Exhibit 10.11

 

EMPLOYMENT AGREEMENT

BY AND AMONG

HERITAGE FINANCIAL CORPORATION,

HERITAGE BANK

AND DONALD V. RHODES

 

THIS EMPLOYMENT AGREEMENT is made and entered into this 26th day of August,
2004, by and between HERITAGE FINANCIAL CORPORATION, a Washington corporation
(the “Company”), HERITAGE BANK, a Washington banking corporation (the “Bank”)
and DONALD V. RHODES (“Executive”). It shall be effective on the Effective Date
as noted in Section 8.5 below.

 

RECITALS

 

1. The Company is the parent corporation of the Bank. The Bank is a first tier
wholly owned subsidiary of the Company. Hereinafter, the Company and the Bank
are collectively referred to as the “Employer”.

 

2. Executive is the Chairman and Chief Executive Officer of the Company and has
developed an intimate and thorough knowledge of Employer’s business methods and
operations.

 

3. The retention of Executive’s services for and on behalf of the Employer is of
material importance to the preservation and enhancement of the value of the
Employer’s business.

 

In consideration of the mutual promises made in this Agreement, the parties
agree as follows:

 

AGREEMENT

 

1. EMPLOYMENT.

 

Employer hereby employs Executive and Executive hereby accepts employment with
Employer on the terms and conditions set forth in this Agreement.

 

2. TERM.

 

The original term of this Agreement will commence as of the Effective Date and
will continue until December 31, 2006.

 

3. DUTIES.

 

3.1 Executive will be the Chairman and Chief Executive Officer of Company and
occupy positions in such other subsidiaries or affiliates as the respective
Boards of Directors of the Company and the Bank (collectively, the “Board”)
shall determine. In such capacities, Executive will render those executive
management services and perform those tasks in connection with the affairs of
the Company which are normal and customary to the position. Unless otherwise
agreed by Executive and the Board, Executive shall preside at all meetings of
the Board and the Executive Committee. Executive will be the person to whom all
other officers of the Company, and, as appropriate, subsidiaries or affiliates
of Employer, shall report.

 

3.2 Executive will perform such other duties as may be appropriate to his office
and as may be prescribed from time to time by the Board. Executive may delegate
such duties as he sees fit to any other officer(s) of the Employer.

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3.3 Executive will devote his best efforts and such necessary time, attention,
and effort to the business and affairs of the Employer and any affiliated
companies as such business and affairs now exist or hereafter may be changed or
supplemented, in order to properly discharge his responsibilities under this
Agreement. Executive, however, will not be required to adhere to Company
vacation policy and is not prohibited from engaging in Company activities at
locations other than Company premises.

 

3.4 It is anticipated during the term of this Agreement that Executive may, in
the interest of appropriate management succession planning for the Company,
relinquish his role as Chief Executive Officer of the Company. In the event such
relinquishment of the Chief Executive Officer role occurs during the term of
this Agreement and prior to December 31, 2006, Executive will continue to serve
the Company as Chairman of the Board and as a consultant to management at the
same compensation as set forth in Section 4.1.1 during the term of the
Agreement.

 

4. SALARY, BONUS, AND OTHER COMPENSATION.

 

4.1 Base Salary.

 

4.1.1 During the term of this Agreement, Employer will pay to Executive an
annual base salary of $150,000 per year effective beginning on January 1, 2005.
Payment of such salary will be made in accordance with Employer’s normal payroll
practices applicable to senior executives and will be subject to required
withholding for federal income tax and other purposes.

 

4.1.2 The Company will guarantee payment of any portion of Executive’s
compensation that may be allocated to the Bank or any other subsidiary or
affiliate of the Company.

 

4.2 Bonus. During the term of this Agreement, Executive will not be eligible to
participate in Employer’s Management Incentive Plan or any successor
compensation plan for senior management of Employer as may be established by the
Board or the Employer’s Compensation Committee. Executive will not be eligible
for the grant of stock options except to the extent that outside board members
of the Company and its subsidiaries are eligible and receive stock options.

