Document:

Exhibit 10.3

FORM OF

ANCHOR BANK

EMPLOYEE SEVERANCE COMPENSATION PLAN

PLAN PURPOSE

          The
purpose of the Anchor Bank Employee Severance Compensation Plan (the “Plan”) is
to assure for Anchor Bank (the “Bank”) the services of the Employees in the event
of a Change in Control of Anchor Bancorp (the “Holding Company”) or the Bank.
The benefits contemplated by the Plan recognize the value to the Bank of the
services and contributions of the eligible Employees and the effect upon the
Bank resulting from uncertainties relating to continued employment, reduced
employee benefits, management changes and employee relations that may arise if
a Change in Control occurs or is threatened. The Bank’s and the Holding
Company’s Boards of Directors believe that it is in the best interests of the
Bank and the Holding Company to provide eligible Employees with such benefits
in order to defray the costs and changes in employee status that could follow a
Change in Control. The Boards of Directors believe that the Plan will also aid
the Bank in attracting and retaining highly qualified individuals who are
essential to its success and that the Plan’s assurance of fair treatment of the
Bank’s employees will reduce the distractions and other adverse effects on
Employees’ performance if a Change in Control occurs or is threatened.

ARTICLE I

ESTABLISHMENT OF PLAN

1.1     Establishment
of Plan

          As
of the Effective Date, the Bank hereby establishes a severance compensation
plan to be known as the “Anchor Bank Employee Severance Compensation Plan.” The
purposes of the Plan are as set forth above.

1.2     Applicability
of Plan

          The
benefits provided by this Plan shall be available to all Employees, who, at or
after the Effective Date, meet the eligibility requirements of Article III. The
Plan shall not apply to any Employee whose employment was terminated prior to
the Effective Date.

1.3     Contractual
Right to Benefits

          This
Plan establishes and vests in each Participant a contractual right to the
benefits to which each Participant is entitled hereunder, enforceable by the
Participant against the Employer.

ARTICLE II

DEFINITIONS AND CONSTRUCTION

2.1     Definitions

          Whenever
used in the Plan, the following terms shall have the meanings set forth below.

          (a)          “Annual
Compensation” of a Participant means and includes all wages, salary, bonus, and
incentive compensation (other than stock based compensation), paid (including
accrued amounts) by the Employer as consideration for the Participant’s
services during the twelve (12) complete months ending on the date as of which
Annual Compensation is to be determined, which are or would (but for an
election by the Participant to defer compensation) be includable in the gross
income of the Participant receiving the same for federal income tax purposes.

          (b)          “Bank”
means Anchor Bank or any successor as provided for in Article VII hereof.

          (c)          “Change
in Control” means (1) an offeror other than the Holding Company purchases
shares of stock of the Holding Company or the 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 Holding Company or the Bank within the meaning of
the Bank Holding Company Act of 1956, as amended, under 12 U.S.C. Section 1841
(or any successor statute or regulation) or requires the filing of a notice
with the Federal Deposit Insurance Corporation (“FDIC”) under 12 U.S.C. Section
1817(j) (or any successor statute or regulation); (3) any person (as the term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934
(“Exchange Act”)) is or becomes the beneficial owner (as defined in Rule 13d-3
under the Exchange Act) directly or indirectly of securities of the Holding
Company or the Bank representing 25% or more of the combined voting power of
the Holding Company’s or the Bank’s outstanding securities; (4) individuals who
are members of the board of directors of the Holding Company immediately following
the Effective Date or who are members of the board of directors of the 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 Holding Company’s or
the 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 Holding Company or a similar
transaction in which the Holding 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 Bank or the Holding Company.

          (d)          “Continuous
Employment” means the absence of any interruption or termination of service as
an Employee of the Bank or an affiliate. Service shall not be considered
interrupted in the case of sick leave, military leave or any other leave of absence approved by the Bank or in the case

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of transfers between payroll locations of the Bank or between the Bank,
its Parent, its Subsidiary or its successor.

          (e)          “Effective
Date,” as to Employees of an Employer, means the date the Plan is approved by
the Board of Directors of the Bank, or such other date as the Board shall
designate in its resolution approving the Plan.

          (f)          “Employee”
means an individual employed by the Employer on a full-time basis, excluding
any executive officer of the Employer who is covered by an employment contract
or a change in control severance agreement with the Employer.

          (g)          “Employer”
means the Bank or a Subsidiary or a Parent which has adopted the Plan pursuant
to Article VI hereof.

          (h)          “Expiration
Date” means the date fifteen (15) years from the Effective Date unless earlier
terminated pursuant to Section 8.2 or extended pursuant to Section 8.1.

          (i)          “Holding
Company” means Anchor Bancorp, the Parent of the Bank.

          (j)          “Just
Cause,” with respect to termination of employment, means an act or acts of
personal dishonesty, incompetence, willful misconduct, breach of 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. In determining
incompetence, acts or omissions shall be measured against standards generally
prevailing in the financial services industry.

          (k)          “Parent”
means any corporation which holds a majority of the voting power of the
outstanding shares of the Bank’s common stock.

          (l)          “Participant”
means an Employee who meets the eligibility requirements of Article III.

          (m)          “Payment”
means the payment of severance compensation as provided in Article IV hereof.

          (n)          “Plan”
means the Anchor Bank Employee Severance Compensation Plan.

          (o)          “Subsidiary”
means any corporation in which the Bank, directly or indirectly, holds a
majority of the voting power of its outstanding shares of capital stock.

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2.2     Applicable
Law

          To
the extent not preempted by the laws of the United States as now or hereafter
in effect, the laws of the State of Washington shall be the controlling law in
all matters relating to the Plan.

          The
Plan neither requires nor establishes an ongoing administrative system for its
effect or operation. Payments under the Plan are precipitated by a single
event, a Change in Control, which event is the sole focus of the Plan.
Consequently, it is intended that the Plan shall not be covered by or be
subject to the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”).

