**Exhibit 10.1**

 

**EMPLOYMENTAGREEMENT**

*** ***

***Daniel J. Durkin***

 

This Employment Agreement (“Agreement”) signed October28, 2002, between PACIFIC NORTHWEST BANCORP (“Pacific”), PACIFIC NORTHWEST BANKand DANIEL J. DURKIN (“Executive”) takes effect on the Effective Date of theMerger of Bank of the Northwest into Pacific Northwest Bank (“Effective Date”).

 

RECITALS

 

A.            Pacificand Pacific 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”).

 

B.            Executiveis presently the Chairman and Chief Executive Officer of Bank of theNorthwest.  Pacific and PacificNorthwest Bank wish to retain Executive’s services in the capacity set forthherein following the Merger, and Executive wishes to accept employment withPacific and Pacific Northwest Bank in such capacity following the Merger.

 

AGREEMENT

 

The parties agree as follows:

 

## **1.)**           Employment.  Pacific and Pacific Northwest Bank agree to employExecutive, and Executive agrees to accept employment with Pacific and PacificNorthwest Bank.  During the Term of hisemployment under this Agreement, Executive will have the title of Vice Chairmanof the Board of Pacific Northwest Bancorp and Pacific Northwest Bank (hereafterreferred to jointly as “Pacific” unless Pacific Northwest Bank is specificallymentioned) and Chairman of the Oregon Advisory Board of Pacific Northwest Bank.

 

## **2.)**           Effective Date, Term and Office.

### **a)     Effective Date.  This Agreement is effective as of theEffective Date.**

### **b)     Term.  The term of this Agreement (“Term”) is three years, beginning onthe Effective Date.**

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

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### **d)     Office.  During the Term, Executive shall retain the office occupied, andhave access to the staff support available to him immediately preceding theEffective Date, and the duties to be provided by Executive as set forth belowshall be performed (other than attending Board, committee and other meetings atPacific’s principal office in Seattle) at the location where Executive wasemployed immediately prior to the Effective Date, or at any other office ofPacific in the Portland, Oregon metropolitan area, which becomes the principaloffice of Pacific in Oregon.**

 

## **3.)**           Duties.  Executive will perform the duties assignedto Executive from time to time by the Board of Directors and the ChiefExecutive Officer of Pacific and Pacific Northwest Bank.  These duties will include, withoutlimitation, the following:

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### **a)     Executive will serve as Vice Chairman and amember of the Board of Directors of Pacific and Pacific Northwest Bank andChairman of the Oregon Advisory Board of Pacific Northwest Bank.**

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### **b)     Executive will advise and consult with theChief Executive Officer of Pacific and will assist with the development,expansion and preservation of community and**

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### **customer relationships in the Oregon market and serve onappropriate civic and charitable boards and/or committees.**

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### **c)     Executive will maintain relationships withother Oregon bankers, attend association meetings as appropriate, and adviseand consult with the Chief Executive Officer of Pacific regarding possiblebusiness combination opportunities within the Oregon market.**

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### **During the Term, Executive agrees to devote such time asnecessary to discharge the duties assigned to him and to use his best effortsto perform such duties faithfully and efficiently.**

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## **4.)**           Compensation.  Executive willreceive a salary from Pacific Northwest Bank of $221,208 per year, to be paidin accordance with Pacific Northwest Bank’s regular payroll schedule(“Compensation”).  Executive willreceive no additional compensation for serving as a member of the Board ofDirectors of Pacific and Pacific Northwest Bank and the Oregon Advisory Boardof Pacific Northwest Bank.

 

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## **5.)**           Change of Control.  In the event of aChange of Control (defined below) during the Term, Executive shall have theoption, at his sole discretion, to terminate this Agreement and receive on thedate of termination a lump sum payment in an amount equal to the Compensationhe would have received for the balance of the Term, in which case Pacific willcontinue Executive’s coverage under all employee welfare and health benefitplans as in effect on the termination date (or provide Executive withequivalent benefits) through the expiration of the Term..

