premises described on such attachment and in such Lease (the
"Lease").
TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns
from and after 11:59 P.M., California time, the day prior to the date hereof
(the "Effective Time"), subject to the terms, covenants, conditions and
provisions set forth in the Lease.
ASSIGNEE hereby assumes, effective as of the Effective Time, the
performance of all terms, covenants and obligations of the Lease on the part of
Assignor to be performed under the Lease.
IN WITNESS WHEREOF, Assignor and Assignee have executed this Agreement
as of the ____ day of ________________________, 1997.
WELLS FARGO BANK, NATIONAL ASSOCIATION
By:____________________________________
Name:
Title:
[ASSIGNEE]:
By:____________________________________
Name:
Title:
<PAGE> 59
Attachment A
Lease
<PAGE> 60
SCHEDULE 3.6(e)
Form of Landlord Consent
CONSENT, dated as of _________________, 1997 of
______________________, with its principal office located in
_______________________ ("landlord"), in favor of WELLS FARGO BANK, NATIONAL
ASSOCIATION organized under the laws of the United States, with its principal
office located in San Francisco, California ("Seller").
W I T N E S S E T H:
WHEREAS, Landlord is the owner of certain premises and a party to a
certain lease, each described on Attachment A hereto (the "Lease"); and
WHEREAS, Seller desires to assign its entire interest (including,
without limitation.
renewal rights, if any) in the Lease to _________________________________, with
its principal office located in __________________________________,
("Purchaser"); and
WHEREAS, Seller has requested Landlord's consent to said assignment
and to Purchaser's use of said premises as a banking office and for all other
purposes authorized under the Lease for the balance of the term of the Lease
and Landlord desires to consent to the same for all purposes required under the
Lease.
NOW, THEREFORE,
1. Subject to the limitations set forth below, Landlord hereby
consents to the assignment of the Lease by Seller to Purchaser and to
Purchaser's use of said premises as a banking office and for all other purposes
authorized under the Lease for the balance of the term of the Lease; provided
that Purchaser shall agree to assume all of the obligations of Seller arising
under the Lease from and after the effective date of the assignment.
2. Except for the aforementioned assignment by Seller to
Purchaser, nothing contained herein shall constitute a waiver of the
obligation, if any, of the holder of the leasehold interest created under the
Lease to obtain Landlord's consent to future assignments of the Lease or a
sublease of the premises demised thereunder.
3. Nothing contained herein shall be construed to obligate Seller
to assign the Lease to Purchaser, it being understood and acknowledged by
Landlord that the execution and delivery of this Consent is in anticipation of
said assignment, which may or may not be effected. If said assignment shall be
effected, Seller or Purchaser shall promptly provide to Landlord a fully
executed counterpart of said assignment and notify Landlord of the effective
date thereof.
<PAGE> 61
4. Landlord acknowledges and certifies that except for the
conditions contained herein, all conditions set forth in the Lease, if any to
the effectiveness of the aforementioned assignment or to the consent of
Landlord contained herein have been either waived by Landlord or satisfied.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this instrument as of the day and year first above written.
[LANDLORD]
By:____________________________________
Name:
Title:
<PAGE> 62
Attachment A
Lease
<PAGE> 63
SCHEDULE 3.6(g)
Form of Certificate of Officer
Wells Fargo Bank, National Associations
The undersigned, the [title of officer] of WELLS FARGO BANK, NATIONAL
ASSOCIATION, a bank, organized under the laws of the United States of America,
with its principal office located in San Francisco, California ("Seller")
hereby certifies, to the best of [his] [her] knowledge after reasonable
inquiry, as follows:
1. Each of the representations and warranties made by Seller in
the Purchase and Assumption Agreement, dated as of ____________________, 1997,
(the "P&A Agreement"), between Seller and _________________________________,
with its principal office located in _______________________________________,
California, are true in all material respects, as of the date hereof.
2. Each of the covenants and agreements of Seller to be performed
on or prior to the date hereof have been duly performed in all material
respects.
3. Attached hereto are true and correct copies of the resolutions
of the Seller's Board of Directors, dated as of ____________________________,
1997, authorizing the execution, delivery and performance of the transactions
contemplated by the P&A Agreement, which resolutions were duly adopted and, as
of the date hereof, remain in full force and effect without amendment or
modification.
IN WITNESS WHEREOF, I have hereunto subscribed my name this ____ day
of _______________________, 1997.
WELLS FARGO BANK, NATIONAL ASSOCIATION
By:____________________________________
Name:
Title:
<PAGE> 64
SCHEDULE 3.7(d)
Form of Certificate of Officer [Purchaser]
The undersigned, the [title of officer] of ______________________,
with its principal office located in __________________________, ("Purchaser"),
hereby certifies, to the best of [his] [her] knowledge after reasonable
inquiry, as follows:
1. Each of the representations and warranties made by Purchaser
in the Purchase and Assumption Agreement, dated as of ________________________,
1997 (the "P&A Agreement"), between Purchaser and Wells Fargo Bank, National
Association, organized under the laws of the United States, with its principal
office located in Los Angeles, California, are true in all material respects,
as of the date hereof (except for representations and warranties that are made
as of a specific date).
2. Each of the covenants and agreements of Purchaser to be
performed on or prior to the date hereof have been duly performed in all
material respects.
3. Attached hereto are true and correct copies of the resolutions
of the Purchaser's Board of Directors, dated as of
____________________________, 1997, authorizing the execution, delivery and
performance of the transactions contemplated by the P&A Agreement, which
resolutions were duly adopted and as of the date hereof, remain in full force
and effect without amendment or modification.
IN WITNESS WHEREOF, I have hereunto subscribed my name this ____ day of
__________________, 1997.
[PURCHASER]:
By:____________________________________
Name:
Title:
<PAGE> 65
SCHEDULE 4.11
Compensation to Seller for Certain Post Closing Services
<PAGE> 66
SCHEDULE 5.4
Tenant Leases
<TABLE>
<CAPTION>
PROP. # PROPERTY NAME SUB-TENANT NAME SQ. FT. LEASE EXPIRES
- ------- ------------- --------------- ------- -------------
<S> <C> <C> <C>
</TABLE>
<PAGE> 67
SCHEDULE 5.6
Litigation and Undisclosed Liabilities
<PAGE> 68
SCHEDULE 5.10(a)(ix)
(DELETED)
<PAGE> 69
SCHEDULE 5.10(f)(i)
(DELETED)
<PAGE> 70
SCHEDULE 5.16
Environmental Matters
See asbestos reports and Phase I Reports (as updated) previously
provided to Purchaser.
<PAGE> 71
SCHEDULE 8.1
Outstanding Tax Liabilities
None.
<PAGE> 1
EXHIBIT 10.7
L E A S E
THIS LEASE, made this 7th day of October, 1963, by and between TWIN
CITY DEVELOPMENT CO., a Washington corporation, hereinafter designated as the
"Landlord", and BANK OF COWLITZ COUNTY, a Washington corporation, hereinafter
designated as "Tenant",
W I T N E S S E T H
1. PREMISES. The Landlord hereby leases to the Tenant, and the
Tenant hereby leases from the Landlord, area in the development known as
TRIANGLE SHOPPING CENTER.
A plan of the Shopping Center is hereto annexed as Exhibit "A", which
shows the location of the demised premises. A legal description of the lands
comprising the Shopping Center is hereto annexed as Exhibit "B".
In addition to the premises mentioned herein, this Lease includes the
nonexclusive right to Tenant and its agents, employees, invitees, customers,
suppliers, and patrons to use and enjoy throughout the term of this Lease the
"common areas" of the Shopping Center and other features and facilities
provided for the general uses and purposes of the Shopping Center.
2. TERM. The term of this Lease shall commence on Noon of the
first day the building is completed and ready for occupancy as certified by the
architect but no later than April 1, 1964, and shall continue for twenty-five
(25) years.
(A) The Tenant may, by written notice to Landlord given one
hundred eighty (180) or more days before the end of the original term of
twenty-five (25) years, extend the term for ten (10) years from the end of such
original term upon the same terms and conditions as herein set forth except as
to rental, which shall be fixed as hereinafter provided.
(B) If Tenant has exercised the foregoing option to extend the
term, it may, by written notice to Landlord, given one hundred eighty (180) or
more days before the end of the term is extended by the ten (10) year period
referred to in Section 2(A), further extend the term to September 30, 2006,
upon the same terms and conditions, except as to rental, which shall be fixed
as hereinafter provided.
(C) If Tenant exercises the respective options granted in (A) and
(B) above, the rental shall be mutually agreed upon. In the event the parties
are unable to agree as to rental, they shall each choose an arbitrator, and the
two so appointed shall select a third, and the decision of a majority of said
arbitrators shall be binding upon the parties. The arbitrators shall be
charged with arriving at a fair market rental as of date each option becomes
operative, based upon the economic value of the land herein leased. Each party
shall pay the costs of the arbitrator selected by him and shall share equally
the costs of the third.
3. RENTAL. Tenant covenants and agrees to pay to the Landlord an
annual rental of Two Thousand Four Hundred and No/100 ($2,400.00) Dollars,
payable in equal monthly installments with a
-1-
<PAGE> 2
proportional share thereof for any partial month, which rental shall be paid in
advance on the 1st day of each and every calendar month during the term or any
extensions hereof.
The annual Cowlitz County Real Property Taxes, diking assessment, and
periodic fire insurance premiums shall be payable by Tenant, and evidence of
payment before delinquency furnished to Landlord. It is understood that the
parties will cause the Cowlitz County Assessor to segregate the assessments so
that the tax assessed and payable on the improved premises occupied by Tenant
is determined for payment by Tenant. It is understood that Landlord is to pay
Real Estate Property Taxes and Diking Assessment on the land only and that the
balance will be paid by Tenant.
4. CONSTRUCTION. Tenant shall, with all reasonable expedition,
proceed to erect upon the demised premises a building on the space herein
leased in accordance with the plans and specifications to be approved by
Landlord, which approval shall not be unreasonably withheld.
5. UTILITIES. Tenant shall pay the monthly or periodic charges
for all of its requirements for utilities such as gas, water, and electricity
and sewer charges imposed by governmental authorities if based on water
consumed, and shall pay for heating and air conditioning of areas occupied
solely by Tenant.
6. USE OF PREMISES. The premises shall at all times be used and
occupied only for a bank and all purposes incidental thereto and for no other
purpose or purposes without Landlord's consent, it being further understood
that Landlord has entered into leases with other Tenants and this Lease is
subject to such lease or leases.
7. SIGNS. Tenant may provide and maintain, subject to the
approval of the Landlord, which approval shall not be arbitrarily withheld, a
proper identifying sign or signs.
8. ASSIGNMENT AND SUBLETTING. Tenant covenants and agrees that
it will not assign this Lease or sub-let the whole or any part of the demised
premises without, in each instance, having first received the express written
consent of the Landlord; however, any such assignment shall not relieve Tenant
of its obligation hereunder, and Tenant shall continue to be liable to Landlord
with respect thereto as fully as though such assignment had not been made.
9. REPAIRS, MAINTENANCE AND ALTERATIONS. The Tenant agrees to
construct the building upon the property described herein in a good and
workmanlike manner and permit no liens to attach to the premises as a result of
its work. Alterations made by the Tenant shall be at its sole expense after
approval of Landlord, which approval shall not be arbitrarily withheld, and
Tenant shall be responsible for any damage or cost incurred to the Leased
premises because of making such alterations. The Tenant agrees to conform to
and comply with all rules, laws, ordinances, and regulations of Federal, State,
County, and Municipal authority in the use and
-2-
<PAGE> 3
occupation or alteration and repair of the demised premises as related to its
particular occupancy. Tenant agrees to maintain the entire premises during the
term of this Lease and any extensions hereof. Tenant shall have the right to
place or install on said leased premises such fixtures and equipment including
modernization and replacement, as it shall deem desirable for the conduct of
its business therein. At the termination of this Lease or any extension or
renewal thereof, Tenant may remove from said leased premises all personal
property and fixtures placed by it on said premises at its own expense, and
Tenant agrees to repair any damage to the premises caused by the removal of its
personal property and fixtures.
10. INSURANCE. Tenant agrees to indemnify and save harmless
Landlord from and against all claims of whatever nature, except those resulting
from the negligence of Landlord or its agents, arising from any act, omission
or negligence of Tenant or Tenant's contractors, agents, servants, or
employees, or arising from any accident, injury or damage whatsoever caused to
any person or to the property of any person occurring during the term hereof in
or about the Tenant's demised premises but within the Shopping Center
development of which the demised premises are a part, where such accident,
damage, or injury results or is claimed to have resulted from an act or
omission of the Tenant or his agents or employees. This indemnity and
hold-harmless agreement shall include indemnity against all costs, expenses,
and liabilities in, or in connection with, any such claim or proceeding brought
thereon and the defense thereof.
Tenant agrees to maintain in full force during the term hereof a
policy of public liability insurance; the minimum limits of liability of such
insurance shall be $100,000.00 for injury (or death) to any one person and
$300,000.00 for any injury (or death) to more than one person.
Tenant agrees to use and occupy the demised premises and to use all
other portions of the common areas in the Shopping Center at its own risk; and
the Landlord shall have no responsibility or liability for any loss of or
damage to fixtures or other personal property of Tenant. The provisions of
this section shall apply during the whole of the term hereof.
It is understood and agreed that Tenant assumes all risk of damage to
its own property arising from any cause whatsoever, including, without
limitation, loss by theft or otherwise.
Tenant covenants and agrees that it will not do or permit anything to
be done in or upon the demised premises or bring in anything or keep anything
therein which shall increase the rate of insurance on the Shopping Center area,
and further agrees that, in the event it shall do any of the foregoing, it will
promptly pay to the Landlord upon demand, any such increase resulting
therefrom, which shall be due and payable as additional rental hereunder.
11. DESTRUCTION OF PREMISES. In the event of a partial or total
destruction of the premises during the lease term or any extensions from any
cause, Tenant shall forthwith repair the same, providing such repairs can be
made under the laws and regulations
-3-
<PAGE> 4
of Federal, State, County, and Municipal authorities. Such destruction shall
in no wise annul or void this Lease. If such repairs cannot be made under such
laws and regulations, this Lease may be terminated at the option of either
party.
12. DEFAULT AND RE-ENTRY. It is expressly agreed between the
parties hereto that, if default be made in the payment of the rent above
reserved or any part thereof, or in any of the covenants and agreements herein
contained to be kept by the Tenant, after thirty (30) days' notice to Tenant of
such alleged breach, (except five [5] days written notice for nonpayment of
rental), it shall be lawful for the Landlord or assigns at any time after the
expiration of said notice, if said default is not cured, at the election of the
Landlord or assigns, to re-enter said demised premises or any part thereof,
either with or without process of law, and to expel, remove and put out the
Tenant or any other person or persons occupying the same, using such force as
may be necessary so to do, and the said premises again to repossess and enjoy,
as before this demise, without prejudice or any remedies which might otherwise
be used for arrears of rent or preceding breach of covenants.
In case of such termination, re-entry, or dispossession by summary
proceedings or otherwise, the Tenant will also pay to Landlord all expenses
which Landlord may then or thereafter incur for legal expenses, reasonable
attorney fees, brokerage commissions, and all other reasonable costs paid or
incurred by Landlord for restoring the demised premises to good order and
condition and for altering or otherwise preparing the same for re-letting, and
title to all Tenant's improvements shall revert to Landlord.
13. NOTICES. Whenever, by the terms of this Lease, notice shall
or may be given either to Landlord or to Tenant, such notice shall be in
writing and shall be sent by registered mail, postage prepaid.
If intended for Landlord, addressed to it at the address then
designated for the payment of rent, which is presently No. 7, Triangle Shopping
Center, c/o Longview Mortgage Co., Longview, Washington.
If intended for Tenant, addressed to it at 1347 - 14th Avenue,
Longview, Washington.
14. QUIET ENJOYMENT. Tenant, subject to the terms and provisions
of this Lease, on payment of the rental and observing, keeping, and performing
all of the terms and provisions of this Lease on its part to be observed, kept,
and performed, shall lawfully, peaceably, and quietly have, hold and enjoy the
demised premises during the term hereof without hindrance or interference by
any persons lawfully claiming unto the Landlord.
15. TENANT'S ASSOCIATION. Tenant agrees to join and remain a
member in good standing with other tenants of said Shopping Center in the
formation of a Tenants' Association, which said Tenants' Association shall pay
the cost of operating, lighting, cleaning, removing snow, policing, insuring
against casualties,
-4-
<PAGE> 5
injuries and damage which may occur in such public areas and otherwise lawfully
maintaining, operating, and repairing the parking area, walks, and other areas
common to all tenants. Tenant agrees to pay a sum equal to one cent per square
foot per month of the gross building area herein leased.
For the good and welfare of all tenants in the Shopping Center, their
employees, agents, customers, and invitees, Landlord expressly reserves the
right to promulgate reasonable rules and regulations relating to the use of all
common areas. Said rules and regulations shall be binding upon Tenant ten days
after the mailing of a copy thereof to Tenant at the demised premises. For the
enforcement of all provisions of this clause, Landlord shall have available to
it all the remedies in this Lease provided for a breach thereof and all legal
remedies, whether or not provided for in this Lease, at law or in equity. The
Landlord will, upon request of the Tenant's Association, exercise the
enforcement provisions set forth in this Lease as to any tenant who fails to
cooperate or participate with said Tenant's Association.
16. MISCELLANEOUS. Landlord shall have the right to enter upon
the demised premises at all reasonable hours for the purpose of inspecting the
same.
For a period commencing one hundred twenty (120) days prior to the
termination of this Lease, Landlord may have reasonable access to the premises
herein demised for the purpose of exhibiting the same to prospective tenants.
Landlord shall pay, or cause to be paid, before the same become
delinquent, all general and special taxes which may be lawfully charged,
assessed or imposed upon the demised land only.
Landlord shall in no event be in default for the performance of any of
its obligations hereunder unless and until Landlord shall have failed to
perform such obligations within thirty (30) days or such additional time as is
reasonably required to correct any such default after notice by Tenant to
Landlord properly specifying wherein Landlord has failed to perform any such
obligation.
This Lease shall be subject and subordinate to any first mortgage on
the demised premises placed with an insurance company or other lending
institution authorized to lend money; however, the Tenant's rights under this
Lease shall not be impaired so long as Tenant is not in default.
The failure of either party to seek redress for violation of, or to
insist upon the strict performance of, any covenant or condition of this Lease,
shall not prevent a subsequent act, which would have originally constituted a
violation, from having all the force and effect of an original violation. The
receipt by Landlord of rent with knowledge of breach of any covenant of this
Lease shall not be deemed a waiver of such breach. No provision of this Lease
shall be deemed to have been waived by a party hereto unless such waiver be in
writing signed by such party.
At the expiration of this Lease, Tenant shall surrender the demised
premises in good condition and broom clean, reasonable wear and tear and damage
by fire or casualty excepted.
-5-
<PAGE> 6
17. LEASE BINDING ON SUCCESSORS. Except as herein otherwise
expressly provided, the terms hereof shall be binding upon and shall inure to
the benefit of the successors and assigns, respectively, of Landlord and
Tenant.
-6-
<PAGE> 7
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease
Agreement to be executed in their respective corporate names and their
respective corporate seals to be hereunto affixed and signed and attested by
their respective officers thereunto duly authorized, all as of the day and year
first above written.
TWIN CITY DEVELOPMENT CO.
By /s/ H. R. Calbom
----------------------------------
ATTEST:
/s/ F. L. Eaton
- ---------------------------------
Landlord
BANK OF COWLITZ COUNTY
By /s/ Woodrow C. Button President
------------------------------------
President
ATTEST:
/s/ Earl C. Page
- -----------------------------------
Vice President and Cashier
-7-
<PAGE> 8
STATE OF WASHINGTON )
) ss.
COUNTY OF COWLITZ )
On this 7th day of October, 1963, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared H. R. CALBOM and F. L. EATON, to me known to be the
President and Secretary, respectively, of TWIN CITY DEVELOPMENT CO., the
corporation that executed the foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation, for
the uses and purposes therein mentioned, and on oath stated that they were
authorized to execute the said instrument and that the seal affixed is the
corporate seal of said corporation.
WITNESS my hand and official seal hereto affixed the day and year
first above written.
/s/
-------------------------------------
Notary Public in and for the State
of Washington, residing at Longview
STATE OF WASHINGTON )
) ss.
COUNTY OF COWLITZ )
On this 9th day of October, 1963, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared WOODROW C. BUTTON and EARL C. PAGE, to me known to be the
President and Cashier, respectively, of the BANK OF COWLITZ COUNTY, the
corporation that executed the foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation, for
the uses and purposes therein mentioned, and on oath stated that they were
authorized to execute the said instrument and that the seal affixed is the
corporate seal of said corporation.
WITNESS my hand and official seal hereto affixed the day and year
first above written.
/s/
--------------------------------------
Notary Public in and for the State
of Washington, residing at Longview
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<PAGE> 9
[THIS PAGE INTENTIONALLY KEPT BLANK FOR MAP INSERTION]
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<PAGE> 10
EXHIBIT "B"
Commencing at the Northwesterly corner of Tract No. 1 (which is the initial
point of Assessor's Plat No. 17) of Assessor's Plat No. 17, as recorded in
Volume 8 of Plats, page 39, Records of Cowlitz County, Washington; thence South
15 degrees 02' West a distance of 227.71 feet to the true point of beginning of
this description; thence North 88 degrees 50' 30" East a distance of 181.50
feet; thence North 15 degrees 02' East a distance of 10.41 feet; thence North 88
degrees 50' 39" East a distance of 797.32 feet; thence South 15 degrees 02' West
a distance of 84.55 feet; thence South 74 degrees 58' East a distance of 40.00
feet; thence South 15 degrees 02' West a distance of 228.51 feet; thence South
74 degrees 58' East a distance of 2.72 feet; thence South 32 degrees 21' 29"
East a distance of 292.00 feet; thence South 57 degrees 38' 31" West a distance
of 1,540.00 feet; thence North 32 degrees 21' 29" West a distance of 160.00
feet; thence South 57 degrees 38' 31" West a distance of 55.13 feet; thence
North 15 degrees 02' East a distance of 1,293.12 feet to the true point of
beginning, situate in Cowlitz County, Washington, EXCEPTING that portion of
Tract 29, Assessors Plat No. 17 conveyed to the City of Longview for street
purposes by deed recorded under Auditor's file No. 537358, records of the
auditor of said county.
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<PAGE> 1
EXHIBIT 10.8
ASSIGNMENT OF LEASE
For value received, the undersigned does hereby assign, transfer and
set over, and convey unto the OLD NATIONAL BANK OF WASHINGTON, a National
Banking Association, all of its right, title and interest in and to that certain
Lease dated October 7, 1963, between TWIN CITY DEVELOPMENT CO., as Lessor, and
BANK OF COWLITZ COUNTY, as Lessee, which Lease provides for the lease of that
certain real property situated in Cowlitz County, State of Washington, more
particularly described as follows:
A portion of Tract 46, Assessor's Plat No. 17, according to the plat
thereof recorded in Volume 8, page 39, records of Cowlitz County,
Washington, described as follows:
Beginning at the corner common to Tract 46, 47, 48 and 49,
Assessor's Plat No. 17, according to the plat thereof recorded
in Volume 8 of Plats, page 39, records of said County; thence
North 32(degree)21'29" West 10 feet; thence South
57(degree)38'31" West 40 feet to the true point of beginning
thence continuing South 57(degree)38'31" West 150 feet; thence
North 32"21'29" West 150 feet; thence North 57(degree)38'31"
East 150 feet; thence South 32(degree)21'29" East 150 feet to
the true point of beginning.
DATED at Bellevue, Washington, this 4th day of March, 1976.
BANK OF THE WEST, formerly BANK OF
COWLITZ COUNTY
By /s/ W.C. Button
------------------------------------
President
Attest: /s/ B.D. Collier
-------------------------------
Cashier
STATE OF WASHINGTON )
) ss.
County of King )
On this 4th day of March, 1976, before me a Notary Public in and for
the above county and state, personally appeared W. C. BUTTON and B. D. COLLIER,
to me known to be the President and Cashier, respectively, of BANK OF THE WEST,
the corporation that executed the within and foregoing instrument; and
acknowledged the said instrument to be the free and voluntary act and deed of
said corporation, for the uses and purposes therein mentioned, and each on oath
stated that he was authorized to execute said instrument and that the seal
affixed is the corporate seal of said corporation.