2.3     Severability

          If
a provision of this Plan shall be held illegal or invalid, the illegality or
invalidity shall not affect the remaining parts of the Plan, and the Plan shall
be construed and enforced as if the illegal or invalid provision had not been
included.

ARTICLE III

ELIGIBILITY

3.1     Participation

          Each
Employee who has completed at least one (1) year of Continuous Employment as of
the Effective Date shall become a Participant on the Effective Date.
Thereafter, each Employee shall become a Participant on the day on which he or
she completes one (1) year of Continuous Employment. Notwithstanding the
foregoing, persons who have entered into and continue to be covered by an
employment or change in control severance agreement with the Employer shall not
be entitled to participate in the Plan.

3.2     Duration
of Participation

          A
Participant shall cease to be a Participant in the Plan when the Participant
ceases to be an Employee of the Employer unless such Participant is entitled to
a Payment as provided in the Plan. Furthermore, an Employee shall cease to be a
Participant upon entering into an employment or change in control severance
agreement with the Employer. A Participant entitled to receipt of a Payment
shall remain a Participant in this Plan until the full amount of such Payment
has been paid to the Participant.

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ARTICLE IV

PAYMENTS

4.1     Right
to Payment

          A
Participant shall be entitled to receive from his or her respective Employer a
Payment in the amount provided in Section 4.3 if there has been a Change in
Control of the Bank or the Holding Company and if, within one (1) year
thereafter, the Participant’s employment by an Employer shall terminate for any
reason specified in Section 4.2, whether the termination is voluntary or
involuntary. A Participant shall not be entitled to a Payment if termination
occurs by reason of death, voluntary retirement, voluntary termination other
than for reasons specified in Section 4.2, total and permanent disability, or
for Just Cause.

4.2     Reasons
for Termination

          Following
a Change in Control, a Participant shall be entitled to a Payment if his or her
employment with an Employer is terminated, voluntarily or involuntarily, within
one (1) year following such Change in Control, for any one or more of the
following reasons:

          (a)          The
Employer reduces the Participant’s base salary or rate of compensation as in
effect immediately prior to the Change in Control, or as the same may have been
increased thereafter.

          (b)          The
Employer requires the Participant to change the location of the Participant’s
job or office, so that such Participant will be based at a location more than
thirty-five (35) miles from the location of the Participant’s job or office
immediately prior to the Change in Control, provided that such new location is
not closer to Participant’s home.

          (c)          The
Employer materially reduces the benefits and perquisites, taken as a whole,
available to the Participant immediately prior to the Change in Control;
provided, however, that a material reduction or change on a nondiscriminatory
basis in the benefits and perquisites generally provided to all employees of
the Bank that does not reduce a Participant’s taxable Annual Compensation shall
not trigger a Payment.

          (d)          A
successor bank or company fails or refuses to assume the Bank’s obligations
under this Plan, as required by Article VII.

          (e)          The
Bank or any successor company breaches any other provisions of the Plan.

          (f)          The
Employer terminates the employment of a Participant at or after a Change in
Control other than for Just Cause.

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4.3     Amount
of Payment

          (a)          Each
Participant entitled to a Payment under this Plan shall receive from the
Employer a lump sum cash payment equal to:

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Participant’s

 Years of Continuous Employment

	
 

	
Amount of Monthly Compensation

 Payment to be Paid to the Participant

	
 

	
 

	

	
 

	

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
0 to 1 year
 of service

	
 

	
 

	
0

	
 

	
 

	
Over 1 year
 to 2 years

	
 

	
 

	
3 months

	
 

	
 

	
Over 2 years
 to 3 years

	
 

	
 

	
6 months

	
 

	
 

	
Over 3 years

	
 

	
 

	
6 months
 plus one month for each year

 of Continuous Employment over three

 years

          For
purposes of this Section 4.3(a): (i) the Participant’s years of service
(including partial years rounded up to the nearest full month) are computed
from the Employee’s date of hire through the date of termination and (ii)
“Monthly Compensation” of a Participant means such Participant’s Annual
Compensation (determined on the date of his or her termination of employment)
divided by twelve (12).

          Notwithstanding
anything herein to the contrary, the following rules shall apply to the
determination of any Payment due a Participant under this Plan: (i) a
Participant entitled to a Payment under this Plan who was a vice president and
above of the Bank immediately prior to the effective date of a Change in
Control shall receive a minimum Payment equal to one (1) times the Participant’s
Annual Compensation; (ii) a Participant entitled to a Payment under this Plan
who was an assistant vice president immediately prior to the effective date of
a Change in Control shall receive a minimum Payment equal to one-half (1⁄2) the
Participant’s Annual Compensation; and (iii) the maximum Payment to any
Participant under the Plan shall not exceed one and one-half (1-1/2) times the
Participant’s Annual Compensation. 

          (b)          Notwithstanding
the provisions of (a) above, if a Payment to a Participant who is a
“disqualified individual” shall be of an amount which includes an “excess
parachute payment,” the payment hereunder to that Participant shall be reduced
to the maximum amount which does not include an “excess parachute payment.” The
terms “disqualified individual” and “excess parachute payment” shall have the
same meaning as defined in Section 280G of the Internal Revenue Code of 1986,
as amended, or any successor section of similar import.

          (c)          The
Participant shall not be required to mitigate damages on the amount of the
Payment by seeking other employment or otherwise, nor shall the amount of such
Payment be reduced by any compensation earned by the Participant as a result of
employment after termination of employment with an Employer.

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          (d)          Notwithstanding
the foregoing, payments under Section 4.3(a): 

	
 

	
 

	
 

	
 

	
 

	
(1)          shall
 be considered made under a “separation pay plan” (within the meaning of
 Section 409A of the Internal Revenue Code and the regulations thereunder
 (“Section 409A”) to the extent permitted by Section 409A. Any additional
 amounts due the Employee under Section 4.3(a) shall be considered deferred
 compensation for purposes of Section 409A, and subject to Section 4.3(d)(2) below.

