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                                 EXHIBIT 10(d)


                  Employment Agreement with Frank X. Hernandez
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                              EMPLOYMENT AGREEMENT


     THIS  AGREEMENT  is made  effective as of  October1,  1998,  by and between
KLAMATH FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION (the "Association"),  Klamath
Falls,  Oregon;   KLAMATH  FIRST  BANCORP,  INC.  (the  "Company"),   an  Oregon
corporation; and FRANK X. HERNANDEZ (the "Executive").

     WHEREAS,  the  Association  wishes to  assure  itself  of the  services  of
Executive for the period provided in this Agreement; and

     WHEREAS, the Executive is willing to serve in the employ of the Association
on a full-time basis for said period.

     NOW, THEREFORE,  in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:

1.   POSITION AND RESPONSIBILITIES.

     During the period of his employment hereunder, Executive agrees to serve as
Senior Vice  President/Chief  Operating Officer of the Association.  During said
period, Executive also agrees to serve, if elected, as an officer of the Company
or any subsidiary or affiliate of the Company or the Association.

2.   TERMS AND DUTIES.

     (a) The term of this Agreement  shall be deemed to have commenced as of the
date first above  written and shall  continue for a period of  twenty-four  (24)
full calendar months  thereafter.  Commencing on the first anniversary date, and
continuing at each anniversary  date  thereafter,  the Board of Directors of the
Association (the "Board") may extend the Agreement for an additional year. Prior
to the extension of the Agreement as provided herein,  the Board of Directors of
the Association  will conduct a formal  performance  evaluation of the Executive
for purposes of  determining  whether to extend the  Agreement,  and the results
thereof shall be included in the minutes of the Board's meeting.

     (b) During the period of his  employment  hereunder,  except for periods of
absence  occasioned by illness,  reasonable  vacation  periods,  and  reasonable
leaves of absence,  Executive shall devote  substantially all his business time,
attention,  skill,  and  efforts  to the  faithful  performance  of  his  duties
hereunder  including  activities  and  services  related  to  the  organization,
operation and management of the Association;  provided,  however, that, with the
approval of the Board, as evidenced by a resolution of such Board,  from time to
time,  Executive may serve, or continue to serve, on the boards of directors of,
and hold any other offices or positions in, companies or  organizations,  which,
in such Board's  judgment,  will not present any  conflict of interest  with the
Association, or materially affect the performance of Executive's duties pursuant
to this Agreement.

3.   COMPENSATION AND REIMBURSEMENT.

     (a) The  compensation  specified under this Agreement shall  constitute the
salary and  benefits  paid for the  duties  described  in  Sections 1 and 2. The
Association  shall pay Executive as compensation a salary of $74,500.00 per year
("Base  Salary").  Such Base  Salary  shall be  payable in  accordance  with the
customary  payroll  practices  of the  Association.  During  the  period of this
Agreement,  Executive's  Base Salary  shall be reviewed at least  annually;  the
first  such  review  will be made no later  than one year  from the date of this
Agreement.  Such review  shall be  conducted  by a Committee  designated  by the
Board, and the Board may increase  Executive's  Base Salary.  In addition to the
Base  Salary  provided in this  Section  3(a),  the  Association  shall  provide
Executive at no cost to Executive  with all such other  benefits as are provided
uniformly to permanent full-time employees of the Association.

     (b) The  Association  will provide  Executive with employee  benefit plans,
arrangements  and  perquisites   substantially  equivalent  to  those  in  which
Executive was participating or otherwise deriving benefit from immediately

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prior to the beginning of the term of this Agreement,  and the Association  will
not, without Executive's prior written consent,  make any changes in such plans,
arrangements or perquisites which would adversely affect  Executive's  rights or
benefits thereunder. Without limiting the generality of the foregoing provisions
of this Subsection (b),  Executive will be entitled to participate in or receive
benefits  under any  employee  benefit  plans  including,  but not  limited  to,
retirement plans,  supplemental retirement plans, pension plans,  profit-sharing
plans,  health-and-accident plan, medical coverage or any other employee benefit
plan or  arrangement  made  available  by the  Association  in the future to its
senior  executives  and key  management  employees,  subject  to, and on a basis
consistent with, the terms,  conditions and overall administration of such plans
and  arrangements.  Executive  will be entitled to  incentive  compensation  and
bonuses  as  provided  in  any  plan,  or  pursuant  to any  arrangement  of the
Association, in which Executive is eligible to participate.  Nothing paid to the
Executive  under  any such plan or  arrangement  will be deemed to be in lieu of
other  compensation  to which the  Executive is entitled  under this  Agreement,
except as provided under Section 5(e).

