Document:

MidCountry Bank, Pioneer Military Lending Division

 

LOAN SALE AND MASTER SERVICES AGREEMENT

 

This Loan Sale and Master Services Agreement (the “Agreement”) is between MidCountry Bank, through its Pioneer Military Lending Division (the “Bank”) and Pioneer Funding, Inc. (“Funding”) and the other affiliated entities which are signatories hereto (Funding and such other entities being collectively referred to as the “Customer”) is made effective as of June 1, 2007 (the “Effective Date”).

 

1. Overview

 

This Agreement states the terms and conditions by which the Bank will sell consumer loans to Funding and provide various services to the Customer. Additionally, Funding will purchase consumer loans and the Customer will receive various services provided by the Bank, including consumer loan servicing and retail installment contract servicing (collectively, the “Services”). This Agreement is intended to cover any and all Services requested by the Customer and provided by the Bank during the term of this Agreement. 

 

2. Term of Agreement; Termination

 

(a)  The term of this Agreement will begin on the Effective Date and will expire five years later; provided, however, on each anniversary of the Effective Date, the term hereof shall be extended automatically for an additional one-year period.

 

(b)  Either party may terminate this Agreement upon not less than 180 days advance written notice to the other party and to UMB Bank, N.A., or its successor as Agent Bank under that certain Amended and Restated Senior Lending Agreement dated as of October 1, 2003, as amended as of May 31, 2007 (the “SLA”) between Pioneer Financial Services, Inc., UMB Bank, N.A. and other lenders. Any termination will not affect the Customer’s obligations to pay for Services provided during the remainder of the term.

 

(c)  The Bank may also terminate this Agreement or suspend service upon 30 days notice to the Customer and to UMB Bank, N.A., or its successor as Agent Bank under the SLA in the event of (i) a payment default, or (ii) the Customer’s breach or failure to materially comply with any other obligation of the Customer under this Agreement and such breach or failure is not cured within 30 days after receipt of written notice of the same. The Customer may also terminate this Agreement if the Bank breaches any material term or condition of this Agreement and fails to cure such breach within 30 days after receipt of written notice of same.

 

3. Sale of Loans

 

The Bank will originate for sale to Funding military consumer loans (the “Loans”) made by the Bank in the ordinary course of business as previously conducted by Pioneer Financial Services, Inc. (“Pioneer”), one of the parties and its subsidiaries composing the Customer, and in accordance with (i) the Bank’s lending policy, and (ii) the continuing lending guidelines of 

 

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Pioneer, as both may be amended from time to time. Funding will have the exclusive right to purchase, and shall purchase, all of such Loans offered for sale by the Bank, and payment for such Loans shall be settled on a daily basis or on such other periodic basis as the parties may from time to time determine. The Bank may also originate for its own account loans which are not deemed to be military consumer loans made in the ordinary course of business as previously conducted by Pioneer and its subsidiaries.

 

4. Delivery of Services

 

During the term of this Agreement, the Bank shall provide to the Customer all of the Services, as more fully described in Exhibit A attached hereto and made a part hereof. The Customer agrees to accept and pay for the Services and for any additional Services which may be requested and provided pursuant to amendments to this Agreement.

 

5. Fees and Payment

 

The Customer will pay all fees due pursuant to Exhibit A as provided therein. Other Services may be billed on a monthly or other periodic basis. Any payment not received by the Bank within 5 business days of its due date will accrue interest at a rate of one and one-half percent (1.5%) per month, or the highest rate allowed by applicable law, whichever is lower. The Customer will be responsible for and will pay all taxes and similar fees now in force or enacted in the future imposed on the delivery of Services.

 

6. Duties of the Bank

 

The Bank will provide all of the Services in accordance with all applicable laws and regulations and such standards of service as generally prevail in the financial services industry. The Bank shall indemnify the Customer and hold the Customer harmless from and against any and all liability, damages, and costs, including reasonable attorney fees, resulting from the Bank’s failure to comply with the provisions of this Agreement.

 

7. Other Benefits to Certain Parties

 

In further consideration of the mutual benefits to the Bank and the Customer under this Agreement: 

 

(a)  Pioneer hereby grants the Bank for the period ending upon termination of this Agreement, unless otherwise extended as provided herein, (i) the non-exclusive rights to use the intellectual properties, including trade names and service marks, of Pioneer, and (ii) the right to use the Daybreak system and all hardware and software associated with it. Notwithstanding the foregoing, Pioneer shall retain all ownership rights.

 

(b)  During the term hereof, the Customer hereby grants to the Bank the right to market additional products and  services to the Customer’s borrowers. The Customer shall retain all other borrower relationship rights. 

 

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8. Rights of Third Party Beneficiary Upon Termination.

