**Exhibit 10.3**

 

**CONSULTING AGREEMENT**

*** ***

***Kathryn L. M. Spere***

 

This Consulting Agreement (“Agreement”) is made this28th day of October, 2002, between PACIFIC NORTHWEST BANCORP (“Pacific”),PACIFIC NORTHWEST BANK and KATHRYN L. M. SPERE.

 

RECITALS

 

A.    Pacific andPacific Northwest Bank have entered into a Plan and Agreement of Merger(“Plan”) with Bank of the Northwest, pursuant to which Bank of the Northwestwill merge into Pacific Northwest Bank (“Merger”).  Ms. Spere is presently Executive Vice President of Bank of theNorthwest, and her employment in that capacity will terminate on the effectivedate of the Merger.

 

B.    Followingthe Merger, Pacific and Pacific Northwest Bank (hereinafter referred to jointlyas “Pacific” unless Pacific Northwest Bank is specifically mentioned) desire toretain Ms. Spere as a consultant, and Ms. Spere wishes to perform suchservices.  (Ms. Spere is referred tohereinafter as “Consultant.”)

 

NOW, THEREFORE, in consideration of the mutualcovenants herein recited, the sufficiency of which is hereby acknowledged, theparties agree as follows:

1.     Effective Date and Term.

### **a)                 Effective Date.  This Agreement takes effect on the effectivedate of the Merger(“Effective Date”).**

### **b)                 Term.  The term of this Agreement (“Term”) isthirty (30) months, beginning on the Effective Date.**

### **c)                 Employment Status.  During the Term Consultant shall be anemployee of Pacific Northwest Bank.**

### **d)                 Office.  Consultant will have no specific officefollowing the Merger but will have access to an office at the former MainOffice of Bank of the Northwest (600 Pioneer Tower, 888 S.W. Fifth Avenue,Portland Oregon), and necessary support staff will be available to her toperform the duties assigned to her under this Agreement.**

 

2.     Compensation.  Forand in consideration of the consulting services to be performed by Consultant,and the further covenants and agreements made by her under this Agreement,Pacific shall:

### **a)                 Pay to Consultant base monthlycompensation of $6,425 payable in accordance with Pacific Northwest Bank’sregular payroll schedule (“Compensation”).**

### **b)                 Grant to Consultant an optionto purchase 6,000 shares of common stock of Pacific Northwest Bancorp, whichoption will be granted on or before December 31, 2003, subject to theterms and conditions of the 1993 Amended and Restated Stock Option Plan.  The option will be granted at the fairmarket value of Pacific Northwest Bancorp common stock on the date of thegrant, and the option will fully vest on the date of the grant.**

### **c)                 Reimburse Consultant forout-of-pocket expenses reasonably incurred by Consultant in the performance ofthe services upon Consultant’s submission of any request for reimbursement in aformat consistent with Pacific’s policies from time to time in effect.**

 

### **Anypayments made pursuant to this Agreement shall be net of (i) all amountsrequired to be withheld from such payments pursuant to applicable income tax,Social Security and unemployment insurance laws and regulations, and (ii) suchother amounts as are withheld from such payments pursuant to Consultant’sauthorization.**

 

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3.     Benefit Plans. During the Term of this Agreement, Consultant shall be entitled toparticipate in any and all employee welfare and health benefit plans and otheremployee benefit plans, including but not limited to qualified pension plansestablished by Pacific from time to time for the benefit of all full-timeemployees of Pacific.  Consultant shallbe required to comply with the conditions attendant to coverage by such plansand shall comply with and be entitled to benefits only in accordance with theterms and conditions of such plans as they may be amended from time totime.  Nothing herein contained shall beconstrued as requiring Pacific to establish or continue any particular benefitplan in discharge of its obligations under this Agreement.