     (c) In addition to the Base Salary  provided for by  paragraph  (a) of this
Section 3, the Association  shall pay or reimburse  Executive for all reasonable
travel  and  other  obligations  under  this  Agreement  and  may  provide  such
additional compensation in such form and such amounts as the Board may from time
to time determine.

4.   PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.

     (a) Upon the  occurrence  of an Event of  Termination  (as herein  defined)
during the Executive's term of employment  under this Agreement,  the provisions
of  this  Section  shall  apply.  As  used  in  this  Agreement,  an  "Event  of
Termination"  shall mean and include any one or more of the  following:  (i) the
termination by the Association of Executive's full-time employment hereunder for
any reason  other than a Change in Control,  as defined in Section  5(a) hereof;
disability,  as defined in Section 6(a) hereof; death; retirement, as defined in
Section 7 hereof; or for Cause, as defined in Section 8 hereof; (ii) Executive's
resignation from the Association's  employ,  upon (A) unless consented to by the
Executive,   a   material   change   in   Executive's   function,   duties,   or
responsibilities, which change would cause Executive's position to become one of
lesser  responsibility,  importance,  or scope from the position and  attributes
thereof described in Sections 1 and 2, above, (any such material change shall be
deemed a continuing  breach of this Agreement),  (B) a relocation of Executive's
principal  place of  employment  by more than 35 miles from its  location at the
effective date of this  Agreement,  or a material  reduction in the benefits and
perquisites  to Executive  from those being provided as of the effective date of
this Agreement,  (C) the liquidation or dissolution of the  Association,  or (D)
any breach of this  Agreement by the  Association.  Upon the  occurrence  of any
event  described in clauses (A), (B), (C), or (D),  above,  Executive shall have
the  right to  elect  to  terminate  his  employment  under  this  Agreement  by
resignation upon not less than sixty (60) days prior written notice given within
a  reasonable  period  of time not to  exceed,  except  in case of a  continuing
breach, four calendar months after the event giving rise to said right to elect.

     (b) Upon the occurrence of an Event of Termination,  the Association  shall
pay Executive,  or, in the event of his  subsequent  death,  his  beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages,  or both,  a sum equal to the  payments  due to the  Executive  for the
remaining term of the Agreement,  including Base Salary,  bonuses, and any other
cash or  deferred  compensation  paid  or to be paid  (including  the  value  of
employer  contributions that would have been made on the Executive's behalf over
the  remaining  term  of the  agreement  to any  tax-qualified  retirement  plan
sponsored by the  Association as of the Date of  Termination),  to the Executive
for the term of the Agreement provided,  however, that if the Association is not
in compliance  with its minimum  capital  requirements or if such payments would
cause  the  Association's  capital  to be  reduced  below  its  minimum  capital
requirements, such payments shall be deferred until such time as the Association
is in capital compliance.  All payments made pursuant to this Section 4(b) shall
be paid in substantially  equal monthly  installments over the remaining term of
this Agreement following the Executive's termination; provided, however, that if
the remaining term of the Agreement is less than one (1) year  (determined as of
the Executive's Date of  Termination),  such payments and benefits shall be paid
to the Executive in a lump sum within 30 days of the Date of Termination.

     (c) Upon the occurrence of an Event of Termination,  the  Association  will
cause  to  be  continued   life,   medical,   dental  and  disability   coverage
substantially  identical  to the  coverage  maintained  by the  Association  for
Executive  prior  to  his  termination.  Such  coverage  shall  cease  upon  the
expiration of the remaining term of this Agreement.

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5.   CHANGE IN CONTROL.

