Exhibit 10.1

 

AMENDED AND RESTATED

 

EMPLOYMENT AGREEMENT

 

 

THIS AGREEMENT, made effective as of March 19, 2005, by and between STERLING
FINANCIAL CORPORATION (“Sterling”) and HAROLD B. GILKEY (the “Executive”),

 

WITNESSETH:

 

WHEREAS, the Executive is Chairman of the Board and Chief Executive Officer of
Sterling, and Sterling desires to retain the Executive and the Executive is
willing to continue to serve in such capacities on the terms and conditions
herein set forth; and

 

WHEREAS, the parties desire to enter into this Agreement, which is intended to
amend and supersede an existing Employment Agreement, as amended (the “Prior
Agreement”);

 

NOW THEREFORE, in consideration of the mutual covenants herein contained, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as follows:

 

1.                                       Employment.  Sterling agrees to
continue to employ the Executive, and the Executive agrees to continue to be
employed by Sterling, upon the terms and conditions hereinafter provided until
December 31, 2009 (the “Term”).

 

2.                                       Position and Duties.  During the Term,
Sterling agrees to employ the Executive to serve as the Chairman of the Board
and Chief Executive Officer of Sterling, and the Executive will have such powers
and duties as are commensurate with such position and as may be conferred upon
him by the Board of Directors of Sterling (the “Board”).  During the Term, and
except for illness or incapacity and reasonable vacation periods as shall be
consistent with Sterling’s policies for other key executives, the Executive
shall devote all of his business time, attention, skill and efforts exclusively
to the business and affairs of Sterling and its subsidiaries; provided, however,
that the Executive may serve on other boards as a director or trustee if such
service does not interfere with his ability to discharge his duties and
responsibilities to Sterling.

 

3.                                       Compensation.  For all services
rendered by the Executive in any capacity required hereunder during the Term,
including, without limitation, services as an executive

 

1

--------------------------------------------------------------------------------

 

officer, director, or member of any committee of Sterling, or any subsidiary or
division thereof, the Executive shall be compensated as follows:

 

(a)                                  Base Salary.  Sterling shall pay the
Executive a fixed minimum salary of $500,000 per annum (such amount or such
higher annual amount as is paid from time to time pursuant to the terms hereof
being referred to as the “Base Salary”).  The Base Salary shall be subject to
such periodic review (which shall occur at least annually) and such periodic
increases as the Board shall deem appropriate in accordance with Sterling’s
customary procedures and practices regarding the salaries of senior officers. 
The Base Salary shall be payable in accordance with the customary payroll
practices of Sterling, but in no event less frequently than monthly.

 

(b)                                 Bonus Awards.  The Executive shall be
entitled to receive an incentive bonus (the “Incentive Bonus”) for each fiscal
year during the Term.  The Incentive Bonus shall be paid within thirty days of
the end of each fiscal year.  The Incentive Bonus shall be a minimum of ten
percent of the Executive’s Base Salary and the Executive shall be awarded a
minimum of 10,000 nonqualified stock options under Sterling’s stock option or
incentive plan(s) then in effect.  The Incentive Bonus may be increased, upon
the recommendation of the Personnel Committee and the approval of the Board,
depending, among other factors, upon the attainment of performance goals set by
the Board for the Executive and for Sterling.

 

(c)                                  Stock Options.  The Executive shall be
eligible to receive grants under Sterling’s stock option or incentive plan(s)
then in effect subject to the terms and conditions of such plan(s).

 

(d)                                 Perquisites.  Sterling also will furnish the
Executive during each fiscal year of the Term, without cost to him except any
associated tax liability, with reasonable (i) payment for tax preparation and
financial planning; (ii) payment for an annual physical examination of the
Executive by a physician selected by the Executive; (iii) reimbursement for club
membership fees or dues; and (iv) payment of an automobile allowance, it being
understood that the club membership fees or dues and the automobile allowance
shall be primarily to further the business of Sterling.

