**Exhibit10.24**

 

**THE AMENDED AND RESTATED**

**PACIFIC NORTHWEST BANCORP**

**EMPLOYEE STOCK OWNERSHIP PLAN/**

**MONEY PURCHASE PENSION PLAN**

 

**As of April 1, 2002**

 

 

 

 

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**TABLE OF CONTENTS**

 
| ARTICLE IName and Purpose                                              |
|------------------------------------------------------------------------|
|                                                                   |
| ARTICLE IIDefinitions                                                  |
|                                                                   | A. |   | “Accrued  Benefit” |
|                                                                   | B. |   | “Administrative  Committee” |
|                                                                   | C. |   | “Anniversary  Date” |
|                                                                   | D. |   | “Board” |
|                                                                   | E. |   | “Code” |
|                                                                   | F. |   | “Compensation” |
|                                                                   | G. |   | “Effective Date” |
|                                                                   | H. |   | “Eligibility Computation  Period” |
|                                                                   | I. |   | “Employee” |
|                                                                   | J. |   | “Employer” |
|                                                                   | K. |   | “Employer Stock” |
|                                                                   | L. |   | “Enrollment  Date” |
|                                                                   | M. |   | “ERISA” |
|                                                                   | N. |   | “Event of  Forfeiture” |
|                                                                   | O. |   | “Fiscal Year” |
|                                                                   | P. |   | “Fund” |
|                                                                   | Q. |   | “Highly-Compensated  Employee” |
|                                                                   | R. |   | “Hour of Service” |
|                                                                   | S. |   | “Investment  Account” or “Pre-April 1, 2002 ESOP Investment Account” |
|                                                                   | T. |   | “Investment  Committee” |
|                                                                   | U. |   | “Money  Purchase Pension Plan Employer Contribution Account” or “Post-March 31, 2002  Money Purchase Pension Plan Employer Contribution Account” |
|                                                                   | V. |   | “One-Year Break in Service” |
|                                                                   | W. |   | “Participant” |
|                                                                   | X. |   | “Plan” |
|                                                                   | Y. |   | “Plan Year” |
|                                                                   | Z. |   | “Spouse” |
|                                                                   | AA. |   | “Stock Account” or “Pre-April 1, 2002  ESOP Employer Stock Account” |
|                                                                   | BB. |   | “Trust” |
|                                                                   | CC. |   | “Trustee” |
|                                                                   | DD. |   | “Valuation Date” |
|                                                                   | EE. |   | “Vesting  Computation Period” |
|                                                                   | FF. |   | “Year of Service” |
|                                                                   | GG. |   | “Miscellaneous” |
|                                                                   |   |   |   |
| ARTICLE IIIEligible Employees                                          |
|                                                                   |
| ARTICLE IVContributions                                                |
|                                                                   | A. |   | Employer  Contribution |
|                                                                   | B. |   | Date of Payment |
|                                                                   | C. |   | Participant Contributions |
|                                                                   |   |   |   |
| ARTICLE VParticipant’s Accounts, Valuation,  Maximum Contribution |
|                                                                   | A. |   | Participant’s  Accounts |
|                                                                   | B. |   | Cash Dividends |
|                                                                   | C. |   | Trust Valuation |
|                                                                   | D. |   | Maximum  Contributions |
|                                                                        |  |  |  |  |

 

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|                                        |   | 1.     | Annual Addition                                                                                   |
|---------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------|
|                                        |   | 2.     | Excess  Annual Addition                                                                           |
|                                        | E.     |   | Forfeitures and  Reinstatement of Forfeitures                                                     |
|                                        |   |   |                                                                                              |
| ARTICLE VINonforfeitable Accrued  Benefit   |
|                                        | A.     |   | Allocations Not Vested                                                                            |
|                                        | B.     |   | Vesting Period.                                                                                   |
|                                        | C.     |   | Amendment  to Vesting Computation Period or Vesting Schedule                                      |
|                                        | D.     |   | Full Vesting                                                                                      |
|                                        |   |   |                                                                                              |
| ARTICLE VIIDistribution  of Benefits        |
|                                        | A.     |   | Retirement Age and Options                                                                        |
|                                        |   | 1.     | Employment  After Normal Retirement Age                                                           |
|                                        |   | 2.     | Date of Retired  Participant’s First Payment                                                 |
|                                        |   | 3.     | Deferral  of Benefits                                                                             |
|                                        |   | 4.     | Form of Payment                                                                                   |
|                                        | B.     |   | Death                                                                                             |
|                                        |   | 1.     | Death Prior to  Commencement of Benefits                                                          |
|                                        |   | 2.     | Explanation  of Death Benefit                                                                     |
|                                        | C.     |   | Disability                                                                                        |
|                                        | D.     |   | Termination of  Employment                                                                        |
|                                        | E.     |   | Time of First Payment                                                                             |
|                                        | F.     |   | Distribution of  Allocation Attributable to Last Year of Participation                            |
|                                        | G.     |   | Distribution  to Persons Under Disability                                                         |
|                                        | H.     |   | No  Reduction in Benefits by Reason of Increase in Social Security Benefits                       |
|                                        | I.     |   | Provisions for  Nontradeable Stock                                                                |
|                                        | J.     |   | Diversification and  Distribution of Investments in Pre-April 1, 2002 ESOP Employer Stock Account |
|                                        |   |
| ARTICLE VIIIProvision Against  Anticipation |
|                                        | A.     |   | No Alienation of Benefits                                                                         |
|                                        | B.     |   | Qualified  Domestic Relations Orders                                                              |
|                                             |        |        |                                                                                                   |  |  |  |  |  |  |  |  |  |

 

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| ARTICLE IXAdministrative  Committee and Investment Committee Duties                                        |
|------------------------------------------------------------------------------------------------------------|
|                                                                                                       | A. |   | Appointment of Administrative  Committee |
|                                                                                                       | B. |   | Administrative  Committee Action |
|                                                                                                       | C. |   | Rights and Duties |
|                                                                                                       | D. |   | No Administrative Committee  Investment Authority |
|                                                                                                       | E. |   | Information  - Reporting and Disclosure |
|                                                                                                       | F. |   | Administrative  Committee Allocation and Delegation of Responsibility |
|                                                                                                       | G. |   | Claims  Procedure |
|                                                                                                       | H. |   | Investment Committee  Authority |
|                                                                                                       | I. |   | Funding Policy |
|                                                                                                       | J. |   | Investment Committee Action |
|                                                                                                       | K. |   | Investment  Committee Allocation and Delegation of Responsibilit |
|                                                                                                       | L. |   | Bonding |
|                                                                                                       | M. |   | Indemnification |
|                                                                                                       | N. |   | Standard  of Care Imposed upon the Administrative Committee and the Investment  Committee |
|                                                                                                       |   |   |   |
| ARTICLE XInvestment  of Plan Assets                                                                        |
|                                                                                                       | A. |   | Investments |
|                                                                                                       |   | 1. | ESOP Accounts |
|                                                                                                       |   | 2. | Money Purchase  Pension Plan Employer Contribution Account |
|                                                                                                       |   | 3. | Trustee’s  Investment Procedures |
|                                                                                                       | B. |   | Employer Stock |
|                                                                                                       | C. |   | Voting and  Tender of Employer Stock |
|                                                                                                       | D. |   | ESOP  Employer Stock Accounts |
|                                                                                                       |   |   |   |
| ARTICLE XISuits                                                                                            |
|                                                                                                       |
| ARTICLE XIIMergers and Consolidations                                                                      |
|                                                                                                       |
| ARTICLE XIIIAmendment  and Termination of Plan and Trust                                                   |
|                                                                                                       | A. |   | Right to  Amend and Terminate |
|                                                                                                       | B. |   | No Revesting |
|                                                                                                       | C. |   | Exclusive Benefit of  Employees |
|                                                                                                       | D. |   | Termination |
|                                                                                                       |   |   |   |
| ARTICLE XIVTop Heavy  Plans Defined and Other Definitions 2                                                |
|                                                                                                       | A. |   | Top Heavy Plan |
|                                                                                                       | B. |   | Additional  Definitions for Use in this Article and Article XV |
|                                                                                                       | C. |   | Top-Heavy  Requirements Effective for Plan Years Beginning After December 31, 2001 |
|                                                                                                       |   |   |   |
| ARTICLE XIXAdditional  Requirements Applicable to Top Heavy Plans                                          |
|                                                                                                       | A. |   | Minimum Vesting  Requirements |
|                                                                                                       | B. |   | Minimum Employer  Contributions |
|                                                                                                       |   | 1. | General Rule |
|                                                                                                       |   | 2. | Exceptions |
|                                                                                                       |   | 3. | Employee  Participating in Defined Benefit Plan |
|                                                                                                       |   | 4. | Specific Rules |
|                                                                                                       |   |   |   |
| ARTICLE XXRight to Discharge  Employees                                                                    |
|                                                                                                       |
| ARTICLE  XXIReturn of Contributions;  Declaration of Trust Contingent on Internal Revenue Service Approval |
|                                                                                                       |
|                                                                                                            |  |  |  |  |  |  |  |  |  |

 

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|                                                                                            |
|-------------------------------------------------------------------------------------------------|
| ARTICLE XXIIDirect Rollover Contributions                                                       |
|                                                                                            | A. |   | Direct Rollover Contributions |
|                                                                                            | B. |   | Definitions |
|                                                                                            |   | 1. | Eligible Rollover  Distribution |
|                                                                                            |   | 2. | Eligible Retirement Plan |
|                                                                                            |   | 3. | Distributee |
|                                                                                            |   | 4. | Direct Rollover |
|                                                                                            |   |   |   |
| ARTICLE XXIIITransfer of InterWest  Bancorp, Inc. Stock From predecessor Pacific Northwest Bank |
| Retirement Plan                                                                                 |

** **

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**THE AMENDED AND RESTATED**

**PACIFIC****NORTHWEST****BANCORP**

**EMPLOYEE STOCK OWNERSHIP PLAN/MONEYPURCHASE PENSION PLAN**

 

THIS AGREEMENT ismade and entered into at Seattle, Washington, to be effective as of the datesstated herein, by Pacific Northwest Bancorp, a Washington corporation, havingits principal place of business at Seattle, Washington, and its affiliateslisted in Schedule A, hereinafter called the “Employer.”

 

WHEREAS, theEmployer established for the exclusive benefit of its Employees eligible toparticipate, and their beneficiaries, an employee stock ownership plan,effective as of January 1, 1988;

 

WHEREAS, this Planwas previously a money purchase plan that was effective January 1, 1972;

 

WHEREAS, the Boardof Directors of InterWest Bancorp, Inc. amended and restated the Plan effectiveas of January 1, 1997 to rename the Plan the “InterWest Bancorp, Inc. EmployeeStock Ownership Plan and Trust”;

 

WHEREAS, the Boardof Directors of InterWest Bancorp, Inc. amended and restated the Plan effectiveJanuary 1, 1999 to add the Predecessor Pacific Northwest Bank, Pioneer NationalBank (until January 19, 1999), and Kittitas Valley Bank, N.A., as co-sponsorsof the Plan; to change the Plan Enrollment Dates to the first day of eachcalendar quarter; to change the definition of Compensation to exclude Christmasbonuses and to clarify that executive deferred compensation is excluded; toamend the categories of employees excluded from participating in the Plan; toamend the provisions relating to the granting of past service for eligibilityand vesting purposes; to change the Plan Valuation Dates to June 30 andDecember 31; to change the Hours of Service equivalency method for salaried,exempt employees; to change the Plan definition of disability; as soon asadministratively possible after August 1, 1999, to accept the transfer ofInterWest Bancorp stock (now Pacific Northwest Bancorp stock) from thePredecessor Pacific Northwest Bank Retirement Plan; and to bring the Plan into compliancewith the Uniformed Services Employment and Reemployment Rights Act, the SmallBusiness Job Protection Act of 1996, and the Taxpayer Relief Act of 1997,effective as of the applicable Effective Dates stated herein;

 

WHEREAS, the Planwas amended effective September 1, 2000, to change the name of the Plan to thePacific Northwest Bancorp Employee Stock Ownership Plan and Trust;

 

WHEREAS, the Planwas amended and restated effective July 1, 2001 to incorporate prioramendments; bring the Plan into compliance with current law including theInternal Revenue Service Restructuring and Reform Act of 1998; exclude W-2temporary employees from participating in the Plan; eliminate the requirementthat an Employee must attain age 18 to be eligible for Employer contributionseffective October 1, 2001; clarify the provisions excluding individuals thatthe Employer treats as leased employees or independent contractors; providethat the forfeiture of the nonvested account balance of a Participant who hasterminated employment with the Employer occurs as of the date the Event ofForfeiture occurs; add provisions to the Plan regarding the treatment ofmissing Participants; provide that an eligible Employee is enrolled in the Planon the Enrollment Date following his completion of the eligibility provisions;update the names of the Employers co-sponsoring the Plan; update the names ofthe Plan Trustees; make other minor administrative changes and clarificationsrecommended by management, and effective January 1, 2001, clarify provisionsrelating to the Plan’s normal vesting schedule and top-heavy vesting schedule;and

 

WHEREAS, the Boardof Directors of Pacific Northwest Bancorp now wishes to amend and restate thisPlan effective April 1, 2002, to operate as a money purchase pension planas to Post-March 31, 2002 contributions but remain an employee stock ownershipplan as to Pre-April 1, 2002 contributions; to permit Participants to choose toinvest in mutual funds selected by the Investment Committee or to direct the Trusteeto apply Participant accrued benefits to purchase Employer stock; to permitParticipants to sell Employer stock in their Pre-April 1, 2002 ESOPEmployer Stock Accounts and Post-March 31, 2002 Money Purchase Pension PlanEmployer Contribution Accounts on and after the dates permitted in the Plan; tocredit cash dividends to Participants’ Post–March 31, 2002 MoneyPurchase Pension Plan Employer Contribution Accounts and Pre-April 1, 2002 ESOPInvestment Accounts to be invested among the Plan investment funds; to appointT. Rowe Price Trust Company as directed Trustee of the Plan; to establish anInvestment Committee with duties including the prudent selection and monitoringof the Plan investment funds; and to make other administrative changes andclarifications recommended by Management or required or permitted underapplicable law;

 

NOW, THEREFORE, itis agreed as follows:

 

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**ARTICLE****I**

**NAME AND PURPOSE**

** **

The Plan shall beknown as The Amended and Restated Pacific Northwest Bancorp Employee StockOwnership Plan/Money Purchase Pension Plan (the “Plan”).  Effective April 1, 2002, this Plan is anemployee stock ownership plan as to Pre-April 1, 2002 ESOP Accounts and is amoney purchase pension plan as to Post-March 31, 2002 Money PurchasePension Plan Employer Contribution Accounts. Between September 1, 2000 and March 31, 2002, the Plan was known as theAmended and Restated Pacific Northwest Bancorp Employee Stock Ownership Planand Trust.  Between January 1, 1999 andAugust 31, 2000, the Plan was known as the Amended and Restated InterWestBancorp, Inc. Employee Stock Ownership Plan and Trust.  Prior to January 1, 1999, the Plan was knownas the InterWest Savings Bank Employee Stock Ownership Plan and Trust.  With respect to the Pre-April 1, 2002 ESOPEmployer Stock Accounts, the Plan is designed to invest primarily in EmployerStock.

 

**ARTICLEII**

**DEFINITIONS**

** **

**A.            “AccruedBenefit”**means the balance at any time of a Participant’sPre-April 1, 2002 ESOP Employer Stock Account, Pre-April 1, 2002 ESOPInvestment Account, Post-March 31, 2002 Money Purchase Pension Plan EmployerContribution Account, and Frozen Employer Matching Contribution Account, ifany.

