Document:

Exhibit 10.1

 

EXECUTION COPY

 

CONSULTING
AGREEMENT

 

This CONSULTING AGREEMENT (this “Agreement”) is made and entered into as of May 9, 2005
by and between Noble Energy, Inc., a Delaware corporation (the “Company”), and Thomas J. Edelman (the “Consultant”).

 

WITNESSETH:

 

WHEREAS, the Company
and its subsidiaries and affiliates are principally engaged in the business of
development, acquisition and exploration of oil and gas properties (the “Business”);

 

WHEREAS, the Company
and its wholly-owned subsidiary, Noble Energy Production, Inc. (“Merger Sub”), entered into an Agreement and Plan of Merger
on December 15, 2004, as amended (the “Merger Agreement”), with Patina Oil &
Gas Corporation (“Patina”)
pursuant to which Patina will merge (the “Merger”) with
and into Merger Sub at the Effective Time of the Merger (as defined in the
Merger Agreement);

 

WHEREAS, in
connection with the Merger, the Consultant’s current employment as Chairman,
Chief Executive Officer and President of Patina will terminate pursuant to Section 1.5
of the Merger Agreement and Section 6.1(a)(iii) of the Consultant’s
Amended and Restated Employment Agreement with Patina, as amended and in effect
as of the date hereof (the “Employment Agreement”);

 

WHEREAS, on such
termination of the Consultant’s employment with Patina, the Consultant will be
entitled to receive certain payments and other benefits under the Employment
Agreement and the Company desires to provide for such payments and benefits due
to the Consultant under the Employment Agreement;

 

WHEREAS, the Company
also desires to retain the services of the Consultant as an independent
contractor of and consultant to the Company for a period following the
consummation of the Merger, and the Consultant desires to provide such services
in such capacities to the Company, upon the terms and subject to the conditions
hereinafter set forth;

 

NOW, THEREFORE, in
consideration of the foregoing and of the mutual covenants and obligations
hereinafter set forth, the parties hereto, intending to be legally bound,
hereby agree as follows:

 

1.               Term.  The term of the Company’s engagement of the
Consultant hereunder (the “Term”) shall
commence on the date of the Effective Time of the Merger and shall continue for
a period of 12 months thereafter, unless terminated sooner pursuant to Section 5
hereof.

 

2.               Duties and Extent of Services.

 

(a)          Generally.  During the Term, the Consultant shall provide
advice on specific matters as requested by the Company, with a principal focus
on integration of the Patina operations into the operations of the Company and,
in addition, as may be requested by the Chief

 

 

Executive Officer of the Company, provide
advice on corporate strategy, management structure, capital allocation, risk
management, financing, hedging and shareholder communications, and shall
otherwise render such management and consulting services to the Company as the
Company may, from time to time, reasonably require.  In no event shall the Consultant be required
to speak for or represent the Company in any public forum, nor shall he assume
or be delegated the authority to make any decision or to sign any document or
instrument on behalf of the Company.  The
Consultant shall report to the Board of Directors of the Company (the “Board”).  During the initial 30-50% of
the Term, the Consultant will make available a material portion of his business
time and attention to the Company, as reasonably requested by the Chief
Executive Officer of the Company. 
Following such initial portion of the Term, the Consultant’s active involvement
(other than as a member of the Board of the Company) is expected to decline
steadily but the Consultant will remain available to address matters raised by
the Chief Executive Officer of the Company.

 

(b)         Recusal for Certain
Conflicts of Interest.  If the
Consultant becomes aware of any actual or potential conflict between his
obligations to any other company of which he is a director or an officer and
his duties to the Company under this Agreement (a “Conflict”),
the Consultant will promptly inform the Board of such Conflict.  The Consultant will recuse himself from any
discussion with the Company of matters involving a Conflict of which he is
aware, or any matter with respect to which the Company or any other company of
which he is a director or an officer are in competition to the extent he is
aware that his involvement would be in violation of, or create a substantial
risk of a violation of, applicable law. 
The Consultant will not seek and will not knowingly accept any Protected
Information (defined below), the possession of which would require recusal as
described above.

 

(c)          Location.  The Consultant may reasonably determine the
time and place where his services will be performed.

 

3.               Consulting Fees.  For his services hereunder, during the Term
described in Section 1, the Company shall pay the Consultant a monthly
consulting fee of Fifty Thousand Dollars ($50,000), payable on or about the
last day of each calendar month within the Term.  Such amount will be prorated for any partial
calendar months within the Term.

 

4.               Expense Reimbursement.  The Company agrees to reimburse the
Consultant for all reasonable and necessary travel and other business expenses
incurred by him in connection with the performance of his duties hereunder,
subject to such substantiation requirements and reimbursement policies as the
Company imposes on its most senior officers and directors.

 

5.               Termination.

 

(a)          Death or Permanent
Disability.  In the event that the
Term is terminated by reason of the Consultant’s death or “Disability” (defined
below), the Consultant (or in the event of his death, his beneficiary or legal
representative) shall be entitled to (i) all amounts that would have
accrued hereunder through the end of the calendar month in which the
termination occurs and (ii) reimbursement for any expenses incurred prior
to termination

 

2

 

that have not yet been reimbursed, but that
are reimbursable under Section 4 above. 
For purposes of this Section 5, “Disability”
means any physical or mental disability or incapacity that renders the
Consultant incapable of performing the services required of him in accordance
with his obligations under Section 2 for a period of six (6) consecutive
months or for shorter periods aggregating six (6) months during any
twelve-month period.  Any termination of
the Term by the Company by reason of Disability shall be communicated by
written notice of termination specifying the reason for termination (“Disability Termination Notice”) and shall be effective on
the date of the Consultant’s receipt of the Disability Termination Notice or
such later date as may be specified in the Disability Termination Notice.  In the event of the Consultant’s death during
the Term, the Term shall automatically terminate on the date of death.

 

(b)         Cause.  The Company shall have the right, upon
written notice to the Consultant, to terminate the Term and the Consultant’s
services under this Agreement for “Cause” (as hereinafter defined), effective
upon the giving of such notice (or such later date as shall be specified in
such notice), and the Company shall have no further obligations hereunder,
except to pay the Consultant all amounts accrued hereunder through the date of
termination and to reimburse the Consultant for any expenses incurred prior to
termination that have not yet been reimbursed, but that are reimbursable under Section 4
above.

 

For purposes of this Agreement, “Cause” means:

 

(i)                                     (a) the
Consultant’s conviction of or plea of nolo contendere to, or a final
non-appealable judgment of a court with competent jurisdiction that the
Consultant has engaged in fraud or embezzlement, or (b) material breach by
the Consultant of his obligations under Section 6 hereof; or

 

(ii)                                  willful
and repeated failure or refusal by the Consultant to perform and discharge his
duties, responsibilities or obligations under this Agreement (other than under Section 6
hereof, which shall be governed by clause (i) above, and other than by
reason of Disability or death) that is not corrected within thirty (30) days
following written notice thereof to the Consultant by the Company, such notice
to state with specificity the nature of the breach, failure or refusal.

 

(c)          Change in Control.  In the event of a “Change in Control” (as
defined below), the Consultant may voluntarily terminate his services hereunder
upon written notice to the Company, in which event he shall be entitled to (i) all
amounts accrued hereunder through the date of such termination and (ii) reimbursement
for any expenses incurred prior to termination that have not yet been
reimbursed, but that are reimbursable under Section 4 above.

 

For this purpose “Change in
Control” shall mean the occurrence of any of the following events:

 

(i)                                     any
“person” (as defined under Section 3(a)(9) of
the Securities Exchange Act of 1934 (the “Act”) or “group” of persons (as provided under Section 13d-3
of the

 

3

 

Act) is or becomes the “beneficial
owner” (as defined in Rule 13d-3 or otherwise under the
Act), directly or indirectly (including as provided in Rule 13d-3(d)(1) of
the Act), of capital stock of the Company the holders of which are entitled to
vote for the election of directors (“voting stock”)
representing a percentage of the Company’s then outstanding voting stock
(giving effect to the deemed ownership of securities by such person or group,
as provided in Rule 13d-3(d)(1) of the Act, but not giving
effect to any such deemed ownership of securities by another person or group) that
is greater than fifty percent (50%) of all such voting stock;

 

(ii)                                  during
any period of twenty-four consecutive months, individuals who at the beginning
of such period constituted the Board of Directors of the Company (including for
this purpose any new director whose election or nomination for election by the
Company’s shareholders was approved by a vote of at least a majority of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board of
Directors of the Company (excluding any Board seat that is vacant or otherwise
unoccupied); or

 

(iii)                               there
shall be consummated any consolidation, merger, stock for stock exchange or
similar transaction (collectively, “Merger Transactions”)
involving securities of the Company in which holders of voting stock of the
Company immediately prior to such consummation own, as a group, immediately
after such consummation, voting stock of the Company (or, if the Company does
not survive the Merger Transaction, voting securities of the corporation
surviving such transaction) having less than 50% of the total voting power in
an election of directors of the Company (or such other surviving corporation).

 

6.               Confidentiality; Ownership; Corporate
Opportunities.

 

(a)          Confidentiality.  If the Consultant obtains any Protected
Information he shall, during the Term and for a period of twelve (12) months
following termination of this Agreement, keep such Protected Information in
strictest confidence and shall not divulge, disclose, discuss or copy in any
manner such Protected Information, except in connection with the Business.  “Protected Information”
means confidential or proprietary information of the Company and its
subsidiaries or affiliates; provided that Protected Information shall
not include information that (A) becomes generally known to the public or
the trade without violation of this Section 6, or (B) Consultant
receives on a non-confidential basis from a third party who is not under an obligation
of confidence to the Company. 
Notwithstanding anything to the contrary contained in this Section 6,
the Consultant may disclose any Protected Information to the extent required by
court order or decree or by the rules and regulations of a governmental
agency or as otherwise required by law; provided that the Consultant
shall provide the Company with prompt notice of such required disclosure in
advance thereof so that the Company may seek an appropriate protective order in
respect of such required disclosure.

 

(b)         Company Opportunities.  The Consultant shall promptly disclose to the
Company’s Chief Executive Officer or General Counsel, any and all material
corporate opportunities,

 

4

 

including without limitation, any
opportunities for investment, co-investment, joint-venture, exploration,
exploitation, or other business activities, discovered, identified or made
known to the Consultant in the direct performance of his services to the
Company (collectively, “Company Opportunities”)
and all material information known to the Consultant with respect thereto, as
well as the Consultant’s good faith assessment of whether the Company
Opportunity may be appropriate for the Company. 
The Consultant shall not present, offer or disclose any Company
Opportunity to any person or entity other than the Company and shall not,
directly or indirectly, on his own behalf or on behalf of any person or entity
other than the Company, take any action to exploit or develop such Company
Opportunity unless and until the Board has had a period of at least ten (10) business
days from the date of such disclosure to consider the Company Opportunity and
the information so provided and has elected not to pursue the Company
Opportunity.  Failure of the Board to
notify the Consultant within such ten (10) business day period of its
election to pursue the Company Opportunity shall be deemed an election by the
Company not to pursue the Company Opportunity. 
Notwithstanding the foregoing, the Company and the Consultant agree and
acknowledge that by virtue of the Consultant’s substantial experience and
contacts in the oil and gas industry, the Consultant will become aware of many
opportunities that are not connected to his service for the Company under this
Agreement and that such opportunities shall not be deemed “Company
Opportunities” and are not intended to fall within the notification
requirements of this Section 6(b).

 

(c)          Survival.  The provisions of this Section 6 shall,
without any limitation as to time, survive the expiration or termination of the
Consultant’s services hereunder to the extent necessary to enforce the specific
terms thereof, irrespective of the reason for any termination.

 

7.               Specific Performance.  The Consultant acknowledges that the services
to be rendered by the Consultant are of a special, unique and extraordinary
character and, in connection with such services, the Consultant will have
access to Protected Information vital to the Company’s Business and the
businesses of its subsidiaries and affiliates and may have knowledge of
developments and Company Opportunities vital to the Business or the planned
business of the Company or its subsidiaries or affiliates.  By reason of this, the Consultant consents
and agrees that if the Consultant violates any of the provisions of Section 6
hereof, the Company and its subsidiaries and affiliates would sustain
irreparable injury and that monetary damages would not provide adequate remedy
to the Company and that the Company shall be entitled to have Section 6
hereof specifically enforced by any court having equity jurisdiction.

 

8.               Separation; Payments under Employment Agreement.

 

(a)          Separation.  The Company, Merger Sub and the Consultant
hereby agree that the Consultant’s employment with Patina will be terminated by
virtue of the Merger (the “Separation”). Additionally, by signing this
Agreement, Consultant hereby tenders his resignation of all duties and
positions as officer and director of each of Patina’s subsidiaries, such resignation
to be effective at the Effective Time of the Merger.  The “Separation Date” shall mean the date of
the Effective Time of the Merger.

 

5

 

(b)         Payments on Separation.  In connection with the consummation of the
Merger and the Separation, at the Effective Time of the Merger, the Company or
Merger Sub shall make the following payments to the Consultant which are
required under the Employment Agreement:

 

(i)                         A payment
for (A) all unpaid, accrued salary earned by the Consultant in connection
with his employment with Patina through the Separation Date, (B) all
accrued, unused vacation time earned by the Consultant as an employee of Patina
through the Separation Date, and (C) a Pro–Rated Target Bonus, as defined in
the Employment Agreement, in each case net of applicable taxes and
withholdings.  With respect to the
Pro-Rated Target Bonus, the parties agree that such amount will be based on the
Consultant’s 2004 bonus paid by Patina in March 2005, pro-rated for the
number of days that will have elapsed in 2005 through the Separation Date.

 

(ii)                      A payment of
$11,520,811, in satisfaction of the cash severance amount that the Consultant
is entitled to receive under the last sentence of Section 6.1(a) of
the Employment Agreement.  Applicable
taxes and withholdings shall be deducted from such amount.

 

(iii)                   The Consultant
hereby agrees and acknowledges that the payments provided in this subsection 8(b) constitute
all cash payments due to the Consultant from Patina, the Company or Merger Sub
under the terms of Section 6.1(a) of the Employment Agreement,
including without limitation in connection with the Merger and the termination
of the Consultant’s employment with Patina, or otherwise in connection with the
termination of the Consultant’s employment.

 

9.               Benefits.

 

(a)          After the Separation
Date, the Consultant shall be eligible, upon valid and timely election, to
continue medical and dental insurance coverage for the period that is covered
under the Consolidated Omnibus Budget Reconciliation Act, as amended (“COBRA”).  For a period of 24 months following the
Separation Date, the Company shall pay or shall cause Merger Sub to pay the
Consultant’s COBRA premiums to continue his current medical and dental coverage
or shall provide at the Company’s expense substantially equivalent coverage, as
required by Section 6.1(a)(iii) of the Employment Agreement.

 

(b)         For a period of 24 months
following the Separation Date, the Company shall also continue, or shall cause
Merger Sub to continue, the Consultant’s current disability and life insurance
benefits as required by Section 6.1(a)(iii) of the Employment
Agreement.

 

(c)          After the Separation
Date, other than as specifically set forth herein and in the Employment
Agreement, the Consultant shall be ineligible to receive or participate in any
other form of benefit that the Company or Merger Sub provides to its employees;
provided, however, that nothing herein shall in any way affect or amend the
Consultant’s rights as a participant in Patina’s Profit Sharing and 401(k)
Plan, 1996 Employee Stock Option Plan, Amended and Restated Deferred
Compensation Plan for Select Employees and 2005 Deferred Compensation Plan for
Select Employees, which participant rights

 

6

 

shall be determined by the documents
governing such plans (including Section 6.1(d) of the Employment
Agreement); and further provided, that the Consultant shall, in addition, be
eligible to receive any compensation and other benefits normally paid to
non-employee directors of the Company for so long as the Consultant serves on
the Company’s Board.

 

10.         Additional
Agreements.

 

(a)          The Company agrees that
it will retain the Consultant’s current administrative assistant (or any
replacement identified by the Consultant) as an employee of the Company or
Merger Sub, at current compensation levels and the same benefits as are
provided to similarly situated employees, to serve as the Consultant’s
administrative assistant in the Consultant’s New York office for the entire
Term. Subject to receiving a release (in form and substance satisfactory to the
Company) from the Consultant’s administrative assistant of any claims for
payment under Patina’s Amended and Restated Change in Control Plan, the Company
further agrees to make a payment to the Consultant’s administrative assistant
at the Effective Time of the Merger equal to the full amount of the payment
that would have been due to her under Patina’s Amended and Restated Change in
Control Plan had her employment been terminated at the Effective Time.

 

(b)         The Company agrees to pay
$6,000 per month in lease costs, plus New York rent tax and other non-variable
monthly expenses for the Consultant’s existing New York office space through August 2007.  In addition, during the Term, the Company
will pay miscellaneous office expenses (not to exceed $2,500 per month)
incurred by the Consultant relating to the New York office.  Following the Term, the Consultant or his
designee will bear the cost of such miscellaneous office expenses.  The Consultant shall also be entitled to
retain existing parking arrangements at the Company’s expense through the
Term.  Furthermore, the Consultant’s
administrative assistant shall continue to be entitled to receive a
transportation reimbursement from the Company through the Term and shall be
entitled to keep her assigned computer at the end of the Term.

 

(c)          The Company acknowledges
that the majority of the furniture and décor items in the Consultant’s New York
office are the personal property of the Consultant.  As of the Separation Date, the Company agrees
that the Consultant will be entitled to retain all furniture, décor items and
computer equipment in the Consultant’s New York office not already owned by
him.

 

11.         Taxes.  The Consultant shall be an independent
contractor, not an agent or employee of the Company, and as an independent
contractor, shall be solely responsible for determination and payment of any
and all federal, state, local and/or other taxes which are required to be paid
with respect to any amounts paid to the Consultant under this Agreement.

 

12.         Indemnification.  The Consultant shall be entitled to
indemnification by the Company in accordance with and as provided in the
by-laws of the Company as in effect on the date of this Agreement, to the
fullest extent that such by-laws of the Company provide for indemnification by
the Company of its agents, provided that the terms and conditions of
indemnification hereunder shall not be adversely affected by the termination,
rescission,

 

7

 

amendment or modification of the by-laws, and
further provided that the provisions of this Section 12 shall not extend
to any action brought to enforce the terms of this Agreement.  The provisions of this Section 12 shall
survive the termination of this Agreement.

 

13.         Notices.  Any notice or other communication required or
permitted to be given under this Agreement shall be in writing and shall be
deemed given (i) when delivered or refused if sent by hand during regular
business hours, (ii) three (3) business days after being sent by
United States Postal Service, registered or certified mail, postage prepaid,
return receipt requested, or (iii) on the next business day when sent by
reputable overnight express mail service that provides tracing and proof of
receipt or refusal of items mailed, or (iv) when received by the addressee
if by telecopier transmission addressed to the Company or the Consultant, as
the case may be, at the address or addresses set forth below or such other
addresses as the parties may designate in a notice given in accordance with the
Section.

 

If to the Company:

 

Addressed to the Chief Executive Officer at
the following address:

 

Noble Energy, Inc.

100 Glenborough Drive, Suite 100 

Houston, Texas 77067

 

With a copy to the Secretary of the Company
at the same address.

 

If to the Consultant:

 

Thomas J. Edelman

535 Madison Avenue, 35th Floor

New York, New York 10022

 

14.         Entire
Agreement.  Except as
otherwise set forth herein, this Agreement and the Employment Agreement constitute
the entire agreement between the parties hereto with respect to their subject
matter.  Notwithstanding anything in this
Agreement to the contrary, nothing in this Agreement, including without limitation
Sections 2(b) and 6 hereof, shall be deemed (i) if at any time the
Consultant is serving as a director of the Company, to reduce or supersede any
duties or obligations of the Consultant to the Company which arise under any
applicable law by virtue of the Consultant’s position as a director of the
Company, including without limitation any fiduciary duties, or (ii) to
permit or constitute an exception to the Company’s Code of Business Conduct and
Ethics.

 

15.         Waiver.  The excuse or waiver of the performance by a
party of any obligation of the other party under this Agreement shall only be
effective if evidenced by a written statement signed by the party so excusing
or waiving.  No delay in exercising any
right or remedy shall constitute a waiver thereof, and no waiver by the Company
or the Consultant of the breach of any covenant of this Agreement shall be
construed as a waiver of any preceding or succeeding breach of the same or any
other covenant or condition of this Agreement.

 

8

 

16.         Governing
Law.  This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York.

 

17.         Legal
Fees.  The Company shall
pay the Consultant’s reasonable legal fees and related expenses incurred in any
good faith action brought by the Consultant to enforce the terms of this
Agreement, such payment to be made promptly upon receipt of customary
documentation evidencing the incurrence of such expenses in reasonable detail,
provided that the Consultant shall have agreed in writing to refund such
amounts upon a final non-appealable judgment of a court of competent
jurisdiction holding against the Consultant.

 

18.         Assignability.  The obligations of the Consultant hereunder
may not be delegated and, except with respect to the designation of
beneficiaries in connection with any amounts and benefits payable to the
Consultant hereunder, the Consultant may not, without the Company’s written
consent, assign, transfer, convey, pledge, encumber, hypothecate or otherwise
dispose of this Agreement or any interest herein.  Any such attempted delegation or disposition
shall be null and void and without effect. 
The Company and the Consultant agree that this Agreement and all of the
Company’s rights and obligations hereunder may be assigned or transferred by
the Company to and shall be assumed by and be binding upon any successor to the
Company.  The term “successor”
means, with respect to the Company or any of its subsidiaries, any corporation
or other business entity which, by merger, consolidation, purchase of the
assets or otherwise acquires all or a material part of the assets of the
Company.  This Agreement shall be binding
upon and inure to the benefit of the parties and their respective permitted
successors and assigns.

