**Exhibit 10.5**

 

**EMPLOYMENT AGREEMENT**

**GEORGE P. BRACE**

 

This Employment Agreement (this “Agreement”) is madeon the 24th day of April, 2002 between PACIFIC NORTHWEST BANCORP and PACIFICNORTHWEST BANK (hereinafter jointly referred to as the “Bank”) and GEORGE P.BRACE (hereinafter referred to as “Executive”), who agree as follows:

 

RECITALS

 

A.            PacificNorthwest Bank, in conjunction with a Plan and Merger Agreement ofReorganization whereby Pacific Northwest Bank was acquired by InterWestBancorp, Inc., entered into an Employment Agreement with Executive datedJanuary 15, 1998.  That EmploymentAgreement was later amended and the term extended through June 15, 2002.

 

B.            TheBank and Executive now wish to replace the original Employment Agreement, asamended, with this Agreement.

 

AGREEMENT

 

The parties agree as follows:

 

1.     Employment.  TheBank agrees to employ Executive and Executive agrees to accept employment asthe Bank’s Executive Vice President under the terms and conditions set forth inthis Employment Agreement.

 

2.     Effective Date and Term. This Agreement shall be effective upon execution by the parties (the“Effective Date”), replacing the prior Employment Agreement, as amended. ThisAgreement shall be in full force and effect from the Effective Date throughJune 15, 2004 (the “Term”).

 

3.     Duties.  Executivewill faithfully and diligently perform the duties assigned to him from time totime by the Bank’s President, consistent with the duties that have been normaland customary to Executive’s position. Executive will use his best efforts to perform his duties and willdevote full time and attention to these duties during working hours.  Executive will report directly to the Bank’sPresident.  The Bank’s Board ofDirectors may, from time to time, modify Executive’s title or performanceresponsibilities to accommodate management succession, as well as any othermanagement objectives of the Bank. Executive will assume any additional positions, duties and responsibilitiesas may reasonably be requested of him with or without additional compensation,as appropriate and consistent with this paragraph 3.

 

4.     Salary.  Executiveshall receive a salary set by the Bank’s Board of Directors, or a committeethereof, for employees with comparable duties and experience, but not less than$180,000 per year, to be paid in accordance with the Bank’s regular payrollschedule (“Salary”). Executive’s Salary shall be reviewed at the end of eachcalendar year.

 

5.     Incentive Compensation. The Bank’s Board of Directors, or a committee thereof, will determinethe amount of bonus, if any, to be paid by the Bank to Executive at the end ofeach calendar year during the Term.  Inmaking this determination, the Bank’s Board of Directors will consider factorssuch as Executive’s performance of his duties and the safety, soundness andprofitability of the Bank. Executive’s bonus, if any, will reflect Executive’scontribution to the performance of the Bank during the year.

 

6.     Income Deferral and Benefits.  Subject to eligibility requirements and in accordance with andsubject to any policies adopted by the Bank’s Board of Directors with respectto any benefit plans or programs, Executive will 

 

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be entitled toreceive benefits (including stock options) similar to those offered to other employeesof the Bank with positions and duties comparable to those of Executive.

 

7.     Business Expenses. The Bank will reimburse Executive for ordinary and necessary expensesincluding, without limitation, a Bank automobile, travel, entertainment andsimilar expenses incurred in performing and promoting the Bank’s business.  Executive will present from time to timeitemized accounts of these expenses, subject to any limits of Bank policy orthe rules and regulations of the Internal Revenue Service.

 

8.     Termination.

 

8.1   Termination by the Bank for Cause.  If, prior to expiration of the Term, theBank terminates Executive’s employment for Cause, the Bank will pay Executivethe salary earned and expenses reimbursable under this Agreement incurredthrough the date of Executive’s termination. If Executive is terminated for Cause, Executive will have no right toreceive compensation or other benefits for any period after termination underthis Section 8.1.