** **

**B.            “AdministrativeCommittee”**means Administrative Committee appointed bythe Board.

** **

**C.            “AnniversaryDate”**means the last day of each Plan Year.

** **

**D.            “Board”**meansthe Board of Directors of Pacific Northwest Bancorp.

** **

**E              “Code”**meansthe Internal Revenue Code of 1986, as amended from time to time.

** **

**F.             “Compensation”** means an Employee’s salary or wagesfrom the Employer before any deferral of income pursuant to the Employer’sSalary Deferral 401(k) Plan, and before any salary reductions to the Employer’sInternal Revenue Code Section 125 flexible benefits plan and CodeSection 132(f)(4) transportation fringe benefit plan, if any, includingbonuses (except holiday bonuses), overtime pay, commissions, compensation onthe basis of a percentage of profits, and cash incentive payments, butexcluding mileage reimbursements, holiday bonuses, compensation deferred underan executive deferred compensation plan maintained by the Employer,compensation from exercise of stock options, Employer contributions hereunderpursuant to Paragraph A of Article IV, Employer contributions pursuant toParagraphs A and C of Article IV of the Employer’s Salary Deferral 401(k)Plan, any noncash compensation, any amounts paid to an Employee in connectionwith such Employee’s relocation (such as reimbursement of moving expenses andclosing costs) even if such amounts are includable in the Employee’s grossincome, and payments by the Employer on account of medical, disability and lifeinsurance.  This definition ofCompensation for Plan contribution purposes specifically excludes all noncashremuneration.  By excluding all noncashremuneration, it differs from the following definition of Compensation forpurposes of Code Sections 415 and 416.

 

For purposes ofthe Code Section 415 limitations on contributions and benefits (Article V,Paragraph E hereof) and the Code Section 416 top heavy requirements (ArticlesXIV and XV hereof) Compensation means wages, salaries, fees for professionalservice and other amounts received (without regard to whether or not an amountis paid in cash) for personal services actually rendered in the course ofemployment with the Employer maintaining the Plan to the extent that theamounts are includable in gross income (including, but not limited to,commissions paid salesmen, compensation for services on the basis of a percentageof profits, commissions on insurance premiums, tips, bonuses, fringe benefits,reimbursements, and expense allowances), and effective January 1, 1998, anyelective deferrals as defined in Code Section 402(g)(3) and CodeSection 132(f)(4) transportation fringe benefit plan salary reductioncontributions, and any amount which is contributed or deferred by the Employerat the election of the Employee and which is not includable in the gross incomeof the Employee by reason of Code Section 125 or 457.  Such compensation does not include:

1.             Contributions to aplan of deferred compensation which are not includable in the Employee’s grossincome for the taxable year in which contributed;

 

2.             Employercontributions to a simplified employee pension described in Section 408(k) ofthe Code to the extent deductible by the Employee;

 

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3.             Distributions froma plan of deferred compensation regardless of whether such amounts areincludable in gross income when distributed (except amounts paid to an Employeeunder an unfunded nonqualified plan of deferred compensation will be consideredas compensation for Code Sections 415 and 416 in the year such amounts areincludable in gross income);

 

4.             Amounts realizedfrom the exercise of a nonqualified stock option or when restricted propertybecomes freely transferable or is no longer subject to a substantial risk offorfeiture;

 

5.             Amounts realizedfrom the sale, exchange or other disposition of stock acquired under aqualified stock option;

 

6.             Other amounts whichreceive special tax benefits such as premiums for group term life insurance(but only to the extent that the premiums are not includable in gross income)or contributions made by an Employer (whether or not under a salary reductionagreement) towards the purchase of an annuity contract described in Section403(b) of the Code (whether or not contributions are excludable from grossincome).

 

For Plan Yearsbeginning prior to January 1, 1994, Compensation in excess of $200,000 (asadjusted pursuant to Code Section 415(d) in any Plan Year shall not beconsidered for purposes of the Plan.

 

In addition toother applicable limitations set forth in the Plan, and notwithstanding anyother provision of the Plan to the contrary, for Plan Years beginning on orafter January 1, 1994, the annual compensation of each employee taken intoaccount under the Plan shall not exceed the OBRA ‘93 annual compensationlimit.  The OBRA ‘93 annual compensationlimit for the 2002 Plan Year is $200,000, and thereafter shall be as adjustedby the Commissioner for increases in the cost of living in accordance with CodeSection 401(a)(17)(B) of the Internal Revenue Code.  The cost-of-living adjustment in effect for a calendar yearapplies to any period, not exceeding 12 months, over which compensation isdetermined (determination period) beginning in such calendar year.  If a determination period consists of fewerthan 12 months, the OBRA ‘93 annual compensation limit will be multiplied by afraction, the numerator of which is the number of months in the determinationperiod, and the denominator of which is 12.

 

For Plan Yearsbeginning on or after January 1, 1994, any reference in this Plan to thelimitation under Code Section 401(a)(17) shall mean the OBRA ‘93 annualcompensation limit set forth in this provision.

 

**G.            “Effective Date”**means April 1, 2002,the effective date of the amendment and restatement of this Plan, except asspecifically provided herein, and except that those provisions of this amendedand restated Plan which comply with requirements of (a) the Uniformed ServicesEmployment and Reemployment Rights Act to the extent applicable toreemployments initiated on or after December 12, 1994 shall be effectiveDecember 12, 1994, (b) the Small Business Job Protection Act of 1996 to theextent applicable to Plan Years beginning in 1997 shall be effective as of thefirst day of the 1997 Plan Year and to the extent applicable to Plan Yearsbeginning in 1998 shall be effective the first day of the 1998 Plan Year, (c)the Taxpayer Relief Act of 1997 to the extent applicable to Plan Yearsbeginning in 1998 shall be effective as of the first day of the 1998 Plan Year,(d) the Internal Revenue Service Restructuring and Reform Act of 1998shall be effective with respect to distributions made on or afterJanuary 1, 2000, (e) the Community Renewal Tax Relief Act of 2000 shall beeffective January 1, 2001, and (f) the Economic Growth and Tax ReliefReconciliation Act of 2001 shall be effective January 1, 2002.  The Employer’s plan was originally adoptedeffective January 1, 1972 as a money purchase plan and was amended and restatedas an Employee Stock Ownership Plan, effective January 1, 1988.  Effective April 1, 2002, this Plan isamended and restated as an employer stock ownership plan with respect topre-April 1, 2002 contributions and as a money purchase pension plan withrespect to post-March 31, 2002 contributions.

** **

**H.            “Eligibility Computation Period”**initiallymeans the 12-consecutive-month period beginning with the date on which theEmployee first performs an Hour of Service for the Employer (the “EmploymentCommencement Date”), or in the case of an Employee who has had a One-Year Breakin Service, the 12-consecutive-month period beginning with the first date onwhich the Employee completes an Hour of Service following the last computationperiod in which a One-Year Break in Service occurred (the “ReemploymentCommencement Date”).  After the initialComputation Period, the succeeding Eligibility Computation Periods shall be thePlan Year which includes the first anniversary of the Employment CommencementDate or Reemployment Commencement Date and each succeeding Plan Year.

** **

**I.              “Employee”**meansany person in the service of the Employer receiving a wage or salary.  A leased employee as defined in CodeSection 414(n)(2) shall be considered an Employee hereunder solely for

 

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purposes of Code Section414(n)(3) unless (i) leased employees constitute less than twenty percent (20%)of the Employer’s non-highly-compensated workforce as defined in Code Section414(n)(5)(c)(ii) and (ii) the leased employee is a participant in a plandescribed in Code Section 414(n)(5)(B). A leased employee for purposes of Code Section 414(n)(3) means anyperson who is not an Employee of the Employer and who provides services for theEmployer pursuant to an agreement between the Employer and a leasingorganization, who has performed such services for the Employer and relatedpersons on a substantially full-time basis for a period of at least one year,and whose services are performed under the primary direction or control of theEmployer.  Notwithstanding that a leasedemployee is treated as an Employee hereunder solely for purposes of CodeSection 414(n)(3), such a leased employee shall not be considered aneligible Employee or receive credit for service or share in Employercontributions under this Plan.

 

Individualsclassified by the Employer as independent contractors shall not be Employeesunder this Plan, regardless of whether such classification is controlling forfederal employment tax purposes or under any other applicable federal, state,or local law and regardless of whether such individual is classified as anemployee by a court or by any federal, state or local agency.

** **

**J.             “Employer”**meansPacific Northwest Bancorp and its affiliates listed in Schedule A.  Prior to September 1, 2000, PacificNorthwest Bancorp was known as InterWest Bancorp, Inc.  Effective July 1, 2000, the affiliate thenknown as Pacific Northwest Bank merged into InterWest Bank, and the affiliatePacific Northwest Bank ceased to exist as a separate entity at that time.  Effective September 1, 2000, InterWest Bankchanged its name to Pacific Northwest Bank. For purposes of this Plan, the term “Pacific Northwest Bank” refers tothe post-August 31, 2000 affiliate of Pacific Northwest Bancorp whichco-sponsors this Plan, and the term “Predecessor Pacific Northwest Bank” refersto the affiliate which ceased to exist effective July 1, 2000.

** **

**K.           “Employer Stock”**means common stockissued by Pacific Northwest Bancorp.

** **

**L.            “Enrollment Date”**means the date onwhich an Employee who has complied with the eligibility requirements shallbecome eligible to participate in the Plan. The Enrollment Dates shall be the first day of each calendar month.  Prior to April 1, 2002, the Enrollment Dateswere the first day of any calendar quarter (January 1, April 1, July 1, andOctober 1).

** **

**M.           “ERISA”**means the Employee Retirement IncomeSecurity Act of 1974, as amended from time to time.

** **

**N.            “Event of Forfeiture”**means withrespect to a Participant who terminates employment, either the incurring offive consecutive One-Year Breaks in Service or a cash-out payment in full in asingle lump sum of all of his vested Accrued Benefit, subject to thereinstatement of forfeitures requirements of the Plan.  A Participant who terminates employment withno vested Accrued Benefit shall be deemed to have received a cash-out payment.

** **

**O.            “Fiscal Year”**means January 1 to December31.

** **

**P.            “Fund”**means the trust fund established pursuantto this Plan and the Trust Agreement in which all of the assets of the Plan areheld.  The fund shall be divided into anumber of separate Plan investment funds selected from time to time by theInvestment Committee and communicated to Participants.  Participants shall also be permitted toinvest their Plan Accounts in shares of Employer Stock.  Notwithstanding any provision of this Planto the contrary, a Participant’s Pre-April 1, 2002 ESOP Employer StockAccount shall not hold any assets other than shares of Employer Stock andfractional shares thereof, but a Participant may elect to sell such shares ofEmployer Stock and have the proceeds invested in his Pre-April 1, 2002ESOP Investment Account at the time and in the manner provided in this Plan.

** **

**Q.            “Highly-Compensated Employee”**meansany Employee who during the Plan Year or the preceding Plan Year is (i) a morethan 5% owner (as defined by Code Section 416(i)(1)), or (ii) an Employee whofor the preceding Plan Year receives Compensation in excess of $85,000 (or theamount in effect for the Plan Year, as adjusted in accordance with Code Section414(q)(1)).

 

“Compensation”means compensation within the meaning of Code Section 415(c)(3), that is,compensation of the Participant from the employer for the applicable Plan Yearor preceding Plan Year, including elective or salary reduction contributions toa cafeteria plan under Code Section 125, cash or deferred arrangement underCode Section 401(k) or tax-sheltered annuity under Code Section 403(b).  The “employer” for purposes of thisParagraph is the entity employing the Employee and includes all other entitiesaggregated with such employing entity under the aggregation requirements ofCode Sections 414(b), (c), (m), or (o).

 

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A former Employeeshall be considered a Highly-Compensated Employee if he was aHighly-Compensated Employee when he separated from service or if he was aHighly-Compensated Employee at any time after attaining age 55.

** **

**R.            “Hour of Service”**means

 

(a)           Eachhour for which the Employee is directly or indirectly paid, or entitled topayment, by the Employer for the performance of duties.  These hours shall be credited to theEmployee for the computation period or periods in which the duties areperformed.  Effective with respect toreemployments initiated on or after December 12, 1994, an Employee in qualifiedmilitary service as defined in Code Section 414(u)(5) shall be credited withHours of Service at his customary rate; and

 

(b)           Eachhour for which an Employee is directly or indirectly paid, or entitled topayment, by the Employer on account of a period of time during which no dutiesare performed (irrespective of whether the employment relationship wasterminated) due to vacation, holiday, illness, incapacity (includingdisability), layoff, jury duty, military duty or leave of absence.  No more than 501 Hours of Service shall becredited under this subsection (b) for any single continuous period (whether ornot such period occurs in a single computation period).  Hours under this subsection (b) shall becalculated and credited pursuant to Section 2530.200b-2(b) and 2(c) of theDepartment of Labor Regulations which are incorporated herein by thisreference; and

 

(c)           Eachhour for which back pay, irrespective of mitigation of damages, is eitherawarded or agreed to by the Employer. The same Hours of Service shall not be credited under subsection (a) or(b), as the case may be, and under this subsection (c).  These hours shall be credited to theEmployee for the Eligibility or Vesting Computation Period or Periods to whichthe award or agreement pertains rather than the computation period in which theaward, agreement, or payment is made.

 

Provided, for thepurpose of determining whether an Employee has incurred a One-Year Break inService (i) Hours of Service described in subsection (b) shall be creditedwithout regard to the 501-hour limitation of subsection (b); (ii) hours at theEmployee’s customary rate shall be credited during any period the Employee ison authorized leave of absence or temporary layoff, and (iii) in the case of anEmployee who is absent from work for any period by reason of pregnancy, birthof a child, placement with the Employee of a child for adoption, or caring forsuch child immediately following birth or placement, Hours of Service (up to501 hours) shall be credited equal to the Hours of Service that otherwise wouldnormally have been credited to the Employee but for such absence (or if suchhours cannot be determined, equal to 8 Hours of Service per day ofabsence).  The hours credited under(iii) above shall be credited to the applicable computation period in which theabsence begins if such crediting will prevent a One-Year Break in Service, orotherwise to the following computation period. No such credit shall be given unless the Employee provides theAdministrative Committee with timely information (including, if requested, awritten statement of a doctor or adoption official) to establish that theabsence is for reasons referred to in this paragraph and the number of days forwhich there was such an absence. Provided, further, there shall be no duplication of credit under the Plan.

 

Hours of Servicefor any other trade or business that is along with the Employer a member of agroup of trades or businesses (whether or not incorporated) which are undercommon control, as defined in Code Section 414(b) and (c), or an affiliatedservice group as defined in Code Section 414(m) as modified by CodeSection 414(m)(5) and (6), shall be considered Hours of Service for theEmployer.

 

A salariedEmployee who is exempt from state overtime law and who during a calendar monthwould be entitled to credit for at least one Hour of Service shall receivecredit for 190 Hours of Service.  Allother Employees shall be credited with actual hours (i) for which they are paidor entitled to payment by the Employer, and (ii) for purposes of determiningwhether a One-Year Break in Service has occurred, at their regular rate duringunpaid leave of absence.

** **

**S.            “Investment Account” or “Pre-April 1, 2002 ESOPInvestment Account”**means an account created for eachParticipant who was a Participant in the Plan before April 1, 2002, whichincludes (1) the sale proceeds of Employer Stock that the Participant haselected to sell from his Pre-April 1, 2002 ESOP Employer Stock Account atthe time and in the manner permitted by this Plan, (2) any cash or otherassets held in the Participant’s ESOP Investment Account prior to April 1,2002, and (3) earnings (if any) on amounts in the Participant’s Pre-April 1,2002 ESOP Investment Account plus cash dividends after March 31, 2002 onEmployer Stock held in the Participant’s Pre-April 1, 2002 ESOP Employer StockAccount.  Such an Investment Accountshall be invested as provided in Article X, Paragraph A.1.

 

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**T.            “Investment Committee”**means thecommittee appointed by the Board to select the investment funds available underthis Plan and to perform other duties pursuant to Article IX of this Plan.

** **

**U.            “Money Purchase Pension Plan Employer ContributionAccount” or “Post-March 31, 2002 Money Purchase Pension Plan EmployerContribution Account”**means an account created for eachParticipant who receives Employer contributions pursuant to the terms of thisPlan after March 31, 2002, which account includes (1) Employercontributions made on behalf of each such Participant after March 31,2002, and (2) earnings on those post-March 31, 2002 Employer contributionsplus any cash dividends on Employer Stock purchased with each suchParticipant’s post-March 31, 2002 Employer contributions.

** **

**V.            “One-Year Break in Service”**means theapplicable Eligibility or Vesting Computation Period during which an Employeecompletes fewer than 501 Hours of Service.

** **

**W.           “Participant”**means an Employee who hassatisfied the eligibility requirements of Article III.  A Participant who terminates employment withthe Employer and receives an involuntary or voluntary cash-out shall no longerbe considered a Participant in this Plan or a Participant under ERISA.