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<PAGE> 2
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
/s/ Dollie M. Duncan
---------------------------------------
NOTARY PUBLIC in and for the State
of Washington, residing at Bellevue
OLD NATIONAL BANK OF WASHINGTON and W. C. BUTTON, as liquidating
agents of BANK OF THE WEST, do hereby join in and confirm the above and
foregoing assignment of lease.
OLD NATIONAL BANK OF WASHINGTON, as
a liquidating agent of BANK OF THE
WEST
By: /s/ B.C. Gineau
-----------------------------------
Attest: /s/ T.M. Palmer
--------------------------------
/s/ W.C. Button
---------------------------------------
W. C. BUTTON, as liquidating agent
of BANK OF THE WEST
STATE OF WASHINGTON )
) ss.
County of King )
On this 4th day of March, 1976, before me personally appeared B.C.
GINEAU and T.M. PALMER to me known to be the______________________________ and
___________________ of OLD NATIONAL BANK OF WASHINGTON, as a liquidating agent
of BANK OF THE WEST, the corporation that executed the within and foregoing
instrument and acknowledged said instrument to be the free and voluntary act and
deed of said corporation, for the uses and purposes therein mentioned, and each
on oath stated that he is authorized to execute said instrument and that the
seal affixed is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the
day and year first above written.
/s/ Dollie M. Duncan
---------------------------------------
NOTARY PUBLIC in and for the State
of Washington, residing at Bellevue
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<PAGE> 3
STATE OF WASHINGTON )
) ss.
County of King )
On this 4th day of March, 1976, before me personally appeared W. C.
BUTTON, as a liquidating agent of BANK OF THE WEST, to me known to be the
individual described in and who executed the within and foregoing instrument,
and acknowledged that he signed the same as his free and voluntary act and deed,
for the uses and purposes therein mentioned.
GIVEN under my hand and official seal the day and year last above
written.
/s/ Dollie M. Duncan
----------------------------------------
NOTARY PUBLIC in and for the State
of Washington, residing at Bellevue
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<PAGE> 4
ACCEPTANCE OF ASSIGNMENT
OLD NATIONAL BANK OF WASHINGTON, the Assignee of the foregoing
Assignment of Lease, does hereby accept said Assignment and does hereby agree to
be bound by and perform all of the terms, covenants, conditions and obligations
of the Lessee as provided in the lease described in the foregoing Assignment of
Lease.
IN WITNESS WHEREOF, the Assignee has caused this Acceptance to be
executed by its duly authorized officers this 4th day of March, 1976.
OLD NATIONAL BANK OF WASHINGTON
By: /s/ B.C. Ghineau
---------------------------------
Attest: /s/ T.M. Palmer
-----------------------------
CONSENT TO ASSIGNMENT
The undersigned, the Lessor of the lease described in the foregoing
Assignment of Lease, does hereby consent to the assignment of the Lessee's
interest under said lease to OLD NATIONAL BANK OF WASHINGTON, as more
particularly set forth in the foregoing Assignment of Lease.
IN WITNESS WHEREOF the undersigned has caused this Consent to
Assignment to be executed this 7th day of April, 1976.
TWIN CITY DEVELOPMENT CO.
By: /s/
---------------------------------
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<PAGE> 1
EXHIBIT 10.9
ASSIGNMENT OF LEASE
FOR VALUE RECEIVED, the undersigned does hereby assign, transfer, set
over, and convey unto the PACIFIC NATIONAL BANK OF WASHINGTON, a national
banking association, all of its right, title and interest in and to that
certain Lease dated October 7, 1963, between TRAINGLE DEVELOPMENT COMPANY, a
Washington corporation, as Lessor, and the OLD NATIONAL BANK OF WASHINGTON, a
national banking association, as Lessee, which Lease provides for the lease of
that certain real property situated in Cowlitz County, State of Washington,
more particularly described as follows:
A portion of Tract 46, Assessor's Plat No. 17, according to
the plat thereof recorded in Volume 8, page 39, records of
Cowlitz County, Washington, described as follows:
Beginning at the corner common to Tract 46, 47, 48 and 49,
Assessor's Plat No. 17, according to the plat thereof recorded
in Volume 8 of Plats, page 39, records of said County; thence
North 32#21'29" West 10 feet; thence South 57#38'31" West 40
feet to the true point of beginning thence continuing South
57#38'31" West 150 feet; thence North 57#38'31" East 150 feet;
thence South 32#21'29" East 150 feet to the true point of
beginning.
DATED this 30th day of March, 1979.
OLD NATIONAL BANK OF WASHINGTON
By:/s/____________________________
Attest: /s/_______________________
<PAGE> 2
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 30th day of March, 1979, before me the undersigned Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared Gordon Brand and M. H. Fotheringill, to me know to be the
Sr. Vice President and Vice President, of the OLD NATIONAL BANK OF WASHINGTON,
the corporation that executed the foregoing instrument, and acknowledged the
said instrument to be the free and voluntary act and deed of said corporation,
for the uses and purposes therein mentioned, and on oath stated that they were
authorized to execute the said instrument and that the seal affixed is the
corporate seal of said corporation.
WITNESS my hand and official seal hereto affixed the day and year
first above written.
/s/___________________________
NOTARY PUBLIC in and for the State
of Washington, residing at Spokane
ACCEPTANCE OF ASSIGNMENT
PACIFIC NATIONAL BANK OF WASHINGTON, the Assignee of the foregoing
Assignment of Lease, does hereby accept said assignment and does hereby agree
to be bound by and perform all of the terms, covenants, conditions and
obligations of the Lessee all as provided in the lease described in the
foregoing Assignment of Lease.
IN WITNESS WHEREOF, the Assignee has caused this acceptance to be
executed by its duly authorized officers this 30th day of March, 1979.
PACIFIC NATIONAL BANK OF WASHINGTON
By: /s/__________________________
Attest: /s/_______________________
<PAGE> 3
CONSENT TO ASSIGNMENT
THE UNDERSIGNED, the Lessor of the lease described in the foregoing
Assignment of Lease, does hereby consent to the assignment of the Lessee's
interest under said lease to the Pacific National Bank of Washington, as more
particularly set forth in the foregoing Assignment of Lease.
IN WITNESS WHEREOF, the undersigned has caused this consent to be
executed by its duly authorized officers this _____ day of March, 1979.
TRAINGLE DEVELOPMENT COMPANY
By: /s/___________________________
<PAGE> 1
EXHIBIT 10.10
EXTENSION OF LEASE
THIS AGREEMENT of Extension of Lease, entered into as of the 1st day
of April, 1989, by and between TRIANGLE DEVELOPMENT COMPANY, a partnership
organized and existing under the laws of the State of Washington, herein
referred to as "Landlord", and FIRST INTERSTATE BANK OF WASHINGTON, N.A., a
banking institution organized under the laws of the United States, doing
business in Cowlitz County, Washington, herein referred to as "Tenant".
R E C I T A L S
1. By Lease dated October 7, 1963, TWIN CITY DEVELOPMENT CO., to
the interest of which Landlord is a successor and BANK OF COWLITZ COUNTY, to
the interest of which Tenant is a successor, entered into a lease for premises
in the Triangle Shopping Center ("the Property") for a period of 25 years.
2. Pursuant to the terms of the October 7, 1963 Lease, Tenant had
the right to extend the term thereof for an additional 10 year period, which
Tenant desires to exercise.
3. The parties desire to reduce to writing those specific ways in
which the previous Lease will be modified during the 10 year extension period.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. The October 7, 1963 Lease above identified is extended for a
period of 10 years commencing April 1, 1989 and ending March 31, 1999.
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<PAGE> 2
2. The Tenant covenants and agrees to pay to the Landlord an
annual rental of $13,500.00, payable in equal monthly installments of $1,125.00
payable on the first day of each month of the Lease term.
The annual rental shall be revised on each and every third year
anniversary date, i.e. April 1, 1992, April 1, 1995, and April 1, 1998, in
relation to the relative changes in the cost of living. Effective on each of
the three dates set forth above, the annual rental provided in this Extension
Agreement shall be adjusted by multiplying $13,500.00 times a fraction, the
numerator of which shall be the Consumer Price Index for U.S. Average, general
summary and groups, sub-groups and selected items for city wage earners and
clerical workers "all items" published by the United States Department of
Labor, Bureau of Labor Statistics for the November immediately proceeding the
effective date of the adjustment and the denominator shall be the same Consumer
Price Index for November, 1988. If the Bureau of Labor Statistics changes the
form or the basis of calculating the Consumer Price Index, the parties agree to
use whatever successor Index is available and if none, the most nearly
compatible available Index.
The Tenant's obligation to pay any Cowlitz County real property taxes,
diking assessment and periodic fire insurance premiums as provided in the
second paragraph of Section 2 of the October 7, 1963 Lease shall remain in full
force and effect. In addition, Tenant shall provide Landlord with an annual
Certificate of Insurance showing adequate fire and liability insurance coverage
on the building.
Tenant shall pay a pro-rata share of the common area maintenance and
mall promotional fees, said payments to be made monthly in the minimum amounts
of $50.00 per month for the common area maintenance and $25.00 per month for
mall promotional fees.
3. Except as specifically modified in this Extension Agreement,
the terms and provisions of the October 7, 1963 Lease shall remain in full
force and effect.
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<PAGE> 3
IN WITNESS WHEREOF, the parties have set their hand this 13th day of
April, 1989.
TRIANGLE DEVELOPMENT CO.
By: /s/
----------------------------------
Its: General Partner
----------------------------------
FIRST INTERSTATE BANK OF
WASHINGTON, N.A.
By: /s/
----------------------------------
Its: Vice President
---------------------------------
By: /s/
----------------------------------
Its: Assistant Vice President
---------------------------------
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<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This Agreement ("Agreement") is made and entered into as of January 1, 1998, by
and between Cowlitz Bancorporation, ("Employer"), Cowlitz Bank ("Bank"), and
Charles W. Jarrett ("Employee"). As of the date of this Agreement, the
Employer's sole operating unit is its wholly owned subsidiary, Cowlitz Bank (the
"Bank").
In consideration of mutual promises of Employer, Bank and Employee set forth in
this Agreement, the parties agree as follows:
1. EMPLOYMENT. Employer agrees to elect and employ Employee as its President
and Chief Operating Officer, and Employee agrees to serve Employer in those
capacities and, if elected by the shareholders of Employer, to serve on the
Board of Directors. In addition, Employee shall serve as President and
Chief Executive Officer of the Bank. Bank shall compensate Employee and
bonuses shall be based on Bank's financial results. Employee agrees to
perform such services as set forth in Employer's and Bank's Bylaws and as
may be customary to such offices at the direction of their respective
Boards of Directors.
2. SALARY. Bank agrees to pay Employee not less than $200,000 per year
during the term of this Agreement, in equal monthly installments, subject
to usual required withholding. From time to time, and no less frequently
than annually, the Board of Directors shall review the performance and
responsibilities of Employee and may, in its sole discretion, increase such
salary by such additional amount as may be appropriate. In particular, the
expanded duties of Employee arising from the Employer's acquisition of
other operating units shall be considered in determining salary increases.
3. CASH BONUSES. In addition to salary under Section 2, Employee shall be
entitled to annual cash bonuses, determined as follows:
a. FOLLOWING YEARS. For each calendar year during the term of this
Agreement, Employee shall be entitled to a bonus equal to the sum of
five percent (5%) of the Bank's net profits in excess of a one
percent (1%) Return on Assets of the Bank ("ROA") for the calendar
year and seven and one-half percent (7.5%) of the Bank's net
profits in excess of one and one-half percent (1.5%) ROA for the
calendar year. If the Bank's ROA for a year is less than one
percent (1%), no bonus shall be paid under this Section 3.a.
b. ADDITIONAL MERIT BONUSES. In addition to the bonuses, if any, which
Employee may be entitled to, under Section 3.a the Board of Directors
of the Employer in connection with the Employee's annual salary review
shall determine whether Employee's total compensation for the previous
year was appropriate in light of his responsibilities and
accomplishments. The Board of Directors may authorize such additional
bonus amount as they consider reasonable and appropriate in the
circumstances.
c. PAYMENT OF BONUSES. The bonuses under this Section 3 shall be paid
after the end of each calendar year, promptly after the annual
financial results of the Employer and Bank are determined. The Board of
Directors shall retain the authority to adjust the annual performance
goal in order to reflect extraordinary or nonrecurring events.
4. STOCK OPTIONS. As part of this Agreement Employee may also receive
additional consideration in the form of stock options. All options granted
under this Agreement are subject to the Cowlitz Bancorporation, 1997
Long-term Incentive Plan and the rights and restrictions contained therein.
5. DEFERRED COMPENSATION PLAN. As part of this Agreement Employee may also
receive additional consideration in the form of deferred compensation. All
deferred compensation paid subsequent to this Agreement is subject to the
Cowlitz Bancorporation, Supplemental Executive Retirement Plan and the
rights and restrictions contained therein.
<PAGE> 2
6. DURATION OF THIS AGREEMENT. Employment under this Agreement shall commence
on this date and terminate on the date 36 months after this date, provided
that for each day from and after the date hereof the duration of the
agreement will automatically be extended for an additional day, unless
earlier terminated by any of the following:
a. upon the death of Employee;
b. due to the inability of Employee, as determined by the Board of
Directors, in its discretion, based on competent medical advice, to
perform his duties hereunder, whether by reason of injury or illness
(physical or mental) incapacitating Employee for a continuous period
exceeding 365 days;
c. upon the discharge of Employee by the Board of Directors of Employer
pursuant to Section 7 or 8 hereof;
D. upon Employee voluntarily terminating employment pursuant to Section
9; or
E. upon retirement of Employee.
7. TERMINATION FOR CAUSE. For cause shall mean that the Employer or Bank has
terminated Employee's employment for any of the following reasons:
a. The commission by Employee of an act of fraud or embezzlement
against Employer or of an act which he knew to be in gross violation of
his duties to Employer or Bank (including the unauthorized disclosure
of confidential information);
b. A felony conviction of Employee; or
c. The material failure of Employee to carry out reasonable written
directions of the Board of Directors appropriate to Employee's
executive status.
8. TERMINATION. Employee shall be entitled to the benefits of this Agreement
unless this Agreement terminates early as follows:
a. EARLY TERMINATION. In the event of early termination of this
Agreement for cause as specified in Section 7, Bank shall no longer be
obligated to make any salary payments of any kind whatsoever to
Employee or his estate. Employee or his designees or, if there is no
such designee, the Employee's estate shall be entitled to a cash bonus
for the calendar year in which such employment terminates, based on
results for the entire year, but prorated for the partial year prior to
the date of termination. In addition, Employee shall receive such
benefits to which he has become entitled under the terms of the Cowlitz
Bancorporation, 1997 Long-term Incentive Plan, Supplemental Executive
Retirement Plan, and any benefit plan or program.
b. TERMINATION WITHOUT CAUSE. Employer's or Bank's Board of Directors
may terminate employee at any time in its sole discretion. In the event
such termination is without cause, or caused by the death or disability
of Employee, then Employee shall be entitled to receive, within five
business days after the effective date of such termination, from
Employer or Bank a lump sum equal to three times the Employee's annual
base salary under this Agreement for the calendar year in which such
employment terminates. Additionally, Employee shall be entitled to a
cash bonus for the calendar year in which such employment terminates,
based on results for the entire year, but prorated for the partial year
prior to the date of termination. In addition, if Employer or Bank
discharges Employee for any reason other than for cause, Employee shall
receive such benefits to which he has become entitled under the terms
of the Cowlitz Bancorporation, 1997 Long-term Incentive Plan,
Supplemental Executive Retirement Plan, and any benefit plan or
program.
Employment Contract -- Page 2
<PAGE> 3
9. TERMINATION OF EMPLOYMENT BY NOTICE. Employee may terminate employment upon
30 days written notice to the Employer and Bank. Employee will be required
to perform all duties and will be paid his annual base salary pursuant to
Section 2 and the fringe benefits pursuant to Section 10 accrued, in each
case, through the date of termination. Employee or his designees or, if
there is no such designee, the Employee's estate shall also be entitled to
a cash bonus for the calendar year in which such employment terminates,
based on results for the entire year, but prorated for the partial year
prior to the date of termination.
10. EMPLOYEE BENEFITS. In addition, during the term of this Agreement Employer
or Bank shall provide Employee:
a. all employee benefits, including retirement, vacation and health,
life and disability insurance benefits, as modified from time to time,
as a generally available to officers of Employer and the Bank;
b. reimbursement of travel and entertainment expenses incurred for
Employer;
c. an automobile, insurance, maintenance, and all costs of operations;
d. the initiation fee, monthly dues and assessments for one social or
athletic club, to be selected from time to time by Employee.
11. CHANGE IN CONTROL OF THE EMPLOYER. No benefits shall be payable under
Section 13 unless there has been a Change in Control of the Employer, as
set forth below. Such a Change in Control shall be deemed to have occurred
if any of the following occurs:
a. The acquisition of ownership, directly, or indirectly, beneficially
or of record, by any Person or group (within the meaning of the
Securities Exchange Act of 1934 and the rules of the Securities and
Exchange Commission thereunder as in effect on the date of this
Agreement), other than Employer, a Subsidiary or any employee benefit
plan of Employer or its Subsidiaries, of shares representing more than
50% of (1) the common stock of Employer, (2) the aggregate voting power
of Employer's voting securities or (3) the total market value of
Employer's voting securities;
b. During any period of 25 consecutive calendar months, a majority of
the Board of Directors of Employer (the "Board") ceasing to be composed
of individuals (1) who were members of the Board on the first day of
such period, (2) whose election or nomination to the Board was approved
by individuals referred to in clause (1) above constituting at the time
of such election or nomination at least a majority of the Board or (3)
whose election or nomination to the Board was approved by individuals
referred to in clauses (1) and (2) above constituting at the time of
such election or nomination at least a majority of the Board;
c. The good-faith determination by the Board that any Person or group
(other than a Subsidiary or any employee benefit plan of Employer or
its Subsidiaries) has acquired direct or indirect possession of the
power to direct or cause to direct the management or policies of
Employer or Bank, whether through the ability to exercise voting power,
by contract or otherwise;
d. The merger, consolidation, share exchange or similar transaction
between Employer or Bank and another Person (other than a Subsidiary)
other than a merger or share exchange in which Employer is the
surviving or acquiring corporation; or
e. The sale or transfer (in one transaction or a series of related
transactions) of all or substantially all of Employer's or Bank's
assets to another Person (other than a Subsidiary) whether assisted or
unassisted, voluntary or involuntary.
Employment Contract -- Page 3
<PAGE> 4
For purposes of the above definition of Change in Control:
f. "Person" shall mean any individual, corporation, company, voluntary
association, partnership, limited liability company, joint venture,
trust, unincorporated organization or government (or any agency,
instrumentality or political subdivision thereof); and
g. "Subsidiary" shall mean a corporation that is wholly owned by
Employer, either directly or through one or more corporations which are
wholly owned by Employer.
12. TERMINATION FOLLOWING A CHANGE IN CONTROL OF THE EMPLOYER. If any of the
events described in Section 11 constituting a Change in Control of the
Employer occur, the Employee shall be entitled to the benefits provided in
Section 13 hereof immediately upon a termination of his employment which
occurs within three years after such Change in Control, if such termination
is for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without the Employee's express written consent, the occurrence after
a Change in Control of the Employer of any (1) or more of the following:
a. The assignment to the Employee of duties, responsibilities or status
inconsistent with his present duties, responsibilities and status as
the President and Chief Executive Officer of the Bank and President and
Chief Operating Officer of the Employer and or a reduction or
alteration in the nature or status of the Employee's duties and
responsibilities from those in effect as of the date hereof;
b. A reduction of the Employee's base salary which was in effect on the
date of this agreement or as the same has been increased from time to
time;
c. The Employer's requiring the Employee to be based at an office
location other than in or around Longview or Kelso, Washington;
d. The failure by the Employer to continue in effect the Employer's
insurance, disability, deferred compensation plans or any other of the
Employer's employee benefit plans, policies, practices or arrangements
in which the Employee participates, or the failure by the Employer to
continue the Employee's participation therein on substantially the same
basis, both in terms of the amount of benefits provided and the level
of the Employee's participation relative to other participants, as
existed as of the date hereon;
e. The failure of the Employer to obtain a satisfactory agreement from
any successor to the Employer to assume and agree to perform this
Agreement; and
f. Any purported termination by the Employer of the Employee's
employment that is not effected pursuant to a Notice of Termination
satisfying the notice requirements of Section 21 below and, for
purposes of this Agreement, no such purported termination shall be
effective.
13. COMPENSATION UPON TERMINATION FOR CHANGE OF CONTROL. Following a Change in
Control of the Employer, as defined in Section 11 hereof, upon termination
of the Employee's employment by Employer (or its successor) without cause
within three years after a Change in Control of the Employer or by the
Employee for Good Reason within three years after a Change in Control of
the Employer the Employee shall be entitled to the following benefits
("Change in Control Benefits") as benefits and as compensation for the
Covenant Not to Compete set forth in Section 16 hereof:
a. The Employer shall pay the Employee his full Base Salary through the
Date of Termination at the rate in effect at the time Notice of
Termination is given, or the Date of Termination where no Notice of
Termination is required hereunder;
b. The Employer shall pay as Change in Control Benefits, and as
compensation for the Covenant Not to Compete to the Employee, not later
than the tenth day following the Date of Termination, a lump sum
Employment Contract -- Page 4
<PAGE> 5
payment equal to three times the Employee's annual base salary in
effect immediately prior to the occurrence of the circumstances giving
rise to such termination. In addition, Employee shall receive such
benefits to which he has become entitled under the terms of the Cowlitz
Bancorporation, 1997 Long-term Incentive Plan, Supplemental Executive
Retirement Plan, and any benefit plan or program.
c. BENEFITS CONTINUATION
If already participating in the Employer's or Bank's medical, dental,
and/or life insurance plans, the Employee will be entitled to continued
medical/dental benefits coverage for a period of 18 months under the
Consolidated Omnibus Budget Reconciliation Act (COBRA). The Employer or
Bank will assist the Employee by paying 50 percent of the premiums for
coverage in effect before his termination during the first 12 months
and 25 percent of the premiums during the remaining six months. If the
Employee qualifies for a continuation of COBRA benefits after 18 months
then the Employee will be responsible for paying their entire premiums.
The purpose of providing continued benefits coverage is to assist the
Employee with his career transition. Should the Employee accept an
employment opportunity during the 18 months after his termination, his
benefits coverage under COBRA may continue should the Employee have a
need for continuing benefits coverage. However, the Employer or Bank
will not assist with paying his insurance premiums and the Employee
will be responsible for paying his own premiums in its entirety.
d. Limitation on Change in Control Payments. Subject to Section 13(e)
below, the aggregate of all payments, benefits or distributions (or
combination thereof) by the Employer or Bank or one or more trusts
established by the Employer or Bank for the benefit of its employees,
to or for the benefit of Employee pursuant to this Agreement (whether
paid or payable or distributed or distributable pursuant to the terms
of this Agreement, or under the terms of any other plans, program
agreement or arrangement) (" Change in Control Payments") shall not
exceed the maximum Change in Control Payments which Employee may
receive without being subject to the excise tax imposed by Section 4999
of the Internal Revenue Code of 1986, as amended, or any interest or
penalties incurred by Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, hereinafter
collectively referred to as the "Excise Tax").
e. GROSS UP.
(i). In the event that it is determined that the aggregate of all
Change in Control Payments to which Employee would be entitled to
receive without regard to Section 13(d) is greater than the sum of
(i) the maximum Change in Control Payments which Employee may
receive without being subject to the Excise Tax plus (ii) Fifty
Thousand Dollars ($50,000.00), then Section 13(d) shall not apply
and Employee shall be entitled to receive (i) all Change in
Control Payments to which Employee is otherwise entitled to
receive without regard to Section 13(d) and (ii) an additional
payment (a "Gross-Up Payment") in an amount such that the net
amount of Change in Control Payments received by Employee, after
the calculation and deduction of any Excise Tax on the Change in
Control Payments and any federal, state and local income taxes,
employment taxes and excise taxes on the Gross-Up Payment provided
for in this Section 13(e), shall be equal to the Change in Control
Payments. In determining this amount, the amount of the Gross-Up
Payment attributable to federal income taxes shall be reduced by
the Gross-Up Payment attributable to state and local income taxes.
Finally, the Gross-Up Payment shall be reduced by income or excise
tax withholding payments made by the Employer or Bank to any
federal, state or local taxing authority with respect to the
Gross-Up Payment that was not deducted from compensation payable
to Employee.