 

For the purpose of thisAgreement, a Change of Control shall be deemed to have occurred as of the firstday any one or more of the following conditions is satisfied:

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### **a)     Any individual, corporation, partnership,trust, association, pool, syndicate or any other entity or any group of personsacting in concert becomes the beneficial owner, as that concept is defined inRule 13d-3 promulgated by the Securities and Exchange Commission under theSecurities Exchange Act of 1934, of securities of Pacific possessing fiftypercent (50%) or more of the voting power for the election of directors ofPacific;**

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### **b)     There shall be consummated anyconsolidation, merger, or other business combination involving Pacific or thesecurities of Pacific in which holders of voting securities of Pacificimmediately prior to such consummation own, as a group, immediately after such consummation,voting securities of Pacific (or, if Pacific does not survive such transaction,voting securities of the corporation surviving such transaction) having lessthan sixty percent (60%) of the total voting power in an election of directorsof Pacific (or such other surviving corporation);**

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### **c)     During any period of two (2) consecutiveyears, individuals who at the beginning of such period constitute the directorsof Pacific cease for any reason to constitute at least a majority thereofunless the election, or the nomination for election by Pacific’s shareholders,of each new director of Pacific was approved by a vote of at least two-thirds(2/3) of the directors of Pacific then still in office who were directors ofPacific at the beginning of any such period; or**

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### **d)     There shall be consummated any sale, lease,exchange or other transfer (in one transaction or a series of relatedtransactions) of all, or substantially all, of the assets of Pacific (on aconsolidated basis) to a party which is not controlled by or under commoncontrol with Pacific.**

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## **6.)**           Benefit Plans.  During the Termof his employment, Executive shall be entitled to participate in any and allemployee welfare and health benefit plans and other employee benefit plans,including but not limited to qualified pension plans established by Pacificfrom time to time for the benefit of all employees of Pacific.  Executive shall be required to comply withthe conditions attendant to coverage by such plans and shall comply with and beentitled to benefits only in accordance with the terms and conditions of suchplans as they may be amended from time to 

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## **time.  Nothingherein contained shall be construed as requiring Pacific to establish or continueany particular benefit plan in discharge of its obligations under thisAgreement.**

 

## **7.)**           Business Expenses.  Pacific willreimburse Executive for ordinary and necessary expenses (*e.g.* travel, entertainment,club dues and similar expenses) incurred in performing and promoting Pacific’sbusiness.  The level of reimbursementwill be comparable to the reimbursement Executive currently receives at Bank ofthe Northwest.  Executive will presentfrom time to time itemized accounts of these expenses, subject to any rules andregulations of the Internal Revenue Service.

 

## **8.)**           Termination.

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### **a)     Termination By Pacific for Cause.  If, before the end of the Term, Pacificterminates Executive’s employment for Cause or Executive terminates hisemployment without Good Reason (defined below), Pacific will pay Executive alump sum equal to $5,934 times the number of months remaining in the Term.  Partial months shall be prorated.**

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

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### **c)     Death or Disability.  This Agreement terminates (1) if Executivedies or (2) if Executive is unable to perform his 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 Executive could continue to perform his duties underthis Agreement and making these accommodations would not pose undue hardship toPacific.  If termination occurs underthis Section 8(c), Executive or his estate will be entitled to receive a lumpsum equal to $5,934 times the number of months remaining in the Term.  Partial months shall be pro-rated.**

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### **d)     Return of Bank Property.  If and when Executive ceases, for anyreason, to be employed by Pacific, Executive must return to Pacific all keys,pass cards, identification cards and any other property of Pacific. At the sametime, Executive 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 Executive’s desk atwork, in Executive’s car or place of residence, or in any other location underExecutive’s control.**

 

## **9.)**           Definition of “Cause”. “Cause” means any one or more of the following, asreasonably determined by Pacific:

### **a)     Willful misfeasance or gross negligence inthe performance of Executive’s duties for Pacific that continues for more than30 days after written notice to Executive specifying conduct or omission thatconstitutes the misfeasance or gross negligence.**

### **b)     Conviction of a crime in connection withhis duties for Pacific.**

### **c)     Conduct demonstrably and significantlyharmful to Pacific, as reasonably determined by the Board of Directors ofPacific on the advice of legal counsel that continues for more than 30 daysafter written notice to Executive specifying the harmful conduct.**

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

### **e)     Breach of the covenants set forth inSections b) and i) of this Agreement.**

 

Notwithstandingthe foregoing, Executive will not be deemed to have been terminated for Causeunless and until there has been delivered to Executive a copy of a resolutionduly adopted by the affirmative vote of not less than 

 

 

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three-quartersof the entire membership of the Board of Directors of Pacific at a meeting ofthe Board of Directors called and held for that purpose (after reasonablenotice to Executive and an  opportunityfor Executive, together with his counsel, to be heard before the Board ofDirectors), finding that in the good faith opinion of the Board of Directors,Executive was guilty of conduct constituting Cause as defined above andspecifying the particulars for such finding in detail.

