Exhibit
10.31


 


SEVERANCE/CHANGE OF
CONTROL AGREEMENT


 


JOSEPH H. WARD


 


This Severance/Change of Control Agreement
(“Agreement”) dated as of February 27, 2003, between PACIFIC NORTHWEST
BANCORP and PACIFIC NORTHWEST BANK (hereinafter referred to jointly as “Pacific”
unless Pacific Northwest Bank is specifically mentioned) and JOSEPH H. WARD
(“Executive”).


 


RECITALS


 


WHEREAS,
Pacific desires to employ Executive as Executive Vice President and Chief
Credit Officer of Pacific Northwest Bank; and


 


WHEREAS,
Executive wishes to be employed by Pacific in such new capacity but desires
assurance that he will be protected in the event of termination of his
employment without cause or a Change of Control as defined below; and


 


WHEREAS,
Pacific wishes to assure itself of continuity of management in the event of a
Change of Control of Pacific;


 


NOW,
THEREFORE, in consideration of the foregoing and of the mutual covenants and
agreements of the parties set forth in this Agreement, and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:


 


1.     Severance Benefits.


 


(a)   If
Executive’s employment is involuntarily terminated (other than a Discharge for
Cause as defined below), Executive shall be entitled to receive, in a lump sum
payable on the first day of the first calendar month following discontinuance
of his employment due to involuntary termination, a cash payment in an amount
equal to the Total Compensation paid to Executive over the last twelve (12)
months of his employment with Pacific preceding the month in which the
involuntary termination occurs. For purposes of this Agreement, “Total
Compensation” shall be defined as an amount equal to Executive’s W-2 income
before salary deferrals.


 


(b)   If Executive’s employment is
involuntarily terminated (other than a Discharge for Cause) before a Change of
Control but after the Board of Directors has authorized proceeding with
negotiations which result in a Change of Control, Executive shall be entitled
to the severance benefits described in Paragraph 2(d), said benefits to be paid
after the Change of Control actually occurs, less any amount paid under
Paragraph 1(a) hereof.


 


(c)   The amounts paid to
Executive hereunder shall be considered severance pay in consideration of his
continued service from the Effective Date to his entitlement to those payments.


 


(d)   Once entitled to receive
severance benefits under Paragraph 27 of this Agreement, Executive shall
have no duty to mitigate the obligation of Pacific to make severance payments
due by seeking other employment.  Should
Executive actually receive compensation from any such other employment, the
payments called for hereunder shall not be reduced or offset by any such future
earnings.


 


2.   Change of Control.
Upon a Change in Control, Executive shall be entitled to receive a four-year
employment contract (“Employment Contract”) with the successor entity that
provides:


 


(a)   Executive a position with
the survivor entity with duties and responsibilities commensurate with those
performed by Executive at the time of the change of control, although the title
held by Executive need not be the same;


 


(b)   That Executive’s services
shall be performed in the same geographical location where Executive is
employed at the time of the Change in Control;


 


(c)   That
Executive’s salary and benefits are comparable to those received by Executive
over the twelve (12) months prior to the Change in Control;


 


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(d)   That the successor entity
may terminate Executive’s employment at any time prior to the expiration of the
four-year contract term by paying Executive an amount equal to the Total
Compensation paid to Executive over the last twenty-four (24) months of his
employment with Pacific preceding the month in which the Change of Control
occurs payable on the first day of the first calendar month following
discontinuance of his employment.


 


(e)   Notwithstanding the
foregoing, the successor entity may provide in the Employment Contract that
Executive may be terminated for reasons constituting a Discharge for Cause, as
defined in this Agreement.  If Executive
is terminated under such provision, Executive shall not be entitled to receive
any payments under this Agreement.


 


(f)    That, during the period
commencing with the 25th month following a Change in Control through
the 30th month following a Change in Control, Executive may
terminate his Employment Agreement for any reason or no reason by delivering
written notice to the successor entity. 
If Executive does so, the successor entity will pay Executive a single
cash payment in an amount equal to Executive’s Total Compensation for the prior
twelve (12) month period payable on the first day of the first calendar month
following discontinuance of his employment.


 


(g)   Payments under this
Paragraph 2 shall be reduced by any amount paid Executive under Paragraph 1(a),
above.