Employment Contract -- Page 5
<PAGE> 6
(ii). Subject to the provisions of Section 13.e.(i), all
determinations required to be made under Section 13, including,
without limitation, whether Section 13(d) is applicable or
inapplicable and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be utilized
in arrive at such determination, shall be made by a certified
public accounting firm designated by Employee which shall provide
detailed supporting calculations both to the Employer or Bank and
to Employee within fifteen (15) business days of the receipt of
notice from Employer or Bank that there has been a Change in
Control Payment, or such earlier time as is requested by the
Employer or Bank. This calculations prepared by such firm shall be
reviewed on behalf of the Employer or Bank by the Employer's or
Bank's independent auditors. In the event of a dispute between the
firm designated by Employee and the Employer's or Bank's
independent auditors, such firms shall jointly select a third
nationally recognized certified public accounting firm (the
"Accounting Firm") to resolve the dispute and the decision of such
third firm shall be final, binding and conclusive upon Employee
and the Employer and the Bank. All reasonable fees and expenses of
the accounting firms shall be borne solely by the Employer or
Bank. Any Gross-Up Payment shall be paid by the Employer or Bank
to Employee within five (5) business days after the receipt of the
Accounting Firm's determination.
f. The Change in Control Payments to be paid pursuant to this agreement
are not intended as stipulated or liquidated damages for breach of any
promise of a term of employment, no such promise being made herein, but
are payments which shall be fully earned as of the Date of Termination
and shall be compensation for the Employee's continued services
rendered to the Employer or Bank after the date hereof and prior to
such Date of Termination; for the covenant Not To Compete provision of
Section 16 hereof; the foregoing of other, possibly more secure
employment; consequential losses which may result from such
termination, including, but not limited to, permanent injury to
reputation, loss of career development opportunities, and emotional
stress; and actual losses which may result from such termination,
including, but not limited to, lost wages and expenses of securing
other employment.
g. The Employer or Bank shall have no obligation to provide or cause to
be provided to the Employee the benefits described in this Agreement,
other than those provided in Section 8(a) above, if the Employer, Bank,
or the Employee shall terminate the Employee's employment prior to a
Change in Control.
14. SUCCESSORS: BINDING AGREEMENT. a. The Employer or Bank shall require any
successor employing the Employee to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Employer
or Bank would be required to perform it if no such succession had taken
place. Failure of the Employer or Bank to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Employee to compensation
from the Employer or Bank in the same amount and on the same terms as the
Employee would be entitled to if the Employee terminated his employment for
Good Reason, except that, for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be deemed the
Date of Termination.
b. This agreement shall inure to the benefit of and be enforceable by the
Employee's personal or legal representatives, executors, administrator,
successors and heirs. If the Employee should die while any amount would
still be payable to him hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's designees or, if there is no
such designee, to the Employee's estate.
Employment Contract -- Page 6
<PAGE> 7
15. CONFIDENTIALITY. Employee acknowledges that during the course of his
employment by Employer and Bank, he will be exposed to, have disclosed to
him and may develop information that is proprietary to Employer and Bank
(the "Confidential Information"). The Confidential Information includes,
but is not limited to, financial data, trade secrets, information
concerning the operation, design and marketing of products and processes,
business plans and procedures, customer lists, file and profiles, needs
analyses, calculations, data, manuals, specifications, performance
standards, instructions and any other material or information related to
Employer and Bank, its business or operations, and the ideas or information
relating thereto. Employee will at no time use or permit any other person
or entity to examine, use or derive benefit from the Confidential
Information, shall maintain the Confidential Information in the strictest
confidence, and shall take all necessary precautions needed to preserve its
confidentiality. All documents and materials evidencing the Confidential
Information, and copies thereof, shall at all times remain the property of
Employer. Upon demand, Employee will deliver to Employer or Bank all
documents and other materials which contain or pertain to the Confidential
Information.
16. NOT TO COMPETE/NO HIRE COVENANT
During the employment period and for eighteen months after termination of
employment with the Employer or Bank for any reason, the Employee shall not
compete, directly or indirectly, with the Employer or Bank or its
affiliates within 40 miles of any geographic area in which the Employer or
Bank or its affiliates conduct business at the time of termination of the
employment period. As used herein, "compete" shall include without
limitation, working for or serving any bank, saving association, credit
union, mortgage broker or similar company, or any affiliate thereof, as an
employee, officer, director, consultant or advisor.
If it is judicially determined that this agreement not to compete, or any
portion thereof, is non-enforceable under applicable law(s) (statute,
common law or otherwise), then it is hereby agreed by the Employee and the
Employer and the Bank that the non-enforceable portion of the agreement not
to compete shall be and hereby are redrafted to conform with those
applicable laws, while leaving the remaining portions of the agreement not
to compete intact. By agreeing to this contractual modification
prospectively at this time, the parties intend to make this agreement not
to compete legal under the law(s) of all applicable states so that the
entire agreement not to compete and/or the entire Agreement as
prospectively modified shall remain in full force and effect and shall not
be rendered void or non-enforceable. Such modifications shall not affect
the payments made to Employee under this agreement. The Employee
acknowledges that his skills are such that he can be gainfully employed in
non-competitive employment and that the agreement not to compete will in no
way prevent him from earning a living.
While employed by the Employer or Bank and for a eighteen month period
immediately following the Date Of Termination of such employment, the
Employee shall not, in any capacity for anyone other than the Employer or
Bank, recruit, hire, or assist others in recruiting or hiring, any person
who is, or within the preceding eighteen month period was, an employee of
or consultant for the Employer or Bank.
17. INJUNCTIVE RELIEF. Employee acknowledges that the breach or threatened
breach of Employee's covenants in Section 15 or 16 will give rise to
irreparable injury to Employer and Bank and its affiliates, which injury
would be inadequately compensable in money damages. Accordingly, Employer
or Bank may seek and obtain a restraining order and/or temporary injunction
prohibiting the breach or threatened breach of any such covenants, in
addition to and not limitation of any other legal remedies that may be
available.
18. ASSIGNMENT. This agreement is a personal contract and, except as
specifically set forth herein, the rights and interests of Employee herein
may not be sold, transferred, assigned, pledged or hypothecated. The rights
and obligations of Employer and Bank hereunder shall be binding upon and
run in favor of the successors and assigns of Employer. In the event of any
attempted assignment or transfer of rights hereunder contrary to the
provisions hereof, Employer and Bank shall have no further liability for
payments hereunder.
Employment Contract -- Page 7
<PAGE> 8
19. REIMBURSEMENT FOR CONTRACT NEGOTIATION EXPENSES. The Employer or Bank shall
pay all of the Employee's reasonable legal, accounting and investment
services fees related to the negotiation of this Agreement. In the event of
any litigation or judicial proceeding arising out of this agreement, the
losing party agrees to pay the prevailing party's reasonable attorney's
fees and costs including those incurred on appeal.
20. INDEMNITY. Employer and Bank agree, to the extent permitted by applicable
law, to indemnify and hold Employee harmless from and against any claims,
suits or proceedings and government investigations in which the Employee is
involved due to his duties while serving Employer or Bank. This commitment
is only applicable if the Employee in good faith and in a manner he
reasonably believed to be in the best interests of the Employer or Bank.
21. NOTICES. Any notice given by either party hereunder shall be in writing and
sent by registered or certified mail. Notice to Employer or Bank shall be
addressed to it at is principle office, 927 Commerce Avenue, Longview,
Washington 98632-7912, Attention: Secretary, and to Employee at his last
known residence address.
22. MISCELLANEOUS. This Agreement contains the entire agreement between the
parties and shall be governed by the law of the State of Washington. It may
not be changed orally, but only by agreement in writing signed by the party
against whom enforcement of any waiver, change, modification or discharge
is sought. Paragraph headings are for convenience of reference only and
shall be considered a part of this Agreement.
IN WITNESS WHEREOF, this Agreement has been signed by Employer Bank and Employee
on the dates shown below.
EMPLOYER:
Longview, Washington COWLITZ BANCORPORATION
, 1998
By: ________________________
Title: _______________________
EMPLOYEE:
Longview, Washington _______________________________
, 1998 Charles W. Jarrett
Employment Contract -- Page 8
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
This Agreement ("Agreement") is made and entered into as of January 1, 1998, by
and between Cowlitz Bancorporation, ("Employer") and Ben Namatinia ("Employee").
As of the date of this Agreement, the Employer's sole operating unit is its
wholly-owned subsidiary, Cowlitz Bank (the "Bank").
In consideration of mutual promises of Employer and Employee set forth in this
Agreement, the parties agree as follows:
1. EMPLOYMENT. Employer agrees to elect and employ Employee as its Chairman
and Chief Executive Officer, and Employee agrees to serve Employer in those
capacities and, if elected by the shareholders of Employer, to serve on the
Board of Directors. Employee agrees to perform such services as set forth
in Employer's and Bank's Bylaws and as may be customary to such offices at
the direction of their respective Boards of Directors.
2. SALARY. Employer agrees to pay Employee not less than $200,000 per year
during the term of this Agreement, in equal monthly installments, subject
to usual required withholding. From time to time, and no less frequently
than annually, the Board of Directors shall review the performance and
responsibilities of Employee and may, in its sole discretion, increase such
salary by such additional amount as may be appropriate. In particular, the
expanded duties of Employee arising from the Employer's acquisition of
other operating units shall be considered in determining salary increases.
3. CASH BONUSES. In addition to salary under Section 2, Employee shall be
entitled to annual cash bonuses, determined as follows:
a. FOLLOWING YEARS. For each calendar year during the term of this
Agreement, the Employee's annual bonus shall be determined by the
Employer's Board of Directors at its discretion.
b. ADDITIONAL MERIT BONUSES. In addition to the bonuses, if any, which
Employee may be entitled to, under Section 3.a the Board of Directors
of the Employer in connection with the Employee's annual salary review
shall determine whether Employee's total compensation for the previous
year was appropriate in light of his responsibilities and
accomplishments. The Board of Directors may authorize such additional
bonus amount as they consider reasonable and appropriate in the
circumstances.
c. PAYMENT OF BONUSES. The bonuses under this Section 3 shall be paid
after the end of each calendar year, promptly after the annual
financial results of the Employer and Bank are determined. The Board of
Directors shall retain the authority to adjust the annual performance
goal in order to reflect extraordinary or nonrecurring events.
4. STOCK OPTIONS. As part of this Agreement Employee may also receive
additional consideration in the form of stock options. All options granted
under this Agreement are subject to the Cowlitz Bancorporation, 1997
Long-term Incentive Plan and the rights and restrictions contained therein.
5. DEFERRED COMPENSATION PLAN. As part of this Agreement Employee may also
receive additional consideration in the form of deferred compensation. All
deferred compensation paid subsequent to this Agreement is subject to the
Cowlitz Bancorporation, Supplemental Executive Retirement Plan and the
rights and restrictions contained therein.
6. DURATION OF THIS AGREEMENT. Employment under this Agreement shall commence
on this date and terminate on the date 36 months after this date, provided
that for each day from and after the date hereof the duration of the
agreement will automatically be extended for an additional day, unless
earlier terminated by any of the following:
a. upon the death of Employee;
<PAGE> 2
b. due to the inability of Employee, as determined by the Board of
Directors, in its discretion, based on competent medical advice, to
perform his duties hereunder, whether by reason of injury or illness
(physical or mental) incapacitating Employee for a continuous period
exceeding 365 days;
c. upon the discharge of Employee by the Board of Directors of Employer
pursuant to Section 7 or 8 hereof;
d. upon Employee voluntarily terminating employment pursuant to Section
9; or
e. upon retirement of Employee.
7. TERMINATION FOR CAUSE. For cause shall mean that the Employer has
terminated Employee's employment for any of the following reasons:
a. The commission by Employee of an act of fraud or embezzlement
against Employer or of an act which he knew to be in gross violation of
his duties to Employer (including the unauthorized disclosure of
confidential information);
b. A felony conviction of Employee, involving moral turpitude; or
c. The material failure of Employee to carry out reasonable written
directions of the Board of Directors appropriate to Employee's
executive status.
8. TERMINATION. Employee shall be entitled to the benefits of this Agreement
unless this Agreement terminates early as follows:
a. EARLY TERMINATION. In the event of early termination of this
Agreement for cause as specified in Section 7, Employer shall no longer
be obligated to make any salary payments of any kind whatsoever to
Employee or his estate. Employee or his designees or, if there is no
such designee, the Employee's estate shall be entitled to a cash bonus
for the calendar year in which such employment terminates, based on
results for the entire year, but prorated for the partial year prior to
the date of termination. . In addition, Employee shall receive such
benefits to which he has become entitled under the terms of the Cowlitz
Bancorporation, 1997 Long-term Incentive Plan, Supplemental Executive
Retirement Plan, and any benefit plan or program.
b. TERMINATION WITHOUT CAUSE. Employer's Board of Directors may
terminate employee at any time in its sole discretion. In the event
such termination is without cause, then Employee shall be entitled to
receive, within five business days after the effective date of such
termination, from Employer a lump sum equal to three times the
Employee's annual base salary under this Agreement for the calendar
year in which such employment terminates. Additionally, Employee shall
be entitled to a cash bonus for the calendar year in which such
employment terminates, based on results for the entire year, but
prorated for the partial year prior to the date of termination.
Employee shall be fully vested in all stock options as of the date of
such termination, and shall have the right to fully exercise all stock
options for not less than 180 days after such a termination. In
addition, if Employer discharges Employee for any reason other than for
cause, Employee shall receive such benefits to which he has become
entitled under the terms of the Cowlitz Bancorporation, 1997 Long-term
Incentive Plan, Supplemental Executive Retirement Plan, and any benefit
plan or program.
Employment Contract--Page 2
<PAGE> 3
9. TERMINATION OF EMPLOYMENT BY NOTICE. Employee may terminate employment upon
30 days written notice to the Employer. Employee will be required to
perform all duties and will be paid his annual base salary pursuant to
Section 2 and the fringe benefits pursuant to Section 10 accrued, in each
case, through the date of termination. Employee or his designees or, if
there is no such designee, the Employee's estate shall also be entitled to
a cash bonus for the calendar year in which such employment terminates,
based on results for the entire year, but prorated for the partial year
prior to the date of termination.
10. EMPLOYEE BENEFITS. In addition, during the term of this Agreement Employer
shall provide Employee:
a. all employee benefits, including retirement, vacation and health,
life and disability insurance benefits, as modified from time to time,
as a generally available to officers of Employer and the Bank;
b. reimbursement of travel and entertainment expenses incurred for
Employer;
c. an automobile, insurance, maintenance, and all costs of operations;
d. the initiation fee, monthly dues and assessments for one social or
athletic club, to be selected from time to time by Employee.
11. CHANGE IN CONTROL OF THE EMPLOYER. No benefits shall be payable under
Section 13 unless there has been a Change in Control of the Employer, as
set forth below. Such a Change in Control shall be deemed to have occurred
if any of the following occurs:
a. The acquisition of ownership, directly, or indirectly, beneficially
or of record, by any Person or group (within the meaning of the
Securities Exchange Act of 1934 and the rules of the Securities and
Exchange Commission thereunder as in effect on the date of this
Agreement), other than Employer, a Subsidiary or any employee benefit
plan of Employer or its Subsidiaries, of shares representing more than
50% of (1) the common stock of Employer, (2) the aggregate voting power
of Employer's voting securities or (3) the total market value of
Employer's voting securities;
b. During any period of 25 consecutive calendar months, a majority of
the Board of Directors of Employer (the "Board") ceasing to be composed
of individuals (1) who were members of the Board on the first day of
such period, (2) whose election or nomination to the Board was approved
by individuals referred to in clause (1) above constituting at the time
of such election or nomination at least a majority of the Board or (3)
whose election or nomination to the Board was approved by individuals
referred to in clauses (1) and (2) above constituting at the time of
such election or nomination at least a majority of the Board;
c. The good-faith determination by the Board that any Person or group
(other than a Subsidiary or any employee benefit plan of Employer or
its Subsidiaries) has acquired direct or indirect possession of the
power to direct or cause to direct the management or policies of
Employer, whether through the ability to exercise voting power, by
contract or otherwise;
d. The merger, consolidation, share exchange or similar transaction
between Employer and another Person (other than a Subsidiary) other
than a merger or share exchange in which Employer is the surviving or
acquiring corporation; or
e. The sale or transfer (in one transaction or a series of related
transactions) of all or substantially all of Employer's assets to
another Person (other than a Subsidiary) whether assisted or
unassisted, voluntary or involuntary.
Employment Contract--Page 3
<PAGE> 4
For purposes of the above definition of Change in Control:
f. "Person" shall mean any individual, corporation, company, voluntary
association, partnership, limited liability company, joint venture,
trust, unincorporated organization or government (or any agency,
instrumentality or political subdivision thereof); and
g. "Subsidiary" shall mean a corporation that is wholly owned by
Employer, either directly or through one or more corporations which are
wholly owned by Employer.
12. TERMINATION FOLLOWING A CHANGE IN CONTROL OF THE EMPLOYER. If any of the
events described in Section 11 constituting a Change in Control of the
Employer occur, the Employee shall be entitled to the benefits provided in
Section 13 hereof immediately upon a termination of his employment which
occurs within three years after such Change in Control, if such termination
is for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without the Employee's express written consent, the occurrence after
a Change in Control of the Employer of any (1) or more of the following:
a. The assignment to the Employee of duties, responsibilities or status
inconsistent with his present duties, responsibilities and status as
the Chairman and Chief Executive Officer of the Employer and or a
reduction or alteration in the nature or status of the Employee's
duties and responsibilities from those in effect as of the date hereof;
b. A reduction of the Employee's base salary which was in effect on the
date of this agreement or as the same has been increased from time to
time;
c. The Employer's requiring the Employee to be based at an office
location other than in or around Longview or Kelso, Washington ;
d. The failure by the Employer to continue in effect the Employer's
insurance, disability, deferred compensation plans or any other of the
Employer's employee benefit plans, policies, practices or arrangements
in which the Employee participates, or the failure by the Employer to
continue the Employee's participation therein on substantially the same
basis, both in terms of the amount of benefits provided and the level
of the Employee's participation relative to other participants, as
existed as of the date hereon;
e. The failure of the Employer to obtain a satisfactory agreement from
any successor to the Employer to assume and agree to perform this
Agreement; and
f. Any purported termination by the Employer of the Employee's
employment that is not effected pursuant to a Notice of Termination
satisfying the notice requirements of Section 21 below and, for
purposes of this Agreement, no such purported termination shall be
effective.
13. COMPENSATION UPON TERMINATION FOR CHANGE OF CONTROL. Following a Change in
Control of the Employer, as defined in Section 11 hereof, upon termination
of the Employee's employment by Employer (or its successor) without cause
within three years after a Change in Control of the Employer or by the
Employee for Good Reason within three years after a Change in Control of
the Employer the Employee shall be entitled to the following benefits
("Change in Control Benefits") as benefits and as compensation for the
Covenant Not to Compete set forth in Section 16 hereof:
a. The Employer shall pay the Employee his full Base Salary through the
Date of Termination at the rate in effect at the time Notice of
Termination is given, or the Date of Termination where no Notice of
Termination is required hereunder;
Employment Contract--Page 4
<PAGE> 5
b. The Employer shall pay as Change in Control Benefits, and as
compensation for the Covenant Not to Compete to the Employee, not later
than the tenth day following the Date of Termination, a lump sum
severance payment equal to three times the Employee's annual base
salary in effect immediately prior to the occurrence of the
circumstances giving rise to such termination. . In addition, Employee
shall receive such benefits to which he has become entitled under the
terms of the Cowlitz Bancorporation, 1997 Long-term Incentive Plan,
Supplemental Executive Retirement Plan, and any benefit plan or
program.
c. BENEFITS CONTINUATION
If already participating in the Employer's medical, dental, and/or life
insurance plans, the Employee will be entitled to continued
medical/dental benefits coverage for a period of 18 months under the
Consolidated Omnibus Budget Reconciliation Act (COBRA). The Employer
will assist the Employee by paying 50 percent of the premiums for
coverage in effect before his termination during the first 12 months
and 25 percent of the premiums during the remaining six months. If the
Employee qualifies for a continuation of COBRA benefits after 18 months
then the Employee will be responsible for paying their entire premiums.
The purpose of providing continued benefits coverage is to assist the
Employee with his career transition. Should the Employee accept an
employment opportunity during the 18 months after his termination, his
benefits coverage under COBRA may continue should the Employee have a
need for continuing benefits coverage. However, the Employer will not
assist with paying his insurance premiums and the Employee will be
responsible for paying his own premiums in its entirety.
d. Limitation on Change in Control Payments. Subject to Section 13(e)
below, the aggregate of all payments, benefits or distributions (or
combination thereof) by the Employer or one or more trusts established
by the Employer for the benefit of its employees, to or for the benefit
of Employee pursuant to this Agreement (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement,
or under the terms of any other plans, program agreement or
arrangement) (" Change in Control Payments") shall not exceed the
maximum Change in Control Payments which Employee may receive without
being subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended, or any interest or penalties incurred
by Employee with respect to such excise tax (such excise tax, together
with any such interest and penalties, hereinafter collectively referred
to as the "Excise Tax").
e. GROSS UP.
(i). In the event that it is determined that the aggregate of all
Change in Control Payments to which Employee would be entitled to
receive without regard to Section 13(d) is greater than the sum of
(i) the maximum Change in Control Payments which Employee may
receive without being subject to the Excise Tax plus (ii) Fifty
Thousand Dollars ($50,000.00), then Section 13(d) shall not apply
and Employee shall be entitled to receive (i) all Change in
Control Payments to which Employee is otherwise entitled to
receive without regard to Section 13(d) and (ii) an additional
payment (a "Gross-Up Payment") in an amount such that the net
amount of Change in Control Payments received by Employee, after
the calculation and deduction of any Excise Tax on the Change in
Control Payments and any federal, state and local income taxes,
employment taxes and excise taxes on the Gross-Up Payment provided
for in this Section 13(e), shall be equal to the Change in Control
Payments. In determining this amount, the amount of the Gross-Up
Payment attributable to federal income taxes shall be reduced by
the Gross-Up Payment attributable to state and local income taxes.
Finally, the Gross-Up Payment shall be reduced by income or excise
tax withholding payments made by the Employer to any federal,
state or local taxing authority with respect to the Gross-Up
Payment that was not deducted from compensation payable to
Employee.
Employment Contract--Page 5
<PAGE> 6
(ii). Subject to the provisions of Section 13.e.(i), all
determinations required to be made under Section 13, including,
without limitation, whether Section 13(d) is applicable or
inapplicable and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be utilized
in arrive at such determination, shall be made by a certified
public accounting firm designated by Employee which shall provide
detailed supporting calculations both to the Employer and to
Employee within fifteen (15) business days of the receipt of
notice from Employer that there has been a Change in Control
Payment, or such earlier time as is requested by the Employer.
This calculations prepared by such firm shall be reviewed on
behalf of the Employer by the Employer's independent auditors. In
the event of a dispute between the firm designated by Employee and
the Employer's independent auditors, such firms shall jointly
select a third nationally recognized certified public accounting
firm (the "Accounting Firm") to resolve the dispute and the
decision of such third firm shall be final, binding and conclusive
upon Employee and the Employer. All fees and expenses of the
accounting firms shall be borne solely by the Employer. Any
Gross-Up Payment shall be paid by the Employer to Employee within
five (5) business days after the receipt of the Accounting Firm's
determination.
f. The Change in Control Payments to be paid pursuant to this agreement
are not intended as stipulated or liquidated damages for breach of any
promise of a term of employment, no such promise being made herein, but
are payments which shall be fully earned as of the Date of Termination
and shall be compensation for the Employee's continued services
rendered to the Employer after the date hereof and prior to such Date
of Termination; for the covenant Not To Compete provision of Section 16
hereof; the foregoing of other, possibly more secure employment;
consequential losses which may result from such termination, including,
but not limited to, permanent injury to reputation, loss of career
development opportunities, and emotional stress; and actual losses
which may result from such termination, including, but not limited to,
lost wages and expenses of securing other employment.
g. The Employer shall have no obligation to provide or cause to be
provided to the Employee the benefits described in this Agreement,
other than those provided in Section 8(a) above, if the Employer or the
Employee shall terminate the Employee's employment prior to a Change in
Control.
14. SUCCESSORS: BINDING AGREEMENT.
a. The Employer shall require any successor employing the Employee to
expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Employer would be required to perform it if no
such succession had taken place. Failure of the Employer to obtain such
assumption and agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the Employee to
compensation from the Employer in the same amount and on the same terms as
the Employee would be entitled to if the Employee terminated his employment
for Good Reason, except that, for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed the
Date of Termination.
b. This agreement shall inure to the benefit of and be enforceable by the
Employee's personal or legal representatives, executors, administrator,
successors and heirs. If the Employee should die while any amount would
still be payable to him hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's designees or, if there is no
such designee, to the Employee's estate.
