Exhibit
10.32


 


PACIFIC NORTHWEST BANCORP
2003 LONG-TERM STOCK INCENTIVE PLAN


 


The Pacific Northwest Bancorp Long-Term Stock Incentive Plan (the
“Plan”) has been established by Pacific Northwest Bancorp (the “Company”, which
term shall include any subsidiaries of Pacific Northwest Bancorp) to secure for
the Company and its shareholders the benefits of the incentive inherent in
stock ownership in the Company by employees, directors and consultants or other
persons who perform services for the Company and who are responsible for its
future growth and continued success. 
The Plan promotes the success and enhances the value of the Company by
linking the personal interests of Participants (as defined below) to those of
the Company’s shareholders and by providing Participants with an incentive for
outstanding performance.  The Plan is
further intended to provide flexibility to the Company in its ability to
motivate, attract and retain the services of Participants upon whose judgment,
interest and special effort the successful conduct of its operation largely
depends.


 


1.             Incentives


 


Incentives under the Plan may be granted in any
one or a combination of (a) Incentive Stock Options; (b) Nonqualified
Stock Options; (c) Stock Appreciation Rights; (d) Restricted Stock Grants
and (e) Performance Shares (collectively “Incentives”).  All Incentives shall be subject to the terms
and conditions set forth herein and to such other terms and conditions as may
be established by the Compensation Committee of the Board of Directors of the
Company (the “Committee”).


 


2.             Participants


 


All employees, directors and consultants, or
other persons who perform services for the Company, who have been determined by
the Committee to contribute significantly to the profits or growth of the Company
shall be eligible to participate in the Plan if designated by the Committee
(the “Participants”).


 


3.             Administration


 


The Plan shall be administered by the
Committee.  The Committee shall be
responsible for the administration of the Plan including, without limitation,
determining which Participants receive Incentives, what kind of Incentives are
made under the Plan and for what number of shares, and the other terms and
conditions of such Incentives. 
Determinations by the Committee under the Plan, including, without
limitation, determinations of the Participants, the form, amount and timing of
Incentives, the terms and provisions of Incentives and the agreements
evidencing Incentives, need not be uniform and may be made selectively among
Participants who receive, or are eligible to receive, Incentives hereunder,
whether or not such Participants are similarly situated.


 


The Committee shall have the responsibility of
construing and interpreting the Plan and of establishing and amending such
rules and regulations as it may deem necessary or desirable for the proper
administration of the Plan.  Any
decision or action taken or to be taken by the Committee, arising out of or in
connection with the construction, administration, interpretation and effect of
the Plan and of its rules and regulations, shall, to the maximum extent
permitted by applicable law, be within its absolute discretion (except as
otherwise specifically provided herein) and shall be conclusive and binding
upon the Company, all Participants and any person claiming under or through any
Participant.


 


The Committee may delegate some or all of its
power and authority hereunder to the Chief Executive Officer or other senior
member(s) of management as the Committee deems appropriate; provided, however,
that the Committee may not delegate its authority with regard to any matter or
action affecting an officer subject to Section 16 of the Securities Exchange
Act of 1934.


 


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Each person who is or shall have been a member of the Committee, or the
Board of Directors, shall be indemnified and held harmless by the Company
against and from any loss, cost, liability or expense that may be imposed upon
or reasonably incurred by him or her in connection with or resulting from any
claim, action, suit or proceeding to which he or she may be a party or in which
he or she may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him or her in
settlement thereof, with the Company’s approval, or paid by him in satisfaction
of any judgment in any such action, suit or proceeding against him, provided he
shall give the Company an opportunity, at its own expense, to handle and defend
the same before he undertakes to handle and defend it on his own behalf.  The foregoing right of indemnification shall
be in addition to any other rights of indemnification to which such persons may
be entitled under the Company’s Articles of Incorporation or Bylaws, as a
matter of law or otherwise, or any power that the Company may have to indemnify
them or hold them harmless.


