EX-10.42






EXHIBIT 10.42




EMPLOYMENT AGREEMENT




THIS AGREEMENT (the “Agreement”) is made and entered into effective the 1st day of January,
2012 (the “Effective Date”), by and between NORTHRIM BANCORP, INC. and its wholly owned subsidiary,
NORTHRIM BANK, a state-chartered commercial bank, with its principal office in Anchorage, Alaska
(collectively, the “Employer”), and Christopher N. Knudson (the “Executive”).



In consideration of the mutual promises made in this Agreement, the parties agree as follows:



1. Employment.



Employer employs Executive and Executive accepts employment with Employer as its Executive
Vice President, Chief Operating Officer.



2. Term.



The term of this Agreement (the “Term”) shall commence on the Effective Date and, unless
terminated earlier pursuant to Section 5, shall continue through December 31, 2012; provided,
however, that on January 1, 2013 and each succeeding January 1, the Term shall automatically be
extended for one additional year unless, not later than ninety (90) days prior to any such
January 1, either party shall have given written notice to the other that it does not wish to
extend the Term. In the event the Term is not extended, Executive shall have no rights to any of
the severance payments or benefits continuation described in Section 5 except as specifically
provided for in Section 5.a.



3. Duties.



The Executive will serve as Executive Vice President, Chief Operating Officer of the Employer.
Executive shall render such executive, management and administrative services and perform such
tasks in connection with the affairs and overall operation of the Employer as is customary for his
position, subject to the direction of Employer’s President and Board of Directors. Executive shall
devote necessary time, attention and effort to Employer’s business in order to properly discharge
his responsibilities under this Agreement.



4. Compensation, Benefits, Reimbursement and Profit Sharing.



a. Base Salary. In consideration for all services rendered by Executive during the
term of this Agreement, Employer shall pay Executive an annual base salary (before all customary
and proper payroll deductions) of $238,716 as adjusted from time to time (“Base Salary”). The
Board of Directors of the Employer shall review Executive’s salary each year, in a manner
consistent with that used for all management employees of the Employer, and in its sole discretion
may adjust such salary commensurate with the Executive’s performance under this Agreement.



b. Profit Sharing Plan. Under the Northrim BanCorp, Inc. Profit Sharing Plan,
Executive shall be eligible to receive an annual profit share based on performance as defined by
the Board of Directors. Executive will be classified in the Executive tier under the Plan’s
Responsibility Factors. If Employer is required to prepare an accounting restatement due to
“material noncompliance of the Employer”, the Employer will recover from the Executive any
incentive compensation during the three (3) years prior to the date of the restatement, in excess
of what would have been paid under the restatement. Executive’s signature on this Agreement
authorizes Employer to offset or deduct from any compensation Employer may owe Executive, any
excess payments (in whole or in part) that Executive may owe Employer due to such restatement(s).



c. Stock Options. Executive shall be eligible for stock option grants under the
Employer’s Stock Incentive Plan. The timing and size of awards will be at the discretion of the
Board of Directors.



d. Supplemental Executive Retirement Plan (“SERP”), Supplemental Executive Retirement
Deferred Compensation Plan and Deferred Compensation Plan. Executive shall also be entitled to
receive an annual contribution equal to fifteen percent (15%) of annual Base Salary in accordance
with the Employer’s Supplemental Executive Retirement Plan, as may be adjusted at the discretion of
the Board of Directors from time to time. Annually, Employer will also make payment to Executive’s
account as outlined in the Employer’s Supplemental Executive Retirement Deferred Compensation Plan.
The Executive may also participate in the Employer’s Deferred Compensation Plan.



e. Other Benefits. Throughout the term of this Agreement, Employer shall provide
Executive with reasonable health insurance, disability and other employee benefits. Executive
shall participate in all employee benefit plans and programs of Employer on a basis at least as
favorable as that accorded to any other officer of Employer.



f. Expenses. Employer shall reimburse Executive for his reasonable expenses
(including, without limitation, travel, entertainment, and similar expenses) incurred in performing
and promoting the business of Employer. Executive shall present from time to time itemized
accounts and receipts of any such expenses as required by Employer, subject to any limits of
company policy and the rules and regulations of the Internal Revenue Service, including the
Internal Revenue Code, (referred to throughout this Agreement as “IRC” or the “Code”).



g. Automobile Allowance. Executive shall receive a SEVEN HUNDRED DOLLAR ($700.00)
monthly automobile allowance for his automobile, fuel and maintenance expenses for Bank business.
No other expense reimbursement will be provided for use of his vehicle.



