**Exhibit10.31**

** **

**SEVERANCE/CHANGE OFCONTROL AGREEMENT**

*** ***

***JOSEPH H. WARD***

 

This Severance/Change of Control Agreement(“Agreement”) dated as of February 27, 2003, between PACIFIC NORTHWESTBANCORP 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 ChiefCredit Officer of Pacific Northwest Bank; and

 

WHEREAS,Executive wishes to be employed by Pacific in such new capacity but desiresassurance that he will be protected in the event of termination of hisemployment 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 aChange of Control of Pacific;

 

NOW,THEREFORE, in consideration of the foregoing and of the mutual covenants andagreements of the parties set forth in this Agreement, and of other good andvaluable consideration, the receipt and sufficiency of which are herebyacknowledged, the parties hereto, intending to be legally bound, agree asfollows:

 

1.     Severance Benefits.

 

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

 

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

 

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

 

(d)   Once entitled to receiveseverance benefits under Paragraph 27 of this Agreement, Executive shallhave no duty to mitigate the obligation of Pacific to make severance paymentsdue by seeking other employment.  ShouldExecutive actually receive compensation from any such other employment, thepayments called for hereunder shall not be reduced or offset by any such futureearnings.

 

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

 

(a)   Executive a position withthe survivor entity with duties and responsibilities commensurate with thoseperformed by Executive at the time of the change of control, although the titleheld by Executive need not be the same;

 

(b)   That Executive’s servicesshall be performed in the same geographical location where Executive isemployed at the time of the Change in Control;

 

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

 

1

----

 

(d)   That the successor entitymay terminate Executive’s employment at any time prior to the expiration of thefour-year contract term by paying Executive an amount equal to the TotalCompensation paid to Executive over the last twenty-four (24) months of hisemployment with Pacific preceding the month in which the Change of Controloccurs payable on the first day of the first calendar month followingdiscontinuance of his employment.

 

(e)   Notwithstanding theforegoing, the successor entity may provide in the Employment Contract thatExecutive may be terminated for reasons constituting a Discharge for Cause, asdefined in this Agreement.  If Executiveis terminated under such provision, Executive shall not be entitled to receiveany payments under this Agreement.

 

(f)    That, during the periodcommencing with the 25th month following a Change in Control throughthe 30th month following a Change in Control, Executive mayterminate his Employment Agreement for any reason or no reason by deliveringwritten notice to the successor entity. If Executive does so, the successor entity will pay Executive a singlecash payment in an amount equal to Executive’s Total Compensation for the priortwelve (12) month period payable on the first day of the first calendar monthfollowing discontinuance of his employment.

 

(g)   Payments under thisParagraph 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 deemedto have occurred as of the first day any one or more of the followingconditions is satisfied:

 

(i)  Anyindividual, corporation (other than Pacific), partnership, trust, association,pool, syndicate or any other entity or any group of persons acting in concertbecomes the beneficial owner, as that concept is defined in Rule 13d-3promulgated by the Securities and Exchange Commission under the SecuritiesExchange 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) Thereshall be consummated any consolidation, merger, or other business combinationinvolving Pacific or the securities of Pacific in which holders of votingsecurities of Pacific immediately prior to such consummation own, as a group,immediately after such consummation, voting securities of Pacific (or, ifPacific does not survive such transaction, voting securities of the corporationsurviving such transaction) having less than sixty percent (60%) of the totalvoting power in an election of directors of Pacific (or such other survivingcorporation);

 

(iii)      Duringany period of two (2) consecutive years, individuals who at the beginning ofsuch period constitute the directors of Pacific cease for any reason toconstitute at least a majority thereof unless the election, or the nominationfor election by Pacific’s shareholders, of each new director of Pacific wasapproved by a vote of at least two-thirds (2/3) of the directors of Pacificthen still in office who were directors of Pacific at the beginning of any suchperiod; or

 

(iv)      Thereshall be consummated any sale, lease, exchange or other transfer (in onetransaction 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 notcontrolled by or under common control with Pacific.

 

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

 

(i)        An act of dishonesty onthe part of Executive constituting a felony and resulting or intended to resultdirectly or indirectly in gain or personal enrichment of Executive at theexpense of Pacific;

 

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

 

2

----

 

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

 

4.   Termination of theAgreement.  This Agreement shallterminate if Executive shall voluntarily resign, retire, become permanently andtotally disabled, or die; *provided, however*, if Executive becomespermanently and totally disabled or dies after the Board of Directors hasauthorized proceeding with negotiations which result in a Change of Control orwithin twelve (12) months after a Change of Control, if Executive is thenemployed by Pacific, Executive or his personal or legal representatives,executors, administrators, successors, heirs, distributees, devisees andlegatees, as the case may be, shall be entitled to receive the Change ofControl payment under Paragraph 2(d) hereof.

 

5.   Effect on Other Benefits.  The arrangements called for by thisAgreement are not intended to have any effect on Executive’s participation inany other benefits available to executive personnel or to preclude othercompensation or additional benefits as may be authorized by the Board ofDirectors from time to time.