     (a) No benefit  shall be paid under this  Section 5 unless there shall have
occurred a Change in Control of the Company or the Association.  For purposes of
this Agreement, a "Change in Control" of the Company or the Association shall be
deemed to occur if and when (a) an  offeror  other  than the  Company  purchases
shares of the common  stock of the  Company  or the  Association  pursuant  to a
tender or exchange  offer for such shares,  (b) any person (as such term is used
in Sections  13(d) and  14(d)(2) of the  Securities  Exchange Act of 1934) is or
becomes the  beneficial  owner,  directly or  indirectly,  of  securities of the
Company or the Association representing 25% or more of the combined voting power
of the Company's then outstanding securities, (c) the membership of the board of
directors of the Company or the Association changes as the result of a contested
election,  such that  individuals  who were  directors  at the  beginning of any
twenty-four  month  period  (whether  commencing  before  or  after  the date of
adoption of this Plan) do not  constitute  a majority of the Board at the end of
such period,  or (d)  shareholders of the Company or the  Association  approve a
merger,  consolidation,  sale or disposition of all or substantially  all of the
Company's  or  the  Association's  assets,  or a plan  of  partial  or  complete
liquidation.

     (b) If any of the events  described in Section 5(a) hereof  constituting  a
Change in Control have occurred or the Board of the  Association  or the Company
has  determined  that a Change  in  Control  has  occurred,  Executive  shall be
entitled to the benefits provided in paragraphs (c), (d) and (e) of this Section
5 upon his subsequent  involuntary  termination of employment at any time during
the term of this  Agreement  (or  voluntary  termination  following  a Change of
Control following any demotion,  loss of title, office or significant authority,
reduction in his annual compensation or benefits, or relocation of his principal
place of employment by more than 35 miles from its location immediately prior to
the  Change in  Control),  unless  such  termination  is  because  of his death,
retirement as provided in Section 7,  termination  for Cause, or termination for
Disability.

     (c) Upon the occurrence of a Change in Control  followed by the Executive's
termination of employment,  the Association shall pay Executive, or in the event
of his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, as severance  pay or  liquidated  damages,  or both, a sum equal to
2.99  times the  Executive's  "base  amount,"  within  the  meaning  of  Section
280G(b)(3)  of the Internal  Revenue  Code of 1986  ("Code"),  as amended.  Such
payment shall be made in a lump sum paid within ten (10) days of the Executive's
Date of Termination.

     (d) Upon the occurrence of a Change in Control  followed by the Executive's
termination  of employment,  the  Association  will cause to be continued  life,
medical,  dental and disability coverage substantially identical to the coverage
maintained by the Association for Executive prior to his severance. In addition,
Executive shall be entitled to receive the value of employer  contributions that
would have been made on the  Executive's  behalf over the remaining  term of the
agreement to any  tax-qualified  retirement plan sponsored by the Association as
of the Date of  Termination.  Such  coverage and  payments  shall cease upon the
expiration of thirty-six (36) months.

     (e) Upon the  occurrence  of a Change in Control,  the  Executive  shall be
entitled to receive benefits due him under, or contributed by the Company or the
Association  on his  behalf,  pursuant  to  any  retirement,  incentive,  profit
sharing,  bonus,   performance,   disability  or  other  employee  benefit  plan
maintained by the  Association or the Company on the  Executive's  behalf to the
extent that such benefits are not otherwise  paid to the Executive upon a Change
in Control.

     (f)  Notwithstanding  the  preceding  paragraphs  of this Section 5, in the
event that the  aggregate  payments  or  benefits  to be made or afforded to the
Executive  under this  Section  would be deemed to include an "excess  parachute
payment"  under  Section 280G of the Code,  such  payments or benefits  shall be
payable or provided to Executive over the minimum period necessary to reduce the
present  value of such  payments or  benefits  to an amount  which is one dollar
($1.00)  less  than  three  (3)  times  the  Executive's   "base  amount"  under
Section 280G(b)(3) of the Code.

6.   TERMINATION FOR DISABILITY.


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     (a) If the Executive shall become disabled as defined in the  Association's
then  current  disability  plan (or,  if no such plan is then in effect,  if the
Executive  is  permanently  and totally  disabled  within the meaning of Section
22(e)(3) of the Code as determined by a physician  designated by the Board), the
Association may terminate Executive's employment for "Disability."