 


3.         Certain Definitions.


 


(a)   Change of Control.  A “Change of Control” of Pacific shall be deemed
to have occurred as of the first day any one or more of the following
conditions is satisfied:


 


(i)  Any
individual, corporation (other than Pacific), partnership, trust, association,
pool, syndicate or any other entity or any group of persons acting in concert
becomes the beneficial owner, as that concept is defined in Rule 13d-3
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, of securities of Pacific possessing fifty percent (50%)
or more of the voting power for the election of directors of Pacific;


 


(ii) There
shall be consummated any consolidation, merger, or other business combination
involving Pacific or the securities of Pacific in which holders of voting
securities of Pacific immediately prior to such consummation own, as a group,
immediately after such consummation, voting securities of Pacific (or, if
Pacific does not survive such transaction, voting securities of the corporation
surviving such transaction) having less than sixty percent (60%) of the total
voting power in an election of directors of Pacific (or such other surviving
corporation);


 


(iii)      During
any period of two (2) consecutive years, individuals who at the beginning of
such period constitute the directors of Pacific cease for any reason to
constitute at least a majority thereof unless the election, or the nomination
for election by Pacific’s shareholders, of each new director of Pacific was
approved by a vote of at least two-thirds (2/3) of the directors of Pacific
then still in office who were directors of Pacific at the beginning of any such
period; or


 


(iv)      There
shall be consummated any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of Pacific (on a consolidated basis) to a party which is not
controlled by or under common control with Pacific.


 


(b)   Discharge for Cause.  For purposes of this Agreement, the
termination of Executive’s employment shall be deemed to be a “Discharge for
Cause” only upon termination as a result of:


 


(i)        An act of dishonesty on
the part of Executive constituting a felony and resulting or intended to result
directly or indirectly in gain or personal enrichment of Executive at the
expense of Pacific;


 


(ii)       A deliberate act of
proven fraud having a material adverse impact on the business or consolidated
financial condition or results of operations of Pacific and its subsidiaries;
or


 


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(iii)      The deliberate and
continuing failure to comply with applicable laws and regulations having a
material adverse impact on the business.


 


4.   Termination of the
Agreement.  This Agreement shall
terminate if Executive shall voluntarily resign, retire, become permanently and
totally disabled, or die; provided, however, if Executive becomes
permanently and totally disabled or dies after the Board of Directors has
authorized proceeding with negotiations which result in a Change of Control or
within twelve (12) months after a Change of Control, if Executive is then
employed by Pacific, Executive or his personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees, as the case may be, shall be entitled to receive the Change of
Control payment under Paragraph 2(d) hereof.


 


5.   Effect on Other Benefits.  The arrangements called for by this
Agreement are not intended to have any effect on Executive’s participation in
any other benefits available to executive personnel or to preclude other
compensation or additional benefits as may be authorized by the Board of
Directors from time to time.


 


6.   Limitations on Payments
Related to Severance Benefits.  The
following limitations apply, notwithstanding any other provision of this
Agreement:


 


(a)   The severance benefits
payable under Paragraph 1 shall not exceed an amount that would cause it to be
a “parachute payment” within the meaning of Section 280G(b)(2)(A) of the
Internal Revenue Code; and


 


(b)   Pacific shall not be
obligated to make, and Executive shall not be entitled to, any payment under this
Agreement if such payment would constitute a “golden parachute” payment
prohibited by 12 U.S.C. 1828(k) or 12 CFR §359.0 et seq.  Pacific shall have no liability to Executive
under or in relation to this Agreement should any payment be deemed a prohibited
“golden parachute” payment.


 


7.   Health Care Insurance
Coverage.  In addition to any
severance benefits and Change in Control payments due to Executive under this
Agreement, Pacific shall pay all
premiums for the continuation of health care coverage benefits to Executive and
his or her covered spouse and dependents pursuant to the Consolidated Omnibus
Budget Reconciliation Act (COBRA) for a period of up to eighteen (18) months
after the termination of Executive’s employment with Pacific or its successor (including employment with any parent company or
subsidiary under common control with Pacific or its successor) other
than a Discharge for Cause in the event that either: (a) a Change of
Control occurs and Executive does not continue to be employed by Pacific or its
successor (including employment with any parent company or subsidiary under
common control with Pacific or its successor) for more than thirty (30) months
after the closing of the transaction, or (b) upon the retirement of
Executive if, on the date of retirement, Executive is at least sixty (60) years
of age and has been employed by Pacific
and/or its successor (including employment with any parent company or
subsidiary under common control with Pacific or its successor) for at
least five (5) years.


