**Exhibit10.32**

 

**PACIFIC NORTHWEST BANCORP2003 LONG-TERM STOCK INCENTIVE PLAN**

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The Pacific Northwest Bancorp Long-Term Stock Incentive Plan (the“Plan”) has been established by Pacific Northwest Bancorp (the “Company”, whichterm shall include any subsidiaries of Pacific Northwest Bancorp) to secure forthe Company and its shareholders the benefits of the incentive inherent instock ownership in the Company by employees, directors and consultants or otherpersons who perform services for the Company and who are responsible for itsfuture growth and continued success. The Plan promotes the success and enhances the value of the Company bylinking the personal interests of Participants (as defined below) to those ofthe Company’s shareholders and by providing Participants with an incentive foroutstanding performance.  The Plan isfurther intended to provide flexibility to the Company in its ability tomotivate, attract and retain the services of Participants upon whose judgment,interest and special effort the successful conduct of its operation largelydepends.

 

1.             **Incentives**

 

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

 

2.             **Participants**

 

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

 

3.             **Administration**

 

The Plan shall be administered by theCommittee.  The Committee shall beresponsible for the administration of the Plan including, without limitation,determining which Participants receive Incentives, what kind of Incentives aremade under the Plan and for what number of shares, and the other terms andconditions of such Incentives. Determinations by the Committee under the Plan, including, withoutlimitation, determinations of the Participants, the form, amount and timing ofIncentives, the terms and provisions of Incentives and the agreementsevidencing Incentives, need not be uniform and may be made selectively amongParticipants who receive, or are eligible to receive, Incentives hereunder,whether or not such Participants are similarly situated.

 

The Committee shall have the responsibility ofconstruing and interpreting the Plan and of establishing and amending suchrules and regulations as it may deem necessary or desirable for the properadministration of the Plan.  Anydecision or action taken or to be taken by the Committee, arising out of or inconnection with the construction, administration, interpretation and effect ofthe Plan and of its rules and regulations, shall, to the maximum extentpermitted by applicable law, be within its absolute discretion (except asotherwise specifically provided herein) and shall be conclusive and bindingupon the Company, all Participants and any person claiming under or through anyParticipant.

 

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

 

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

 

4.             **Shares Available for Incentives**

 

(a)           **SharesSubject to Issuance or Transfer. **Subjectto adjustment as provided in Section 4(c) hereof, there is hereby reserved forissuance under the Plan 1.4 million shares of Common Stock.  The shares available for granting awardsshall be increased by the number of shares as to which options or otherbenefits granted under the Plan have lapsed, expired, terminated or beencanceled.  Shares under this Plan shallbe delivered by the Company from its authorized but unissued shares of CommonStock.

 

(b)           **Limit on anIndividual’s Incentives. **Inany given year, no Participant may receive Incentives under the Plan coveringmore than 60,000 shares of the Company’s Common Stock (such number of sharesshall be adjusted in accordance with Section 4(c)).

 

(c)           **Adjustmentof Shares. **In the event of areorganization, recapitalization, stock split, stock dividend, combination ofshares, merger, consolidation, rights offering or other similar change in thecapital structure of the Company, then (i) the number of shares authorized forissuance under the Plan, and (ii) the number of shares subject to outstandingIncentives and, in the case of Stock Options, the option price, and in the caseof stock appreciation rights, the fair market value, will be proportionatelyadjusted, provided that fractions of a share will be rounded down to thenearest whole share.

 

5.             **Stock Options**

 

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

 

(a)           **OptionPrice. **The option price pershare 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 onthe date the Stock Option is granted, as determined by the Committee.

 

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

 

(c)           **Payment. **No shares shall be issued untilfull payment of the option price has been made.  The option prices may be paid in cash or, if the Committeedetermines, in shares of Common Stock or a combination of cash and shares.  If the Committee approves the use of sharesof Common Stock as a payment method, the Committee shall establish suchconditions as it deems appropriate for the use of Common Stock to exercise astock option.  The Committee mayestablish rules and procedures to permit an optionholder to defer recognition ofgain upon the exercise of a stock option.

 

(d)           **Exercise ofOption. **The Committee shalldetermine 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 specifiedexpiration period.