     (b) Upon the  Executive's  termination  of employment for  Disability,  the
Association will pay Executive,  as disability pay, a bi-weekly payment equal to
three-quarters  (3/4)  of  Executive's  bi-weekly  rate  of Base  Salary  on the
effective date of such termination.  These disability payments shall commence on
the effective date of Executive's termination and will end on the earlier of (i)
the date Executive returns to the full-time employment of the Association in the
same capacity as he was employed  prior to his  termination  for  Disability and
pursuant to an employment agreement between Executive and the Association;  (ii)
Executive's full-time employment by another employer;  (iii) Executive attaining
the age of 65; or (iv)  Executive's  death; or (v) the expiration of the term of
this Agreement.  The disability pay shall be reduced by the amount, if any, paid
to the Executive under any plan of the Association providing disability benefits
to the Executive.

     (c) The Association  will cause to be continued life,  medical,  dental and
disability  coverage  substantially  identical to the coverage maintained by the
Association for Executive prior to his termination for Disability. This coverage
and payments shall cease upon the earlier of (i) the date  Executive  returns to
the  full-time  employment  of the  Association,  in the same capacity as he was
employed prior to his  termination  for Disability and pursuant to an employment
agreement  between  Executive and the Association;  (ii)  Executive's  full-time
employment by another employer;  (iii)  Executive's  attaining the age of 65; or
(iv) the Executive's death; or (v) the expiration of the term of this Agreement.

     (d)  Notwithstanding  the  foregoing,  there  will be no  reduction  in the
compensation  otherwise  payable to  Executive  during any period  during  which
Executive is incapable of performing his duties hereunder by reason of temporary
disability.

7.   TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE.

     Termination by the  Association of Executive  based on  "Retirement"  shall
mean  retirement  at age 65 or in  accordance  with any  retirement  arrangement
established  with  Executive's  consent with respect to him. Upon termination of
Executive upon Retirement, Executive shall be entitled to all benefits under any
retirement  plan of the  Association  or the  Company  and other  plans to which
Executive is a party.  Upon the death of the  Executive  during the term of this
Agreement,  the Association shall pay to Executive's estate the compensation due
to the Executive  through the last day of the calendar  month in which his death
occurred.

8.   TERMINATION FOR CAUSE.

     For  purposes of this  Agreement,  "Termination  for Cause"  shall  include
termination  because  of  the  Executive's  personal  dishonesty,  incompetence,
willful  misconduct,   breach  of  fiduciary  duty  involving  personal  profit,
intentional  failure to perform  stated  duties,  willful  violation of any law,
rule, or regulation (other than traffic violations or similar offenses) or final
cease-and-desist  order,  or material breach of any provision of this Agreement.
In  addition,  "Termination  for Cause"  shall  include  termination  because of
continuing or repeated problems with the Executive's performance or conduct, the
Executive's  inattention to duties,  the refusal of the Executive to comply with
the  Association's  or the  Company's  instructions,  policies or rules or other
conduct of the Executive which reflects  adversely on the  Association's  or the
Company's reputation or operation.  For purposes of this Section, no act, or the
failure to act, on Executive's  part shall be "willful"  unless done, or omitted
to be done, not in good faith and without  reasonable  belief that the action or
omission  was  in  the  best  interest  of the  Association  or its  affiliates.
Notwithstanding  the  foregoing,  Executive  shall  not be  deemed  to have been
terminated  for Cause unless and until there shall have been  delivered to him a
copy of a  resolution  duly  adopted  by the  affirmative  vote of not less than
three-fourths  of the members of the Board at a meeting of the Board  called and
held for that purpose (after  reasonable  notice to Executive and an opportunity
for him, together with counsel,  to be heard before the Board),  finding that in
the good faith opinion

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of the Board,  Executive was guilty of conduct justifying  termination for Cause
and specifying the reasons  thereof.  The Executive  shall not have the right to
receive  compensation  or other  benefits for any period after  termination  for
Cause. Any stock options granted to Executive under any stock option plan or any
unvested  awards granted under any other stock benefit plan of the  Association,
the Company, or any subsidiary or affiliate thereof,  shall become null and void
effective upon  Executive's  receipt of Notice of Termination for Cause pursuant
to  Section 9 hereof,  and shall not be  exercisable  by  Executive  at any time
subsequent to such Termination for Cause.