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## **10.)**     Definition of “Good Reason”.  “Good Reason”means only any one or more of the following:

### **a)     Reduction, without Executive’s consent, ofExecutive’s Compensation.**

### **b)     Reduction or elimination of any benefitplan benefiting Executive, unless the reduction or elimination is generallyapplicable to substantially all similarly situated Pacific employees formerlybenefited.**

### **c)     The assignment to Executive without hisconsent of any duties materially inconsistent with those set forth in thisAgreement.**

### **d)     The requirement by Pacific that Executive’semployment be based at any office or location other than that set forth inSection 2(d) hereof.**

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## **11.)**     Confidentiality.  Executive willnot, after signing this Agreement, including during and after its Term, use forhis own purposes or disclose to any other person or entity any confidentialinformation concerning Pacific or their business operations or customers,unless (1) Pacific consents to the use or disclosure of their respectiveconfidential information, (2) the use or disclosure is consistent withExecutive’s duties under this Agreement, or (3) disclosure is required by lawor court order.

 

## **12.)**     Noncompetition.

### **a)     Participation in a Competing Business.  During the period Executive is employed byPacific and for twelve (12) months after Executive’s employment with Pacificterminates, Executive will not become involved with a Competing Business orserve, directly or indirectly, a Competing 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 Executive may acquire and passively own an interestnot exceeding 2% of the total equity interest in any Competing Business.**

### **b)     No Solicitation. During the periodExecutive is employed with Pacific and for twelve (12) months after Executive’semployment with Pacific terminates, Executive will not directly or indirectlysolicit or attempt to solicit (1) any employees of Pacific, or any of Pacific’sSubsidiaries, to leave their employment or (2) any customers of Pacific, or anyof Pacific’s Subsidiaries, to remove their business from Pacific or toparticipate in any manner in a Competing Business.  Solicitation prohibited under this Section includes solicitationby any means, including, without limitation, meetings, letters or other mailings,electronic communications of any kind, and internet communications.**

### **c)     Employment Outside the Restricted Area.  Nothing in this Agreement prevents Executivefrom accepting employment after the end of the Term outside the Restricted Area(defined below) from a Competing Business, as long as Executive will not (a)act as an employee or other representative or agent of the Competing Businesswithin the Restricted Area or (b) have any responsibilities for the CompetingBusiness’ operations within the Restricted Area.**

### **d)**              Competing Business.  “CompetingBusiness” means any financial institution (“financial institution” means astate or national bank, a state or federal savings and loan association, amutual savings bank, or a state or federal credit union), trust company ormortgage company (including without limitation, 

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### **any start-up or other financial institution, trust companyor mortgage company) that competes with Pacific in the states of Washingtonand/or Oregon (the “Restricted Area”).**

 

## **13.)**     Enforcement.

### **a)     Pacific and Executive stipulate that, inlight of all of the facts and circumstances of the relationship betweenExecutive and Pacific, the agreements referred to in Sections h) and i)(including without limitation their scope, duration and geographic extent) arefair and reasonably necessary for the protection of Pacific’s confidentialinformation, goodwill and other protectable interests.  If a court of competent jurisdiction shoulddecline to enforce any of those covenants and agreements, Executive and Pacificrequest the court to reform these provisions to restrict Executive’s use ofconfidential information and Executive’s ability to compete with Pacific to themaximum extent, in time, scope of activities and geography, the court findsenforceable.**

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### **b)     Executive acknowledges that Pacific willsuffer immediate and irreparable harm that will not be compensable by damagesalone, if Executive repudiates or breaches any of the provisions of Sections h)and i) or threatens or attempts to do so. For this reason, under thesecircumstances, Pacific, in addition to and without limitation of any otherrights, 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.**

 

## **14.)**     Adequate Consideration.  Executivespecifically acknowledges the receipt of adequate consideration for thecovenants contained in Sections h) and i) and that Pacific is entitled torequire him to comply with these Sections. These Sections will survive termination of this Agreement.  Executive represents that if his employmentis terminated, whether voluntarily or involuntarily, Executive has experienceand capabilities sufficient to enable Executive to obtain employment in areaswhich do not violate this Agreement and that the Bank’s enforcement of a remedyby way of injunction will not prevent Executive from earning a livelihood.