 

(e)                                  Goodwill Lawsuit.  Sterling is the
plaintiff in a lawsuit in the United States Court of Federal Claims (the
“Goodwill Lawsuit”).  Notwithstanding anything to the

 

2

--------------------------------------------------------------------------------

 

contrary herein, if and when a settlement or judgment amount is received by
Sterling or its subsidiaries, successors or assigns, as a result of the Goodwill
Lawsuit or any related lawsuit, the Executive shall be paid three percent of the
gross amount received, in recognition of the Executive’s substantial
contribution in bringing about the settlement or judgment.  The parties
recognize and agree that any material decisions regarding the management,
settlement or dismissal of the Goodwill Lawsuit will be made by the Board.  This
provision shall survive any termination of this Agreement.

 

(f)                                    Additional Benefits.  Except as modified
by this Agreement, the Executive shall be entitled to participate in all
compensation or employee benefit plans or programs, and to receive all benefits,
perquisites and emoluments, for which any salaried employees of Sterling are
eligible under any plan or program now or hereafter established and maintained
by Sterling for senior officers, to the fullest extent permissible under the
general terms and provisions of such plans or programs and in accordance with
the provisions thereof, including group hospitalization, health, dental care,
life or other insurance, tax-qualified pension, savings, thrift, 401(k) and
profit-sharing plans, termination pay programs, sick-leave plans, travel or
accident insurance, salary continuation plans, disability insurance, automobile
allowance or automobile lease plans, and executive contingent compensation
plans, including, without limitation, stock option or incentive plan(s) then in
effect.

 

4.                                       Business Expenses.  It is understood
that for the Executive to successfully perform his duties hereunder so as to
produce the greatest economic return to Sterling, it is necessary for the
Executive to entertain persons having an existing or prospective business
relationship with Sterling and to attend seminars, conventions and continuing
education programs.  Sterling, therefore, shall pay directly or reimburse the
Executive for all reasonable travel, entertainment or other expenses incurred by
the Executive (and his spouse where there is a legitimate business reason for
his spouse to accompany him) in connection with the performance of his duties
and obligations under this Agreement, subject to the Executive’s presentation of
appropriate vouchers in accordance with such procedures as Sterling may from
time to time establish for senior officers and to preserve any deductions for
Federal income taxation purposes to which Sterling may be entitled.

 

3

--------------------------------------------------------------------------------

 

5.                                       Effect of Termination of Employment
Other Than in Connection with a Change in Control.

 

(a)                                  Certain Terminations.  In the event the
Executive’s employment hereunder terminates due to either Permanent Disability,
a Without Cause Termination or a Constructive Discharge, Sterling shall, as
severance pay, continue, subject to the provisions of Section 7 below, to pay
the Executive’s Base Salary as in effect at the time of such termination until
(i) the expiration of the Term or (ii) for a three-year period beginning on the
date of Termination of Employment, whichever is longer (the “Severance Period”),
provided, that in the case of Permanent Disability, such payments shall be
offset by any amounts otherwise paid to the Executive under Sterling’s
disability program generally available to other employees.  In addition, earned
but unpaid Base Salary and Incentive Bonus amounts and amounts (whether vested
or not) held for the Executive’s account in Sterling=s deferred compensation
plan and supplemental executive retirement plan then in effect as of the date of
Termination of Employment shall be payable in full.  Medical, dental care, life
or other insurance, including travel or accident insurance, disability insurance
and the perquisites set forth in Section 3(d) shall continue through the end of
the Severance Period.  All stock options and other incentive awards held by the
Executive shall become fully exercisable during the Severance Period.

 

(b)                                 Other Terminations.  In the event that the
Executive’s employment hereunder terminates due to a Termination for Cause or
the Executive’s death, or the Executive voluntarily terminates employment with
Sterling for reasons other than a Constructive Discharge or Permanent
Disability, earned but unpaid Base Salary and Incentive Bonus amounts as of the
date of Termination of Employment shall be payable in full.  However, no other
payments shall be made, or benefits provided, by Sterling under this Agreement
except for stock options and other incentive awards held by the Executive
pursuant to the terms of the grant(s) thereof, vested benefits payable under the
terms of the deferred compensation plan and supplemental executive retirement
plan then in effect, and any other benefits which the Executive is entitled to
receive under the terms of employee benefit programs maintained by Sterling or
its subsidiaries for its employees.