** **

**X.            “Plan”**means The Amended and Restated EmployeeStock Ownership Plan/Money Purchase Pension Plan set forth in this agreementand all subsequent amendments thereto.

** **

**Y.            “Plan Year”**means the twelve-month period onwhich the records of the Plan are kept. Each Plan Year shall begin on January 1 and end on December 31.

** **

**Z.            “Spouse”**means the lawful husband or wife ofthe Participant.

** **

**AA.         “Stock Account” or “Pre-April 1, 2002 ESOP Employer StockAccount”**means an account created for each Participant in thePlan who was a Participant before April 1, 2002, which holds (1) shares ofEmployer Stock that were credited to such Participant’s Plan Accounts prior toApril 1, 2002 and that have not been sold at the Participant’s directionas permitted by this Plan, and (2) shares of Employer Stock that are purchasedfrom the Participant’s ESOP Investment Account as directed by the Participantat a time and in the manner permitted by this Plan.

** **

**BB.         “Trust”**means the Trust Agreement entered intobetween the Employer and the Trustee.

** **

**CC.         “Trustee ”**means T. Rowe Price Trust Companyand any successor Trustee hereunder appointed by the Board.

** **

**DD.         “Valuation Date”**means the date uponwhich the assets of the Trust are valued. Each day that the New York Stock Exchange is open shall be a ValuationDate.

** **

**EE.         “Vesting Computation Period”**meansthe Plan Year.

** **

**FF.          “Year of Service”**means the applicablecomputation period during which the Employee completes not fewer than 1,000Hours of Service as defined in Paragraph R.

** **

**GG.        “Miscellaneous.”**Unless some othermeaning and intent is apparent from the context, the plurals shall mean thesingular, and vice versa, and masculine, feminine, and neuter words shall beused interchangeably.

 

**ARTICLE III**

**ELIGIBLEEMPLOYEES**

 

Employees shall beexcluded from those eligible to participate if they are included in a unit ofEmployees covered by a collective bargaining agreement between employeerepresentatives and one or more employers, if there is evidence that retirementbenefits were the subject of good faith bargaining and if the collectivebargaining agreement does not provide for participation by such Employees.  Temporary Employees shall be excluded fromthose eligible to participate.  Atemporary Employee is a W-2 Employee who is employed to work fewer than six months.  If such an Employee works six months ormore, he shall be credited with Hours of Service retroactively to hisemployment commencement date on which he first completed an Hour of Servicewith the Employer.  Notwithstanding anyPlan provision to the contrary, any individual who is classified as anindependent contractor by the Employer, regardless of whether such individualis classified as an employee by a court or by any federal, state or localagency, shall not be eligible to participate in this Plan.  Notwithstanding any Plan provision to thecontrary, any individual who performs services pursuant to an agreement betweenthe Employer and a leasing organization shall not be eligible to participate inthis Plan.  Nonresident aliens whoreceive no earned income from the Employer that constitutes income from sourceswithin the United States are excluded from participation.

 

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Each PlanParticipant on April 1, 2002 shall continue to participate in the Plan as ofthat date, unless otherwise excluded by reason of the preceding paragraph.  Each Employee who is not already a PlanParticipant and who is not excluded by reason of the preceding paragraph shallbecome eligible to participate upon the later of (1) April 1, 2002,or (2) the date on which he first performs an Hour of Service with theEmployer, and shall be enrolled as a Plan Participant as of the Enrollment Datefollowing completion of such requirements, provided the Employee has notseparated from service before such Enrollment Date.

 

In the case of aParticipant who terminates employment and is rehired, he shall become aParticipant on the Enrollment Date following his re-employment commencementdate, which date shall be the date on which he completes one Hour of Serviceafter his termination of employment.

 

The AdministrativeCommittee may request each eligible Employee to apply for Plan participation inwriting on a form to be supplied by the Administrative Committee, agreeing tothe terms of the Plan and giving such information as may be required by theAdministrative Committee, including beneficiary designation.  An Employee shall not be precluded from Planparticipation if he does not complete such form.

** **

**ARTICLE IV**

**CONTRIBUTIONS**

 

**A.            Employer Contribution.**As ofeach June 30 and December 31, the Employer shall contribute to thePost-March 31, 2002 Money Purchase Pension Plan Employer ContributionAccount of each Participant who is employed on that date an amount equal tofive percent (5%) of that Participant’s Compensation since the last Employercontribution date.  The Employer maydecide to make this five percent (5%) of Compensation Employer contributionmore frequently than semi-annually.  Inthat case, Employer contributions will be based on a Participant’s Compensationsince the last Employer contribution date, and a Participant will be requiredto be employed by the Employer through the date as of which the contribution isallocated in order to receive those contributions.  Compensation for purposes of this Employer contribution includesonly Compensation received while a Participant.  Employer contributions to Participants’ Post-March 31, 2002Money Purchase Pension Plan Employer Contribution Accounts shall be paid incash.

 

Notwithstandingthe foregoing, for the 2002 Plan Year only, the following Employer contributionrules shall apply for Participants who are employed by the Employer on March31, 2002:

 

1.             Asof March 31, 2002, the Employer shall contribute to the Pre-April 1, 2002 ESOPEmployer Stock Account of each Participant employed on March 31, 2002 an amountequal to the greater of (a) five percent (5%) of the Compensation thateach Participant employed on March 31, 2002 received during the firstcalendar quarter of 2002, or (b) that percentage of Compensation that eachParticipant employed on March 31, 2002 received during the first calendarquarter of 2002 which in total for all those Participants equals the amountnecessary to repay in full the balance of the principal and interest on theESOP loan, so that all remaining shares of Employer Stock in the ESOP suspenseaccount will be released and allocated to the Pre-April 1, 2002 ESOP EmployerStock Accounts of Participants employed on March 31, 2002.

 

2.             Ifthat March 31, 2002 Employer contribution on behalf of such a Participantexceeds five percent (5%) of that Participant’s Compensation for the firstquarter of 2002, then such excess Employer contribution shall be treated as apre-funded or early Employer contribution and shall be applied towards the fivepercent (5%) of Compensation Employer contribution for the period April 1,2002 through December 31, 2002 that would otherwise be made for thatParticipant by June 30, 2002 and by December 31, 2002.  Such pre-funded 2002 Employer contributionshall be held in the Participant’s Pre-April 1, 2002 ESOP Accounts instead ofhis Post-March 31, 2002 Money Purchase Pension Plan Employer ContributionAccount.

 

3.             Ifa Participant received a March 31, 2002 Employer contribution which exceededfive percent (5%) of such Participant’s Compensation for the first calendarquarter of 2002, and such Participant terminates employment with the Employerduring 2002, such Participant will be entitled to receive the vested portion ofthat pre-funded 2002 Employer contribution, to the extent that suchcontribution would not violate the applicable nondiscrimination tests and othercontribution limits that apply to this Plan. Any amount of pre-funded 2002 Employer contributions that would violatethose nondiscrimination tests or contribution limits shall be forfeited.

 

Forfeitures fromterminated Participants’ Plan Accounts shall be applied as set forth in ArticleV, Paragraph E, of this Plan.

 

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The Board’sdetermination of any Employer contributions shall be binding on allParticipants, the Administrative Committee, the Investment Committee, and theTrustee.  The Trustee shall have noright or duty to inquire into the amount of the annual Employer contribution orthe method used in determining the amount of such contribution, but shall be accountableonly for the funds actually received by it.

 

Notwithstandingany provision of this Plan to the contrary, effective with respect toreemployments initiated on or after December 12, 1994, Employer contributionswith respect to qualified military service shall be made in accordance withCode Section 414(u).

 

This Plan isdesigned to qualify as a money purchase pension plan for purposes of InternalRevenue Code Section 401(a) and as to Pre-April 1, 2002 ESOP Accounts as anemployee stock ownership plan as described in Code Section 4975(e)(7).

** **

**B.            Date of Payment.**The Employer shallpay to the Trustee, within the time provided by law for filing of theEmployer’s income tax return (including extensions), the amounts to becontributed pursuant to Paragraph A.

** **

**C.            Participant Contributions.**Participantsshall not be allowed to make contributions under this Plan.

 

**ARTICLE V**

**PARTICIPANT’SACCOUN****TS,**

**VALUATION, MAXIMUM CONTRIBUTION**

 

**A.            Participant’s Accounts.**TheAdministrative Committee or its delegate shall establish and maintain aseparate Pre-April 1, 2002 ESOP Employer Stock Account, a separate Pre-April 1,2002 ESOP Investment Account, a separate Post-March 31, 2002 MoneyPurchase Pension Plan Employer Contribution Account, and a separate frozen EmployerMatching Contribution Account, if applicable, for each Participant which shallreflect the Participant’s Accrued Benefit. The Administrative Committee shall furnish each Participant who requeststhe same in writing a statement reflecting, on the basis of the latestavailable information, his Accrued Benefit and the nonforfeitable portionthereof, or if no benefits are nonforfeitable, the earliest date on whichbenefits will be nonforfeitable.  Onlyone such statement need be furnished a Participant each 12 months.  The Employer may appoint the Trustee or anyqualified third party to perform recordkeeping functions.

** **

**B.            Cash Dividends.**For calendar quartersbeginning on or after April 1, 2002, cash dividends on shares of EmployerStock in a Participant’s Pre-April 1, 2002 ESOP Employer Stock Accountshall be credited to his Pre-April 1, 2002 ESOP Investment Account, and cashdividends on shares of Employer Stock in a Participant’s Post-March 31, 2002Money Purchase Pension Plan Employer Contribution Account shall be credited tohis Post-March 31, 2002 Money Purchase Pension Plan Employer ContributionAccount to be invested in the Plan investment funds selected by theParticipant.

** **

**C.            Trust Valuation.**As of each ValuationDate, the Trustee shall (1) determine the fair market value of each Planinvestment fund in order to determine the percentage of increase or decrease insuch fair market value when compared with the fair market value of such Planinvestment fund as of the immediately preceding Valuation Date and(2) adjust the Participants’ Accounts accordingly.  The Employer, the Administrative Committee,the Investment Committee, and the Trustee do not in any manner or to any extentwhatever warrant, guarantee or represent that the value of a Participant’s accountsshall at any time exceed or equal the amount previously contributedthereto.  The fair market value ofEmployer Stock allocated to Participants’ Accounts shall be equal to the NASDAQbid price on the applicable Valuation Date or if not available, on the datepreceding such date on which such bid price is available, unless such fairmarket value is determined using the average sale price as described inArticle X, Paragraph B.  Ifthere is no established market for Employer Stock, the fair market value shallbe as determined by independent appraisal which shall be performed by anappraiser selected by the Investment Committee and at such intervals andpursuant to such procedures as the Investment Committee shall determine.

** **

**D.            Maximum Contributions.**

** **

**1.            AnnualAddition. **Theterm “annual addition” for any Plan Year means the sum of:

 

(a)           TheEmployer’s contributions on a Participant’s behalf to the Employer’s definedcontribution plan(s) (any profit sharing, ESOP, and money purchase pensionplans) including (i)

 

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401(k) tax-deferred contributions and (ii) both contributions used torepay an exempt loan under this Plan and other contributions allocated to theParticipant’s account;

 

(b)           TheParticipant’s voluntary nondeductible contributions, if any, to the definedcontribution plan(s) maintained by the Employer;

 

(c)           Anyforfeitures allocated to the Participant’s accounts under the Employer’sdefined contribution plan(s);

 

(d)           Amountsallocated for a Plan Year beginning after March 31, 1984, to a Code Section415(l)(2) individual medical account that is part of a defined benefit planmaintained by the Employer;

 

(e)           Amountspaid or accrued after December 31, 1985, in taxable years ending after thatdate, for post-retirement benefits allocated to a separate account in a CodeSection 419(e) welfare benefit fund maintained by the Employer.  These amounts will not be subject to thepresent limitations of Code Section 415(c)(1)(B); and

 

(f)            Amountsallocated under a simplified employee pension plan established pursuant to CodeSection 408(k).

 

Notwithstandingany other provision hereof, the annual addition to a Participant’s accounts forany Plan Year shall not exceed the lesser of $40,000, as adjusted under CodeSection 415(d), or (ii) 25% of the Participant’s Compensation from the Employerfor the Plan Year as defined for purposes of Code Section 415 inParagraph F of Article II. Effective for limitation years beginning after December 31, 2001, 25%shall be changed to 100% in (ii) above, and such Compensation limit shall notapply to any contribution for medical benefits after separation from service(within the meaning of Code Section 401(h) or 419A(f)(2)) which is otherwisetreated as an annual addition.

 

The Compensationlimitation referred to in the preceding paragraph shall not apply to:  (i) any contributions for medical benefits(within the meaning of Code Section 419A(f)(2) or 401(n)) which are made afterseparation from service and which are otherwise treated as an Annual Addition;or (ii) any amount otherwise treated as an Annual Addition under Code Section415(1)(1) or 419A(d)(2).

** **

**2.             Excess Annual Addition.**If, asa result of the allocation of forfeitures, a reasonable error in estimating aParticipant’s Compensation, or other facts and circumstances to which CodeRegulation Section 1.415-6(b)(6) shall be applicable, the annual addition for aParticipant exceeds the applicable limitations for the Plan Year, the annualaddition shall be reduced as follows:

 

(a)           Theamount of such excess consisting of the Employee’s unmatched tax-deferredincome contributions to the Employer’s Salary Deferral 401(k) Plan shall bepaid to the Employee as soon as administratively feasible.

 

(b)           Theamount of any remaining excess consisting of matched tax-deferred contributionson behalf of an Employee and Employer matching contributions on behalf of suchEmployee to the Employer’s Salary Deferral 401(k) Plan shall be reduced prorata (currently one dollar of Employer matching contributions for every onedollar of matched tax-deferred contributions). Such tax-deferred contributions shall be paid to the Employee as soon asadministratively feasible, and such Employer matching contributions shall beallocated to a suspense account as forfeitures and applied as provided in (c)below).

 

(c)           Theamount of any remaining excess consisting of Employer contributions to theEmployer’s Salary Deferral 401(k) Plan shall be allocated to a suspense accountas forfeitures and held therein until the next succeeding date on whichforfeitures could be applied to reduce future Employer contributions under suchPlan.

 

(d)           Theamount of any remaining excess consisting of Employer contributions to thisPlan shall be allocated to a suspense account as forfeitures and held thereinuntil the next succeeding date on which forfeitures could be applied under thisPlan.

 

The limitationyear is the Plan Year.  Notwithstandingany other provisions, the Employer shall not contribute any amount that wouldcause an allocation to the suspense account as of the date the contribution isallocated.  If the contribution is madeprior to the date as of which it is to be allocated, then such contributionshall not exceed an amount that would cause an allocation to the suspenseaccount if the date of contribution were an allocation date.  If an allocation is made to such suspenseaccount, it shall contain no investment gains and losses or other income.  Amounts in the suspense account areallocated as of each allocation date on which forfeitures may be allocateduntil the account is exhausted.

 

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**3.             For the purpose of this ParagraphE, the following rules shall control:**

 

(a)           The$40,000 maximum shall be deemed adjusted for any Plan Year to conform toincreases in the cost of living in accordance with regulations to be adopted bythe Secretary of Treasury.

 

(b)           Allqualified defined benefit plans (whether terminated or not) ever maintained bythe Employer shall be treated as one defined benefit plan, and all qualifieddefined contribution plans (whether terminated or not) ever maintained by theEmployer shall be treated as one defined contribution plan.

 

(c)           Ifthe Employer is a member of a controlled group of corporations, trades orbusinesses under common control (as defined by Code Section 1563(a) or CodeSection 414(b) and (c) as modified by Code Section 415(h)) or is a member of anaffiliated service group (as defined by Code Section 414(m)), all Employees ofsuch Employers shall be considered to be employed by a single Employer.