5. Termination of Agreement.



a. Termination Due to a Change of Control. If (A) Employer (either Northrim BanCorp,
Inc. or Northrim Bank) is subjected to a Change of Control (as defined in Section 5.f.(i)), and
(B) either Employer or its assigns terminates Executive’s employment without Cause (either during
the annual term of this Agreement or by refusing to extend this Agreement when the annual
termination occurs every December 31) or Executive terminates his employment for Good Reason within
730 days of such Change of Control, then Employer shall pay Executive (i) all Base Salary earned
and all reimbursable expenses incurred under this Agreement through such termination date; (ii) an
amount equal to one (1) times Executive’s highest Base Salary over the prior three (3) years; and
(iii) benefits described in Sections 5.b.(I) and (II) below. The amounts described in Section
5.a.(i) and (ii) herein shall be paid no later than forty-five (45) days after the day on which
employment is terminated. No payment will be made pursuant to Section 5.a.(ii) unless the
Executive has signed an agreement, in a form acceptable to Employer, that releases and holds
Employer harmless from all known and unknown claims and liabilities arising out of Executive’s
employment with Employer or the performance of this Agreement (“Release Agreement”) and the Release
Agreement has become irrevocable prior to the payment date.



b. Termination by Employer Without Cause or by Executive for Good Reason. If Employer
terminates Executive’s employment without Cause, or if Executive terminates his employment for Good
Reason, Employer shall pay Executive in a lump sum: (i) all Base Salary earned and all
reimbursable expenses incurred under this Agreement through such termination date; and (ii) an
amount equal to one (1) times Executive’s highest Base Salary over the prior three (3) years. The
amount described in 5.b.(i) herein shall be paid no later than forty-five (45) days after the day
on which employment is terminated. The amount described in 5.b.(ii) herein shall be paid on the
first day of the month following a period of six (6) months after the termination of employment,
provided that the payment may be made sooner if either (i) the amount does not exceed the IRC Safe
Harbor or (ii) at the Executive’s election, the amount described in Section 5.a.(ii) is reduced to
fit within the IRC Safe Harbor. No payment will be made pursuant to Section 5.a.(ii) unless the
Executive has signed a Release Agreement which has become irrevocable prior to the payment date.



(I) Benefits Continuation. In addition, Executive shall be entitled to health and dental
insurance benefits for a period of eighteen (18) months following the termination of this
Agreement. These benefits will be provided at Employer’s expense, but such period shall count
towards the Employer’s continuation of coverage obligation under Section 4980B of the Internal
Revenue Code (commonly referred to as “COBRA”).



(II) Age and Service Credit. Executive shall also be entitled to receive age credit and
credit for period of service towards all SERP plans for the remaining period of time covered by
this Agreement. If Executive is hired by Employer, its assigns, any company in control of
Employer, or any company controlled by Employer during the period covered by this Agreement, then
Executive will be entitled to be treated for all purposes relating to future compensation, and
benefits, as if this Agreement had never been terminated and as if Executive had performed his
responsibilities as an Executive throughout the period originally covered by this Agreement.



c. Termination by Employer for Cause or by Executive Without Good Reason. If Employer
terminates Executive’s employment for Cause or if Executive terminates his employment without Good
Reason, Employer shall pay Executive upon the effective date of such termination only such Base
Salary earned and expenses reimbursable under this Agreement incurred through such termination
date. In such case, Executive shall have no right to receive compensation or other benefits for
any period after termination under this Agreement.



d. Termination Due to Disability. If Employer terminates Executive’s employment on
account of any mental or physical Disability that prevents Executive from performing his essential
job functions, even with reasonable accommodation, Executive shall be entitled to: (i) all Base
Salary earned and reimbursement for expenses incurred under this Agreement through the termination
date, (ii) full Base Salary for the year following the termination date (less the amount of any
payments received by Executive during such one (1) year period under any Employer-sponsored
disability plan), and (iii) health and dental insurance benefits for a period of one (1) year
following the termination date, which benefits will be provided at Employer’s expense, but such
period shall count towards the Employer’s continuation of coverage obligation under Section 4980B
of Code (commonly referred to as “COBRA”). All such compensation shall be paid Executive in one
(1) lump sum the first day of the month following a period of six (6) months after Executive’s
employment was terminated, provided that Executive has signed a Release Agreement which has become
irrevocable prior to the payment date.