 

(e)           **Terminationof Employment. **Upon the terminationof a Stock Option, grantee’s employment (for any reason other than retirement,death or termination for deliberate, willful or gross misconduct), Stock Optionprivileges shall be limited to the shares which were immediately exercisable atthe date of such termination.  TheCommittee, however, in its discretion, may provide that any Stock Optionsoutstanding but not yet exercisable upon the termination of a Stock Optiongrantee’s employment may become exercisable in accordance with a schedule as maybe determined by the Committee.  SuchStock Option privileges shall expire unless exercised or surrendered under aStock Appreciation Right within such period of time after the date oftermination of employment as may be established by the Committee, but in noevent later than the expiration date of the Stock Option.

 

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

 

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

 

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

 

(h)           Termination due toMisconduct.  If a Stock Option grantee’semployment is terminated for deliberate, willful or gross misconduct, asdetermined by the Company, all rights under the Stock Option shall expire uponreceipt of the notice of such termination.

 

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

 

6.             **Stock Appreciation Rights**

 

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

 

(a)           **Time andPeriod of Grant. **If a StockAppreciation Right is granted with respect to an underlying Stock Option, itmay be granted at the time of the Stock Option grant or at any time thereafterbut prior to the expiration of the Stock Option grant.  If a Stock Appreciation Right is grantedwith respect to an underlying Stock Option, at the time the Stock AppreciationRight is granted the Committee may limit the exercise period for such StockAppreciation Right, before and after which period no Stock Appreciation Rightshall attach to the underlying Stock Option. In no event shall the exercise period for a Stock Appreciation Rightgranted with respect to an underlying Stock Option exceed the exercise periodfor such Stock Option.  If a StockAppreciation Right is granted without an underlying Stock Option, the periodfor exercise of the Stock Appreciation Right shall be set by the Committee.

 

(b)           Value of StockAppreciation Right.  If a StockAppreciation Right is granted with respect to an underlying Stock Option, thegrantee will be entitled to surrender the Stock Option which is thenexercisable and receive in exchange therefore an amount equal to the excess ofthe fair market value of the Common Stock on the date the election to surrenderis received by the Company over the Stock Option price multiplied by the numberof shares covered by the Stock Option which is surrendered.  If a Stock Appreciation Right is grantedwithout an underlying Stock Option, the grantee will receive upon exercise ofthe Stock Appreciation Right an amount equal to the excess of the fair marketvalue of the Common Stock on the date the election to surrender such StockAppreciation Right is received by the Company over the fair market value of theCommon Stock on the date of grant multiplied by the number of shares covered bythe grant of the Stock Appreciation Right.

 

(c)           Payment of StockAppreciation Right.  Payment of a StockAppreciation Right shall be in the form of shares of Common Stock, cash or anycombination of shares and cash.  The formof payment upon exercise of such a right shall be determined by the Committeeeither at the time of grant of the Stock Appreciation Right or at the time ofexercise of the Stock Appreciation Right.

 

7.             **Performance Share Awards**

 

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

 

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

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(b)           Payment ofPerformance Share Awards.  The Committeeshall establish the method of calculating the amount of payment to be madeunder a Performance Share Award if the Performance Goals are met, including thefixing of a maximum payment.  ThePerformance Share Award shall be expressed in terms of shares of Common Stockand referred to as “Performance Shares.” After the completion of an AwardPeriod, the performance of the Company and/or the Participants shall bemeasured against the Performance Goals, and the Committee shall determinewhether all, none or any portion of a Performance Share Award shall be paid.  The Committee, in its discretion, may electto make payment in shares of Common Stock, cash or a combination of shares andcash.  Any cash payment shall be basedon the fair market value of Performance Shares on, or as soon as practicableprior to, the date of payment.

 

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

 

(d)           **Requirementof Employment. **A grantee ofa Performance Share Award must remain in the employ of the Company, or continueto provide services to the Company until the completion of the Award Period inorder to be entitled to payment under the Performance Share Award; providedthat the Committee may, in its discretion, provide for a full or partial paymentwhere such an exception is deemed equitable.

 

(e)           **Dividends. **The Committee may, in itsdiscretion, at the time of the granting of a Performance Share Award, providethat any dividends declared on the Common Stock during the Award Period, andwhich would have been paid with respect to Performance Shares had they beenowned by a grantee, be (i) paid to the grantee, or (ii) accumulated for thebenefit of the grantee and used to increase the number of Performance Shares ofthe grantee.