 


4.             Shares Available for Incentives


 


(a)           Shares
Subject to Issuance or Transfer.  Subject
to adjustment as provided in Section 4(c) hereof, there is hereby reserved for
issuance under the Plan 1.4 million shares of Common Stock.  The shares available for granting awards
shall be increased by the number of shares as to which options or other
benefits granted under the Plan have lapsed, expired, terminated or been
canceled.  Shares under this Plan shall
be delivered by the Company from its authorized but unissued shares of Common
Stock.


 


(b)           Limit on an
Individual’s Incentives.  In
any given year, no Participant may receive Incentives under the Plan covering
more than 60,000 shares of the Company’s Common Stock (such number of shares
shall be adjusted in accordance with Section 4(c)).


 


(c)           Adjustment
of Shares.  In the event of a
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation, rights offering or other similar change in the
capital structure of the Company, then (i) the number of shares authorized for
issuance under the Plan, and (ii) the number of shares subject to outstanding
Incentives and, in the case of Stock Options, the option price, and in the case
of stock appreciation rights, the fair market value, will be proportionately
adjusted, provided that fractions of a share will be rounded down to the
nearest whole share.


 


5.             Stock Options


 


The Committee may grant options qualifying as
Incentive Stock Options under the Internal Revenue Code of 1986, as amended, or
any successor code thereto (the “Code”) and Nonqualified Options (collectively
“Stock Options”).  Such Stock Options
shall be subject to the following terms and conditions and such other terms and
conditions as the Committee may prescribe:


 


(a)           Option
Price.  The option price per
share with respect to each Stock Option shall be determined by the Committee,
but shall not be less than 100% of the fair market value of the Common Stock on
the date the Stock Option is granted, as determined by the Committee.


 


(b)           Period of
Option.  The period of each
Stock Option shall be fixed by the Committee but shall not exceed ten (10)
years.


 


(c)           Payment.  No shares shall be issued until
full payment of the option price has been made.  The option prices may be paid in cash or, if the Committee
determines, in shares of Common Stock or a combination of cash and shares.  If the Committee approves the use of shares
of Common Stock as a payment method, the Committee shall establish such
conditions as it deems appropriate for the use of Common Stock to exercise a
stock option.  The Committee may
establish rules and procedures to permit an optionholder to defer recognition of
gain upon the exercise of a stock option.


 


(d)           Exercise of
Option.  The Committee shall
determine how and when shares covered by a Stock Option may be purchased.  The Committee may establish waiting periods,
the dates on which options become exercisable or “vested” and exercise periods,
provided that in no event (including those specified in paragraphs (e), (f) and
(g) of this section) shall any Stock Option be exercisable after its specified
expiration period.


 


(e)           Termination
of Employment.  Upon the termination
of a Stock Option, grantee’s employment (for any reason other than retirement,
death or termination for deliberate, willful or gross misconduct), Stock Option
privileges shall be limited to the shares which were immediately exercisable at
the date of such termination.  The
Committee, however, in its discretion, may provide that any Stock Options
outstanding but not yet exercisable upon the termination of a Stock Option
grantee’s employment may become exercisable in accordance with a schedule as may
be determined by the Committee.  Such
Stock Option privileges shall expire unless exercised or surrendered under a
Stock Appreciation Right within such period of time after the date of
termination of employment as may be established by the Committee, but in no
event later than the expiration date of the Stock Option.


 


(f)            Retirement.  Upon retirement of a Stock Option
grantee, Stock Option privileges shall apply to those shares immediately
exercisable at the date of retirement. 
The Committee, however, in its discretion, may provide that any Stock
Options outstanding but not yet exercisable upon the retirement of a Stock
Option grantee may become exercisable in accordance with a schedule as may be
determined by the Committee.  Stock
Option privileges shall expire unless exercised within such period of time as
may be established by the Committee, but in no event later than the expiration
date of the Stock Option.


 


(g)           Death.  Upon the death of a Stock Option grantee,
Stock Option privileges shall apply to those shares which were immediately
exercisable at the time of death.  The
Committee, however, in its discretion, may provide that any Stock Options
outstanding but not yet exercisable upon the death of a Stock


 


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Option grantee may become exercisable in accordance
with a schedule as may be determined by the Committee.  Such privileges shall expire unless
exercised by legal representative(s) within a period of time as determined by
the Committee, but in no event later than the expiration date of the Stock
Option.