 

4.3 Benefits. In addition to the base salary payable to Executive pursuant to
this Section 4, Executive will be entitled to the following benefits, which
shall not be less than those provided in benefit programs generally maintained
for senior executives of the Employer:

 

4.3.1 Participation in health insurance, disability insurance, and other health
and welfare benefit programs generally available to senior executives of the
Company;

 

4.3.2 Participation in retirement plans, including defined contribution and
401(k) Plans and any supplements or additions to those plans;

 

4.3.3 Other employment benefits, as may be approved from time to time by
Employer;

 

4.3.4 Memberships in clubs as deemed appropriate; and

 

4.3.5 Reimbursement for Executive’s reasonable expenses incurred in promoting
the business of Employer. Executive shall present from time to time itemized
accounts of any such expenses, within limits of Employer policy and the rules
and regulations of the Internal Revenue Service.

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5. TERMINATION OF AGREEMENT.

 

5.1 Early Termination.

 

5.1.1 This Agreement may be terminated at any time by either the Company or
Executive and shall terminate automatically upon Executive’s death or Disability
(as defined in Section 7). No termination by the Company Board other than
termination for Cause (as defined below) shall prejudice the Executive’s right
to compensation or other benefits under this Agreement.

 

5.1.2 If Executive voluntarily terminates his employment effective before the
end of the term hereof without “Good Reason” as defined in Section 7, Executive
will be entitled to such compensation and benefits as he would have the right to
receive upon termination for Cause under subsection 5.1.4, and Executive’s
unvested stock options, if any, shall terminate in the manner provided in such
subsection.

 

5.1.3 If (i) Employer terminates this Agreement without Cause or (ii) Executive
terminates this Agreement for Good Reason, and either termination is effective
before the end of the term hereof, Employer shall pay Executive all reimbursable
expenses incurred through such termination date and, in addition, a severance
benefit in an amount equal to the amount of his then-current base salary which
would otherwise have been paid to Executive during the then-remaining term of
the Agreement. In such event, all forfeiture provisions regarding restricted
stock awards or vesting requirements regarding options shall lapse or be
considered completed as of the effective date of termination. Notwithstanding
the above, in the event Executive’s employment is terminated as a result of a
sale or a merger of the Company (a “Transaction”), Executive will be compensated
under the terms of this Agreement through the date of closing of the Transaction
without provision for severance thereafter.

 

5.1.4 If Employer terminates this Agreement for Cause effective before the end
of the term hereof, Employer shall pay Executive upon the effective date of such
termination only such salary earned and expenses reimbursable hereunder incurred
through such termination date. Executive shall have no right to receive
compensation or other benefits for any period after termination for Cause, and
in the case of termination for Cause, Executive’s unvested stock options, if
any, shall terminate immediately.

 

5.1.5 In the event of termination of this Agreement by reason of Executive’s
death or Disability, Employer shall pay Executive only such salary earned and
expenses reimbursable hereunder incurred through the date of Executive’s death
or the effective date of Executive’s Disability, and all forfeiture provisions
regarding restricted stock awards or vesting requirements concerning options
shall lapse or be considered completed, as applicable.

 

5.1.6 The Board, acting in good faith, shall make the final determination of
whether Executive is suffering under any Disability and, for purposes of making
such determination, may require Executive to submit himself to a physical
examination by a physician mutually agreed upon by Executive and the Company
Board at Employer’s expense. For purposes of this Agreement, the date of such
determination shall constitute the effective date of such Disability.

 

5.2 Exercise of Stock Options. Executive’s rights to vested but unexercised
stock options will continue for a period of one year after early termination
(provided that the terms of any option grant agreement shall not be extended by
this provision), except in the case of a termination for Cause pursuant to
Section 5.1.4 or without Good Reason pursuant to Section 5.1.2.

 

6. RESTRICTIVE COVENANT.

 

6.1 Noncompetition. Executive agrees that except as otherwise set forth in this
Agreement, he will not during the term of this Agreement and for a period of two
years after his termination, directly or indirectly, become interested in, as
principal shareholder, director, consultant, or officer, of any financial
institution that competes with Employer or its successor or any of its
affiliates within the State of Washington, provided that such covenant shall not
apply in the event that Executive’s employment is terminated without Cause or
for Good Reason. The provisions restricting competition by Executive may be
waived by action of the Board. Executive recognizes and agrees that any breach
of this covenant by Executive will cause immediate and irreparable injury to
Employer, and Executive hereby authorizes recourse by Employer to injunction
and/or specific performance, as well as to other legal or equitable remedies to
which Employer may be entitled.