9.   REQUIRED PROVISIONS.

     (a) The Association may terminate  Executive's  employment at any time, but
any termination by the Association,  other than Termination for Cause, shall not
prejudice  Executive's  right to  compensation  or  other  benefits  under  this
Agreement.  Executive shall not have the right to receive  compensation or other
benefits  for any  period  after  Termination  for Cause as defined in Section 8
herein.

     (b)  If  Executive  is  suspended   and/or   temporarily   prohibited  from
participating  in the conduct of the  Association's  affairs by a notice  served
under Section  8(e)(3) or (g)(1) of the Federal  Deposit  Insurance Act ("FDIA")
(12 U.S.C.  1818(e)(3)  and (g)(1)),  the  Association's  obligations  under the
Agreement  shall  be  suspended  as of the date of  service,  unless  stayed  by
appropriate  proceedings.  If the  charges  in the  notice  are  dismissed,  the
Association  may,  in its  discretion,  (i)  pay  Executive  all or  part of the
compensation  withheld  while its contract  obligations  were suspended and (ii)
reinstate (in whole or in part) any of its obligations that were suspended.

     (c)  If   Executive  is  removed   and/or   permanently   prohibited   from
participating  in the conduct of the  Association's  affairs by an order  issued
under  Section  8(e)(4) or (g)(1) of the FDIA (12 U.S.C.  1818(e)(4) or (g)(1)),
all obligations of the Association under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting  parties shall
not be affected.

     (d) If the  Association is in default (as defined in Section 3(x)(1) of the
FDIA),  all  obligations  under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the parties.

     (e) All obligations under this Agreement shall be terminated (except to the
extent  determined  that  continuation  of the  Agreement is  necessary  for the
continued  operation of the  Association):  (i) by the Director of the Office of
Thrift  Supervision  (the  "Director")  or his or her  designee  at the time the
Federal Deposit Insurance Corporation or the Resolution Trust Corporation enters
into an agreement to provide assistance to or on behalf of the Association under
the authority contained in Section 13(c) of the FDIA or (ii) by the Director, or
his or her  designee  at the time  the  Director  or such  designee  approves  a
supervisory  merger to resolve  problems related to operation of the Association
or when the  Association  is  determined  by the  Director to be in an unsafe or
unsound condition.  Any rights of the parties that have already vested, however,
shall not be affected by such action.

     (f)  Any  payments  made  to  Executive  pursuant  to  this  Agreement,  or
otherwise,  are  subject  to and  conditioned  upon  compliance  with 12  U.S.C.
Section 1828(k) and any regulations promulgated thereunder.

10.  NOTICE.

     (a) Any purported  termination by the  Association or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this  Agreement,  a "Notice of  Termination"  shall mean a written  notice which
shall indicate the specific termination  provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances  claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.

     (b) "Date of  Termination"  shall  mean (A) if  Executive's  employment  is
terminated  for  Disability,  thirty (30) days after a Notice of  Termination is
given (provided that he shall not have returned to the performance of his duties
on a  full-time  basis  during  such  thirty  (30) day  period),  and (B) if his
employment is terminated for any other reason,

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the  date  specified  in the  Notice  of  Termination  (which,  in the case of a
Termination  for Cause,  shall not be less than  thirty  (30) days from the date
such Notice of Termination is given).

     (c) If, within thirty (30) days after any Notice of  Termination  is given,
the party  receiving such Notice of Termination  notifies the other party that a
dispute  exists  concerning  the  termination,  except upon the  occurrence of a
Change in Control and voluntary  termination  by the Executive in which case the
Date of  Termination  shall be the date  specified  in the  Notice,  the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties,  by a binding  arbitration award, or
by a final judgment,  order or decree of a court of competent  jurisdiction (the
time for appeal there from having  expired and no appeal having been  perfected)
and provided further that the Date of Termination  shall be extended by a notice
of dispute  only if such notice is given in good faith and the party giving such
notice  pursues  the  resolution  of such  dispute  with  reasonable  diligence.
Notwithstanding the pendency of any such dispute,  the Association will continue
to pay Executive his full  compensation in effect when the notice giving rise to
the dispute was given (including,  but not limited to, Base Salary) and continue
him as a participant in all  compensation,  benefit and insurance plans in which
he was participating  when the notice of dispute was given, until the dispute is
finally  resolved in  accordance  with this  Agreement.  Amounts paid under this
Section are in addition to all other amounts due under this  Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.