 


(h)           Termination due to
Misconduct.  If a Stock Option grantee’s
employment is terminated for deliberate, willful or gross misconduct, as
determined by the Company, all rights under the Stock Option shall expire upon
receipt of the notice of such termination.


 


(i)            Limits on Incentive
Stock Options.  Except as may otherwise
be permitted by the Code, the Committee shall not grant to a Participant
Incentive Stock Options that, in the aggregate, are first exercisable during
any one calendar year to the extent that the aggregate fair market value of the
Common Stock, at the time the Incentive Stock Options are granted, exceeds
$100,000, or such other amount as the Internal Revenue Service may decide from
time to time.


 


6.             Stock Appreciation Rights


 


The Committee may, in its discretion, grant a
right to receive the appreciation in the fair market value of shares of Common
Stock (“Stock Appreciation Right”) either singly or in combination with an
underlying Stock Option granted hereunder or under the prior Plans.  Such Stock Appreciation Rights shall be
subject to the following terms and conditions and such other terms and
conditions as the Committee may prescribe:


 


(a)           Time and
Period of Grant.  If a Stock
Appreciation Right is granted with respect to an underlying Stock Option, it
may be granted at the time of the Stock Option grant or at any time thereafter
but prior to the expiration of the Stock Option grant.  If a Stock Appreciation Right is granted
with respect to an underlying Stock Option, at the time the Stock Appreciation
Right is granted the Committee may limit the exercise period for such Stock
Appreciation Right, before and after which period no Stock Appreciation Right
shall attach to the underlying Stock Option. 
In no event shall the exercise period for a Stock Appreciation Right
granted with respect to an underlying Stock Option exceed the exercise period
for such Stock Option.  If a Stock
Appreciation Right is granted without an underlying Stock Option, the period
for exercise of the Stock Appreciation Right shall be set by the Committee.


 


(b)           Value of Stock
Appreciation Right.  If a Stock
Appreciation Right is granted with respect to an underlying Stock Option, the
grantee will be entitled to surrender the Stock Option which is then
exercisable and receive in exchange therefore an amount equal to the excess of
the fair market value of the Common Stock on the date the election to surrender
is received by the Company over the Stock Option price multiplied by the number
of shares covered by the Stock Option which is surrendered.  If a Stock Appreciation Right is granted
without an underlying Stock Option, the grantee will receive upon exercise of
the Stock Appreciation Right an amount equal to the excess of the fair market
value of the Common Stock on the date the election to surrender such Stock
Appreciation Right is received by the Company over the fair market value of the
Common Stock on the date of grant multiplied by the number of shares covered by
the grant of the Stock Appreciation Right.


 


(c)           Payment of Stock
Appreciation Right.  Payment of a Stock
Appreciation Right shall be in the form of shares of Common Stock, cash or any
combination of shares and cash.  The form
of payment upon exercise of such a right shall be determined by the Committee
either at the time of grant of the Stock Appreciation Right or at the time of
exercise of the Stock Appreciation Right.


 


7.             Performance Share Awards


 


The Committee may grant awards under which
payment may be made in shares of Common Stock, cash or any combination of
shares and cash if the performance of the Company or the Participants selected
by the Committee during the Award Period (as defined below) meets certain goals
established by the Committee (“Performance Share Awards”).  Such Performance Share Awards shall be
subject to the following terms and conditions and such other terms and
conditions as the Committee may prescribe:


 


(a)           Award Period and Performance Goals.  The Committee shall determine and
include in a Performance Share Award grant the period of time for which a
Performance Share Award is made (“Award Period”).  The Committee shall also establish performance objectives and/or
individual goals (“Performance Goals”) to be met during the Award Period as a
condition to payment of the Performance Share Award.  The Performance Goals may include earnings per share, return on
stockholders’ equity, return on assets, net income or any other financial or
other measurement established by the Committee.  The Performance Goals may include minimum and optimum objectives
or a single set of objectives.