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6.2 Noninterference. During the noncompetition period described in Section 6.1,
Executive shall not solicit or attempt to solicit any other employee of Employer
or its affiliates to leave the employ of those companies, or in any way
interfere with the relationship between Employer and any other employee of
Employer.

 

6.3 Interpretation. If a court or any other administrative body with
jurisdiction over a dispute related to this Agreement should determine that the
restrictive covenant set forth above is unreasonably broad, the parties hereby
authorize said court or administrative body to narrow same so as to make it
reasonable, given all relevant circumstances, and to enforce same. The covenants
in this paragraph shall survive termination of this Agreement.

 

7. DEFINITIONS.

 

7.1 Cause. “Cause” shall mean only (i) willful misfeasance or gross negligence
in the performance of his duties, (ii) conduct demonstrably and significantly
harmful to the Company (which would include willful violation of any final cease
and desist order applicable to Employer or a financial institution subsidiary),
or (iii) conviction of a felony.

 

7.2 Disability. “Disability” shall mean a medically reimbursable physical or
mental impairment that may be expected to result in death, or to be of long,
continued duration, and that renders Executive incapable of performing the
duties required under this Agreement.

 

7.3 Good Reason. “Good Reason” shall mean termination by Executive as a result
of (i) any material breach of this Agreement by Employer, (ii) any reduction of
Executive’s salary or any reduction or elimination of any compensation or
benefit plan, which reduction or elimination is not of general application to
substantially all employees of the Bank or such employees of any successor
entity or of any entity in control of the Bank, or (iii) the assignment to
Executive of any authority or duties substantially inconsistent with Executive’s
position.

 

8. MISCELLANEOUS.

 

8.1 This Agreement contains the entire agreement between the parties with
respect to Executive’s employment with Employer and his covenant not to compete
with Employer, and is subject to modification or amendment only upon amendment
in writing signed by both parties.

 

8.2 This Agreement shall bind and inure to the benefit of the heirs, legal
representatives, successors, and assigns of the parties. The provisions of
Section 6.1 of this Agreement are intended to confer upon Employer and any of
its subsidiaries and affiliates the benefits of Executive’s covenant not to
compete.

 

8.3 If any provision of this Agreement is invalid or otherwise unenforceable,
all other provisions shall remain unaffected and shall be enforceable to the
fullest extent permitted by law.

 

8.4 This Agreement is made with reference to and is intended to be construed in
accordance with the laws of the State of Washington. Venue for any action
arising out of or concerning this Agreement shall lie in Thurston County,
Washington. In the event of a dispute under this Agreement not involving
injunctive relief, the dispute shall be arbitrated pursuant to the Superior
Court Mandatory Arbitration (“MAR”) adopted by the Washington State Supreme
Court, irrespective of the amount in controversy. This Agreement shall be deemed
as stipulation to that effect pursuant to MAR 1.2 and 8.1. The arbitrator, in
his or her discretion, may award attorney’s fees to the prevailing party or
parties.

 

8.5 The Effective Date of this Agreement is January 1, 2005.

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8.6 Any notice required to be given under this Agreement to either party shall
be given by personal service or by depositing a copy thereof in the United
States registered or certified mail, postage prepaid, addressed to the following
address, or such other address as addressee shall designate in writing:

 

Employer:    Heritage Bank      201 5th Avenue S. W.      Olympia, WA 98501     
Attn: Board of Directors Executive:    Donald V. Rhodes      201 5th Avenue S.W.
     Olympia, WA 98501

 

IN WITNESS WHEREOF, the parties have executed this Agreement effective on the
date first above written.

 

HERITAGE FINANCIAL CORPORATION

 

HERITAGE BANK

By:  

/s/ Edward D. Cameron

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  By:  

/s/ Edward D. Cameron

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Its:  

Senior Vice President, Treasurer
and Secretary

  Its:  

Senior Vice President, Treasurer
and Secretary

 

EXECUTIVE:

/s/ Donald V. Rhodes

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Donald V. Rhodes