 

19.         Severability.  Each provision hereof is intended to be
severable and the invalidity or illegality of any portion of this Agreement
shall not affect the validity or legality of the remainder.

 

20.         Amendment.  This Agreement may be amended only by a
written instrument executed by the Company and the Consultant.

 

21.         Headings.  All headings herein are inserted for
convenience and ease of reference purposes only and are not to be considered in
the construction or interpretation of this Agreement.

 

22.         Counterparts.  This Agreement may be executed in two (2) or
more counterparts, each of which shall for all purposes constitute one (1) agreement
which is binding on all of the parties hereto.

 

23.         Effectiveness.  This Agreement shall be effective as of the
Effective Time of the Merger, provided, however, that in the event the Merger
is not consummated and the Merger Agreement is terminated in accordance with
its terms, this Agreement shall be null and void ab initio and of no further
force or effect.

 

9

 

IN WITNESS WHEREOF,
the parties hereto have duly executed this Agreement as of the date first
written above.

 

NOBLE ENERGY, INC.

 

	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  
	
   

  
	
   

  
	
   

  	
   

  
	
  Thomas J. Edelman

  
				

 

10Exhibit 10.1

 

 

 

CREDIT AGREEMENT

 

dated
as of

 

May 18, 2005

 

among

 

STERLING FINANCIAL
CORPORATION

 

as
Borrower,

 

and

 

BANK OF SCOTLAND,

 

as
Lender, Administrative Agent and Collateral Agent

 

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I

  	
   

  
	
   

  	
   

  	
   

  
	
  Definitions

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 1.01

  	
  Definitions

  	
   

  
	
  (a)

  	
  Terms Generally

  	
   

  
	
  (b)

  	
  Accounting Terms

  	
   

  
	
  (c)

  	
  Other Terms

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
   

  
	
   

  	
   

  	
   

  
	
  Commitments

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.01

  	
  Loan and
  Borrowing Procedure

  	
   

  
	
  Section
  2.02

  	
  Termination
  and Reduction of Commitments

  	
   

  
	
  Section 2.03

  	
  Repayment

  	
   

  
	
  Section 2.04

  	
  Prepayment

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
   

  
	
   

  	
   

  	
   

  
	
  Interest and Fees

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 3.01

  	
  Interest on Loan

  	
   

  
	
  Section 3.02

  	
  Reserves

  	
   

  
	
  Section 3.03

  	
  Day Counts

  	
   

  
	
  Section 3.04

  	
  Maximum Interest
  Rate

  	
   

  
	
  Section 3.05

  	
  Fees

  	
   

  
	
  (a)

  	
  The Commitment Fee

  	
   

  
	
  (b)

  	
  The Facility Fee

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
   

  
	
   

  	
   

  	
   

  
	
  Disbursement and Payment

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.01

  	
  Method and
  Time of Payments

  	
   

  
	
  Section 4.02

  	
  Compensation for
  Losses

  	
   

  
	
  Section
  4.03

  	
  Withholding
  and Additional Costs

  	
   

  
	
  (a)

  	
  Withholding

  	
   

  
	
  (b)

  	
  Additional Costs

  	
   

  
	
  (c)

  	
  Lending Office
  Designations

  	
   

  
	
  (d)

  	
  Certificate, Etc.

  	
   

  
	
  Section 4.04

  	
  Expenses; Indemnity

  	
   

  
	
  Section 4.05

  	
  Survival

  	
   

  

 

i

 

	
  ARTICLE V

  	
   

  
	
   

  	
   

  	
   

  
	
  Representations and Warranties

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  5.01

  	
  Representations
  and Warranties

  	
   

  
	
  (a)

  	
  Corporate
  Organization and Power

  	
   

  
	
  (b)

  	
  Subsidiaries

  	
   

  
	
  (c)

  	
  Corporate Authority

  	
   

  
	
  (d)

  	
  Authorizations

  	
   

  
	
  (e)

  	
  Binding Obligation

  	
   

  
	
  (f)

  	
  Litigation; Labor
  Controversies

  	
   

  
	
  (g)

  	
  Financial Condition

  	
   

  
	
  (h)

  	
  Taxes

  	
   

  
	
  (i)

  	
  Margin
  Regulations; Margin Stock

  	
   

  
	
  (j)

  	
  Compliance with ERISA

  	
   

  
	
  (k)

  	
  Not an Investment
  Company

  	
   

  
	
  (l)

  	
  Properties

  	
   

  
	
  (m)

  	
  Compliance
  with Laws and Charter Documents

  	
   

  
	
  (n)

  	
  Environmental Protection

  	
   

  
	
  (o)

  	
  Insurance

  	
   

  
	
  (p)

  	
  No
  Burdensome Restrictions; Adverse Contracts

  	
   

  
	
  (q)

  	
  Senior Debt and
  Security Documents

  	
   

  
	
  (r)

  	
  Solvency

  	
   

  
	
  (s)

  	
  Banking Regulatory
  Matters

  	
   

  
	
  (t)

  	
  Anti-Money
  Laundering and Customer Identification Programs

  	
   

  
	
  (u)

  	
  Full Disclosure

  	
   

  
	
  Section 5.02

  	
  Survival

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
   

  
	
   

  	
   

  	
   

  
	
  Conditions Precedent

  	
   

  
	
   

  	
   

  	
   

  
	
  Section
  6.01

  	
  Conditions
  to the Availability of the Commitments

  	
   

  
	
  (a)

  	
  Credit Documents

  	
   

  
	
  (b)

  	
  Security Documents

  	
   

  
	
  (c)

  	
  Evidence of Corporate
  Action

  	
   

  
	
  (d)

  	
  Opinions of Counsel

  	
   

  
	
  (e)

  	
  Representations and
  Warranties

  	
   

  
	
  (f)

  	
  Customer
  Identification Program

  	
   

  
	
  (g)

  	
  Existing
  Credit Agreement and Security Documents

  	
   

  
	
  (h)

  	
  Capital Requirements

  	
   

  
	
  (i)

  	
  Fees

  	
   

  
	
  Section 6.02

  	
  Conditions to All
  Loans

  	
   

  
	
  (a)

  	
  Borrowing Request

  	
   

  
	
  (b)

  	
  No Default

  	
   

  
	
  (c)

  	
  Representations and
  Warranties

  	
   

  
	
  Section
  6.03

  	
  Satisfaction
  of Conditions Precedent

  	
   

  

 

 

	
  ARTICLE VII

  	
   

  
	
   

  	
   

  
	
  Covenants

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.01

  	
  Section
  Affirmative Covenants

  	
   

  
	
  (a)

  	
  Financial
  Statements; Compliance Certificates; Regulatory Reports

  	
   

  
	
  (b)

  	
  Corporate Existence

  	
   

  
	
  (c)

  	
  Conduct of Business

  	
   

  
	
  (d)

  	
  Authorizations

  	
   

  
	
  (e)

  	
  Taxes

  	
   

  
	
  (f)

  	
  Insurance

  	
   

  
	
  (g)

  	
  Inspection

  	
   

  
	
  (h)

  	
  Maintenance of Records

  	
   

  
	
  (i)

  	
  Maintenance of Property

  	
   

  
	
  (j)

  	
  ERISA

  	
   

  
	
  (k)

  	
  Notice
  of Defaults and Adverse Developments

  	
   

  
	
  (l)

  	
  Notice of Rating Changes

  	
   

  
	
  (m)

  	
  Use of Proceeds

  	
   

  
	
  (n)

  	
  Compliance
  with Laws and Environmental Matters

  	
   

  
	
  (o)

  	
  Dividends by Bank
  Subsidiary

  	
   

  
	
  (p)

  	
  Further Assurances

  	
   

  
	
  (q)

  	
  Regulatory Matters

  	
   

  
	
  (r)

  	
  Anti-Money
  Laundering and Customer Identification Programs

  	
   

  
	
  (s)

  	
  Additional Subsidiary

  	
   

  
	
  Section 7.02

  	
  Negative Covenants

  	
   

  
	
  (a)

  	
  Mergers,
  Consolidations and Sales of Assets

  	
   

  
	
  (b)

  	
  Liens

  	
   

  
	
  (c)

  	
  Indebtedness

  	
   

  
	
  (d)

  	
  Investments,
  Acquisitions, Loans, Advances and Guaranties

  	
   

  
	
  (e)

  	
  Dividends
  and Purchase of Stock and Other Restricted Payments

  	
   

  
	
  (f)

  	
  Issuance of Capital Stock

  	
   

  
	
  (g)

  	
  No
  Payments in Respect of Any Indebtedness

  	
   

  
	
  (h)

  	
  Business
  and Activities of Borrower and Subsidiaries

  	
   

  
	
  (i)

  	
  Restricted Agreements

  	
   

  
	
  (j)

  	
  Transfers

  	
   

  
	
  Section 7.03

  	
  Financial Covenants

  	
   

  
	
  (a)

  	
  Return on Average Assets

  	
   

  
	
  (b)

  	
  Non
  Performing Assets / Total Loan Assets + OREO

  	
   

  
	
  (c)

  	
  ALLL/NPL Ratio

  	
   

  
	
  (d)

  	
  Regulatory Capital
  Requirements

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
   

  
	
   

  	
   

  
	
  Events
  of Default

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 8.01

  	
  Events of Default

  	
   

  

 

 

	
  ARTICLE IX

  	
   

  
	
   

  	
   

  	
   

  
	
  The Administrative Agent and Collateral
  Agent

  	
   

  
	
   

  	
  The
  Agency

  	
   

  
	
  Section 9.01

  	
  The Agency

  	
   

  
	
  Section 9.02

  	
  The Agent’s Duties

  	
   

  
	
  Section 9.03

  	
  Limitation of
  Liabilities

  	
   

  
	
  Section
  9.04

  	
  The
  Administrative Agent and the Collateral Agent as the Lender

  	
   

  
	
  Section 9.05

  	
  Lender Credit
  Decision

  	
   

  
	
  Section 9.06

  	
  Indemnification

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE X

  	
   

  
	
   

  	
   

  	
   

  
	
  Evidence of Loans; Transfers

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 10.01

  	
  Evidence of Loans

  	
   

  
	
  Section 10.02

  	
  Participations

  	
   

  
	
  Section 10.03

  	
  Assignments

  	
   

  
	
  Section 10.04

  	
  Certain Pledges

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI

  	
   

  
	
   

  	
   

  	
   

  
	
  Miscellaneous

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 11.01

  	
  Applicable Law

  	
   

  
	
  Section 11.02

  	
  Waiver of Jury

  	
   

  
	
  Section
  11.03

  	
  Jurisdiction
  and Venue; Service of Process

  	
   

  
	
  Section 11.04

  	
  Set-off

  	
   

  
	
  Section 11.05

  	
  Amendments and
  Waivers

  	
   

  
	
  Section
  11.06

  	
  Cumulative
  Rights; No Waiver

  	
   

  
	
  Section 11.07

  	
  Notices

  	
   

  
	
  Section 11.08

  	
  Certain
  Acknowledgments

  	
   

  
	
  Section 11.09

  	
  Separability

  	
   

  
	
  Section 11.10

  	
  Parties in Interest

  	
   

  
	
  Section 11.11

  	
  Execution in
  Counterparts

  	
   

  
	
  Section 11.12

  	
  Confidentiality

  	
   

  

 

 

	
  SCHEDULES

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
  Schedule I

  	
  –

  	
  Applicable Lending Office

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
  Schedule 5.01(b)

  	
  –

  	
  Subsidiaries of the Borrower

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
  Schedule 5.01(f)

  	
  –

  	
  Litigation; Labor Controversies

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
  Schedule 5.01(g)(i)

  	
  –

  	
  Financial Statements

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
  Schedule 5.01(g)(ii)

  	
  –

  	
  Financial Condition

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
  Schedule 5.01(n)

  	
  –

  	
  Environmental Protection

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
  Schedule 7.02(b)

  	
  –

  	
  Liens

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
  Schedule 7.02(c)

  	
  –

  	
  Indebtedness

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
  EXHIBITS

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
  Exhibit A

  	
  –

  	
  Form of Borrowing Request

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit B

  	
  –

  	
  Form of Note

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit C-1

  	
  –

  	
  Form of Opinion of Counsel for the Borrower

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit C-2

  	
  –

  	
  Form of Opinion of Counsel for the Administrative
  Agent

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit D

  	
  –

  	
  Form of Compliance Certificate

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit E

  	
  –

  	
  Form of Customer Identification Program
  Documentation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit F

  	
  –

  	
  Form of Assignment and Acceptance

  	
   

  
							

 

 

CREDIT
AGREEMENT, dated as of May 18, 2005 (the “Agreement”) among STERLING FINANCIAL CORPORATION, a Washington
corporation (the “Borrower”), BANK OF SCOTLAND, as
the lender (the “Lender”) and BANK OF SCOTLAND, as
administrative agent for the Lender (the Bank of Scotland acting in such
capacity or any successor administrative agent appointed pursuant to the terms
of this Agreement, the “Administrative Agent”),
and as Collateral Agent (as hereinafter defined).

 

W I T N E S S E T H:

 

WHEREAS, the Borrower
has requested the Lender to commit to lend to the Borrower up to $40,000,000 on
a term basis for general corporate purposes and for refinancing certain of the
Borrower’s existing debt; and

 

WHEREAS, the Lender
is willing to make such a Loan as secured Senior Debt (as defined herein) on
the terms and conditions provided herein;

 

NOW,
THEREFORE, the parties agree as follows:

 

ARTICLE I

 

Definitions

Section 1.01           Definitions.

 

(a)           Terms
Generally.  The
definitions ascribed to terms in this Agreement apply equally to both the
singular and plural forms of such terms. 
Whenever the context may require, any pronoun shall be deemed to include
the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including”
shall be deemed followed by the phrase “without limitation”.  The phrase “individually or in the aggregate”
shall be deemed general in scope and not to refer to any specific Section or
clause of this Agreement.  All references
herein to Articles, Sections, Exhibits and Schedules shall be deemed references
to Articles and Sections of, and Exhibits and Schedules to, this Agreement
unless the context shall otherwise require. 
The table of contents, headings and captions herein shall not be given
effect in interpreting or construing the provisions of this Agreement.  All references herein to “dollars” or “$”
shall be deemed references to the lawful money of the United States of
America.  All references to laws or
regulations refer to such laws or regulations, and interpretations thereof, as
now in effect or as amended, modified or superceded from time to time.  All references to a specific Governmental
Authority shall be deemed to include a reference to any successor to such
authority.

 

(b)           Accounting
Terms.  Except as
otherwise expressly provided herein, the term “consolidated” and all other
terms of an accounting nature shall be interpreted and construed in accordance
with GAAP, as in effect from time to time; provided, however, that, for purposes of determining compliance with
any covenant set forth in Article VII, such terms shall be construed in
accordance with GAAP as in effect on the date of this Agreement, applied on a
basis consistent with the construction thereof applied in preparing the
Borrower’s audited financial statements referred to in Section 5.01(h).  If there shall occur a change in GAAP which
but for the foregoing proviso would affect the computation used to determine
compliance with any covenant set forth in Article VII, the Borrower and the
Lender agree to negotiate in good faith in an effort to agree upon an amendment
to this Agreement that will permit compliance with such covenant to be
determined by reference to GAAP as changed while affording the Lender the
protection originally intended by such covenant (it being understood, however,
that such covenant shall

 

 

remain
in effect in accordance with its existing terms unless and until such amendment
shall become effective).

 

(c)           Other
Terms.  The
following terms are used herein with the meanings assigned below:

 

“Administrative Agent” shall have the meaning assigned to it
in the preamble.

 

“Administrative Questionnaire” means an administrative
details reply form delivered by the Lender to the Administrative Agent, in
substantially the form provided by the Administrative Agent or the form
attached to an Assignment and Acceptance.

 

“Affiliate” means, with respect to any Person, any other
Person that controls, is controlled by, or is under common control with, such
Person.

 

“Agreement” means this Credit Agreement, as it may be
amended, modified or supplemented from time to time in accordance with Section
11.05.

 

“ALLL” means, for any Banking Business Subsidiary, the
allowance for loan and lease losses, as reported by the Borrower in its most
recent filings with the SEC containing financials prepared in accordance with
GAAP.

 

“ALLL/NPL Ratio” means, for any Banking
Business Subsidiary, the ratio obtained by dividing (i) the sum of (a) the ALLL
of such Banking Business Subsidiary minus (b) specific loan loss reserves, by
(ii) the sum of (w) accruing loans past due 90 days plus (x) restructured loans
plus (y) nonaccrual loans minus (z) specific loan loss reserves.

 

“Applicable Lending Office” means the applicable office of
the Lender for making the Loan or any portion thereof under the Facility, as
specified in Schedule I, or in an
Administrative Questionnaire delivered to the Administrative Agent as the
office from which the Lender loans under the Facility.

 

“Applicable Margin” means the applicable margin of 1.50% per
annum; provided, however,
that in the event the Borrower obtains an investment grade rating from S&P
or Moody’s, then the Applicable Margin shall be reduced to 1.25% per annum for
so long as the Borrower maintains such rating; provided,
further, that (i) upon the occurrence
and during the occurrence of any Default, the Applicable Margin shall be 3.00%,
and (ii) upon the occurrence and during the continuance of any Event of Default
referred to in Section 8.01(a), Section 8.01(b) or any other Event of Default
involving a payment default, the Applicable Margin shall be 3.00%.

 

“Assignee” has the meaning assigned in Section 10.03.

 

“Assignment and Acceptance” has the meaning assigned in
Section 10.03.

 

“Available Commitment” means, on any day, an amount equal to
(i) the Total Commitment, minus (ii) any principal
amount of the Loan previously borrowed under the Facility, whether or not such
amount has been repaid.

 

2

 

“Average Available Commitment” means, for a given period, an
amount equal to the sum of the Available Commitment for each day of the period,
divided by the number of days in the period.

 

“Bank Holding Company” means a bank holding company, as
defined by the Bank Holding Company Act of 1956 (12 U.S.C. § 1841 et seq.), as amended, including, without limitation, its
provisions for determining what constitutes control.

 

“Bank Subsidiary” means Sterling Savings Bank.

 

“Banking Business Subsidiary” means any Subsidiary that is a
commercial bank, banking corporation, savings and loan association, savings
bank or trust company, including Bank Subsidiary.

 

“Banking Regulator” means the Federal Reserve Board, the OTS,
the Comptroller of the Currency, the Federal Deposit
Insurance Corporation, and all other relevant bank regulatory authorities,
including relevant state bank regulatory authorities.

 

“Banking Regulatory Reports” means Consolidated Reports of
Condition and Income, or such successor reports, prepared in accordance with
rules prescribed by the Federal Financial Institutions Examination Council (or
any successor thereto), and any similar reports or regulatory filings.

 

“Borrower” shall have the meaning assigned in the preamble.

 

“Borrowing” means the advancing of a Tranche to the Borrower
by the Lender under the Facility pursuant to this Agreement.

 

“Borrowing Date” means, with respect to any Borrowing, the
Business Day set forth in the relevant Borrowing Request as the date upon which
the Borrower desires for the Lender to advance the Tranche requested pursuant
to the Borrowing Request.

 

“Borrowing Request” means a request by the Borrower for a
Borrowing, which shall specify (i) the requested Borrowing Date, (ii) the
aggregate amount of the requested Tranche, and (iii) if applicable, the initial
Interest Period therefor.

 

“Business Day” means any day that is (i) not a Saturday,
Sunday or other day on which commercial banks in The City of New York are
authorized or required by law to close and (ii) a day on which commercial banks
are open for domestic and international business (including dealings in dollar deposits)
in London and The City of New York.

 

“Capital Expenditures” means, for any period, the aggregate
of all expenditures (whether paid in cash or accrued as liabilities, and
including that portion of Capital Lease Obligations that is capitalized on the
balance sheet of the Borrower) by the Borrower during such period that are
included in the property, plant or equipment reflected in the unconsolidated
balance sheet of the Borrower.

 

“Capital Lease Obligations” means, with respect to any
Person, the obligation of such Person to pay rent or other amounts under any
lease with respect to any property (whether real, personal or mixed) acquired
or leased by such Person that is required to be accounted for as a liability on
a consolidated balance sheet of such Person (or, for the

 

3

 

purposes of the definition of
Capital Expenditures, the unconsolidated balance sheet of the Borrower).

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Collateral Pledge Agreement” means the Collateral Pledge
Agreement, dated as of the date hereof, among the Borrower, Bank of Scotland as
Collateral Agent, and such other Persons as may become parties to the
Collateral Pledge Agreement in accordance with that agreement and this
Agreement.

 

“Collateral Agent” means Bank of Scotland, or its successor,
acting in its capacity as collateral agent for the Lender under the Collateral
Pledge Agreement.

 

“Commitment Fee” has the meaning assigned in Section 3.05(a).

 

“Commitment Termination Date” means the earlier to occur of
(i) one year after the Effective Date and (ii) the date, if any, on which the
commitment of the Lender to advance amounts of the Loan under the Facility is
otherwise terminated pursuant to this Agreement.

 

“Cost of Funds” means the rate per annum determined by the
Lender to be the rate at which U.S. dollar deposits are offered to the Lender
by leading banks in the interbank or other deposit market which the Lender has
determined is appropriate for alternative funding of the Loan.  The Lender’s determination of the Cost of
Funds shall be binding on the Borrower in the absence of manifest error.

 

“Credit Documents” means this Agreement, any Note, if and
when issued in accordance with Section 10.01(d), and the Collateral Pledge
Agreement.

 

“Default” means any event or circumstance which, with the
giving of notice or the passage of time, or both, would be an Event of Default.