** **

**E.             Forfeitures and Reinstatement ofForfeitures. **Thenonvested Accrued Benefit of each Participant with respect to whom an Event ofForfeiture has occurred and who is not in the employ of the Employer on thedate the Event of Forfeiture occurs shall be forfeited as of the date that theEvent of Forfeiture occurs.  If aParticipant terminates employment with the Employer, incurs an Event ofForfeiture, is thereafter reemployed, and has not incurred five consecutiveOne-Year Breaks in Service as of the Valuation Date coinciding with orfollowing the date of his reemployment, his forfeited Accrued Benefit shall bereinstated as if that nonvested Accrued Benefit has not been forfeited,provided the terminated Participant repays the amount of the vested AccruedBenefit previously distributed, which was attributable to EmployerContributions and earnings, back to the Plan Trustee to be credited to theParticipant.  Such a repayment mustoccur before the earlier of:  (1) thedate five years after the date on which the Participant is subsequentlyre-employed by the Employer; or (2) the date the Participant would haveincurred five consecutive one-year Breaks in Service following the date ofdistribution had he not been re-employed. The reinstatement shall occur on the Valuation Date coinciding with orfollowing such Participant’s date of re-employment, by allocating the requiredamount to the Participant’s Account first, from forfeitures occurring on such ValuationDate, second, from Trust earnings allocated as of such Valuation Date, andthird, from extraordinary Employer contributions as required.

 

Forfeitures shallbe used first to reinstate previously forfeited account balances as providedabove.  Forfeitures shall then beutilized to reduce Employer Contributions to this Plan.

 

Notwithstandingthe above, in the event the distribution to a terminated Participant is lessthan his Accrued Benefit, the Administrative Committee shall establish aseparate bookkeeping account for the Participant which shall be known as the“Termination Account.”  At any relevanttime, the Participant’s vested portion of his Termination Account shall not beless than an amount (“X”) determined by the following formula:

 

X = P(AB + (RxD)) - (RxD)

 

For purposes of applying the formula: P is the vested percentage at the relevant time; AB is the TerminationAccount balance at the relevant time; R is the ratio of the account balance atthe relevant time to the account balance after distribution; and D is theamount distributed when the Employee terminated employment.

 

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**ARTICLE VI**

**NONFORFEITABLEACCRUED BENEFIT**

** **

**A.            Allocations Not Vested**. Allocations toParticipants in accordance with the provisions of Article V shall not vest anyright or title to any part of the assets of the Trust.

** **

**B.            Vesting Period**. With respect to the Pre-April 1, 2002 ESOP EmployerStock Account, the Pre-April 1, 2002 ESOP Investment Account, and thePost-March 31, 2002 Money Purchase Pension Plan Employer Contribution Accountof a Participant who is credited with at least one Hour of Service on or afterJanuary 1, 2001, such accounts shall vest in accordance with the followingschedule:

 

Completion of Lessthan 1 Year of Service        0%

Completion of 1 orMore Years of Service        20%

Completion of 2 orMore Years of Service        40%

Completion of 3 orMore Years of Service        60%

Completion of 4 orMore Years of Service        80%

Completion of 5 orMore Years of Service       100%

 

With respect tothe Pre-April 1, 2002 ESOP Employer Stock Account and the Pre-April 1, 2002ESOP Investment Account of a Participant who is not credited with at least oneHour of Service on or after January 1, 2001, such accounts shall vest inaccordance with the Plan vesting schedule in effect at the time of thatParticipant’s termination of employment or the last Hour of Service credited tothat Participant prior to January 1, 2001.

 

In crediting Yearsof Service to determine a Participant’s nonforfeitable Accrued Benefit, theAdministrative Committee shall apply the following rules using the VestingComputation Period for purposes of determining Years of Service and One-YearBreaks in Service:

 

1.             Exceptas specifically hereinafter provided, all of an Employee’s Years of Servicewith the Employer both prior to becoming a Participant and thereafter shall betaken into account.  Employees will alsoreceive credit for service with another bank listed in Schedule B if PacificNorthwest Bancorp or its predecessor InterWest Bancorp, Inc. acquired that bankthrough a merger, acquisition, or similar transaction, provided that (1) theemployee was employed by the acquired bank immediately prior to the date ofsuch merger, acquisition, or similar transaction, and (2) immediately aftersuch date, the Employee became an Employee of Pacific Northwest Bancorp, itspredecessor InterWest Bancorp, Inc., or an employer listed in Schedule C.  The credit the Employee receives will beequal to the Years of Service credit the Employee had earned under the otherbank’s qualified plan for vesting purposes as of the date of merger,acquisition, or similar transaction, plus any Hours of Service with that bankin the Plan Year in which the Employee becomes employed by the Employer.  Employees of an acquired bank that did notsponsor any qualified plan that credited vesting service shall receive creditfor all Years of Service they would have completed based on their actual Hoursof Service.  Provided, however, thatthere shall be no duplication of vesting credit for the Plan Year in which theEmployee becomes employed by the Employer.

 

2.  In the caseof a Participant who terminates employment with the Employer and has nononforfeitable right to an Accrued Benefit derived from Employer contributions,the Employer shall not give credit for Years of Service occurring before aOne-Year Break in Service if, on the date the Participant first completes anHour of Service following the date of termination, the number of hisconsecutive One-Year Breaks in Service equals or exceeds the aggregate numberof Years of Service (whether or not consecutive) prior to the last such breakif the number of consecutive One-Year Breaks in Service is five or more.  Years of Service before the break shall notinclude Years of Service not required to be taken into account by reason of anyother rule under this Paragraph B.

 

3.             TheEmployer shall not give credit for Years of Service which are not disregardedunder subparagraph 2 until the Participant has completed a Year of Service uponhis return during the Vesting Computation Period.

 

4.  Thenonforfeitable percentage of a Participant’s Accrued Benefit derived fromEmployer contributions made prior to five consecutive One-Year Breaks inService shall be determined without regard to Years of Service occurring aftersuch five consecutive One-Year Breaks in Service.  Separate accounting shall be maintained for the pre-break AccruedBenefit.

 

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5.             Yearsof Service during Plan Years commencing before the Participant attains age 18shall be disregarded.  Effective October1, 2001, this subparagraph 5. shall no longer apply, and Years of Serviceduring Plan Years commencing before the Participant attains age 18 shall becounted for purposes of determining the nonforfeitable percentage of suchParticipant’s Accrued Benefit.

 

Notwithstandingany provision of this Plan to the contrary, an employee of National Bank ofTukwila on September 30, 1999 who remained employed by National Bank ofTukwila or directly transferred to employment with InterWest Bancorp, Inc. orone of its affiliates co-sponsoring the Plan on October 1, 1999, shallreceive credit for vesting purposes for his Hours of Service and Years ofService with National Bank of Tukwila, including Hours of Service and Years ofService prior to October 1, 1999, based on service with National Bank ofTukwila during the applicable Vesting Computation Period(s) in accordance withthe terms of this Plan.

** **

**C.            Amendment to Vesting Computation Period or VestingSchedule.**The Board may amend the Plan to provide for adifferent Vesting Computation Period so long as the new Vesting ComputationPeriod, as amended, begins prior to the last day of the preceding VestingComputation Period.  No Plan amendmentshall reduce a Participant’s nonforfeitable Accrued Benefit.  If the Plan vesting schedule is amended orthe Plan is amended in any way that directly or indirectly affects thecomputation of a Participant’s nonforfeitable percentage, or if a differentvesting schedule is applicable because a previously Top-Heavy Plan is no longerTop-Heavy, each Participant with at least three (3) Years of Service with theEmployer may elect, within a reasonable period after the adoption of theamendment, to have his nonforfeitable Accrued Benefit (accrued before and afterthe amendment) computed under the Plan without regard to such amendment.  The period during which the election may bemade shall commence with the date the amendment is adopted and shall end on thelater of:

 

1.             Sixty(60) days after the amendment is adopted;

2.             Sixty(60) days after the amendment becomes effective; or

3.             Sixty(60) days after the Participant is issued written notice of the amendment bythe Employer or Administrative Committee.

** **

**D.            Full Vesting.**If a Participant dies,becomes permanently and totally disabled, or attains normal retirement age andsuch event occurs while the Participant is still employed by the Employer, thefull amount credited to the Participant’s Pre-April 1, 2002 ESOP Employer StockAccount, Pre-April 1, 2002 ESOP Investment Account, Post-March 31,2002 Money Purchase Pension Plan Employer Contribution Account pursuant toArticle V and frozen Employer Matching Contribution Account pursuant toArticle XXIII shall become fully vested and nonforfeitable.

 

**ARTICLE VII**

**DISTRIBUTIONOF BENEFITS**

** **

**A.            Retirement Age and Options.**Thenormal retirement age shall be the later of the Participant’s attainment of age65 or the Participant’s fifth anniversary of Plan participation, and eachParticipant or former Participant shall be entitled to retire upon the firstday of the month coinciding with or following the date the Participant orformer Participant attains normal retirement age, which day shall be his NormalRetirement Date.

** **

**1.             EmploymentAfter Normal Retirement Age.**If a Participant continuesin the employ of the Employer beyond his Normal Retirement Date, he shall,pursuant to the terms of this Plan, continue to share in Employercontributions, forfeitures, and increases and decreases in value, includingfees and expenses until actual retirement.

** **

**a.             Election to Receive Benefits WhileStill Employed.**A Participant who has attained normalretirement age (or who has attained age 70-1/2, even if he has not yet completedfive years of Plan participation) may elect in writing to receive his AccruedBenefit prior to his actual retirement date in accordance with proceduresestablished by the Administrative Committee; such a Participant shall continueto share in Employer contributions, forfeitures, and increases and decreases invalue, including fees and expenses, until actual retirement.

** **

**b.             Required Receipt of Benefits.**Distributionof benefits shall commence to a Participant upon the later of his attaining age70-1/2 or termination of employment. The required distribution shall commence no later than April 1 of thecalendar year following the calendar year in which the later event

 

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occurs.  Provided, however, that in the case of aParticipant who is a more than five percent (5%) owner of the Employer, therequired distribution shall commence no later than April 1 of the calendar yearfollowing the calendar year in which occurs the earlier of the Participant’sretirement or attainment of age 70-1/2. A Participant who is still employed by the Employer and to whom thissubparagraph b applies shall continue until actual retirement to share inEmployer contributions, forfeitures, and increases and decreases in value,including fees and expenses.

 

A Participant whois not a more than 5% owner of the Employer who commenced requireddistributions prior to 1997 and did not retire from employment with theEmployer before January 1, 1997 may elect (subject to any applicableQualified Domestic Relations Order) to cease receiving distributions until thedate required by this subparagraph b.

** **

**2.             Date ofRetired Participant’s First Payment.**A Participant whoretires hereunder shall begin receiving his benefits as soon as is reasonably possibleafter his retirement date but no later than the date sixty (60) days after theclose of the Plan Year in which the Participant retires, unless he elects todefer payment pursuant to subparagraph (3) below.

** **

**3.             Deferralof Benefits.**A Participant who retires hereunder orterminates employment with a nonforfeitable Accrued Benefit in excess of $5,000shall not be required to receive a distribution without his writtenconsent.  A Participant may elect todefer the commencement of his Plan benefits to a later date, but not later thanApril 1 of the calendar year following the calendar year in which he attainsage 70-1/2.  Such a Participant mustmake this election in writing on a form provided by the AdministrativeCommittee.  Such election shall includethe current amount of the Participant’s nonforfeitable Accrued Benefit, theform of payment of the benefit, and the date on which payment shallcommence.  The Participant may changesuch election prior to the commencement of his deferred benefits, providedpayments commence no later than the date required above.  Such reasonable time shall be determined bythe Administrative Committee and uniformly applied.

 

Failure of aParticipant to consent to a distribution while a nonforfeitable Accrued Benefitin excess of $5,000 at the time of termination or retirement is immediatelydistributable shall be deemed an election to defer commencement of payment.

** **

**4.             Form ofPayment.**

** **

**a.             Pre-April 1, 2002 ESOP Accounts.**Ifa Participant’s vested Plan benefits are more than $5,000 at the time ofretirement or termination of employment and a Plan distribution is to be madeto him, the Participant’s nonforfeitable Pre-April 1, 2002 ESOP Employer StockAccount shall be distributed to him in whole shares of Employer Stock, as longas that Employer Stock remains readily tradable on an established market, andany fractional shares of Employer Stock will be distributed to him incash.  In the event that the EmployerStock ceases to be readily tradable on an established market, the proceeds fromthe sale of the whole shares in the Participant’s nonforfeitable Pre-April 1,2002 ESOP Employer Stock Account and any fractional shares shall be distributedto the Participant in a lump sum cash payment. That Participant’s nonforfeitable Pre-April 1, 2002 ESOP InvestmentAccount shall be distributed to him in a lump-sum cash payment, unless theParticipant elects to receive that nonforfeitable Pre-April 1, 2002 ESOPInvestment Account in whole shares of Employer Stock, with any fractional sharevalue distributed to him in cash.

** **

**b.             Post-March 31, 2002 Money PurchasePension Plan Employer Contribution Account.**Within theelection period, a Participant who is eligible to receive benefits under thisparagraph may elect, in writing on a form provided by the AdministrativeCommittee (and, if married, with his Spouse’s consent), his choice from thefollowing options for distribution of his nonforfeitable Post-March 31, 2002Money Purchase Pension Plan Employer Contribution Account:

 

i.              Anontransferable annuity contract which will be an annuity for the life of theParticipant, with a survivor annuity for the life of his Spouse which is 50% ofthe amount payable during the joint lives of the Participant and his Spouse (aqualified joint and survivor annuity); or

 

ii.             Anontransferable annuity contract which will be a monthly straight life annuityfor the life of the Participant; or

 

iii.            Asingle payment equal to the Participant’s nonforfeitable Post-March 31, 2002Money Purchase Pension Plan Employer Contribution Account.

 

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If a Participant’s nonforfeitable Post-March 31, 2002Money Purchase Pension Plan Employer Contribution Account is distributed to himin the form of an annuity contract pursuant to options i. or ii. above, theEmployer Stock in his Post-March 31, 2002 Money Purchase Pension PlanEmployer Contribution Account shall be sold by the Trustee and the proceedsapplied toward the purchase of such annuity contract.

 

If a Participant’s nonforfeitable Post-March 31, 2002Money Purchase Pension Plan Employer Contribution Account is distributed to himin the form of a single sum payment pursuant to option iii. above, suchParticipant shall receive the vested portion of that account, if any, that isinvested in Employer Stock in whole shares of Employer Stock, as long as suchEmployer Stock remains readily tradable on an established market.  In the event that such Employer Stock ceasesto be readily tradable on an established market, the proceeds from the sale ofthat Employer Stock shall be distributed to the Participant in a lump sum cashpayment.  Any fractional share valueshall be distributed to the Participant in a lump-sum cash payment.

 

All annuity contracts described in this Article VIIshall have a value equal to the Participant’s nonforfeitable Post-March 31,2002 Money Purchase Pension Plan Employer Contribution Account as of the datesuch contract(s) are purchased.

 

Within a period of no less than 30 days and no morethan 90 days before the annuity starting date, the Spouse of a marriedParticipant must consent in writing to the election of a form of benefit otherthan i. above and acknowledge the effect of that consent.  The consent shall be witnessed by a Planrepresentative or a notary public. Within a period no less than 30 days and no more than 90 days before theannuity starting date, the Administrative Committee shall furnish such amarried Participant a written explanation in nontechnical language of the termsand conditions of a qualified joint and survivor annuity under i. above, theright to elect some other form of benefit, and the rights of his Spouse.  Prior to the annuity starting date, such amarried Participant may request the Administrative Committee to furnish him awritten explanation of the specific amount of the particular joint and survivorannuity he will receive and the financial effect of his election of some otherform of benefit.  The Participant andhis Spouse may change their election as provided herein at any time prior tothe annuity starting date.  The Spousemay revoke a consent to a form of benefit other than i. above at any time priorto the annuity starting date.  If anannuity is to be the form of benefit, the Administrative Committee shallinstruct the Trustee to purchase a nontransferable annuity contract from aninsurance company authorized to do business in the State of Washington and todistribute the annuity to the Participant.

 

Notwithstanding the foregoing, the annuity startingdate for a distribution of a Participant’s nonforfeitable Post-March 31,2002 Money Purchase Pension Plan Employer Contribution Account in a form ofannuity other than a qualified joint and survivor annuity may be less than 30days after receipt of the written explanation described in the precedingparagraph, provided:  (a) theParticipant has been provided with information that clearly indicates that theParticipant has at least 30 days to consider whether to waive the qualifiedjoint and survivor annuity and elect (with spousal consent) a form ofdistribution other than a qualified joint and survivor annuity; (b) theParticipant is permitted to revoke any affirmative distribution election atleast until the annuity starting date or, if later, at any time prior to theexpiration of the 7-day period that begins the day after the explanation of thequalified joint and survivor annuity is provided to the Participant; and (c)the annuity starting date is a date after the date that the written explanationwas provided to the Participant.