If any disputed termination under Section 5.c. is subsequently determined to have been without
Cause, Executive’s recovery shall be limited to those payments and benefits set out under Section
5.b.



e. Termination Upon Death of Executive. Executive’s employment under this Agreement
shall be terminated upon the death of Executive. In such case, the Employer shall be obligated to
pay to the surviving spouse of Executive, or if there is none, to the Executive’s estate: (i) that
portion of Executive’s Base Salary that would otherwise have been paid to him for the month in
which his death occurred, and (ii) any amounts due him pursuant to the Northrim Bank Savings
Incentive Plan (401-K) and the Northrim BanCorp, Inc. Profit Sharing Plan, any supplemental
deferred compensation plan, and any other death, insurance, employee benefit plan or stock benefit
plan provided to Executive by the Employer, according to the terms of the respective plans.



f. Termination Definitions.



(i) “Change of Control.” For purposes of this Agreement, the term “Change of Control” shall
mean the occurrence of one or more of the following events: (A) One (1) person or entity acquiring
or otherwise becoming the owner of twenty-five percent (25%) or more of Employer’s outstanding
common stock; (B) Replacement of a majority of the incumbent directors of Northrim BanCorp, Inc. or
Northrim Bank by directors whose elections have not been supported by a majority of the Board of
either company, as appropriate; (C) Dissolution or sale of fifty percent (50%) or more in value of
the assets, of either Northrim BanCorp, Inc. or Northrim Bank; or (D) A change “in the ownership or
effective control” or “in the ownership of a substantial portion of the assets” of Employer, within
the meaning of Section 280G of the Internal Revenue Code.



(ii) “Cause.” For purposes of this Agreement, termination for “Cause” shall include
termination because Executive (A) continually fails to substantially perform his duties with the
Employer, (B) is adjudged guilty of a felony, any crime involving dishonesty or breach of trust or
any crime involving a breach of his fiduciary duties to the Employer, (C) is willfully and
continually failing to comply with any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease and desist order of a regulatory agency having jurisdiction over
Employer, (D)  commits a material act of dishonesty or disloyalty related to the business of the
Employer, or (E) is unable to substantially perform his duties with the Employer due to drug
addiction or chronic alcoholism. Notwithstanding the foregoing, Executive shall not be deemed to
have been terminated for Cause unless and until there shall have been delivered to him a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire
membership of the Employer’s Board of Directors at a meeting of the Board called for such purpose
(after reasonable notice to Executive and an opportunity for him, together with his counsel, to be
heard before the Board), finding that in the good faith opinion of the Board, he was guilty of
conduct that constitutes Cause (as defined above) and specifying the conduct in detail.



(iii) “Disability.” For purposes of this Agreement, “Disability” shall mean a medically
diagnosed physical or mental impairment that may be expected to result in death, or to be of long,
continued duration, and that renders Executive incapable of performing his essential job functions
under this Agreement, even after he has been accorded reasonable accommodation. Employer’s Board
of Directors, acting in good faith, in accordance with applicable law, shall make the final
determination of whether Executive is suffering under any Disability (as herein defined) and, for
purposes of making such determination, may require Executive to submit himself to a physical
examination by a physician mutually agreed upon by the Executive and Employer’s Board of Directors
at Employer’s expense.



(iv) “Good Reason.” For purposes of this Agreement, termination for “Good Reason” shall mean
termination by Executive as a result of any material breach of this Agreement by Employer. Good
Reason shall include, but not be limited to: (A) a material reduction in Executive’s compensation
defined as a reduction equal to or greater than five percent (5%) of Executive’s then annual base
salary, (B) a material reduction in Executive’s duties and responsibilities, but not merely a
change in title, or (C) relocation of Executive’s primary workplace by more than fifty (50) miles.
“Good Reason” will only be deemed to occur if, within ninety (90) days after a material reduction
or change described above first occurs, the Executive provides notice to the Employer of the
existence of Good Reason and of the Executive’s intended termination of employment due to Good
Reason, and the Employer does not remove Good Reason condition within ninety (90) days after
receiving such notice from the Executive. The Executive’s written notice must explain the basis on
which the Executive believes Good Reason exists, the cure period, and the date on which the
Executive intends to terminate employment, which must be no later than six (6) months after the
existence of the Good Reason. The provisions of Section 5.f.(iv) are intended to comply with the
Good Reason safe harbor provisions of Code Section 409A and applicable regulations.



(v) Termination from Employment. A termination from employment under this Agreement shall
mean a “Separation from Service” as interpreted in accordance with Code Section 409A and generally
meaning the date on which the Executive is no longer performing services for the Employer. The
Executive shall not have a Separation from Service while on military leave, sick leave, or other
bona fide leave of absence if the period of such leave does not exceed six (6) months, or if
longer, so long as the Executive retains a right to reemployment under an applicable statute or
contract. A leave of absence constitutes a bona fide leave of absence only if there is a
reasonable expectation that the Executive will return to perform services.