	
 

	
 

	
 

	
 

	
 

	
(2)          that
 are considered to be deferred compensation under Section 409A shall not be
 paid earlier than six months after the Employee’s separation from service (as
 defined in Section 409A, taking into account all rules and presumptions under
 the Section 409A regulations), if the Employee is a “specified employee”
 (within the meaning of Section 409A). Payment(s) delayed on account of the
 preceding sentence shall be paid on the 185th day following the
 Employee’s separation from service (as herein defined) or his or her death,
 if earlier.

          The
purpose of this Section 4.3(d) is to cause this Plan to comply with Section
409A, and these provisions (and the Plan) shall be administered and interpreted
accordingly.

4.4     Time
of Payment

          The
Payment to which a Participant is entitled shall be paid to the Participant by
the Employer or the successor to the Employer, in cash and in full, not later
than twenty-five (25) business days after the termination of the Participant’s
employment. If any Participant should die after termination of employment but
before all amounts have been paid, such unpaid amounts shall be paid to the
Participant’s surviving spouse, or if none, to the Participant’s named
beneficiary, if living, otherwise to the personal representative on behalf of
or for the benefit of the Participant’s estate.

ARTICLE V

OTHER RIGHTS AND BENEFITS NOT AFFECTED

5.1     Other
Benefits

          Neither
the provisions of the Plan nor the Payment provided for hereunder shall reduce
any amounts otherwise payable, or in any way diminish the Participant’s rights
as an Employee of the Employer, whether existing now or hereafter, under any
benefit, incentive, retirement, stock option, stock bonus, stock ownership or
any employment agreement or other plan or arrangement.

5.2     Employment
Status

          This Plan does
not constitute a contract of employment or impose on the Participant or the
Participant’s Employer any obligation to retain the Participant as an Employee,
to change the status

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of the
Participant’s employment, or to change the Employer’s policies regarding
termination of employment.

ARTICLE VI

PARTICIPATING EMPLOYERS

          Upon
approval by the Board of Directors of the Bank, this Plan may be adopted by any
Subsidiary or Parent of the Bank. Upon such adoption, the Subsidiary or Parent
shall become an Employer hereunder and the provisions of the Plan shall be
fully applicable to the Employees of that Subsidiary or Parent.

ARTICLE VII

SUCCESSOR TO THE BANK

          The
Bank shall require any successor to or assignee of, whether direct or indirect,
by purchase, merger, consolidation or otherwise, all or substantially all the
business or assets of the Bank, expressly and unconditionally to assume and
agree to perform the Bank’s obligations under the Plan.

ARTICLE VIII

DURATION, AMENDMENT AND TERMINATION

8.1     Duration

          If
a Change in Control has not occurred, the Plan shall expire fifteen (15) years
from the Effective Date, unless sooner terminated as provided in Section 8.2,
or unless extended for an additional period or periods by resolution adopted by
the Board of Directors of the Bank.

          Notwithstanding
the foregoing, if a Change in Control occurs, the Plan shall continue in full
force and effect, and shall not terminate or expire until such date as all
Participants who become entitled to Payments hereunder shall have received such
Payments in full.

8.2     Amendment
and Termination

          The
Plan may be terminated or amended in any respect by resolution adopted by a
majority of the Board of Directors of the Bank, unless (i) a Change in Control
has previously occurred, (ii) the Bank shall have in the previous year received
a bona fide written offer, which was not subsequently withdrawn, from a third
party to engage in a transaction which would involve a Change in Control or
(iii) a third party shall have disclosed in a filing with the Securities and
Exchange Commission (“SEC”) its intent to engage in a transaction which would
result in a Change in Control and has not subsequently indicated in another SEC
filing that it no longer had such intention. For so long as any of the events
listed in paragraphs (i), (ii) and (iii) persist, the Plan shall not be subject
to amendment, change, substitution, deletion, revocation or termination in any
respect whatsoever

8

unless any
acquiror of the Bank shall agree in writing to provide benefits to covered
employees which are at least as substantial as those set forth herein if such
employees are terminated without cause within one year of a Change in Control
of the Bank.

8.3     Form
of Amendment

          The
form of any proper amendment or termination of the Plan shall be a written
instrument signed by the duly authorized officer or officers of the Bank,
certifying that the amendment or termination has been approved by the Board of
Directors. A proper amendment of the Plan automatically shall effect a
corresponding amendment to all Participant’s rights hereunder, regardless of
whether the Participants receive notice of such action. A proper termination of
the Plan automatically shall effect a termination of all Participants’ rights
and benefits hereunder, regardless of whether the Participants receive notice
of such action.

ARTICLE IX

LEGAL FEES AND EXPENSES

          9.1      Subject
to the notice provision in Section 9.2 hereof, the Bank shall pay all
reasonable legal fees, costs of litigation, and other expenses incurred by each
Participant as a result of the Bank’s refusal to make the Payment to which the
Participant becomes entitled under this Plan as a result of a final
determination by a court or pursuant to arbitration, or as a result of the
Bank’s unsuccessfully contesting the validity, enforceability or interpretation
of the Plan.

          9.2      A
Participant must provide the Bank with thirty (30) days notice of a complaint
of entitlement under the Plan, and provide adequate documentation of the
requested reimbursements, before the Bank shall be liable for the payment of
any legal fees, costs of litigation or other expenses referred to in Section
9.1 hereof.

ARTICLE X

ARBITRATION

          10.1     Any
dispute or controversy arising under or in connection with the Plan shall be
settled exclusively by arbitration, conducted before a panel of three arbitrators
sitting in a location selected by the Participant within fifty (50) miles from
the location of the Bank, in accordance with rules of the American Arbitration
Association then in effect. Judgment may be entered on the award of the
arbitrator in any court having jurisdiction. 