 

Notwithstanding the foregoing, the AdministrativeCommittee may provide a Participant who has elected an annuity form of paymentthe written explanation described above after the annuity starting date, inwhich case the election period shall not end before the 30th day after the dateon which such explanation is provided, unless the Participant waives theremainder of the 30-day election period, subject to the right to revoke theelection within 7 days after the written explanation is given.

 

A Participant may change his election any time priorto the annuity starting date.

 

The annuity starting date means the first day of thefirst period for which an amount is payable hereunder in the form of an annuityor in the case of a benefit not payable in the form of an annuity, the firstdate on which all events have occurred which entitle the Participant to thebenefit.  Except as provided above, theelection period is the 90-day period ending on the annuity starting date.

 

The Participant’s nonforfeitable Post-March 31, 2002Money Purchase Pension Plan Employer Contribution Account shall be valued inaccordance with procedures adopted by the Administrative Committee from time totime and uniformly applied.

 

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In the event a Participant’s benefits are to commenceand he has made no election of the form of payment prior to the annuitystarting date, distribution of such Participant’s Post-March 31, 2002 MoneyPurchase Pension Plan Employer Contribution Account shall be made pursuant tooption i. above if he is married and option ii. above if he is not married.

** **

**B.            Death.**EachParticipant shall designate a beneficiary or beneficiaries on a form to befurnished by the Administrative Committee. The beneficiary of a married Participant shall be his spouse, unless thespouse consents in writing to the designation of some other beneficiary andacknowledges the effect of the consent. The consent shall be witnessed by a Plan representative or a notarypublic.  Such designation shall be filedwith the Administrative Committee and may be changed by the Participant fromtime to time by filing a new designation in writing (together with the Spouse’sconsent where required).  The designationlast filed with the Administrative Committee shall control.

 

If any Participant shall fail to designate abeneficiary or if the person or persons designated predecease the Participantand there is no successor, the Participant’s beneficiary shall be the followingin the order named:

 

a.             Survivingspouse at date of death,

 

b.             Thenliving issue, per stirpes (lawful issue and adopted),

 

c.             Thenliving parents, in equal shares,

 

d.             Brothersand sisters, in equal shares, provided that if any brother or sister is notthen living, his or her share shall be distributed to his or her then livingissue, per stirpes, and

 

e.             Estateof the Participant.

** **

**1.             Death Prior toCommencement of Benefits.**

 

**a.             Pre-April 1, 2002 ESOP Accounts.**TheParticipant’s beneficiary shall receive the Participant’s nonforfeitablePre-April 1, 2002 ESOP Employer Stock Account and the Participant’snonforfeitable Pre-April 1, 2002 ESOP Investment Account in a singlepayment.  Such payment shall be made inthe form described in Paragraph A.4.a of this Article.  If the Participant’s beneficiary is someoneother than his Spouse, the beneficiary must receive this payment byDecember 31 of the calendar year in which the fifth anniversary of theParticipant’s death occurs.  If theParticipant’s beneficiary is his Spouse, the Participant’s Spouse may elect topostpone this payment until the later of (i) December 31 of thecalendar year in which the fifth anniversary of the Participant’s death occurs,or (ii) December 31 of the calendar year in which the Participantwould have attained age 70-1/2.

** **

**b.             Post-March 31, 2002 Money PurchasePension Plan Employer Contribution Account.**A Participant’sbeneficiary may elect to receive the Participant’s Post-March 31, 2002 MoneyPurchase Pension Plan Employer Contribution Account in a form of paymentprovided in Paragraph A.4.b.(ii) or (iii) of this Article, that is, a straightlife annuity for the life of the Participant’s beneficiary or a singlepayment.  The beneficiary may select thedate payment of the Participant’s nonforfeitable Post-March 31, 2002 MoneyPurchase Pension Plan Employer Contribution Account shall commence, subject tothe following rules:

 

i.              Abeneficiary may elect to have the payment commence on any date that is areasonable time after the Participant’s death.

 

ii.             Allpayments to the beneficiary shall be completed by December 31 of the calendaryear in which the fifth anniversary of the Participant’s death occurs, exceptthat such payments may extend beyond that five-year period under the followingcircumstances:

 

(a)           Ifthe Participant’s beneficiary is not the Participant’s Spouse, that beneficiarymay elect to receive a single life annuity contract for the beneficiary’s lifecommencing not later than December 31 of the calendar year immediatelyfollowing the calendar year in which the Participant died; or

 

(b)           Ifthe Participant’s beneficiary is his Spouse, his Spouse may elect a singlepayment or a single life annuity contract that commences not later than thelater of (i) December 31 of the calendar year in which the Participantwould have attained age 70-1/2, or (ii) December 31 of thecalendar year in which the fifth anniversary of the Participant’s death occurs.

 

The beneficiary’s selection of the date of paymentshall be in writing on a form furnished by the Administrative Committee.  If the beneficiary is the Participant’sSpouse and the Spouse elects to postpone

 

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payment of the Participant’s Accrued Benefit, the Spouse shalldesignate a beneficiary or beneficiaries in accordance with the provisions ofthis Paragraph B as if the Spouse was the Participant.  If such Spouse dies before payments commencehereunder, the provisions of this Paragraph B shall be applied as if the Spousewas the Participant.

 

If the Participant’s beneficiary fails to make awritten election as to the time of payment before December 31 of the calendaryear in which the fifth anniversary of the Participant’s death occurs, and theParticipant did not designate his Spouse as beneficiary, the AdministrativeCommittee shall direct the Trustee to pay the benefit in a single sum to theParticipant’s beneficiary not later than such December 31.  If the Participant’s Spouse as designatedbeneficiary fails to make a written election as to the form and time of paymentbefore the later of (i) December 31 after the Participant would have attainedage 70-1/2 or (ii) December 31 of the calendar year in which the fifthanniversary of the death of the Participant occurs, the AdministrativeCommittee shall direct the Trustee to distribute the Participant’s AccruedBenefit in a single sum on or before the later of December 31 of the calendaryear in which the Participant would have attained age 70-1/2 or December 31 ofthe calendar year in which the fifth anniversary of the death of theParticipant occurs.

 

A payment hereunder shall be valued in accordance withthe terms of this Plan and the procedures adopted by the AdministrativeCommittee from time to time and uniformly applied.

 

The number of shares of Employer Stock in theParticipant’s Pre-April 1, 2002 ESOP Employer Stock Account and aParticipant’s Post-March 31, 2002 Money Purchase Pension Plan EmployerContribution Account will be determined on the Valuation Date immediatelypreceding the distribution, unless the value is determined using the averagesale price as described in Article X, Paragraph B.  The beneficiary will receive the proceedsfrom the liquidation of the Participant’s Pre-April 1, 2002 ESOP InvestmentAccount and from the portion of a Participant’s Post-March 31, 2002 MoneyPurchase Pension Plan Employer Contribution Account that is not invested inEmployer Stock.  Payments shall be inthe form described in Paragraph A(4) of this Article.

 

**2.             Explanationof Death Benefit.**

 

This subparagraph 2. shall apply with respect to a Participant’sPost-March 31, 2002 Money Purchase Pension Plan Employer ContributionAccount.  The Administrative Committeeshall provide to each Participant, at the time(s) described below, a writtenexplanation of (a) the death benefit provided by the Plan to the Participant’sSpouse attributable to the Participant’s Post-March 31, 2002 Money PurchasePension Plan Employer Contribution Account, (b) the Participant’s right todesignate a beneficiary other than his Spouse to receive that death benefit,provided he obtains the Spouse’s written consent witnessed by a notary publicor Plan representative, and (c) the Participant’s and Spouse’s right to revokethat designation or consent, and the effect of such a revocation.  Such notice shall be provided to aParticipant both at the time he wishes to elect a beneficiary other than hisSpouse and during whichever of the following applicable periods ends last:

 

i.              The period beginning with the first day of the PlanYear in which the Participant attains age 32 and ending with the close of thePlan Year preceding the Plan Year in which the Participant attains age 35;

 

ii.             A reasonable period after theindividual becomes a Participant; or

 

iii.            A reasonable period after separationfrom service, in case of a Participant who separates from service beforeattaining age 35; or

 

iv.            A reasonable period following thedate on which the Participant first becomes entitled to a vested AccruedBenefit.

 

For purposes of applying the preceding paragraph, areasonable period ending after the enumerated events described in (ii), (iii)and (iv) is the end of the two-year period beginning one year prior to the datethe applicable event occurs, and ending one year after that date.  In the case of a Participant who separatesfrom service before the Plan Year in which age 35 is attained, notice shall beprovided within the two-year period beginning one year prior to separation andending one year after separation.  Ifsuch a Participant thereafter returns to employment with the Employer, theapplicable period for such Participant shall be redetermined.

 

Any beneficiary designation made prior to the firstday of the Plan Year in which the Participant attains age 35 and whichdesignates a beneficiary other than the Participant’s Spouse is invalid on andafter that date, unless the Participant completes another beneficiarydesignation form, again obtains his Spouse’s

 

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written consent to the designation of a beneficiary other than hisSpouse, and the Spouse’s consent is witnessed by a notary public or a Planrepresentative.

** **

**C.            Disability.**Disabilitymeans that a Participant, by reason of mental or physical disability, isincapable of performing the duties of his customary position with the Employerfor an indefinite period which, in the opinion of the Administrative Committee,is expected to be of a long continual duration.  In the event of disability said Participant’s nonforfeitableAccrued Benefit shall be distributed to him if he so elects in the same manneras if he had attained full retirement age as provided in Paragraph Aabove.  Such benefit will be valued inaccordance with Paragraph A(4) above. Disability shall be established to the satisfaction of the AdministrativeCommittee.  If the Participant shalldisagree with the Administrative Committee’s findings, disability shall beestablished by the certificate of a physician, selected by the Participant andapproved by the Administrative Committee, or if the physician selected by theParticipant shall not be approved by the Administrative Committee, then by amajority of three physicians, one selected by the Participant (or his Spouse,child, parent, or legal representative in the event of his inability to selecta physician), one by the Administrative Committee, and the third by the twophysicians selected by the Participant and the Administrative Committee.

** **

**D.            Termination ofEmployment.**In the event a Participant terminates employmentwith a nonforfeitable Accrued Benefit of not more than $5,000, the Participantshall be paid such Accrued Benefit in accordance with Paragraph A(4) of thisArticle as soon as is reasonably possible after the date he terminatesemployment.  A Participant whosenonforfeitable Accrued Benefit at termination of employment is zero shall bedeemed to be cashed out.  If aParticipant terminated employment prior to January 1, 1998 and did not receivea distribution, he shall be paid his nonforfeitable Accrued Benefit inaccordance with Paragraph A(4) of this Article as soon as administrativelypossible following the January 1, 1998 effective date of this $5,000 cashoutamendment if his nonforfeitable Accrued Benefit is not more than $5,000 both onthe Valuation Date coinciding with or preceding his termination of employmentand the Valuation Date coinciding with or preceding his distribution.  If the Participant’s nonforfeitable AccruedBenefit exceeds $5,000 at the time it first becomes available for distribution,such benefit shall be paid as provided in Paragraph A(4) of this Article within60 days after the close of the Plan Year in which the Participant attainsNormal Retirement Age unless the Participant consents to an earlierdistribution or elects to defer receipt of the distribution pursuant to ArticleVII, Paragraph A(3).

 

If, at the time a Participant terminates employment,the Participant has completed 1,000 Hours of Service in the Plan Year, thevesting percentage used to compute his distribution shall reflect an additionalYear of Service.

 

The Administrative Committee shall file such reportswith the Secretary of Labor and Treasury and provide such information to aterminated Plan Participant as is required by law and regulations.

 

Anything in this Article VII, Paragraph D to thecontrary notwithstanding, the forfeitable portion of a Participant’s accountshall be subject to the forfeiture provisions of Article V, Paragraph E.

 

In the event that a terminated Participant’s currentaddress and whereabouts are unknown and the Administrative Committee has made agood faith effort to locate the missing Participant, then if the Participantcannot be located after that good faith effort, the nonforfeitable AccruedBenefit of the missing Participant shall be forfeited, subject to reinstatementof such benefit (unadjusted for gains or losses subsequent to the forfeiture)if the missing Participant is later found or makes a claim for Plan benefits.

** **

**E.             Time of FirstPayment.**Upon death, attainment of normal retirement age by aParticipant who has separated from service with the Employer, retirement,termination of employment with a vested Accrued Benefit of not more than $5,000or receipt by the Administrative Committee of a disabled Participant’s electionto receive disability benefits, distribution of an affected Participant’snonforfeitable Accrued Benefit shall commence as soon as is reasonablypossible, but in no event shall distribution commence later than sixty (60)days following the Plan Year during which such aforementioned event occurs,provided that if a Participant or beneficiary is entitled to elect to deferreceipt of such a distribution pursuant to the provisions of Paragraphs A(3) orB of Article VII and he makes such an election, commencement of benefitsshall be deferred to the date elected by the Participant or beneficiary.

** **

**F.             Distributionof Allocation Attributable to Last Year of Participation.**Theamount, if any, allocated to the Participant’s Plan Accounts for the Plan Yearin which an event described in Paragraph E occurs shall be paid no later thansixty days after the end of the Plan Year, unless the Participant orbeneficiary

 

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elects to defer the commencement of benefits in accordance withParagraph A(3) or B of Article VII, or fails to consent to thedistribution as required by this Article.

** **

**G.            Distributionto Persons Under Disability.**Distributions to minors orincompetents may be made by the Trustee either (1) directly to the minor, (2)to the legal guardians of the minor or incompetent, or (3) to the parent of theminor.  The Trustee shall not berequired to see to the application of any such distribution so made to any ofsaid persons, but his or their receipts therefor shall be a full discharge ofthe Trustee.

** **

**H.            NoReduction in Benefits by Reason of Increase in Social Security Benefits.**Notwithstandingany other provision of the Plan, in the case of a Participant who is receivingbenefits under the Plan, or in the case of a Participant who has terminatedemployment with the Employer and who has a nonforfeitable Accrued Benefit, suchbenefits will not be decreased by reason of any increase in the benefit levelspayable under Title II of the Social Security Act.

** **

**I.              Provisions for Nontradeable Stock.**Ifat any time Employer Stock shall cease to be readily tradeable, the followingprovisions shall apply with respect to a Participant’s Pre-April 1, 2002 ESOPEmployer Stock Account:

 

1.             IfEmployer Stock is not readily tradeable on an established market at the time ofa distribution, the Participant shall have the right to receive a distributionfrom his Pre-April 1, 2002 ESOP Employer Stock Account in cash, by makingdemand in the same manner and time as described in Paragraph A.4 above.

 

2.             IfEmployer Stock ceases to be readily tradeable after distribution, a Participantwho received such stock from his Pre-April 1, 2002 ESOP Employer Stock Accountshall promptly be granted an option to put the stock to the Employer if allowedby law, or otherwise to a third party with substantial net worth.  Such put option shall be exercisable duringa 60-day period after notice is given to the Participant of the availability ofthe put.

 

3.             Withrespect to any transaction between a disqualified person as defined under ERISAand the Plan, fair market value shall be determined as of the date of thetransaction.

** **

**J.             Diversification and Distribution ofInvestments in Pre-April 1, 2002 ESOP Employer Stock Account.**Uponthe later of (a) the date a Participant reaches age fifty-five (55), or(b) the date the Participant completes at least ten (10) years of participationin the Plan, the Participant may elect to receive a distribution of part of theEmployer Stock in his Pre-April 1, 2002 ESOP Employer Stock Account.  Such a Participant has the right to elect toreceive a distribution of a percentage of the Employer Stock in hisPre-April 1, 2002 ESOP Employer Stock Account over a six-year electionperiod beginning with the Plan Year in which he meets these requirements.  During the first five years of that electionperiod, that Participant may sell an aggregate total of up to 25% of theEmployer Stock in his Pre–April 1, 2002 ESOP Employer Stock Accountand receive a distribution of the proceeds in cash.  This election can be incremental or all at once, as long as bythe end of the first five years in the election period, no more than 25% of theEmployer Stock held in that Participant’s Pre-April 1, 2002 ESOP EmployerStock Account has been sold and distributed as described below.