 


8.   Confidentiality.  From the date of this Agreement, Executive
will not, directly or indirectly, disclose to any third party not affiliated
with Pacific, Confidential Information of Pacific and its subsidiaries and
affiliates, except as to any of the Confidential Information which shall be or
become in the public domain or shall be required to be disclosed by applicable
laws or regulations, any judicial or administrative authority or stock exchange
rule or regulation.  For the purposes of
this Paragraph 8, “Confidential Information” shall mean: (i) internal policies
and procedures, (ii) financial information, (iii) marketing strategies, (iv)
customer information, and (v) other non-public information relating to
Pacific’s business or financial condition.


 


9.   Assignment.


 


(a)   By Pacific.  This Agreement may and shall be assigned or
transferred to, and shall be binding upon and inure to the benefit of, any
successor of Pacific, and any such successor shall be deemed substituted for
all purposes of the “Company” under the terms of this Agreement.  As used in this Agreement, the term
“successor” shall mean any person, firm, corporation or business entity that at
any time causes a Change of Control as described in Paragraph 2.  Notwithstanding such assignment, Pacific
shall remain, with such successor, jointly and severally liable for all its
obligations hereunder.  Except as herein
provided, Pacific may not otherwise assign this Agreement.


 


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(b)   By
Executive.  This Agreement shall
inure to the benefit of and be enforceable by Executive’s personal or legal
representatives, executors and administrators, successors, heirs, distributees,
devisees and legatees.  If Executive
should die while any amounts payable to Executive hereunder remain outstanding,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to Executive’s devisees, legatee or other
designee, or, in the absence of such designee, to Executive’s estate.  This Agreement is not otherwise assignable
by Executive.


 


10.   Jurisdiction/Venue/Mandatory
Arbitration.  Any legal action
brought to resolve disputes arising out of this Agreement, or any amendments
thereto, shall be commenced in King County Superior Court in Seattle,
Washington and shall be resolved in accordance with the Superior Court
Mandatory Arbitration Rules and the King County Local Rules for Mandatory
Arbitration, if any, with the parties agreeing to waive the jurisdictional
limits.  The decision of the arbitrator
shall be binding on the parties, and the parties waive the right of de novo appeal
from such decision.  It is agreed that
the arbitrator shall award to the prevailing or substantially prevailing party
all fees incurred by such party with regard to such arbitration, including reasonable
legal, accounting, and expert witness fees. 
If the arbitrator determines that there is no prevailing or
substantially prevailing party, the reasonable legal, accounting, and expert
witnesses fees shall be the responsibility of each party.


 


11.   Miscellaneous.


 


(a)   Gender and
Number.  Except where
otherwise indicated by the context, any masculine term used herein also shall
include the feminine; the plural shall include the singular and the singular
shall include the plural.


 


(b)   Entire
Agreement.  This Agreement
supersedes any prior agreements or understandings, oral or written, between
Executive and Pacific, with respect to the subject matter hereof and
constitutes the entire agreement of the parties with respect thereto.


 


(c)   Modification.  This Agreement shall not be varied, altered,
modified, canceled, changed or in any way amended except by mutual agreement of
the parties in a written instrument executed by the parties hereto or their
legal representatives.


 


(d)   Reviewed
with Independent Counsel/Construction of Agreement.  Each party had the opportunity to review
this Agreement with legal counsel of their choosing, and this Agreement is the
outcome of that review process. This Agreement has been entered into after
negotiation and review of its terms and conditions by parties under no
compulsion to execute and deliver a disadvantageous agreement.  This Agreement incorporates provisions,
comments and suggestions proposed by both parties.  No ambiguity or omission in this Agreement shall be construed or
resolved against any party on the ground that this Agreement or any of its
provisions was drafted or proposed by that party.


 


(e)   Severability.  In the event any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provision of this Agreement shall be unaffected thereby
and shall remain in full force and effect.


 


(f)    Counterparts.  This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together will constitute one and the same Agreement.


 


(g)   Tax
Withholding.  Pacific may
withhold from any benefits payable under this Agreement all federal, state,
city or other taxes as may be required pursuant to any law or governmental
regulation or ruling.


 


(h)   Beneficiaries.
Executive may designate one or more persons or entities as the primary and/or
contingent beneficiaries of any amounts to be received under this Agreement.
Such designation must be in the form of a signed writing acceptable to the
Board or the Board’s designee. Executive may make or change such designation at
any time.


 


(i)    Governing
Law.  To the extent not
preempted by federal law, the provisions of this Agreement shall be construed
and enforced in accordance with the laws of the state of Washington.  Venue for any action arising under this
Agreement shall lie in Seattle, Washington.


 


IN WITNESS
WHEREOF, Executive and Pacific have executed this Agreement, as of the day and
year first above written.


 


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