*******

          Having
been adopted by its Board of Directors on _______ __, 2008, the Plan is
executed by its duly authorized officers as of the ______ day of
_______________, 2008.

	
 

	
 

	
 

	
 

	
 

	
Attest

	
 

	
ANCHOR
 BANCORP

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
By

	
 

	
 

	

	
 

	
 

	

	
 

	
Cheryl L.
 Dill

	
 

	
 

	
Jerald L.
 Shaw

	
 

	
Secretary

	
 

	
 

	
President
 and Chief Executive Officer

	
 

	
 

	
 

	
 

	
 

	
 

	
          Having
 been adopted by its Board of Directors on ____________ __, 2008, the Plan is
 executed by its duly authorized officers this _______ day of
 __________________, 2008.

	
 

	
 

	
 

	
 

	
 

	
Attest

	
 

	
ANCHOR BANK

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
By

	
 

	
 

	

	
 

	
 

	

	
 

	
Cheryl L.
 Dill

	
 

	
 

	
Jerald L.
 Shaw

	
 

	
Secretary

	
 

	
 

	
President
 and Chief Executive Officer

	
 

10Exhibit 10.4

ANCHOR MUTUAL SAVINGS BANK

PHANTOM STOCK PLAN

Originally Effective July 1, 2002

Amended and Restated Effective January 1, 2005

Including Amendments Through June 30, 2006

          1.          Purpose
of Plan. The Anchor Mutual Savings Bank Phantom Stock Plan (the “Plan”) is
intended to provide incentives to Participants to perform their duties in a
manner that enhances the value of the Bank. This in turn will provide
Participants with the opportunity to earn significant benefits commensurate
with such performance and value creation. While the Participants are employed
(or provide services, in the case of the Bank’s trustees), the value of their
Phantom Stock will adjust to reflect changes in the Bank’s value. After
separation from service, there will not be an adjustment in the value of a
Participant’s Phantom Stock. Under the retirement portion of the Plan, when the
Participant attains his Retirement Age, the value of his Phantom Stock will be
the basis for an annual Plan benefit paid over a specified number of years.
Under the option portion of the Plan, after a specified period of time, the
Participant will be entitled to a distribution of that option benefit. The
option benefit may be kept in the Plan for future distribution.

          The Plan is
amended and restated effective January 1, 2005, except where otherwise provided
herein or required by applicable law. The Plan also is intended to comply with
the applicable requirements of Section 409A of the Code, and shall be
administered and interpreted accordingly.

          The rights
of any person who terminates employment on or before any amendment to this Plan
shall be determined solely under the terms of the Plan in effect as of the date
of his termination of employment, unless such person again becomes a
Participant hereunder, or unless otherwise required by Section 409A of the Code
or other applicable law. 

          2.          Definitions.
The following definitions are applicable to the Plan:

          Affiliate
shall mean an entity required to be treated as a single employer with the Bank
pursuant to Section 414(b) or 414(c) of the Code.

          Agreement
shall mean the written agreement entered into between the Bank, on the one
hand, and a Participant, on the other hand, with respect to the grant of an
Award or an entitlement to receive an Award. A separate Agreement may be
entered into with respect to each Award or an Agreement may be entered into
with respect to multiple Awards (including current grants and grants to be
earned in the future).

          Award
shall mean the grant of Phantom Stock to a Participant. An Award may be either
a Phantom Stock Retirement Award, a Phantom Stock Option Award or both. 

          Bank
shall mean Anchor Mutual Savings Bank, and any successor to all or substantially
all of the Bank’s assets or business. 

          Beneficiary
shall mean one or more persons, estates or other entities, designated in
accordance with Paragraph 19 that are entitled to receive benefits under this
Plan upon the death of a Participant.

          Board
shall mean the board of trustees of the Bank. 

          Change
in Control shall mean the occurrence of any one of the following events:

	
 

	
 

	
 

	
 

	
 

	
(a)

	
When the Bank is in the “mutual” form of organization, a “Change in
 Control” shall be deemed to have occurred if:

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
as a result of, or in connection with, any merger or other business
 combination, sale of assets, or any combination of the foregoing
 transactions, or any similar transaction, the persons who were non-employee
 Trustees before such transaction cease to constitute a majority of the Board
 or the board of directors of any successor to the Bank; or

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
the Bank transfers substantially all of its assets to another Bank or
 entity which is not an affiliate or a wholly-owned subsidiary of the Bank.

	
 

	
 

	
 

	
 

	
 

	
(b)

	
A “Change in Control” shall be deemed to have occurred if:

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
the Bank reorganizes into a mutual holding company structure and the
 mutual holding company issues shares to the general public, or the Bank
 converts from the mutual to the stock form of organization and the stock
 organization issues shares to the general public; 

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
as a result of, or in connection with, any initial public offering,
 tender offer or exchange offer, merger or other business combination, sale of
 assets or contested election, any combination of the foregoing transactions,
 or any similar transaction, the persons who were trustees before such
 transaction cease to constitute a majority of the Board or the board of
 directors of any successor to the Bank;

	
 

	
 

	
 

	
 

	
 

	
 

	
(iii)

	
the Bank transfers substantially all of its assets to another bank
 which is not a wholly-owned subsidiary of the Bank;

	
 

	
 

	
 

	
 

	
 

	
 

	
(iv)

	
any “person” including a “group” is or becomes the “beneficial
 owner,” directly or indirectly, of securities of the Bank representing ten
 percent (10%) or more of the combined voting power of the Bank’s outstanding
 securities (with the terms in quotation marks having the meaning set forth
 under the federal securities laws); or

2

	
 

	
 

	
 

	
 

	
(v)

	
the Bank is merged or consolidated with another bank and, as a result
 of the merger or consolidation, less than fifty-one percent (51%) of the
 outstanding voting securities of the surviving or resulting bank is owned in
 the aggregate by the former stockholders of the Bank.