 

8.2   Voluntary Termination, Death or Disability.  If, prior to expiration of the Term: (i)Executive voluntarily elects to terminate this Agreement by delivering writtennotice of termination to the Bank, regardless of whether Executive had GoodReason to terminate this Agreement; or (ii) Executive dies, or (iii) Executiveis unable to perform his duties and obligations under this Agreement for aperiod of 90 days as a result of a physical or mental disability arising at anytime during the Term, unless with reasonable accommodation Executive couldcontinue to perform his duties under this Agreement and making theseaccommodations would not require the Bank to expend any funds, this Agreementshall immediately terminate.  Iftermination occurs under this Section 8.2, Executive or his estate will beentitled to receive only the compensation and benefits earned and expensesreimbursable through the date of termination, together with a single cashpayment in an amount equal to Executive’s W-2 income before salary deferralsover the twelve (12) months preceding his death or disability.

 

8.3   Other Termination by the Bank.  If, prior to expiration of the Term, theBank terminates Executive’s employment without Cause, or Executive terminateshis employment for Good Reason, the Bank will pay Executive the greater of: (a)the Salary Executive would have been entitled to receive under this Agreementfor the remainder of the Term if his employment had not terminated, or (b) asingle cash payment in an amount equal to Executive’s W-2 income before salarydeferrals over the twelve (12) months preceding the date of termination.

 

8.4   Return of Bank Property.  If and when Executive ceases, for anyreason, to be employed by the Bank, Executive must return to the Bank all keys,passcards, identification cards, and any other property of the Bank.  At the same time, Executive also must returnto the Bank all originals and copies (whether in hard copy, electronic or otherform) of any documents, drawings, notes, memoranda, designs, devices, diskettes,tapes, manuals and specifications which constitute proprietary information ormaterial of the Bank.  The obligationsin this paragraph include the return of documents and other materials which maybe in Executive’s desk at work, in Executive’s car or place of residence, or inany other location under Executive’s control.

 

9.     Definition of “Cause”. “Cause” means any one or more of the following:

 

9.1   Willful misfeasance or gross negligence inthe performance of Executive’s duties;

 

9.2   Conviction of a crime in connection withExecutive’s duties; or

 

9.3   Conduct demonstrably and significantlyharmful to the Bank, as reasonably determined by the Bank’s Board of Directorson the advice of legal counsel.

 

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10.   Definition of “Good Reason”.  “Good Reason” means only any one or more ofthe following:

 

10.1         Reduction, without Executive’s consent,of Executive’s salary or elimination of any compensation or benefit planbenefiting Executive, unless the reduction or elimination is generallyapplicable to substantially all similarly situated Bank employees (or employeesof a successor or controlling entity of the Bank);

 

10.2         Assignment to Executive without hisconsent of any authority or duties materially inconsistent with Executive’sposition as of the date of this Agreement; or

 

10.3         Relocation or transfer of Executive’sprincipal place of employment that would require Executive to commute on aregular basis more than 60 miles each way from his current business office atthe Bank on the date of this Agreement, unless Executive consents to therelocation or transfer.

 

11.   Confidentiality.  Executive will not, after signing thisAgreement, including during and after its Term, use for his own purposes ordisclose to any other person or entity any confidential information concerningthe Bank or its business operations or customers, unless: (i) the Bank consentsto the use or disclosure of its respective confidential information, (ii) theuse or disclosure is consistent with Executive’s duties under this Agreement,or (iii) disclosure is required by law or court order.

 

12.   Enforcement.

 

12.1         The Bank and Executive stipulate that,in light of all the facts and circumstances of the relationship betweenExecutive and the Bank, the requirement of confidentiality referred to inSection 11 is fair and reasonably necessary for the protection of the Bank’sconfidential information, goodwill and other protectable interest.  If a court of competent jurisdiction shoulddecline to enforce that provision, Executive and the Bank shall request thecourt to reform the provision to restrict Executive’s use of confidentialinformation to the maximum extent the court finds enforceable.

 

12.2         Executive acknowledges that the Bankwill suffer immediate and irreparable harm that will not be compensable bydamages alone, if Executive repudiates or breaches Section 11 or threatens orattempts to do so.  For this reason,under these circumstances, the Bank, in addition to and without limitation ofany other rights, remedies or damages available to it at law or in equity, willbe entitled to obtain temporary, preliminary and permanent injunctions in orderto prevent or restrain the breach, and the Bank will not be required to post abond as a condition for the granting of this relief.