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(b)           Payment of
Performance Share Awards.  The Committee
shall establish the method of calculating the amount of payment to be made
under a Performance Share Award if the Performance Goals are met, including the
fixing of a maximum payment.  The
Performance Share Award shall be expressed in terms of shares of Common Stock
and referred to as “Performance Shares.” After the completion of an Award
Period, the performance of the Company and/or the Participants shall be
measured against the Performance Goals, and the Committee shall determine
whether all, none or any portion of a Performance Share Award shall be paid.  The Committee, in its discretion, may elect
to make payment in shares of Common Stock, cash or a combination of shares and
cash.  Any cash payment shall be based
on the fair market value of Performance Shares on, or as soon as practicable
prior to, the date of payment.


 


(c)           Revision of
Performance Goals.  At any
time prior to the end of an Award Period, the Committee may revise the
Performance Goals and the computation of payment if unforeseen events occur
which have a substantial effect on the performance of the Company and/or the
Participants which, in the judgment of the Committee, make the application of
the Performance Goals unfair unless a revision is made.


 


(d)           Requirement
of Employment.  A grantee of
a Performance Share Award must remain in the employ of the Company, or continue
to provide services to the Company until the completion of the Award Period in
order to be entitled to payment under the Performance Share Award; provided
that the Committee may, in its discretion, provide for a full or partial payment
where such an exception is deemed equitable.


 


(e)           Dividends.  The Committee may, in its
discretion, at the time of the granting of a Performance Share Award, provide
that any dividends declared on the Common Stock during the Award Period, and
which would have been paid with respect to Performance Shares had they been
owned by a grantee, be (i) paid to the grantee, or (ii) accumulated for the
benefit of the grantee and used to increase the number of Performance Shares of
the grantee.


 


(f)            Limit on Performance
Share Awards.  Incentives
granted as Performance Share Awards under this section and Restricted Stock
Grants under Section 8 shall not exceed, in the aggregate, 15% of the shares of
Common Stock reserved for issuance under the Plan (such number of shares shall
be adjusted in accordance with Section 4(c)).


 


8.             Restricted Stock Grants


 


The Committee may award shares of Common Stock to
a grantee, which shares shall be subject to the following terms and conditions
and such other terms and conditions as the Committee may prescribe (“Restricted
Stock Grant”):


 


(a)           Requirement
of Employment.  A grantee of
a Restricted Stock Grant must remain in the employ of the Company during a
period designated by the Committee (“Restriction Period”) in order to retain the
shares under the Restricted Stock Grant. 
If the grantee leaves the employ of the Company prior to the end of the
Restriction Period, the Restricted Stock Grant shall terminate and the shares
of Common Stock shall be returned immediately to the Company provided that the
Committee may, at the time of the grant, provide for the employment restriction
to lapse with respect to a portion or portions of the Restricted Stock Grant at
different times during the Restriction Period. 
The Committee may, in its discretion, also provide for such complete or
partial exceptions to the employment restriction as it deems equitable.


 


(b)           Restrictions on
Transfer and Legend on Stock Certificates. 
During the Restriction Period, the grantee may not sell, assign,
transfer, pledge or otherwise dispose of the shares of Common Stock.  Each certificate for shares of Common Stock
issued hereunder shall contain a legend giving appropriate notice of the
restrictions in the grant.


 


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(c)           Escrow
Agreement.  The Committee may require
the grantee to enter into an escrow agreement providing that the certificates
representing the Restricted Stock Grant will remain in the physical custody of
an escrow holder until any restrictions are removed or expire.


 


(d)           Lapse of
Restrictions.  All restrictions imposed
under the Restricted Stock Grant shall lapse upon the expiration of the
Restriction Period if the conditions as to employment set forth above have been
met.  The grantee shall then be entitled
to have the legend removed from the certificates.


 


(e)           Dividends.  The Committee may, in its discretion, at the
time of the Restricted Stock Grant, provide that any dividends declared on the
Common Stock during the Restriction Period shall either be (i) paid to the
grantee, or (ii) accumulated for the benefit of the grantee and paid to the
grantee only after the expiration of the Restriction Period.