 

“Effective Date” shall mean the day during which the
Effective Time occurs.

 

“Effective Time” has the meaning assigned in Section 6.01.

 

“Environmental Claim” means any claim, assertion, demand,
notice of violation, suit, administrative or judicial proceeding, regulatory
action, investigation, information request or order involving any Hazardous
Substance, Environmental Law, noise or odor pollution or any injury or threat
of injury to human health, property or the environment.

 

“Environmental Law” means any federal, state, local or
foreign law, regulation, order, decree, opinion or agency requirement relating
to (i) the handling, use, presence, disposal or release of any Hazardous
Substance or (ii) the protection, preservation or restoration of the
environment, natural resources or human health or safety.

 

“ERISA” means the Employee Retirement Income Security Act of
1974, as amended from time to time.

 

“ERISA Group” means the Borrower and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common

 

4

 

control which, together with the
Borrower, are treated as a single employer under Section 414 of the Code or are
considered to be one employer under Section 4001 of ERISA.

 

“Eurodollar Interest” means interest at a rate determined by
reference to LIBOR.

 

“Eurodollar Reserve Percentage” means, for any day, the
percentage prescribed by the Federal Reserve Board for determining the maximum
reserve requirement (including any marginal, supplemental or emergency reserve
requirements) on such day for a member bank of the Federal Reserve System in
The City of New York with deposits exceeding one billion dollars in respect of “eurocurrency
liabilities” (as defined in Regulation D of the Federal Reserve Board).

 

“Event of Default” has the meaning assigned in Section 8.01.

 

“Excluded Taxes” means all present and future taxes, levies,
imposts, duties, deductions, withholdings, fees, liabilities and similar
charges imposed on or measured by the overall net income of the Lender (or any
office, branch or subsidiary of the Lender) or any franchise taxes, taxes on
doing business or taxes measured by capital or net worth imposed on the Lender
(or any office, branch or subsidiary of the Lender), in each case imposed by
the United States of America or any political subdivision or taxing authority
thereof or therein, all present and future taxes, levies, imposts, duties,
deductions, withholdings, fees, liabilities and similar charges imposed on or
measured by the overall net income of the Lender (or any office, branch or subsidiary
of the Lender), or any franchise taxes, taxes imposed on doing business or
taxes measured by capital or net worth imposed on the Lender (or any office,
branch or subsidiary of the Lender), in each case imposed by any foreign
country or subdivision thereof in which the Lender’s principal office or Applicable
Lending Office is located, all present and future taxes, levies, imposts,
duties, deductions, withholdings, fees, liabilities and similar charges imposed
on the Lender as business and occupation tax by the state of Washington or any
political subdivision or taxing authority thereof or therein, and all present
and future taxes, levies, imposts, duties, deductions, withholdings, fees,
liabilities and similar charges imposed on the Lender as use tax by the state
of Washington or any political subdivision or taxing authority thereof or
therein.

 

“Existing Credit Agreement” means the Credit Agreement, dated
as of September 17, 2001, by and between the Borrower, as borrower, and
U.S. Bank National Association d/b/a Firstar Bank.

 

“Facility” has the meaning assigned in Section 2.01(a).

 

“Federal Reserve Board” means the Board of Governors of the
Federal Reserve System.

 

“Financial Covenants” means, collectively, the covenants of
the Borrower contained in Section 7.03.

 

“Fiscal Quarter” means a calendar quarter ending on the last
day of March, June, September or December.

 

“Fiscal Year” means any period of twelve consecutive calendar
months ending on December 31.

 

5

 

“GAAP” means generally accepted accounting principles, as set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entities as may be approved by a significant segment
of the accounting profession of the United States of America.

 

“Governmental Authority” means any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

 

“Guaranty” means, with respect to any Person, any obligation,
contingent or otherwise, of such Person guaranteeing or having the economic
effect of guaranteeing any Indebtedness of any other Person (the “primary obligor”) in any manner, whether directly or
indirectly, and including any obligation of such Person, (i) to purchase or pay
(or advance or supply funds for the purchase or payment of) such Indebtedness
or to purchase (or to advance or supply funds for the purchase of) any security
for the payment of such Indebtedness, (ii) to purchase property, securities or
services for the purpose of assuring the holder of such Indebtedness of the
payment of such Indebtedness or (iii) to maintain working capital, equity
capital or the financial condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness.  The terms “Guaranteed”,
“Guaranteeing” and “Guarantor”
shall have corresponding meanings.

 

“Hazardous Substance” means any substance, in any
concentration or mixture, that is (i) listed, classified or regulated pursuant
to any Environmental Law, (ii) a petroleum product or by-product, asbestos
containing material, polychlorinated biphenyls, radioactive material or radon
or (iii) any waste or other substance recognized as presenting an imminent and
substantial danger to the public health or welfare or to the environment upon
its discharge, escape or release into or upon land, the atmosphere or any
watercourse or body of water including groundwater, provided such substance is
not present in the environment solely as a result of natural conditions.

 

“Indebtedness” means, with respect to any Person, (i) all
obligations of such Person for borrowed money or for the deferred purchase
price of property or services (including all obligations, contingent or
otherwise, of such Person in connection with letters of credit, bankers’
acceptances, Interest Rate Protection Agreements (limited to the net
termination value thereof) or other similar instruments, including currency
swaps) other than indebtedness to trade creditors and service providers
incurred in the ordinary course of business and payable on usual and customary
terms, (ii) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, (iii) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the remedies available
to the seller or lender under such agreement are limited to repossession or
sale of such property), (iv) all Capital Lease Obligations of such Person, (v)
all obligations of the types described in clauses (i), (ii), (iii) or (iv)
above secured by (or for which the obligee has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in any property (including
accounts, contract rights and other intangibles) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness, (vi) all preferred stock issued by such Person which is
redeemable, prior to full satisfaction of the Borrower’s obligations under the
Credit Documents (including repayment in full of the Loan and all interest
accrued thereon), other than at

 

6

 

the option of such Person, valued at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends, (vii) all
Indebtedness of others Guaranteed by such Person and (viii) all Indebtedness of
any partnership of which such Person is a general partner.

 

“Indemnitee” has the applicable meaning assigned in Section
4.06(b).

 

“Information” has the meaning assigned in Section 11.12.

 

“Initial Directors” has the meaning assigned in Section
8.01(m).

 

“Interest Expense” means, for any period, the sum of all
interest charges of the Borrower and its Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including all
commitment fees, letter of credit fees and related charges.

 

“Interest Period” means, with respect to the calculation of
Eurodollar Interest, each one, three, or six-month period as selected by the
Borrower in a Borrowing Request or pursuant to Section 3.01(d) and commencing
on (and including) the Borrowing Date or at the first day after the last day of
the preceding Interest Period, as the case may be; provided,
however, that:

 

(i)            any Interest Period that otherwise
would end on a day that is not a Business Day shall, subject to clause (iii)
below, be extended to the next Business Day, unless such Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Business Day;

 

(ii)           any Interest Period that begins on
the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (iii) below, end on the last Business Day of a
calendar month; and

 

(iii)          any Interest
Period that otherwise would end after the Facility Termination Date shall end
on the Facility Termination Date.

 

If the Borrower fails to
specify the Interest Period in such a Borrowing Request, the Interest Period
shall be three months.

 

“Interest Rate Protection Agreement” means any interest rate
swap agreement, interest rate cap agreement or similar hedging arrangement used
by a Person to fix or cap a floating rate of interest on Indebtedness to a
negotiated maximum rate or amount.

 

“Investments” has the meaning assigned in Section 7.02(d).

 

“Lender” has the meaning assigned in the preamble.

 

“LIBOR” means, with respect to any Interest Period, the rate
per annum determined by the Administrative Agent to be the offered rate for
dollar deposits with a term comparable to such Interest Period that appears on
the display designated as Page 3750 on the Dow Jones Telerate Service (or such
other page as may replace such page on such service, or on another service
designated by the British Bankers’ Association, for

 

7

 

the purpose of displaying the rates at which dollar deposits are
offered by leading banks in the London interbank deposit market) at
approximately 11:00 A.M., London time, on the second Business Day preceding the
first day of such Interest Period.  If
such rate does not appear on such page, “LIBOR” shall mean the arithmetic mean
(rounded, if necessary, to the next higher 1/100 of 1%) of the respective rates
of interest communicated by Bank of Scotland as the rate at which U.S. dollar
deposits are offered to Bank of Scotland by leading banks in the London
interbank deposit market at approximately 11:00 A.M., London time, on the
second Business Day preceding the first day of such Interest Period in an
amount substantially equal to the respective LIBOR Reference Amounts for a term
equal to such Interest Period.

 

“LIBOR Reference Amount” means, with respect to any Interest
Period, the amount of the Loan which is scheduled to be outstanding during that
Interest Period without taking into account any assignment or participation and
rounded up to the nearest integral multiple of $1,000,000.

 

“Lien” means, with respect to any asset of a Person, (i) any
mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest
in or on such asset, (ii) the interest of a vendor or lessor under any
conditional sale agreement, capital lease or title retention agreement relating
to such asset, and (iii) in the case of securities, any purchase option, call
or similar right of any other Person with respect to such securities.

 

“Loan” has the meaning assigned in Section 2.01(a).

 

“Margin Regulations” means, collectively, Regulations T, U
and X of the Federal Reserve Board.

 

“Material Adverse Effect” means any material and adverse
effect on (i) the consolidated business, properties, condition, or operations
of the Borrower and the Restricted Subsidiaries, (ii) the ability of the
Borrower timely to perform any of its material obligations, or of the Lender to
exercise any remedy, under any Credit Document, (iii) the legality, validity,
binding nature or enforceability of any Credit Document, or (iv) the perfection
or priority of any Lien granted under the Collateral Pledge Agreement.

 

“Material Plan” has the meaning assigned in Section 8.01(j).

 

“Maturity Date” means the seventh anniversary of the
Effective Date.

 

“Moody’s” means Moody’s Investors Service, Inc.  or any successor to
the rating agency business thereof.

 

“Multiemployer Plan” means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.

 

“New Stock” has the meaning assigned in Section 7.02(g).

 

“Non Performing Loans” means, with respect to a Banking
Business Subsidiary, the sum of those loans 90 days or more past due and those
loans classified as “non-accrual” or “renegotiated”, as reported in the most
recent Banking Regulatory Reports of such Banking Business Subsidiary.

 

8

 

“Note” means a promissory note of the Borrower in the form of
Exhibit B attached hereto.

 

“OREO” means, with respect to a Banking Business Subsidiary, “other
real estate owned”, as reported in the most recent Banking Regulatory Reports
of such Banking Business Subsidiary.

 

“OTS” means the Office of Thrift Supervision.

 

“Participant” has the meaning assigned in Section 10.02.

 

“PBGC” means the Pension Benefit Guaranty Corporation,
or any successor thereto.

 

“Pension Plan” means an employee pension benefit plan, as
defined in Section 3(2) of ERISA (other than a Multiemployer Plan), which is
subject to the provisions of Title IV of ERISA or is subject to the minimum
funding standards under Section 412 of the Code.

 

“Permitted Investments” has the meaning assigned in Section
7.02(d).

 

“Permitted Liens” has the meaning assigned in Section
7.02(b).

 

“Person” means any individual, sole proprietorship,
partnership, joint venture, limited liability company, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, entity or government (whether federal, state, county, city,
municipal or otherwise, including any instrumentality, division, agency, body
or department thereof).

“Prescribed Forms” has the meaning assigned in Section 4.04(a)(ii).

 

“Property” means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible, whether now
owned or hereafter acquired.

 

“Responsible Officer” means the chief executive officer,
president, chief financial officer, chief accounting officer, treasurer or any
senior vice president or executive vice president of the Borrower.

 

“Restricted Subsidiary” means any Subsidiary that is not an
Unrestricted Subsidiary.

 

“Return on Average Assets Ratio” means, for any entity, the
ratio obtained by dividing the net income of such entity for the prior Fiscal
Year, as determined according to GAAP, by the average total assets of such entity,
as determined according to GAAP.

 

“S&P” means Standard & Poor’s Ratings Services, a
division of the McGraw-Hill Companies, or any successor to the rating agency
business thereof.

 

“SEC” means the Securities and Exchange Commission.

 

9

 

“Security Documents” means the Collateral Pledge Agreement,
dated as of the date hereof, as well as any financing statements filed or to be
filed in connection therewith.

 

“Senior Debt” means all Indebtedness of the Borrower that is
not by its terms subordinated to any other Indebtedness of the Borrower.

 

“Solvent” means, with respect to a Person and a specified
date of determination, that at such date:

 

(i)            the present
fair saleable value of such Person’s assets is in excess of the total amount of
such Person’s probable liabilities on its existing debts and obligations
(including contingent liabilities) as they become absolute and matured;

 

(ii)           such Person
is able to pay its debts as they become due; and

 

(iii)          such Person does not have unreasonably
small capital to carry on such Person’s business as theretofore operated and
all businesses in which such Person then is about to engage.

 

“Subsidiary” means, at any time and with respect to any
Person, any other Person the shares of stock or other ownership interests of
which having ordinary voting power to elect a majority of the board of
directors of such Person are at the time owned, or the management or policies
of which is otherwise at the time controlled, directly or indirectly through
one or more intermediaries (including other Subsidiaries) or both, by such
first Person.  Unless otherwise qualified
or the context indicates clearly to the contrary, all references to a “Subsidiary”
or “Subsidiaries” in this Agreement refer to a Subsidiary or Subsidiaries of
the Borrower.

 

“Taxes” has the meaning assigned to such term in Section
4.04(a).

 

“Total Commitment” has the meaning assigned to such term in
Section 2.01(a).

 

“Total Borrowed
Amount” means the aggregate principal amount of the Loan
actually borrowed by the Borrower under the Facility prior to the Facility
Termination Date.

 

“Total
Loan Assets” means, with respect to a Banking Business
Subsidiary, total loans reported by such Banking Subsidiary in its most recent
Banking Regulatory Reports.

 

“Tranche” means that amount of the Loan provided to the Borrower
in an individual Borrowing.

 

“Unfunded Vested Liabilities” means, with respect to any
Pension Plan at any time, the amount (if any) by which (i) the actuarially
determined present value of all “benefit liabilities”, within the meaning of
Section 4001(a)(16) of ERISA (as determined on the basis of the actuarial
assumptions contained in such Pension Plan’s most recent actuarial valuation or
the assumptions used for purposes of Section 4010 of ERISA) exceeds (ii) the then
current value of all Pension Plan assets allocable to such liabilities.

 

10

 

“Unrestricted Subsidiary” means (a) any existing Subsidiary
of the Borrower that is designated as an Unrestricted Subsidiary by the Board of
Directors of the Borrower and identified as such in Schedule
5.01(b) hereof, and (b) any Subsidiary of the Borrower formed after
the Effective Date that is designated as an Unrestricted Subsidiary by the
Board of Directors of the Borrower, provided that (i) Bank Subsidiary and any
other Banking Business Subsidiary of the Borrower, now or hereafter existing,
shall not be, or shall not be designated as, an Unrestricted Subsidiary, and
(ii) in the case of any Subsidiary designated as an Unrestricted Subsidiary
pursuant to paragraph (b) above, the Borrower has provided written notice to
the Administrative Agent of such designation. 
The Board of Directors of the Borrower may designate an Unrestricted
Subsidiary to be a Restricted Subsidiary, provided that
no Default shall have occurred or be continuing at the time of or after giving
effect to such designation.  Subject to
the immediately preceding sentence, designation of an Unrestricted Subsidiary
as a Restricted Subsidiary shall be effective upon receipt by the
Administrative Agent of written notice of such designation from the
Borrower.  Upon such designation becoming
effective, any action taken prior to such designation by, or in relation to,
such newly designated Restricted Subsidiary (including the incurring of
Indebtedness, the making of Investments or the granting of Liens, by such newly
designated Restricted Subsidiary, or by the Borrower or any Restricted
Subsidiary in relation to such newly designated Restricted Subsidiary) that
would have been subject to the provisions of this Agreement had such newly
designated Restricted Subsidiary been a Restricted Subsidiary at the time such
action was taken, shall be deemed to have been taken on such designation
becoming effective and such provisions of this Agreement shall apply in respect
thereof from the time of such designation becoming effective.

 

ARTICLE II

 

Commitments

 

Section 2.01           Loan and Borrowing Procedure.  (a)  The Lender agrees, subject to
the terms and conditions hereof, to make available to the Borrower a term loan
facility (the “Facility”), commencing on the Effective
Date, under which the Lender will make a term loan to the Borrower (the “Loan”) in principal amount not to exceed $40,000,000 (the “Total Commitment”).  The
Loan shall be advanced in up to three Tranches beginning on the Effective Date.  Each Tranche shall be in the minimum
aggregate principal amount of $1,000,000 or integral multiples of $500,000 in
excess thereof, and in a maximum aggregate principal amount not exceeding the
Available Commitment.  No amount of the
Loan borrowed under the Facility that has been repaid may be reborrowed.

 

(b)           In order to borrow under the Facility,
the Borrower shall give a Borrowing Request to the Administrative Agent, by
telephone, telex, telecopy or in writing, not later than 12:00 P.M. (noon) (if
by telephone, to be so confirmed in substantially the form of Exhibit A not later than 2:00 P.M.), New York time, on the
third Business Day before the Borrowing Date for such Borrowing.  With respect to any Borrowing Date, the
Borrower may only deliver a single Borrowing Request to the Administrative
Agent.  Not later than 3:00 P.M., New
York time, on the Borrowing Date, the Lender shall make available to the
Administrative Agent the aggregate amount of the requested Tranche, in funds
immediately available at the Administrative Agent’s office specified pursuant
to Section 11.07(a).  Subject to
satisfaction, or waiver by the Lender, of each of the applicable conditions precedent
contained in Article VI, on the Borrowing Date the Administrative Agent shall
make available, in like funds, to the Borrower the amounts received by the
Administrative Agent from the Lender.

 

11

 

Section 2.02           Termination and Reduction of Commitments.

 

(a)           Prior to the Commitment Termination
Date, the Borrower may terminate the Total Commitment, or reduce the amount
thereof, by (i) giving written notice to the Administrative Agent, not later
than 5:00 P.M., New York time, on the third Business Day prior to the date of
termination or reduction and (ii) paying the amount of the Commitment Fee
accrued through such date of termination or reduction.  Subject to Section 2.02(b), reductions of the
Total Commitment shall be in the amount of $1,000,000 or in integral multiples
of $500,000 in excess thereof, but shall not exceed the Available Commitment in
effect immediately before giving effect to such reduction.  Any termination, and all reductions, of the
Total Commitment shall be permanent.

 

(b)           The Borrower shall not be permitted
to effect any further Borrowings under the Facility on
or after the Commitment Termination Date, and any remaining Available
Commitment shall be terminated as of the Commitment Termination Date.

 

Section 2.03           Repayment.

 

(a)           The Loan shall be repaid, together
with all accrued and unpaid interest thereon, in accordance with this Section
2.03.

 

(b)           The Borrower shall have no obligation
to repay any Loan principal under the Facility prior to the third anniversary
of the Effective Date.  The Borrower
shall commence repayment of the Loan principal on the third anniversary of the Effective
Date in accordance to the following schedule, without regard to any voluntary
prepayment made pursuant to Section 2.04:

 

	
  Date

  	
   

  	
  Amount

  
	
  Third anniversary of the Effective Date

  	
   

  	
  One-fifteenth (1/15) of the Total Borrowed Amount

  
	
  Fourth anniversary of the Effective Date

  	
   

  	
  One-fifteenth (1/15) of the Total Borrowed Amount

  
	
  Fifth anniversary of the Effective Date

  	
   

  	
  One-fifteenth (1/15) of the Total Borrowed Amount

  
	
  Sixth anniversary of the Effective Date

  	
   

  	
  One-fifteenth (1/15) of the Total Borrowed Amount

  
	
  Maturity Date

  	
   

  	
  All Loan principal outstanding as of the Maturity Date.

  

 

Section 2.04           Prepayment.  Subject to Section 4.03, the Borrower may
prepay any amount of Loan principal owing to the Lender under the Facility by
giving notice to the Lender, by telephone, telex, telecopy or in writing not
later than 12:00 P.M.  (if by telephone, to be so confirmed not later than 2:00
P.M.), New York time, on the third Business Day preceding the proposed date of
prepayment.  Each such prepayment shall
be in an aggregate principal amount of $1,000,000 or in integral multiples of $250,000
in excess thereof (or, if the aggregate amount of outstanding principal is less
than $1,000,000, then all of such lesser amount), together with accrued
interest on the principal being prepaid to the date of prepayment.  Such prepaid amounts of principal may not be
reborrowed.

 

12

 

ARTICLE III

 

Interest
and Fees

 

Section 3.01           Interest on Loan.  (a)  Subject to Section 3.01(c), the
Loan shall bear Eurodollar Interest.

 

(b)           Each Tranche shall bear Eurodollar Interest
from the Borrowing Date for such Tranche until the date repaid.  Such interest shall be payable in arrears,
(i) with respect to Interest Periods of three months or less, on the last day
of such Interest Period, and (ii) with respect to Interest Periods from three
months to six months, on the day which is three months after the commencement
of such Interest Period and on the last day of such Interest Period, in each
case, at a rate per annum equal to the sum of (A) LIBOR and (B) the Applicable
Margin.