 

13.   Adequate Consideration.  Executive specifically acknowledges thereceipt of adequate consideration for the covenants contained in Section 11 andthat the Bank is entitled to require him to comply with such section.  Section 11 will survive termination of thisAgreement. Executive represents that if his employment is terminated, whethervoluntarily or involuntarily, Executive has experience and capabilitiessufficient to enable him to obtain employment in areas which do not violatethis Agreement and that the Bank’s enforcement of a remedy by way of injunctionwill not prevent Executive from earning a livelihood.

 

14.   Arbitration.

 

14.1         Arbitration.  At either party’s request the parties mustsubmit any dispute, controversy or claim arising out of, in connection with, orrelating to this Agreement, or any breach or alleged breach of this Agreement,to arbitration under the American Arbitration Association’s rules then ineffect (or under any other form of arbitration usually acceptable to theparties).  A single arbitrator agreed onby the parties will conduct the arbitration. If the parties cannot agree on a single arbitrator, each party mustselect one arbitrator and those two arbitrators will select a third arbitrator.  This third arbitrator will hear thedispute.  The arbitrator’s decision isfinal (except as otherwise specifically provided by law) and binds the parties,

 

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and either partymay request any court having jurisdiction to enter a judgment and to enforcethe arbitrator’s decision.  Thearbitrator will provide the parties with a written decision naming thesubstantially prevailing party in the action. This prevailing party is entitledto reimbursement from the other party for its costs and expenses, includingreasonable attorneys’ fees.

 

14.2         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.

 

14.3         Exception to Arbitration.  Notwithstanding the above, if Executiveviolates Section 11 hereof, the Bank will have the right to initiate the courtproceedings described in Section 12.2, in lieu of an arbitration proceedingunder this Section 14.  The Bank mayinitiate these proceedings wherever appropriate within the state of Washington,but Executive will consent to venue and jurisdiction in King County,Washington.

 

15.   Miscellaneous Provisions.

 

15.1         Entire Agreement.  This Agreement constitutes the entireunderstanding between the parties concerning its subject matter and supersedesall prior agreements. Accordingly, Executive specifically waives the terms of,and all of his rights under, all employment, change in control and salarycontinuation agreements, whether written or oral, that he has previouslyentered into with the Bank or any of its subsidiaries or affiliates.

 

15.2         Binding Effect.  This Agreement will bind and inure to thebenefit of the Bank’s and Executive’s heirs, legal representatives, successorsand assigns.

 

15.3         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 its out-of-pocket expenses and costs including, withoutlimitation, reasonable attorneys’ fees and costs incurred in connection withthe enforcement or collection.

 

15.4         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.

 

15.5         Counsel Review.  Executive acknowledges that he has had theopportunity to consult with independent counsel with respect to thenegotiation, preparation and execution of this Agreement.

 

15.6         Assignment.  The services to be rendered by Executiveunder this Agreement are unique and personal. Accordingly, Executive may not assign any of his rights or duties underthis Agreement.

 

15.7         Amendment.  This Agreement may be modified only througha written instrument signed by both parties and consented to by the Bank inwriting.

 

15.8         Severability.  The provisions of this Agreement areseverable.  The invalidity of anyprovision will not affect the validity of other provisions of this Agreement.

 

15.9         Governing Law and Venue.  This Agreement will be governed by andconstrued in accordance with Washington law, except to the extent that certainmatters may be governed by federal law. Except as otherwise provided in Section 14.3, the parties must bring anylegal proceeding arising out of this Agreement in King County, Washington, andthe parties will submit to jurisdiction in that county.

 

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Dated as of the date first above written.

 
|   | PACIFIC NORTHWEST  BANCORP |
|--------|----------------------------|
|   |                       |
|   | PACIFIC NORTHWEST BANK     |
|   |                       |
|   |                       |
|   |                       |
|   | By:                        | /s/ Patrick M. Fahey |
|   |                       | Patrick M. Fahey, President  and CEO |
|   |                       |
|   | /s/ George P. Brace        |
|   | GEORGE P. BRACE            |

 

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