 

(f)            **Limit on PerformanceShare Awards. **Incentivesgranted as Performance Share Awards under this section and Restricted StockGrants under Section 8 shall not exceed, in the aggregate, 15% of the shares ofCommon Stock reserved for issuance under the Plan (such number of shares shallbe adjusted in accordance with Section 4(c)).

 

8.             **Restricted Stock Grants**

 

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

 

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

 

(b)           Restrictions onTransfer 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 Stockissued hereunder shall contain a legend giving appropriate notice of therestrictions in the grant.

 

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(c)           EscrowAgreement.  The Committee may requirethe grantee to enter into an escrow agreement providing that the certificatesrepresenting the Restricted Stock Grant will remain in the physical custody ofan escrow holder until any restrictions are removed or expire.

 

(d)           Lapse ofRestrictions.  All restrictions imposedunder the Restricted Stock Grant shall lapse upon the expiration of theRestriction Period if the conditions as to employment set forth above have beenmet.  The grantee shall then be entitledto have the legend removed from the certificates.

 

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

 

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

 

9.             **Transferability**

 

Each Incentive Stock Optiongranted under the Plan shall not be transferable other than by will or the lawsof descent and distribution; each other Incentive granted under the Plan willnot be transferable or assignable by the recipients and may not be made subjectto execution, attachment or similar procedures, other than by will or the lawsof descent and distribution or as determined by the Committee in accordancewith regulations promulgated under the Securities Exchange Act of 1934, or anyother applicable law or regulation.

 

10.           **Discontinuance or Amendment of the Plan**

 

The Board of Directors maydiscontinue the Plan at any time and may from time to time amend or revise theterms of the Plan as permitted by applicable statutes, except that it may notrevoke or alter, in a manner unfavorable to the grantees of any Incentiveshereunder, any Incentives then outstanding, nor may the Board amend the Planwithout stockholder approval where the absence of such approval would cause thePlan to fail to comply with Rule 16b-3 under the Securities Exchange Act of1934, or any other requirement of applicable law or regulation.  Unless approved by the Company’sstockholders, no adjustments or reduction of the exercise price of any outstandingIncentives shall be made by cancellation of outstanding Incentives and thesubsequent regranting of Incentives at a lower price to the sameindividual.  No Incentive shall begranted under the Plan after January 27, 2013, but Incentives granted underthe Plan may extend beyond that date.

 

11.           **No Right of Employment or Participation**

 

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

 

12.           **No Limitation on Compensation**

 

Nothing in the Plan shall beconstrued to limit the right of the Company to establish other plans or to paycompensation in cash or property in a manner which is not expressly authorizedunder the Plan.

 

13.           **No Impact on Benefits**

 

Except as may otherwise bespecifically stated under any employee benefit plan, policy or program, noamount payable in respect of any Incentive shall be treated as compensation forpurposes of calculating an employee’s right under any such plan, policy orprogram.

 

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14.           **No Constraint on Corporate Action**

 

Nothing in the Plan shall beconstrued (i) to limit, impair or otherwise affect the Company’s right orpower to make adjustments, reclassifications, reorganizations or changes of itscapital 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 theCompany or any subsidiary to take any action which such entity deems to benecessary or appropriate.

 

15.           **Withholding Taxes**

 

The Company shall be entitled todeduct 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 bewithheld with respect to such payment or may require the Participant to pay toit such tax prior to and as a condition of the making of such payment.  In accordance with any applicableadministrative guidelines it establishes, the Committee may allow a Participantto pay the amount of taxes required by law to be withheld from an Incentive bywithholding 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 CommonStock having a fair market value, as determined by the Committee, equal to theamount of such required withholding taxes.

 

16.           **Governing Law**

 

The Plan, and all agreementshereunder, shall be construed in accordance with and governed by the laws ofthe State of Washington.  Venue for anylegal proceeding arising under this Plan shall lie in Seattle, Washington.

 

17.           **Effective Date**

 

TheEffective Date of the Plan shall be January 28, 2003, subject to approvalof the Plan by the Company’s shareholders within the twelve (12) month periodimmediately thereafter.

 

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