6. Limit on Severance Payment for Change of Control.



Notwithstanding anything above in Section 5.a., if the severance payment provided for in that
Section, together with any other payments which the Executive has the right to receive from the
Employer, would constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code),
the severance payment shall be reduced. The reduction shall be in an amount so that the present
value of the total amount received by the Executive from the Employer or its affiliates and
subsidiaries will be 2.99 times the Executive’s base amount (as defined in Section 280G of the
Code) and so that no portion of the amounts received by the Executive shall be subject to the
excise tax imposed by Section 4999 of the Code (excise tax). Insofar as permitted by the Code,
Employer shall reduce those elements of the severance pay package specified by the Executive,
provided, however, that Employer will not reduce the SERP credits provided for in Section 5.b.(II).
The determination as to whether any reduction in the severance payment is necessary shall be made
by the Employer in good faith, and the determination shall be conclusive and binding on Executive.
If through error or otherwise Executive should receive payments under this Plan, together with
other payments the Executive has the right to receive from the Employer, in excess of 2.99 times
his base amount, Executive shall immediately repay the excess to Employer upon notification that an
overpayment has been made.



7. Covenant Not To Compete.



a. Executive agrees that for the term of this Agreement and for a period of one (1) year after
this Agreement is terminated pursuant to Section 5.a. or 5.b., Executive will not directly or
indirectly be employed by, own, manage, operate, support, join, or benefit in any way from any
business activity within the states where Employer operates that is competitive with Employer’s
business or reasonably anticipated business of which Executive has knowledge. For purposes of the
foregoing, Executive will be deemed to be connected with such business if the business is carried
on by: (i) a partnership in which Executive is a general or limited partner; or (ii) a corporation
of which Executive is a shareholder (other than a shareholder owning less than five percent (5%) of
the total outstanding shares of the corporation), officer, director, employee or consultant,
whether paid or unpaid. In the event of an alleged breach by Executive of this Section 7, the
one-year noncompete period shall be extended until such breach or violation has been duly cured,
and shall restart so that Employer has received the intended benefit of one uninterrupted year of
noncompetition by Executive.



b. The parties agree that if a trial judge with jurisdiction over a dispute related to this
Agreement should determine that the restrictive covenant set forth above is unreasonably broad, the
parties authorize such trial judge to narrow the covenant so as to make it reasonable, given all
relevant circumstances, and to enforce such covenant. The provisions of this Section 7 shall
survive termination of this Agreement.



8. Nondisclosure of Confidential Information.



a. During the term of Executive’s employment and thereafter, Executive agrees to hold
Employer’s Confidential Information in strict confidence, and not disclose or use it at any time
except as authorized by Employer and for Employer’s benefit. If anyone tries to compel Executive
to disclose any Confidential Information, by subpoena or otherwise, Executive agrees immediately to
notify Employer so that Employer may take any actions it deems necessary to protect its interests.
Executive’s agreement to protect Employer’s Confidential Information applies both during the term
of this Agreement and after employment ends, regardless of the reason it ends.



b. “Confidential Information” includes, without limitation, any information in whatever form
that Employer considers to be confidential, proprietary, information and that is not publicly or
generally available relating to Employer’s: trade secrets (as defined by the Uniform Trade Secrets
Act); know-how; concepts; methods; research and development; product, content and technology
development plans; marketing plans; databases; inventions; research data and mechanisms; software
(including functional specifications, source code and object code); procedures; engineering;
purchasing; accounting; marketing; sales; customers; advertisers; joint venture partners;
suppliers; financial status; contracts or employees. Confidential Information includes information
developed by Executive, alone or with others, or entrusted to Employer by its customers or others.



9. Nonsolicitation.



During the course of Executive’s employment and for a period of one (1) year from the date of
termination of employment for any reason, Executive shall not directly or indirectly solicit or
entice any of the following to cease, terminate or reduce any relationship with Employer or to
divert any business from Employer: (a) any person who was an employee of Employer during the one
(1) year period immediately preceding the termination of Executive’s employment; (b) any customer
or client of Employer; or (c) any prospective customer or client of Employer from whom Executive
actively solicited business within the last one (1) year of Executive’s employment. In the event
of an alleged breach by Executive of this Section 9, the one-year nonsolicitation period shall be
extended until such breach or violation has been duly cured, and shall restart so that Employer has
received the intended benefit of one uninterrupted year of nonsolicitation by Executive.



10. Non-Disparagement.



Executive will not, during the Term or after the termination or expiration of this Agreement
or Executive’s employment, make disparaging statements, in any form, about Employer’s officers,
directors, agents, employees, products or services which Executive knows, or has reason to believe,
are false or misleading.