 

(c)           If at any time the Lender shall
determine in good faith (which determination shall be conclusive) that the
making or maintenance of all or any part of the Loan on a Eurodollar Interest rate
basis has been made impracticable or unlawful (i) because of compliance by the
Lender in good faith with any law or guideline or interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof or with any request or directive of
such body (whether or not having the effect of law), (ii) because U.S. dollar
deposits in the amount and requested maturity of such Loan or portion thereof
bearing Eurodollar Interest are not available to the Lender in the London
eurodollar interbank market, or (iii) because the Lender is otherwise unable to
determine LIBOR in accordance with this Agreement, then the Administrative
Agent, upon notice to it of such determination by the Lender, shall promptly
advise the Borrower thereof.  Upon such
date as shall be specified in such notice and until such time as the Administrative
Agent, upon notice to it by the Lender, shall notify the Borrower that the
circumstances specified by it in such notice no longer apply, (x)
notwithstanding any other provision of this Agreement, the Loan or applicable
portion thereof shall, automatically and without requirement of further notice,
commence bearing interest at a rate per annum equal to the sum of (A) Cost of
Funds and (B) the Applicable Margin, and (y) the obligation of the Lender to
lend amounts under the Facility on a Eurodollar Interest rate basis shall be
suspended until such time as the parties agree upon any alternative interest
rate basis.

 

(d)           Not later than the third Business Day
prior to the last day of any Interest Period with respect to any Tranche, the
Borrower shall have delivered to the Administrative Agent an irrevocable
written election of the subsequent Interest Period.  If Borrower does not timely deliver such
written election in accordance with this Section 3.01(d), the subsequent
Interest Period shall be three months.

 

Section 3.02           Reserves.  If, during any period, the Lender shall be
required to maintain reserves against “eurocurrency liabilities” in accordance
with Federal Reserve Board Regulation D, the Borrower shall pay additional
interest during such period on the Loan (contemporaneously with each interest
payment due thereon commencing with the first such payment due at least ten  (10) Business Days after receipt of the notice
referred to in the next sentence) at a rate per annum up to but not exceeding
the marginal rate determined by the following formula:

 

	
  LIBOR

  	
  –

  	
  LIBOR

  
	
  1 - Eurodollar Reserve
  Percentage

  

 

The Lender shall
promptly notify the Borrower upon becoming aware that the Borrower may be
required to make such a payment of additional interest to the Lender.  When requesting payment

 

13

 

pursuant
to this Section 3.02, the Lender shall provide to the Borrower a certificate,
signed by an officer of the Lender, setting forth in reasonable detail the
basis of such claim, the amount required to be paid by the Borrower to the
Lender and the computations made by the Lender to determine such amount.  Absent manifest error, such certificate shall
be binding as to the amounts of additional interest owing in respect of the
Loan.  If the Lender gives notice under
this Section 3.02, it shall promptly withdraw such notice (by written notice of
withdrawal given to the Borrower) whenever the Lender is no longer required to
maintain such reserves or the circumstances giving rise to such notice shall
otherwise cease.  The Lender represents
and warrants to the Borrower that as at the Effective Date, the Lender is not
subject to such reserve requirement.

 

Section 3.03           Day
Counts.  Except
with respect to the calculation of the Commitment Fee pursuant to Section
3.05(a), interest on all Borrowings, and all fees, shall be calculated on the
basis of a 360-day year for the actual number of days elapsed.

 

Section 3.04           Maximum Interest Rate.  (a)  Nothing in this Agreement
shall require the Borrower to pay interest at a rate exceeding the maximum rate
permitted by applicable law.  Neither
this Section 3.04 nor Section 11.01 is intended to limit the rate of interest
payable for the account of the Lender to the maximum rate permitted by the laws
of the State of New York (or any other applicable law) if a higher rate is
permitted with respect to the Lender by supervening provisions of U.S. federal
law.

 

(b)           If the amount of interest payable to the
Lender on any interest payment date in respect of the immediately preceding
interest computation period, computed pursuant to this Article III, would
exceed the maximum amount permitted by applicable law to be charged by the Lender,
the amount of interest payable for its account on such interest payment date
shall automatically be reduced to such maximum permissible amount.

 

(c)           If the amount of interest payable to
the Lender in respect of any interest computation period is reduced pursuant to
Section 3.04(b) and the amount of interest payable for its account in respect
of any subsequent interest computation period would be less than the maximum
amount permitted by law to be charged by the Lender, then the amount of
interest payable to the Lender in respect of such subsequent interest
computation period shall be automatically increased to such maximum permissible
amount; provided, that at no time shall the
aggregate amount by which interest paid to the Lender has been increased
pursuant to this Section 3.04(c) exceed the aggregate amount by which interest
paid for its account has theretofore been reduced pursuant to Section 3.04(b).

 

Section 3.05           Fees.

 

(a)           The
Commitment Fee. 
The Borrower agrees to pay a fee (the “Commitment
Fee”) to the Lender, payable in arrears, (i) quarterly on the last
day of each calendar quarter, for one (1) year, commencing with the first such
day after the first Borrowing Date, and (ii) on the one year anniversary of the
first Borrowing Date (each such date, a “Commitment Fee Payment
Date”).  The amount of the
Commitment Fee payable on each Commitment Fee Payment Date shall be equal to:

 

	
  0.25%

  	
  *

  	
  D 

  	
  *

  	
  AAC

  
	
  365

  

 

where  D
is equal to the number of days between the previous Commitment Fee Payment Date
(including such date) (or, in the case of the first Commitment Fee Payment
Date, the first

 

14

 

Borrowing
Date) and the current Commitment Fee Payment Date (such period, a “Commitment Fee Payment Period”) and AAC
is equal to the Average Available Commitment during the Commitment Fee Payment
Period.

 

(b)           The
Facility Fee.  The
Borrower agrees to pay a fee (the “Facility Fee”)
to the Lender in respect of the Loan. 
The Facility Fee for the Loan shall be equal to 0.75% times the amount
of the Loan ultimately drawn by the Borrower, and the amount of the Facility
Fee to be paid by the Borrower in respect of each Tranche shall be deemed to
have been earned by the Lender as of the applicable Borrowing Date for such
Tranche.  The Facility Fee shall be paid to
the Lender in five (5) annual installments in accordance with the following
schedule:

 

	
  Date

  	
   

  	
  Amount

  
	
  Borrowing Date for the first Tranche

  	
   

  	
  One-fifth (1/5) of the amount of the Facility Fee earned by the
  Lender and outstanding

  
	
  First anniversary of the Borrowing Date for the first Tranche

  	
   

  	
  One-fourth (1/4) of the amount of the Facility Fee earned by the
  Lender and outstanding

  
	
  Second anniversary of the Borrowing Date for the first Tranche

  	
   

  	
  One-third (1/3) of the amount of the Facility Fee earned by the
  Lender and outstanding

  
	
  Third anniversary of the Borrowing Date for the first Tranche

  	
   

  	
  One-half (1/2) of the amount of the Facility Fee earned by the Lender
  and outstanding

  
	
  Fourth anniversary of the Borrowing Date for the first Tranche

  	
   

  	
  All remaining amounts of the Facility Fee earned by the Lender and
  outstanding

  

 

Provided,
however, that (i) the amount of the
Facility Fee deemed to have been earned on the Borrowing Date for the first
Tranche shall be reduced by $75,000, which amount
represents the amount of the fee paid by the Borrower to Bank of Scotland in
connection with the Outline Terms and Conditions, dated as of January 5, 2005,
by and between the Borrower and Bank of Scotland New York Branch, and (ii) any
amount of the Facility Fee subsequently deemed to have been earned shall be
reduced by the amount of the Commitment Fee paid or payable with respect to
such amount.

 

(c)          Notwithstanding the foregoing, the
maximum aggregate amount paid by the Borrower as Commitment Fees and Facility
Fees shall not exceed $300,000.

 

ARTICLE IV

 

Disbursement
and Payment

 

Section 4.01           Method and Time of Payments. (a)  The Loan shall be made by
the Lender from the Lender’s branch or affiliate identified as its Applicable
Lending Office.

 

(b)           Whenever any payment from the
Borrower shall be due on a day that is not a Business Day, the date of payment
thereof shall be extended to the next succeeding Business Day.  If the date for any payment
of principal is extended by operation of law or otherwise, interest thereon
shall be payable for such extended time.

 

(c)           Any payment or amount that is owing
or due from the Borrower to the Lender or the Administrative Agent pursuant to
this Agreement, that is received by the Lender or the

 

15

 

Administrative Agent, as
applicable, not later than 2:00 P.M., New York time, on any date, shall be
deemed to have been received by the Lender or the Administrative Agent, as
applicable, on such date, and any payment due on such date and received not
later than 2:00 P.M., New York time, shall be deemed to have been timely received.  Any payment received after 2:00 P.M., New
York time, on any date, shall be deemed to have been received on the next
Business Day following such date.

 

Section 4.02           Compensation for Losses.  (a)  If (i) the Borrower prepays any
principal amounts owing under the Loan, (ii) the Borrower revokes any Borrowing
Request, or (iii) the Loan (or portions thereof) shall become or be declared to
be due prior to the Maturity Date, then the Borrower shall pay to Lender an
amount that will compensate the Lender for any loss (other than lost profit) or
premium or penalty incurred by the Lender as a result of such payment, prepayment
or revocation in respect of funds obtained for the purpose of making or
maintaining the Loan, or any portion thereof. 
Such compensation shall include an amount equal to the excess, if any,
of (i) the amount of interest that would have accrued on the amount so paid or
prepaid, or not borrowed, for the period from the date of such payment, prepayment
or revocation to the last day of the applicable Interest Period (or, in the
case of a failure to borrow, the Interest Period that would have commenced on
the expected Borrowing Date) in each case at the applicable rate of interest
for the Loan or portion thereof (excluding, however, the Applicable Margin)
over (ii) the amount of interest (as reasonably determined by the Lender) that
would have accrued on such amount were it on deposit for a comparable period
with leading banks in the London interbank market.

 

(b)           If requested by the Borrower, in connection
with a payment due pursuant to this Section 4.03, the Lender shall provide to
the Borrower, with a copy to the Administrative Agent, a certificate setting
forth in reasonable detail the amount required to be paid by the Borrower to the
Lender and the computations made by the Lender to determine such amount.  In the absence of manifest error, such
certificate shall be conclusive as to the amount required to be paid.

 

Section 4.03           Withholding and Additional Costs.

 

(a)           Withholding.  (i)  All payments under this
Agreement shall be payable to the Lender free and clear of any and all present
and future taxes, levies, imposts, duties, deductions, withholdings, fees,
liabilities and similar charges other than Excluded Taxes (collectively, “Taxes”).  If any Taxes
are required to be withheld or deducted from any amount payable under this
Agreement, then the amount payable under this Agreement shall be increased to
the amount which, after deduction from such increased amount of all Taxes
required to be withheld or deducted therefrom, will yield to the Lender the
amount stated to be payable under this Agreement.  The Borrower shall also hold the Lender
harmless and indemnify it for any stamp or other taxes of the United States of
America or any state or political subdivision thereof with respect to the
preparation, execution, delivery, recording, performance or enforcement of the
Credit Documents (all of which shall be included within “Taxes”).  If any of the Taxes specified in this Section
4.04(a) are paid by the Lender, the Borrower shall, upon demand of the Lender,
promptly reimburse the Lender for such payments, together with any interest,
penalties and reasonable expenses incurred in connection therewith.  The Borrower shall deliver to the
Administrative Agent certificates or other valid vouchers for all Taxes or
other charges deducted from or paid with respect to payments made by the
Borrower hereunder.  Notwithstanding the
foregoing, the Borrower shall be entitled, to the extent required to do so by
law, to deduct or withhold (and shall not be required to make payments as
otherwise required by this Section 4.04 on account of such deductions or
withholdings) income or other similar taxes imposed by the United States of
America or any state or political subdivision thereof or any taxing authority

 

16

 

thereof
from interest, fees or other amounts payable hereunder for the account of the
Lender other than if Lender (A) is a U.S. 
Person for U.S. federal income tax purposes or (B) has the Prescribed
Forms on file with the Borrower for the applicable year to the extent deduction
or withholding of such taxes is not required as a result of such filing of such
Prescribed Forms; provided that, if the Borrower
shall so deduct or withhold any such taxes, the Borrower shall provide a
statement to the Administrative Agent and the Lender, setting forth the amount
of such taxes so deducted or withheld, the applicable rate and any other
information or documentation which the Lender may reasonably request for
assisting the Lender to obtain any allowable credits or deductions for the
taxes so deducted or withheld in the jurisdiction or jurisdictions in which the
Lender is subject to tax.

 

(ii)           The
Lender shall deliver to the Borrower and the Administrative Agent two duly
completed copies of United States Internal Revenue Service Form 1001 or W-8BEN
or 4224 or W-8ECI (or any successor form or forms), certifying in either case
that the Lender is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes (“Prescribed Forms”).  The
Lender further undertakes to deliver to the Borrower and the Administrative
Agent two additional copies of such Prescribed Forms on or before the date that
such Prescribed Forms expire or become obsolete or after the occurrence of any
event requiring a change in the most recent Prescribed Forms so delivered by
it, and such amendments thereto or extensions or renewals thereof as may be
reasonably requested by the Borrower or the Administrative Agent, in each case
certifying that the Lender is entitled to receive payments under this Agreement
without deduction or withholding of any United States federal income taxes,
unless an event (including without limitation any change in treaty, law or
regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such Prescribed Forms inapplicable or
which would prevent the Lender from duly completing and delivering Prescribed
Forms and the Lender advises the Borrower and the Administrative Agent that it
is not capable of receiving payments without any deduction or withholding of
United States federal income tax.  If the
Lender fails to comply with the provisions of this Section, the Borrower and/or
the Administrative Agent, may, as required by law, deduct and withhold federal,
state and local income tax payments from payments to the Lender under this
Agreement.

 

(b)           Additional
Costs.  Subject to
Sections 4.03(c) and (d), without duplication of any amounts payable described
in Section 3.02, 4.02 or 4.03(a), if any change after the Effective Time in any
law or regulation or in the interpretation thereof by any court or
administrative or Governmental Authority charged with the administration
thereof, or the enactment of any law or regulation shall either
(1) impose, modify or deem applicable any reserve, special deposit or
similar requirement against the Facility or the Loan or (2) impose on the
Lender (or the Lender’s Applicable Lending Office) any other condition
regarding this Agreement, the Facility or the Loan, and the result of any event
referred to in clause (1) or (2) shall be to increase the cost of maintaining
the Facility or the Loan (which increase in cost shall be calculated in
accordance with the Lender’s reasonable averaging and attribution methods) by
an amount which the Lender deems to be material, then, upon demand by the
Lender, the Borrower shall pay to the Lender an amount equal to such increase
in cost.

 

(c)           Lending
Office Designations. 
Before making any demand for payment pursuant to this Section 4.03, the
Lender shall, if possible, designate a different Applicable Lending Office if
such designation will avoid the need for giving such notice and will not, in
the judgment of the Lender, be otherwise disadvantageous to the Lender.

 

17

 

(d)           Certificate,
Etc.  If
requested by the Borrower, in connection with any demand for payment pursuant
to this Section 4.03, the Lender shall provide to the Borrower, with a copy to
the Administrative Agent, a certificate setting forth in reasonable detail the
basis for such demand, the amount required to be paid by the Borrower to the
Lender, the computations made by the Lender to determine such amount and
satisfaction of the conditions set forth in the next sentence.  Anything to the contrary herein
notwithstanding, the Lender shall not have the right to demand any payment or
compensation under this Section 4.03, (i) with respect to any period more than
90 days prior to the date it has made a demand pursuant to this Section 4.03 or
(ii) to the extent that the Lender determines in good faith that the interest
rate or margin on the Loan or relevant portion thereof appropriately accounts
for any increased cost or reduced rate of return.  In the absence of manifest error, the
certificate referred to above shall be conclusive as to the amount required to
be paid.

 

Section 4.04           Expenses; Indemnity.  (a)  The Borrower will (i) pay or
reimburse the Administrative Agent for all reasonable out-of-pocket costs and
expenses incurred in connection with the preparation and execution of, and any
amendment, supplement or modification to, this Agreement, any other Credit
Documents, and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby, including, without limitation, the reasonable fees and disbursements
of Sullivan & Cromwell, counsel to the Administrative Agent and the Lender,
such costs and expenses not to exceed $50,000; (ii) pay or reimburse the Lender
and the Administrative Agent for all reasonable costs and expenses incurred in
connection with the enforcement or preservation of any rights under this
Agreement, any other Credit Documents, and any such other documents, including,
without limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent and the Lender; and (iii) pay and reimburse (A) the Lender
for any payments made by the Lender to the Administrative Agent pursuant to
Section 9.06 and (B) the Administrative Agent for any and all liabilities,
expenses or disbursements incurred by it which are the subject of indemnification
payments from the Lender to the extent that the Administrative Agent, for
whatever reason, did not receive such indemnification payments from the Lender.  The Borrower also agrees to indemnify the
Lender against any increased amounts, following the Effective Time, of any
transfer taxes, documentary taxes, assessments or charges made by any
Governmental Authority of the United States, or any state or political
subdivision thereof, by reason of the execution and delivery of any Credit
Document; provided, however, that such
indemnification shall not include indemnification for any business and
occupation taxes or use taxes imposed by the state of Washington or any
political subdivision or taxing authority thereof or therein.

 

(b)           The Borrower will indemnify the
Administrative Agent and the Lender and their respective directors, officers,
employees, agents and Affiliates (for purposes of this paragraph, each, an “Indemnitee”) against, and will hold each Indemnitee harmless
from, any and all claims, liabilities, damages, losses, costs, charges and
expenses (including reasonable fees and expenses of counsel) incurred by or
asserted against any Indemnitee arising out of, in any way connected with, or
as a result of (i) the execution or delivery of any Credit Document or any
agreement or instrument contemplated by any Credit Document, the performance by
the parties thereto of their respective obligations under any Credit Document
or the consummation of the transactions and the other transactions contemplated
by any Credit Document, (ii) the use of the proceeds of the Loan or (iii) any
claim, litigation, investigation or proceeding relating to any of the
foregoing, whether or not any Indemnitee is a party thereto; provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the
gross negligence or willful misconduct of such Indemnitee.

 

18

 

(c)           All amounts due under this Section 4.04
shall be payable in available funds not less than ten (10) Business Days
following written demand by the Lender therefore.

 

Section 4.05           Survival.  The provisions of Sections 4.03, 4.04 and 4.05,
shall remain in effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of the Loan, the reduction or termination of the Facility, the
invalidity or unenforceability of any term or provision of any Credit Document
or any investigation made by or on behalf of the Lender.

 

ARTICLE V

 

Representations
and Warranties

 

Section 5.01           Representations and Warranties.  The Borrower represents and warrants as of
the Effective Date and as of each Borrowing Date to the Lender as follows:

 

(a)           Corporate
Organization and Power. 
The Borrower is a corporation, duly incorporated and validly existing
under the laws of the jurisdiction of its incorporation, and is a corporation
registered with the Washington State Department of Financial Institutions as a
savings and loan holding company, or
if converted to a Bank Holding Company or financial holding company following
the Effective Date, duly registered as such with the Board of Governors of the
Federal Reserve System; it has all
necessary corporate power to own its Properties and to carry on its business as
now being conducted; and it is duly licensed or qualified to do business and is
in good standing (in such jurisdictions as applicable) in each jurisdiction in
which the character of the properties owned or leased by it therein or in which
the transaction of its business makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified, or in good
standing (in such jurisdictions as applicable), could not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.

 

(b)           Subsidiaries.  Schedule 5.01(b)
(as updated from time to time pursuant to Section 7.01) identifies each
Subsidiary, the jurisdiction of its incorporation or organization, the
percentage of issued and outstanding shares of each class of its capital stock
or other equity interests owned by the Borrower and the Subsidiaries and, if
such percentage is not 100% (excluding directors’ qualifying shares as required
by law), a description of each class of its authorized capital stock and the
number of shares of each class issued and outstanding.  Bank Subsidiary is duly organized and validly
existing as a Washington-state chartered savings and loan association and is
authorized by the Washington State Department of Financial Institutions to conduct
business as a savings and loan association (or, if Bank Subsidiary’s charter has
been duly converted into a bank charter, then Bank Subsidiary is duly organized
and validly existing as a state or federally chartered bank by the applicable Banking
Regulator to conduct business as a bank). 
Until such time as Bank Subsidiary converts its charter, if at all, Bank
Subsidiary is a member of the Federal Home Loan Bank of Seattle and its
deposits are insured by the Federal Deposit Insurance Corporation in the manner
and to the extent provided by law.  Each
other Subsidiary is an entity, duly organized and validly existing under the
laws of the jurisdiction of its incorporation. 
Each Subsidiary has all necessary power to own its Property and to carry
on its business as now being conducted, and is duly licensed or qualified to do
business and is in good standing (in such jurisdictions as applicable) in each
jurisdiction in which the nature of the business transacted by it or the nature
of the property owned or leased by it makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified or in good
standing (in such jurisdictions as applicable) could not reasonably be
expected, individually or in the aggregate, to have a Material Adverse
Effect.  Except as set forth on Schedule 5.01(b), all of

 

19

 

the
issued and outstanding shares of capital stock of each Subsidiary have been
duly authorized and validly issued and are fully paid and nonassessable.  All such shares owned by the Borrower are
owned beneficially free of any Lien, other than the Lien granted pursuant to
the Collateral Pledge Agreement and in the case of other Subsidiaries, other
Permitted Liens.

 

(c)           Corporate
Authority.  The
Borrower and each Subsidiary has all necessary corporate power and authority to
execute and deliver, and to incur and perform its obligations under, each of
the Credit Documents to which it is a party, all of which have been duly
authorized by all proper and necessary corporate action.  No consent or approval of stockholders is
required as a condition to the validity or performance of, or the exercise by
the Lender of any of their rights or remedies under, any Credit Document.