4.     Duties. Consultant will perform the duties assigned to her from time to time bythe Chief Executive Officer of Pacific and the President of Pacific NorthwestBank Oregon.  These duties will include,without limitation, the following:

### **a)                 Consultant will advise andconsult with the Chief Executive Officer of Pacific and the President ofPacific Northwest Bank Oregon on an as-needed basis only on issues relating tocorporate history, documentation and the operations of Bank of the Northwestprior to the Merger.**

### **b)                 Consultant will serve asSecretary to the Oregon Advisory Board of Pacific Northwest Bank.**

### ** **

### **During the Term, Consultant agrees to devote such time asnecessary to discharge the duties assigned to her and to use her best effortsto perform such duties faithfully and efficiently.  However, it is understood that the time required to completethese duties will be limited and structured to permit Consultant to beotherwise employed on a full-time basis. If the time requirements aresignificantly greater than contemplated, Consultant’s compensation will beadjusted by agreement between Pacific and Consultant.**

 

5.     Termination.

### **a)                 Termination By Pacific forCause.  If, before the end of theTerm, Pacific terminates Consultant’s employment for Cause or Consultantterminates her employment without Good Reason (defined below), Pacific will payConsultant, in a lump sum, the compensation to which she would be entitled toreceive for the balance of the Term under Section a).**

### **b)                 Other Termination By Pacific.  If, before the end of the Term, Pacificterminates Consultant’s employment without Cause or Consultant terminates heremployment for Good Reason (defined below), Pacific will pay Consultant a lumpsum payment in an amount equal to the Compensation she would have received forthe balance of the Term if her employment had not terminated, and Pacific willcontinue Consultant’s coverage under all employee welfare and health benefitplans as in effect on the termination date (or provide Consultant withequivalent benefits) through the expiration of the Term.**

### **c)                 Death or Disability.  This Agreement terminates (1) if Consultantdies or (2) if Consultant is unable to perform her duties and obligations underthis Agreement for a period of 90 days as a result of a physical or mentaldisability arising at any time during the Term of this Agreement, unless withreasonable accommodation Consultant could continue to perform her duties underthis Agreement and making these accommodations would not pose undue hardship toPacific.  If termination occurs underthis Section 5b), Consultant or her estate will be entitled to receive, in alump sum, an amount equal to the balance which would be owed Consultant underthis Agreement.**

### **d)                 Return of Bank Property.  If and when Consultant ceases, for anyreason, to be employed by Pacific, Consultant must return to Pacific all keys,passcards, identification cards and any other property of Pacific. At the sametime, Consultant also must return to Pacific all originals and copies (whetherin hard copy, electronic or other form) of any documents, drawings, notes,memoranda, designs, devices, diskettes, tapes, manuals and specifications whichconstitute proprietary information or material of Pacific.  The obligations in this paragraph includethe return of documents and other materials which may be in Consultant’s deskat work, in Consultant’s car or place of residence, or in any other locationunder Consultant’s control.**

 

6.     Definition of “Cause”. “Cause” meansany one or more of the following, as reasonably determined by Pacific:

 

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### **a)                 Willful misfeasance or grossnegligence in the performance of Consultant’s duties for Pacific that continuesfor more than 30 days after written notice to Consultant specifying conduct oromission that constitutes the misfeasance or gross negligence.**

### **b)                 Conviction of a crime inconnection with her duties for Pacific.**

### **c)                 Conduct demonstrably andsignificantly harmful to Pacific, as reasonably determined by the Board ofDirectors of Pacific on the advice of legal counsel that continues for morethan 30 days after written notice to Consultant specifying the harmful conduct.**

### **d)                 Conviction of a felony.**

### **e)                 Breach of the covenants setforth in Sections h) and i) of this Agreement.**

### **f)                  Notwithstanding the foregoing,Consultant will not be deemed to have been terminated for Cause unless anduntil there has been delivered to Consultant a copy of a resolution dulyadopted by the affirmative vote of not less than three-quarters of theentire membership of the Board of Directors of Pacific at a meeting of theBoard of Directors called and held for that purpose (after reasonable notice toConsultant and an  opportunity forConsultant, together with her counsel, to be heard before the Board ofDirectors), finding that in the good faith opinion of the Board of Directors,Consultant was guilty of conduct constituting Cause as defined above andspecifying the particulars for such finding in detail.**

 

7.     Definition of “GoodReason”.  “Good Reason” means onlyany one or more of the following:

Reduction, without Consultant’s consent, ofConsultant’s Compensation.