11.  NON-COMPETITION.

     (a) Upon any termination of Executive's employment hereunder pursuant to an
Event of  Termination as provided in Section 4 hereof,  Executive  agrees not to
compete  with the  Association  and/or the  Company for a period of one (1) year
following such  termination in any city, town or county in which the Association
and/or the  Company  has an office or has filed an  application  for  regulatory
approval to establish an office,  determined  as of the  effective  date of such
termination.  Executive  agrees that during such period and within said  cities,
towns and counties, Executive shall not work for or advise, consult or otherwise
serve  with,  directly  or  indirectly,  any entity  whose  business  materially
competes  with the  depository,  lending  or other  business  activities  of the
Association and/or the Company. The parties hereto, recognizing that irreparable
injury will result to the  Association  and/or the  Company,  its  business  and
property in the event of Executive's  breach of this Subsection 11(a) agree that
in the event of any such breach by Executive, the Association and/or the Company
will be entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive,  Executive's partners,
agents,  servants,  employers,  employees  and all  persons  acting  for or with
Executive.  Executive represents and admits that in the event of the termination
of his  employment  pursuant  to Section 8 hereof,  Executive's  experience  and
capabilities are such that Executive can obtain employment in a business engaged
in other lines  and/or of a different  nature  than the  Association  and/or the
Company,  and that the  enforcement  of a remedy by way of  injunction  will not
prevent Executive from earning a livelihood. Nothing herein will be construed as
prohibiting the Association  and/or the Company from pursuing any other remedies
available to the  Association  and/or the Company for such breach or  threatened
breach, including the recovery of damages from Executive.

     (b)  Executive  recognizes  and  acknowledges  that  the  knowledge  of the
business  activities and plans for business  activities of the  Association  and
affiliates  thereof,  as it may exist from time to time, is a valuable,  special
and unique asset of the business of the Association.  Executive will not, during
or  after  the term of his  employment,  disclose  any  knowledge  of the  past,
present,  planned  or  considered  business  activities  of the  Association  or
affiliates  thereof to any person,  firm,  corporation,  or other entity for any
reason or purpose  whatsoever.  Notwithstanding  the  foregoing,  Executive  may
disclose  any  knowledge  of  banking,  financial  and/or  economic  principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Association.  In the event of a breach or threatened
breach by the Executive of the provisions of this Section,  the Association will
be entitled to an injunction restraining Executive from disclosing,  in whole or
in part,  the knowledge of the past,  present,  planned or  considered  business
activities of the  Association  or  affiliates  thereof,  or from  rendering any
services to any person, firm, corporation,  other entity to whom such knowledge,
in whole or in  part,  has been  disclosed  or is  threatened  to be  disclosed.
Nothing herein will be construed as prohibiting  the  Association  from pursuing
any other remedies  available to the  Association  for such breach or threatened
breach, including the recovery of damages from Executive.

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12.  SOURCE OF PAYMENTS.

     All  payments  provided in this  Agreement  shall be timely paid in cash or
check  from  the  general  funds  of  the  Association.  The  Company,  however,
guarantees  all  payments  and the  provision  of all amounts and  benefits  due
hereunder to Executive  and, if such payments are not timely paid or provided by
the  Association,  such  amounts and  benefits  shall be paid or provided by the
Company.

13.  EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.

     This Agreement contains the entire understanding between the parties hereto
and supersedes any prior  employment  agreement  between the  Association or any
predecessor of the Association  and Executive,  except that this Agreement shall
not  affect or operate to reduce  any  benefit  or  compensation  inuring to the
Executive of a kind elsewhere provided.  No provision of this Agreement shall be
interpreted to mean that  Executive is subject to receiving  fewer benefits than
those available to him without reference to this Agreement.

14.  NO ATTACHMENT.

     (a) Except as  required  by law,  no right to receive  payments  under this
Agreement  shall be  subject to  anticipation,  commutation,  alienation,  sale,
assignment,  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 affect any such action  shall be null,
void, and of no effect.