 

(d)           Authorizations.  All authorizations, consents, approvals,
registrations, notices, exemptions and licenses with or from any Governmental Authority
or other Person necessary for the execution, delivery and performance by the
Borrower and each Subsidiary of, and the incurrence and performance of each of
its obligations under, each of the Credit Documents to which it is a party, and
the exercise by the Lender of its remedies under each of the Credit Documents,
have been effected or obtained and are in full force and effect (except for any
notices to any Banking Regulator required for the exercise by the Lender of its
rights and remedies under the Security Documents).

 

(e)           Binding Obligation.  Each of the Credit Documents constitutes the
valid and legally binding obligation of the Borrower and any Subsidiary party
thereto, enforceable in accordance with its terms, subject as to enforcement to
bankruptcy, insolvency, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors’ rights and to general equity
principles.

 

(f)            Litigation;
Labor Controversies. 
Except as described in Schedule  5.01(f), there are no proceedings or investigations now
pending or, to the knowledge of the Borrower, threatened before any court or
arbitrator or before or by any Governmental Authority which, individually or in
the aggregate, if determined adversely to the interests of the Borrower or any
Subsidiary, could reasonably be expected to have a Material Adverse
Effect.  Except as set forth on Schedule 5.01(f), there are no labor controversies pending
or, to the best knowledge of the Borrower, threatened against the Borrower or
any Subsidiary which could reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.

 

There is no law,
regulation, rule, order or judgment, and no provision of any material agreement
or instrument binding upon the Borrower or any Subsidiary, or affecting their
properties, and no provision of the certificate of incorporation, charter or
by-laws (or similar constitutive instruments) of the Borrower or any
Subsidiary, that would prohibit, conflict with or in any way impair the execution
or delivery of, or the incurrence or performance of any obligations of the
Borrower or any Subsidiary under, any Credit Document, or result in or require
the creation or imposition of any Lien on property of the Borrower or any
Subsidiary as a consequence of the execution, delivery and performance of any
Credit Document.

 

(g)           Financial
Condition.  (i)  The
consolidated balance sheet of the Borrower as of December 31, 2004, together
with consolidated statements of income, retained earnings and cash flows for
the Fiscal Year then ended, reported upon by BDO Seidman LLP, and the
consolidated balance sheet of the Borrower as of September 30, 2004, together
with statements of income and cash flows for the 9 months then ended, each attached
hereto as Schedule 5.01(g)(i), fairly present the
consolidated financial condition and consolidated results of operations of the
Borrower as of

 

20

 

the
dates and for the periods referred to and have been prepared in accordance with
GAAP consistently applied throughout the period involved.  There are no known material liabilities
(whether direct or indirect, fixed or contingent, and of any nature whatsoever)
of the Borrower or any Subsidiary as of the date of such balance sheet that are
not reflected therein or in the notes thereto.

 

(ii)           Except
as provided in Schedule 5.01(g)(ii),
there has been no change in the business, Property, condition (financial or
otherwise) or operations of the Borrower and the Subsidiaries since the date of
the balance sheet dated December 31, 2004 provided in Schedule 5.01(g)(i)
that, taken as a whole, has or could reasonably be expected to have
a Material Adverse Effect.

 

(h)           Taxes.  The Borrower and the Subsidiaries have filed
all United States federal tax returns, and all other tax returns, required to
be filed and have paid all taxes due pursuant to such returns or pursuant to
any assessment received by the Borrower or any Subsidiary, except such taxes,
if any, as are being contested in good faith and for which adequate reserves
have been provided.  No notices of tax
liens have been filed and no claims are being asserted concerning any such
taxes, which liens or claims could reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect.  The charges, accruals and reserves on the
books of the Borrower and its Subsidiaries for any taxes or other governmental
charges are adequate.

 

(i)            Margin
Regulations; Margin Stock.  Neither the Borrower nor any Subsidiary is
engaged principally, or as one of its primary activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock.  The Borrower will not use the proceeds of any
Loan in a manner that violates any provision of the Margin Regulations.

 

(j)            Compliance with ERISA.  To the Borrower’s knowledge, no member of the
ERISA Group has (i) an accumulated funding deficiency under Section 412 of the
Code in respect of any Pension Plan, whether or not waived, (ii) failed to make
any contribution or payment to any Pension Plan, or made any amendment to any
Pension Plan, which has resulted or could result in the imposition of a Lien or
the posting of a bond or other security under Section 302(f) of ERISA or
Section 401(a)(29) of the Code, (iii) incurred any liability under Title IV of
ERISA other than a liability to the PBGC for premiums under Section 4007 of
ERISA, all of which have been paid or (iv) engaged in a transaction which
has resulted or could reasonably be expected to result in such member being
subject to a material tax or penalty imposed by Section 4975 of the Code or
Section 502.  Neither the Borrower nor
any other member of the ERISA Group has been obligated to contribute to a
Multiemployer Plan or has maintained a Pension Plan within the past 5 years.

 

(k)           Not
an Investment Company. 
Neither the Borrower nor any Subsidiary is an “investment company” or a
company “controlled” by an “investment company” within the meaning of the
Investment Company Act of 1940

 

(l)            Properties.  The Borrower and the Subsidiaries each has
good and marketable title to, or valid leasehold interests in, all of its
respective Properties and assets that are reflected on the consolidated balance
sheet of the Borrower as of the most recent date, except for such immaterial
Properties and assets as have been disposed of in the ordinary course of
business and except for minor defects in title that do not interfere with the
ability of the Borrower or any Subsidiary to conduct its business as now
conducted.  All such assets and
Properties owned by the Borrower or any Subsidiary are so owned or held free
and clear of all Liens, except Permitted Liens.

 

21

 

(m)          Compliance with Laws and Charter
Documents.  (i)  The
Borrower and each of its Subsidiaries has all necessary authorizations,
consents, approvals, registrations, franchises, licenses and permits, with or
from Governmental Authorities and other Persons, to own and operate its
Properties and conduct its business as now conducted and contemplated, except
to the extent failure to have the same could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.  Neither the Borrower nor any of its
Subsidiaries is in violation of (A) any law, statute, rule, regulation or order
of any Governmental Authority (including, to the best of its knowledge,
Environmental Laws) applicable to it or its Properties or assets or (B) its
certificate of incorporation, charter, by-laws or similar constitutive documents,
except to the extent that such violations could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.

 

(ii)             Neither
the Borrower nor any Subsidiary will be, as a result of performing any of its
obligations under the Credit Documents, in violation of (A) any law, statute,
rule, regulation or order of any Governmental Authority applicable to it or its
Properties or assets or (B) its certificate of incorporation, charter, by-laws
or similar constitutive documents.

 

(n)           Environmental
Protection.  Except
as described in Schedule 5.01(n) and except for
asbestos containing material repair, abatement or remediation as required by
Environmental Laws not in excess of $5,000,000 in the aggregate, to the
Borrower’s knowledge, based upon reasonable investigation, all real property
owned or leased by the Borrower or any Subsidiary is free of contamination from
any Hazardous Substance to the extent that would reasonably be expected to
require the Borrower or any Subsidiary to remediate pursuant to any
Environmental Laws.  Except as described
in Schedule 5.01(n), to the Borrower’s
knowledge, based upon reasonable investigation, neither the Borrower nor any
Subsidiary has caused or suffered to occur any release of any Hazardous
Substance into the environment or any other conditions that, individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect
or result in any violations of any Environmental Laws that could reasonably be
expected, individually or in the aggregate, to have a Material Adverse
Effect.  Except as described in Schedule 5.01(n), to the Borrower’s knowledge, based upon
reasonable investigation, neither the Borrower nor any Subsidiary has caused or
suffered to occur any condition on any of their property that could give rise
to the imposition of any Lien under the Environmental Laws.

 

(o)           Insurance.  All of the Properties and operations of the
Borrower and each Subsidiary of a character usually insured by companies of
established reputation engaged in the same or a similar business similarly
situated are adequately insured, by financially sound and reputable insurers,
against loss or damage of the kinds and in amounts customarily insured against
by such Persons, and the Borrower and the Subsidiaries carry, with such
insurers in customary amounts, such other insurance, including “Bankers Bonds”,
as is usually carried by companies of established reputation engaged in the
same or a similar business similarly situated.

 

(p)           No Burdensome Restrictions;
Adverse Contracts. 
To the Borrower’s knowledge, neither the Borrower nor any Subsidiary is
subject to any law, regulation, rule or order that (individually or in the
aggregate) materially adversely affects the business, operations, Property or
financial or other condition of the Borrower or the Borrower and its
Subsidiaries taken as a whole, a party to, nor is its Property subject to or
bound by, any agreement or instrument which restricts it ability to conduct its
business or, to the best of Borrower’s knowledge, could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on the
business, operations, Property or financial or other condition of the Borrower
and its Subsidiaries taken as a whole.

 

22

 

(q)           Senior Debt and Security Documents.  The Indebtedness of the Borrower hereunder
constitutes Senior Debt and the provisions of the Collateral Pledge Agreement
will be effective to create in favor of the Collateral Agent for the benefit of
the Lender, a valid, binding and enforceable security interest in the
collateral described in the Collateral Pledge Agreement, which, upon the
release of the Existing Credit Agreement, the filing of financing statements
and the taking of other actions specified in the Collateral Pledge Agreement,
will constitute a fully perfected first and prior security interest superior in
right to any Liens in the collateral described in the Collateral Pledge
Agreement, except (i) for Liens, if any, permitted to be prior hereunder or
under any Credit Document, existing or future, which any Person may have
against such collateral or interests therein, including, without limitation,
Permitted Liens, and (ii) that such enforceability is 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.

 

(r)            Solvency.  The Borrower and each Subsidiary is, and after
giving effect to the Loan and the other transactions contemplated hereby and in
the other Credit Documents and after payment of all legal, accounting and other
fees related thereto will be, Solvent.

 

(s)           Banking
Regulatory Matters. 
(i)  Each Banking Business Subsidiary is “well capitalized”
under applicable regulations relating to capital measures and capital levels
required of Persons engaged in the banking or other financial business of the
type engaged in by such Banking Business Subsidiary, (ii) neither the Borrower
nor any of the Subsidiaries is a party to any cease and desist order, written
agreement or memorandum of understanding with, or a party to any capital
commitment or a similar undertaking to, or is subject to any order, decree or
directive by, or is a recipient of any extraordinary supervisory letter by, or
since December 31, 2003, has been required to adopt any board resolution by,
any Banking Regulator, nor has the Borrower or any Restricted Subsidiary been
advised by any Banking Regulator that it is contemplating issuing or requesting
(or is considering the appropriateness of issuing or requesting) any such
order, decree, agreement, memorandum of understanding, extraordinary
supervisory letter, capital commitment or similar submission or requiring (or
is considering the appropriateness of requiring) the adoption of any such board
resolution, except for any such order, decree, agreement, memorandum of
understanding, extraordinary supervisory letter, capital commitment or similar
submission or undertaking as could not individually or in the aggregate,
reasonably be expected to have Material Adverse Effect, (iii) the Borrower and
each Banking Business Subsidiary has filed on a timely basis all reports and
other documents required to be filed by it as a result of conducting a savings and
loan association or other banking business and each such report or document was
in compliance in form and substance with the requirements thereof, except for
any failure to file or failure to comply as could not individually or in the
aggregate, reasonably be expected to have Material Adverse Effect, and (iv) the
Borrower is “adequately capitalized” as required by applicable regulations.

 

(t)            Anti-Money Laundering and
Customer Identification Programs.  Each of the Borrower, Bank Subsidiary and Banking
Business Subsidiaries has adopted and implemented an anti-money laundering
policy and a customer identification program that comply with the requirements
of applicable laws and regulations.

 

(u)           Full
Disclosure.  All information relating to the
Borrower or its Subsidiaries delivered in writing to the Administrative Agent
or the Lender in connection with the negotiation, execution and delivery of
this Agreement and the other Credit Documents is true and complete in all
material respects.  There is no material
fact of which the Borrower is aware which, individually or in the aggregate,
would reasonably be expected to influence adversely the

 

23

 

Lender’s credit
analysis relating to the Borrower and its Subsidiaries which has not been
disclosed to the Lender in writing.

 

Section 5.02           Survival.  All representations and warranties made by
the Borrower in this Agreement, and in the certificates or other instruments
prepared or delivered in connection with or pursuant to this Agreement, shall
(i) be considered to have been relied upon by the Lender, (ii) survive the
making of the Loan regardless of any investigation made by, or on behalf of,
the Lender, and (iii) continue in full force and effect as long as the
Commitments have not been terminated and, thereafter, so long as any Loan,
Commitment Fee or other amount payable under any Credit Document remains
unpaid.

 

ARTICLE VI

 

Conditions
Precedent

 

Section 6.01           Conditions to the Availability of
the Commitments. 
The obligations of the Lender hereunder are subject to, and the Facility
shall not become available until the earliest time on which each of the
following conditions precedent shall have been satisfied or waived in writing by
the Lender (the “Effective Time”):

 

(a)           Credit
Documents.  The Lender shall have received the Credit Documents, duly executed
and delivered by each of the parties thereto, each in form and substance
satisfactory to it.

 

(b)           Security
Documents.  The
Lender shall have received the Security Documents in the form attached hereto
duly executed and delivered by the parties thereto granting to the Secured
Parties security interests in the collateral described therein together with
(i) copies of Financing Statements (Form UCC-1) filed, or to be filed, under
the Uniform Commercial Code, and other financing documents as provided in the
Security Documents, (ii) evidence reasonably satisfactory to the Lender with
respect to the Collateral Agent’s first priority security interest (for the
benefit of the Lender) in the collateral described in the Collateral Pledge
Agreement, and with respect to the Lender’s first priority security interest
(for its benefit) in the collateral described in the Collateral Pledge
Agreement, other than collateral subject to Permitted Liens (which may include,
but shall not be limited to, certified copies of Request for Information (Form
UCC-11) or equivalent reports, listing all financing statements which name the
Borrower or any Subsidiary as debtor and which are on file, as of a recent date
prior to the Effective Date, in all relevant jurisdictions listed in the
Security Documents) and (iii) stock powers, duly endorsed in blank, with
respect to all shares of stock of Subsidiaries included in the collateral.  In the case of clause (iii) of the preceding
sentence, the stock certificates representing all shares of stock of
Subsidiaries included in the collateral may be delivered to the Lender in the
form they exist as of the Effective Time, provided, however, that (A) the stock certificates delivered at the
Effective Time represent all shares of stock of Subsidiaries included in the
collateral and (B) the Borrower provides the Lender with (x) an explanation of
the necessary changes to be made to the stock certificates so provided, so as
to enable the Lender to assess the completeness of the stock certificates so
provided in light of currently existing Subsidiaries and (y) a commitment to
provide the Lender with all reissued, revised or replaced stock certificates as
soon as practicable after the Effective Time, but in no case later than fourteen
(14) Business Days after the Effective Date (or such later date as the Lender
may in writing agree).

 

(c)           Evidence
of Corporate Action. 
The Lender shall have received the following:

 

24

 

(i)            a
copy of the Articles of Incorporation of the Borrower, as in effect on the
Effective Date, certified by the Secretary of State of Washington as of a date
reasonably close to the Effective Date; and

 

(ii)           a
certificate of the Secretary or an Assistant Secretary of the Borrower and of
each Subsidiary party to any Credit Document, dated the Effective Date, stating
(A) that attached thereto is a true and complete copy of the by-laws of the
Borrower (or Subsidiary, as the case may be) as in effect on such date and at
all times since the date of the resolutions described in clause (B) below, (B)
that attached thereto is a true and complete copy of resolutions duly adopted
by the Board of Directors of the Borrower (or Subsidiary, as the case may be)
authorizing the execution, delivery and performance of the various Credit
Documents, and that such resolutions have not been modified, rescinded or
amended and are in full force and effect, (C) that the Articles of Incorporation
of the Borrower (or equivalent constitutive documents of the Subsidiary, as the
case may be) have not been amended since the date of the last amendment thereto
shown on the certified Articles of Incorporation furnished pursuant to clause
(i) above or (iii) below, and (D) as to the incumbency and signature of each
officer executing this Agreement, any other Credit Document and any other
document delivered in connection herewith on behalf of the Borrower and any Subsidiary;
and

 

(iii)          a
copy of the constitutive documents of each Subsidiary party to any Credit
Document certified by the appropriate Governmental Authority, including any
relevant Secretary of State or Banking Regulator, and a certificate of good
standing or equivalent thereof from the same (to the extent applicable in the
jurisdiction of incorporation of such Subsidiary and to the extent that the
relevant Banking Regulator of such Subsidiary generally provides certificates
of good standing or the equivalent thereof), in each case as of a date
reasonably close to the Effective Date.

 

(d)           Opinions
of Counsel.  The
Lender shall have received a favorable written opinion, dated the Effective
Date and addressed to the Lender under this Agreement, of (i) Witherspoon,
Kelley, Davenport & Toole, counsel for the Borrower, in
substantially the form of Exhibit C-1,
and (ii) Sullivan & Cromwell, counsel for the Administrative Agent, in
substantially the form of Exhibit C-2.

 

(e)           Representations
and Warranties. 
The representations and warranties contained in Section 5.01 shall be
true and correct on the Effective Date, and the Lender shall have received a
certificate, signed by a Responsible Officer of the Borrower, to that effect.

 

(f)            Customer
Identification Program. 
The Borrower shall have provided the Lender such documents, in the form
of Exhibit E, and
any other such information necessary to satisfy the Lender’s customer
identification program requirements in accordance with the USA PATRIOT Act.

 

(g)           Existing Credit Agreement and
Security Documents. 
The Borrower’s Indebtedness under the Existing Credit Agreement shall
have been fully discharged on or before or at the same time as the Effective
Time and any Liens thereunder securing the obligations of the Borrower shall
have been fully released (and the Lender shall have received evidence in
writing

 

25

 

of
such discharge and release) and the Security Documents shall be in form and
substance satisfactory to the Lender.

 

(h)           Capital
Requirements.  Bank
Subsidiary shall, as of the Effective Date, be “well capitalized” under
applicable regulations relating to capital measures and capital levels required
of state or federally chartered savings institutions.

 

(i)            Fees.  The Administrative Agent shall have received
any fees or other payments (including reasonable legal fees and expenses of its
counsel, up to $50,000) which are due and payable on or prior to the Effective
Date referred to in the Outline Terms and Conditions of proposed term loan,
dated January 5, 2005, relating to this Agreement.

 

(i)            Deposit Account.  Borrower
shall maintain its primary operating account at the subsidiary Bank.

 

Section 6.02           Conditions to All Loans.  The obligation of the Lender to make the Loan
is subject to the condition precedent that, on each Borrowing Date and after
giving effect to the Borrowing Request, each of the following conditions
precedent shall have been satisfied, or waived in writing by the Lender:

 

(a)           Borrowing
Request.  The
Lender shall have received a Borrowing Request in accordance with the terms of
this Agreement.

 

(b)           No
Default.  No
Default or Event of Default shall have occurred and be continuing, nor shall
any Default or Event of Default occur as a result of the making of such Loan.

 

(c)           Representations
and Warranties. 
The representations and warranties contained in Section 5.01 shall have
been true and correct when made and (except to the extent that any
representation or warranty speaks as of a date certain) shall be true and
correct on the Borrowing Date with the same effect as though such
representations and warranties were made on such Borrowing Date.

 

Section 6.03           Satisfaction of Conditions
Precedent. 
Each of (i) the delivery by the Borrower of a Borrowing Request, and
(ii) the acceptance of the proceeds of a Tranche shall be deemed to constitute
a certification by the Borrower that, as of the Borrowing Date, each of the
conditions precedent contained in Section 6.02 has been satisfied with respect
to any Tranche then being advanced.

 

ARTICLE VII

 

Covenants

 

Section 7.01           Section Affirmative Covenants.  Until satisfaction in full of all the
obligations of the Borrower under the Credit Documents and termination of the Facility,
the Borrower will:

 

(a)           Financial Statements; Compliance
Certificates; Regulatory Reports.  Furnish to the Lender:

 

26

 

(i)            as
soon as available, but in no event more than 45 days following the end of each
of the first three Fiscal Quarters of each Fiscal Year, (A) copies of, or
internet links to, the Borrower’s Quarterly Report on Form 10-Q being filed
with the SEC, which shall include a consolidated balance sheet, a consolidated
income statement and a consolidated statement of cash flows of the Borrower and
the Subsidiaries for such quarter, (B) copies of, or internet links to, a
consolidating balance sheet, consolidating income statement and consolidating
statement of cash flows of the Borrower and the Subsidiaries for such quarter,
and (C) copies of, or internet links to, any consolidated and consolidating
balance sheet, consolidated and consolidating income statement and consolidated
and consolidating statement of cash flows of Bank Subsidiary and its principal
operating Subsidiaries for such quarter (for each of (B) and (C) above, if
prepared in the ordinary course of business);

 

(ii)           as
soon as available, but in no event more than 90 days following the end of each
Fiscal Year, (A) a copy of, or internet links to, the Borrower’s Annual Report
on Form 10-K being filed with the SEC, which shall include the consolidated
financial statements of the Borrower and the Subsidiaries, together with a
report thereon by BDO Seidman LLP (or another firm of independent certified
public accountants reasonably satisfactory to the Lender), for such year, (B)
copies of, or internet links to, a consolidating balance sheet, consolidating
income statement and consolidating statement of cash flows of the Borrower and
the Subsidiaries for such year, and (C) copies of, or internet links to, any
consolidated and consolidating balance sheet, consolidated and consolidating
income statement, and consolidated and consolidating statement of cash flows of
Bank Subsidiary and its Subsidiaries for such year if prepared in the ordinary
course of business (which financial statement referred to in this paragraph (C)
shall be accompanied by a report thereon by BDO Seidman LLP (or another firm of
independent certified accountants reasonably satisfactory to the Lender) if
such report is prepared).