11. Mutual Agreement to Arbitrate.



a. Except as provided in Section 11.b., in the event of a dispute or claim between Executive
and Employer related to Employee’s employment or termination of employment, all such disputes or
claims will be resolved exclusively by confidential arbitration in accordance with the National
Rules for the Resolution of Employment Disputes of the American Arbitration Association (“AAA”).
This means that the parties agree to waive their rights to have such disputes or claims decided in
court by a jury. Instead, such disputes or claims will be resolved by an impartial AAA arbitrator
whose decision will be final.



b. The only disputes or claims that are not subject to arbitration are any claims by Executive
for workers’ compensation or unemployment benefits, and any claim by Executive for benefits under
an employee benefit plan that provides its own arbitration procedure. Also, Executive and Employer
may seek equitable relief (such as an injunction or declaratory relief) in court in appropriate
circumstances. Specifically, Executive recognizes that Employer does not have an adequate remedy at
law to protect its business from Executive’s breach of Sections 7, 8, or 9 of this Agreement, and
therefore Employer shall be entitled to bring an action for a temporary restraining order and
preliminary injunctive relief pre-arbitration, in the event of any actual or threatened breach by
Executive of Sections 7, 8, or 9. In such court proceeding, Employer shall not be required to post
a bond or other security, and Employer may also be awarded actual damages caused by Executive’s
breach of Sections 7, 8, or 9 of this Agreement as well as repayment of all or a portion of any
severance that Employer previously paid to Executive.



c. Except as provided by section 11.b., the arbitration procedure will afford Executive and
Employer the full range of legal, equitable, and/or statutory remedies. Employer will pay all
costs that are unique to arbitration, except that the party who initiates arbitration will pay the
filing fee charged by AAA. Executive and Employer shall be entitled to discovery sufficient to
adequately arbitrate their claims, including access to essential documents and witnesses, as
determined by the arbitrator and subject to limited judicial review. In order for any judicial
review of the arbitrator’s decision to be successfully accomplished, the arbitrator will issue a
written decision that will decide all issues submitted and will reveal the essential findings and
conclusions on which the award is based.



12. Miscellaneous.



a. This Agreement contains the entire agreement between the parties with respect to
Executive’s employment with Employer, and is subject to modification or amendment only upon
agreement in writing signed by both parties.



b. This Agreement shall bind and inure to the benefit of the heirs, legal representatives,
successors and assigns of the parties, except that Employer’s rights and obligations may not be
assigned.



c. If any provision of this Agreement is invalid or otherwise unenforceable, in whole or in
part, then such provision shall be modified so as to be enforceable to the maximum extent permitted
by law. If such provision cannot be modified to be enforceable, the provision shall be severed
from the Agreement to the extent it is unenforceable. All other provisions and any partially
enforceable provisions shall remain unaffected and shall remain in full force and effect.



d. In the event of any claim or dispute arising out of this Agreement, the party that
substantially prevails shall be entitled to reimbursement of all expenses incurred in connection
with such claim or dispute, including, without limitation, attorneys’ fees and other professional
fees. This paragraph shall apply to expenses incurred with or without suit, and in any judicial,
arbitration or administrative proceedings, including all appeals therefrom.



e. Any notice required to be given under this Agreement to either party shall be given by
personal service (i.e., via hand delivery) or by depositing a copy of such notice in the United
States registered or certified mail, postage prepaid, addressed to the following address, or such
other address as addressee shall designate in writing:



Employer:



3111 “C” Street


Anchorage, AK 99503



Executive:



3612 Delores


Eagle River, AK 99577



f. This Agreement shall in all respects, including all matters of construction, validity and
performance, be governed by and construed and enforced according to the laws of the State of
Alaska.



g. This Agreement is intended to comply and shall be interpreted and construed in a manner
consistent with the provisions of Internal Revenue Code Section 409A, including any rule or
regulation promulgated thereunder. In the event that any provision of the Agreement would cause a
benefit or amount provided hereunder to be subject to tax under the Internal Revenue Code prior to
the time such amount is paid, such provision shall, without the necessity of further action by the
signatories to this Agreement, be null and void as of the Effective Date.



EMPLOYER:


NORTHRIM BANCORP, INC.



By: /s/Ronald A. Davis


Ronald A. Davis

Its: Chairman of the Compensation Committee of The Board of Directors



NORTHRIM BANK



By: /s/ Ronald A. Davis


Ronald A. Davis

Its: Chairman of the Compensation Committee of The Board of Directors



EXECUTIVE:



/s/Christopher N. Knudson


Christopher N. Knudson