 

UMB Bank, N.A. and each successor to it, if any, as Agent Bank under the SLA (the “Agent Bank”) shall be deemed to be a third party beneficiary of this Agreement, including all amendments hereto and substitutions hereof.

 

Notwithstanding anything stated herein to the contrary, upon termination of this Agreement or default by Pioneer under the SLA if any Senior Debt, as defined in the SLA, shall be outstanding, the Bank agrees for itself and its successors and assigns, if any, upon the written request of the Agent Bank, to:

 

(a)  perform loan maintenance and collection services on all notes securing Senior Debt, as defined in the SLA, for the Agent Bank for a service charge equal to one hundred ten percent (110%) of the Bank’s actual cost of providing such services as the Agent Bank may request, for the period commencing upon the earlier of (i) termination of this Agreement or (ii) the declaration of an event of default of Pioneer under the SLA by the Agent Bank and ending on the earlier of (iii) when all of the notes owned by Subsidiaries, as defined in the SLA, of Pioneer have been collected; (iv) collection efforts for such notes have been terminated at the direction of the Required Banks or (v) the Agent Bank, at the direction of the Required Banks, gives a written notice of termination to the Bank. 

 

Upon request from time to time of the Agent Bank, but in no event not more than once in every twelve (12) month period commencing upon the date the Bank begins performing services hereunder for the Agent Bank, the Bank shall, upon the request of the Agent Bank, provide the Agent Bank with such information as it may reasonably request to determine the basis upon which the Bank has calculated its actual cost of providing services to the Agent Bank hereunder.

 

(b)  transfer possession and use of the Daybreak system and all hardware and software associated with it and all documents, instruments and records pertaining to outstanding notes security Senior Debt, as defined in the SLA, to the Agent Bank or its designee at the expense of the Agent Bank, and allow the Agent Bank to employ or otherwise use the services of all of the Bank’s employees working in the Pioneer Military Lending division of the Bank and which are reasonably necessary, in the judgment of the Agent Bank, to service and collect outstanding notes securing Senior Debt to be employed by the Agent Bank or its designee; and/or

 

(c)  to cooperate with the Agent Bank to the extent reasonably requested in the sale or transfer of all or any part of the outstanding notes securing Senior Debt to one or more third parties.

For purposes of this Section 8, Pioneer hereby agrees that all rights given to Bank in Section 7(a) hereof shall be given to the Agent Bank, or its designee including the Bank, for a period extending until all notes securing Senior Debt have been collected or, in the judgment of the Agent Bank, deemed to be uncollectible.

 

If the Bank performs loan maintenance and collection services at the request of the Agent Bank pursuant to Section 8(a) above, the Bank hereby agrees that the Agent Bank shall have the same indemnity protection which is provided the Customer in Section 6 hereof and the fees set forth in Exhibit A hereto shall not apply.

 

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If the Agent Bank elects to proceed pursuant to Section 8(a) above, the Bank shall have no obligation to maintain the Daybreak system and hardware, software, documents, or instruments associated with it after such one (1) year period or such shorter period if the Agent Bank selects a shorter period, unless otherwise agreed in writing between the Bank and the Agent Bank. The Bank agrees to cooperate with the Agent Bank to effect a smooth transition of such services and the Daybreak system and related items described in the immediately preceding sentence to the Agent Bank or its designee at the end of the period described in the immediately preceding sentence.

 

9. Amendments. 

 

Section 8 of this Agreement may not be amended except in writing with the written consent of UMB Bank, N.A. or its successor as Agent Bank under the SLA.

 

10. Miscellaneous. 

 

The Bank shall not be deemed to be in default of any provision of this Agreement or be liable for any delay, failure of performance or interruption of the provision of Services to the Customer resulting, directly or indirectly, from any unforeseen event or force majeure. This Agreement is made under and will be governed by and construed in accordance with the laws of the State of Nevada and applicable federal laws and regulations. Exclusive venue for all disputes arising out of or relating to this Agreement shall be the state and federal courts in Nevada and each party irrevocably consents to such personal jurisdictions and waives all objections thereto. The waiver of any breach or default of this Agreement will not constitute a waiver of any subsequent breach or default, and will not act to amend or negate the rights of the waiving party. Neither party may sell,
assign or transfer its rights or delegate its duties under this Agreement either in whole or in part without the prior written consent of the other party, and any attempted assignment or delegation without such consent will be void. All notices, demands, requests or other communications required or permitted under this Agreement shall be deemed given when delivered personally to the last known address of each party hereto, sent by facsimile to the last known address of each party hereto upon confirmation, sent and received by return receipt e-mail to the last known address of each party hereto, or upon receipt of delivery to the last known address of each party hereto of overnight mail. The Bank and the Customer are independent contractors and this Agreement will not establish any relationship of partnership, joint venture, employment, franchise or agency between the Bank and the Customer. Neither the Bank nor the Customer will have the power to bind the other or incur obligations on
the other’s behalf without the other’s prior written consent, except as otherwise expressly provided herein. Except as expressly provided in this Agreement, this Agreement may be changed only by a written document signed by authorized representatives of the Bank and the Customer.