 

(iii)          together
with each report delivered pursuant to Sections 7.01(a)(i), (ii) and (v), a
certificate of the Borrower, signed by a Responsible Officer, in substantially
the form of Exhibit D, stating whether, as of the
last date of the financial statements included in such report, any event
occurred or circumstance existed which, individually or in the aggregate,
constituted a Default or Event of Default (and, if so, detailing the facts with
respect thereto) and whether the Borrower was in compliance with the covenants
set forth in this Article VII, together with calculations to establish the
Borrower’s compliance with the covenants contained in Section 7.03;

 

(iv)          promptly
upon the filing by the Borrower with the SEC or any national securities
exchange of any registration statement (other than a registration statement on
Form S-8 or an equivalent form) or regular periodic report (other than the
reports referred to in Sections 7.01(a)(i) and (ii)),
notification of such filing; and, at the request of the Lender, the Borrower
shall deliver to the Lender a copy of such filing (excluding exhibits);

 

(v)           as
soon as available, but in no event more than 90 days following the end of each
Fiscal Year (in the case of annual Bank Regulatory Reports) and no more than 45
days after the close of the first three quarters of each Fiscal Year

 

27

 

(in the case of quarterly Bank Regulatory Reports) of
each Banking Business Subsidiary for which such reports are required by its
Banking Regulator, copies of the Bank Regulatory Reports prepared on behalf of
and in respect of such Banking Business Subsidiary for such Fiscal Year and
Fiscal Quarter, as the case may be, together with such notes and information as
the Lender may reasonably request in order to reconcile such reports with GAAP;

 

(vi)          promptly upon the mailing thereof to the shareholders of
the Borrower generally copies of all financial statements, reports and proxy
statements so mailed;

 

(vii)         such additional information, reports or statements,
regarding the business, financial condition or results of operations of the
Borrower and its Subsidiaries, as the Administrative Agent or the Lender from
time to time may reasonably request (which information, reports or statements
shall, for the avoidance of doubt, be subject to the confidentiality provisions
of Section 11.13).

 

(viii)        as
soon as available, but in no event more than 45 days following the end of each
Fiscal Year, copies of the annual budget for the Borrower and its material
subsidiaries.

 

(x)            as soon as available, but in no event more than 45 days
following the end of each quarter, a schedule of the unsecured obligations of
the Borrower and material subsidiaries

 

(b)           Corporate
Existence.  Except
as permitted by Section 7.02(a), maintain, and cause each Restricted Subsidiary
to maintain, its corporate existence (including, without limitation, as a
savings and loan holding company, bank holding company, commercial bank or
savings and loan association, as the case may be, provided,
that Borrower shall be expressly permitted to convert into a Bank Holding
Company or financial holding company and to convert Bank Subsidiary into a
bank, on the condition that (i) the conversion will not have a Material Adverse
Effect on the ability of the Borrower and Subsidiaries to conduct business and
generate earnings sufficient to service debt and (ii) the Borrower is in
compliance with all regulations and requirements applicable to a Bank Holding
Company, as applicable) in good standing (in such jurisdictions as applicable) and
qualify and remain qualified to do business in each jurisdiction in which the
character of the Properties owned or leased by it therein or in which the
transaction of its business is such that the failure to qualify, individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect.

 

(c)           Conduct
of Business.  Preserve,
renew and keep in full force and effect, and cause each Subsidiary to preserve,
renew and keep in full force and effect, all licenses, permits, approvals,
authorizations or consents (including, without limitation, in connection with
being a savings and loan holding company, bank holding company, commercial bank
or a savings and loan association or in connection with the conduct of a
savings and loan association business or other banking business, as the case
may be) necessary or desirable in the normal conduct of its business and the
loss of which, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect; and comply, and cause each Subsidiary to
comply, with all applicable laws, orders, rules and regulations of all
Governmental Authorities the failure with which so to comply, individually or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect.

 

28

 

(d)           Authorizations.  Obtain, make and keep in full force and
effect all authorizations from and registrations with Governmental Authorities
required for the validity or enforceability of the Credit Documents.

 

(e)           Taxes.  Pay and discharge, and cause each Subsidiary
to pay and discharge, all taxes, assessments and governmental charges upon it,
its income and its properties prior to the date on which penalties are attached
thereto, except to the extent that (i) such taxes, assessments and governmental
charges shall be contested in good faith and by appropriate proceedings by the
Borrower or such Subsidiary, as the case may be, (ii) unless the amount thereof
is not material to the Borrower’s consolidated financial condition, adequate
reserves are maintained (in accordance with GAAP) by the Borrower or such
Subsidiary, as the case may be, with respect thereto, and (iii) any failure to
pay and discharge such taxes, assessments and governmental charges could not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.

 

(f)            Insurance.  Maintain, and cause each Subsidiary to
maintain, insurance with reputable insurance companies against such risks, of
such types, on such properties and in such amounts as is customarily maintained
by similar businesses similarly situated, including “Bankers Bonds”.  A detailed list of the insurance companies,
the amounts and rates of the insurance, the dates of the expiration thereof and
the properties and risks covered thereby shall be available to the Lender upon
request.

 

(g)           Inspection.  Permit, and cause each material Subsidiary to
permit, the Lender to have one or more of their officers and employees, or
(except in the case of paragraph (ii) below) any other Person or Persons
designated by the Administrative Agent or the Lender, to:

 

(i)            visit
and inspect any of the Properties of the Borrower and such Subsidiaries and to
examine the minute books, books of account and other records of the Borrower
and such Subsidiaries, and discuss its affairs, finances and accounts with its
officers and with the Borrower’s independent accountants, during normal
business hours and at other reasonable times, for the purpose of monitoring the
Borrower’s compliance with its obligations under the Credit Documents; and

 

(ii)           examine
and review in reasonable detail, on the premises of the Borrower or Bank
Subsidiary or any other Subsidiary as appropriate, any regulatory reports not
restricted to third party review by any law, regulation or court order in
respect of the Borrower, any Banking Business Subsidiary or any other
Subsidiary (once such reports shall have been made available by the regulator
to the Borrower, any Banking Business Subsidiary or such other Subsidiary)
during normal business hours and at other reasonable times (it being further
agreed that the Borrower shall notify the Administrative Agent of any such
report having been made so available by the regulator within 14 days thereof
following a request by the Administrative Agent for such report).

 

(h)           Maintenance
of Records.  For
the Borrower and each of its material Subsidiaries, keep proper books of record
and account in which full, true and correct entries will be made of all
dealings or transactions of or in relation to its business and affairs.

 

(i)            Maintenance
of Property. 
Maintain, keep and preserve and cause each Subsidiary to maintain, keep
and preserve all of its Properties in good repair, working order and condition
and from time to time make all necessary and proper repairs, renewals,
replacements,

 

29

 

and
improvements thereto, except to the extent that any failure so to maintain,
keep and preserve such properties, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.

 

(j)            ERISA.  The Borrower shall give, or shall cause to be
given, to the Lender prompt notice of each of the following events (but in no
event more than 30 days after the occurrence of the event or the existence of a
reasonable probability that the event will occur):  (i) when the Borrower or any other member of
the ERISA Group becomes obligated to make a material contribution to any
Pension Plan or Multiemployer Plan, or an entity with material liability under
Title IV of ERISA becomes part of the ERISA Group, (ii) when a Pension Plan has
a material accumulated funding deficiency under Section 412 of the Code, (iii)
any action by the Borrower or any other member of the ERISA Group to terminate
any Pension Plan so as to incur any material liability to the PBGC or under
Title IV of ERISA, or when circumstances otherwise exist which could reasonably
by expected to result in any member of the ERISA Group incurring any such
material liability and (iv) any action by the PBGC to terminate or appoint a
trustee to administer a Pension Plan or assess material liability against a
member of the ERISA Group.  In addition,
the Borrower shall promptly (but in no case more than 30 days following
issuance or receipt by any member of the ERISA Group) provide, or cause to be
provided, to the Lender a copy of all material correspondence between such
member of the ERISA Group and the PBGC or Internal Revenue Service relating to
any of the events described in the preceding sentence or the under funded
status, termination or possible termination of a Pension Plan.

 

(k)           Notice of Defaults and Adverse
Developments. 
Promptly notify the Lender upon the discovery by the Borrower of the
occurrence of (i) any Default or Event of Default; (ii) the execution of any
regulatory agreement entered into by the Borrower or any Subsidiary or the
receipt of any written notice of any regulatory action or proposed regulatory
action, (iii) any event, development or circumstance whereby the financial
statements most recently furnished to the Lender fail in any material respect
to present fairly, in accordance with GAAP, the financial condition and
operating results of the Borrower and the Subsidiaries as of the date of such
financial statements; (iv) any litigation or proceedings that are instituted or
threatened (to the knowledge of the Borrower) against the Borrower or any
Subsidiary or any of their respective assets that could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect; and (v)
any other development in the business or affairs of the Borrower or any
Subsidiary if the effect thereof would reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect or could reasonably be
expected to result in a default; in each case describing the nature thereof and
the action the Borrower proposes to take with respect thereto.  Such notice shall be deemed given if the
Borrower has made public disclosure of such information in a filing with the
SEC, with a link to the notice provided to the Lender within five (5) Business
Days of the filing by electronic mail or other mutually acceptable
communication.  Within five (5) Business
Days of any Responsible Officer of the Borrower obtaining knowledge of any
Default or Event of Default, Borrower shall furnish to Lender a certificate of
a Responsible Officer of the Borrower stating that such certificate is a “Notice
of Default” and setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto

 

(l)            Notice
of Rating Changes. 
Promptly notify the Lender after the Borrower becomes aware of any
change (either expressly or pursuant to a letter from a rating agency stating
an “implied rating”) in the Borrower’s credit rating, stating the details
thereof, and of any announcement by any rating agency that its credit rating
for the Borrower is “under review” or has been placed on “credit watch” or a “watch
list” or of any similar development or of any

 

30

 

change
in the relevant Banking Regulator’s rating of the Borrower or any Banking
Business Subsidiary.

 

(m)          Use
of Proceeds.  Use
the Loan only (i) to repay Indebtedness of the Borrower outstanding under the
Existing Credit Agreement at the Effective Time as contemplated herein, (ii) for
general corporate purposes (which includes merger and acquisition
transactions), and (iii) to make Permitted Investments.

 

(n)           Compliance with Laws and
Environmental Matters. 
(i)  Comply, and cause each Subsidiary to comply, in all
material respects with all applicable laws, statutes, rules, regulations,
decrees, opinions, or agency requirements or orders (including, without
limitation, Environmental Laws), (ii) notify the Lender promptly after becoming
aware of any Environmental Claim, or any fact or circumstance that could
reasonably be expected to result in an Environmental Claim or a violation of
any Environmental Law that could reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect, with respect to the Borrower’s or
any Subsidiaries’ properties or facilities, and (iii) promptly forward to the
Lender a copy of any material order, notice, permit, application, or any other
communication or report received in connection with any such matters as they
may affect such premises.

 

(o)           Dividends
by Bank Subsidiary. 
To the extent needed and permitted by applicable law (including to the
extent not prohibited by any Banking Regulator), cause Bank Subsidiary to
declare and pay cash dividends to Borrower on Bank Subsidiary’s preferred stock
in an amount sufficient to pay interest and principal when due on the Borrower’s
indebtedness and commitment fees in relation thereto after taking into account
other liquid assets of the Borrower, provided
that the amount of such dividends will not exceed the rates stated in the
preferred stock instruments, and provided further
that Borrower shall have no obligation to cause Bank Subsidiary to declare and
pay any dividend if, after the payment of such dividend, Bank Subsidiary’s
capital as determined in accordance with applicable law would be less than the
sum of (i) Bank Subsidiary’s minimum available capital (determined using the
most restrictive tests required by the relevant Banking Regulator to determine
if Bank Subsidiary is ‘well capitalized’ in accordance with applicable
regulations in respect of capital measures and capital levels), and (ii) 0.25%.  This paragraph (n) is without prejudice to
Borrower’s obligations hereunder, which shall in no way be dependent upon or
related to the declaration or payment by Bank Subsidiary or any Subsidiary of
any dividend.

 

(p)           Further
Assurances.  (i)  Promptly
upon request by the Lender, correct, and cause each of the Subsidiaries
promptly to correct, any material defect or error that may be discovered in any
Credit Document or in the execution, acknowledgment, filing or recordation
thereof, and (ii) promptly upon request by the Lender, do, execute,
acknowledge, deliver, record, re-record, file, re-file, register and
re-register any and all such further acts, deeds, conveyances, pledge
agreements, mortgages, deeds of trust, trust deeds, assignments, financing
statements and continuations thereof, termination statements, notices of
assignment, transfers, certificates, assurances and other instruments as the
Lender may reasonably require from time to time in order to (A) carry out more
effectively the purposes of the Credit Documents, (B) to the fullest extent
permitted by applicable law, subject Borrower’s or any Subsidiaries’
Properties, assets, rights or interests to the Liens now or hereafter intended
to be covered by any of the Security Documents, (C) perfect and maintain the
validity, effectiveness and priority of any of the Security Documents and any
of the Liens intended to be created thereunder and (D) assure convey, grant,
assign, transfer, preserve, protect and confirm more effectively unto the
Lender’s the rights granted or now or hereafter intended to be granted to the
Lender under any Credit Document or under any

 

31

 

other
instrument executed in connection with any Credit Document to which Borrower or
any Subsidiary is or is to be a party, and cause each Subsidiary to do so.

 

(q)           Regulatory
Matters.  (i)  Do
or cause to be done all things necessary to preserve and keep in full force and
effect the status of each Banking Business Subsidiary as an insured depository
institution and do all things necessary to ensure that the deposit accounts of
each Banking Business Subsidiary are insured by the Federal Deposit Insurance
Corporation (or any successor) to the maximum extent permitted by law, (ii)
cause each Banking Business Subsidiary to be “well capitalized” under
applicable regulations relating to capital measures and capital levels required
of such Banking Business Subsidiary and to maintain such amount of permanent
capital on the books of such Banking Business Subsidiary as may be prescribed
from time to time by the relevant Banking Regulator, and (ii) cause each
Banking Business Subsidiary that is a depository institution to maintain its
status as a depository institution regulated by a federal Banking Regulator.

 

(r)            Anti-Money Laundering and
Customer Identification Programs. 
Do or cause to be done all things necessary to ensure that each of the
Borrower, Banking Subsidiary and the Banking Business Subsidiaries maintains an
anti-money laundering policy and a customer identification program that comply
with the requirements of applicable laws and regulations.

 

(s)           Additional
Subsidiary.  In the
event the Borrower creates a new subsidiary to (a) replace or (b) substantially
undertake the business of Sterling Savings Bank, notify the Administrative
Agent of any such Subsidiary that is formed or acquired after the Effective
Date within three (3) Business Days of such formation or acquisition and (i)
cause each Subsidiary that owns or possesses voting capital stock of such new
Subsidiary to execute and deliver to the Collateral Agent, with copies to the
Administrative Agent, within three (3) Business Days of such formation or
acquisition, supplements to the Collateral Pledge Agreement, each, in the form
specified therein, pledging such voting capital stock of such new Subsidiary,
and (ii) cause an amount of capital stock of such new Subsidiary equivalent to the
value of the pledged collateral to be pledged, in accordance with the
Collateral Pledge Agreement, within three (3) Business Days of such formation
or acquisition, to the Collateral Agent, for the equal and ratable benefit of
the Secured Parties, under the Collateral Pledge Agreement (amended or
supplemented as necessary) to ensure that the Lender’s collateral position is
not prejudiced thereby.

 

Section 7.02           Negative
Covenants.  Until
satisfaction in full of all the obligations of the Borrower under the Credit
Documents and termination of the Commitments of the Lender hereunder, the
Borrower will not:

 

(a)           Mergers, Consolidations and Sales
of Assets.  Be a
party to any merger, consolidation or share exchange, or sell, transfer, lease
or otherwise dispose of all or any material part of its assets or Property,
including any disposition of assets or property as part of a sale and leaseback
transaction, (except in the case of sale and leaseback transactions, any such
transaction entered into by Bank Subsidiary or its Subsidiaries) or in any
event sell or discount (with or without recourse) any of its notes or accounts
receivable, or permit any Subsidiary so to do in each case without Lender’s
prior written consent, which consent shall not be unreasonably withheld; provided, however, that
this Section 7.02 shall not apply or operate to prevent (i) the Borrower or any
Subsidiary being a party to any merger where the Borrower or the Subsidiary is
the surviving Person if, after giving effect to such merger, no Default or
Event of Default would then exist, (ii) any Subsidiary (A) merging into the
Borrower or (B) being a party to any merger which does not involve the Borrower
where a Subsidiary is a party to such merger if, in each case after giving
effect to such merger, no Default or Event of Default would then exist, (iii)
the

 

32

 

Borrower or any
Subsidiary from (A) selling, in the ordinary course of its business, securities
which are purchased or sold by it in the ordinary course of its business, (B)
making any Permitted Investments, (C) selling loans in the ordinary course of
its business (or selling loans with an aggregate outstanding principal amount
less than 5.0 % of Total Loan Assets, not in the ordinary course of its
business), (D) selling any non-core deposits, provided
such sale is on an arms length basis, (E) selling core deposits and related
assets the aggregate proceeds of which sales do not exceed 5.0% of Total Loan
Assets, (F) selling or transferring such assets or Property among Subsidiaries,
(G) selling, for fair value, any servicing rights, (H) granting any Permitted
Liens, (I) selling or transferring such assets or Property to its
Affiliates if such transfer is on an arms length basis, (J) selling or transferring
such Property or assets on an arms length basis to comply with the federal Home
Owners Loan Act, as amended, or with the Qualified Thrift Lender Test set forth
in 12 U.S.C.  § 1467(a)(m)
or § 7701(a)(19) of the Code or the loan tests set forth in 12 U.S.C.  § 1464(b) or to provide capital to Bank
Subsidiary in order that Bank Subsidiary shall be “well capitalized” under
applicable regulations relating to capital measures and capital levels required
of state and federally chartered savings institutions, (K) selling or
transferring such Property or assets in connection with commercially reasonable
asset securitization transactions, (L) transferring any asset in
connection with a permitted Interest Rate Protection Agreement or any other
permitted hedging transaction, (M) sales of assets by a Banking Business
Subsidiary if the proceeds of such sale are used to purchase loans or
investment securities or to repay, prepay or redeem Indebtedness, (N) sales of
assets no longer being used in the business of the Borrower or any Subsidiary,
(O) sales of other assets by any Subsidiary in the ordinary course of its
business, and (P) sales of assets as required by any Governmental Authority in
connection with obtaining approval of any merger or other acquisition permitted
under this Section 7.02(a).

 

(b)           Liens.  Create, incur, assume or suffer to exist any
Lien, or permit any Subsidiary so to do, upon or in any of its Property or
assets, whether now owned or hereafter acquired, except the following Liens
(collectively, “Permitted Liens”, which Permitted
Liens shall not, for the avoidance of doubt, include any Lien over the
collateral described in the Collateral Pledge Agreement other than as provided
for in paragraph (x) of this Section 7.02(b) and, in the case of the collateral
described in the Collateral Pledge Agreement, to secure Indebtedness permitted
pursuant to Section 7.02(c)(ii)):

 

(i)            Liens
arising by operation of law in connection with worker’s compensation,
unemployment insurance, social security obligations, taxes, assessments,
statutory obligations or other similar charges, good faith deposits, pledges or
Liens in connection with bids, tenders, contracts or leases to which the
Borrower or any Subsidiary is a party (other than contracts for borrowed money),
or other deposits required to be made or surety bonds or other obligations of
like nature (which for the purposes of this Agreement shall include letters of
credit in the nature of a surety bond) required to be obtained in the ordinary
course of business in connection with any of the foregoing; provided that in each case the obligation secured is not
overdue or, if overdue, is being contested in good faith by appropriate
proceedings and for which reserves in conformity with GAAP have been provided
on the books of the Borrower;

 

(ii)           mechanics’,
workmen’s, materialmen’s, landlords’, carriers’ or other similar Liens arising
in the ordinary course of business (or deposits to obtain the release of such
Liens) securing obligations not due or, if due, being contested in good faith
by appropriate proceedings and for which reserves in conformity with GAAP have
been provided on the books of the Borrower;

 

33

 

(iii)          Liens
for taxes or assessments or other government charges or levies on the Borrower
or any Subsidiary of the Borrower or their respective Properties, not yet due
or delinquent, or which can thereafter be paid without penalty, or which are
being contested in good faith by appropriate proceedings and for which reserves
in conformity with GAAP have been provided on the books of the Borrower;

 

(iv)          Liens
arising out of judgments or awards against the Borrower or any Subsidiary of
the Borrower, or in connection with surety or appeal bonds in connection with
bonding such judgments or awards, the time for appeal from which or petition
for rehearing of which shall not have expired or with respect to which the
Borrower or such Subsidiary shall be prosecuting an appeal or proceeding for
review, and with respect to which it shall have obtained a stay of execution
pending such appeal or proceeding for review; provided
that the aggregate amount of liabilities (including interest and penalties, if
any) of the Borrower and its Subsidiaries secured by such Liens shall not exceed
$5,000,000 at any one time outstanding;

 

(v)           Liens
arising or granted in the ordinary course of the business of any Subsidiary
consistent with industry practice (including Liens securing Indebtedness of any
Subsidiary permitted under Section 7.02(c)(xii)) or (i) in connection with
transactions involving repurchase obligations and reverse repurchase
obligations, (ii) in connection with asset securitization transactions, (iii)
in connection with securing facilities for the confirmation of letters of credit
issued by such Subsidiary by institutions having higher credit ratings than
such Subsidiary, or (iv) in connection with securing any treasury tax or loan
account maintained with any Federal Reserve Bank;

 

(vi)          Survey
exceptions or encumbrances, easements or reservations, or rights of others for
rights-of-way, utilities and other similar purposes, or zoning or other
restrictions as to the use of real properties which are necessary for the
conduct of the activities of the Borrower and any Subsidiary or which
customarily exist on properties of corporations engaged in similar activities
and similarly situated and which do not in any event materially impair their
use in the operation of the business of the Borrower or any Subsidiary of the
Borrower;

 

(vii)         Liens
securing Indebtedness permitted under Section 7.02(c)(ii)
to the extent permitted to be secured and Liens listed on Schedule
7.02(b);

 

(viii)        Liens
securing Indebtedness of the Borrower or Subsidiary incurred in connection with
the acquisition or construction of real property of the Borrower or such
Subsidiary after the date hereof; provided that
such Lien is limited to the Property being financed by such Indebtedness;

 

(ix)           Any
extension, renewal or replacement (or successive extensions, renewals or replacements)
in whole or in part of any Lien referred to in the foregoing paragraphs (i)
through (viii), inclusive, provided, however, that the principal amount of Indebtedness secured
thereby shall not exceed the principal amount of the Indebtedness so secured at
the time of any extension, renewal or refinancing, and that such extension,
renewal or refinancing shall be

 

34

 

limited to the Property which was
subject to the Lien so extended, renewed or refinanced;

 

(x)            Liens
securing obligations under the Credit Documents, including Liens provided for
in the Security Documents;

 

(xi)           Liens
securing Indebtedness of another Person pursuant to the assumption of such
Indebtedness by the Borrower or a Subsidiary upon the permitted merger or
acquisition, in accordance with this Agreement, of such other Person with or
into or by the Borrower or such Subsidiary, as the case may be, provided such Lien does not arise or come into existence as
a result of, or upon, such merger or acquisition ; and

 

(xii)          Liens
securing obligations of the Borrower under Interest Rate Protection Agreements
and other permitted hedging instruments and securing Indebtedness permitted
under Section 7.02(c).