 

4

--------------------------------------------------------------------------------

 

(c)                                  Definitions.  For purposes of this
Agreement, the following terms have the following meanings:

 

(i)                                     The term “Termination for Cause” means:

 

(A)                              the continued failure of Executive to
substantially perform the Executive’s duties with Sterling or one of its
subsidiaries (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial performance
is delivered to the Executive by the Board, which specifically identifies the
manner in which the Board believes that the Executive has not substantially
performed the Executive’s duties, or

 

(B)                                the willful engaging by the Executive in
illegal conduct that is materially and demonstrably injurious to Sterling or any
of its subsidiaries, or

 

(C)                                conviction of a felony involving fraud,
dishonesty or moral turpitude, or a guilty or nolo contendere plea by Executive
with respect thereto, or

 

(D)                               violation of the provisions of Section 7
herein.

 

For purposes of this provision, no act or failure to act on the part of
Executive shall be considered “willful” unless it is done, or omitted to be
done, by the Executive in bad faith and without reasonable belief that the
Executive’s action or omission was in the best interest of Sterling or its
subsidiaries.  Any act or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board or based upon the advice of counsel for
Sterling shall be conclusively presumed to be done, or omitted to be done, by
the Executive in good faith and in the best interests of Sterling and its
subsidiaries.  The cessation of employment of the Executive shall not be deemed
to be a Termination for Cause unless and until there shall have been delivered
to the Executive a copy of a resolution duly adopted by the affirmative vote of
not less than two-thirds of the entire membership of the Board at a meeting of
the Board called and held for such purpose (after reasonable notice is provided
to Executive and the Executive is given an opportunity, together with counsel,
to be heard before the Board),

 

5

--------------------------------------------------------------------------------

 

finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described in subparagraph (A), (B) or (D) above, and specifying the
particulars thereof in detail.

 

(ii)                                  The term “Constructive Discharge” means a
termination of the Executive’s employment by the Executive due to a failure of
Sterling or its successors, without the prior consent of the Executive, to
fulfill the obligations under this Agreement in any material respect, including
(A) any failure of the shareholders of Sterling to elect or reelect, or of
Sterling to appoint or reappoint, the Executive as a member of the Board, or to
the offices of Chairman of the Board and Chief Executive Officer of Sterling, or
(B) any other material adverse change by Sterling in the functions, duties or
responsibilities of the Executive’s position with Sterling.

 

(iii)                               The term “Without Cause Termination” means a
termination of the Executive’s employment by Sterling, for a reason other than
Permanent Disability, retirement, expiration of the Term, or Termination for
Cause.

 

(iv)                              The term “Permanent Disability” means the
inability of the Executive to work for a period of six full calendar months
during any twelve consecutive calendar months due to illness or injury of a
physical or mental nature.  Any questions as to the existence of the Permanent
Disability of Executive as to which Executive and Sterling cannot agree shall be
determined in writing by a qualified independent physician mutually acceptable
to Executive and Sterling.  If Executive and Sterling cannot agree as to a
qualified independent physician, each shall appoint such a physician and those
two physicians shall select a third who shall make such determination in
writing.  Such determination made in writing to Sterling and Executive shall be
final and conclusive for all purposes under this Agreement.

 

6.                                       Effect of Termination of Employment in
Connection with a Change in Control.

 

(a)                                  Definitions.  For purposes of this
Agreement, the following terms shall have the following meanings:

 

(i)                                     A “Change in Control” shall be deemed to
have occurred at such time as:

 

6

--------------------------------------------------------------------------------

 

(A)                              any “person” (as that term is used in Section
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) (other than Sterling or affiliates of Sterling) becomes,
directly or indirectly, the “beneficial owner” (as defined in Rule 13d-3 under
the Exchange Act) of securities representing 25% or more of the then outstanding
securities of Sterling;

 

(B)                                during any period of two (2) consecutive
years or less, individuals who at the beginning of such period constituted the
Board of Sterling cease, for any reason, to constitute at least a majority of
the Board, unless the election or nomination for election of each new member of
the Board was approved by a vote of at least two-thirds of the members of the
Board then still in office who were members of the Board at the beginning of the
period; or

 

(C)                                the Shareholders of Sterling approve: (1) a
plan of complete liquidation of Sterling; (2) an agreement for the sale or
disposition of all or substantially all of Sterling’s assets; or (3) a merger or
consolidation of Sterling with any other corporation, other than a merger or
consolidation that would result in the voting securities of Sterling outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting power of the voting securities of
Sterling or such surviving entity outstanding immediately after such merger or
consolidation.