          The term
“Change in Control” does not include an acquisition of securities by an
employee benefit plan of the Bank or an acquisition of securities of the Bank
in consideration for a contribution of capital to the Bank.

          Effective
January 1, 2005, no event shall be considered a Change in Control unless there
occurs a “change in the ownership of the Bank”, a “change in the effective
control of the Bank”, or a “change in the ownership of a substantial portion of
the Bank’s assets”, all within the meaning of Section 409A. The preceding
sentence shall be applied using the least restrictive interpretation of each
applicable Change in Control event under Section 409A.

          Code
shall mean the Internal Revenue Code of 1986, as amended. 

          Committee
shall mean the Board or such Committee as the Board shall appoint to administer
the Plan.

          Continuous
Service shall mean the absence of any interruption or termination of
service as an Executive. Service shall not be considered interrupted in the
case of sick leave, military leave or any other leave of absence approved by
the Bank. The determination of the length of a Participant’s Continuous Service
shall be determined by the Committee in its sole discretion and shall be
binding on all persons. 

          Disability
shall mean a disability for which a Participant qualifies for permanent
disability benefits under the Participant’s long-term disability plan sponsored
by the Bank, or, if a Participant does not participate in such a plan, a period
of disability during which the Participant would have qualified for permanent
disability benefits under such a plan had the Participant been a participant in
such a plan, as determined in the sole discretion of the Committee. Effective
January 1, 2005, the term “Disability” shall mean the Participant is unable to
engage in any substantial activity by reason of any physical or mental
impairment which can be expected to result in death or can be expected to last
for a continuous period of not less than 12 months. The determination of
whether a Participant is Disabled shall be determined by the Committee in its
sole discretion, but subject to Section 409A.

          Executive
shall mean a person who is designated as a Senior Management Employee by the
Board.

          Fifth
Anniversary shall mean, with respect to any grant of a Phantom Stock Option
Award, the fifth anniversary of the Grant Date of that Award. 

3

          Grant
Date shall mean the date on which an Award is granted to the Participant by
the Committee.

          Monthly
Benefit shall be the monthly amount payable over the number of months
required by the appropriate provision of this Plan. A Participant’s Monthly
Benefit shall be determined by the Committee in its sole discretion. 

          Net
Worth shall mean the consolidated net worth of the Bank and its
subsidiaries as stated in its audited financial statements. Unaudited financial
statements may be used to determine Net Worth if determined to be necessary or
appropriate by the Committee. Net Worth shall be determined by excluding any
extraordinary or nonrecurring items as the Committee determines to be
appropriate. 

          Net
Worth Appreciation or Depreciation shall mean the increase or decrease in
Net Worth.

          Participant
shall mean an Executive or a Trustee who is selected by the Committee to
participate in the Plan and with whom the Bank enters into an Agreement.

          Phantom
Stock shall mean the hypothetical shares or other measurement units awarded
under the Plan that form the basis of determining the Participant’s Phantom
Stock Benefit.

          Phantom
Stock Account shall mean the account(s) established and maintained for the
Participant pursuant to Section 7 hereof.

          Phantom
Stock Benefit shall mean at any time the excess of the hypothetical value
of a Participant’s Phantom Stock Account as of the most recent Valuation Date
over the hypothetical value of his Phantom Stock Account as of the Grant Date.
The Phantom Stock Benefit may be determined separately with respect to each
separate Award that is granted under the Plan.

          Phantom
Stock Retirement Award shall mean an Award that provides the Phantom Stock
Benefit described in Section 12. 

          Phantom
Stock Option Award shall mean an Award that provides the Phantom Stock
Benefit described in Section 13. 

          Plan
shall mean this Anchor Mutual Savings Bank Phantom Stock Plan, as in effect
from time to time. 

          Retirement
Age shall mean with respect to each Participant the age set forth in the
Participant’s Agreement. 

          Section
409A shall mean Section 409A of the Code and any regulations or other
guidance of general applicability issued thereunder. 

4

          Termination
for Cause shall mean a Separation From Service on account of “cause”, as
that term (or a similar term) is defined in the Participant’s employment
contract with the Bank. If no such employment contract is in effect, or the
Participant is a Trustee, “cause” shall mean (1) gross negligence in the
performance of duties or gross neglect of duties; (2) commission of a
misdemeanor involving moral turpitude or a felony; (3) fraud, disloyalty or
willful violation of any law or significant policy of the Bank committed in
connection with the Participant’s employment and resulting in an adverse effect
on the Bank; or (4) while in the employment of the Bank, accepting additional
employment with or providing services to or becoming a director or trustee of a
competing entity.

          Separation
From Service shall mean, in the case of an Executive, the severing of
employment with the Bank or an Affiliate, voluntarily or involuntarily, for any
reason other than a Termination for Cause. In the case of a Trustee, the term
“Separation From Service” shall mean the ceasing of providing services to the
Board, voluntarily or involuntarily, for any reason. Whether a Separation of
Service takes place is determined based on the facts and circumstances
surrounding the termination of the Participant’s employment or service and
whether the Bank and the Participant intended for the Participant to provide
significant services for the Bank or an Affiliate following such termination. A
Separation From Service will not be considered to have occurred if:

	
 

	
 

	
 

	
(a)          the
 Participant continues to provide services as an employee of the Bank at an
 annual rate that is twenty percent (20%) or more of the services rendered, on
 average, during the immediately preceding three full calendar years of
 employment (or, if less than three years, such lesser period) and the annual
 remuneration for such services is twenty percent (20%) or more of the average
 annual remuneration earned during the final three full calendar years of
 employment (or, if less, such lesser period), or

	
 

	
 

	
 

	
(b)          the
 Participant continues to provide services to the Bank in a capacity other
 than as an employee of the Bank at an annual rate that is fifty percent (50%)
 or more of the services rendered, on average, during the immediately
 preceding three full calendar years of employment (or if employed less than
 three years, such lesser period) and the annual remuneration for such
 services is fifty percent (50%) or more of the average annual remuneration
 earned during the final three full calendar years of employment (or if less,
 such lesser period). 