 

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The authorized officers of the Bank and the Customer hereby execute this Agreement as of the Effective Date.

 

	
            MIDCOUNTRY BANK, BY AND THROUGH ITS PIONEER MILITARY LENDING DIVISION
 	
             
 
	
             
 	
             
 
	
            BY: 
 	
            /s/ David Hall, Vice President
 	
             
 
	
             
 	
            Name and Title
 	
             
 
	
             
 	
             
 	
             
 
	
            PIONEER FINANCIAL SERVICES, INC.
 	
            PIONEER MILITARY LENDING, INC.
 
	
             

 
 	
             
 
	
            BY: 
 	
            /s/ Randall J. Opliger, Treasurer
 	
            BY: 
 	
            /s/ Randall J. Opliger, Treasurer
 
	
             
 	
            Name and Title
 	
             
 	
            Name and Title
 
	
             
 	
             
 	
             
 	
             
 
	
            PIONEER MILITARY LENDING OF NEVADA, INC.
 	
            PIONEER MILITARY LENDING OF GEORGIA, INC.
 
	
             

 
 	
             
 
	
            BY: 
 	
            /s/ Randall J. Opliger, Treasurer
 	
            BY: 
 	
            /s/ Randall J. Opliger, Treasurer
 
	
             
 	
            Name and Title
 	
             
 	
            Name and Title
 
	
             
 	
             
 	
             
 	
             
 
	
            MILITARY ACCEPTANCE CORPORATION OF NEVADA
 	
            MILITARY ACCEPTANCE CORPORATION, INC.
 
	
             

 
 	
             
 
	
            BY: 
 	
            /s/ Randall J. Opliger, Treasurer
 	
            BY:
 	
            /s/ Randall J. Opliger, Treasurer
 
	
             
 	
            Name and Title
 	
             
 	
            Name and Title
 
	
             
 	
             
 	
             
 	
             
 
	
            PIONEER FUNDING, INC.
 	
            PIONEER SERVICES LENDING, INC.
 
	
             

 
 	
             
 
	
            BY: 
 	
            /s/ Randall J. Opliger, Treasurer
 	
            BY: 
 	
            /s/ Randall J. Opliger, Treasurer
 
	
             
 	
            Name and Title
 	
             
 	
            Name and Title
 
											

            

 

 

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Exhibit A

 

Fees for Services

 

	
             
 	
            1.
 	
            Annual Relationship Fee
 

 

An annual fee of $32.00 for each loan and retail installment contract in the Customer’s portfolio on the last day of each fiscal year. The fee will be paid in equal monthly installments beginning on the 5th day after the Effective Date and on the 5th business day of each month thereafter. The fee for the partial first year will be prorated and based on the Customer’s portfolio on the day before the Effective Date. This fee will be adjusted annually on the basis of the annual increase or decrease in the Consumer Price Index.

 

	
             
 	
            2.
 	
            Loan Origination Reimbursement Fee
 

 

A fee of $35.00 for each loan (not including retail installment contracts) originated by the Bank and purchased by Funding. The fee will be paid at the time of loan purchase. This fee will be adjusted annually on the basis of the annual increase or decrease in the Bank’s FAS 91 cost analysis.

 

	
             
 	
            3.
 	
            Servicing Fee
 

 

A servicing fee in an amount equal to 8% of the outstanding principal balance of the Customers’ Loans serviced as of the last day of each month. The fee will be paid on or before the 5th business day of each month. The Bank will retain all ancillary revenue, including late charges and NSF fees. This fee will be adjusted annually on the basis of the annual increase or decrease in the Consumer Price Index.Exhibit 10.1

EMPLOYMENT AGREEMENT

          THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of this _____ day of __________ 2007 by and between First Financial Northwest, Inc. (the “Company”), and its wholly owned subsidiary, First Savings Bank Northwest (the “Savings Bank”), and Victor Karpiak (the “Employee”).