 

In the sixth and last year of the election period, theaggregate total of the Employer Stock that may be sold and distributed to thatParticipant increases to 50%.  Thismeans if that Participant sold and received a distribution of the proceeds of25% of his Employer Stock holdings in his Pre-April 1, 2002 ESOP EmployerStock Account in the first five years of his election period, then he would beallowed to sell and receive a distribution of the proceeds of an additional 25%of those Employer Stock holdings in his Pre-April 1, 2002 ESOP Employer StockAccount in the sixth year of his election period.

 

If that Participant wants to take advantage of thisspecial diversification election period for a Plan Year, he must make anelection within 90 days following the end of that Plan Year.  Within 180 days after the end of theapplicable Plan Year, the portion of his Pre-April 1, 2002 ESOP EmployerStock Account to which the election applies will, at his election, either be (a) distributedto him in cash, or (b) directly transferred to an individual retirementaccount (IRA) or another eligible retirement plan on his behalf.

 

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**ARTICLE VIII**

**PROVISIONAGAINST ANTICIPATION**

 

**A.            No Alienationof Benefits.**Until distribution pursuant to the terms hereofand except as hereinafter provided in this Article VIII, no Participant shallhave the right or power to alienate, anticipate, commute, pledge, encumber, orassign any of the benefits, proceeds, or avails of the funds set aside for himunder the terms of this Plan, and no such benefits, proceeds, or avails shallbe subject to seizure by any creditor of the eligible Employee under any writor proceedings at law or in equity.

** **

**B.            QualifiedDomestic Relations Orders.**Notwithstanding any other Planprovision, the following procedures shall apply when any domestic relationsorder (entered on or after January 1, 1985) is received by the Plan withrespect to a Participant.

 

1.            The Administrative Committee shall promptly notify theParticipant, and (a) each person named in the order as entitled to payment ofPlan benefits, and (b) any other person entitled to any portion of theParticipant’s Plan benefits (persons referred to in (a) and (b) are hereafteralternate payees) of the receipt of such order and of the AdministrativeCommittee’s procedures for determining the qualified status of the order.  The Administrative Committee shall permiteach alternate payee to designate a representative for receipt of copies ofnotices.

 

2.            Immediately upon receipt of such order, theAdministrative Committee shall direct the Trustee to segregate in a separateaccount the amounts which are in pay status and which are payable to thealternate payee under the order.

 

3.            The Administrative Committee shall meet promptly afterreceipt of the order and determine whether the order is a Qualified DomesticRelations Order.  The AdministrativeCommittee shall promptly notify the Participant and each alternate payee of itsdecision.  A Qualified DomesticRelations Order is any judgment, decree or order (including approval of aproperty settlement agreement) that:

 

a.             Relates to the provision of child support, alimonypayments, or marital property rights to a spouse, former spouse, child or otherdependent of a Participant;

 

b.            Is made pursuant to a State domestic relations law(including a community property law);

 

c.             Creates or recognizes the existence of an alternatepayee’s right to receive all or a portion of a Participant’s Plan benefits;

 

d.            Clearly specifies (i) the name and last known mailingaddress, if any, of the Participant, and the name and mailing address of eachalternate payee covered by the order; (ii) the amount or percentage of theParticipant’s benefits to be paid by the Plan to each alternate payee, or themanner in which the amount or percentage is to be determined; (iii) the numberof payments or period to which the order applies; and (iv) the plan to whichthe order applies;

 

e.             Doesnot require the Plan to provide any form of benefit not otherwise provided bythe Plan or any increased benefits, and does not require the payment ofbenefits to an alternate payee which are required to be paid to anotheralternate payee under another order previously determined to be a QualifiedDomestic Relations Order.  Notwithstandingany other provision of this Plan to the contrary, the time of payment in theQualified Domestic Relations Order shall govern the time of payment under thisPlan, even if prior to the earliest retirement age as defined in Code Section414(p)(4)(B).

 

4.            The Administrative Committee’s decision shall be finalunless the Participant or an alternate payee gives written notice of appealwithin 60 days after receipt of the Administrative Committee’s decision.

 

5.            If within 18 months an order is finally determined to bea Qualified Domestic Relations Order, the segregated amounts plus interest (ifany) shall be paid to the persons entitled thereto, and thereafter thealternate payee shall receive payments pursuant to the terms of the order.  Amounts subject to the order which are notin pay status shall be transferred to a separate account in the name of thealternate payee and thereafter held for such payee’s benefit pursuant to theterms of the order.  If within 18 monthsthe order is determined not to be a Qualified Domestic Relations Order, or ifthe issue has not been finally determined, the Administrative Committee shallpay the segregated amounts to the person who would have been entitled theretoif there had been no order.  Anydetermination that an order is qualified after the close of the 18 month periodshall be applied prospectively only.

 

6.            The Administrative Committee’s procedures shall generallyconform to the Plan’s claims procedures.

 

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**ARTICLE IX**

**ADMINISTRATIVE COMMITTEE AND INVESTMENT COMMITTEE DUTIES**

 

**A.            Appointment of AdministrativeCommittee.**The Board of Directors of Pacific NorthwestBancorp shall appoint an Administrative Committee of not fewer than two (2)persons (herein referred to as the “Administrative Committee”).  The Administrative Committee shall performadministrative duties set forth in part hereinafter and serve for such terms asthe Board of Directors may designate or until a successor has been appointed oruntil removal by the Board of Directors. The Board of Directors shall advise the Trustee in writing of the namesof the members of the Administrative Committee and any changes thereafter madein the membership of the Administrative Committee.  Vacancies due to resignation, death, removal, or other causesshall be filled by the Board of Directors. Members shall serve without compensation for service.  All reasonable expenses of the AdministrativeCommittee shall be paid by the Employer. The number of Administrative Committee members may be changed by theBoard of Directors at any time.

** **

**B.            Administrative Committee Action.**TheAdministrative Committee shall choose a secretary who shall keep minutes of theAdministrative Committee’s proceedings and all data, records, and documentspertaining to the Administrative Committee’s administration of the Plan.  The Administrative Committee shall act by amajority of its members at the time in office, and such action may be takeneither by a vote at a meeting or in writing without a meeting.  The Administrative Committee may by suchmajority action authorize its secretary or any one or more of its members toexecute any document or documents on behalf of the Administrative Committee, inwhich event the Administrative Committee shall notify the Trustee in writing ofsuch action and the name or names of those so designated.  The Trustee thereafter shall accept and relyconclusively upon any direction or document executed by such secretary, member,or members as representing action by the Administrative Committee until theAdministrative Committee shall file with the Trustee a written revocation ofsuch designation.  A member of theAdministrative Committee who is also a Participant hereunder shall not vote oract upon any matter relating solely to himself.

** **

**C.            Rights andDuties.**The Administrative Committee shall be the PlanAdministrator and named fiduciary of the Plan, and shall have the power andauthority in its sole, absolute, and uncontrolled discretion to control andmanage the operation and administration of the Plan and shall have all powersnecessary to accomplish those purposes. Any decision, of fact or law, that is not arbitrary or capricious, or anabuse of discretion, must be upheld by a court of law.  The responsibility and authority of theAdministrative Committee shall include but shall not be limited to thefollowing:

 

1.             Determining all questions relating to the eligibility ofEmployees to participate;

 

2.             Computing and certifying to the Trustee the amount andkind of benefit payable to Participants, Spouses and beneficiaries;

 

3.             Authorizing all disbursements by the Trustee from theTrust;

 

4.             Establishing and reducing to writing and distributing toany Participant as beneficiary a claims procedure, and administering thatprocedure, including the processing and determination of all appealsthereunder;

 

5.             Maintaining all necessary records for the administrationof the Plan other than those which the Trustee has specifically agreed tomaintain pursuant to this Plan and Trust Agreement;

 

6.             Interpretation of the provisions of the Plan andpublication of such rules for the regulation of the Plan as in theAdministrative Committee’s sole, absolute and uncontrolled discretion aredeemed necessary and advisable and which are not inconsistent with the terms ofthe Plan or ERISA.

** **

**D.            NoAdministrative Committee Investment Authority.**TheAdministrative Committee shall have no authority or discretion with respect tothe management and control of the investments of the Trust, all of whichauthority and discretion is hereby specifically allocated to the InvestmentCommittee to be carried out in accordance with the terms of this Plan.

** **

**E.             Information- Reporting and Disclosure.**To enable the AdministrativeCommittee to perform its functions, the Employer shall supply full and timelyinformation to the Administrative Committee on all matters relating to thecompensation of all Participants, their continuous regular employment, theirretirement, death, or the cause for termination of employment, and such otherpertinent facts as the Administrative Committee may require, and theAdministrative Committee shall furnish the Trustee such information as may bepertinent to the Trustee’s administration of the Plan.  The Administrative Committee as

 

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plan administrator shallhave the responsibility of complying with the reporting and disclosurerequirements of ERISA to the extent applicable.

** **

**F.             Administrative Committee Allocationand Delegation of Responsibility.**  The Administrative Committee may by writtenrule promulgated under Paragraph C above allocate fiduciary responsibilitiesamong Administrative Committee members and may delegate to persons other thanAdministrative Committee members the authority to carry out fiduciaryresponsibilities under the Plan, provided that no such responsibility shall beallocated or delegated to the Trustee without its written consent.

 

In the event thata responsibility is allocated to an Administrative Committee member, no otherAdministrative Committee member shall be liable for any act or omission of theperson to whom the responsibility is allocated except as may be otherwiserequired by law.  If a responsibility isdelegated to a person other than an Administrative Committee member, theAdministrative Committee shall not be responsible or liable for an act oromission of such person in carrying out such responsibility except as mayotherwise be required by law.

** **

**G.            ClaimsProcedure.**  TheAdministrative Committee shall establish a claims procedure which shall bereduced to writing and provided to any Participant or beneficiary whose claimfor benefits under the Plan has been denied. The procedure shall provide for adequate notice in writing to any such Participantor beneficiary and the notice shall set forth the specific reasons for denialof benefits written in a manner calculated to be understood by the Participantor beneficiary.  The procedure shallafford a reasonable opportunity to the Participant or beneficiary for a fulland fair review by the Administrative Committee of the decision denying theclaim.  The Trustee shall have noresponsibility for establishing such a procedure or assuring that it is carriedout.

** **

**H.            Investment Committee Authority.**  The Board shall appoint an InvestmentCommittee of four or more members to prudently select the Plan investment fundsavailable to Participants in this Plan. The Investment Committee shall be a named fiduciary with the power(1) to prudently select separate Plan investment funds to be communicatedto Participants, who shall have the right to allocate assets in their PlanAccounts among the Plan investment funds at the times and in the mannerpermitted by the Investment Committee; (2) to prudently monitor theinvestment performance of those Plan investment funds; and (3) withrespect to Participants who do not allocate assets in their Pre-April 1,2002 ESOP Investment Account and their Post-March 31, 2002 Money PurchasePension Plan Employer Contribution Account among the Plan investment funds, toprudently select the Plan investment fund(s) in which such assets shall beinvested.  The Investment Committeeshall also have the authority to follow Participants’ directions as to thepurchase and sale of Employer Stock.

 

The Investment Committeeshall not be liable for any loss or for any breach of fiduciary responsibilitywhich results from a Participant’s exercise of control over all or part of theinvestments of his Plan Accounts.  Wherea Participant is directing the investment of all or part of his Accounts, theInvestment Committee shall have no responsibility to maintain diversificationof the self-directed portion of such Accounts. The Investment Committee also shall have no responsibility to diversify theinvestment of the Participants’ Pre–April 1, 2002 ESOP EmployerStock Accounts.

 

The Board shall advisethe Trustee in writing of the names of the members of the Investment Committeeand any changes thereafter made in the membership of the Investment Committee.  Vacancies due to resignation, death,removal, or other causes shall be filled by the Board.  Members shall serve without compensation forservice.  All reasonable expenses of theInvestment Committee shall be paid by the Employer.  The number of Investment Committee members may be changed by theBoard at any time.

 

No Plan amendmentaffecting the Investment Committee’s duties shall become effective without theprior approval of the Investment Committee, notwithstanding any language inArticle XIII to the contrary.

** **

**I.              FundingPolicy.**  TheInvestment Committee shall be responsible for establishing and carrying out afunding policy for the Employer’s Plan. In establishing such a policy, the short-term and long-term liquidityneeds of the Plan shall be determined to the extent possible by consideringamong other factors the anticipated retirement date of Participants, turnoverand contributions to be made by the Employer. The funding policy and method so established shall be communicated tothe Trustee.

** **

**J.             InvestmentCommittee Action.** The Investment Committee shall choose a secretary who shall keep minutesof the Investment Committee’s proceedings and all data, records, and documentspertaining to the Investment Committee’s duties under the Plan.  The Investment Committee shall act by amajority of its

 

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members at the time inoffice, and such action may be taken either by a vote at a meeting or inwriting without a meeting.  TheInvestment Committee may by such majority action authorize its secretary or anyone or more of its members to execute any document or documents on behalf ofthe Investment Committee, in which event the Investment Committee shall notifythe Trustee in writing of such action and the name or names of those sodesignated.  The Trustee thereaftershall accept and rely conclusively upon any direction or document executed bysuch secretary, member, or members as representing action by the InvestmentCommittee until the Investment Committee shall file with the Trustee a writtenrevocation of such designation.  Amember of the Investment Committee who is also a Participant hereunder shallnot vote or act upon any matter relating solely to himself.

** **

**K.            Investment Committee Allocation andDelegation of Responsibility****.**  The Investment Committee may by written rule above allocatefiduciary responsibilities among Investment Committee members and may delegateto persons other than Investment Committee members the authority to carry outfiduciary responsibilities under the Plan, provided that no such responsibilityshall be allocated or delegated to the Trustee without its written consent.

 

In the event that aresponsibility is allocated to an Investment Committee member, no otherInvestment Committee member shall be liable for any act or omission of theperson to whom the responsibility is allocated except as may be otherwiserequired by law.  If a responsibility isdelegated to a person other than an Investment Committee member, the InvestmentCommittee shall not be responsible or liable for an act or omission of suchperson in carrying out such responsibility except as may otherwise be requiredby law.

** **

**L.            Bonding.**  Where required by law, each fiduciary of thePlan and every person handling Plan funds shall be bonded.  It shall be the obligation of theAdministrative Committee to assure compliance with applicable bondingrequirements as to Administrative Committee members.  It shall be the obligation of the Investment Committee to assurecompliance with the applicable bonding requirements as to the InvestmentCommittee members.  The Trustee shallnot be responsible for assuring compliance with the bonding requirements.

** **

**M.           Indemnification.**  The Employer does hereby indemnify and holdharmless each Administrative Committee member and each Investment Committeemember from any loss, claim, or suit arising out of the performance ofobligations imposed hereunder and not arising from said AdministrativeCommittee member’s or Investment Committee member’s willful neglect ormisconduct or gross negligence.

** **

**N.            Standardof Care Imposed upon the Administrative Committee and the InvestmentCommittee.**  TheAdministrative Committee and the Investment Committee shall each discharge itsduties with respect to the Plan solely in the interest of the Participants andbeneficiaries and (1) for the exclusive purpose of providing benefits toParticipants and their beneficiaries and defraying reasonable expenses of thePlan; (2) with the care, skill, prudence, and diligence under the circumstancesthen prevailing that a prudent man acting in a like capacity and familiar withsuch matters would use in the conduct of an enterprise of like character andwith like aims; and (3) in accordance with the Plan provisions.  In addition, the Investment Committee shalldischarge its duties with respect to the Post-March 31, 2002 Money PurchasePension Plan Employer Contribution Accounts and Pre-April 1, 2002 ESOPInvestment Accounts by diversifying the investments of such Accounts so as tominimize the risk of large losses, unless under the circumstances it is clearlyprudent not to do so.  Provided,however, that where a Participant is directing the investment of all or part ofsuch Accounts, the Administrative Committee and Investment Committee shall haveno responsibility to maintain diversification of the Participant-directedportion of such Accounts.  TheAdministrative Committee and the Investment Committee shall not be liable forany loss or for any breach of fiduciary responsibility which results from aParticipant’s exercise of control over all or part of the investment of hisPlan Accounts.