 

6.   Limitations on PaymentsRelated to Severance Benefits.  Thefollowing limitations apply, notwithstanding any other provision of thisAgreement:

 

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

 

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

 

7.   Health Care InsuranceCoverage.  In addition to anyseverance benefits and Change in Control payments due to Executive under thisAgreement, Pacific shall pay allpremiums for the continuation of health care coverage benefits to Executive andhis or her covered spouse and dependents pursuant to the Consolidated OmnibusBudget Reconciliation Act (COBRA) for a period of up to eighteen (18) monthsafter the termination of Executive’s employment with Pacific or its successor (including employment with any parent company orsubsidiary under common control with Pacific or its successor) otherthan a Discharge for Cause in the event that either: (a) a Change ofControl occurs and Executive does not continue to be employed by Pacific or itssuccessor (including employment with any parent company or subsidiary undercommon control with Pacific or its successor) for more than thirty (30) monthsafter the closing of the transaction, or (b) upon the retirement ofExecutive if, on the date of retirement, Executive is at least sixty (60) yearsof age and has been employed by Pacificand/or its successor (including employment with any parent company orsubsidiary under common control with Pacific or its successor) for atleast five (5) years.

 

8.   Confidentiality.  From the date of this Agreement, Executivewill not, directly or indirectly, disclose to any third party not affiliatedwith Pacific, Confidential Information of Pacific and its subsidiaries andaffiliates, except as to any of the Confidential Information which shall be orbecome in the public domain or shall be required to be disclosed by applicablelaws or regulations, any judicial or administrative authority or stock exchangerule or regulation.  For the purposes ofthis Paragraph 8, “Confidential Information” shall mean: (i) internal policiesand procedures, (ii) financial information, (iii) marketing strategies, (iv)customer information, and (v) other non-public information relating toPacific’s business or financial condition.

 

9.   Assignment.

 

(a)   By Pacific.  This Agreement may and shall be assigned ortransferred to, and shall be binding upon and inure to the benefit of, anysuccessor of Pacific, and any such successor shall be deemed substituted forall 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 atany time causes a Change of Control as described in Paragraph 2.  Notwithstanding such assignment, Pacificshall remain, with such successor, jointly and severally liable for all itsobligations hereunder.  Except as hereinprovided, Pacific may not otherwise assign this Agreement.

 

3

----

 

(b)   ByExecutive.  This Agreement shallinure to the benefit of and be enforceable by Executive’s personal or legalrepresentatives, executors and administrators, successors, heirs, distributees,devisees and legatees.  If Executiveshould die while any amounts payable to Executive hereunder remain outstanding,all such amounts, unless otherwise provided herein, shall be paid in accordancewith the terms of this Agreement to Executive’s devisees, legatee or otherdesignee, or, in the absence of such designee, to Executive’s estate.  This Agreement is not otherwise assignableby Executive.

 

10.   Jurisdiction/Venue/MandatoryArbitration.  Any legal actionbrought to resolve disputes arising out of this Agreement, or any amendmentsthereto, shall be commenced in King County Superior Court in Seattle,Washington and shall be resolved in accordance with the Superior CourtMandatory Arbitration Rules and the King County Local Rules for MandatoryArbitration, if any, with the parties agreeing to waive the jurisdictionallimits.  The decision of the arbitratorshall be binding on the parties, and the parties waive the right of *de novo*appealfrom such decision.  It is agreed thatthe arbitrator shall award to the prevailing or substantially prevailing partyall fees incurred by such party with regard to such arbitration, including reasonablelegal, accounting, and expert witness fees. If the arbitrator determines that there is no prevailing orsubstantially prevailing party, the reasonable legal, accounting, and expertwitnesses fees shall be the responsibility of each party.

 

11.   Miscellaneous.

 

(a)   *Gender andNumber*.  Except whereotherwise indicated by the context, any masculine term used herein also shallinclude the feminine; the plural shall include the singular and the singularshall include the plural.

 

(b)   *EntireAgreement*.  This Agreementsupersedes any prior agreements or understandings, oral or written, betweenExecutive and Pacific, with respect to the subject matter hereof andconstitutes 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 ofthe parties in a written instrument executed by the parties hereto or theirlegal representatives.

 

(d)   *Reviewedwith Independent Counsel/Construction of Agreement*.  Each party had the opportunity to reviewthis Agreement with legal counsel of their choosing, and this Agreement is theoutcome of that review process. This Agreement has been entered into afternegotiation and review of its terms and conditions by parties under nocompulsion 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 orresolved against any party on the ground that this Agreement or any of itsprovisions was drafted or proposed by that party.

 

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

 

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

 

(g)   *TaxWithholding*.  Pacific maywithhold from any benefits payable under this Agreement all federal, state,city or other taxes as may be required pursuant to any law or governmentalregulation or ruling.

 

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

 

(i)    *GoverningLaw*.  To the extent notpreempted by federal law, the provisions of this Agreement shall be construedand enforced in accordance with the laws of the state of Washington.  Venue for any action arising under thisAgreement shall lie in Seattle, Washington.

 

IN WITNESSWHEREOF, Executive and Pacific have executed this Agreement, as of the day andyear first above written.

 

4

----