Notwithstanding anything herein to the contrary, no Participant shall
be considered to have experienced a Termination of Service unless his
termination of employment or service with the Bank would constitute a “separation
from service” within the meaning of Section 409A.

          Trustee
shall mean a person serving in the capacity of a member of the Board after the
effective date of the Plan. The person may be either an “Inside Trustee” or an
“Outside Trustee”, as determined by the Committee in its sole discretion. 

5

          Valuation
Date shall mean each March 31, and the last day of the calendar month
immediately preceding a Change in Control. 

          Vested
Interest shall mean the portion of the Participant’s Phantom Stock Benefit
in each Award that is vested at any time. 

          Year of
Service shall mean a 12-month period of Continuous Service with the Bank or
an affiliated entity. For purposes of determining a Participant’s Vested
Interest in a Phantom Stock Award, only Continuous Service after the Grant Date
of that Award shall be taken into account. For all other purposes under the
Plan, all Continuous Service shall be taken into account. If a Participant has
a period of Continuous Service that is less than twelve months (a “Partial Year
Period”), then a full Year of Service shall be credited for that Partial Year
Period if such Partial Year Period exceeds six months. Also, solely for
purposes of determining a Participant’s share of an Award granted under Section
6, a Participant that simultaneously performs Continuous Service as both an
Executive and a Trustee shall be credited with double Continuous Service for
the period of time that such simultaneous service as an Executive and a Trustee
is performed (with Partial Year Periods being determined separately with
respect to employment while an Executive and service performed as a Trustee).
For example, if a Participant performs simultaneous service as both an
Executive and a Trustee for 10 years and 8 months, then that Participant shall
be credited with respect to that period with twenty-two Years of Service (ten
complete years, plus one Partial Year Period of more than six months, totaling
eleven Years of Service, times two). For purposes of determining an Outside
Trustee’s Vested Interest in Awards granted to him with respect to his status
as an Outside Trustee, the Outside Trustee shall be credited with his Years of
Service as an Inside Trustee.

          3.          Administration.
The Plan shall be administered by the Committee. The members of the Committee
shall be appointed, removed and/or substituted from time to time by the Board.
Except as limited by the express provisions of the Plan, the Committee shall
have sole and complete authority and discretion to (a) select Participants; (b)
determine the individual Awards granted under the Plan; (c) determine the terms
and conditions upon which Awards shall be granted under the Plan; (d) prescribe
the form and terms of the Agreements; (e) determine the hypothetical value of
Phantom Stock units, Phantom Stock Accounts and of Phantom Stock Benefits; (f)
make, amend, interpret, and enforce all appropriate rules and regulations for
the administration of the Plan, and (g) decide or resolve any and all questions,
including interpretations of the Plan, as may arise in connection with the
Plan. A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting,
shall be acts of the Committee. Members of the Committee may participate under
the Plan. Any individual serving on the Committee who is a Participant in the
Plan shall not vote or act on any matter relating solely to himself. When
making a determination or calculation, the Committee shall be entitled to rely
on information furnished by the Bank, a Participant, the Board, or a
professional advisor to the Bank or the Board. The decision or action of the Committee
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules and
regulations promulgated hereunder shall be final and conclusive and binding
upon all persons having any interest in the Plan.

6

In the administration of the Plan, the Committee may, from time to
time, employ agents and delegate to them such administrative duties as it sees
fit (including acting through a duly appointed representative) and may from
time to time consult with legal counsel who may be legal counsel to the Bank.
The Plan shall be administered and interpreted in accordance with Section 409A.

          4.          Aggregate
Shares of Phantom Stock. The maximum number of Phantom Stock units that may be
awarded under the Plan shall not exceed four hundred and fifty thousand
(450,000). If any Phantom Stock awarded under the Plan shall be forfeited or
canceled, such Phantom Stock may again be awarded under the Plan. Phantom Stock
shall be granted at such times and shall be subject to such terms and
conditions as set forth in the Agreements. 

          5.          Participation.
The Committee may select Executives and Trustees from time to time to become
Participants in the Plan. As a condition of participation, the Participant
shall enter into an Agreement with the Bank relating to the grant of an Award
to the Participant or the Participant’s entitlement to earn Awards under the
Plan, which Agreement shall comply with Section 409A, if applicable. Executives
and Trustees approved for participation will be notified of their selection as
soon after approval as practicable. 

          6.          Phantom
Stock Awards. 

	
 

	
 

	
 

	
 

	
(a)

	
The number of Phantom Stock units to be awarded to a Participant and
 the hypothetical unit value of such Phantom Stock units shall be determined
 by the Committee as of the applicable Grant Date, and shall be set forth in
 the Participant’s Agreement. More than one Award or type of Award may be made
 to a Participant. Phantom Stock, when granted, shall evidence the right of a
 Participant to receive the Phantom Stock Benefit, subject to the terms and
 conditions of the Plan and the Participant’s Agreement. 

	
 

	
 

	
 

	
 

	
(b)

	
Unless the Committee determines to allocate Awards in a different
 manner, Awards shall be granted as provided for in Sections 6(b) through
 6(f): Eighty-six percent (86%) of any grant of Phantom Stock Awards shall be
 made on behalf of Executives (referred to in this Section 6 as “Executive
 Awards”). Seventy-five percent (75%) of such Executive Awards shall be
 Phantom Stock Retirement Awards, to be allocated as provided for in Section
 6(d). The other twenty-five percent (25%) of such Executive Awards shall be
 Phantom Stock Option Awards, to be allocated as provided for in Section 6(e).
 The remaining fourteen percent (14%) of any grant of Phantom Stock Awards
 shall be made on behalf of Trustees (referred to in this Section 6 as
 “Trustee Awards”), to be allocated as provided for in Section 6(f). This
 allocation shall not apply to Phantom Stock Retirement Awards granted
 pursuant to Section 6(c). 