 

(ii)                                  “Separation Period” means the balance of
the Term or a three-year period beginning on the date of Termination of
Employment, whichever is longer.

 

(iii)                               “Termination of Employment” shall mean the
termination of the Executive’s actual employment with Sterling.

 

(iv)                              “Termination Upon a Change of Control” shall
mean a Termination of Employment upon or within eighteen months after a Change
of Control.

 

7

--------------------------------------------------------------------------------

 

(b)                                 Payments for Termination upon a Change of
Control.  Within twenty days of the Executive’s Termination upon a Change in
Control, Sterling shall pay to the Executive in a single payment in cash and/or
provide to the Executive, as applicable, the following:

 

(i)                                     the Executive’s earned but unpaid Base
Salary and Incentive Bonus amounts and amounts (whether vested or not) held for
the Executive’s account in the deferred compensation plan and the supplemental
executive retirement plan then in effect as of the date of Termination of
Employment;

 

(ii)                                the benefits, if any, to which the Executive
is entitled as a former employee under the employee benefit programs and
compensation plans and programs maintained for the benefit of Sterling’s
officers and employees;

 

(iii)                               continued medical, dental care, life or
other insurance, including travel or accident insurance and disability
insurance, and the perquisites set forth in Section 3(d) throughout the
Separation Period, with coverage equivalent to the coverage to which the
Executive would have been entitled had the Executive continued working for
Sterling during the Separation Period at the highest annual rate of Base Salary
achieved during the Executive’s period of actual employment with Sterling;
provided, however, that the Executive may upon written notice elect to receive
the present value of such coverage in cash in a lump sum, computed using a
discount rate of 6% per year compounded monthly;

 

(iv)                              an amount equal to the Base Salary and
Incentive Bonus amounts the Executive would have earned if the Executive had
continued working for Sterling during the Separation Period, at the highest
annual rate of Base Salary, and the highest annual Incentive Bonus achieved
during the Executive’s period of actual employment with Sterling; and

 

(v)                                 an amount equal to Sterling’s contributions
to which the Executive would have been entitled under Sterling’s 401(k) Plan if
the Executive had continued working for Sterling during the Separation Period at
the highest annual rate of Base Salary achieved during the Executive’s period of
actual employment with Sterling, and the Executive had made the maximum amount
of employee contributions as are permitted under such plans.

 

8

--------------------------------------------------------------------------------

 

(c)                                  Options and Other Incentive Awards.  All
stock options and other incentive awards held by the Executive shall become
fully vested and exercisable during the Separation Period.

 

(d)                                 Adjustment for Taxes.  In the event that
either Sterling’s independent public accountants or the Internal Revenue Service
determines that any payment, coverage, benefit or benefit acceleration provided
to Executive, whether specifically provided for in this Agreement or otherwise,
is subject to the excise tax imposed by Section 4999 (or any successor
provision) (“Section 4999”) of the Internal Revenue Code of 1986, as amended
(the “Code”), Sterling, within 30 days thereafter, shall pay to Executive, in
addition to any other payment, coverage or benefit due and owing hereunder, an
amount determined by multiplying the rate of excise tax then imposed by Section
4999 by the amount of the “excess parachute payment” (as defined in Section 280G
of the Code) received by Executive (determined without regard to any payments
made to the Executive pursuant to this paragraph) and dividing the product so
obtained by the amount obtained by subtracting the aggregate local, state and
Federal income tax rate applicable to the receipt by Executive of the “excess
parachute payment” (taking into account the deductibility for Federal income tax
purposes of the payment of state and local income taxes thereon) from the amount
obtained by subtracting from 1.00 the rate of excise tax then imposed by Section
4999 of the Code, it being Sterling’s intention that the Executive’s net after
tax position be identical to that which would have obtained had Sections 280G
and 4999 not been part of the Code.