Employment Contract--Page 6
<PAGE> 7
15. CONFIDENTIALITY. Employee acknowledges that during the course of his
employment by Employer, he will be exposed to, have disclosed to him and
may develop information that is proprietary to Employer (the "Confidential
Information"). The Confidential Information includes, but is not limited
to, financial data, trade secrets, information concerning the operation,
design and marketing of products and processes, business plans and
procedures, customer lists, file and profiles, needs analyses,
calculations, data, manuals, specifications, performance standards,
instructions and any other material or information related to Employer, its
business or operations, and the ideas or information relating thereto.
Employee will at no time use or permit any other person or entity to
examine, use or derive benefit from the Confidential Information, shall
maintain the Confidential Information in the strictest confidence, and
shall take all necessary precautions needed to preserve its
confidentiality. All documents and materials evidencing the Confidential
Information, and copies thereof, shall at all times remain the property of
Employer. Upon demand, Employee will deliver to Employer all documents and
other materials which contain or pertain to the Confidential Information.
16. NOT TO COMPETE/NO HIRE COVENANT
During the employment period and for eighteen months after termination of
employment with the Employer for any reason, the Employee shall not
compete, directly or indirectly, with the Employer or its affiliates within
40 miles of any geographic area in which the Employer or its affiliates
conduct business at the time of termination of the employment period. As
used herein, "compete" shall include without limitation, working for or
serving any bank, saving association, credit union , mortgage broker or
similar company, or any affiliate thereof, as an employee, officer,
director, consultant or advisor.
If it is judicially determined that this agreement not to compete, or any
portion thereof, is non-enforceable under applicable law(s) (statute,
common law or otherwise), then it is hereby agreed by the Employee and the
Employer that the non-enforceable portion of the agreement not to compete
shall be and hereby are redrafted to conform with those applicable laws,
while leaving the remaining portions of the agreement not to compete
intact. By agreeing to this contractual modification prospectively at this
time, the parties intend to make this agreement not to compete legal under
the law(s) of all applicable states so that the entire agreement not to
compete and/or the entire Agreement as prospectively modified shall remain
in full force and effect and shall not be rendered void or non-enforceable.
Such modifications shall not affect the payments made to Employee under
this agreement. The Employee acknowledges that his skills are such that he
can be gainfully employed in non-competitive employment and that the
agreement not to compete will in no way prevent him from earning a living.
While employed by the Employer and for a eighteen month period immediately
following the Date Of Termination of such employment, the Employee shall
not, in any capacity for anyone other than the Employer, recruit, hire, or
assist others in recruiting or hiring, any person who is, or within the
preceding eighteen month period was, an employee of or consultant for the
Employer.
17. INJUNCTIVE RELIEF. Employee acknowledges that the breach or threatened
breach of Employee's covenants in Section 15 or 16 will give rise to
irreparable injury to Employer and its affiliates, which injury would be
inadequately compensable in money damages. Accordingly, Employer may seek
and obtain a restraining order and/or temporary injunction prohibiting the
breach or threatened breach of any such covenants, in addition to and not
limitation of any other legal remedies that may be available.
18. ASSIGNMENT. This agreement is a personal contract and, except as
specifically set forth herein, the rights and interests of Employee herein
may not be sold, transferred, assigned, pledged or hypothecated. The rights
and obligations of Employer hereunder shall be binding upon and run in
favor of the successors and assigns of Employer. In the event of any
attempted assignment or transfer of rights hereunder contrary to the
provisions hereof, Employer shall have no further liability for payments
hereunder.
Employment Contract--Page 7
<PAGE> 8
19. REIMBURSEMENT FOR CONTRACT NEGOTIATION EXPENSES. The Employer shall pay all
of the Employee's reasonable legal, accounting and investment services fees
related to the negotiation of this Agreement. In the event of any
litigation or judicial proceeding arising out of this agreement, the losing
party agrees to pay the prevailing party's reasonable attorney's fees and
costs including those incurred on appeal.
20. INDEMNITY. Employer agrees, to the extent permitted by applicable law, to
indemnify and hold Employee harmless from and against any claims, suits or
proceedings and government investigations in which the Employee is involved
due to his duties while serving Employer. This commitment is only
applicable if the Employee in good faith and in a manner he reasonably
believed to be in the best interests of the Employer.
21. NOTICES. Any notice given by either party hereunder shall be in writing and
sent by registered or certified mail. Notice to Employer shall be addressed
to it at is principle office, 927 Commerce Avenue, Longview, Washington
98632-7912, Attention: Secretary, and to Employee at his last known
residence address.
22. MISCELLANEOUS. This Agreement contains the entire agreement between the
parties and shall be governed by the law of the State of Washington. It may
not be changed orally, but only by agreement in writing signed by the party
against whom enforcement of any waiver, change, modification or discharge
is sought. Paragraph headings are for convenience of reference only and
shall be considered a part of this Agreement.
IN WITNESS WHEREOF, this Agreement has been signed by Employer and Employee on
the dates shown below.
EMPLOYER:
Longview, Washington COWLITZ BANCORPORATION
, 1998
By: ________________________
Title: _____________________
EMPLOYEE:
Longview, Washington ____________________________
, 1998 Ben Namatinia
Employment Contract -- Page 8
<PAGE> 1
EXHIBIT 10.13
COWLITZ BANCORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(EFFECTIVE JANUARY 1, 1998)
PREAMBLE
Cowlitz Bancorporation has adopted this Supplemental Executive Retirement Plan,
effective January 1, 1998, for Ben Namatinia and Charles W. Jarrett to ensure
that the Company's executive compensation program is effective and appropriately
compensates the individuals.
SECTION I
DEFINITIONS
When used herein, the following words shall have the meanings below unless the
context clearly indicates otherwise:
1.1 "Basic Retirement Plan" (Please insert the name of the currently
existing qualified plan) as amended from time to time or any successor
thereto.
1.2 "Company" means Cowlitz Bancorporation
1.3 "Participant" means any employee of the Company who meets the
eligibility requirements of Section II and is designated and approved
as set forth in Section II.
1.4 "Plan" means the Cowlitz Bancorporation Supplemental Executive
Retirement Plan.
1.5 "Board of Directors" means the Board of Directors of the Company.
1.6 "Retirement Committee" means the Retirement Committee as defined in the
Basic Retirement Plan.
1.7 "Retirement Benefit" means the benefit payable in accordance with this
Plan.
1.8 "Surviving Beneficiary" means the Beneficiary of a Participant who is
designated by the Participant to receive the Retirement Benefit.
Page 1 of 7
<PAGE> 2
SECTION II
ELIGIBILITY TO PARTICIPATE
The Company has designed the Plan specifically for Ben Namatinia and Charles W.
Jarrett and any other top management employee that the Board of Directors in its
discretion may designate as a Participant. To be considered a Participant, an
employee must be designated as such by the Board of Directors.
Once an employee becomes a Participant, he shall remain a Participant until his
termination of employment with the Company and thereafter until all benefits to
which he or his Surviving Beneficiaries are entitled under the Plan have been
paid.
SECTION III
ELIGIBILITY FOR AN AMOUNT OF BENEFITS
3.1. Eligibility. Each Participant, under the age of 70, is eligible to
retire from the Company and receive a benefit under the Plan beginning
on one of the following dates:
a. "Normal Retirement Date," which is the first day of any month
coincident with or next following the Participant's 62nd
birthday;
b. "Postponed Retirement Date," which is the first day of the
month coincident with or next following the Participant's
termination of employment with the Company after his Normal
Retirement Date and prior to his 70th birthday.
3.2. Retirement Benefit. The Retirement Benefit of a Participant who attains
his Normal Retirement Date or Postponed Retirement Date shall be
distributed benefits under this agreement in one of the following
manners as provided in Section 4.1 and as determined by the Employee
upon attaining his Normal or Postponed Retirement Date:
a. The Company agrees to transfer ownership of a policy currently
held by the Company to the Participant upon the Participants
Normal or Postponed Retirement.
b. The Company agrees to pay the Participant a lump sum amount of
$1,022,499 upon his Normal or Postponed Retirement Date.
c. The Company agrees to pay the Participant $130,830 per annum for the
ten year period following the Participants Normal or Postponed
Retirement.
3.3. Death Prior to Retirement. If a Participant dies prior to his 70th
birthday and his employment with Employer had not been previously
terminated, the Surviving Beneficiary will receive a $1,500,000 lump
sum payment in lieu of the Retirement Benefit set forth in paragraph
3.2.
Page 2 of 7
<PAGE> 3
3.4. Disability Prior to Retirement. If a Participant is disabled prior to
his 70th birthday and his employment with Employer had not been
previously terminated, the Participant shall receive a payment in lieu
of the Retirement Benefit set forth in paragraph 3.2. The payment shall
be made under one of the methods set forth under paragraph 3.2 as
selected by the Participant, or the Participants legal representative.
For the purposes of this paragraph "disabled" shall mean a condition
resulting from bodily injury or disease or mental disorder such that
Participant is prevented from performing the principal duties of his
employment for period exceeding 365 consecutive days. The Board of
Director's, in its discretion, based on competent medical advise, shall
determine whether Participant is and continues to be disabled for the
purposes of this paragraph.
3.5. Death After Retirement But Prior to Payment of Retirement Benefit. If a
Participant dies after a Retirement Benefit distribution has begun,
under paragraph 3.2 (c) above, but has not been paid in its entirety,
the Surviving Beneficiary will be entitled to a lump sum payment
equivalent to the balance of the outstanding Retirement Benefit payable
to the Participant.
3.6. Termination Upon Change in Control. If a Participant's employment is
terminated after a "change in control", as defined by the employment
agreement, the Participant shall be entitled to the Retirement Benefit
he would have received if he had continued to work for the Company
until reaching his Normal Retirement Date. The Participant will be
eligible to elect the form of Retirement Benefit as specified under
paragraph 3.2. For the purposes of this paragraph the payments shall
commence on the first day of the month coincident with or next
following the Participant's termination.
3.7. Termination of Employment. If a Participant's employment with the
Company is terminated and neither the Participant nor his Surviving
Beneficiaries qualify for benefits under the preceding paragraphs of
Section III, neither the Participant nor his Surviving Beneficiaries
nor any other person shall have a right to any benefit from the Plan
with respect to such Participant.
SECTION IV
COMMENCEMENT OF BENEFITS
4.1. Commencement of Benefits. A Retirement Benefit payable to a Participant
pursuant to paragraph 3.2 will commence on the first day of the month
coincident with or next following the later to occur of the date of
Retirement or Postponed Retirement. A Retirement Benefit payable to a
Surviving Beneficiary pursuant to paragraph 3.3 or a Death Benefit
payable to a Surviving Beneficiary pursuant to paragraph 3.5 will
commence on the first day of the month coincident with or next
following the Participant's death. A disability payment payable
pursuant to paragraph 3.4 shall commence on the first day of the month
coincident with or next following the date of disability as determined
by the board of Directors under paragraph 3.4.
Page 3 of 7
<PAGE> 4
SECTION V
AMENDMENT AND TERMINATION
5.1. Amendment or Termination. The Company intends the Plan to be permanent
but reserves the right to amend or terminate the Plan when, in the sole
opinion of the Company, such amendment or termination is advisable. Any
such amendment or termination shall be made pursuant to a resolution of
the Board of Directors of the Company and shall be effective as of the
date of such resolution. No amendment or termination of the Plan shall
directly or indirectly deprive any Participant of Surviving Beneficiary
of all or any portion of any Retirement Benefit payment of which has
commenced prior to the effective date of the resolution amending or
terminating the Plan.
5.2 Termination Benefit. In the case of a Plan termination, each actively
employed or disabled Participant on the termination date shall become
vested in his accrued Retirement Benefit as of the termination date.
Such accrued Retirement Benefit shall be calculated as set forth in
paragraph 3.2 above. Payment of a Participant's accrued Retirement
Benefit shall not be dependent upon his continuation of employment with
the Company following the Plan termination date, and such Benefit shall
become payable at the date for commencement of payment of a Retirement
Benefit pursuant to the terms of paragraph 4.1 above.
5.3 Corporate Successors. The Plan shall not be automatically terminated by
a transfer or sale of assets of the Company or by the merger or
consolidation of the Company into or with any other corporate or other
entity, but the Plan shall be continued after such sale, merger or
consolidation only if and to the extent that the transferee, purchaser
or successor entity agrees to continue the Plan. In the event the Plan
is not continued by the transferee, purchaser or successor entity, then
the Plan shall terminate subject to the provisions of paragraphs 5.1
and 5.2.
Page 4 of 7
<PAGE> 5
SECTION VI
MISCELLANEOUS
6.1 Forfeitures of Benefits. Notwithstanding any other provision of the
Plan, future payment of a Retirement Benefit hereunder to a Participant
or a Surviving Beneficiary will, at the discretion of the Board of
Directors, be discontinued and forfeited, and the Company will have no
further obligation hereunder to such Participant or Surviving
Beneficiary, if any of the following circumstances occur:
a. The Participant is discharged from employment with the Company
for cause, as defined by the Employment Agreement;
b. The Participant engages in competition with the Company in
violation of the Covenant not to Compete contained in the
Employment Agreement; or
c. The Participant performs acts of willful malfeasance or gross
negligence in a matter of material importance to the Company,
and such acts are discovered by the Company at any time prior
to the date of death of the Participant. The Board of
Directors of the Company shall have sole and uncontrolled
discretion with respect to the application of the provisions
of this paragraph and such exercise of discretion shall be
conclusive and binding upon the Participant, his Surviving
Beneficiary and all other persons.
d. The Participant continues to work for the Company after his
70th birthday.
6.2 No Effect on Employment Rights. Nothing contained herein will confer
upon any Participant the right to be retained in the service of the
Company nor limit the right of the Company to discharge or otherwise
deal with Participants without regard to the existence of the Plan.
6.3 Funding. The Plan at all times shall be entirely unfunded and no
provision shall at any time be made with respect to segregating any
assets of the Company for payment of any benefits hereunder. No
Participant, Surviving Beneficiary or any other person shall have any
interest in any particular assets of the Company by a reason of the
right to receive a benefit under the Plan and any such Participant,
Surviving Beneficiary or other person shall have only the rights of a
general unsecured creditor of the Company with respect to any rights
under the Plan. Nothing contained in the Plan shall constitute a
guaranty by the Company or any other entity or person that the assets
of the Company will be sufficient to pay any benefit hereunder.
6.4 Spendthrift Provision. No benefit payable under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge prior to actual receipt
thereof by the payee; and any attempt so to anticipate, alienate, sell,
transfer, assign, pledge, encumber or charge prior to such receipt
shall be void; and the Company shall not be liable in any manner for or
subject to the debts, contracts, liabilities, engagements or torts of
any person entitled to any benefit under the Plan.
Page 5 of 7
<PAGE> 6
6.5 Administration. The Retirement Committee shall be responsible for the
general operation and administration of the Plan and for carrying out
the provisions thereof. All provisions set forth in the Basic
Retirement Plan with respect to the administrative powers and duties of
the Retirement Committee, expenses of administration and procedures for
filing claims shall also be applicable with respect to the Plan. The
Retirement Committee shall be entitled to rely conclusively upon all
tables, valuations, certificates, opinions and reports furnished by any
actuary, accountant, controller, counsel or other person employed or
engaged by the Company with respect to the Plan.
6.6 Disclosure. Each Participant shall receive a copy of the Plan and the
Retirement Committee will make available for inspection by any
Participant or Surviving Beneficiary a copy of the rules and
regulations used by the Retirement Committee in administering the Plan.
6.7 State Law. The Plan is established under and will be construed
according to the laws of the State of Washington, to the extent that
such laws are not preempted by the Employee Retirement Income Security
Act and valid regulations published thereunder.
6.8 Incapacity of Recipient. In the event a Participant or Surviving
Beneficiary is declared incompetent and a conservator or other person
legally charged with the care of his person or of his estate is
appointed, any benefits under the Plan to which such Participant or
Surviving Beneficiary is entitled shall be paid to such conservator or
other person legally charged with the care of his person or his estate.
Except as provided above in this paragraph, when the Retirement
Committee in its sole discretion, determines that a Participant or
Surviving Beneficiary is unable to manage his financial affairs, the
Retirement Committee may direct the Company to make distributions to
any person for the benefit of such Participant or Surviving
Beneficiary.
6.9 Unclaimed Benefit. Each Participant shall keep the Retirement Committee
informed of his current address and the current address of his
Beneficiary. The Retirement Committee shall not be obligated to search
for the whereabouts of any person. If the location of a Participant is
not made known to the Retirement Committee within three (3) years after
the date on which any payment of the Participant's Retirement Benefit
may be made, payment may be made as though the Participant had died at
the end of the three-year period. If within one additional year after
such three-year period has elapsed, or, within three years after the
actual death of a Participant, the Retirement Committee is unable to
locate any Surviving Beneficiary of the Participant, then the Company
shall have no further obligation to pay any benefit hereunder to such
Participant or Surviving Beneficiary or any other person and such
benefit shall be irrevocably forfeited.
6.10 Limitations on Liability. Notwithstanding any of the preceding
provisions of the Plan, neither the Company nor any individual acting
as an employee or agent of the Company or as a member of the Retirement
Committee shall be liable to any Participant, former Participant,
Surviving Beneficiary or any other person for any claim, loss,
liability or expense incurred in connection with the Plan.
Page 6 of 7
<PAGE> 7
The Company has caused this Agreement to be signed by its duly authorized
Officer, and attested by its Secretary on this ______ day of ___________,
19____.
ATTEST: ORGANIZATION:
___________________ By _____________________________
Title __________________________
Page 7 of 7
<PAGE> 1
EXHIBIT 10.14
COWLITZ BANCORPORATION
1997 STOCK OPTION PLAN
SCOPE AND PURPOSE OF PLAN
Cowlitz Bancorporation, a Washington corporation (the "Corporation"),
has adopted this 1997 Stock Option Plan (the "Plan") to provide for the granting
of:
(a) Incentive Options (hereafter defined) to certain Key Employees
(hereafter defined); and
(b) Nonstatutory Options (hereafter defined) to certain Key
Employees, Non-employee Directors (hereafter defined), and other
persons.
The purpose of the Plan is to provide an incentive for Key Employees,
directors, and certain consultants, independent contractors and advisors of the
Corporation or its Subsidiaries (hereafter defined) to remain in the service of
the Corporation or its Subsidiaries, to extend to them the opportunity to
acquire a proprietary interest in the Corporation so that they will apply their
best efforts for the benefit of the Corporation, and to aid the Corporation in
attracting able persons to enter the service of the Corporation and its
Subsidiaries.
SECTION 1. DEFINITIONS
1.1 "Acquiring Person" means any Person other than the Corporation, any
Subsidiary of the Corporation, any employee benefit plan of the Corporation or
of a Subsidiary of the Corporation or of a corporation owned directly or
indirectly by the stockholders of the Corporation in substantially the same
proportions as their ownership of Stock of the Corporation, or any trustee or
other fiduciary holding securities under an employee benefit plan of the
Corporation or of a Subsidiary of the Corporation or of a corporation owned
directly or indirectly by the stockholders of the Corporation in substantially
the same proportions as their ownership of Stock of the Corporation.
1.2 "Affiliate" means (a) any Person who is directly or indirectly the
beneficial owner of at least 10% of the voting power of the Voting Securities or
(b) any Person controlling, controlled by, or under common control with the
Company or any Person contemplated in clause (a) of this Subsection 1.2.
COWLITZ BANCORPORATION
1997 STOCK OPTION PLAN
1
<PAGE> 2
1.3 "Award" means the grant of any form of Option granted to a Holder
pursuant to the terms, conditions, and limitations that the Committee may
establish in order to fulfill the objectives of the Plan.
1.4 "Award Agreement" means the written agreement between the
Corporation and a Holder evidencing the terms, conditions, and limitations of
the Award granted to that Holder.
1.5 "Board of Directors" means the board of directors of the
Corporation.
1.6 "Business Day" means any day other than a Saturday, a Sunday, or a
day on which banking institutions in the state of Washington are authorized or
obligated by law or executive order to close.
1.7 "Change in Control" means the event that is deemed to have occurred
if:
(a) The acquisition of ownership, directly or indirectly,
beneficially or of record, by any Person or group (within the meaning of the
Securities Exchange Act of 1934 and the rules of the Securities and Exchange
Commission thereunder as in effect on the date of this Agreement), other than
the Corporation, a Subsidiary or any employee benefit plan of the Corporation or
of a Subsidiary, of shares representing more than 50% of (i) the common stock of
the Corporation, (ii) the aggregate voting power of the Corporation's Voting
Securities or (iii) the total market value of the Corporation's Voting
Securities;
(b) A majority of the Board of Directors ceasing to be composed of
individuals (i) who were members of the Board of Directors on the Effective
Date, (ii) whose election or nomination to the Board of Directors was approved
by individuals referred to in clause (i) above constituting at the time of such
election or nomination at least a majority of the Board of Directors or (iii)
whose election or nomination to the Board of Directors was approved by
individuals referred to in clauses (i) and (ii) above constituting at the time
of such election or nomination at least a majority of the Board of Directors;
(c) The good-faith determination by the Board of Directors that any
Person or group (other than a Subsidiary or any employee benefit plan of the
Corporation or of a Subsidiary) has acquired direct or indirect possession of
the power to direct or cause to direct the management or policies of the
Corporation, whether through the ability to exercise voting power, by contract
or otherwise;
(d) The merger, consolidation, share exchange or similar transaction
between the Corporation and another Person (other than a Subsidiary) other than
a merger or share exchange in which the Corporation is the surviving or
acquiring corporation; or
(e) The sale or transfer (in one transaction or a series of related
transactions) of all or substantially all of the Corporation's assets to another
Person (other than a Subsidiary) whether assisted or unassisted, voluntary or
involuntary.
COWLITZ BANCORPORATION
1997 STOCK OPTION PLAN
2
<PAGE> 3
1.8 "Code" means the Internal Revenue Code of 1986, as amended.
1.9 "Committee" means the committee appointed pursuant to Section 3 by
the Board of Directors to administer this Plan.
1.10 "Convertible Securities" means evidences of indebtedness, shares of
capital stock, or other securities that are convertible into or exchangeable for
shares of Stock, either immediately or upon the arrival of a specified date or
the happening of a specified event.
1.11 "Corporation" means Cowlitz Bancorporation, a Washington
corporation.
1.12 "Date of Grant" has the meaning given it in Subsection 4.3.
1.13 "Disability" has the meaning given it in Subsection 8.5.
1.14 [Intentionally Omitted.]
1.15 "Effective Date" means the earlier of (a) the date the Plan is
adopted by the Board of Directors and (b) the date the Plan is approved by the
stockholders of the Corporation.
1.16 "Eligible Individuals" means (a) Key Employees, (b) Non-employee
Directors but only for purposes of Nonstatutory Options pursuant to Section 5,
and (c) any other Person that the Committee designates as eligible for an Award
(other than for Incentive Options) because the Person performs, or has
performed, bona fide consulting or advisory services for the Corporation or any
of its Subsidiaries (other than services in connection with the offer or sale of
securities in a capital-raising transaction) and the Committee determines that
the Person has a direct and significant effect on the financial development of
the Corporation or any of its Subsidiaries.
1.17 "Employee" means any employee of the Corporation or of any of its
Subsidiaries, including officers and directors of the Corporation who are also
employees of the Corporation or of any of its Subsidiaries.
1.18 "Exchange Act" means the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder, or any successor law, as it may be
amended from time to time.
1.19 "Exercise Notice" has the meaning given it in Subsection 5.5.
1.20 "Exercise Price" has the meaning given it in Subsection 5.4.