          WHEREAS, the Employee is currently serving as the President and Chief Executive Officer of the Company and of the Savings Bank; 

          WHEREAS, the Employee has made and will continue to make a major contribution to the success of the Company and the Savings Bank in the position of President and Chief Executive Officer; 

          WHEREAS, the board of directors of the Company and the board of directors of the Savings Bank (collectively, the “Board of Directors”) recognize that the possibility of a change in control of the Savings Bank or the Company may occur and that such possibility, and the uncertainty and questions which may arise among management, may result in the departure or distraction of key management to the detriment of the Company, the Savings Bank and their respective stockholders;

          WHEREAS, the Board of Directors believes that it is in the best interests of the Company and the Savings Bank to enter into this Agreement with the Employee in order to assure continuity of management of the Company and its subsidiaries; and

          WHEREAS, the Board of Directors has approved and authorized the execution of this Agreement with the Employee;

          NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein, it is AGREED as follows:

          1.     Definitions.

                         (a)          The
term “Change in Control” means (1) an offeror other than the Company
purchases shares of stock of the Company or the Savings Bank pursuant to a
tender or exchange offer for such shares; (2) an event of a nature that results
in the acquisition of control of the Company or the Savings Bank within the
meaning of the  Savings and Loan Holding Company Act under 12 U.S.C.
Section 1467a and 12 C.F.R. Part 574 (or any successor statute or regulation) or
requires the filing of a change of control notice with the Office of Thrift
Supervision (“OTS”) or the Federal Deposit Insurance Corporation
(“FDIC”); (3) any person (as the term is used in Sections 13(d) and
14(d) of the Securities  Exchange Act of 1934 (“Exchange Act”))
that is or becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) directly or indirectly of securities of the Company or the Savings
Bank representing 25% or more of the combined voting power of the Company’s
or the Savings Bank’s outstanding securities; (4) individuals who are
members of the board of directors of the Company immediately following the
Effective Date or who are members of the board of directors of the Savings Bank
immediately following the Effective Date (in each case, the “Incumbent
Board”) cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequently whose election
was approved by a vote of at least

three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s or the Savings Bank’s stockholders was approved by the nominating committee serving under an Incumbent Board, shall be considered a member of the Incumbent Board; or (5)
consummation of a plan of reorganization, merger, acquisition, consolidation, sale of all or substantially all of the assets of the Company or a similar transaction in which the Company is not the resulting entity,  provided that the term “Change in Control” shall not include an acquisition of securities by an employee benefit plan of the Savings Bank or the Company.

                         (b)          The term “Consolidated Subsidiaries” means any subsidiary or subsidiaries of the Company (or its successors) that are part of the affiliated group (as defined in Section 1504 of the Internal Revenue Code of 1986, as amended (the “Code”), without regard to subsection (b) thereof) that includes the Savings Bank, including but not limited to the Company.

                         (c)          The term “Date of Termination” means the date upon which the Employee experiences a Separation from the Company or the Savings Bank or both, as specified in a notice of termination pursuant to Section 8 of this Agreement or the date a succession becomes effective under Section 10.

                         (d)          The term “Effective Date” means the date of this Agreement.

                         (e)          The
term “Involuntary Termination” means the Employee’s Separation
from Service (i) by either the Company or the Savings Bank or both without the
Employee’s express written consent; or (ii) by the Employee by reason of a
material diminution of or interference with his duties, responsibilities or
benefits, including (without limitation) any of the following actions unless
consented to in writing by the Employee:  (1) a requirement that the
Employee be based at any place other than Renton, Washington, or within a radius
of 35 miles from the location of the Company’s administrative offices as of
the Effective Date, except for reasonable travel on Company or Savings Bank
business; (2) a material demotion of the Employee; (3) a material reduction in
the number or seniority of personnel reporting to the Employee or a material
reduction in the frequency with which, or in the nature of the matters with
respect to which such personnel are to report to the Employee, other than as
part of a Savings Bank- or Company-wide reduction in staff; (4) a reduction in
the Employee’s salary or a material adverse change in the Employee’s
perquisites, benefits, contingent benefits or vacation, other than as part of an
overall program applied uniformly and with equitable effect to all members of
the senior management of the Savings Bank or the Company; (5) a material
permanent increase in the required hours of work or the workload of the
Employee; or (6) the failure of the board of directors of the Company (or a
board of directors of a successor of the Company) to elect him as President and
Chief Executive Officer of the Company (or a successor of the Company) or any
action by the board of directors of the Company (or a board of directors of a
successor of the Company) removing him from such office, or the failure of the
board of directors of the Savings Bank (or any successor of the Savings Bank) to
elect him as President and Chief Executive Officer of the Savings Bank (or any
successor of the Savings Bank) or any action by such board (or a board of a
successor of the Savings Bank) removing him from such office.  The term
“Involuntary Termination” does not include Termination for Cause,
Separation from Service due to death or permanent disability pursuant to Section
7(f) of this Agreement, retirement or suspension 

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or temporary or permanent
prohibition from participation in the conduct of the Savings Bank’s affairs
under Section 8 of the Federal Deposit Insurance Act
(“FDIA”).

                         (f)          The term “Section 409A” shall mean Section 409A of the Code and the regulations and guidance of general applicability issued thereunder.

                         (g)          The term “Separation from Service” shall have the same meaning as in Section 409A.