### **a)                 Reduction or elimination of anybenefit plan benefiting Consultant, unless the reduction or elimination isgenerally applicable to substantially all similarly situated full-time Pacificemployees formerly benefited.**

### **b)                 The assignment to Consultantwithout her consent of any duties materially inconsistent with those set forthin this Agreement.**

### **c)                 The requirement by Pacific thatConsultant’s employment be based at any office or location other than that setforth in Section b) hereof.**

8.     Confidentiality.  Consultant will not, after signing thisAgreement, including during and after its Term, use for her own purposes ordisclose to any other person or entity any confidential information concerningPacific or their business operations or customers, unless (1) Pacific consentsto the use or disclosure of their respective confidential information, (2) theuse or disclosure is consistent with Consultant’s duties under this Agreement,or (3) disclosure is required by law or court order.

 

 

9.     Noncompetition.

### **a)                 Participation in a CompetingBusiness.  During the periodConsultant is employed by Pacific as a consultant and for six (6) months afterConsultant’s employment with Pacific terminates, Consultant will not becomeinvolved with a Competing Business or serve, directly or indirectly, aCompeting Business in any manner, including, without limitation, as a shareholder,member, partner, director, officer, manager, investor, organizer, “founder,”employee, consultant, or agent; provided, however, that Consultant may acquireand passively own an interest not exceeding 2% of the total equity interest inany Competing Business.**

### **b)                 No Solicitation. Duringthe period Consultant is employed with Pacific as a consultant and for twelve(12) months after Consultant’s employment with Pacific terminates, Consultantwill not directly or indirectly solicit or attempt to solicit (1) any employeesof Pacific, or any of Pacific’s Subsidiaries, to leave their employment or (2)any customers of Pacific, or any of Pacific’s Subsidiaries, to remove theirbusiness from Pacific or to participate in any manner in a Competing Business.  Solicitation prohibited under this Sectionincludes solicitation by any means, including, without limitation, meetings,letters or other mailings, electronic communications of any kind, and internetcommunications.**

### **c)                 Employment Outside theRestricted Area.  Nothing in thisAgreement prevents Consultant from accepting employment after the end of theTerm outside the Restricted Area (defined below) from a Competing Business, aslong as Consultant will not (a) act as an employee or other representative oragent of the Competing Business within the Restricted Area or (b) have anyresponsibilities for the Competing Business’ operations within the RestrictedArea.**

 

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### **d)                 Competing Business.  “Competing Business” means any financialinstitution (“financial institution” means a state or national bank, a state orfederal savings and loan association, a mutual savings bank, or a state orfederal credit union), trust company or mortgage company (including withoutlimitation, any start-up or other financial institution, trust company ormortgage company) that competes with Pacific in the states of Washington and/orOregon (the “Restricted Area”).**

 

10.   Enforcement.

### **a)                 Pacific and Consultantstipulate that, in light of all of the facts and circumstances of therelationship between Consultant and Pacific, the agreements referred to inSections h) and i) (including without limitation their scope, duration andgeographic extent) are fair and reasonably necessary for the protection ofPacific’s confidential information, goodwill and other protectableinterests.  If a court of competentjurisdiction should decline to enforce any of those covenants and agreements,Consultant and Pacific request the court to reform these provisions to restrictConsultant’s use of confidential information and Consultant’s ability tocompete with Pacific to the maximum extent, in time, scope of activities andgeography, the court finds enforceable.**

### **b)                 Consultant acknowledges thatPacific will suffer immediate and irreparable harm that will not be compensableby damages alone, if Consultant repudiates or breaches any of the provisions ofSections h) and i) or threatens or attempts to do so. For this reason, underthese circumstances, Pacific, in addition to and without limitation of anyother rights, remedies or damages available to it at law or in equity, will beentitled to obtain temporary, preliminary and permanent injunctions in order toprevent or restrain the breach, and Pacific will not be required to post a bondas a condition for the granting of this relief.**

 

11.   Adequate Consideration.  Consultant specifically acknowledges thereceipt of adequate consideration for the covenants contained in Sections h)and i) and that Pacific is entitled to require her to comply with theseSections.  These Sections will survivetermination of this Agreement. Consultant represents that if her employment is terminated, whethervoluntarily or involuntarily, Consultant has experience and capabilitiessufficient to enable Consultant to obtain employment in areas which do notviolate this Agreement and that the Bank’s enforcement of a remedy by way ofinjunction will not prevent Consultant from earning a livelihood.