1.21 "Fair Market Value" means, for a particular day:
COWLITZ BANCORPORATION
1997 STOCK OPTION PLAN
3
<PAGE> 4
(a) If shares of Stock of the same class are listed or admitted
to unlisted trading privileges on any national or regional securities
exchange at the date of determining the Fair Market Value, then the last
reported sale price, regular way, on the composite tape of that exchange
on the last Business Day before the date in question or, if no such sale
takes place on that Business Day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to unlisted trading privileges on that securities
exchange; or
(b) If shares of Stock of the same class are not listed or
admitted to unlisted trading privileges as provided in Subsection
1.21(a) and sales prices for shares of Stock of the same class in the
over-the-counter market are reported by the National Association of
Securities Dealers, Inc. Automated Quotations, Inc. ("NASDAQ") National
Market System (or such other system then in use) at the date of
determining the Fair Market Value, then the last reported sales price so
reported on the last Business Day before the date in question or, if no
such sale takes place on that Business Day, the average of the high bid
and low asked prices so reported; or
(c) If shares of Stock of the same class are not listed or
admitted to unlisted trading privileges as provided in Subsection
1.21(a) and sales prices for shares of Stock of the same class are not
reported by the NASDAQ National Market System (or a similar system then
in use) as provided in Subsection 1.21(b), and if bid and asked prices
for shares of Stock of the same class in the over-the-counter market are
reported by NASDAQ (or, if not so reported, by the National Quotation
Bureau Incorporated) at the date of determining the Fair Market Value,
then the average of the high bid and low asked prices on the last
Business Day before the date in question; or
(d) If shares of Stock of the same class are not listed or
admitted to unlisted trading privileges as provided in Subsection
1.21(a) and sales prices or bid and asked prices therefor are not
reported by NASDAQ (or the National Quotation Bureau Incorporated) as
provided in Subsection 1.21(b) or Subsection 1.21(c) at the date of
determining the Fair Market Value, then the book value of the Stock as
of the end of the immediately preceding calendar quarter as determined
in good faith by the Committee, which determination shall be conclusive
for all purposes; or
(e) If shares of Stock of the same class are listed or admitted
to unlisted trading privileges as provided in Subsection 1.21(a) or
sales prices or bid and asked prices therefor are reported by NASDAQ (or
the National Quotation Bureau Incorporated) as provided in Subsection
1.21(b) or Subsection 1.21(c) at the date of determining the Fair Market
Value, but the volume of trading is so low that the Board of Directors
determines in good faith that such prices are not indicative of the fair
value of the Stock, then the book value of the Stock as of the end of
the immediately preceding calendar quarter as determined in good faith
by the Committee, which determination shall
COWLITZ BANCORPORATION
1997 STOCK OPTION PLAN
4
<PAGE> 5
be conclusive for all purposes notwithstanding the provisions of
Subsections 1.21(a), (b), or (c).
For purposes of valuing Incentive Options, the Fair Market Value of Stock shall
be determined without regard to any restriction other than one that, by its
terms, will never lapse. For purposes of the redemption provided for in
Subsection 7.3(b)(iii), Fair Market Value shall have the meaning and shall be
determined as set forth above; provided, however, that the Committee, with
respect to any such redemption, shall have the right to determine that the Fair
Market Value for purposes of the redemption should be an amount measured by the
value of the shares of Stock, other securities, cash, or property otherwise
being received by holders of shares of Stock in connection with the
Reorganization and upon that determination the Committee shall have the power
and authority to determine Fair Market Value for purposes of the redemption
based upon the value of such shares of stock, other securities, cash, or
property. Any such determination by the Committee, as evidenced by a resolution
of the Committee, shall be conclusive for all purposes.
1.22 "Fair Value" means such value as is determined by a majority of the
"disinterested" directors of the Corporation, as evidenced by a resolution of
such disinterested directors, even if the disinterested directors of the
Corporation constitute less than a quorum. If the Corporation does not have any
disinterested directors, the Fair Value shall be such value as is determined by
a nationally recognized investment banking firm selected by the Corporation, the
expenses of which shall be borne by the Corporation.
1.23 "Holder" means an Eligible Individual to whom an outstanding Award
has been granted.
1.24 [Intentionally Omitted]
1.25 "Incentive Option" means an incentive stock option as defined under
Section 422 of the Code and regulations thereunder.
1.26 "Key Employee" means any Employee whom the Committee identifies as
having a direct and significant effect on the performance of the Corporation or
any of its Subsidiaries.
1.27 "Non-Employee Director" means a director of the Corporation who
while a director is not an Employee.
1.28 "Nonstatutory Option" means a stock option that does not satisfy
the requirements of Section 422 of the Code or that is designated at the Date of
Grant or in the applicable Award Agreement to be an option other than an
Incentive Option.
1.29 "Non-Surviving Event" means an event of Reorganization as described
in either Subsection 1.34(b) or Subsection 1.34(c).
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1.30 "Normal Retirement" means the separation of Holder from employment
with the Corporation and its Subsidiaries with the right to receive an immediate
benefit under a retirement plan approved by the Corporation.
1.31 "Option" means either an Incentive Option or a Nonstatutory Option,
or both.
1.32 "Person" means any person or entity of any nature whatsoever,
specifically including (but not limited to) an individual, a firm, a company, a
corporation, a partnership, a trust, limited liability company, government (or
any agency, instrumentality or political subdivision thereof), or other entity.
1.33 "Plan" means the Corporation's 1997 Stock Option Plan, as it may be
amended from time to time.
1.34 "Reorganization" means the occurrence of any one or more of the
following (except for any of the following that occur as part of the
Reorganization):
(a) The merger, consolidation, share exchange or similar
transaction between the Corporation and any other Person, whether
effected as a single transaction or a series of related transactions,
with the Corporation remaining the continuing or surviving entity of
that merger or consolidation and the Stock remaining outstanding and not
changed into or exchanged for stock or other securities of any other
Person or of the Corporation, cash, or other property;
(b) The merger, consolidation, share exchange or similar
transaction between the Corporation and any other Person, whether
effected as a single transaction or a series of related transactions,
with (i) the Corporation not being the continuing or surviving entity of
that transaction or (ii) the Corporation remaining the continuing or
surviving entity of that transaction but all or a part of the
outstanding shares of Stock are changed into or exchanged for stock or
other securities of any other Person or the Corporation, cash, or other
property; or
(c) The transfer, directly or indirectly, of all or substantially
all of the assets of the Corporation (whether by sale, merger,
consolidation, liquidation, or otherwise) to any Person, whether
effected as a single transaction or a series of related transactions.
1.35 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange
Act, as it may be amended from time to time, or any successor rule.
1.36 "Securities Act" means the Securities Act of 1933 and the rules and
regulations promulgated thereunder, or any successor law, as it may be amended
from time to time.
1.37 "Stock" means the Corporation's authorized common stock, no par
value per share, or any other securities that are substituted for the Stock as
provided in Section 7.
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1.38 "Subsidiary" means a corporation of which all of the Voting
Securities are owned, directly or indirectly, by the Corporation.
1.39 "Total Shares" has the meaning given it in Subsection 7.2.
1.40 "Voting Securities" means any securities that are entitled to vote
generally in the election of directors, in the admission of general partners or
in the selection of any other similar governing body.
SECTION 2. SHARES OF STOCK SUBJECT TO THE PLAN
2.1 Maximum Number of Shares. Subject to the provisions of Subsections
2.2 and 2.5 and Section 7 and to any subsequent amendment hereof, the aggregate
number of shares of Stock that may be issued or transferred pursuant to Awards
under the Plan shall be 525,000.
2.2 Limitation of Shares. For purposes of the limitations specified in
Subsection 2.1, the following principles shall apply:
(a) Shares of Stock subject to outstanding Options shall count
against and decrease the number of shares of Stock that may be issued
for purposes of Subsection 2.1;
(b) Shares of Stock with respect to which Options expire, are
cancelled, or otherwise terminate without being exercised, converted, or
vested, as applicable, shall be added back to the number of shares of
Stock that may be issued for purposes of Subsection 2.1.
(c) Shares of Stock that are transferred by a Holder of an Award
(or withheld by the Corporation) as full or partial payment to the
Corporation of the purchase price of shares of Stock subject to an
Option or the Corporation's or any Subsidiary's tax withholding
obligations shall not be added back to the number of shares of Stock
that may be issued for purposes of Subsection 2.1 and shall not again be
subject to Awards; and
(d) If the number of shares of Stock counted against the number
of shares that may be issued for purposes of Subsection 2.1 is based
upon an estimate made by the Corporation or the Committee as provided in
clause (a) above and the actual number of shares of Stock issued
pursuant to the applicable Award is greater or less than the estimated
number, then, upon such issuance, the number of shares of Stock that may
be issued pursuant to Subsection 2.1 shall be further reduced by the
excess issuance or increased by the shortfall, as applicable.
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Notwithstanding the provisions of this Subsection 2.2, no Stock shall be treated
as issuable under the Plan to Eligible Individuals subject to Section 16 of the
Exchange Act if otherwise prohibited from issuance under Rule 16b-3.
2.3 Description of Shares. The shares to be delivered under the Plan
shall be made available from (a) authorized but unissued shares of Stock, (b)
Stock held in the treasury of the Corporation, or (c) previously issued shares
of Stock reacquired by the Corporation, including shares purchased on the open
market, in each situation as the Board of Directors or the Committee may
determine from time to time at its sole option.
2.4 Registration and Listing of Shares. From time to time, the Board of
Directors and appropriate officers of the Corporation shall and are authorized
to take whatever actions are necessary to file required documents with
governmental authorities, stock exchanges, and other appropriate Persons to make
shares of Stock available for issuance pursuant to the exercise of Awards.
2.5 Reduction in Outstanding Shares of Stock. Nothing in this Section 2
shall impair the right of the Corporation to reduce the number of outstanding
shares of Stock pursuant to repurchases, redemptions, or otherwise; provided,
however, that no reduction in the number of outstanding shares of Stock shall
(a) impair the validity of any outstanding Award, whether or not that Award is
fully exercisable or fully vested, or (b) impair the status of any shares of
Stock previously issued pursuant to the exercise of an Award or thereafter
issued pursuant to a then-outstanding Award as duly authorized, validly issued,
fully paid, and nonassessable shares.
SECTION 3. ADMINISTRATION OF THE PLAN
3.1 Committee. The Board of Directors may administer the Plan with
respect to all Eligible Individuals or may delegate all or part of that duty to
the Committee, except that the Committee shall not have the power to appoint
members of the Committee or to terminate, modify or amend the Plan. Except for
references in Subsections 3.1, 3.2, and 3.3, and unless the context otherwise
requires, references herein to the Committee shall also refer to the Board of
Directors as administrator of the Plan. The number of Persons that shall
constitute the Committee shall be determined from time to time by a majority of
all the members of the Board of Directors and, unless that majority of the Board
of Directors determines otherwise or Rule 16b-3 is amended to require otherwise,
shall be no less than two Persons. The Board of Directors may designate the
Compensation Committee of the Board of Directors to serve as the Committee
hereunder, provided that the membership of such Compensation Committee satisfies
the requirements of the immediately preceding sentence.
3.2 Duration, Removal, Etc. The members of the Committee shall serve at
the discretion of the Board of Directors, which shall have the power, at any
time and from time to time, to remove members from or add members to the
Committee. Removal from the Committee may be with or without cause. Any
individual serving as a member of the Committee shall have the right to resign
from membership in the Committee by at least three
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days' written notice to the Board of Directors. The Board of Directors, and not
the remaining members of the Committee, shall have the power and authority to
fill all vacancies on the Committee. The Board of Directors may, and if Eligible
Individuals are subject to Section 16(b) of the Exchange Act the Board of
Directors shall, promptly fill any vacancy that causes the number of members of
the Committee to be below two or any other number that Rule 16b-3 may require
from time to time.
3.3 Meetings and Actions of Committee. The Board of Directors shall
designate which of the Committee members shall be the chairman of the Committee.
If the Board of Directors fails to designate a Committee chairman, the members
of the Committee shall elect one of the Committee members as chairman, who shall
act as chairman until he ceases to be a member of the Committee or until the
Board of Directors elects a new chairman. The Committee shall hold its meetings
at those times and places as the chairman of the Committee may determine. At all
meetings of the Committee, a quorum for the transaction of business shall be
required and a quorum shall be deemed present if at least a majority of the
members of the Committee are present. At any meeting of the Committee, each
member shall have one vote. All decisions and determinations of the Committee
shall be made by the majority vote or majority decision of all of its members
present at a meeting at which a quorum is present; provided, however, that any
decision or determination reduced to writing and signed by all of the members of
the Committee shall be as fully effective as if it had been made at a meeting
that was duly called and held. The Committee may make any rules and regulations
for the conduct of its business that are not inconsistent with the provisions of
the Plan, the Certificate of Incorporation of the Corporation, the by-laws of
the Corporation, and Rule 16b-3 so long as it is applicable, as the Committee
may deem advisable.
3.4 Committee's Powers. Subject to the express provisions of the Plan
and Rule 16b-3, the Committee shall have the authority, in its sole and
absolute discretion, to (a) adopt, amend, and rescind administrative and
interpretive rules and regulations relating to the Plan; (b) determine the
Eligible Individuals to whom, and the time or times at which, Awards shall be
granted; (c) determine the amount of cash and the number of shares of Stock that
shall be the subject of each Award; (d) determine the terms and provisions of
each Award Agreement (which need not be identical), including provisions
defining or otherwise relating to (i) the term and the period or periods and
extent of exercisability of the Options, (ii) the extent to which the
transferability of shares of Stock issued or transferred pursuant to any Award
is restricted, (iii) the effect of termination of employment of Holder on the
Award, and (iv) the effect of approved leaves of absence (consistent with any
applicable regulations of the Internal Revenue Service); (e) accelerate,
pursuant to Section 7, the time of exercisability of any Option that has been
granted; (f) construe the respective Award Agreements and the Plan; (g) make
determinations of the Fair Market Value of the Stock pursuant to the Plan; (h)
delegate its duties under the Plan to such agents as it may appoint from time to
time, provided that the Committee may not delegate its duties with respect to
making Awards to, or otherwise with respect to Awards granted to, Eligible
Individuals who are subject to Section 16(b) of the Exchange Act; and (i) make
all other determinations, perform all other acts, and exercise all other powers
and authority necessary or advisable for administering the Plan, including the
delegation of those
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ministerial acts and responsibilities as the Committee deems appropriate.
Subject to Rule 16b-3, the Committee may correct any defect, supply any
omission, or reconcile any inconsistency in the Plan, in any Award, or in any
Award Agreement in the manner and to the extent it deems necessary or desirable
to carry the Plan into effect, and the Committee shall be the sole and final
judge of that necessity or desirability. The determinations of the Committee on
the matters referred to in this Subsection 3.4 shall be final and conclusive.
SECTION 4. ELIGIBILITY AND PARTICIPATION
4.1 Eligible Individuals. Awards may be granted pursuant to the Plan
only to persons who are Eligible Individuals at the time of the grant thereof.
4.2 Grant of Awards. Subject to the express provisions of the Plan, the
Committee shall determine which Eligible Individuals shall be granted Awards
from time to time. In making grants, the Committee shall take into consideration
the contribution the potential Holder has made or may make to the success of the
Corporation or its Subsidiaries and such other considerations as the Board of
Directors may from time to time specify. The Committee shall also determine the
number of shares subject to each of the Awards and shall authorize and cause the
Corporation to grant Awards in accordance with those determinations.
4.3 Date of Grant. Subject to the last sentence of this Section 4.3, the
date on which the Committee completes all action resolving to offer an Award to
an individual, including the specification of the number of shares of Stock to
be subject to the Award, shall be the date on which the Award covered by an
Award Agreement is granted (the "Date of Grant"), even though certain terms of
the Award Agreement may not be determined at that time and even though the Award
Agreement may not be executed until a later time. In no event shall a Holder
gain any rights in addition to those specified by the Committee in its grant,
regardless of the time that may pass between the grant of the Award and the
actual execution of the Award Agreement by the Corporation and Holder.
4.4 Award Agreements. Each Award granted under the Plan shall be
evidenced by an Award Agreement that is executed by the Corporation and the
Eligible Individual to whom the Award is granted and incorporating those terms
that the Committee shall deem necessary or desirable. More than one Award may be
granted under the Plan to the same Eligible Individual and be outstanding
concurrently. In the event an Eligible Individual is granted both one or more
Incentive Options and one or more Nonstatutory Options, those grants shall be
evidenced by separate Award Agreements, one for each of the Incentive Option
grants and one for each of the Nonstatutory Option grants.
4.5 Limitation for Incentive Options. Notwithstanding any provision
contained herein to the contrary, (a) a person shall not be eligible to receive
an Incentive Option unless he is an Employee of the Corporation or a corporate
Subsidiary (but not a partnership Subsidiary) and (b) a person shall not be
eligible to receive an Incentive Option if, immediately before the time the
Option is granted, that person owns (within the meaning of Sections 422 and
424(d) of the
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Code) stock possessing more than ten percent of the total combined voting power
or value of all classes of outstanding stock of the Corporation or a Subsidiary.
Nevertheless, Subsection 4.5(b) shall not apply if, at the time the Incentive
Option is granted, the Exercise Price of the Incentive Option is at least one
hundred ten percent of Fair Market Value and the Incentive Option is not, by its
terms, exercisable after the expiration of five years from the Date of Grant.
4.6 No Right to Award. The adoption of the Plan shall not be deemed to
give any Person a right to be granted an Award.
SECTION 5. TERMS AND CONDITIONS OF OPTIONS
All Options granted under the Plan shall comply with, and the related
Award Agreements shall be deemed to include and be subject to, the terms and
conditions set forth in this Section 5 (to the extent each term and condition
applies to the form of Option) and also to the terms and conditions set forth in
Sections 7 and 8; provided, however, that the Committee may authorize an Award
Agreement that expressly contains terms and provisions that differ from the
terms and provisions set forth in Subsections 7.2, 7.3, and 7.4 and any of the
terms and provisions of Section 8 (other than Subsections 8.10 and 8.11).
5.1 Number of Shares. Each Award Agreement shall state the total number
of shares of Stock to which it relates.
5.2 Vesting. Each Award Agreement shall state the time or periods in
which, or the conditions upon satisfaction of which, the right to exercise the
Option or a portion thereof shall vest and the number of shares of Stock for
which the right to exercise the Option shall vest at each such time, period, or
fulfillment of condition. Without limiting the generality of the foregoing, the
right to exercise the Option or a portion thereof shall not vest unless and
until the Person receiving the Award shall have made any and all required
filings with, and received any and all required approvals from, applicable
federal and state regulators with respect to the Option or such portion thereof
relating to change in control of the Corporation or a Subsidiary.
5.3 Expiration of Options. Options may be exercised during the term
determined by the Committee and set forth in the Award Agreement; provided that
no Incentive Option shall be exercised after the expiration of a period of ten
years commencing on the Date of Grant of the Incentive Option.
5.4 Exercise Price. Each Award Agreement shall state the exercise price
per share of Stock (the "Exercise Price"); provided, however, that the exercise
price per share of Stock subject to an Incentive Option shall not be less than
100% of the Fair Market Value per share of the Stock on the Date of Grant of the
Option. The exercise price per share of Stock subject to a Nonstatutory Option
may be more or less than the Fair Market Value of a share of the Stock on the
Date of Grant.
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5.5 Method of Exercise. The Option shall be exercisable only by written
notice of exercise (the "Exercise Notice") delivered to the Corporation during
the term of the Option, which notice shall (a) state the number of shares of
Stock with respect to which the Option is being exercised, (b) be signed by
Holder of the Option or, if Holder is dead or becomes affected by a Disability,
by the person authorized to exercise the Option pursuant to Subsections 8.3 and
8.5, (c) be accompanied by the Exercise Price for all shares of Stock for which
the Option is being exercised, and (d) include such other information,
instruments, and documents as may be required to satisfy any other condition to
exercise contained in the Award Agreement. The Option shall not be deemed to
have been exercised unless all of the requirements of the preceding provisions
of this Subsection 5.5 have been satisfied.
5.6 Incentive Option Exercises. Except as otherwise provided in Section
8.5, during Holder's lifetime, only Holder may exercise an Incentive Option.
5.7 Medium and Time of Payment. The Exercise Price of an Option shall be
payable in full upon the exercise of the Option (a) in cash or by an equivalent
means acceptable to the Committee, (b) if permitted by the Award Agreement and
by applicable laws and regulations (including but not limited to federal tax and
securities laws), with shares of Stock owned by Holder (including shares
received upon exercise of the Option or restricted shares already held by
Holder) and having a Fair Market Value at least equal to the aggregate Exercise
Price payable in connection with such exercise, or (c) by any combination of
clauses (a) and (b). If the Committee elects to accept shares of Stock in
payment of all or any portion of the Exercise Price, then (for purposes of
payment of the Exercise Price) those shares of Stock shall be deemed to have a
cash value equal to their aggregate Fair Market Value determined as of the date
the certificate for such shares is delivered to the Corporation. If the
Committee elects to accept shares of restricted Stock in payment of all or any
portion of the Exercise Price, then an equal number of shares issued pursuant to
the exercise shall be restricted on the same terms and for the restriction
period remaining on the shares used for payment.
5.8 Payment with Sale Proceeds. In addition, at the request of Holder
and if permitted by the Award Agreement and by applicable laws and regulations
(including but not limited to federal tax and securities laws), the Committee
may (but shall not be required to) approve arrangements with a brokerage firm
under which that brokerage firm, on behalf of Holder, shall pay to the
Corporation the Exercise Price of the Option being exercised and the Corporation
shall promptly deliver the exercised shares of Stock to the brokerage firm. To
accomplish this transaction, Holder must deliver to the Corporation an Exercise
Notice containing irrevocable instructions from Holder to the Corporation to
deliver the Stock certificates representing the shares of Stock directly to the
broker. Upon receiving a copy of the Exercise Notice acknowledged by the
Corporation, the broker shall sell that number of shares of Stock or loan Holder
an amount sufficient to pay the Exercise Price and any withholding obligations
due. The broker then shall deliver to the Corporation that portion of the sale
or loan proceeds necessary to cover the Exercise Price and any withholding
obligations due. The Committee shall not approve any transaction of this nature
if the Committee believes
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that the transaction would give rise to Holder's liability for short-swing
profits under Section 16(b) of the Exchange Act.
5.9 Payment of Taxes. The Committee may, in its discretion, require a
Holder to pay to the Corporation (or the Corporation's Subsidiary if Holder is
an employee of a Subsidiary of the Corporation), at the time of the exercise of
an Option or thereafter, the amount that the Committee deems necessary to
satisfy the Corporation's or its Subsidiary's current or future obligation to
withhold federal, state, or local income or other taxes that Holder incurs by
exercising an Option. In connection with the exercise of an Option requiring tax
withholding, the Committee may permit a Holder, in lieu of delivering cash, to
direct the Corporation to withhold from the shares of Stock to be issued to
Holder the number of shares necessary to satisfy the Corporation's obligation to
withhold taxes, that determination to be based on the shares' Fair Market Value
as of the date of exercise or to deliver to the Corporation sufficient shares of
Stock (based upon the Fair Market Value as of the date of such delivery) to
satisfy the Corporation's tax withholding obligation, which tax withholding
obligation is based on the shares' Fair Market Value as of the later of the date
of exercise; or the date as of which the shares of Stock issued in connection
with such exercise become includible in the income of Holder. The Committee may,
at its sole option, deny any Holder's request to satisfy withholding obligations
through Stock instead of cash. In the event the Committee subsequently
determines that the aggregate Fair Market Value (as determined above) of any
shares of Stock withheld or delivered as payment of any tax withholding
obligation is insufficient to discharge that tax withholding obligation, then
Holder shall pay to the Corporation, immediately upon the Committee's request,
the amount of that deficiency in the form of payment requested by the Committee.
5.10 Limitation on Aggregate Value of Shares That May Become First
Exercisable During Any Calendar Year Under an Incentive Option. Except as is
otherwise provided in Subsection 7.3, with respect to any Incentive Option
granted under this Plan, the aggregate Fair Market Value of shares of Stock
subject to an Incentive Option and the aggregate Fair Market Value of shares of
Stock or stock of any Subsidiary (or a predecessor of the Corporation or a
Subsidiary) subject to any other incentive stock option (within the meaning of
Section 422 of the Code) of the Corporation or its Subsidiaries (or a
predecessor corporation of any such corporation) that first become purchasable
by a Holder in any calendar year may not (with respect to that Holder) exceed
$100,000, or such other amount as may be prescribed under Section 422 of the
Code or applicable regulations or rulings from time to time. As used in the
previous sentence, Fair Market Value shall be determined as of the Date of Grant
of the Incentive Option. For purposes of this Subsection 5.10, "predecessor
corporation" means (a) a corporation that was a party to a transaction described
in Section 424(a) of the Code (or which would be so described if a substitution
or assumption under that Section had been effected) with the Corporation, (b) a
corporation which, at the time the new incentive stock option (within the
meaning of Section 422 of the Code) is granted, is a Subsidiary of the
Corporation or a predecessor corporation of any such corporations, or (c) a
predecessor corporation of any such corporations. Failure to comply with this
provision shall not impair the enforceability or
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exercisability of any Option, but shall cause the excess amount of shares to be
reclassified in accordance with the Code.