                         (h)          The
terms “Termination for Cause” and “Terminated For Cause”
mean Employee’s Separation from Service with either the Company or the
Savings Bank, as the case may be, because of the Employee’s personal
dishonesty, willful misconduct, breach of a fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or (except as provided below) material breach of
any provision of this Agreement.  No act or failure to act by the Employee
shall be considered willful unless the Employee acted or failed to act with an
absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company or the Savings
Bank.  The Employee shall not be deemed to have been Terminated for Cause
unless and until there shall have been delivered to the Employee a copy of a
resolution, duly adopted by the affirmative vote of not less than a majority of
the entire membership of the Board of Directors at a meeting of the Board duly
called and held for such purpose (after reasonable notice to the Employee and an
opportunity for the Employee, together with the Employee’s counsel, to be
heard before the Board), stating that in the good faith opinion of the Board of
Directors the Employee has engaged in conduct described in the preceding
sentence and specifying the particulars thereof in detail.

          2.     Term.     The
term of this Agreement shall be a period of three years commencing on the
Effective Date, subject to earlier termination as provided herein. 
Beginning on the first anniversary of the Effective Date, and on each
anniversary thereafter, the term of this Agreement shall be extended for a
period of one year in addition to the then-remaining term, provided that
(i) neither the Employee nor the Company has given notice to the other in
writing at least 90 days prior to such anniversary that the term of this
Agreement shall not be extended further; and (ii) prior to such anniversary, the
Board of Directors, or a committee of the Board of Directors which has been
delegated authority to act on such matters by the Board of Directors
(“Committee”), explicitly reviews and approves the extension. 
Reference herein to the term of this Agreement shall refer to both such initial term and such extended terms.

          3.     Employment.     The Employee shall be employed as the President and Chief Executive Officer of the Company and as the President and Chief Executive Officer of the Savings Bank.  As such, the Employee shall render all services and possess the powers as are customarily performed by persons situated in similar executive capacities, and shall have such other powers and duties as the Board of Directors may prescribe from time to time.  The Employee shall also render services to any subsidiary or subsidiaries of the Company or the Savings Bank as requested by the Company or the Savings Bank from time to time consistent with his executive position.  The Employee shall devote his best efforts and reasonable time and attention to the business and affairs of the Company

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and the Savings Bank to the extent necessary to discharge his
responsibilities hereunder.  The Employee may (i) serve on charitable or civic boards or committees and, in addition, on such corporate boards as are approved in a resolution adopted by a majority of the Board of Directors or a Committee, which approval shall not be withheld unreasonably and (ii) manage personal investments, so long as such activities do not interfere materially with performance of his responsibilities hereunder or give rise to violations of applicable securities laws.

          4.     Cash Compensation.

                         (a)          Salary.     The
Company and the Savings Bank jointly agree to pay the Employee during the term
of this Agreement a base salary (the “Salary”) the annualized amount
of which in any year shall be not less than the annualized aggregate amount of
the Employee’s base salary from the Company and any Consolidated
Subsidiaries in effect at the Effective Date; provided that any amounts
of salary actually paid to the Employee by any Consolidated Subsidiaries shall
reduce the amount to be paid by the Company and the Savings Bank to the
Employee.  The Salary shall be paid no less frequently than monthly and
shall be subject to customary tax withholding.  The amount of the
Employee’s Salary shall be increased (but shall not be decreased) from time to time in accordance with the amounts
of salary approved by the Board of Directors or the Committee or the board of
directors or the appropriate committee of any of the Consolidated Subsidiaries
after the Effective Date.  The amount of the Salary shall be reviewed by
the Board of Directors or the Committee at least annually during the term of
this Agreement.

                         (b)          Bonuses.     The Employee shall be entitled to participate in an equitable manner with all other executive officers of the Company and the Savings Bank in such performance-based and discretionary bonuses, if any, as are authorized and declared by the Board of Directors or the Committee for executive officers.

                         (c)          Expenses.     The Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in performing services under this Agreement in accordance with the policies and procedures applicable to the executive officers of the Company and the Savings Bank, provided that the Employee accounts for such expenses as required under such policies and procedures.

          5.     Benefits.

                         (a)          Participation in Benefit Plans.  The Employee shall be entitled to participate, to the same extent as executive officers of the Company and the Savings Bank generally, in all plans of the Company and the Savings Bank relating to pension, retirement, thrift, profit-sharing, savings, group or other life insurance, hospitalization, medical and dental coverage, travel and accident insurance, education, cash bonuses, and other retirement or employee benefits or combinations thereof.  In addition, the Employee shall be entitled to be considered for benefits under all of the stock, stock option, and equity-based plans in which the Company’s or the Savings Bank’s executive officers are eligible or become eligible to participate. 