 

(c)           Indebtedness.  Create, incur, assume, or suffer to exist any Indebtedness, or permit any Subsidiary so to do,
except:

 

(i)            Indebtedness
under the Notes issued under this Agreement;

 

(ii)           Subordinated
debt, trust preferred (provided such
Indebtedness and Guaranty shall be on substantially like terms as existing
Indebtedness and Guaranties in respect of then outstanding Trust Preferred
Securities, and if not, then only on terms satisfactory to the Lender), and
other preferred offerings, and only upon five (5) Business Days’ prior
notification to the Lender;

 

(iii)          Indebtedness
of the Borrower and any Subsidiary under any inter-company debt among the
Borrower and any Subsidiaries;

 

(iv)          Indebtedness in
favor of the Federal Home Loan Bank;

 

(v)           Indebtedness
of the Borrower incurred to refinance Indebtedness of the Borrower existing on
the date hereof (other than as referred to in Section 7.02(c)(ii)), which
Indebtedness may be Senior Debt, provided such
Indebtedness incurred for such refinancing shall not be secured and such
refinancing shall not result in payment under such existing Indebtedness of any
amounts greater than that which would have been payable had such existing
Indebtedness been paid in full in accordance with its terms (allowing for any
premium, prepayment penalty or compensation for financing costs paid pursuant
to such refinancing in respect of, and in accordance with the terms of, such
existing Indebtedness);

 

(vi)          Indebtedness of
the Borrower and the Subsidiaries existing on the date hereof and listed on Schedule 7.02(c);

 

(vii)         Indebtedness
representing deferred compensation owed to its employees or officers by the
Borrower or any Subsidiary in the ordinary course of its business;

 

35

 

(viii)        Indebtedness
incurred by the Borrower or any Subsidiary in the ordinary course of its
business under any performance guarantee of obligations (except for such
Indebtedness guaranteeing performance of obligations for the payment of
borrowed money);

 

(ix)           Indebtedness
of the Borrower or Bank Subsidiary incurred in the ordinary course of its
business upon the taking of any bank deposits in connection with its savings and
loan association or other banking business or the assumption or purchase of the
same pursuant to any Permitted Investment;

 

(x)            Indebtedness
with no recourse to the Borrower or any Subsidiary pursuant to an asset
securitization or sale and lease back transaction accounted for as a financing
and which, if accounted for as an asset transfer, does not violate any other
provision of this Section 7.02;

 

(xi)           Indebtedness
of the Bank Subsidiary or any Subsidiary incurred in the ordinary course of its
business for the funding of operations of the savings and loan association or
other banking business of the Bank Subsidiary or other operations of such
Subsidiaries, including Indebtedness under any facility for the confirmation of
letters of credit issued by a Banking Business Subsidiary;

 

(xii)          Indebtedness
the proceeds of which are used in the making of Permitted Investments; and

 

(xiii)         Indebtedness
of the Borrower or any Subsidiary incurred upon the merger of, or acquisition
of, any other Person with or into or by the Borrower or any such Subsidiary, provided that such Indebtedness is not incurred in
connection with or in contemplation of such merger or acquisition.

 

(d)           Investments, Acquisitions, Loans,
Advances and Guaranties. 
Directly or indirectly, make, retain or have outstanding any investments
(whether through purchase of stock or obligations or otherwise) in, or loans or
advances to, any other Person, or acquire all or any substantial part of the
assets or business of any other Person or division thereof, or Guaranty or
become liable as endorser, guarantor, surety or otherwise (such as liability as
a general partner) for any debt, obligation or undertaking of any other Person,
or otherwise agree to provide funds for payment of the obligations of another,
or supply funds thereto or invest therein or otherwise assure a creditor of
another against loss, or apply for or become liable to the issuer of a letter
of credit which supports an obligation of another, or subordinate any claim or
demand it may have to the claim or demand of any other Person (cumulatively,
all of the foregoing, being “Investments”),
or permit any Subsidiary to do any of the foregoing; provided,
however, that the foregoing provisions
shall not apply to nor operate to prevent (each of the following, a “Permitted Investment”):

 

(i)            Investments
in the ordinary course of its business by the Borrower and any Subsidiary,
including in deposits, loans, investment securities, non-speculative hedging
investments entered into for the purposes of risk management, in the Federal
Home Loan Bank, (except that investments in hedging instruments shall be for
the purposes of risk management and not for speculative purposes), in direct
obligations of the United States of America or of any agency or instrumentality
thereof whose obligations constitute full faith and credit obligations of the
United States of America, in commercial paper maturing

 

36

 

within one year of its date of issuance, in
certificates of deposit maturing within one year from the date of issuance
thereof or in endorsed banker’s acceptances maturing within six months of the
date of acceptance, in short term repurchase obligations and reverse repurchase
obligations, in money market funds;

 

(ii)           Investments
in loans and advances to employees in the ordinary course of business of the
Borrower and the Subsidiaries consistent with their respective practices prior
to the date hereof (provided that such loans and advances shall not, in
aggregate, be outstanding at any time in any amount greater than $50,000,000);

 

(iii)          Investments
in acquisitions of all or any substantial part of the assets or business of any
other Person or division thereof engaged in a line of business permitted to be
engaged in by any bank holding company, financial holding company, or savings
and loan holding company, or of a majority of the voting stock of such a Person,
provided no Default or Event of Default
exists or would exist after giving effect to such acquisition; and provided, further, that the Borrower has provided not less
than five (5) Business Days’ prior written notice, the receipt of which the
Lender shall have acknowledged in writing, of any investment or acquisition,
the value of which exceeds 5% of the total assets of the Borrower;

 

(iv)          Inter-company
Investments in Subsidiaries;

 

(v)           Investments
required in connection with any transaction permitted under Section 7.02(a) and
Section 7.02(d)(iv) hereof; and

 

(vi)          Investments
consisting of the assumption or purchase of deposit liabilities or other
liabilities not otherwise in violation of Section 7.02.

 

(vii)         Investments
outstanding on December 31, 2004 and shown on the consolidated financial
statements of Borrower, provided such investments will
not be increased.

 

(e)           Dividends and Purchase of Stock
and Other Restricted Payments.  Declare any dividends (other than dividends
payable in capital stock of the Borrower) on any shares of any class of its
capital stock, or apply any of its Property or assets to the purchase,
redemption or other retirement of, or set apart any sum for the payment of any
dividends on, or for the purchase, redemption or other retirement of, or make
any other distribution by reduction of capital or otherwise in respect of, any
shares of any class of capital stock of the Borrower (or make any distributions
in respect of any Investments in any Subsidiary), or permit any Subsidiary so
to do (in respect of its own property or assets and capital stock), or permit
any Subsidiary to purchase or acquire any shares of any class of capital stock
of the Borrower, unless immediately after giving effect to such action, there
shall not have occurred any Default or Event of Default that is continuing and,
provided, however,
that the Borrower may pay cash dividends so long as (i) the liquid assets of the Borrower plus the
annual amount of capital distributions upstreamed by the Bank Subsidiary are sufficient
to meet the annual debt service required and the amount of such cash dividend,
(ii) such dividends are in respect of the Trust Preferred Securities or
ordinary dividends on the preferred stock of the Borrower or the Subsidiary, as
the case may be, (iii) any such dividend payment or distribution is in
accordance with and pursuant to a stock option plan or

 

37

 

other
stock -based compensation plan, or (iv) such dividends are payable by the
Subsidiaries to each other or to the Borrower.

 

(f)            Issuance
of Capital Stock. 
The Borrower will not permit the Subsidiary Bank to issue any additional
shares of common or preferred stock, or any options, warrants or other common
stock equivalents, or sell or issue securities or obligations convertible into
such (‘New Stock”), whether in form of stock dividends or stock splits or
otherwise, unless such New Stock will be issued to the Borrower.

 

(g)           No Payments in Respect of Any
Indebtedness. 
Make, or permit any Subsidiary to make, any payment in respect of any
Indebtedness except if such Indebtedness is permitted Indebtedness pursuant to
Section 7.02(c).

 

(h)           Business and Activities of
Borrower and Subsidiaries.  Engage in or conduct, or permit any
Subsidiary to engage in or conduct, any business or activity which a savings
and loan holding company, bank holding company, financial holding company,
commercial bank or a savings and loan association, as the case may be, or
Subsidiary thereof, is not permitted by law to engage in or conduct.

 

(i)            Restricted
Agreements.  The
Borrower will not, nor will the Borrower permit any Subsidiary to, directly or
indirectly, enter into, incur or permit to exist any agreement or other
arrangement (other than with the Lender) that materially prohibits, restricts
or imposes any condition upon (i) the ability of the Borrower or any Subsidiary
to create, incur or permit to exist any Lien upon any of its property or
assets, or (ii) the ability of any Subsidiary to pay dividends or other distributions
with respect to any shares of its capital stock or to make or repay loans or
advances to the Borrower or any other Subsidiary or to guarantee Indebtedness
of the Borrower or any other Subsidiary; provided that
(A) the foregoing shall not apply to restrictions and conditions imposed by law
or any agreement imposed or constructively imposed by a Banking Regulator, (B)
the foregoing shall not apply to customary restrictions and conditions
contained in the issuance of any preferred stock that is permitted pursuant to
this Agreement, and (C) the foregoing shall not apply to any such restrictions
agreed to before the Effective Date.

 

(j)            Transfers.  The Borrower will not, nor will the Borrower
permit any Subsidiary to, directly or indirectly, transfer any assets, if such
transfer would materially restrict or impose any condition upon the ability of
any Subsidiary to pay dividends or other distributions with respect to any
shares of its capital stock or to make or repay the Loan or any other loans or
advances to the Borrower or any other Subsidiary or to guarantee Indebtedness
of the Borrower or any other Subsidiary.

 

(k)           The Borrower shall not, and shall
ensure that each other member of the ERISA Group shall not:  (i) adopt any Pension Plan or agree to contribute
to a Multiemployer Plan without the consent of the Lender; (ii) terminate any
Pension Plan so as to incur any material liability to the PBGC; (iii) fail to
pay to any Pension Plan any contribution which it is obligated to pay under the
terms of such Pension Plan, if such failure would cause such plan to have any
material accumulated funding deficiency under Section 412 of the Code, whether
or not waived; or (iv) allow or suffer to exist any event or condition, which
presents a material risk of termination by the PBGC of any Pension Plan, to the
extent that the occurrence or nonoccurrence of such event or condition is
within the control of it or any other member of the ERISA Group.

 

38

 

Section 7.03           Financial
Covenants.  Until
satisfaction in full of all the obligations of the Borrower under the Credit
Documents and termination of the Commitments of the Lender hereunder, the
Borrower will:

 

(a)           Return
on Average Assets. 
Not permit the Return on Average Assets Ratio of the Borrower to be less
than (i) 0.70% for the first two years from the Effective Date and (ii) 0.75% thereafter,
as measured as of the last day of each Fiscal Year.

 

(b)           Non Performing Assets / Total Loan
Assets + OREO.  With
respect to Bank Subsidiary, not permit the ratio obtained by dividing the value
of (x) Non Performing Loans by (y) the sum of Total Loan Assets and OREO to be
greater than 1.50% as of the last day of each Fiscal Quarter. 

 

(c)           ALLL/NPL
Ratio.  With
respect to Bank Subsidiary, not permit the ALLL/NPL Ratio as of the end of any
Fiscal Year to be less than 100%.

 

(d)           Regulatory
Capital Requirements. 
Maintain, and cause each Subsidiary that is a Banking Business
Subsidiary to maintain, at the end of each Fiscal Quarter, (i) such amount of
regulatory capital as may then be prescribed (whether by regulation, order or
agreement) by the Banking Regulator having jurisdiction over the Borrower in
order for the Borrower to maintain “adequately capitalized” status and (ii)
such amount of regulatory capital as may then be prescribed (whether by
regulation, order or agreement) by the respective Banking Regulator having
jurisdiction over each Banking Business Subsidiary to maintain “well
capitalized” status.

 

ARTICLE VIII

 

Events
of Default

 

Section 8.01           Events
of Default.  If one
or more of the following events (each, an “Event of Default”)
shall occur:

 

(a)           The Borrower shall fail to pay any
principal amount of the Loan when due, whether at maturity, by acceleration, by
notice of intention to prepay or otherwise; or

 

(b)           The Borrower shall fail to pay any
interest, fee or any other amount payable under the Credit Documents within five
(5) Business Days of the same becoming due and payable (or 30 days if such
non-payment shall be due to the application of any rule, regulation or order of
any Governmental Authority); or

 

(c)           The Borrower shall fail to observe or
perform any term, covenant, or agreement contained in Section 7.02 or 7.03 and
such failure shall have continued unremedied for a period of five (5) Business Days
after notice thereof to the Borrower; or

 

(d)           The Borrower shall fail to observe or
perform any other term, covenant or agreement contained in this Agreement, and
such failure shall have continued unremedied for a period of 30 days after any
Responsible Officer of the Borrower becomes aware of such failure; or

 

(e)           Any representation or warranty made
or deemed made by the Borrower or any Subsidiary in a Credit Document, or any
statement or representation made in any

 

39

 

certificate, report or opinion delivered by or on behalf of the
Borrower or any Subsidiary in connection with a Credit Document, shall prove to
have been false or misleading in any material respect when so made or deemed
made; or

 

(f)            The Borrower or any Subsidiary shall
fail to pay any Indebtedness other than under this Agreement in an amount of $10,000,000
or more when due or default shall occur under one or more indentures,
agreements or other instruments under which any Indebtedness of the Borrower or
any such Subsidiary in an aggregate principal amount of $10,000,000 or more may
be issued or created and such failure to pay or default shall continue for a
period of time sufficient to permit the holder or beneficiary of such
Indebtedness or a trustee therefor to cause the acceleration of the maturity of
any such Indebtedness or any mandatory unscheduled prepayment, purchase or
funding thereof; or

 

(g)           An involuntary case or other
proceeding shall be commenced against the Borrower or any Subsidiary seeking
liquidation, reorganization or other relief with respect to it or its debts
under any applicable bankruptcy, insolvency, reorganization or similar law or
seeking the appointment of a custodian, receiver, liquidator, assignee,
trustee, sequestrator or similar official of it or any substantial part of its
property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of more than 60 days; or an order or
decree approving or ordering any of the foregoing shall be entered and
continued unstayed and in effect; or

 

(h)           The Borrower or any Subsidiary shall
commence a voluntary case or proceeding under any applicable bankruptcy,
insolvency, reorganization or similar law or any other case or proceeding to be
adjudicated a bankrupt or insolvent, or any of them shall consent to the entry
of a decree or order for relief in respect of the Borrower or any such
Subsidiary in an involuntary case or proceeding under any applicable bankruptcy,
insolvency, reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against any of them, or any of them
shall file a petition or answer or consent seeking reorganization or relief
under any applicable law, or any of them shall consent to the filing of such
petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or similar official of
the Borrower or any such Subsidiary or any substantial part of their respective
property, or any of them shall make an assignment for the benefit of creditors,
or any of them shall admit in writing its inability to pay its debts generally
as they become due, or the Borrower or any such Subsidiary shall take corporate
action in furtherance of any such action; or

 

(i)            One or more judgments against the
Borrower or any Subsidiary or attachments against its property, (a) which in
the aggregate exceed 10.0% of the Borrower’s Capital (Borrower’s Capital herein
defined as the Borrower’s net worth as defined by GAAP, excluding adjustments
for comprehensive income items), initially $50,000,000, or (b) the operation or
result of which, individually or in the aggregate, could be to interfere
materially and adversely with the conduct of the business of the Borrower and
its Subsidiaries, taken as a whole, remain unpaid, unstayed on appeal,
undischarged, unbonded, or undismissed for a period of more than 30 days; or

 

(j)            The Borrower or any other member of
the ERISA Group shall fail to make any material contribution or payment that it
is obligated to pay under the terms of any Pension Plan or Multiemployer Plan;
or notice of intent to terminate a Plan or Plans

 

40

 

having aggregate Unfunded Vested Liabilities in excess of $200,000
(collectively, a “Material Plan”) shall be filed
under Title IV of ERISA by the Borrower or any other member of the ERISA Group,
any plan administrator or any combination of the foregoing; or the PBGC indicates
its intentions to institute, or that it is considering instituting, proceedings
under Title IV of ERISA to terminate or to cause a trustee to be appointed to
administer any Material Plan; or any Pension Plan of the Borrower or any other
member of the ERISA Group becomes subject to the requirement to file
information pursuant to Section 4010 of ERISA; or

 

(k)           The Borrower or any Subsidiary, or
any Person acting on behalf of the Borrower or a Subsidiary, or any
Governmental Authority challenges the validity of any Credit Document or the
Borrower’s or a Subsidiary’s obligations thereunder or any Credit Document
ceases to be in full force and effect or is modified other than in accordance
with the terms thereof and hereof or any security interest purported to be
created in any collateral by or under any Security Document shall cease to be a
valid and perfected first priority Lien in such collateral, except as expressly
contemplated by such Security Document; or

 

(l)            Any Governmental Authority shall have
enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which prohibits, enjoins or
otherwise restricts, in a manner that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, any of the
transactions contemplated under the Credit Documents; or

 

(m)          Any person or group of persons (within
the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as
amended) shall have acquired beneficial ownership (within the meaning of Rule
13d-3 promulgated by the Securities and Exchange Commission under said Act), or
shall have acquired control, directly or indirectly, of 30% or more of the
outstanding shares of common stock of the Borrower; or the Borrower shall own
less than 100% of the issued and outstanding capital stock of Bank Subsidiary
(except for preferred stock of Bank Subsidiary permitted to be issued
hereunder); or, during any period of 24 consecutive calendar months,
individuals who were directors of the Borrower on the first day of such period
(the “Initial Directors”) and any of the
directors approved by a majority of the Initial Directors shall cease to
constitute a majority of the board of directors of the Borrower; or

 

(n)           There shall be taken actions
(including by way of any written agreement, cease and desist order, or
memorandum of understanding or the other actions referred to in Section
5.01(t)(ii)) in respect of the Borrower or Bank Subsidiary made public by any
regulator thereof (including any Banking Regulator) that, individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect
and restrict the ability of the Borrower to repay any amounts outstanding under
the Facility; or

 

(o)           At any time Bank Subsidiary or any
Subsidiary subject to regulation requiring that it maintain regulatory capital
shall be less than “well capitalized” for the purpose of applicable regulations
and such failure shall have continued unremedied for a period of 90 days after
any Responsible Officer of the Borrower becomes or should have become aware of
such failure; or

 

41

 

(p)           At any time Borrower is subject to
regulation requiring that it maintain regulatory capital and the Borrower is less
than “adequately capitalized” for the purpose of applicable regulations and
such failure shall have continued unremedied for a period of 90 days after any
Responsible Officer of the Borrower becomes or should have become aware of such
failure;

 

(q)           Any judicial or regulatory action or
proceeding is initiated against the Borrower or any Subsidiary by any
regulatory authority (including, without limitation, any Banking Regulator),
which has restricted, or could reasonably be expected to restrict, the ability
of the Borrower to repay any amounts outstanding under the Facility;

 

then, and at any
time during the continuance of such Event of Default, the Lender may, by written
notice to the Borrower, take either or both of the following actions, at the
same or different times:  (i) terminate
forthwith the Facility and (ii) declare the Loan or any portion thereof then
outstanding to be due, whereupon the principal of the Loan so declared to be
due, together with accrued interest thereon and any unpaid amounts accrued
under the Credit Documents, shall become forthwith due, without presentment,
demand, protest or any other notice of any kind (all of which are hereby
expressly waived by the Borrower); provided that,
in the case of any Event of Default described in Section 8.01(g) or (h)
occurring with respect to the Borrower, the Facility shall automatically and
immediately terminate and all principal amounts of the Loan then outstanding,
together with accrued interest thereon and any unpaid amounts accrued under the
Credit Documents, shall automatically and immediately become due without
presentment, demand, protest or any other notice of any kind (all of which are
hereby expressly waived by the Borrower).