 

12.   Arbitration.

### **a)                 Arbitration.  At either party’s request, the parties mustsubmit any dispute, controversy or claim arising out of or in connection with,or relating to, this Agreement or any breach or alleged breach of thisAgreement, to arbitration under the American Arbitration Association’s rulesthen in effect (or under any other form of arbitration mutually acceptable tothe parties).  A single arbitratoragreed on by the parties will conduct the arbitration.  If the parties cannot agree on a singlearbitrator, each party must select one arbitrator and those two arbitratorswill select a third arbitrator.  Thisthird arbitrator will hear the dispute. The arbitrator’s decision is final (except as otherwise specificallyprovided by law) and binds the parties, and either party may request any courthaving jurisdiction to enter a judgment and to enforce the arbitrator’sdecision.  The arbitrator will providethe parties with a written decision naming the substantially prevailing partyin the action.  This prevailing party isentitled to reimbursement from the other party for its costs and expenses,including reasonable attorneys’ fees.**

### **b)                 Governing Law.  All proceedings will be held at a placedesignated by the arbitrator in King County, Washington.  The arbitrator, in rendering a decision asto any state law claims, will apply Washington law.**

### **c)                 Exception to Arbitration.  Notwithstanding the above, if Consultantviolates Section h) or i) , Pacific will have the right to initiate the courtproceedings described in Section b), in lieu of an arbitration proceeding underthis Section c) Pacific may initiate these proceedings whereverappropriate within Washington State; but Consultant will consent to venue andjurisdiction in King County, Washington.**

 

13.   Miscellaneous Provisions.

### **a)                 Defined Terms.  Capitalized terms used as defined terms, butnot defined in this Agreement, will have the meanings assigned to those termsin the Plan.**

 

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### **b)                 Abandonment of the Merger.  If the Plan terminates before the EffectiveDate, this Agreement will not become effective and will be void.**

### **c)                 Entire Agreement.  This Agreement constitutes the entireunderstanding between the parties concerning its subject matter and supersedesall prior agreements.**

### **d)                 Reviewed with IndependentCounsel/Construction of Agreement. Each party had the opportunity to review this Agreement with legalcounsel of their choosing, and this Agreement is the outcome of that reviewprocess. This Agreement has been entered into after negotiation and review ofits terms and conditions by parties under no compulsion to execute and delivera disadvantageous agreement.  ThisAgreement incorporates provisions, comments and suggestions proposed by bothparties.  No ambiguity or omission inthis Agreement shall be construed or resolved against any party on the groundthat this Agreement or any of its provisions was drafted or proposed by thatparty.**

### **e)                 Binding Effect.  This Agreement will bind and inure to thebenefit of Pacific’s and Consultant’s heirs, legal representatives, successorsand assigns.**

### **f)                  Litigation Expenses.  If either party successfully seeks toenforce any provision of this Agreement or to collect any amount claimed to bedue under it, this party will be entitled to reimbursement from the other partyfor any and all of its out-of-pocket expenses and costs including, withoutlimitation, reasonable attorneys’ fees and costs incurred in connection withthe enforcement or collection.**

### **g)                 Waiver.  Any waiver by a party of its rights underthis Agreement must be written and signed by the party waiving its rights.  A party’s waiver of the other party’s breachof any provision of this Agreement will not operate as a waiver of any otherbreach by the breaching party.**

### **h)                 Assignment.  The services to be rendered by Consultantunder this Agreement are unique and personal. Accordingly, Consultant may not assign any of her rights or duties underthis Agreement.**

### **i)                  Amendment.  This Agreement may be modified only througha written instrument signed by all parties.**

### **j)                  Severability.  The provisions of this Agreement areseverable.  The invalidity of anyprovision will not affect the validity of other provisions of this Agreement.**

### **k)                 Governing Law.  This Agreement will be governed by andconstrued in accordance with Washington law, except to the extent that certainmatters may be governed by federal law.**

 
|   | PACIFIC NORTHWEST BANCORP |
|--------|---------------------------|
|   |                      |
|   |                      |
|   | By:                       | /s/ Patrick M. Fahey |
|   |                      | Patrick M. Fahey,  President and CEO |
|   |                      |
|   | PACIFIC NORTHWEST BANK    |
|   |                      |
|   |                      |
|   | By:                       | /s/ Patrick M. Fahey |
|   |                      | Patrick M. Fahey,  President and CEO |
|   |                      |   |
|   |                      |
|   | /s/ Kathryn L.M. Spere    |
|   | KATHRYN L. M. SPERE       |

 

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