 

(e)                                  In the event that, on or after the
occurrence of a Change in Control, Sterling fails to make any payment or provide
any coverage to Executive arising out of or relating in any way to this
Agreement or to the Executive’s employment by Sterling (collectively,
“Employment Rights”), then Sterling shall pay to the Executive and reimburse the
Executive for the Executive’s full costs (including, without limitation, the
fees and expenses of the Executive’s attorneys and court and related costs) of
enforcing the Executive’s Employment Rights.  In addition, if the enforceability
of this Agreement or the payment of any benefit to the Executive hereunder is
disputed by Sterling on or after the occurrence of a Change in Control, then the
Term of this Agreement shall be extended for the period of the dispute in the
event of a final judicial determination that

 

9

--------------------------------------------------------------------------------

 

the Executive is entitled to at least fifty percent (in dollar amount) of the
benefits which he claimed from, and which were disputed by, Sterling.

 

7.                                       Other Duties of Executive During and
After Term.

 

(a)                                  Confidential Information.  The Executive
recognizes and acknowledges that all information pertaining to the affairs,
business, clients, or customers of Sterling or any of its subsidiaries (any or
all of such entities being hereinafter referred to as the “Business”), as such
information may exist from time to time, other than information that Sterling
has previously made publicly available or which is in the public domain, is
confidential information and is a unique and valuable asset of the Business,
access to and knowledge of which are essential to the performance of the
Executive’s duties under this Agreement.  The Executive shall not, through the
end of the Term, except to the extent reasonably necessary in the performance of
his duties under this Agreement, divulge to any person, firm, association,
corporation, or governmental agency, any information concerning the affairs,
business, clients, or customers of the Business (except such information as is
required by law to be divulged to a government agency or pursuant to lawful
process), or make use of any such information for his own purposes or for the
benefit of any person, firm, association or corporation (except the Business)
and shall use his reasonable best efforts to prevent the disclosure of any such
information by others.  All records, memoranda, letters, books, papers, reports,
accountings, experience or other data, and other records and documents relating
to the Business, whether made by the Executive or otherwise coming into his
possession, are confidential information and are, shall be, and shall remain the
property of the Business.  No copies thereof shall be made which are not
retained by the Business, and the Executive agrees, on termination of his
employment or on demand of Sterling, to deliver the same to Sterling.

 

(b)                                 Non-Compete.  For a period of two years
following Executive’s Termination of Employment (the “Non-Compete Period”),  the
Executive shall not, without express prior written approval of Sterling’s Board,
directly or indirectly own or hold any proprietary interest in, or be employed
by or receive remuneration from, any corporation, partnership, sole
proprietorship or other entity engaged in competition with Sterling or any of
its subsidiaries (a “Competitor”), other than severance-type or retirement-type
benefits from entities constituting prior employers of the Executive.

 

10

--------------------------------------------------------------------------------

 

During the Non-Compete Period, the Executive also agrees that he will not
solicit for the account of any Competitor, any customer or client of Sterling or
its subsidiaries.  The Executive also agrees not to act on behalf of any
Competitor to interfere with the relationship between Sterling or its
subsidiaries and their employees during the Non-Compete Period.  In addition, if
the Executive obtains non-competitive employment during the Non-Compete Period,
for such period the Executive agrees not to solicit employees of Sterling or its
subsidiaries for new employment without the prior written consent of Sterling. 
For purposes of this section, (i) the term “proprietary interest” means legal or
equitable ownership, whether through stockholdings or otherwise, of greater than
a 20% equity interest in a business, firm or entity, and (ii) an entity shall be
considered to be “engaged in competition” if such entity is, or is a holding
company for, a bank, savings and loan association or other financial services
business engaged in a business that competes with Sterling in the States of
Washington, Idaho, Montana or Oregon.  Executive acknowledges the receipt and
sufficiency of specific consideration for the agreements in this Section 7.

 

(c)                                  Remedies.  Sterling’s obligation to make
payments, deliver shares of stock or provide for any benefits under this
Agreement (except to the extent vested or exercisable prior to Executive’s
Termination of Employment) shall cease upon a violation of the preceding
provisions of this section.  The provisions of this Section 7 shall: (a) survive
the termination of this Agreement, and continue throughout the duration of the
Executive’s employment with Sterling, except as amended or modified by written
agreement of the parties; and (b) survive the Executive’s Termination of
Employment with Sterling.