 


(f)            Limit on Restricted
Stock Grant.  Incentives granted as
Restricted Stock Grants under this section and Performance Share Awards under
Section 7 shall not exceed, in the aggregate, 15% of the shares of Common Stock
reserved for issuance under the Plan (such number of shares shall be adjusted
in accordance with Section 4(c)).


 


9.             Transferability


 


Each Incentive Stock Option
granted under the Plan shall not be transferable other than by will or the laws
of descent and distribution; each other Incentive granted under the Plan will
not be transferable or assignable by the recipients and may not be made subject
to execution, attachment or similar procedures, other than by will or the laws
of descent and distribution or as determined by the Committee in accordance
with regulations promulgated under the Securities Exchange Act of 1934, or any
other applicable law or regulation.


 


10.           Discontinuance or Amendment of the Plan


 


The Board of Directors may
discontinue the Plan at any time and may from time to time amend or revise the
terms of the Plan as permitted by applicable statutes, except that it may not
revoke or alter, in a manner unfavorable to the grantees of any Incentives
hereunder, any Incentives then outstanding, nor may the Board amend the Plan
without stockholder approval where the absence of such approval would cause the
Plan to fail to comply with Rule 16b-3 under the Securities Exchange Act of
1934, or any other requirement of applicable law or regulation.  Unless approved by the Company’s
stockholders, no adjustments or reduction of the exercise price of any outstanding
Incentives shall be made by cancellation of outstanding Incentives and the
subsequent regranting of Incentives at a lower price to the same
individual.  No Incentive shall be
granted under the Plan after January 27, 2013, but Incentives granted under
the Plan may extend beyond that date.


 


11.           No Right of Employment or Participation


 


The Plan and the Incentives
granted hereunder shall not confer upon any Participant the right to continued
employment or otherwise to continue to provide services to the Company, or
affect in any way the right of the Company to terminate the employment of a
Participant at any time and for any reason. 
No individual shall have a right to be granted an Incentive, or having
been granted an Incentive, to receive any future Incentives.


 


12.           No Limitation on Compensation


 


Nothing in the Plan shall be
construed to limit the right of the Company to establish other plans or to pay
compensation in cash or property in a manner which is not expressly authorized
under the Plan.


 


13.           No Impact on Benefits


 


Except as may otherwise be
specifically stated under any employee benefit plan, policy or program, no
amount payable in respect of any Incentive shall be treated as compensation for
purposes of calculating an employee’s right under any such plan, policy or
program.


 


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14.           No Constraint on Corporate Action


 


Nothing in the Plan shall be
construed (i) to limit, impair or otherwise affect the Company’s right or
power to make adjustments, reclassifications, reorganizations or changes of its
capital or business structure, or to merge or consolidate, or dissolve,
liquidate, sell or transfer all or any part of its business or assets, or
(ii) except as provided in Section 10, to limit the right or power of the
Company or any subsidiary to take any action which such entity deems to be
necessary or appropriate.


 


15.           Withholding Taxes


 


The Company shall be entitled to
deduct from any payment under the Plan, regardless of the form of such payment,
the amount of all applicable income and employment taxes required by law to be
withheld with respect to such payment or may require the Participant to pay to
it such tax prior to and as a condition of the making of such payment.  In accordance with any applicable
administrative guidelines it establishes, the Committee may allow a Participant
to pay the amount of taxes required by law to be withheld from an Incentive by
withholding from any payment of Common Stock due as a result of such Incentive,
or by permitting the Participant to deliver to the Company shares of Common
Stock having a fair market value, as determined by the Committee, equal to the
amount of such required withholding taxes.


 


16.           Governing Law


 


The Plan, and all agreements
hereunder, shall be construed in accordance with and governed by the laws of
the State of Washington.  Venue for any
legal proceeding arising under this Plan shall lie in Seattle, Washington.


 


17.           Effective Date


 


The
Effective Date of the Plan shall be January 28, 2003, subject to approval
of the Plan by the Company’s shareholders within the twelve (12) month period
immediately thereafter.


 


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