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                         (b)          Fringe Benefits.     The Employee shall be eligible to participate in, and receive benefits under, any other fringe benefit plans or perquisites which are or may become generally available to the Company’s or the Savings Bank’s executive officers, including but not limited to supplemental retirement, deferred compensation program, supplemental medical or life insurance plans, company cars, club dues, physical examinations, financial planning and tax preparation services.

          6.     Vacations; Leave.     The Employee shall be entitled (i) to annual paid vacation in accordance with the policies established by the Board of Directors or the Committee for executive officers, and (ii) to voluntary leaves of absence, with or without pay, from time to time at such times and upon such conditions as the Board of Directors or the Committee may determine in its discretion.

          7.     Termination of Employment.

                         (a)          Involuntary
Termination.     The Board of Directors may
terminate the Employee’s employment at any time, but, except in the case of
Termination for Cause, termination of employment shall not prejudice the
Employee’s right to compensation or other benefits under this
Agreement.  In the event of Involuntary Termination other than after a
Change in Control which occurs during the term of this Agreement, the Company
and the Savings Bank jointly shall (i) if the Involuntary Termination occurs
prior to the first anniversary of the Effective Date, pay to the Employee a
lump-sum severance amount equal to one year’s Salary as in effect prior to
the Date of Termination, or (ii) if the Involuntary Termination occurs after the
first anniversary of the Effective Date, pay to the Employee during the
remaining term of this Agreement the Salary at the rate in effect immediately
prior to the Date of Termination, including the pro rata portion of any
incentive award, payable in such manner and at such times as the Salary would
have been payable to the Employee under Section 4(a) if the Employee had
continued to be employed by the Company and the Savings Bank, and (iii)
regardless of when the Involuntary Termination occurs, provide to the Employee
during the remaining term of this Agreement substantially the same group life
insurance, hospitalization, medical, dental, prescription drug and other health
benefits, and long-term disability insurance (if any) for the benefit of the
Employee and his dependents and beneficiaries who would have been eligible for
such benefits if the Employee had not suffered Involuntary Termination, on terms
substantially as favorable to the Employee, including amounts of coverage and
deductibles and other costs to him, as if he had not suffered Involuntary
Termination.  Notwithstanding the foregoing, if (but for this sentence) (i)
the taxable payments under this Section 7(a) would extend over a period of time
sufficient for such payments not to be considered severance payments under
Section 409A (and as such considered deferred compensation), then the final
payment that could be made without causing the payments to be considered
deferred compensation under Section 409A shall include the present value of the
remaining payments, with such present value determined using the applicable
discount rate used for purposes of determining present value under Section 280G
of the Code, and (ii) if the sum of the taxable payments exceeds that amount
which is permitted to be considered as severance pay under Section 409A (the
excess being referred to herein as “Excess Separation Payment”), and
if at the time of the Employee’s Separation from Service the Employee is a
“specified employee” within the meaning of Section 409A, then no
portion of the Excess

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 Separation Payment shall be paid earlier than six months
after the Employee’s Separation from Service.

                         (b)          Termination for Cause.     In the event of Termination for Cause, the Company  and the Savings Bank shall pay to the Employee the Salary and provide benefits under this Agreement only through the Date of Termination, and shall have no further obligation to the Employee under this Agreement.

                         (c)          Voluntary Termination.     The Employee’s employment may be voluntarily terminated by the Employee at any time upon at least 90 days’ written notice to the Company and the Savings Bank or such shorter period as may be agreed upon between the Employee and the Board of Directors.  In the event of such voluntary termination, the Company and the Savings Bank shall be obligated jointly to continue to pay to the Employee the Salary and provide benefits under this Agreement only through the Date of Termination, at the time such payments are due, and shall have no further obligation to the Employee under this Agreement.

                         (d)          Change in Control.     In the event of Employee’s Involuntary Termination after a Change in Control which occurs at any time following the first anniversary of the Effective Date while the Employee is employed under this Agreement, the Company and the Savings Bank jointly shall (i) pay to the Employee in a lump sum in cash within 25 business days after the Date of Termination an amount equal to 299% of the Employee’s “base amount” as defined in Section 280G of the Code; and (ii) provide to the Employee during the remaining term of this Agreement substantially the same group life insurance, hospitalization, medical, dental, prescription drug and other health benefits, and long-term disability insurance (if

any) for the benefit of
the Employee and his dependents and beneficiaries who would have been eligible for such benefits if the Employee had not suffered Involuntary Termination, on terms substantially as favorable to the Employee, including amounts of coverage and deductibles and other costs to him, as if he had not suffered Involuntary Termination.

                         (e)          Death.     In the event of the death of the Employee while employed under this Agreement and prior to any termination of employment, the Company and the Savings Bank jointly shall pay to the Employee’s estate, or such person as the Employee may have previously designated in writing, the Salary which was not previously paid to the Employee and which he would have earned if he had continued to be employed under this Agreement through the last day of the calendar month in which the Employee died, together with the benefits provided hereunder through such date.