     (b) This  Agreement  shall be binding  upon,  and inure to the  benefit of,
Executive,  the  Association,  the Company and their  respective  successors and
assigns.

15.  MODIFICATION AND WAIVER.

     (a) This  Agreement may not be modified or amended  except by an instrument
in writing signed by the parties hereto.

     (b) No term or  condition  of this  Agreement  shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement,  except by written  instrument of the party charged with such
waiver or estoppel.  No such written waiver shall be deemed a continuing  waiver
unless specifically  stated therein,  and each such waiver shall operate only as
to the specific  term or condition  waived and shall not  constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.

16.  SEVERABILITY.

     If, for any reason,  any  provision of this  Agreement,  or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this  Agreement or any part of such  provision not held so invalid,  and each
such other  provision and part thereof shall to the full extent  consistent with
law continue in full force and effect.

17.  HEADINGS FOR REFERENCE ONLY.

     The headings of sections  and  paragraphs  herein are  included  solely for
convenience of reference and shall not control the meaning or  interpretation of
any of the provisions of this Agreement.

18.  GOVERNING LAW.

     This Agreement shall be governed by the laws of the State of Oregon, unless
otherwise specified herein;  provided,  however, that in the event of a conflict
between the terms of this Agreement and any  applicable  federal or state law or
regulation, the provisions of such law or regulation shall prevail.


                                       -7-
<PAGE>

19.  ARBITRATION.

     Any  dispute  or  controversy  arising  under or in  connection  with  this
Agreement shall be settled exclusively by arbitration,  conducted before a panel
of three  arbitrators  sitting in a location selected by the employee within one
hundred (100) miles from the location of the Association, in accordance with the
rules of the American  Arbitration  Association then in effect.  Judgment may be
entered on the arbitrator's  award in any court having  jurisdiction;  provided,
however,  that Executive  shall be entitled to seek specific  performance of his
right to be paid  until  the Date of  Termination  during  the  pendency  of any
dispute or controversy arising under or in connection with this Agreement.

20.  PAYMENT OF LEGAL FEES.

     All  reasonable  legal fees paid or incurred by  Executive  pursuant to any
dispute or question of  interpretation  relating to this Agreement shall be paid
or reimbursed by the  Association,  if successful  pursuant to a legal judgment,
arbitration or settlement.

21.  INDEMNIFICATION.

     The Association shall provide Executive (including his heirs, executors and
administrators)   with  coverage  under  a  standard  directors'  and  officers'
liability insurance policy at its expense,  or in lieu thereof,  shall indemnify
Executive (and his heirs,  executors and  administrators)  to the fullest extent
permitted under law against all expenses and liabilities  reasonably incurred by
him in connection with or arising out of any action, suit or proceeding in which
he may be  involved  by reason of his having  been a director  or officer of the
Association  (whether or not he  continues  to be a directors  or officer at the
time of incurring such expenses or  liabilities),  such expenses and liabilities
to include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements.

22.  SUCCESSOR TO THE ASSOCIATION OR THE COMPANY.

     The  Association  and the Company  shall require any successor or assignee,
whether direct or indirect, by purchase, merger,  consolidation or otherwise, to
all or  substantially  all the  business  or  assets of the  Association  or the
Company,  expressly  and  unconditionally  to assume  and agree to  perform  the
Association's  or the Company's  obligations  under this Agreement,  in the same
manner and to the same  extent  that the  Association  or the  Company  would be
required to perform if no such succession or assignment had taken place.


                                       -8-

<PAGE>

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
executed and their seal to be affixed  hereunto by a duly authorized  officer or
director,  and  Executive  has  signed  this  Agreement,  all on the 18th day of
November, 1998.


ATTEST:                                           KLAMATH FIRST FEDERAL SAVINGS
                                                   AND LOAN ASSOCIATION



                                              BY:      /s/ Rodney N. Murray
                  [SEAL]


ATTEST:                                           KLAMATH FIRST BANCORP, INC.



                                              BY:      /s/ Rodney N. Murray

                  [SEAL]



WITNESS:



                                                     /s/ Frank X. Hernandez
                                                         Frank X. Hernandez
 









                                       -9-