5.11 No Fractional Shares. The Corporation shall not in any case be
required to sell, issue, or deliver a fractional share with respect to any
Option. In lieu of the issuance of any fractional share of Stock, the
Corporation shall pay to Holder an amount in cash equal to the same fraction (as
the fractional Stock) of the Fair Market Value of a share of Stock determined as
of the date of the applicable Exercise Notice.
5.12 Modification, Extension, and Renewal of Options. Subject to the
terms and conditions of and within the limitations of the Plan, Rule 16b-3, and
any consent required by the last sentence of this Subsection 5.12, the Committee
may (a) modify, extend, or renew outstanding Options granted under the Plan, (b)
accept the surrender of Options outstanding hereunder (to the extent not
previously exercised) and authorize the granting of new Options in substitution
for outstanding Options (to the extent not previously exercised), and (c) amend
the terms of an Incentive Option at any time to include provisions that have the
effect of changing the Incentive Option to a Nonstatutory Option. Nevertheless,
without the consent of Holder, the Committee may not modify any outstanding
Options so as to specify a higher or lower Exercise Price or accept the
surrender of outstanding Incentive Options and authorize the granting of new
Options in substitution therefor specifying a higher or lower Exercise Price. In
addition, no modification of an Option granted hereunder shall, without the
consent of Holder, alter or impair any rights or obligations under any Option
theretofore granted to such Holder under the Plan except, with respect to
Incentive Options, as may be necessary to satisfy the requirements of Section
422 of the Code or as permitted in clause (c) of this Subsection 5.12.
5.13 Other Agreement Provisions. The Award Agreements authorized under
the Plan shall contain such provisions in addition to those required by the Plan
(including without limitation restrictions or the removal of restrictions upon
the exercise of the Option and the retention or transfer of shares thereby
acquired) as the Committee may deem advisable. Each Award Agreement shall
identify the Option evidenced thereby as an Incentive Option or Nonstatutory
Option, as the case may be, and no Award Agreement shall cover both an Incentive
Option and a Nonstatutory Option. Each Award Agreement relating to an Incentive
Option granted hereunder shall contain such limitations and restrictions upon
the exercise of the Incentive Option to which it relates as shall be necessary
for the Incentive Option to which such Award Agreement relates to constitute an
incentive stock option, as defined in Section 422 of the Code.
SECTION 6. AWARDS TO NON-EMPLOYEE DIRECTORS
6.1 Ineligibility for Other Awards. Non-employee Directors shall not be
eligible to receive any Awards under the Plan other than Nonstatutory Options.
The Board of Directors must decide what Awards, if any, may be granted to
Non-employee Directors and the method by which such Awards will be distributed.
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SECTION 7. ADJUSTMENT PROVISIONS
7.1 Adjustment of Awards and Authorized Stock. The terms of an Award and
the number of shares of Stock authorized pursuant to Section 2.1 for issuance
under the Plan shall be subject to adjustment from time to time, in accordance
with the following provisions:
(a) If at any time, or from time to time, the Corporation shall
subdivide as a whole (by reclassification, by a Stock split, by the
issuance of a distribution on Stock payable in Stock, or otherwise) the
number of shares of Stock then outstanding into a greater number of
shares of Stock, then (i) the maximum number of shares of Stock
available for the Plan as provided in Section 2.1 shall be increased
proportionately, and the kind of shares or other securities available
for the Plan shall be appropriately adjusted, (ii) the number of shares
of Stock (or other kind of shares or securities) that may be acquired
under any Award shall be increased proportionately, and (iii) the price
(including Exercise Price) for each share of Stock (or other kind of
shares or securities) subject to then outstanding Awards shall be
reduced proportionately, without changing the aggregate purchase price
or value as to which outstanding Awards remain exercisable or subject to
restrictions.
(b) If at any time, or from time to time, the Corporation shall
consolidate as a whole (by reclassification, reverse Stock split, or
otherwise) the number of shares of Stock then outstanding into a lesser
number of shares of Stock, (i) the maximum number of shares of Stock
available for the Plan as provided in Section 2.1 shall be decreased
proportionately, and the kind of shares or other securities available
for the Plan shall be appropriately adjusted, (ii) the number of shares
of Stock (or other kind of shares or securities) that may be acquired
under any Award shall be decreased proportionately, and (iii) the price
(including Exercise Price) for each share of Stock (or other kind of
shares or securities) subject to then outstanding Awards shall be
increased proportionately, without changing the aggregate purchase price
or value as to which outstanding Awards remain exercisable or subject to
restrictions.
(c) Whenever the number of shares of Stock subject to outstanding
Awards and the price for each share of Stock subject to outstanding
Awards are required to be adjusted as provided in this Subsection 7.1,
the Committee shall promptly prepare a notice setting forth, in
reasonable detail, the event requiring adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the
change in price and the number of shares of Stock, other securities,
cash, or property purchasable subject to each Award after giving effect
to the adjustments. The Committee shall promptly give each Holder such a
notice.
(d) Adjustments under Subsections 7(a) and (b) shall be made by the
Committee, and its determination as to what adjustments shall be made
and the extent thereof shall be final, binding, and conclusive. No
fractional interest shall be issued under the Plan on account of any
such adjustments.
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7.2 Changes in Control. Any Award Agreement may provide that, upon the
occurrence of a Change in Control all outstanding Options shall immediately
become fully vested and exercisable in full, including that portion of any
Option that pursuant to the terms and provisions of the applicable Award
Agreement had not yet become exercisable (the total number of shares of Stock as
to which an Option is exercisable upon the occurrence of a change in Control is
referred to herein as the "Total Shares"). If a Change in Control involves a
Reorganization or occurs in connection with a series of related transactions
involving a Reorganization and if such Reorganization is in the form of a
Non-Surviving Event and as a part of such Reorganization shares of Stock, other
securities, cash, or property shall be issuable or deliverable in exchange for
Stock, then Holder of an Award shall be entitled to purchase or receive (in lieu
of the Total Shares that Holder would otherwise be entitled to purchase or
receive), as appropriate for the form of Award, the number of shares of Stock,
other securities, cash, or property to which that number of Total Shares would
have been entitled in connection with such Reorganization (and, for Options, at
an aggregate exercise price equal to the Exercise Price that would have been
payable if that number of Total Shares had been purchased on the exercise of the
Option immediately before the consummation of the Reorganization). Nothing in
this Subsection 7.2 shall impose on a Holder the obligation to exercise any
Award immediately before or upon the Change of Control or cause Holder to
forfeit the right to exercise the Award during the remainder of the original
term of the Award because of a Change in Control.
7.3 Reorganization Without Change in Control. In the event a
Reorganization shall occur at any time while there is any outstanding Award
hereunder and that Reorganization does not occur in connection with a Change in
Control or a series of related transactions involving a Change in Control, then:
(a) no outstanding Option shall immediately become fully vested and
exercisable in full merely because of the occurrence of the
Reorganization; and
(b) at the option of the Committee, the Committee may (but shall not
be required to) cause the Corporation to take any one or more of the
following actions:
(i) accelerate in whole or in part the time of the vesting and
exercisability of any one or more of the outstanding Options so as
to provide that those Options shall be exercisable before, upon, or
after the consummation of the Reorganization;
(ii) if the Reorganization is in the form of a Non-Surviving
Event, cause the surviving entity to assume in whole or in part any
one or more of the outstanding Awards upon such terms and provisions
as the Committee deems desirable; or
(iii) redeem in whole or in part any one or more of the
outstanding Options in consideration of a cash payment, as such
payment may be reduced for
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tax withholding obligations as contemplated in Subsections 5.9, in
an amount equal to the excess of (A) the Fair Market Value,
determined as of the date immediately preceding the consummation of
the Reorganization, of the aggregate number of shares of Stock
subject to the Award and as to which the Award is being redeemed
over (B) the Exercise Price for that number of shares of Stock;
The Corporation shall promptly notify each Holder of any election or action
taken by the Corporation under this Subsection 7.3. In the event of any election
or action taken by the Corporation pursuant to this Subsection 7.3 that requires
the amendment or cancellation of any Award Agreement as may be specified in any
notice to Holder thereof, that Holder shall promptly deliver that Award
Agreement to the Corporation in order for that amendment or cancellation to be
implemented by the Corporation and the Committee. The failure of Holder to
deliver any such Award Agreement to the Corporation as provided in the preceding
sentence shall not in any manner affect the validity or enforceability of any
action taken by the Corporation and the Committee under this Subsection 7.3,
including without limitation any redemption of an Award as of the consummation
of a Reorganization. Any cash payment to be made by the Corporation pursuant to
this Subsection 7.3 in connection with the redemption of any outstanding Awards
shall be paid to Holder thereof currently with the delivery to the Corporation
of the Award Agreement evidencing that Award; provided, however, that any such
redemption shall be effective upon the consummation of the Reorganization
notwithstanding that the payment of the redemption price may occur subsequent to
the consummation. If all or any portion of an outstanding Award is to be
exercised or accelerated upon or after the consummation of a Reorganization that
does not occur in connection with a Change in Control and is in the form of a
Non-Surviving Event, and as a part of that Reorganization shares of stock, other
securities, cash, or property shall be issuable or deliverable in exchange for
Stock, then Holder of the Award shall thereafter be entitled to purchase or
receive (in lieu of the number of shares of Stock that Holder would otherwise be
entitled to purchase or receive) the number of shares of Stock, other
securities, cash, or property to which such number of shares of Stock would have
been entitled in connection with the Reorganization (and, for Options, upon
payment of the aggregate exercise price equal to the Exercise Price that would
have been payable if that number of Total Shares had been purchased on the
exercise of the Option immediately before the consummation of the
Reorganization) and such Award Agreement shall be subject to adjustments that
shall be as nearly equivalent as may be practical to the adjustments provided
for in this Section 7.
7.4 Notice of Reorganization. The Corporation shall attempt to keep all
Holders informed with respect to any Reorganization or of any potential
Reorganization to the same extent that the Corporation's stockholders are
informed by the Corporation of any such event or potential event.
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SECTION 8. ADDITIONAL PROVISIONS
The following provisions shall be applicable to any Award, except that
the Committee may authorize an Award Agreement that expressly contains terms and
provisions that differ from terms and provisions of this Section 8 (other than
Subsections 8.10 and 8.11):
8.1 Termination of Employment. If a Holder is an Eligible Individual
because Holder is an Employee and if that employment relationship is terminated
for any reason other than (a) Normal Retirement, (b) that Holder's death, (c)
that Holder's Disability (hereafter defined), (d) by the Corporation without
"cause" (hereafter defined), or (e) by Holder for "good reason" (hereafter
defined), then any and all Awards held by that Holder in Holder's capacity as an
Employee as of the date of the termination that are not yet exercisable shall
become null and void as of the date of such termination; provided, however, that
the portion, if any, of such Awards that are exercisable as of the date of
termination shall be exercisable for a period of the lesser of (a) the remainder
of the term of the Award or (b) the date which is 180 days after the date of
termination. If a Holder is an Eligible Individual because such Holder is an
Employee and if that employment relationship is terminated by the Corporation
without "cause" or by Holder for "good reason", then any and all Awards held by
such Holder in such Holder's capacity as an Employee as of the date of the
termination that are not yet exercisable shall become null and void as of the
date of such termination; provided, however, that the portion, if any, of such
Awards that are exercisable as of the date of termination shall be exercisable
for a period of the lesser of (a) the remainder of the term of the Award or (b)
the date which is 180 days after the date of termination. Any portion of an
Award not exercised upon the expiration of the lesser of the periods specified
in (a) or (b) of the preceding two sentences shall be null and void. "Cause" and
"good reason" shall have the meanings given such terms in the employment
agreement of Holder (if any) with the Corporation or a Subsidiary of the
Corporation; provided, however, that if that Holder has no employment agreement,
"cause" shall mean, as determined by the Board of Directors in the sole
discretion exercised in good faith of the Board of Directors, (a) the breach by
Holder of any nondisclosure, noncompetition, or other agreement to which Holder
and the Corporation are parties, (b) the commission by Holder of a misdemeanor
involving moral turpitude or of a felony, (c) the participation by Holder in any
fraud, (d) dishonesty by Holder that is detrimental to the best interest of the
Corporation, or (e) the willful and continued failure by Holder to substantially
perform his duties to the Corporation (other than any such failure resulting
from Holder's incapacity due to physical or mental illness) after written demand
for substantial performance is delivered by the Corporation specifically
identifying the manner in which the Corporation believes Holder has not
substantially performed his duties, or (f) the willful engaging by Holder in
misconduct which is materially injurious to the Corporation, monetarily or
otherwise. Notwithstanding any other provision of this Subsection 8.1, if a
Holder has no employment agreement, "good reason" shall have no meaning.
8.2 Other Loss of Eligibility. If a Holder is an Eligible Individual
because Holder is serving in a capacity other than as an Employee and if that
capacity is terminated for any reason other than Holder's death, then that
portion, if any, of any and all Awards held by
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Holder that were granted because of that capacity which are not yet exercisable
as of the date of the termination shall become null and void as of the date of
the termination; provided, however, that the portion, if any, of any and all
Awards held by Holder that are then exercisable as of the date of the
termination shall survive the termination be exercisable for a period of the
lesser of (a) the remainder of the term of the Award or (b) 180 days following
the date such capacity terminated. Any portion of an Award not exercised upon
the expiration of the lesser of the periods specified in (a) or (b) above shall
be null and void unless Holder dies during such period, in which case the
provisions of Subsection 8.3 shall govern.
8.3 Death. Upon the death of a Holder, any and all Awards held by Holder
that are not yet exercisable as of the date of Holder's death shall become null
and void as of the date of death; provided, however, that the portion, if any,
of any and all Awards held by Holder that are exercisable as of the date of
death shall be exercisable by that Holder's legal representatives, heirs,
legatees, or distributees for a period of the lesser of (a) the remainder of the
term of the Award or (b) 180 days following the date of Holder's death. Any
portion of an Award not exercised upon the expiration of the lesser of the
periods specified in (a) or (b) above shall be null and void. Except as
expressly provided in this Subsection 8.3, no Award held by a Holder shall be
exercisable after the death of that Holder. An Award Agreement may, but is not
required to, provide that all or part of the restrictions applicable to the
Award lapse upon the death of Holder.
8.4 Retirement. If a Holder is an Eligible Individual because Holder is
an Employee and if that employment relationship is terminated by reason of
Holder's Normal Retirement, then the portion, if any, of any and all Awards held
by Holder that are not yet exercisable as of the date of that retirement shall
become null and void as of the date of retirement; provided, however, that the
portion, if any, of any and all Awards held by Holder that are exercisable as of
the date of that retirement shall be exercisable for a period of the lesser of
(a) the remainder of the term of the Award or (b) 180 days following the date of
retirement. Any portion of an Award not exercised upon the expiration of the
lesser of the periods specified in (a) or (b) above shall be null and void
unless Holder dies during such period, in which case the provisions of
Subsection 8.3 shall govern.
8.5 Disability. If a Holder is an Eligible Individual because Holder is
an Employee and if that employment relationship is terminated by reason of
Holder's Disability, then the portion, if any, of any and all Awards held by
Holder that are not yet exercisable as of the date of that termination for
Disability shall become null and void as of the date of termination; provided,
however, that the portion, if any, of any and all Awards held by Holder that are
exercisable as of the date of that termination shall be exercisable by Holder,
his guardian or his legal representative for a period of the lesser of (a) the
remainder of the term of the Award or (b) 180 days following the date of
termination. Any portion of an Award not exercised upon the expiration of the
lesser of the periods specified in (a) or (b) above shall be null and void
unless Holder dies during such period, then the provisions of Subsection 8.3
shall govern. "Disability" shall have the meaning given it in the employment
agreement of Holder; provided, however, that if that Holder has no employment
agreement, "Disability" shall mean, as
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determined by the Board of Directors in the sole discretion exercised in good
faith of the Board of Directors, a physical or mental impairment of sufficient
severity that either Holder is unable to continue performing the duties he
performed before such impairment or Holder's condition entitles him to
disability benefits under any insurance or employee benefit plan of the
Corporation or its Subsidiaries and that impairment or condition is cited by the
Corporation as the reason for termination of Holder's employment.
8.6 Leave of Absence. With respect to an Award, the Committee may, in
its sole discretion, determine that any Holder who is on leave of absence for
any reason will be considered to still be in the employ of the Corporation,
provided that rights to that Award during a leave of absence will be limited to
the extent to which those rights were earned, vested, or exercisable when the
leave of absence began.
8.7 Transferability of Awards. In addition to such other terms and
conditions as may be included in a particular Award Agreement, an Award
requiring exercise shall be exercisable during a Holder's lifetime only by that
Holder or by that Holder's guardian or legal representative. An Award requiring
exercise shall not be transferrable other than by will or the laws of descent
and distribution.
8.8 Forfeiture and Restrictions on Transfer. Each Award Agreement may
contain or otherwise provide for conditions giving rise to the forfeiture of the
Stock acquired pursuant to an Award or otherwise and may also provide for those
restrictions on the transferability of shares of the Stock acquired pursuant to
an Award or otherwise that the Committee in its sole and absolute discretion may
deem proper or advisable. The conditions giving rise to forfeiture may include,
but need not be limited to, the requirement that Holder render substantial
services to the Corporation or its Subsidiaries for a specified period of time.
The restrictions on transferability may include, but need not be limited to,
options and rights of first refusal in favor of the Corporation and stockholders
of the Corporation other than Holder of such shares of Stock who is a party to
the particular Award Agreement or a subsequent holder of the shares of Stock who
is bound by that Award Agreement.
8.9 Delivery of Certificates of Stock. Subject to Subsection 8.10, the
Corporation shall promptly issue and deliver a certificate representing the
number of shares of Stock as to which an Option has been exercised after the
Corporation receives an Exercise Notice and upon receipt by the Corporation of
the Exercise Price and any tax withholding as may be requested. The value of the
shares of Stock or cash transferable because of an Award under the Plan shall
not bear any interest owing to the passage of time, except as may be otherwise
provided in an Award Agreement. If a Holder is entitled to receive certificates
representing Stock received for more than one form of Award under the Plan,
separate Stock certificates shall be issued with respect to Incentive Options
and Nonstatutory Options.
8.10 Conditions to Delivery of Stock. Nothing herein or in any Award
granted hereunder or any Award Agreement shall require the Corporation to issue
any shares with respect to any Award if that issuance would, in the opinion of
counsel for the Corporation,
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constitute a violation of the Securities Act or any similar or superseding
statute or statutes, any other applicable statute or regulation, or the rules of
any applicable securities exchange or securities association, as then in effect.
At the time of any exercise of an Option, the Corporation may, as a condition
precedent to the exercise of such Option, require from Holder of the Award (or
in the event of his death, his legal representatives, heirs, legatees, or
distributees) such written representations, if any, concerning Holder's
intentions with regard to the retention or disposition of the shares of Stock
being acquired pursuant to the Award and such written covenants and agreements,
if any, as to the manner of disposal of such shares as, in the opinion of
counsel to the Corporation, may be necessary to ensure that any disposition by
that Holder (or in the event of Holder's death, his legal representatives,
heirs, legatees, or distributees) will not involve a violation of the Securities
Act or any similar or superseding statute or statutes, any other applicable
state or federal statute or regulation, or any rule of any applicable securities
exchange or securities association, as then in effect.
8.11 Certain Directors and Officers. With respect to Holders who are
directors or officers of the Corporation or any of its Subsidiaries and who are
subject to Section 16(b) of the Exchange Act, Awards and all rights under the
Plan shall be exercisable during Holder's lifetime only by Holder or Holder's
guardian or legal representative, but not for at least six months after grant,
unless (a) (and to the extent that) the Board of Directors expressly authorizes
that an Award shall be exercisable before the expiration of the six-month period
or (b) the death or disability of Holder occurs before the expiration of the
six-month period. In addition, no such officer or director shall have shares of
Stock withheld to pay tax withholding obligations within the first six months of
the term of an Award. Any election by any such officer or director to have tax
withholding obligations satisfied by the withholding of shares of Stock shall be
irrevocable and shall be communicated to the Committee during the period
beginning on the third day following the date of release of quarterly or annual
summary statements of sales and earnings and ending on the twelfth business day
following such date or by an irrevocable election communicated to the Committee
at least six months before the date of exercise of the Award for which such
withholding is desired.
8.12 Legends. Certificates for shares of Stock, when issued, may have
placed on them such restrictive legends, or other statements of applicable
restrictions, as authorized by the Board of Directors or the Committee.
8.13 Rights as a Stockholder. A Holder shall have no right as a
stockholder with respect to any shares covered by his Award until a certificate
representing those shares is issued in his name. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash or other property) or
distributions or other rights for which the record date is before the date that
certificate is issued, except as contemplated by Section 7 hereof. Nevertheless,
dividends, dividend equivalent rights and voting rights may be extended to and
made part of any Award denominated in Stock or units of Stock, subject to such
terms, conditions and restrictions as the Committee may establish. The Committee
may also establish rules and procedures for the crediting of interest on
deferred cash payments and dividend equivalents for deferred payment denominated
in Stock or units of Stock.
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8.14 Furnish Information. Each Holder shall furnish to the Corporation
all information requested by the Corporation to enable it to comply with any
reporting or other requirement imposed upon the Corporation by or under any
applicable statute or regulation.
8.15 Obligation to Exercise. The granting of an Award hereunder shall
impose no obligation upon Holder to exercise the same or any part thereof.
8.16 Adjustments to Awards. Subject to the general limitations set forth
in Sections 5, 6, and 7, the Committee may make any adjustment in the exercise
price of, the number of shares subject to, or the terms of a Nonstatutory Option
by cancelling an outstanding Nonstatutory Option and regranting a Nonstatutory
Option. Such adjustment shall be made by amending, substituting, or regranting
an outstanding Nonstatutory Option. Such amendment, substitution, or regrant may
result in terms and conditions that differ from the terms and conditions of the
original Nonstatutory Option. The Committee may not, however, impair the rights
of any Holder of previously granted Nonstatutory Options without that Holder's
consent. If such action is effected by amendment, such amendment shall be deemed
effective as of the Date of Grant of the amended Award.
8.17 Information Confidential. As partial consideration for the granting
of each Award hereunder, Holder shall agree with the Corporation that he will
keep confidential all information and knowledge that he has relating to the
manner and amount of his participation in the Plan; provided, however, that such
information may be disclosed as required by law and may be given in confidence
to Holder's spouse, tax or financial advisors, or to a financial institution to
the extent that such information is necessary to secure a loan. In the event any
breach of this promise comes to the attention of the Committee, it shall take
into consideration that breach in determining whether to recommend the grant of
any future Award to that Holder, as a factor mitigating against the advisability
of granting any such future Award to that Person.
SECTION 9. DURATION AND AMENDMENT OF PLAN
9.1 Duration. No Awards may be granted hereunder after the date that is
ten years from the earlier of (a) the date the Plan is adopted by the Board of
Directors and (b) the date the Plan is approved by the stockholders of the
Corporation.
9.2 Amendment. The Board of Directors may, insofar as permitted by law,
with respect to any shares which, at the time, are not subject to Awards,
suspend or discontinue the Plan or revise or amend it in any respect whatsoever
and may amend any provision of the Plan or any Award Agreement to make the Plan
or the Award Agreement, or both, comply with Section 16(b) of the Exchange Act
and the exemptions from that Section in the regulations thereunder. The Board of
Directors may also amend, modify, suspend, or terminate the Plan for the purpose
of meeting or addressing any changes in other legal requirements applicable to
the Corporation or the Plan or for any other purpose permitted by law.
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SECTION 10. GENERAL
10.1 Application of Funds. The proceeds received by the Corporation from
the sale of shares pursuant to Awards may be used for any general corporate
purpose.
10.2 Right of the Corporation and Subsidiaries to Terminate Employment.
Nothing contained in the Plan, or in any Award Agreement, shall confer upon any
Holder the right to continue in the employ of the Corporation or any Subsidiary
or interfere in any way with the rights of the Corporation or any Subsidiary to
terminate Holder's employment at any time.
10.3 No Liability for Good Faith Determinations. Neither the members of
the Board of Directors nor any member of the Committee shall be liable for any
act, omission or determination taken or made in good faith with respect to the
Plan or any Award granted under it; and members of the Board of Directors and
the Committee shall be entitled to indemnification and reimbursement by the
Corporation in respect of any claim, loss, damage, or expense (including
attorneys' fees, the costs of settling any suit, provided such settlement is
approved by independent legal counsel selected by the Corporation, and amounts
paid in satisfaction of a judgment, except a judgment based on a finding of bad
faith) arising therefrom to the full extent permitted by law and under any
directors' and officers' liability or similar insurance coverage that may from
time to time be in effect. This right to indemnification shall be in addition
to, and not a limitation on, any other indemnification rights any member of the
Board of Directors or the Committee may have.