 

**ARTICLE X**

**INVESTMENTOF PLAN ASSETS**

 

**A.            Investments.**  Participants’ Plan Accounts shall beinvested as follows:

** **

**1.             ESOPAccounts.**  A Participant’s Pre-April 1, 2002 ESOPEmployer Stock Account will remain invested in Pacific Northwest Bancorp commonstock, unless on or after July 1, 2002 (or an earlier date determined by thePlan Administrative Committee in its discretion and communicated to PlanParticipants), the Participant directs the Plan Trustee to sell all or aportion of the Employer Stock in his

 

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Pre-April 1, 2002ESOP Employer Stock Account and to allocate the sales proceeds to his Pre-April1, 2002 ESOP Investment Account to be invested as the Participant directs amongthe permitted Plan investment funds selected by the Investment Committee.  A Participant may later elect to applyassets in his Pre-April 1, 2002 ESOP Investment Account to purchase sharesof Employer Stock on the open market, and that Employer Stock will be allocatedto his Pre-April 1, 2002 ESOP Employer Stock Account.

 

A Participant’sPre-April 1, 2002 ESOP Investment Account shall include (a) the salesproceeds of Employer Stock the Participant has elected to sell from hisPre-April 1, 2002 ESOP Employer Stock Account, and (b) any cash orother assets previously held in that ESOP Investment Account, and(c) earnings on amounts in that ESOP Investment Account plus cashdividends after March 31, 2002 on Employer Stock held in thatParticipant’s Pre-April 1, 2002 ESOP Employer Stock Account.

** **

**2.             Money Purchase Pension Plan Employer ContributionAccount.**  A Participant may direct the Trusteeto invest his Post-March 31, 2002 Money Purchase Pension Plan EmployerContribution Account among the permitted Plan investment funds selected by theInvestment Committee, and in shares of Employer Stock purchased on the openmarket.

 

A Participant’sPost-March 31, 2002 Money Purchase Pension Plan Employer ContributionAccount includes (a) Employer contributions made on the Participant’sbehalf after March 31, 2002, and (b) earnings on those Post-March 31,2002 Employer contributions on the Participant’s behalf plus any cash dividendson Employer Stock purchased with the Participant’s Post–March 31,2002 Employer contributions.

** **

**3.             Trustee’sInvestment Procedures.** The Trustee will provide Participants with a description of the Planinvestment fund options.  Participantswill be able to transfer amounts among the Plan investment funds and topurchase and sell shares of Employer Stock at the times and in the mannerpermitted by the Investment Committee.

 

With respect to theassets in the Post-March 31, 2002 Money Purchase Pension Plan EmployerContribution Accounts and Pre-April 1, 2002 ESOP Investment Accounts ofParticipants who do not allocate the assets in such Accounts among the Planinvestment funds or in Employer Stock, such assets shall be invested in thePlan investment fund(s) selected by the Investment Committee.

 

With respect to the Planinvestment funds, the Trustee in following the Participants’ directions (or theInvestment Committee’s directions if the Participant does not provide anyinvestment directions) is hereby granted full power and authority to invest andreinvest the principal and income of the trust fund in any manner that it deemsadvisable.  Without limiting thegenerality of the foregoing, the Investment Committee may invest in regulatedinvestment companies, common stock, collective investment funds (the terms ofwhich are incorporated herein by reference), real estate, government, municipalor corporation bonds, debentures or notes, or any other form ofincome-producing property, whether real, personal, or mixed, includingcorporate stock of the Employer for the benefit of the Plan.

** **

**B.            Employer Stock****.**  Employer Stock that is purchased or sold inaccordance with Participants’ directions with respect to assets inParticipants’ Plan Accounts shall be purchased and sold on the openmarket.  Employer Stock will beallocated to Participants’ Plan Accounts based on the price at which purchasesof such Employer Stock are made.

 

Notwithstanding theforegoing, the Investment Committee may impose restrictions on the trading ofEmployer Stock to maintain an orderly market. If Plan Participants choose to sell a large amount of Employer Stock,the sale of those shares may be spread over a period of days.  If that occurs, affected Participants’ Planaccounts would not be updated until the sale was completed, and the sale pricewould be based on the average sale price over the trading period.  The Investment Committee will establishguidelines as to when the Trustee should contact an Investment Committee memberas to whether to spread a trade over a period of time.

** **

**C.            Voting andTender of Employer Stock****.**  Each Participant may direct the Trustee as to the manner in whichEmployer Stock allocated to the Participant’s Plan Accounts is to be voted atmeetings of shareholders, in accordance with procedures acceptable to theTrustee and established in accordance with applicable regulations under ERISA404(c).  Each Participant may likewisedirect the Trustee whether to tender the shares of Employer Stock allocated tothe Participant’s Plan Accounts in response to a tender offer, in accordancewith procedures acceptable to the Trustee and established in accordance withapplicable regulations under ERISA 404(c). The Trustee shall vote such stock as provided in the Plan’s Trust Agreement.  Distribution of proxy solicitation materialsto Participants with Employer Stock in their Plan Accounts shall be made by theEmployer and the Trustee pursuant to such procedures as they shall agree upon.  Participants’

 

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individual votingdirections and instructions as to whether to tender Employer Stock shall bekept confidential.  Information relatingto the purchase, holding, and sale of Employer Stock, and the exercise ofvoting, tender and similar rights with respect to Employer Stock byParticipants and their beneficiaries shall be maintained in accordance withprocedures acceptable to the Trustee that are designed to safeguard theconfidentiality of that information, except to the extent necessary to complywith federal laws or state laws not preempted by ERISA.

 

For purposes ofexercising voting rights and/or responding to a tender offer, each Participantshall be a named fiduciary under ERISA with respect to the shares of EmployerStock credited to his Plan Accounts.

** **

**D.            ESOPEmployer Stock Accounts****.**  Except as otherwise directed by Plan Participants in accordancewith Paragraph A.1. above, the portion of the Plan Trust held inParticipants’ Pre-April 1, 2002 ESOP Employer Stock Accounts shall be primarilyinvested in Employer Stock and up to 100% of such Accounts may be so invested.

 

**ARTICLE XI**

**SUITS**

 

If any person or party tothis agreement shall request the Trustee to bring any action at law or suit inequity to determine any of the provisions or rights arising out of thisagreement, the Trustee shall not be obligated to bring such suit unless theTrustee is fully indemnified for all costs of such action, including areasonable sum for attorneys’ fees.

 

**ARTICLE XII**

**MERGERS ANDCONSOLIDATIONS**

 

In the case of any mergeror consolidation with any other plan or a transfer of assets or liabilities toany other plan, each Participant shall be entitled to receive a benefitimmediately after such a merger, consolidation or transfer, which is equal to thebenefit he would have been entitled to immediately before if the Plan had beenterminated.

 

**ARTICLE XIII**

**AMENDMENT AND TERMINATION OF PLAN AND TRUST.**

** **

**A.            Right toAmend and Terminate.** Pacific Northwest Bancorp represents that the Plan is intended to be acontinuing and permanent program for Participants, but its Board reserves theright to terminate the Plan at any time. The Board may modify, alter, or amend this Plan and the Trust in wholeor in part, provided that no such modification, alteration, or amendment shallenlarge the duties or liabilities of the Trustee without its consent, norreduce the Participant’s Accrued Benefit hereunder, except to the extentpermitted by Code Section 412(c)(8). For purposes of this Article, a Plan amendment which has the effect of(1) eliminating or reducing an early retirement benefit or retirement-typesubsidy, or (2) eliminating an optional form of benefit, with respect tobenefits attributable to service before the amendment, shall be treated asreducing the Accrued Benefit.  In thecase of a retirement-type subsidy, the preceding sentence shall apply only withrespect to a Participant who satisfies (either before or after the amendment)the preamendment conditions for the subsidy.

 

Subject to the provisionsset forth above, effective April 1, 1998, the Board delegates to theInvestment Committee the right to make administrative amendments to the Planand Trust.  An amendment will beconsidered an administrative amendment properly within the delegated authorityof the Investment Committee if the amendment is required by a change in thelaw, or is of an administrative nature which does not make major Plan designchanges, affect Plan eligibility, or change the benefit or contributionformulas.  Any such amendment shall beeffective as of the date established by the Trustee.  Any amendment adopted by the Investment Committee pursuant tothis delegated authority shall be reported to the Board within two and one-half(2-1/2) months after the close of the Plan Year of adoption, or the due date ofPacific Northwest Bancorp’s tax return (including extensions), if later.

** **

**B.            No Revesting.**  No termination, modification, alteration, oramendment shall have the effect of revesting in the Employer any part of theprincipal or income of the Trust, except as otherwise permitted by the Plan.

 

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**C.            ExclusiveBenefit of Employees.** At no time during the existence of this Plan and the Trust or at itstermination may any part of the Trust corpus or income be used for or directedto purposes other than for the exclusive benefit of the Participants hereof ortheir beneficiaries.

** **

**D.            Termination.**

 

1.            This Plan and the Trust shallterminate upon the occurrence of any of the following:

 

a.            Written notice of Pacific Northwest Bancorp to theTrustee;

 

b.            Complete discontinuance of contributions by PacificNorthwest Bancorp;

 

c.            The dissolution or merger of Pacific Northwest Bancorpunless a successor to the business agrees to continue the Plan and the Trust byexecuting an appropriate agreement, in which event such successor shall succeedto all the rights, powers and duties of Pacific Northwest Bancorp.

 

2.            In the event that Pacific NorthwestBancorp is taken over by a successor who agrees to continue the Plan, theemployment of any Employee who is continued in the employ of such successorshall not be deemed to have been terminated or severed for any purposehereunder.

 

3.            Notwithstanding any provision hereofto the contrary, upon termination or partial termination of the Plan and theTrust, or upon complete discontinuance of contributions to the Plan, allaffected Participants’ Accounts shall be considered as fully vested andnonforfeitable, all unallocated assets of the Trust, including but not limitedto Employer contributions and unallocated Trust assets and earnings thereon,shall be allocated to the accounts of all Participants as of the next ValuationDate (or if the Plan is being terminated immediately, then on the date of suchPlan termination as if it were the next Valuation Date) in accordance with theprovisions of the Plan hereof; and shall be applied for the benefit of eachsuch Participant either by a lump-sum distribution, or by the continuance ofthe Trust and the payments of benefits thereunder in the manner provided in thePlan.  The Trustee, in consultation withthe Administrative Committee, shall decide whether a partial termination of thePlan has occurred.

 

After the Plan’sinitial qualification by the Internal Revenue Service, there will be noreversion of assets to the Employer under any circumstances.  All Participants shall be treated in amanner consistent with the terms of this Plan and provisions of the Code andapplicable regulations, as may be amended from time to time.

 

Even if the Planceases to be an ESOP, any Employer Stock acquired with the proceeds of anAcquisition Loan will be subject to a put option if it is not publicly tradedwhen distributed, or if subject to a trading limitation when distributed.  The put must be exercisable at least duringa 15-month period which begins on the date the security subject to the putoption is distributed by the Plan.  Theprice at which the put option will be exercisable will be the value of thesecurity as of the date of exercise or as of the most recent ValuationDate.  If the transaction takes placebetween the Plan and a disqualified person, value will be determined as of thedate of transaction.

 

**ARTICLE XIV**

**TOP HEAVY PLANS DEFINED AND OTHER DEFINITIONS**

** **

**A.            Top Heavy Plan.** The Plan is Top Heavy and subject tothe requirements of this Article and Article XV if for a Plan Year, as of theDetermination Date, the Accrued Benefits of Key Employees in the Planaggregated with the Accrued Benefits of Key Employees in all qualified plansmaintained by the Employer and each member of the Controlled Group exceed 60%of the Accrued Benefits of all employees (excluding Non-Key Employees who wereKey Employees in a prior plan year) in all qualified plans maintained by theEmployer and all members of the Controlled Group which are in the RequiredAggregation Group (the Top Heavy Test). Provided, the foregoing shall not apply and the Plan shall not be TopHeavy if the Plan is Permissively Aggregated and as a result the Top Heavy Testresults in a percentage of 60% or less.

 

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**B.            AdditionalDefinitions for Use in this Article and Article XV.**

** **

**1.             AccruedBenefits.**  AccruedBenefits means:

 

a.             for each defined contribution plan, the employee’saccount balances as of the valuation date coinciding with the DeterminationDate, adjusted for contributions required to be made under Code Section 412,and to be allocated as of a date not later than the Determination Date,although not yet contributed; and

 

b.            for each defined benefit plan, the present value as ofthe valuation date coinciding with the Determination Date of the employee’saccrued benefits determined pursuant to the plan’s provisions.

 

In computing a. and b.,all benefits attributable to employer contributions and all benefitsattributable to employee contributions (excluding deductible Employeecontributions, if any) are to be taken into consideration.  All such benefits of individuals who havenot performed services for the Employer or a member of the Controlled Groupmaintaining this Plan any time during the five-year period ending on theDetermination Date are not taken into consideration.  All distributions made in the plan year including the DeterminationDate and in the four preceding plan years are to be added back, includingdistributions from a terminated plan of a member of the Controlled Group, andexcluding amounts which were rolled over or transferred to a plan of a memberof the Controlled Group under circumstances which require such amounts to beconsidered part of the accrued benefit under the recipient plan.  Rollovers and transfers to this Plan or aplan of a member of the Controlled Group initiated by an employee and madeafter December 31, 1983, are not to be taken into consideration in computing a.and b. above.  Such rollovers andtransfers on or prior to such date are to be considered.  No accrued benefits of a Non-key Employeewith respect to this Plan (or any plan aggregated under subparagraph 7 or 8below) for a Plan Year shall be taken into consideration if the Non-keyEmployee was a Key Employee with respect to such plan for any prior Plan Year.

** **

**2.             ControlledGroup.**  ControlledGroup means all employers required to be aggregated under Code Section 414(b),(c) or (m).

** **

**3.             DeterminationDate.**  DeterminationDate means the last day of the plan year preceding the plan year in questionor, in the first plan year, the last day thereof.  Where plans other than this Plan are in question, theDetermination Date for each plan shall be the last date of the plan year thatfalls within the same calendar year.

** **

**4.             KeyEmployee.**  KeyEmployee means any employee or former employee of an employer (including thebeneficiary of any such deceased person) who at any time during the plan yearor any of the four preceding plan years is or was:

 

a.             an officer receiving annual Compensation greater than50% of the dollar limit in effect under Code Section 415(b)(1)(A) for any suchplan year.  The number of officers ofall members of the Controlled Group required to be taken into account shall belimited as follows:

 

(i)            ifthe aggregate number of employees of all employers in the Controlled Group isless than 30, then no more than three individuals shall be considered KeyEmployees by reason of being officers;

 

(ii)           ifthe number exceeds 30 but is less than 500, no more than 10% shall beconsidered Key Employees; and

 

(iii)          ifthe number exceeds 500, no more than 50 shall be considered Key Employees.

 

b.            one of the ten employees (i) receiving annualCompensation greater than the dollar limit in effect under Code Section415(c)(1)(A) for any such plan year and (ii) owning the largest interest of theemployer; provided if two employees own the same interest in the employer, theemployee receiving greater annual Compensation, shall be treated as having alarger interest;

 

c.             an employee owning more than 5% of the employer;

 

d.            an employee receiving annual Compensation in excess of$150,000 and owning more than one percent of the employer.

 

In determining ownershipof an employer, the rules of Code Section 318 shall be applied substituting 5%for 50% in subparagraph (c) of Code Section 318(a)(2).  In the case of an unincorporated employer,ownership shall be determined in accordance with regulations promulgated by theSecretary of the Treasury.  Code Section414(b), (c) and (m) shall not apply for purposes of determining ownership of anemployer.

 

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**5.             MinimumBenefit Accrual.** Minimum Benefit Accrual means a benefit payable in the form of a lifeannuity at normal retirement age under a defined benefit plan which equals notless than the lesser of (1) 20% of average compensation or (2) 2% of averagecompensation times Years of Service. Average compensation means the average of the employee’s compensationfor the five consecutive years when the employee had the highest aggregatecompensation.  Years of Service prior toJanuary 1, 1984 are not taken into account. A Year of Service is disregarded if the Plan is not Top Heavy for thePlan Year ending during the Year of Service. Compensation in years following the last Plan Year in which the Plan istop heavy is not taken into account.