 

ARTICLE IX

 

The Administrative Agent and Collateral Agent

 

Section 9.01           The
Agency.  The Lender
appoints Bank of Scotland as its Administrative Agent hereunder and Collateral
Agent hereunder and under the other Credit Documents and irrevocably authorizes
the Administrative Agent and the Collateral Agent to take such action on its
behalf and to exercise such powers hereunder and thereunder as are specifically
delegated to the Administrative Agent and the Collateral Agent by the terms
hereof and thereof, together with such powers as are reasonably incidental
thereto, including the exercise of powers delegated to the Administrative Agent
and the Collateral Agent, and the Lender hereby and thereby accepts, and the
Administrative Agent and the Collateral Agent hereby accept such appointment
subject to the terms hereof.  The
relationship between the Administrative Agent and the Collateral Agent and the
Lender shall be that of agent and principal only and nothing herein shall be
construed to constitute the Administrative Agent or the Collateral Agent a
trustee or fiduciary for the Lender nor to impose on the Administrative Agent
or the Collateral Agent duties or obligations other than those expressly
provided for herein.

 

Section 9.02           The
Agent’s Duties. 
The Administrative Agent and the Collateral Agent shall promptly forward
to the Lender copies, or notify the Lender as to the contents, of all notices
received from the Borrower pursuant to the terms of this Agreement or the other
Credit Documents and, in the event that the Borrower fails to pay when due the
principal of or interest on the Loan, the Administrative Agent shall promptly
give notice thereof to the Lender.  As to
any other matter not expressly provided for herein or the other Credit
Documents, the Administrative Agent and the Collateral Agent shall have no duty
to act or refrain from acting with respect to the Borrower, except upon the
instructions of the Lender.  The
Administrative

 

42

 

Agent and the Collateral
Agent shall not be bound by any waiver, amendment, supplement, or modification
of this Agreement or the other Credit Documents which changes its duties
hereunder and thereunder, unless it shall have given its prior written consent
thereto.  The Administrative Agent and
the Collateral Agent shall have no duty to ascertain or inquire as to the
performance or observance of any of the terms, conditions, covenants or
agreements binding on the Borrower pursuant to any Credit Document nor shall
the Administrative Agent and the Collateral Agent be deemed to have knowledge
of the occurrence of any Default or Event of Default (other than a failure of
the Borrower to pay when due the principal or interest on the Loan), unless it
shall have received written notice from the Borrower or the Lender specifying
such Default or Event of Default and stating that such notice is a “Notice of
Default”.

 

Section 9.03           Limitation of Liabilities.  The Lender and the Borrower agree that
(i) neither the Administrative Agent nor the Collateral Agent nor any of
its or their officers or employees shall be liable for any action taken or
omitted to be taken by any of them hereunder except for its or their own gross
negligence or wilful misconduct, (ii) neither the Administrative Agent nor the
Collateral Agent nor any of its officers or employees shall be liable for any
action taken or omitted to be taken by any of them in good faith in reliance
upon the advice of counsel, independent public accountants or other experts
selected by the Administrative Agent, and (iii) the Administrative Agent
and the Collateral Agent shall be entitled to rely upon any notice, consent,
certificate, statement or other document believed by it to be genuine and
correct and to have been signed and/or sent by the proper Persons.

 

Section 9.04           The Administrative Agent and the
Collateral Agent as the Lender.  The Administrative Agent or the Collateral
Agent may, without any liability to account, maintain deposits or credit
balances for, invest in, lend money to and generally engage in any kind of
banking business with the Borrower or any Subsidiary or Affiliate of the
Borrower as if it were any other borrower and without any duty to account
therefor to the Lender.

 

Section 9.05           Lender Credit Decision.  Neither the Administrative Agent nor the
Collateral Agent, nor any of its or their Affiliates, officers or employees has
any responsibility for, gives any guaranty in respect of, nor makes any
representation to the Lender as to, (i) the condition, financial or otherwise,
of the Borrower or any Subsidiary thereof or the truth of any representation or
warranty given or made in this Agreement, or in connection herewith or
therewith or (ii) the validity, execution, sufficiency, effectiveness, construction,
adequacy, enforceability or value of this Agreement or any other Credit
Document or any other document or instrument related hereto or thereto.  Except as specifically provided herein,
neither the Administrative Agent nor the Collateral Agent nor any of its or
their Affiliates, officers or employees shall have any duty or responsibility,
either initially or on a continuing basis, to provide the Lender with any
credit or other information with respect to the operations, business, property,
condition or creditworthiness of the Borrower or any of its Subsidiaries,
whether such information comes into the Administrative Agent’s or the
Collateral Agent’s possession on or before the date hereof or at any time
thereafter.  Lender acknowledges that (i)
it has, independently and without reliance upon the Administrative Agent or the
Collateral Agent, based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement and (ii) all information reviewed by it in its credit analysis or
otherwise in connection herewith has been provided solely by or on behalf of
the Borrower, and neither the Administrative Agent nor the Collateral Agent has
responsibility for such information.  The
Lender also acknowledges that it will independently and without reliance upon
the Administrative Agent or the Collateral Agent, based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under any Credit Document.

 

43

 

Section 9.06           Indemnification.  (a)  The
Lender agrees to indemnify the Administrative Agent and Collateral Agent, to
the extent not reimbursed by the Borrower, from and against any and all
liabilities, obligations, losses, claims, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against the
Administrative Agent or Collateral Agent in any way relating to or arising out
of any Credit Document, or any action taken or omitted to be taken by the
Administrative Agent or Collateral Agent hereunder or thereunder; provided that the Lender shall not be liable for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the gross
negligence or wilful misconduct of the Administrative Agent or Collateral Agent
or any of its or their officers or employees. 
Without limiting the foregoing, the Lender agrees to reimburse the
Administrative Agent and Collateral Agent promptly upon demand for its ratable
share of any out-of-pocket expenses (including fees and disbursements of
counsel) incurred by the Administrative Agent and Collateral Agent in such
capacity in connection with the preparation, execution or enforcement of, or
legal advice in respect of rights or responsibilities under, any Credit
Document or any amendments or supplements hereto or thereto, to the extent that
the Administrative Agent or Collateral Agent is not reimbursed for such
expenses by the Borrower.

 

(b)           Except for action expressly required
of the Administrative Agent hereunder or the Collateral Agent hereunder or under
any other Credit Document, the Administrative Agent or Collateral Agent shall
in all cases be fully justified in failing or refusing to act hereunder or
thereunder unless it shall receive further assurances to its satisfaction from
the Lender of its indemnification obligations under this Section 9.06 hereof
against any and all liability and expense that may be incurred by it by reason
of taking or continuing to take any such action.

 

(c)           The provisions of this Section 9.06
shall remain operative and in full force and effect regardless of the
expiration of the term of this Agreement, the consummation of the transactions
contemplated hereby, the repayment of any amount owing under the Facility, the
invalidity or unenforceability of any term or provision of any Credit Document,
or any investigation made by or on behalf of the Lender.

 

ARTICLE X

 

Evidence
of Loans; Transfers

 

Section 10.01         Evidence of Loans.  (a)  The
Lender shall maintain, in accordance with its customary and usual practice,
accounts evidencing the indebtedness of the Borrower to the Lender under the
Facility including the amounts of principal and interest payable and paid to the
Lender in respect of the Loan.  To the
extent requested by the Lender, each Tranche of the Loan advanced under the Facility
may be evidenced by one or more Notes, in substantially the form of Exhibit B.

 

(b)           The Administrative Agent shall
maintain, in accordance with its customary and usual practice, (i) a copy of
each Assignment and Acceptance delivered to it and (ii) written or electronic
records for the recordation of the amount of the Loan and each Tranche
outstanding, and the interest rate and the Interest Period applicable thereto,
(iii) the amount of any payments received by the Administrative Agent hereunder
from the Borrower and (iv) with respect to each Assignment and Acceptance
delivered to the Administrative Agent, the name and address of the Assignee,
the amount of the Assignee’s commitment and the principal amount owing to such
Assignee.  The Administrative Agent’s
written records described above shall be available for

 

44

 

inspection
during ordinary business hours by the Borrower or the Lender or Assignee from
time to time upon reasonable prior notice to the Administrative Agent.

 

(c)           The entries made in the
Administrative Agent’s written or electronic records and the foregoing accounts
shall be prima facie evidence of the existence
and amounts of the indebtedness of the Borrower therein recorded; provided, however, that
the failure of the Lender or the Administrative Agent to maintain any such
account or such records, as applicable, or any error therein, shall not in any
manner affect the validity or enforceability of any obligation of the Borrower
to repay any amount of the Loan actually made by the Lender in accordance with
the terms of this Agreement.

 

(d)           The Borrower’s obligations to repay any
amount of the Loan assigned to a Federal Reserve Bank by the Lender shall, to
the extent requested by the Lender in order to effect such assignment, be
evidenced by one or more Notes, in substantially the form of Exhibit B.  Such Note shall be in the principal amount of
the Loan so assigned and stated to mature on the applicable date and bear
interest from its date until paid in full on the principal amount of the Loan
outstanding thereunder payable at the rates and in the manner provided herein.

 

Section 10.02         Participations.  The Lender may at any time grant to one or
more financial institutions (each, a “Participant”)
participating interests in the Facility or any amount of the Loan, with the
written consent of the Borrower (which consent shall not be unreasonably
withheld); provided that the aforementioned consent
of the Borrower shall not be required if there shall have occurred a Default
that is continuing or have occurred as an Event of Default that is
continuing.  In the event of any such
grant by the Lender of a participating interest to a Participant, whether or
not upon notice to the Borrower and the Administrative Agent, the Lender shall
remain responsible for the performance of its obligations hereunder, and the
Borrower and the Administrative Agent shall continue to deal solely and
directly with the Lender in connection with the Lender’s rights and obligations
under this Agreement.  Any agreement
pursuant to which the Lender may grant such a participating interest shall
provide that the Lender shall retain the sole right and responsibility to
enforce the obligations of the Borrower hereunder including the right to
approve any amendment, modification or waiver of any provision of this
Agreement; provided that such participation
agreement may provide that the Lender will not agree to any modification,
amendment or waiver of this Agreement described in clauses (i) through (vi),
inclusive, of Section 11.05 without such Participant’s consent.  An assignment or other transfer which is not
permitted by Section 10.03 shall be given effect for purposes of this Agreement
only to the extent of a participating interest granted in accordance with this
Section 10.02.

 

Section 10.03         Assignments.  (a) The Lender may at any time assign to one
or more financial institutions (each an “Assignee”) all,
or a proportionate part of all, of its rights and obligations under this
Agreement, and such Assignee shall assume such rights and obligations, pursuant
to an instrument, in substantially the form of Exhibit F
(an “Assignment and Acceptance”), executed by
such Assignee and the Lender, with (and subject to) the signed consent of the
Borrower (which consent shall not be unreasonably withheld) and the
Administrative Agent (which consent shall not be unreasonably withheld); provided that (i) the foregoing consent requirements shall
not be applicable in the case of an assignment or other transfer by the Lender
to an Affiliate of the Lender or to a Federal Reserve Bank, and (ii) the
aforementioned consent of the Borrower shall not be required if there shall
have occurred a Default that is continuing or have occurred as an Event of
Default that is continuing.  Upon
execution and delivery of an Assignment and Acceptance and payment by such
Assignee to the Lender of an amount equal to the purchase price agreed between the
Lender and such Assignee and payment by the Lender or the Assignee of any agreed
upon assignment fee to the

 

45

 

Administrative Agent,
such Assignee shall have all the rights and obligations of the Lender as set
forth in such Assignment and Acceptance, and the Lender shall be released from
its obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required.

 

(b)           No Assignee of any of the Lender’s
rights shall be entitled to receive any greater payment under Section 4.03 or
4.04 than the Lender would have been entitled to receive with respect to the
rights transferred.

 

Section 10.04         Certain
Pledges. 
Notwithstanding any other provision in this Agreement, the Lender may at
any time create a security interest in, or pledge, all or any portion of its
rights under this Agreement and any Note held by it in favor of any Federal
Reserve Bank in accordance with Federal Reserve Board Regulation A (or any successor
provision) or U.S. Treasury Regulation 31 C.F.R. § 203.14 (or any successor
provision), and such Federal Reserve Bank may enforce such pledge or security
interest in any manner permitted under applicable law.

 

ARTICLE XI

 

Miscellaneous

 

Section 11.01         APPLICABLE LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.

 

Section 11.02         WAIVER OF JURY.  THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE LENDER EACH HEREBY WAIVES
TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT
OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, THE NOTES OR THE
RELATIONSHIPS ESTABLISHED HEREUNDER.

 

Section 11.03         Jurisdiction and Venue;
Service of Process.  (a)  The
Borrower, the Administrative Agent and the Lender each hereby irrevocably
submits to the non-exclusive jurisdiction of any state or federal court in the
Borough of Manhattan, The City of New York for the purpose of any suit, action,
proceeding or judgment relating to or arising out of any Credit Document and to
the laying of venue in the Borough of Manhattan, The City of New York.  The Borrower, the Administrative Agent and
the Lender each hereby irrevocably waives, to the fullest extent permitted by
applicable law, any objection to the laying of the venue of any such suit,
action or proceeding brought in the aforesaid courts and hereby irrevocably
waives any claim that any such suit, action or proceeding brought in any such court
has been brought in an inconvenient forum.

 

(b)           The Borrower agrees that service of
process in any such action or proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to the Borrower at its address set forth in subsection
11.07(a) or at such other address of which the Administrative Agent shall have
been notified pursuant thereto.  The
Borrower further agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction.

 

46

 

(c)           The Borrower waives, to the maximum
extent not prohibited by law, any right it may have to claim or recover in any
legal action or proceeding referred to in this subsection any special,
exemplary, punitive or consequential damages.

 

Section 11.04         Set-off.  The Borrower hereby authorizes the Lender,
upon the occurrence of an Event of Default and at any time and from time to
time during the continuance thereof, to the fullest extent permitted by law, to
setoff and apply any and all deposits (whether general or special, time or
demand, provisional or final and in whatever currency) at any time held, and
other Indebtedness at any time owing, by the Lender to or for the credit or the
account of the Borrower against any of the obligations of the Borrower, now or
hereafter existing under any Credit Document, held by the Lender, irrespective
of whether the Lender shall have made any demand under this Agreement and
although such obligations may be unmatured. 
The rights of the Lender under this Section 11.04 are in addition to
other rights and remedies (including other rights of set-off) which the Lender
may have.  The Lender, when exercising
its rights under this Section 11.04, shall give notice thereof to the Borrower
and the Administrative Agent concurrently with or prior to the exercise of such
rights; provided that failure to give such
notice shall not affect the validity of such exercise.

 

Section 11.05         Amendments and Waivers.  (a)  Any provision of this
Agreement or any other Credit Document (unless otherwise provided in such other
Credit Document) may be amended, modified, supplemented or waived, but only by
a written amendment or supplement, or written waiver, signed by the Borrower
and the Lender (and, if the rights or duties of the Administrative Agent are
affected thereby, by the Administrative Agent), or the Administrative Agent
with the consent of the Lender.

 

(b)           Except to the extent expressly set
forth therein, any waiver shall be effective only in the specific instance and
for the specific purpose for which such waiver is given.

 

Section 11.06         Cumulative Rights; No Waiver.  Each and every right granted to the Administrative
Agent and the Lender hereunder or under any other Credit Document or any other
document delivered in connection herewith, or allowed them by law or equity,
shall be cumulative and not exclusive and may be exercised from time to
time.  No failure on the part of the
Administrative Agent or the Lender to exercise, and no delay in exercising, any
right will operate as a waiver thereof, nor will any
single or partial exercise by the Administrative Agent or the Lender of any
right preclude any other or future exercise thereof or the exercise of any
other right.

 

Section 11.07         Notices.  (a)  Any communication, demand or
notice to be given hereunder will be duly given when delivered in writing or by
telecopy to a party at its address as indicated below or such other address as
such party may specify in a notice to each other party hereto.  A communication, demand or notice given
pursuant to this Section 11.07 shall be addressed:

 

If to the
Borrower, at

 

Sterling Financial Corporation

111 North Wall Street

Spokane, WA  99201

Telecopy:  509-624-6233

 

Attention:  Chief
Financial Officer

 

47

 

with
a copy to:

 

Witherspoon, Kelley, Davenport & Toole, P.S.

1100 U.S. Bank Building

422 West Riverside Avenue

Spokane, WA  99201

Telecopy:  509-458-2728

 

Attention: Andrew J. Schultheis, Esq.

 

If a Borrowing Request
or in connection with any interest payment, then to the Administrative Agent or
Collateral Agent at

 

Bank of Scotland

565 Fifth Avenue

New York, New York 
10017

Telecopy:  212-479-2807

 

Attention:  Shirley
Vargas

 

If any other
communication, then to the Administrative Agent or Collateral Agent at

 

Bank of Scotland

565 Fifth Avenue

New York, New York 
10017

Telecopy:  212-479-2807

 

Attention:  Shirley
Vargas

 

with
copy to:

 

Bank of Scotland

1420 5th Avenue, Suite 1475

Seattle, WA  98101 

Telecopy:  206-343-4896

 

Attention: 
Roderic Davis

 

If to the Lender, at :

 

Bank of Scotland

1420 5th Avenue, Suite 1475

Seattle, WA  98101 

Telecopy:  206-343-4896

 

Attention: 
Roderic Davis

 

This Section 11.07
shall not apply to notices referred to in Article II of this Agreement, except
to the extent set forth therein.

 

48

 

(b)           Unless otherwise provided to the
contrary herein, any notice which is required to be given in writing pursuant
to the terms of this Agreement may be given by telecopy.

 

Section 11.08         Certain Acknowledgments.  The Borrower hereby confirms and acknowledges
that (a) neither the Administrative Agent nor the Lender has any fiduciary or
similar relationship to the Borrower and that the relationship established by
the Credit Documents between the Administrative Agent and the Lender, on the
one hand, and the Borrower, on the other hand, is solely that of creditor and
debtor and (b) that no joint venture exists between the Borrower and the Lender.

 

Section 11.09         Separability.  In case any one or more of the provisions
contained in any Credit Document shall be invalid, illegal or unenforceable in
any respect under any law, the validity, legality and enforceability of the
remaining provisions contained herein or in any other Credit Document shall not
in any way be affected or impaired thereby.

 

Section 11.10         Parties
in Interest.  This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Administrative Agent and the Lender and their respective successors and
assigns, except that the Borrower may not assign any of its rights hereunder
without the prior written consent of the Lender, and any purported assignment
by the Borrower without such consent shall be void.

 

Section 11.11         Execution in Counterparts.  This Agreement may be executed in any number
of counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all the
counterparts shall together constitute one and the same instrument.

 

Section 11.12         Confidentiality.  Each of the Administrative Agent and the
Lender agrees to maintain the confidentiality of the Information (as defined
below), except that Information may be disclosed (a) to its and its Affiliates’
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that any Persons to whom such
disclosure is made pursuant to Section 11.12(a) or 11.12(d) will be informed of
the confidential nature of such Information and instructed to keep such
Information confidential), (b) to the extent requested by any regulatory
authority, (c) to the extent required by applicable laws or regulations or by
any subpoena or similar legal process, (d) to any other party to this
Agreement, (e) in connection with the exercise of any remedies hereunder or any
suit, action or proceeding relating to this Agreement or any other Credit
Document or the enforcement of rights hereunder or thereunder, (f) subject to
an agreement containing provisions substantially the same as those of this
section, to any Assignee of or Participant in, or any prospective Assignee of
or Participant in, any of its rights or obligations under this Agreement, (g)
with the consent of the Borrower or (h) to the extent such Information (i)
becomes publicly available other than as a result of a breach of this section
or (ii) becomes available to the Administrative Agent or the Lender on a
nonconfidential basis from a source other than the Borrower.  For the purposes of this Section, “Information” means all information received from the
Borrower relating to the Borrower or the business of the Borrower and its
Subsidiaries, other than any such information that is available to the
Administrative Agent or the Lender on a nonconfidential basis prior to
disclosure by the Borrower; provided that, in the case of information received
from the Borrower after the date hereof, such information (except as disclosed
pursuant to Section 7.01(a)(viii)) is clearly identified at the time of
delivery as confidential.  Any Person
required to maintain the confidentiality of Information as provided in this Section
shall be considered to have complied with its obligation to do so if such
Person has exercised the same degree of care to maintain the

 

49

 

confidentiality
of such Information as such Person would accord to its own confidential
information.

 

[THE NEXT PAGE IS THE SIGNATURE
PAGE]

 

50

 

IN
WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.

 

 

	
   

  	
  STERLING FINANCIAL CORPORATION

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ William R. Basom

  	
   

  
	
   

  	
   

  	
  Name:

  	
  William R. Basom

  
	
   

  	
   

  	
  Title:

  	
  Vice President, Treasurer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BANK OF SCOTLAND, as

  Administrative Agent and Collateral Agent

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Karen Weich

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Karen Weich

  
	
   

  	
   

  	
  Title:

  	
  Assistant Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BANK OF SCOTLAND, as the Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Karen Weich

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Karen Weich

  
	
   

  	
   

  	
  Title:

  	
  Assistant Vice President

  
					

 

51

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