10.4 Other Benefits. Participation in the Plan shall not preclude Holder
from eligibility in any other stock or stock option plan of the Corporation or
any Subsidiary or any old age benefit, insurance, pension, profit sharing
retirement, bonus, or other extra compensation plans that the Corporation or any
Subsidiary has adopted, or may, at any time, adopt for the benefit of its
Employees. Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Corporation for approval shall
be construed as creating any limitations on the power of the Board of Directors
to adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options and the awarding of stock and
cash otherwise than under the Plan and such arrangements may be either generally
applicable or applicable only in specific cases.
10.5 Exclusion From Pension and Profit-Sharing Compensation. By
acceptance of an Award (regardless of form), as applicable, each Holder shall be
deemed to have agreed that the Award is special incentive compensation that will
not be taken into account in any manner as salary, compensation, or bonus in
determining the amount of any payment under any pension, retirement, or other
employee benefit plan of the Corporation or any Subsidiary. In addition, each
beneficiary of a deceased Holder shall be deemed to have agreed that the Award
will not affect the amount of any life insurance coverage, if any, provided by
the Corporation or a Subsidiary on the life of Holder that is payable to the
beneficiary under any life insurance plan covering employees of the Corporation
or any Subsidiary.
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10.6 Execution of Receipts and Releases. Any payment of cash or any
issuance or transfer of shares of Stock to Holder, or to his legal
representative, heir, legatee, or distributee, in accordance with the provisions
hereof, shall, to the extent thereof, be in full satisfaction of all claims of
such persons hereunder. The Committee may require any Holder, legal
representative, heir, legatee, or distributee, as a condition precedent to such
payment, to execute a release and receipt therefor in such form as it shall
determine.
10.7 Unfunded Plan. Insofar as it provides for Awards of cash and Stock,
the Plan shall be unfunded. Although bookkeeping accounts may be established
with respect to Holders who are entitled to cash, Stock, or rights thereto under
the Plan, any such accounts shall be used merely as a bookkeeping convenience.
The Corporation shall not be required to segregate any assets that may at any
time be represented by cash, Stock, or rights thereto, nor shall the Plan be
construed as providing for such segregation, nor shall the Corporation nor the
Board of Directors nor the Committee be deemed to be a trustee of any cash,
Stock, or rights thereto to be granted under the Plan. Any liability of the
Corporation to any Holder with respect to a grant of cash, Stock, or rights
thereto under the Plan shall be based solely upon any contractual obligations
that may be created by the Plan and any Award Agreement; no such obligation of
the Corporation shall be deemed to be secured by any pledge or other encumbrance
on any property of the Corporation. Neither the Corporation nor the Board of
Directors nor the Committee shall be required to give any security or bond for
the performance of any obligation that may be created by the Plan.
10.8 No Guarantee of Interests. Neither the Committee nor the
Corporation guarantees the Stock of the Corporation from loss or depreciation.
10.9 Payment of Expenses. All expenses incident to the administration,
termination, or protection of the Plan, including, but not limited to, legal and
accounting fees, shall be paid by the Corporation or its Subsidiaries; provided,
however, the Corporation or a Subsidiary may recover any and all damages, fees,
expenses, and costs arising out of any actions taken by the Corporation to
enforce its right to purchase Stock under this Plan.
10.10 Corporation Records. Records of the Corporation or its
Subsidiaries regarding Holder's period of employment, termination of employment
and the reason therefor, leaves of absence, re-employment, and other matters
shall be conclusive for all purposes hereunder, unless determined by the
Committee to be incorrect.
10.11 Information. The Corporation and its Subsidiaries shall, upon
request or as may be specifically required hereunder, furnish or cause to be
furnished all of the information or documentation which is necessary or required
by the Committee to perform its duties and functions under the Plan.
10.12 No Liability of Corporation. The Corporation assumes no obligation
or responsibility to Holder or his legal representatives, heirs, legatees, or
distributees for any act of, or failure to act on the part of, the Committee.
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10.13 Corporation Action. Any action required of the Corporation shall
be by resolution of its Board of Directors or by a person authorized to act by
resolution of the Board of Directors.
10.14 Severability. In the event that any provision of this Plan, or the
application hereof to any Person or circumstance, is held by a court of
competent jurisdiction to be invalid, illegal, or unenforceable in any respect
under present or future laws effective during the effective term of any such
provision, such invalid, illegal, or unenforceable provision shall be fully
severable; and this Plan shall then be construed and enforced as if such
invalid, illegal, or unenforceable provision had not been contained in this
Plan; and the remaining provisions of this Plan shall remain in full force and
effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance from this Plan. Furthermore, in lieu of each such
illegal, invalid, or unenforceable provision, there shall be added automatically
as part of this Plan a provision as similar in terms to such illegal, invalid,
or unenforceable provision as may be possible and be legal, valid, and
enforceable. If any of the terms or provisions of this Plan conflict with the
requirements of Rule 16b-3 (as those terms or provisions are applied to Eligible
Individuals who are subject to Section 16(b) of the Exchange Act), then those
conflicting terms or provisions shall be deemed inoperative to the extent they
so conflict with the requirements of Rule 16b-3 and, in lieu of such conflicting
provision, there shall be added automatically as part of this Plan a provision
as similar in terms to such conflicting provision as may be possible and not
conflict with the requirements of Rule 16b-3. If any of the terms or provisions
of this Plan conflict with the requirements of Section 422 of the Code (with
respect to Incentive Options), then those conflicting terms or provisions shall
be deemed inoperative to the extent they so conflict with the requirements of
Section 422 of the Code and, in lieu of such conflicting provision, there shall
be added automatically as part of this Plan a provision as similar in terms to
such conflicting provision as may be possible and not conflict with the
requirements of Section 422 of the Code. With respect to Incentive Options, if
this Plan does not contain any provision required to be included herein under
Section 422 of the Code, that provision shall be deemed to be incorporated
herein with the same force and effect as if that provision had been set out at
length herein; provided, however, that, to the extent any Option that is
intended to qualify as an Incentive Option cannot so qualify, that Option (to
that extent) shall be deemed a Nonstatutory Option for all purposes of the Plan.
10.15 Notices. Whenever any notice is required or permitted hereunder,
such notice must be in writing and personally delivered or sent by mail. Any
notice required or permitted to be delivered hereunder shall be deemed to be
delivered on the date on which it is personally delivered or, whether actually
received or not, on the third Business Day after it is deposited in the United
States mail, certified or registered, postage prepaid, addressed to the person
who is to receive it at the address which such person has theretofore specified
by written notice delivered in accordance herewith. The Corporation or a Holder
may change, at any time and from time to time, by written notice to the other,
the address which it or he had previously specified for receiving notices. Until
changed in accordance herewith, the Corporation and each Holder shall specify as
its and his address for receiving notices the address set forth in the
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Award Agreement pertaining to the shares to which such notice relates. Any
person entitled to notice hereunder may waive such notice.
10.16 Successors. The Plan shall be binding upon Holder, his legal
representatives, heirs, legatees, and distributees, upon the Corporation, its
successors and assigns and upon the Committee and its successors.
10.17 Headings. The titles and headings of Sections and Subsections are
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
10.18 Governing Law. All questions arising with respect to the
provisions of the Plan shall be determined by application of the laws of the
State of Washington, without giving effect to any conflict of law provisions
thereof, except to the extent Washington law is preempted by federal law.
Questions arising with respect to the provisions of an Award Agreement that are
matters of contract law shall be governed by the laws of the State of Washington
unless the laws of another state are specified in the Award Agreement. The
obligation of the Corporation to sell and deliver Stock hereunder is subject to
applicable federal and state laws and to the approval of any governmental
authority required in connection with the authorization, issuance, sale, or
delivery of such Stock.
10.19 Word Usage. Words used in the masculine shall apply to the
feminine where applicable, and wherever the context of this Plan dictates, the
plural shall be read as the singular and the singular as the plural.
IN WITNESS WHEREOF, Cowlitz Bancorporation, acting by and through its
officer hereunto duly authorized, has executed this instrument as of the ___ day
of September, 1997.
COWLITZ BANCORPORATION
By: _____________________________________
Name: ___________________________________
Title: __________________________________
COWLITZ BANCORPORATION
1997 STOCK OPTION PLAN
26
<PAGE> 1
EXHIBIT 10.15
COWLITZ BANCORPORATION
1997 STOCK OPTION PLAN
NONSTATUTORY OPTION AWARD AGREEMENT
This Nonstatutory Option Award Agreement ("Award Agreement") is made and
entered into by and between Cowlitz Bancorporation, a Washington corporation
(the "Corporation"), and Charles W. Jarrett (the "Optionee"), as of the 30th day
of September, 1997 (the "Date of Grant"), pursuant to the Cowlitz Bancorporation
1997 Stock Option Plan (the "Plan").
In consideration of the mutual covenants and conditions hereinafter set
forth and for other good and valuable consideration, the Corporation and the
Optionee agree as follows:
1. Grant of the Option. The Corporation hereby grants to the
Optionee the right and option (the "Option") to purchase an aggregate of 11,000
shares (such number being subject to adjustment as provided in the Plan) of
Stock (the "Shares") on the terms and conditions herein set forth. The Option
awarded hereunder may be exercised in whole or in part and from time to time as
hereinafter provided.
The Option granted under this Award Agreement is not intended to
qualify as an "incentive stock option" under section 422 of the Code and shall
be not so construed.
2. Exercise Price. The price at which the Optionee shall be entitled
to purchase the Shares covered by the Option shall be One Hundred Dollars
($100.00) per Share, subject to adjustment as provided in paragraph 10 below.
3. Term of the Option.
(i) The unexercised portion of the Option, if any, will automatically
and without notice terminate upon the earlier of (A) ten years following the
Date of Grant or (B) the date determined pursuant to paragraph 8 hereof.
(ii) The Option will cease to be exercisable with respect to a Share
when the Optionee purchases the Share.
4. Vesting.
(i) Except as otherwise provided in paragraph 8 hereof, the Option
granted hereunder shall vest and become exercisable with respect to Shares as
follows:
1997 STOCK OPTION PLAN
NONSTATUTORY OPTION AWARD AGREEMENT
1
<PAGE> 2
<TABLE>
<CAPTION>
Number
Vesting Date of the Shares
------------ -------------
<S> <C>
Date of Grant 3,000
December 31, 1998 1,600
December 31, 1999 1,600
December 31, 2000 1,600
December 31, 2001 1,600
December 31, 2002 1,600
Date as of Which a Change of Control All Shares as to Which the Vesting Date
Occurs Had Not Occurred Previously
</TABLE>
Shares as to which the Vesting Date has occurred shall be referred to as "Vested
Shares." Shares as to which the Vesting Date has not occurred shall be referred
to as "Nonvested Shares."
In general, Shares shall become Vested Shares only if the Optionee has
been continuously employed as a full-time employee of the Corporation or any
Subsidiary from the Date of Grant to and including the respective Vesting Date.
In addition, Shares may become Vested Shares in accordance with death,
Disability, Normal Retirement or pursuant to Section 9 of the Plan.
Notwithstanding the foregoing, no Shares shall be Vested Shares unless and until
the Optionee shall have made any and all required filings with and received any
and all required approvals from applicable Federal and state regulators with
respect to such shares relating to change in control of the Corporation or any
subsidiary.
5. Method of Exercising Option.
(i) The Optionee may exercise the Option at any time prior to the
termination of the Option with respect to all or any part of the Vested Shares.
Subject to the terms and conditions of this Award Agreement, the Option may be
exercised by timely delivery to the Secretary of the Corporation of an Exercise
Notice, which notice shall be effective, subject to the requirements herein, on
the date received by the Corporation.
(ii) The Exercise Notice shall state the Optionee's election to exercise
the Option, the number of Vested Shares in respect of which an election to
exercise has been made, the method of payment elected and the exact name or
names in which the Vested Shares then being purchased will be registered.
(iii) The Exercise Notice must be signed by the Optionee and must be
accompanied by payment of the aggregate Exercise Price of the Vested Shares then
being purchased.
1997 STOCK OPTION PLAN
NONSTATUTORY OPTION AWARD AGREEMENT
2
<PAGE> 3
(iv) In the event the Option must be exercised by a person or persons
other than the Optionee pursuant to paragraph 8 below, the Exercise Notice must
be signed by such other person or persons and must be accompanied by proof
acceptable to the Committee of the legal right of such person or persons to
exercise the Option and the Shares issued upon such exercise shall be subject to
the limitations applicable to such Shares in the hands of the Optionee.
6. Method of Payment for Options. The Exercise Price of an Option
shall be payable in full upon the exercise of the Option (a) in cash or by an
equivalent means acceptable to the Committee, (b) if permitted by applicable
laws and regulations (including but not limited to federal tax and securities
laws), with shares of Stock owned by Optionee (including shares received upon
exercise of the Option or restricted shares already held by Optionee) and having
a Fair Market Value at least equal to the aggregate Exercise Price payable in
connection with such exercise, or (c) by any combination of clauses (a) and (b).
If shares of Stock are used in payment of all or any portion of the Exercise
Price, then (for purposes of payment of the Exercise Price) those shares of
Stock shall be deemed to have a cash value equal to their aggregate Fair Market
Value determined as of the date the certificate for such shares is delivered to
the Corporation. If shares of restricted Stock are used in payment of all or any
portion of the Exercise Price, then an equal number of shares issued pursuant to
the exercise shall be restricted on the same terms and for the restriction
period remaining on the shares used for payment.
In addition, at the request of Optionee and if permitted by applicable
laws and regulations (including but not limited to federal tax and securities
laws), the Committee may (but shall not be required to) approve arrangements
with a brokerage firm under which that brokerage firm, on behalf of Optionee,
shall pay to the Corporation the Exercise Price of the Option being exercised
and the Corporation shall promptly deliver the exercised shares of Stock to the
brokerage firm. To accomplish this transaction, Optionee must deliver to the
Corporation an Exercise Notice containing irrevocable instructions from Optionee
to the Corporation to deliver the Stock certificates representing the shares of
Stock directly to the broker. Upon receiving a copy of the Exercise Notice
acknowledged by the Corporation, the broker shall sell that number of shares of
Stock or loan Optionee an amount sufficient to pay the Exercise Price and any
withholding obligations due. The broker then shall deliver to the Corporation
that portion of the sale or loan proceeds necessary to cover the Exercise Price
and any withholding obligations due. The Committee shall not approve any
transaction of this nature if the Committee believes that the transaction would
give rise to Optionee's liability for short-swing profits under Section 16(b) of
the Exchange Act.
The Optionee shall pay to the Corporation (or the Corporation's
Subsidiary if Optionee is an employee of a Subsidiary of the Corporation), at
the time of the exercise of an Option, the amount that the Committee deems
necessary to satisfy the Corporation's or its Subsidiary's current or future
obligation to withhold federal, state, or local income or other taxes that
Optionee incurs by exercising an Option. In connection with the exercise of an
Option requiring tax withholding, a Optionee may (a) direct the Corporation to
withhold from the shares of Stock to be issued to Optionee the number of shares
necessary to satisfy the Corporation's obligation to withhold taxes, that
determination to be based on the shares' Fair Market Value as of the date
1997 STOCK OPTION PLAN
NONSTATUTORY OPTION AWARD AGREEMENT
3
<PAGE> 4
of exercise; (b) deliver to the Corporation sufficient shares of Stock (based
upon the Fair Market Value as of the date of such delivery) to satisfy the
Corporation's tax withholding obligation, which tax withholding obligation is
based on the shares' Fair Market Value as of the later of the date of exercise;
or the date as of which the shares of Stock issued in connection with such
exercise become includible in the income of Optionee; (c) deliver sufficient
cash to the Corporation to satisfy its tax withholding obligations. If Optionee
elects to use such a stock withholding feature, Optionee must make the election
at the time and in the manner that the Committee prescribes. In the event the
Committee subsequently determines that the aggregate Fair Market Value (as
determined above) of any shares of Stock withheld or delivered as payment of any
tax withholding obligation is insufficient to discharge that tax withholding
obligation, then Optionee shall pay to the Corporation, immediately upon the
Committee's request, the amount of that deficiency in the form of payment
requested by the Committee.
7. Delivery of Shares. No Shares shall be delivered to the
Optionee upon exercise of the Option until (i) the Exercise Price for such
Shares being purchased is paid in full in the manner herein provided; (ii) all
the applicable taxes required to be withheld have been paid or withheld in full;
(iii) approval of any governmental authority required in connection with the
Option, or the issuance of such Shares thereunder, has been received by the
Corporation; and (iv) if required by the Committee, the Optionee has delivered
to the Committee an "Investment Letter" in form and content satisfactory to the
Corporation as provided in paragraph 11 below.
8. Termination of Employment. In the event of the Optionee's
termination of employment for reasons other than Normal Retirement, Disability
or death, the Optionee's right to exercise the Option will be limited to Shares
that are Vested Shares on the date of such termination and, subject to earlier
termination in accordance with paragraph 3(i) hereof, will expire as to such
Vested Shares on the date which is 180 calendar days following the date of such
termination. In the event of the Optionee's termination of employment for
reasons of Normal Retirement, Disability or death, then all Shares as to which
the Option is unexercised as of the date of such termination shall become Vested
Shares as of such date, and, subject to earlier termination in accordance with
paragraph 3(i) hereof, the Option will expire as to all Vested Shares on the
date which is 180 calendar days following the date of such Normal Retirement,
Disability or death. Upon the Disability or death of a Optionee, any and all
Vested Shares may be exercised by the Optionee or his guardian, legal
representative, legatees, distributees or heirs for the periods prescribed
herein. The Committee has the right to require whatever evidence it deems
necessary to establish the rights of any person or persons seeking to exercise
the Option in the event of a Optionee's Disability or death.
9. Nontransferability. Except as provided in paragraph 8 above,
the Option granted by this Award Agreement shall be exercisable only by the
Optionee during his or her lifetime and while an employee of the Corporation. No
Option granted by this Award Agreement is transferable by the Optionee other
than by will or pursuant to applicable laws of descent and distribution. The
Option, and any rights and privileges in connection therewith, cannot be
transferred, assigned, pledged or hypothecated by the Optionee, or by any other
person or persons, in any way, whether by operation of law, or otherwise, and
may not be
1997 STOCK OPTION PLAN
NONSTATUTORY OPTION AWARD AGREEMENT
4
<PAGE> 5
subject to execution, attachment, garnishment or similar process. In the event
of any such occurrence, this Award Agreement will automatically terminate and
will thereafter be null and void.
10. Adjustments. If there is any change in the capital structure
of the Corporation through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split or combination of shares, each
remaining Share subject to this Option or the Exercise Price with respect to
such Share shall be proportionately adjusted to prevent dilution or enlargement
of the Shares subject to the Option or of the Exercise Price, as provided in
Section 9 of the Plan.
11. Securities Act. The Corporation will not be required to
deliver any Shares pursuant to the exercise of all or any part of the Option if,
in the opinion of counsel for the Corporation, such issuance would violate the
Securities Act or any other applicable federal or state securities laws or
regulations. The Committee may require that the Optionee, prior to the issuance
of any such Shares pursuant to exercise of the Option, sign and deliver to the
Corporation a written statement ("Investment Letter") stating that (i) the
Optionee is purchasing the Shares for his or her own account and not with a view
to, or for sale in connection with, any distribution thereof, he or she has no
present or contemplated agreement, undertaking, arrangement, obligation,
indebtedness or commitment providing for the disposition thereof and he or she
does not currently have any reason to anticipate a change in the foregoing; (ii)
the Optionee understands that the Shares have not been registered under the
Securities Act or any applicable state securities laws or regulations and,
therefore, cannot be offered or resold unless the Shares are so registered or an
applicable exemption from registration is available; and (iii) agrees that the
certificates representing the Shares may bear a legend to the effect set forth
in clause (ii) above. Such Investment Letter must be in form and substance
acceptable to the Committee in its sole discretion.
12. Section 16(b) Matters. If Optionee is a director or officer
of the Corporation or any of its Subsidiaries who is subject to Section 16(b) of
the Exchange Act, Awards shall be exercisable during Optionee's lifetime only by
Optionee or Optionee's guardian or legal representative, but not for at least
six months after grant, unless (a) (and to the extent that) the Board of
Directors expressly authorizes that an Award shall be exercisable before the
expiration of the six-month period or (b) the death or disability of Optionee
occurs before the expiration of the six-month period. In addition, if Optionee
is such an officer or director, Optionee may not have shares of Stock withheld
to pay tax withholding obligations within the first six months of the term of an
Award and any election by Optionee to have tax withholding obligations satisfied
by the withholding of shares of Stock shall be irrevocable and shall be
communicated to the Committee during the period beginning on the third day
following the date of release of quarterly or annual summary statements of sales
and earnings and ending on the twelfth business day following such date or by an
irrevocable election communicated to the Committee at least six months before
the date of exercise of the Award for which such withholding is desired.
1997 STOCK OPTION PLAN
NONSTATUTORY OPTION AWARD AGREEMENT
5
<PAGE> 6
13. Notice. All notices required or permitted under this Award
Agreement, including an Exercise Notice, must be in writing and personally
delivered or sent by mail and shall be deemed to be delivered on the date on
which it is actually received by the Corporation properly addressed to the
person who is to receive it. An Exercise Notice shall be effective when actually
received by the Corporation, in writing and in conformance with this Award
Agreement and the Plan. Until changed in accordance herewith, the Corporation
and the Optionee specify their respective addresses as set forth below:
Corporation: Cowlitz Bancorporation
927 Commerce Avenue
Longview, Washington 98632
Attention: Chairman of Board of Directors
Optionee: As indicated on the signature page hereto.
14. Information Confidential. As partial consideration for the
granting of this Option, the Optionee agrees that he or she will keep
confidential all information and knowledge that he or she has relating to the
manner and amount of his or her participation in the Plan; provided, however,
that such information may be disclosed as required by law and may be given in
confidence to the Optionee's spouse, tax and financial advisors, or a financial
institution to the extent that such information is necessary to obtain a loan.
15. Definitions; Copy of Plan. To the extent not specifically
provided herein or otherwise required by context, all capitalized terms used in
this Award Agreement but not defined herein shall have the same meanings
ascribed to them in the Plan. However, any reference herein to the "Committee"
shall refer to the Committee or the Plan Administrator, as appropriate. By the
execution of this Award Agreement, the Optionee acknowledges that he or she has
received and reviewed a copy of the Plan.
16. Administration. This Award Agreement is subject to the terms
and conditions of the Plan. The Plan will be administered by the Committee in
accordance with its terms. The Committee has sole and complete discretion with
respect to all matters reserved to it by the Plan, and decisions of the
Committee with respect to the Plan and to this Award Agreement shall be final
and binding upon the Optionee and the Corporation. In the event of any conflict
between the terms and conditions of this Award Agreement and the Plan, the
provisions of the Plan shall control.
17. Continuation of Employment. This Award Agreement shall not be
construed to confer upon the Optionee any right to continue in the employ of the
Corporation or its Subsidiaries and shall not limit the right of the Corporation
or its Subsidiaries, in their sole discretion, to terminate the employment of
the Optionee at any time.
18. Amendments. This Award Agreement may be amended only by a
written agreement executed by the Corporation and the Optionee.
1997 STOCK OPTION PLAN
NONSTATUTORY OPTION AWARD AGREEMENT
6
<PAGE> 7
19. Termination. The Corporation may terminate the Plan at any
time; however, such termination will not modify the terms and conditions of the
Option awarded under this Agreement without the Optionee's consent.
20. Shareholder Approval. Notwithstanding any provisions of the
Award Agreement, no Option may be exercised before the date ("Approval Date")
the stockholders of the Corporation, at a meeting at which a quorum is present,
shall have approved the Plan by the affirmative vote of a majority of the shares
of the Corporation's common voting thereon. In the event of the occurrence of
any event described in paragraph 8 hereof prior to the Approval Date, the 180
day-period referred to in paragraph 8 hereof applicable to Vested Shares shall
be tolled until the Approval Date.
IN WITNESS WHEREOF, the partners hereto have caused this Agreement to be
duly executed as of the day and year first above written.
COWLITZ BANCORPORATION
By: _____________________________________
Its: ________________________________
OPTIONEE
_________________________________________
Address:
_________________________________________
_________________________________________
1997 STOCK OPTION PLAN
NONSTATUTORY OPTION AWARD AGREEMENT
7
<PAGE> 1
EXHIBIT 10.16
COWLITZ BANCORPORATION
EMPLOYEE STOCK PURCHASE PLAN
EFFECTIVE JULY 10, 1996
<PAGE> 2
COWLITZ BANCORPORATION
EMPLOYEE STOCK PURCHASE PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1.