	
 

	
 

	
 

	
 

	
(c)

	
In the event an Executive attains his Retirement Age and is or
 thereafter becomes a Trustee, an additional Phantom Stock Retirement Award
 may be granted to that

7

	
 

	
 

	
 

	
 

	
 

	
Executive. The aggregate value of this additional Phantom Stock
 Retirement Award shall be determined by the Committee. If more than one
 Executive is eligible for an Award under this Section 6(c), then the
 aggregate Award shall be divided equally among the number of Executives
 entitled to share in this Award, unless the Committee determines that the
 Award shall be determined in a different manner.

	
 

	
 

	
 

	
 

	
(d)

	
A grant of Phantom Stock Retirement Awards to selected Executives
 pursuant to Section 6(b) shall be allocated among those Executives by
 multiplying the aggregate number of the Phantom Stock Retirement Awards
 granted to those Executives by each Executive’s most recent normal bonus
 percentage (disregarding for this purpose any Executive who receives a bonus
 but is not being awarded a portion of such Phantom Stock Retirement Award). 

	
 

	
 

	
 

	
 

	
(e)

	
Each Phantom Stock Option Award granted to selected Employees
 pursuant to Section 6(b) shall be allocated among those Employees in such
 manner as determined by the Committee, taking into account such performance
 criteria the Committee considers appropriate, which may vary from year to
 year and from Executive to Executive. 

	
 

	
 

	
 

	
 

	
(f)

	
Unless the Committee determines to allocate Trustee Awards in a
 different manner, Trustee Awards shall be allocated as follows: A grant of
 Phantom Stock Retirement Awards to selected Trustees shall be allocated among
 those Trustees as follows: (1) One-half of such Phantom Stock Retirement
 Awards shall be allocated among the selected Trustees on a per capita basis.
 (2) The remaining one-half of such Phantom Stock Retirement Awards shall be
 allocated among the selected Trustees proportionately based on each of the
 Trustee’s full years of Continuous Service (as of the Grant Date), compared
 to the total full years of Continuous Service (as of the Grant Date) for all
 Trustees who have then been selected to receive an Award.

	
 

	
 

	
 

	
 

	
(g)

	
Effective January 1, 2006, Phantom Stock awarded to Trustees shall be
 at a price at least equal to the value of the Phantom Stock on the date of
 the Award.

	
 

	
 

	
 

	
 

	
(h)

	
All Awards granted under this Plan shall be made in compliance with
 Section 409A.

          7.          Phantom
Stock Accounts. Phantom Stock granted to a Participant shall be credited to
a Phantom Stock Account established and maintained for the Participant. The
Phantom Stock Account shall be the record of Phantom Stock granted to a
Participant for accounting purposes only, and shall not constitute a
segregation of assets of the Bank. The Phantom Stock Account of a Participant
shall be valued by the Committee, in the manner provided for herein, as of the
Grant Date and on each Valuation Date thereafter to reflect changes in the
hypothetical value of the Phantom Stock Account, additional Awards, and
subsequent distributions to the Participant. Separate Phantom Stock Accounts
shall be established for each Participant’s Phantom Stock Retirement Awards and

8

Phantom
Stock Option Awards, and as otherwise determined by the Committee to be
necessary or appropriate. 

          8.          Adjustments
in Phantom Stock Accounts. As soon as practicable after each Valuation
Date, the Committee shall review the independently audited consolidated
financial statements of the Bank and its Affiliates for such year (or the
unaudited consolidated balance sheet of the Bank and its affiliates as of the
last day of the calendar month next preceding a Change in Control) to determine
the Net Worth Appreciation or Depreciation since the last Valuation Date. A
Participant’s Phantom Stock Account then shall be adjusted by multiplying the
hypothetical value of the Participant’s Phantom Stock Account since the last
Valuation Date by a factor equal to one (1) plus or minus the percentage Net
Worth Appreciation or Depreciation since the last Valuation Date.
Notwithstanding the foregoing, except in the case of a Change in Control, the
hypothetical value of a Participant’s Phantom Stock Account as of the Valuation
Date coincident with or next preceding the Participant’s Retirement Age shall
be no less than ninety percent (90%), nor more than one hundred and twenty
percent (120%), of the hypothetical value of the Participant’s Phantom Stock
Account as of the immediately preceding Valuation Date. Effective for Plan
Years commencing on or after January 1, 2003, except in the case of a Change in
Control, a Participant’s Phantom Stock Account as of any Valuation Date shall
be valued at no less than ninety percent (90%), nor more than one hundred and
twenty-five percent (125%), of the Participant’s Phantom Stock Account as of
the next preceding Valuation Date. No Net Worth Appreciation or Depreciation
shall be credited or debited to a Participant’s Phantom Stock Account after his
Separation From Service, or, after the last Valuation Date prior to a Change in
Control if the Participant is employed immediately prior to such Change in
Control.

          9.          Vested
Interest in Phantom Stock Benefit; Forfeitures. A Participant’s Vested
Interest in his Phantom Stock Benefit relating to an Award shall be determined
by multiplying the Phantom Stock Benefit pertaining to such Award by the
applicable percentage determined by reference to the Participant’s complete
Years of Service relating thereto:

	
 

	
 

	
 

	
 

	
Complete Years of Service

	
Vested Interest

	

	

	

	
 

	
1

	
20%

	
 

	
 

	
2

	
40%

	
 

	
 

	
3

	
60%

	
 

	
 

	
4

	
80%

	
 

	
 

	
5 or more

	
100%

	
 

Notwithstanding the foregoing, with respect
to Awards granted prior to January 1, 2006, a Participant who is a Trustee
shall always have a one hundred percent (100%) Vested Interest in his Phantom
Stock Benefit. Effective January 1, 2006, Awards granted to a Participant who
is a Trustee shall be subject to the vesting schedule set out above, unless
otherwise provided herein.