 

## **15.)**     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 arbitrator agreedon by the parties will conduct the arbitration.  If the parties cannot agree on a single arbitrator, each partymust select one arbitrator and those two arbitrators will select a thirdarbitrator.  This third arbitrator willhear the dispute.  The arbitrator’sdecision is final (except as otherwise specifically provided by law) and bindsthe parties, and either party may request any court having jurisdiction toenter a judgment and to enforce the arbitrator’s decision.  The arbitrator will provide the parties witha written decision naming the substantially prevailing party in theaction.  This prevailing party isentitled to reimbursement from the other party for its costs and expenses,including reasonable attorneys’ fees.**

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### **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.**

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### **c)     Exception to Arbitration.  Notwithstanding the above, if Executiveviolates 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 Executive will consent to venue andjurisdiction in King County, Washington.**

 

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## **16.)**     Miscellaneous Provisions.

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### **a)             Defined Terms. Capitalized terms used as defined terms, but not defined in thisAgreement, will have the meanings assigned to those terms in the Plan.**

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### **b)            Regulation O. Executive will not be an “executiveofficer” for purposes of Federal Reserve Board Regulation O.**

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### **c)             Automobile. Executive shall receive an automobile allowance of $750 per month.**

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### **d)            Entire Agreement. This Agreement constitutes the entire understanding between the partiesconcerning its subject matter and supersedes all prior agreements**

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### **e)             Reviewed with Independent Counsel/Construction ofAgreement.  Each party had theopportunity to review this Agreement with legal counsel of their choosing, andthis Agreement is the outcome of that review process. This Agreement has beenentered into after negotiation and review of its terms and conditions byparties under no compulsion to execute and deliver a disadvantageousagreement.  This Agreement incorporatesprovisions, comments and suggestions proposed by both parties.  No ambiguity or omission in this Agreementshall be construed or resolved against any party on the ground that thisAgreement or any of its provisions was drafted or proposed by that party.**

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### **f)             Binding Effect. This Agreement will bind and inure to the benefit of Pacific’s andExecutive’s heirs, legal representatives, successors and assigns.**

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### **g)            Litigation Expenses.  If either party successfully seeks to enforce any provision ofthis Agreement or to collect any amount claimed to be due under it, this partywill be entitled to reimbursement from the other party for any and all of itsout-of-pocket expenses and costs including, without limitation, reasonableattorneys’ fees and costs incurred in connection with the enforcement orcollection.**

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### **h)            Waiver. Any waiver by a party of its rights under this Agreement must be writtenand signed by the party waiving its rights. A party’s waiver of the other party’s breach of any provision of thisAgreement will not operate as a waiver of any other breach by the breachingparty.**

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### **i)              Assignment. The services to be rendered by Executive under this Agreement are uniqueand personal.  Accordingly, Executivemay not assign any of his rights or duties under this Agreement.**

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### **j)              Amendment. This Agreement may be modified only through a written instrument signedby all parties.**

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### **k)             Severability. The provisions of this Agreement are severable.  The invalidity of any provision will notaffect the validity of other provisions of this Agreement.**

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### **l)              Governing Law. This Agreement will be governed by and construed in accordance withWashington law, except to the extent that certain matters may be governed byfederal law.**

 
|   | PACIFIC NORTHWEST BANCORP |
|--------|---------------------------|
|   |                      |
|   |                      |
|   | By:                       | /s/ Patrick M. Fahey |
|   |                      | Patrick M. Fahey,  President and CEO |

 

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|   | PACIFIC NORTHWEST BANK |
|--------|------------------------|
|   |                   |
|   |                   |
|   | By:                    | /s/ Patrick M. Fahey |
|   |                   | Patrick M. Fahey,  President and CEO |
|   |                   |
|   |                   |
|   | /s/ Daniel J. Durkin   |
|   | DANIEL J. DURKIN       |

 

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