PURPOSE OF PLAN . . . . . . . . . . . . . . . . . . . . 1
---------------
ARTICLE 2.
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 1
-----------
2.1 Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---------
2.2 Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----
2.3 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
----
2.4 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---------
2.5 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-------
2.6 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
------------
2.7 Eligible Employee . . . . . . . . . . . . . . . . . . . . . . . . 1
-----------------
2.8 Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
------------
2.9 Exercise Period . . . . . . . . . . . . . . . . . . . . . . . . . 2
---------------
2.10 Fair Market Value . . . . . . . . . . . . . . . . . . . . . . . . 2
-----------------
2.11 Grant Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
----------
2.12 Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
------
2.13 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
-----------
2.14 Payroll Account . . . . . . . . . . . . . . . . . . . . . . . . . 3
---------------
2.15 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
----
2.16 Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
-----
2.17 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
------------
ARTICLE 3.
GRANT AND EXERCISE OF OPTIONS . . . . . . . . . . . . . . . 3
-----------------------------
3.1 General Conditions . . . . . . . . . . . . . . . . . . . . . . . . 3
------------------
3.2 Right to Exercise . . . . . . . . . . . . . . . . . . . . . . . . 4
-----------------
3.3 Method of Exercise . . . . . . . . . . . . . . . . . . . . . . . . 4
------------------
3.4 Payment of Exercise Price . . . . . . . . . . . . . . . . . . . . 4
-------------------------
3.5 Issuance of Stock . . . . . . . . . . . . . . . . . . . . . . . . 5
-----------------
3.6 Nontransferability . . . . . . . . . . . . . . . . . . . . . . . . 5
------------------
3.7 Shareholder Rights . . . . . . . . . . . . . . . . . . . . . . . . 5
------------------
3.8 Issuance and Delivery of Shares . . . . . . . . . . . . . . . . . 5
-------------------------------
</TABLE>
COWLITZ BANCORPORATION
EMPLOYEE STOCK PURCHASE PLAN
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 4.
STOCK SUBJECT TO PLAN . . . . . . . . . . . . . . . . . . 6
---------------------
4.1 Authorized of Shares . . . . . . . . . . . . . . . . . . . . . . . 6
--------------------
4.2 Maximum Number of Shares . . . . . . . . . . . . . . . . . . . . . 6
------------------------
4.3 Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
-----------
ARTICLE 5.
ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . 6
--------------------------
5.1 General Authority . . . . . . . . . . . . . . . . . . . . . . . . 6
-----------------
5.2 Persons Subject to Section 16(b) . . . . . . . . . . . . . . . . . 6
--------------------------------
ARTICLE 6.
ADJUSTMENT UPON CORPORATE CHANGES . . . . . . . . . . . . . . 7
---------------------------------
6.1 Adjustments to Shares . . . . . . . . . . . . . . . . . . . . . . 7
---------------------
6.2 Substitution of Options on Merger or Acquisition . . . . . . . . . 7
------------------------------------------------
6.3 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . 7
-----------------
ARTICLE 7.
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES . . . . . .. . . . . 7
-----------------------------------------------------
7.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-------
7.2 Stock Legends . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-------------
7.3 Representations by Participants . . . . . . . . . . . . . . . . . 8
-------------------------------
ARTICLE 8.
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . 8
------------------
8.1 Effect on Employment . . . . . . . . . . . . . . . . . . . . . . . 8
--------------------
8.2 Liability Under the Plan . . . . . . . . . . . . . . . . . . . . . 8
------------------------
8.3 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . 8
---------------------
8.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-------------
8.5 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
---------
8.6 Effective Date of Plan . . . . . . . . . . . . . . . . . . . . . . 9
----------------------
8.7 Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . 9
--------------------
</TABLE>
COWLITZ BANCORPORATION
EMPLOYEE STOCK PURCHASE PLAN
ii
<PAGE> 4
COWLITZ BANCORPORATION
EMPLOYEE STOCK PURCHASE PLAN
PREAMBLE
Cowlitz Bancorporation (the "Company") desires to establish a plan
through which employees of the Company and its subsidiaries may purchase from
the Company shares of its common stock.
The Company hereby establishes the Cowlitz Bancorporation Employee
Stock Purchase Plan (the "Plan"), effective July 10, 1996:
ARTICLE 1.
PURPOSE OF PLAN
The purpose of the Plan is to secure for the Company and its
shareholders the benefits of the incentive inherent in the ownership of the
Company's common stock by present and future employees of the Company and its
Subsidiaries.
ARTICLE 2.
DEFINITIONS
2.1 Agreement. An agreement between a Participant and the Company
or a Subsidiary through which the Participant elects to exercise the Options
granted to him hereunder and authorizes payment of the Option exercise price.
2.2 Board. The board of directors of the Company.
2.3 Code. The Internal Revenue Code of 1986, as amended.
2.4 Committee. A committee with at least two (2) members of the
Board who are designated by the Board to administer the Plan. No Committee
member may be an employee of the Company or its affiliates.
2.5 Company. Cowlitz Bancorporation and its successors and
assigns.
2.6 Compensation. An employee's rate of compensation earned from
employment with the Company or one of its Subsidiaries, including regular
earnings, overtime, bonuses, commissions, incentives, and amounts elected under
a salary reduction agreement pursuant to a plan described in section 125 of the
Code or a deferred compensation plan.
2.7 Eligible Employee. An employee of the Company or a
Subsidiary, except for the following:
COWLITZ BANCORPORATION
EMPLOYEE STOCK PURCHASE PLAN
1
<PAGE> 5
(a) An employee who has been employed less than one year.
(b) An employee whose customary employment is 20 hours or less per
week.
(c) An employee whose customary employment is for five months or
less in a calendar year.
2.8 Exchange Act. The Securities Exchange Act of 1934, as
amended.
2.9 Exercise Period. The period during which an Eligible Employee
may elect to exercise an Option and make payment through payroll deduction or
by check, pursuant to Article 3. The initial Exercise Period shall be the
period that begins on the initial Grant Date hereunder and expires on the ninth
day of the next succeeding calendar quarter. Thereafter, the Exercise Period
shall begin with each successive Grant Date and expire on the ninth day of the
next succeeding calendar quarter.
2.10 Fair Market Value. On any given date, Fair Market Value shall
be the applicable description below (unless, where appropriate, the Committee
or Board determines in good faith the fair market value of the Stock to be
otherwise):
(a) If the Stock is not publicly traded, Fair Market Value shall
be the value determined in good faith by the Committee or the
Board. Such determination shall occur quarterly and at such
other times as the Committee or the Board may deem
appropriate.
(b) If the Stock is traded on the New York Stock Exchange or the
American Stock Exchange, the average of the closing prices of
the Stock on such exchange on which such Stock is traded on
the trading day immediately preceding the date as of which
Fair Market Value is being determined, or on the next
preceding day period on which such Stock is traded if no Stock
was traded on such trading day.
(c) If the Stock is not traded on the New York Stock Exchange or
the American Stock Exchange, but is reported on the NASDAQ
National Market System or another NASDAQ Automated Quotation
System, and market information is published on a regular
basis, then Fair Market Value shall be the closing price of
the Stock, as so published, on the trading day immediately
preceding the date as of which Fair Market Value is being
determined, or the closing price on the next preceding trading
day on which such prices were published if no Stock was traded
on such trading day.
(d) If market information is not so published on a regular basis,
then Fair Market Value shall be the average of the high bid
and low asked prices of the Stock in the over-the-counter
market on the trading day immediately preceding the date as of
which Fair Market Value is being determined or on the next
preceding trading
COWLITZ BANCORPORATION
EMPLOYEE STOCK PURCHASE PLAN
2
<PAGE> 6
day on which such high bid and low asked prices were recorded,
as reported by a generally accepted reporting service.
2.11 Grant Date. The initial Grant Date shall be July 10, 1996.
Thereafter, the Grant Date shall be the tenth day of each successive calendar
quarter (i.e., October 10, January 10, and April 10, and July 10) of each year.
2.12 Option. The right that is granted hereunder to a Participant
to purchase from the Company a stated number of shares of Stock at the Fair
Market Value on or before the last day of each respective Exercise Period.
2.13 Participant. An Eligible Employee who has elected to exercise
an Option and participate in the Plan in accordance with Article 3.
2.14 Payroll Account. A bookkeeping account to which is added the
amounts withheld on behalf of each Participant under regular payroll deductions
authorized by Participants hereunder, and reduced by amounts due to the Company
to pay the exercise price of Options exercised hereunder.
2.15 Plan. The Cowlitz Bancorporation Employee Stock Purchase
Plan.
2.16 Stock. The common stock of the Company, no par value.
2.17 Subsidiaries. A "subsidiary corporation," means any
corporation (other than the Company), at the time of granting the Option, that
has fifty percent or more of its total combined voting power of all classes of
its stock owned, directly or indirectly, by the Company.
ARTICLE 3.
GRANT AND EXERCISE OF OPTIONS
3.1 General Conditions. On each Grant Date, each employee who is
an Eligible Employee on such date shall, without further action of the
Committee, be granted an Option to purchase up to a number of whole shares of
Stock that, in the aggregate, have an exercise price (described in Section
3.1(a)) that is not more than 15% of his Compensation during each Exercise
Period, provided that the Option is limited to a maximum exercise price of
$10,000 in each calendar year. The limits described in the immediately
preceding sentence shall be prorated for any partial Exercise Period or
calendar year. Each Option grant is subject to the following terms and
conditions:
(a) The exercise price of each Option shall be one hundred percent
(100%) of Fair Market Value on the date of grant.
(b) Each Option, or portion thereof, that is not exercised during
an Exercise Period shall expire at the end of the Exercise
Period in which the Option was granted.
COWLITZ BANCORPORATION
EMPLOYEE STOCK PURCHASE PLAN
3
<PAGE> 7
(c) Each Option shall expire ten days after the date the Eligible
Employee terminates employment with the Company or any of its
Subsidiaries, unless it expires sooner pursuant to Section
3.1(b).
(d) A right to purchase Stock which has accrued under one Option
granted hereunder may not be carried over to any other Option.
3.2 Right to Exercise. An Option shall be exercisable up to the
last day of the Exercise Period that includes the Grant Date on which the
Option was granted. An Eligible Employee must exercise an Option while he is
an employee of the Company or a Subsidiary or within the periods that are
specified herein after termination of employment.
3.3 Method of Exercise. To exercise an Option, an Eligible
Employee shall notify the Company in writing of his election to so exercise and
execute an Agreement in the form and manner prescribed by the Committee.
Unless an Eligible Employee pays the exercise price by check, an Eligible
Employee may revoke his election by giving written notification of such
revocation to the Committee in a timely manner and at least five (5) business
days prior to the last day of the applicable Exercise Period.
3.4 Payment of Exercise Price. An Eligible Employee who desires
to exercise an Option must timely execute an Agreement in the form and manner
prescribed by the Committee prior to or during the applicable Exercise Period.
The Agreement shall provide for authorization of deductions from the Eligible
Employee's regular payroll that is credited to a Payroll Account. In the
alternative, the Eligible Employee may pay the exercise price by check payable
to Company prior to the last day of the Exercise Period. Amounts credited to a
Participant's Payroll Account shall be accumulated and reserved for payment of
the exercise price of Options granted hereunder.
(a) A Participant may modify his election to participate in the
Plan at any time by timely providing the Committee written
notice in the form prescribed by the Committee. Such
modification shall be effective on the first payroll date that
occurs five (5) business days following receipt of such
written notice or, if later, the date specified in the notice.
(b) An Agreement to begin or modify participation in the Plan must
be executed by the Participant within the time prescribed by
the Committee at least five (5) business days prior to the
last payroll date in the Exercise Period for which it is to be
effective. If the Agreement is not timely executed, it shall
take effect upon the next following Exercise Period.
(c) Each Participant's election specified under an Agreement shall
remain in effect for successive Exercise Periods until
modified or revoked by the Participant in accordance with
Section 3.4.
COWLITZ BANCORPORATION
EMPLOYEE STOCK PURCHASE PLAN
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<PAGE> 8
3.5 Issuance of Stock. The Company shall issue whole shares of
Stock to a Participant, unless the Participant timely revoked an election to
exercise the Option pursuant to Section 3.3, as follows:
(a) The Company shall determine the number of whole shares of
Stock to be issued to each Participant for each Exercise
Period by dividing the balance of such Participant's Payroll
Account by the applicable exercise price of the Option.
(b) The Company shall deduct from a Participant's Payroll Account
the amount necessary to purchase the greatest number of whole
shares of Stock that can be acquired under the applicable
Option.
(c) Any amounts remaining in the Payroll Account after deducting
the exercise price for whole shares of Stock shall generally
be held for use in a subsequent Exercise Period. However, a
Participant who has made contributions to a Payroll Account
and has revoked his election to exercise an Option under the
terms of Section 3.3 may obtain payment of the amounts held in
his Payroll Account from the Company by requesting such
payment in writing to the Committee in the time and manner
specified by the Committee. A Participant who has terminated
employment shall be paid any amounts remaining in his Payroll
Account after the expiration of all Options hereunder.
(d) If the Participant pays by check, the number of whole shares
of Stock to be issued shall be determined by dividing the
amount of the check by the applicable exercise price.
3.6 Nontransferability. Any Option granted under this Plan shall
not be transferable except by will or by the laws of descent and distribution.
Only the Participant to whom an Option is granted may exercise such Option,
unless he is deceased. No right or interest of a Participant in any Option
shall be liable for, or subject to, any lien, obligation or liability of such
Participant.
3.7 Shareholder Rights. No Participant shall have any rights as a
stockholder with respect to shares subject to his Option prior to the time that
such Option is exercised.
3.8 Issuance and Delivery of Shares. Shares of Stock issued
pursuant to the exercise of Options hereunder shall be delivered to
Participants by the Company as soon as administratively feasible after a
Participant exercises an Option hereunder and executes an agreement described
in Section 3.9 that the Company requires at the time of exercise.
COWLITZ BANCORPORATION
EMPLOYEE STOCK PURCHASE PLAN
5
<PAGE> 9
ARTICLE 4.
STOCK SUBJECT TO PLAN
4.1 Authorized of Shares. Upon the exercise of an Option, the
Company shall deliver to the Participant authorized but unissued shares of
Stock.
4.2 Maximum Number of Shares. The maximum aggregate number of
shares of Stock that may be issued pursuant to the exercise of Options is
10,000 subject to increases and adjustments as provided in this Article and
Article 6.
4.3 Forfeitures. If an Option is terminated, in whole or in part,
the number of shares of Stock allocated to such Option or portion thereof may
be reallocated to other Options to be granted under this Plan.
ARTICLE 5.
ADMINISTRATION OF THE PLAN
5.1 General Authority. The Plan shall be administered by the
Committee. The express grant in the Plan of any specific power to the
Committee shall not be construed as limiting any power or authority of the
Committee. No member of the Committee shall be liable for any act done in good
faith with respect to this Plan or any Agreement or Option. The Company shall
bear all expenses of Plan administration. The interpretation and construction
by the Committee of any terms or provisions of this Plan or of any rule or
regulation promulgated in connection herewith, shall be conclusive and binding
on all persons. In addition to all other authority vested with the Committee
under the Plan, the Committee shall have complete authority to:
(a) Interpret all provisions of this Plan;
(b) Prescribe the form of any Agreement and notice and manner for
executing or giving the same;
(c) Adopt, amend, and rescind rules for Plan administration; and
(d) Make all determinations it deems advisable for the
administration of this Plan.
5.2 Persons Subject to Section 16(b). Notwithstanding anything in
the Plan to the contrary, the Board, in its absolute discretion, may bifurcate
the Plan so as to restrict, limit or condition the use of any provision of the
Plan to Participants who are members of the Committee subject to Section 16(b)
of the Exchange Act without so restricting, limiting or conditioning the Plan
with respect to other Participants.
COWLITZ BANCORPORATION
EMPLOYEE STOCK PURCHASE PLAN
6
<PAGE> 10
ARTICLE 6.
ADJUSTMENT UPON CORPORATE CHANGES
6.1 Adjustments to Shares. The maximum number and kind of shares
of stock with respect to which Options hereunder may be granted and which are
the subject of outstanding Options shall be adjusted by way of increase or
decrease as the Committee determines (in its sole discretion) to be
appropriate, in the event that:
(a) the Company effects one or more stock dividends, stock splits,
reverse stock splits, subdivisions, consolidations or other
similar events; or
(b) there occurs any other event which in the judgment of the
Committee necessitates such action.
Provided, however, that if an event described in paragraph (a) or (b) occurs,
the Committee shall make adjustments to the limits on Options and on the award
of Options specified hereunder that are proportionate to the modifications of
the Stock that are on account of such corporate changes.
6.2 Substitution of Options on Merger or Acquisition. The
Committee may grant Options in substitution for stock awards, stock options,
stock appreciation rights or similar awards held by an individual who becomes
an employee of the Company or a Subsidiary in connection with a merger or
acquisition of another entity. The terms of such substituted Options shall be
determined by the Committee in its sole discretion, subject only to the
limitations of Article 4.
6.3 Fractional Shares. Only whole shares of Stock may be acquired
through the exercise of an Option. The Company will return to each
Participant's Payroll Account, or directly to the Participant if payment is by
check, any amount tendered in the exercise of an Option remaining after the
maximum number of whole shares have been purchased, subject to Section 3.5(c).
ARTICLE 7.
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
7.1 General. No Option shall be exercisable, no Stock shall be
issued, no certificates for shares of Stock shall be delivered, and no payment
shall be made under this Plan except in compliance with all federal and state
laws and regulations (including, without limitation, withholding tax
requirements), federal and state securities laws and regulations and the rules
of all national securities exchanges or self-regulatory organizations on which
the Company's shares may be listed. The Company shall have the right to rely
on an opinion of its counsel as to such compliance. No Option shall be
exercisable, no Stock shall be issued, no certificate for shares shall be
delivered and no payment shall be made under this Plan until the Company has
obtained
COWLITZ BANCORPORATION
EMPLOYEE STOCK PURCHASE PLAN
7
<PAGE> 11
such consent or approval as the Committee may deem advisable from any
regulatory bodies having jurisdiction over such matters.
7.2 Stock Legends. Any certificate issued to evidence shares of
Stock for which an Option is exercised may bear such legends and statements as
the Company or Committee may deem advisable to assure compliance with federal
and state laws and regulations.
7.3 Representations by Participants. As a condition to the
exercise of an Option, the Company may require a Participant to represent and
warrant at the time of any such exercise that the shares are being purchased
only for investment and without any present intention to sell or distribute
such shares, if, in the opinion of counsel for the Company, such representation
is required by any relevant provision of the laws referred to in Section 7.1.
At the option of the Company, a stop transfer order against any shares of stock
may be placed on the official stock books and records of the Company, and a
legend indicating that the stock may not be pledged, sold or otherwise
transferred unless an opinion of counsel was provided (concurred in by counsel
for the Company) and stating that such transfer is not in violation of any
applicable law or regulation may be stamped on the stock certificate in order
to assure exemption from registration. The Committee may also require such
other action or agreement by the Participants as may from time to time be
necessary to comply with the federal and state securities laws. This provision
shall not obligate the Company or any Subsidiary to undertake registration of
options or stock hereunder.
ARTICLE 8.
GENERAL PROVISIONS
8.1 Effect on Employment. Neither the adoption of this Plan, its
operation, nor any documents describing or referring to this Plan (or any part
thereof) shall confer upon any employee any right to continue in the employ of
the Company or a Subsidiary or in any way affect any right and power of the
Company or a Subsidiary to terminate the employment of any employee at any time
with or without assigning a reason therefor.
8.2 Liability Under the Plan. Any liability of the Company to any
person with respect to any grant under this Plan shall be based solely upon
contractual obligations that may be created hereunder. No such obligation of
the Company shall be deemed to be secured by any pledge of, or other
encumbrance on, any property of the Company.
8.3 Rules of Construction. Headings are given to the articles and
sections of this Plan solely as a convenience to facilitate reference. The
masculine gender when used herein refers to both masculine and feminine. The
reference to any statute, regulation or other provision of law shall be
construed to refer to any amendment to or successor of such provision of law.
8.4 Governing Law. The laws of the State of Washington shall
apply to all matters arising under this Plan, to the extent that federal law
does not apply.
COWLITZ BANCORPORATION
EMPLOYEE STOCK PURCHASE PLAN
8
<PAGE> 12
8.5 Amendment. The Board may amend or terminate this Plan at any
time; provided, however, an amendment that would have a material adverse effect
on the rights of a Participant under an outstanding Option is not valid with
respect to such Option without the Participant's consent.
8.6 Effective Date of Plan. Upon adoptions of this Plan by the
Board, Options may be granted under this Plan beginning on July 10, 1996.
8.7 Shareholder Approval. The Company will submit the Plan for
approval at a meeting of the Company's shareholders within twelve (12) months
of the effective date of the Plan. If a majority of the shareholders of the
Company represented at such meeting, in person or by proxy, do not approve the
Plan, then the Company will discontinue the Plan as soon as reasonably
practicable.
IN WITNESS WHEREOF, the undersigned officer has executed this Plan on
this _____ day of ______________, 1996.
COWLITZ BANCORPORATION
By: ____________________________________
Its: ____________________________________
COWLITZ BANCORPORATION
EMPLOYEE STOCK PURCHASE PLAN
9
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
(all amounts in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
September 30, September 30, December 31, December 31, December 31,
1997 1996 1996 1995 1994
------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Dilutive common stock equivalents 2,600,702 2,585,607 2,586,698 2,512,407 1,723,732
Dilutive common equivalent shares 201,667 201,667 201,667 201,667 201,667
--------- --------- --------- --------- ---------
Total Common Stock 2,802,369 2,787,274 2,788,365 2,714,074 1,925,399
========= ========= ========= ========= =========
Net Income $1,516 $1,817 $2,497 $2,098 $1,345
========= ========= ========= ========= =========
Primary Earnings Per Share $0.54 $0.65 $0.90 $0.77 $0.70
========= ========= ========= ========= =========
FULLY DILUTIVE EARNINGS PER SHARE:
Dilutive common stock equivalents 2,600,702 2,585,607 2,586,698 2,512,407 1,723,732
Dilutive common equivalent shares 201,667 201,667 201,667 201,667 201,667
--------- --------- --------- --------- ---------
Total Common Stock 2,802,369 2,787,274 2,788,365 2,714,074 1,924,399
========= ========= ========= ========= =========
Net Income $1,516 $1,817 $2,497 $2,098 $1,345
========= ========= ========= ========= =========
Fully Dilutive Earnings Per Share $0.54 $0.65 $0.90 $0.77 $0.70
========= ========= ========= ========= =========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State of Name Under Which
Name Incorporation Subsidiary Does Business
- ---- ------------- ------------------------
<S> <C> <C>
Cowlitz Bank Washington Cowlitz Bank
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Portland, Oregon
January 15, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS OF COWLITZ BANCORPORATION AND SUBSIDIARY AS OF DECEMBER 31, 1996
AND 1995 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME, CHANGES IN
SHAREHOLDERS' EQUITY AND CASH FLOWS FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> $20,905
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,011
<INVESTMENTS-CARRYING> 3,380
<INVESTMENTS-MARKET> 3,388
<LOANS> 126,551
<ALLOWANCE> 1,894
<TOTAL-ASSETS> 159,157
<DEPOSITS> 123,297
<SHORT-TERM> 550
<LIABILITIES-OTHER> 655
<LONG-TERM> 22,842
0
0
<COMMON> 3,195
<OTHER-SE> 8,618
<TOTAL-LIABILITIES-AND-EQUITY> 159,157
<INTEREST-LOAN> 12,721
<INTEREST-INVEST> 388
<INTEREST-OTHER> 524
<INTEREST-TOTAL> 13,633
<INTEREST-DEPOSIT> 4,991
<INTEREST-EXPENSE> 6,174
<INTEREST-INCOME-NET> 7,459
<LOAN-LOSSES> 281
<SECURITIES-GAINS> (309)
<EXPENSE-OTHER> 3,682
<INCOME-PRETAX> 3,792
<INCOME-PRE-EXTRAORDINARY> 3,792
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,497
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.90
<YIELD-ACTUAL> 10.16
<LOANS-NON> 407
<LOANS-PAST> 169
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,763
<CHARGE-OFFS> 158
<RECOVERIES> 8
<ALLOWANCE-CLOSE> 1,894
<ALLOWANCE-DOMESTIC> 1,894
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