** **

**6.             Non-keyEmployee.**  Non-keyEmployee means any employee who is not a Key Employee.

** **

**7.             PermissivelyAggregated.** Permissively Aggregated means:

 

a.             the Required Aggregation Group; and

 

b.            such additional plans which may be aggregated withoutviolating the requirements of Code Sections 410 and 401(a)(4).

** **

**8.             RequiredAggregation Group.** Required Aggregation Group means:

 

a.             all qualified plans of the employer and each member ofthe Controlled Group in which a Key Employee is a participant; and

 

b.            each other qualified plan which must be considered alongwith the plans in a. in order for the Plan to meet the requirements of CodeSections 410(b) and 401(a)(4).

** **

**9.             Super TopHeavy Plan.**  A SuperTop Heavy Plan is this Plan with 90% substituted for 60% in the Top Heavy Test.

 

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**C.            Top-HeavyRequirements Effective for Plan Years Beginning After December 31, 2001.**

** **

**1.            EffectiveDate.**  Notwithstandingany provision of this Plan to the contrary, this Paragraph C shall applyfor purposes of determining whether the Plan is a top-heavy plan under CodeSection 416(g) for Plan Years beginning after December 31, 2001.

** **

**2.            Determinationof Top-Heavy Status.**

** **

**a.  Key Employee.** Key Employee means any Employee or formerEmployee (including any deceased Employee) who at any time during the Plan Yearthat includes the determination date was an officer of the Employer havingannual Compensation greater than $130,000 (as adjusted under Code Section416(i)(1) for Plan Years beginning after December 31, 2002), a 5-percent ownerof the Employer, or a 1-percent owner of the Employer having annualCompensation of more than $150,000.  Forthis purpose, annual Compensation means Compensation within the meaning of CodeSection 415(c)(3).  The determination ofwho is a Key Employee will be made in accordance with Code Section 416(i)(1)and the applicable regulations and other guidance of general applicabilityissued thereunder.

** **

**b.  Determination ofAmounts.**  Thissubparagraph b. shall apply for purposes of determining the amounts of accountbalances of Employees as of the determination date.

** **

**i.  DistributionsDuring Year Ending on the Determination Date.**  The amounts of account balances of anEmployee as of the determination date shall be increased by the distributionsmade with respect to the Employee under the Plan and any Plan aggregated withthe Plan under Code Section 416(g)(2) during the one-year period ending onthe determination date.  The precedingsentence shall also apply to distributions under a terminated plan which, hadit not been terminated, would have been aggregated with the Plan under CodeSection 416(g)(2)(A)(i).  In the case ofa distribution made for a reason other than separation from service, death, ordisability, this provision shall be applied by substituting “five-year period”for “one-year period.”

** **

**ii.  Employees NotPerforming Services During Year Ending on the Determination Date.**  The accounts of any individual who has notperformed services for the Employer during the one-year period ending on thedetermination date shall not be taken into account.

 

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**ARTICLEXIX****ADDITIONAL REQUIREMENTS**

**APPLICABLE TO TOP HEAVY PLANS**

** **

                **A.            Minimum Vesting Requirements.**Foreach Plan Year that the Plan is subject to the provisions of this Article, a Participant’snonforfeitable Accrued Benefit in his Employer Contribution Account, shall bedetermined in accordance with the following schedule:

 
| **Years of  Service** |   | **Nonforfeitable  Percentage** |   |
|-----------------------|--------|--------------------------------|--------|
| Less than 1           |   | 0                              | %      |
| 1                     |   | 20                             | %      |
| 2                     |   | 40                             | %      |
| 3                     |   | 60                             | %      |
| 4                     |   | 80                             | %      |
| 5                     |   | 100                            | %      |

 

**B.            MinimumEmployer Contributions.**

** **

**1.            General Rule. **Except as provided insubparagraphs 2. and 3. hereof, for each Plan Year that the Plan is subject tothe provisions of this Article, each Non-key Employee Participant shall receivean allocation, without regard to any Social Security contribution, to hisEmployer Contribution Account of the lesser of:

 

a.             three percent of his Compensation (as defined in ArticleII, Paragraph F), or

 

b.            the highest percentage of Compensation (as defined inArticle II, Paragraph F) allocated to the account of a Key Employee.  This subparagraph b. shall not apply and therequired contribution shall be 3% if exclusion of the Plan from the RequiredAggregation Group would cause a defined benefit plan in the Required AggregationGroup to fail to meet the requirements of Code Section 401(a)(4) or 410.

 

In applying thissubparagraph 1., failure of a Participant to complete a Year of Service, makemandatory contributions, if required, or receive Compensation sufficient tojustify an allocation during the Plan Year shall not render such Participantineligible to receive a minimum employer contribution under this Paragraph B.

 

Employer matchingcontributions made to the Employer’s Salary Deferral 401(k) Plan shall be takeninto account for purposes of satisfying the minimum contribution requirementsof Code Section 416(c)(2) and the Plan. The preceding sentence shall apply with respect to Employer matchingcontributions under the Employer’s Salary Deferral 401(k) Plan or, if the Plan providesthat the minimum contribution requirement shall be met in another plan, suchother plan.  Employer matchingcontributions that are used to satisfy the minimum contribution requirementsshall be treated as Employer matching contributions for purposes of the actualcontribution percentage test and other requirements of Code Section 401(m).

 

**2.           Exceptions.** Subparagraph 1. does not apply withrespect to a Participant who

 

a.             terminates employment with the Employer and all membersof the Controlled Group prior to the last day of the plan year, or

 

b.            is a participant in another defined contribution planwhich is in the Required Aggregation Group and receives an allocation to hisemployer contribution account in such plan equal to the above (for the plan yearending on or before the Determination Date), or

 

c.             is a participant in a defined benefit plan which is inthe Required Aggregation Group and receives thereunder for the plan year theMinimum Benefit Accrual for the plan year ending on or before the DeterminationDate.

** **

**3.**            **EmployeeParticipating in Defined Benefit Plan****.** For each Non-Key Employee Participant who is also aparticipant in a defined benefit plan which is in the Required AggregationGroup and which does not provide the Minimum Benefit Accrual for the plan yearending on or before the Determination Date, subparagraph 1. shall be appliedsubstituting 5% of compensation for subparagraphs 1.a. and b.

 

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**4.            SpecificRules.**In determining the Minimum Employer Contributionhereunder, the following rules shall govern:

 

a.             Compensation in excess of $200,000 (as adjusted pursuantto Code Section 416(d)(2)) shall not be considered.

 

b.            The Non-key Employee’s account will receive the MinimumEmployer Contribution notwithstanding a waiver of the minimum fundingrequirements of Code Section 412.

 

c.             Tax-deferred contributions by Non-key Employees to aqualified plan shall be disregarded; tax-deferred contributions by KeyEmployees shall be taken into account in determining the minimum requiredemployer contribution hereunder.

** **

**ARTICLE XX**

**RIGHT TO DISCHARGE EMPLOYEES**

 

Neither the establishmentof the Plan and the Trust nor any modification thereof, nor the creation of anyfunds or accounts nor the payment of any benefit, shall be construed as givingany Participant, or any other person whomsoever, any legal or equitable rightagainst the Employer, the Trustee, the Administrative Committee, or theInvestment Committee unless the same shall be specifically provided for in thisagreement or conferred by affirmative action of the Administrative Committee orthe Employer in accordance with the terms and provisions of this agreement oras giving any Employee or Participant the right to be retained in the service ofthe Employer, and all Employees shall remain subject to discharge by theEmployer to the same extent as if this Plan and Trust had never been adopted.

** **

**ARTICLE XXI****RETURN OF CONTRIBUTIONS;**

**DECLARATION OF TRUST CONTINGENT**

**ON INTERNAL REVENUE SERVICE APPROVAL**

 

Contributions made heretoare conditioned on deductibility by the Employer under Section 404 of the Code,and such contributions may not be made under a mistake of fact.

 

Contributions may bereturned to the Employer in the amount involved, within one year of themistaken payment of the contribution, the date of denial of qualification, ordisallowance of a deduction, as the case may be.

 

This Plan and the Trustshall be contingent upon a favorable Internal Revenue Service ruling as to theinitial acceptability under Section 401(a) of the Internal Revenue Code, asamended, and exemption from income taxation under Section 501(a) of theInternal Revenue Code.  In the eventthat the Commissioner of Internal Revenue determines that the Plan is notinitially qualified under the Internal Revenue Code, and if the Employer doesnot effect an amendment which will cure the defect, then this Plan and Trustwill thereupon terminate and be of no further force or effect, and the Trusteeshall forthwith return to the Employer the current value of all contributionsmade incident to that initial qualification by the Employer (plus income, lessany fees or expenses allocable thereto) within one year after the date theinitial qualification is denied, but only if the application for thequalification is made by the time prescribed by law for filing the Employer’sreturn for the taxable year in which the Plan is adopted, or such later date asthe Secretary of the Treasury may prescribe.

** **

**ARTICLE XXII**

**DIRECTROLLOVER****CONTRIBUTIONS**

** **

**A.            DirectRollover Contributions.** Paragraph B of this Articleapplies to distributions made on or after January 1, 1993.  Notwithstanding any provision of the Plan tothe contrary that would otherwise limit a distributee’s election under thisArticle, a distributee may elect, at the time and in the manner prescribed bythe Administrative Committee, to have any portion of an eligible rolloverdistribution paid directly to an eligible retirement plan specified by thedistributee in a direct rollover.

 

**B.            Definitions****.**

** **

**1.             Eligible Rollover Distribution**. An eligible rolloverdistribution is any distribution of all or any portion of the balance to thecredit of the distributee, except that an eligible rollover distribution doesnot include:  any distribution that isone of a series of substantially equal periodic payments (not less frequentlythan annually) made for the life (or life expectancy) of the distributee or thejoint lives (or joint life

 

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expectancies) of the distributee and the distributee’s designatedbeneficiary, or for a specified period of ten years or more; any distributionto the extent such distribution is required under Section 401(a)(9) of theCode; and the portion of any distribution that is not includable in grossincome (determined without regard to the exclusion for net unrealizedappreciation with respect to employer securities), and effective with respectto distributions made on or after January 1, 2000, hardship withdrawals,unless such a distribution is made after a permissible distribution event(other than a hardship withdrawal) occurs under Code Section 401(k)(2)(B).  Effective with respect to distributions madeafter December 31, 2001, any amount that is distributed on account of hardshipshall not be an eligible rollover distribution and the distributee may notelect to have any portion of such a distribution paid directly to an eligibleretirement plan.

** **

**2.             EligibleRetirement Plan**.An eligible retirement plan is an individual retirement account described inSection 408(a) of the Code, an individual retirement annuity described inSection 408(b) of the Code, an annuity plan described in Section 403(a) of theCode, or a qualified trust described in Section 401(a) of the Code, thataccepts the distributee’s eligible rollover distribution.  However, in the case of an eligible rolloverdistribution to the surviving spouse, an eligible retirement plan is anindividual retirement account or individual retirement annuity.

 

Effective with respect todistributions made from this Plan after December 31, 2001, an eligibleretirement plan shall also mean an annuity contract described in Code Section403(b) and an eligible plan under Code Section 457(b) which is maintained by astate, political subdivision of a state, or any agency or instrumentality of astate or political subdivision of a state and which agrees to separatelyaccount for amounts transferred into such plan from this plan.  The definition of eligible retirement planshall also apply in the case of a distribution to a surviving spouse, or to aspouse or former spouse who is the alternate payee under a qualified domesticrelation order, as defined in Code Section 414(p).

** **

**3.             Distributee**. A distributee includes an Employee orformer Employee.  In addition, theEmployee’s or former Employee’s surviving spouse and the Employee’s or formerEmployee’s spouse or former spouse who is the alternate payee under a qualifieddomestic relations order, as defined in Section 414(p) of the Code, aredistributees with regard to the interest of the spouse or former spouse.

** **

**4.             Direct Rollover.**A direct rollover is a payment by the Plan to the eligibleretirement plan specified by the distributee.

** **

**ARTICLE XXIII****TRANSFER OF INTERWEST BANCORP, INC.**

**STOCK FROM PREDECESSOR PACIFICNORTHWEST BANK RETIREMENT PLAN**

 

Notwithstanding any provision of this Plan to thecontrary, as soon as administratively possible after August 1, 1999, theInterWest Bancorp, Inc. stock (now Pacific Northwest Bancorp stock) that washeld in the Predecessor Pacific Northwest Bank Retirement Plan (the“Predecessor PNB Plan”) was transferred to this Plan on behalf of PredecessorPNB Plan participants whose Predecessor PNB Plan Accounts held such stock.  Such transferred InterWest Bancorp, Inc.stock (now Pacific Northwest Bank stock) shall be held in separate frozenEmployer Matching Contribution Accounts in this Plan for the benefit of suchParticipants, and such accounts shall continue to vest in accordance with thefollowing schedule, which is the former Predecessor PNB Retirement Plan vestingschedule for such former Predecessor PNB Plan participants:

 

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Completion of Less than 1 Year of Service 0%

Completion of 1 or More Years of Service 20%

Completion of 2 or More Years of Service 40%

Completion of 3 or More Years of Service 60%

Completion of 4 or More Years of Service 80%

Completion of 5 or More Years of Service 100%

 

A Participant’s frozen Employer Matching ContributionAccount shall become fully vested and nonforfeitable upon the Participant’sattainment of age 65, death or permanent and total disability, if suchParticipant remains employed by the Employer at the time that event occurs.

 

When such a Participant retires, terminatesemployment, becomes permanently and totally disabled, or dies, his frozenEmployer Matching Contribution Account will be valued and distributed in thesame manner as his Pre-April 1, 2002 ESOP Accounts.

 

Effective as of July 1, 2002 (or an earlier date thatmay be determined by the Plan Administrative Committee and communicated toaffected Participants), such Participants may direct the Plan Trustee to sellall or a portion of the Employer Stock in their frozen Employer MatchingContribution Accounts, and to allocate the sales proceeds to that account to beinvested as they directed among the permitted Plan investment funds selected bythe Investment Committee.

 

IN WITNESS WHEREOF, the parties hereto have causedthis Plan and Trust to be executed this 12th day of August, 2002.

 
|   |   |   | PACIFIC NORTHWEST BANCORP |                        |
|--------|--------|--------|---------------------------|-----------------------------|
|   |   |   |                      |                        |
|   |   |   |                      |                        |
|   |   |   | By                        |  /s/ Patrick  M. Fahey |   |
|   |   |   |                      | Its                         | President and Chief Executive Officer |   |
|        |        |        |                           |                             |  |  |  |

 

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**SCHEDULE A**

 

**PACIFIC NORTHWEST BANCORP**

**AFFILIATES CO-SPONSORING**

**THE PACIFIC NORTHWEST BANCORP**

**EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST**

 

Pacific Northwest Bank (formerly InterWest Bank)

 

Pacific Northwest Financial Services (formerly InterWest FinancialServices)

 

Pacific Northwest Insurance Agency (formerly InterWest Agency)

 

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**SCHEDULE B**

 

**PACIFIC NORTHWEST****BANCORP**

**AFFILIATESOR FORMER**

**AFFILIATES FOR WHICH**

**PAST SERVICE CREDIT IS GRANTED**

 
|                                       |   |                       |
|--------------------------------------------|--------|----------------------------|
| **Name of  Affiliate or Former Affiliate** |   | **Type of Credit Granted** |
|                                       |   |                       |
| Central Washington Bank/                   |   | Vesting                    |
| North Central Washington Bank              |   |                       |
|                                       |   |                       |
| Pacific Northwest Bank                     |   | Vesting                    |
| (referred to as the Predecessor            |   |                       |
| Pacific Northwest Bank in this             |   |                       |
| Plan)                                      |   |                       |
|                                       |   |                       |
| Pioneer National Bank                      |   | Vesting                    |
|                                       |   |                       |
| Kittitas Valley Bank, N.A.                 |   | Vesting                    |
|                                       |   |                       |
| First National Bank of                     |   | Vesting                    |
| Port Orchard                               |   |

 

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SCHEDULE C

 

 

Pacific Northwest Bank or its predecessor InterWest Bank

 

Pacific Northwest Financial Services or it predecessor InterWestFinancial Services

 

Pacific Northwest Insurance Agency or its predecessor InterWest Agency

 

The Predecessor Pacific Northwest Bank

 

Pioneer National Bank until January 19, 1999, when that bank mergedinto the Predecessor Pacific Northwest Bank

 

Kittitas Valley Bank, N.A.

 

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