                         (f)          Disability.     If the Employee becomes entitled to benefits under the terms of the then-current disability plan, if any, of the Company or the Savings Bank (the “Disability Plan”) or becomes otherwise unable to fulfill his duties under this Agreement, he shall be entitled to receive such group and other disability benefits, if any, as are then provided by the Company or the Savings Bank for executive employees.  In the event of such disability, this Agreement shall not be suspended, except that (i) the obligation to pay the Salary to the Employee shall be reduced in accordance with the amount of disability income benefits received by the Employee, if any, pursuant to this paragraph such that, on an after-tax basis,

 the Employee shall
realize from the sum of disability income benefits and the Salary the same amount as he would realize on an after-tax basis

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from the Salary if the obligation to pay the Salary were not reduced pursuant to this Section 7(f); and (ii) upon a resolution adopted by a majority of the disinterested members of the Board of Directors or the Committee, the Company and the Savings Bank may discontinue payment of the Salary beginning six months following a determination that the Employee has become entitled to benefits under the Disability Plan or otherwise unable to fulfill his duties under this Agreement. If the Employee’s disability does not constitute a disability within the meaning of Section 409A, then payments under this Section 7(f) shall not commence until the earlier of the Employee’s death or the sixth month anniversary of the Employee’s Separation from Service, with any delayed payments being made with the first permissible payment.

                         (g)          Temporary Suspension or Prohibition.     If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Savings Bank’s affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. Section 1818(e)(3) and (g)(1), or pursuant to Section 32.16.090 of the Revised Code of Washington (“R.C.W.”),  the Savings Bank’s obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Savings Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while its obligations under this Agreement were suspended and (ii

) reinstate in
whole or in part any of its obligations which were suspended.

                         (h)          Permanent Suspension or Prohibition.     If the Employee is removed and/or permanently prohibited from participating in the conduct of the Savings Bank’s affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. Section 1818(e)(4) and (g)(1), or pursuant to R.C.W. 32.16.090, all obligations of the Savings Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

                         (i)          Default of the Savings Bank.     If the Savings Bank is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but this provision shall not affect any vested rights of the contracting parties.

                         (j)          Termination by Regulators.     All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Savings Bank:  (1) at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Savings Bank under the authority contained in Section 13(c) of the FDIA; or (2) by the FDIC or the OTS, at the time either agency approves a supervisory merger to resolve problems related to operation of the Savings Bank or Holding Company, respectively.  Any rights of the parties that have already vested, however, shall not be affected by any such action.

                         (k)          Reductions of Benefits.     Notwithstanding any other provision of this Agreement, if payments and the value of benefits received or to be received under this Agreement, together with any other amounts and the value of benefits received or to be received by the Employee, would cause any amount to be nondeductible by the Company or any of the Consolidated Subsidiaries for federal income tax purposes pursuant to or by reason of Section 280G of the Code, then payments and benefits under this Agreement shall be reduced (not less than zero) to the extent

7

necessary so as to maximize amounts and the value of benefits to be received by the Employee without causing any amount to become nondeductible pursuant to or by reason of Section 280G of the Code.  The
Employee shall determine the allocation of such reduction among payments and benefits to the Employee.

                         (l)          Further Reductions.     Any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder. 

          8.     Notice
of Termination.     In the event that the Company
or the Savings Bank, or both, desire to terminate the employment of the Employee
during the term of this Agreement, the Company or the Savings Bank, or both,
shall deliver to the Employee a written notice of termination, stating whether
such termination constitutes Termination for Cause or Involuntary Termination,
setting forth in reasonable detail the facts and circumstances that are the
basis for the termination, and specifying the date upon which employment shall
terminate, which date shall be at least 30 days after the date upon which the
notice is delivered, except in the case of Termination for Cause.  In the
event that the Employee determines in good faith that he has experienced an
Involuntary Termination of his employment, he shall send a written notice to the Company and the Savings Bank stating the circumstances that constitute such Involuntary
Termination and the date upon which his employment shall have ceased due to such
Involuntary Termination.  In the event that the Employee desires to effect
a Voluntary Termination, he shall deliver a written notice to the Company and
the Savings Bank, stating the date upon which employment shall terminate, which
date shall be at least 90 days after the date upon which the notice is
delivered, unless the parties agree to a date sooner.