 

(d)                                 Modification of Terms.  If any restriction
in this Section 7 is finally adjudicated by a court of competent jurisdiction to
exceed the time, geographic, service or other limitations permitted by
applicable law in any jurisdiction, such restriction may be modified and
narrowed by a court to the maximum time, geographic, service or other
limitations permitted by applicable law so as to preserve and protect Sterling’s
legitimate business interest, without negating or impairing any other
restrictions or undertaking set forth in the Agreement.

 

11

--------------------------------------------------------------------------------

 

(e)                                  Application.  The provisions of this
Section 7 shall be inapplicable if the Executive’s Termination of Employment is
due to:  a Permanent Disability; a Without Cause Termination; a Constructive
Discharge; or a Termination Upon a Change in Control.

 

8.                                       Withholding Taxes.  Sterling may
directly or indirectly withhold from any payments made under this Agreement all
Federal, state, city or other taxes as shall be required pursuant to any law or
governmental regulation or ruling.

 

9.                                       Consolidation, Merger, or Sale of
Assets.  Nothing in this Agreement shall preclude Sterling from consolidating or
merging into or with, or transferring all or substantially all of its assets to,
another corporation which assumes this Agreement and all obligations and
undertakings of Sterling hereunder.  Upon such a consolidation, merger or
transfer of assets, the term “Sterling” as used herein shall mean such other
corporation and this Agreement shall continue in full force and effect.

 

10.                                 Notices.  All notices, requests, demands and
other communications required or permitted hereunder shall be given in writing
and shall be deemed to have been duly given if delivered or mailed, postage
prepaid, by same day or overnight mail as follows:

 

(a)                                  To Sterling:

 

111 Wall Street

Spokane, WA 99201

Attention: Chief Financial Officer

 

With a copy to:

 

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

422 West Riverside, Ste. 1100

Spokane, WA 99201-0390

 

(b)                                 To the Executive:

 

At his regular office and to his

primary residence

 

or to such other address as either party shall from time-to-time specify in
writing to the other.

 

11.                                 No Attachment.  Except as required by law,
no right to receive payments under this Agreement shall be subject to
anticipation, commutation, alienation, sale, assignment,

 

12

--------------------------------------------------------------------------------

 

encumbrance, charge, pledge or hypothecation, or to execution, attachment, levy
or similar process, or assignment by operation of law, and any attempt,
voluntary or involuntary, to effect any such action shall be null, void and of
no effect; provided, however, that nothing in this Section 11 shall preclude the
assumption of such rights by executors, administrators or other legal
representatives of the Executive or his estate and their assigning any rights
hereunder to the person or persons entitled thereto.

 

12.                                 No Mitigation.  The Executive shall not be
required to mitigate the amount of any payment or benefit provided for in this
Agreement by seeking other employment or otherwise, nor shall the amount of any
payment or benefit provided for in this Agreement be reduced by any compensation
earned by other employment or otherwise, except as provided herein.

 

13.                                 Source of Payment.  All payments provided
for under this Agreement shall be paid in cash from the general funds of
Sterling.  To the extent that any person acquires a right to receive payments
from Sterling hereunder, such right, without prejudice to rights which employees
may have, shall be no greater than the right of an unsecured creditor of
Sterling.

 

14.                                 Further Action.  Sterling shall perform all
acts and execute all documents as may be reasonably necessary to effect
performance of this Agreement by Sterling.  In the event Sterling=s Deferred
Compensation Plan, the 1992 Stock Option Plan, the 1998 Long-Term Incentive
Plan, the 2001 Long-Term Incentive Plan, and the Supplemental Executive
Retirement Plan, or plans which are substantially similar to such plans are not
maintained, Sterling shall provide the Executive with compensation which is
substantially similar in financial effect to the compensation which would
otherwise have been provided through such plans.  References herein to deferred
compensation, stock option or incentive plan(s) and any other benefit plans
shall be deemed to include all successor plans.  Nothing in this Agreement shall
be deemed to be a modification of Sterling=s stock option or incentive plans.