          9.     Attorneys’
Fees.     The Company and the Savings Bank jointly
shall pay all legal fees and related expenses (including the costs of experts,
evidence and counsel) incurred by the Employee as a result of (i) the
Employee’s contesting or disputing any termination of employment, or (ii)
the Employee’s seeking to obtain or enforce any right or benefit provided
by this Agreement or by any other plan or arrangement maintained by the Company
or the Savings Bank (or a successor) or the Consolidated Subsidiaries under
which the Employee is or may be entitled to receive benefits; provided
that the Company’s and the Savings Bank’s obligation to pay such
fees and expenses is subject to the Employee’s prevailing with respect to
the matters in dispute in any action initiated by the Employee or the
Employee’s having been determined to have acted reasonably and in good
faith with respect to any action initiated by the Company or the Savings
Bank.

          10.   No Assignments.

                         (a)          This Agreement is personal to each of the parties hereto, and no party may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other parties; provided, however, that the Company and the Savings Bank shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) by an assumption agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company and/or the Savings Bank would be required to perform it, if no such succession or assignment had taken place.  Failure to obtain such an assumption agreement prior to the

8

effectiveness of any such succession or
assignment shall be a breach of this Agreement and shall entitle the Employee to
compensation and benefits from the Company and the Savings Bank in the same
amount and on the same terms as the compensation pursuant to Section 7(d) of
this Agreement.  For purposes of implementing the provisions of this
Section 10(a), the date on which any such succession becomes effective shall be
deemed the Date of Termination.

                         (b)          This Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee’s personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.  

          11.   Notice.     For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, to the Company and Savings Bank at their home offices, to the attention of the Board of Directors with a copy to the Secretary of the Company and the Secretary of the Savings Bank, or, if to the Employee, to such home or other address as the Employee has most recently provided in writing to the Company or the Savings Bank.

          12.   Amendments.     No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided.  

          13.   Headings.     The headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.

          14.   Severability.     The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

          15.   Governing Law.     This Agreement shall be governed by the laws of the State of Washington.

          16.   Arbitration.     Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect.  Judgment may be entered on the arbitrator’s award in any court having jurisdiction. Notwithstanding the foregoing, the Company,  the Savings Bank, or both may resort to the Superior Court of King County, Washington for injunctive and such other relief as may be available in the event that the Employee engages in conduct, after termination of the Agreement that amounts to a violation of the Washington Trade Secrets Act or amounts to unlawful interference with the business expectancies of the Company or the Savings Bank.

          17.   Deferral
of Non-Deductible Compensation.     In the event
that the Employee’s aggregate compensation (including compensatory benefits
which are deemed remuneration for purposes of Section 162(m) of the Code) from
the Company and the Consolidated Subsidiaries for any calendar year exceeds the
maximum amount of compensation deductible by the Company or any of the
Consolidated Subsidiaries in any calendar year under Section 162(m) of the Code
(the “maximum

9

allowable amount”), then any such amount in excess of
the maximum allowable amount shall be mandatorily deferred with interest thereon
at 8% per annum to a calendar year such that the amount to be paid to the
Employee in such calendar year, including deferred amounts and interest thereon,
does not exceed the maximum allowable amount.  Subject to the foregoing,
deferred amounts including interest thereon shall be payable at the earliest
time permissible, and in no event later than required by Section
409A.

          18.   Knowing and Voluntary Agreement.     Employee represents and agrees that he has read this Agreement, understands its terms, and that he has the right to consult counsel of choice and has either done so or knowingly waives the right to do so.  Employee also represents that he has had ample time to read and understand the Agreement before executing it and that he enters into this Agreement without duress or coercion from any source.

          IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

          THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.

	
  
Attest:
  	
  
 
  	
  
FIRST   FINANCIAL NORTHWEST, INC.
  
	
  
 
  	
  
 
  	
  
 
  	
  
 
  
	
   
  	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  	
  
 
  
	
  

  	
  
 
  	
  

  
	
  

  	
  
, Secretary
  	
  
 
  	
  
By:
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  	
  
 
  	
  

  
	
  
 
  	
  
 
  	
  
 
  	
  
Its:
  	
  
Director
  
	
   
  	
  
 
  	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  	
  
 
  	
  
 
  
	
  
Attest:
  	
  
 
  	
  
FIRST   SAVINGS BANK NORTHWEST
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
   
  	
  
 
  	
  
 
  
	
  

  	
  
 
  	
  

  
	
  

  	
  
, Secretary
  	
  
 
  	
  
By:
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  	
  
 
  	
  

  
	
  
 
  	
  
 
  	
  
 
  	
  
Its:
  	
  
Director
  
	
  
 
  	
  
 
  	
  
 
  	
  
 
  	
  
 
  
	
   
  	
  
 
  	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  	
  
EMPLOYEE
  
	
  
 
  	
  
 
  	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  	
  
 
  	
  
 
  
	
   
  	
   
  	
   
  	
   
  	
   
  
	
   
  	
   
  	
   
  	
  

  
	
   
  	
   
  	
   
  	
  Victor   Karpiak
  

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