 

15.                                 Severability.  If any provision of this
Agreement or application thereof to anyone or under any circumstances is finally
adjudicated by a court of competent jurisdiction to be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect any
other provision or application and shall not invalidate or render unenforceable
such provision or application in any other jurisdiction.

 

16.                                 Contents of Agreement.  This Agreement
supersedes all prior agreements and sets forth the entire understanding among
the parties hereto with respect to the subject matter hereof

 

13

--------------------------------------------------------------------------------

 

and cannot be changed, modified, extended or terminated except upon written
amendment approved by the parties hereto.

 

17.                                 Governing Law.  The validity,
interpretation, performance, and enforcement of this Agreement shall be governed
by the laws of the State of Washington, and the Executive consents to the
jurisdiction of the state and federal courts of Washington in any dispute
arising under this Agreement.

 

18.                                 Survival of Benefits.  If the Term expires
and no employment agreement between Sterling and Executive is in effect, but
Executive’s employment relationship with Sterling continues, any section of this
Agreement which provides a benefit to the Executive and which does not expressly
provide for its termination upon the expiration of the Term shall survive the
expiration of the Term and the obligation to provide benefits to the Executive
as set forth in such Section shall remain binding upon Sterling until such time
as the Executive’s employment relationship with Sterling is terminated and the
benefits provided under such Section are paid in full to the Executive or until
such time as a new employment agreement between Sterling and Executive is in
effect.  Anything to the contrary herein notwithstanding, following any
Termination of Employment, including retirement, but not following a Termination
for Cause, Sterling shall continue to provide the perquisites set forth in
Section 3(d)(i), (ii) and (iii), as well as medical, dental, disability and
travel accident insurance coverages for the Executive and his spouse to the same
extent as if the Executive had continued in Sterling’s employ, provided that
such coverages shall be offset by the receipt of any alternate benefits under
Medicare or similar programs.

 

19.                                 Representations.  The Executive hereby
represents and warrants that he has the legal capacity to execute and perform
this Agreement, that it is a valid and binding agreement against him according
to its terms, and that its execution and performance by him does not and will
not violate the terms of any existing agreement or understanding to which the
Executive is a party.  In addition, the Executive represents and warrants that
he knows of no reason why he is not physically capable of performing his
obligations under this Agreement in accordance with its terms.

 

20.                                 Miscellaneous.  All section headings are for
convenience only. This Agreement may be executed in any number of counterparts,
each of which when executed shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.  It

 

14

--------------------------------------------------------------------------------

 

shall not be necessary in making proof of this Agreement or any counterpart
hereof to produce or account for any of the other counterparts.

 

21.                                 Compliance with Section 409A of the Code. 
This Agreement is intended to constitute an enforceable contract for the payment
of compensation, severance and certain other benefits.  The Agreement is not
intended to constitute a “nonqualified deferred compensation plan” within the
meaning of Section 409A of the Code.  Notwithstanding the foregoing, in the
event this Agreement and/or any benefit paid to the Executive hereunder is
deemed to be subject to Section 409A of the Code, this Agreement shall be
amended as reasonably necessary to bring this Agreement and/or any such benefit
into compliance with Section 409A of the Code, without reducing the amounts of
any benefits due to the Executive hereunder.

 

IN WITNESS WHEREOF, and intending to be legally bound, Sterling has caused this
Agreement to be executed by its duly authorized representatives and the
Executive has signed this Agreement, all as of the first date above written.

 

 

STERLING FINANCIAL CORPORATION

 

 

 

 

BY:

    /s/   Robert D. Larrabee

 

 

 

ROBERT D. LARRABEE

 

 

 

ATTEST:

 

 

 

 

 

STERLING FINANCIAL CORPORATION

 

 

 

 

 

BY:

    /s/   Daniel G. Byrne

 

 

 

 

DANIEL G. BYRNE

 

 

 

Senior Vice President - Finance

 

 

 

 

 

 

 

 

 

 

 

   

 

    /s/   Harold B. Gilkey

 

 

 

HAROLD B. GILKEY

 

15

--------------------------------------------------------------------------------