          In
addition, a Participant shall have a one hundred percent (100%) Vested Interest
in his Phantom Stock Benefit attributable to all Awards under the following
circumstances: 

9

	
 

	
 

	
 

	
 

	
(1)

	
the Participant’s Agreement provides for
 full vesting in his Phantom Stock Benefit; 

	
 

	
 

	
 

	
 

	
(2)

	
in the case of an Executive, the
 Participant’s Separation From Service occurs on or after his attainment of
 age 65;

	
 

	
 

	
 

	
 

	
(3)

	
in the case of an Executive, the Participant
 dies or experiences a Disability prior to his Separation From Service, 

	
 

	
 

	
 

	
 

	
(4)

	
there is a Change in Control prior to or
 simultaneously with the Participant’s Separation From Service; or 

	
 

	
 

	
 

	
 

	
(5)

	
there occurs such other circumstances as
 described in the Participant’s Agreement that would give rise to full
 vesting. 

In the event a Participant experiences a
Separation From Service for any reason, except as otherwise provided herein,
the unvested portion of a Participant’s Phantom Stock Benefit and the
associated Phantom Stock shall be forfeited.

          10.     Forfeiture
Upon Termination for Cause. If a Participant’s service as an Executive is
Terminated for Cause prior to a Change in Control, his Phantom Stock Benefit
and associated Phantom Stock shall be forfeited. If the Participant or his
Beneficiary has received any Phantom Stock Benefits and it is subsequently
determined that the Participant was Terminated for Cause prior to a Change in
Control, then the amount of Phantom Stock Benefits previously paid shall be
returned by the Participant or his Beneficiary to the Bank, and no further
Phantom Stock Benefits shall be payable to the Participant or his Beneficiary.

          11.     Regulatory
Restrictions. The obligations of the Bank to a Participant under the Plan
are subject to the following restrictions:

	
 

	
 

	
 

	
 

	
(a)

	
Temporary Suspension or Prohibition. If the Participant is suspended
 and/or temporarily prohibited from participating in the conduct of the Bank’s
 affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal
 Deposit Insurance Act (“FDIA”), 12 U.S.C. §1818(e)(3) and (g)(1), the
 Bank’s obligations to such Participant under the Plan shall be suspended as
 of the date of service of such notice, unless stayed by appropriate
 proceedings. If the charges in the notice are dismissed, the Bank may in its
 discretion reinstate in whole or in part any of its obligations which were
 suspended.

	
 

	
 

	
 

	
 

	
(b)

	
Permanent Suspension or Prohibition. If the Participant is removed
 and/or permanently prohibited from participating in the conduct of the Bank’s
 affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA, 12
 U.S.C. § 1818(e)(4) and (g)(1), all
 obligations of the Bank to such Participant under the Plan shall terminate 

10

	
 

	
 

	
 

	
 

	
 

	
as of the effective date of the order, but
 vested rights of the contracting parties shall not be affected.

	
 

	
 

	
 

	
 

	
(c)

	
Default. If the Bank is in default (as
 defined in Section 3(x)(1) of the FDIA), all obligations of the Bank to
 Participants and their Beneficiaries under the Plan shall terminate as of the
 date of default, but this provision shall not affect any vested rights of the
 contracting parties.

	
 

	
 

	
 

	
 

	
(d)

	
Termination by Regulators. All obligations of the Bank to
 Participants and their Beneficiaries under the Plan shall be terminated,
 except to the extent determined that continuation of the Plan is necessary
 for the continued operation of the Bank: (i) at the time the Federal
 Deposit Insurance Corporation (“FDIC”) enters into an agreement to provide
 assistance to or on behalf of the Bank under the authority contained in
 Section 13(c) of the FDIA; or (ii) by the FDIC at the time it approves a
 supervisory merger to resolve problems related to operation of the Bank. Any
 rights of the parties that have already vested, however, shall not be
 affected by any such action.

	
 

	
 

	
 

	
 

	
(e)

	
Other Regulatory Restrictions on Payment. Notwithstanding anything
 herein to the contrary, (1) any payments made by the Bank under the Plan
 shall be subject to and conditioned upon compliance with 12 U.S.C. § 1828(k) and any regulations
 promulgated thereunder and (2) payments contemplated to be made by the Bank
 under the Plan shall not be immediately payable to the extent such payments
 barred or prohibited by an action or order issued by the Director of Banks of
 the Washington Department of Financial Institutions, or the FDIC. 

	
 

	
 

	
 

	
 

	
(f)

	
Section 409A Payment Date. Any benefit payment delayed in
 accordance with this Section 11 shall be paid at the earliest date at which
 the Bank reasonably anticipates that such payment would be permissible.

	
 

	
 

	
 

	
 

	
12.

	
Phantom Stock Benefits Attributable to
 Phantom Stock Retirement Awards. 

	
 

	
 

	
 

	
 

	
(a)

	
Except as provided in Section 12(b), the
 Participant shall be entitled to receive his Monthly Benefit commencing on
 the June 30th or December 31st coincident with or next following the
 Participant’s Retirement Age. The Monthly Benefit shall be paid over the
 number of months set forth in the Participant’s Agreement. The Monthly
 Benefit shall be determined by reference to the Vested Interest in his
 Phantom Stock Benefit attributable to his Phantom Stock Retirement Awards,
 and the period of time over which the Phantom Stock Benefit is to be paid. 

	
 

	
 

	
 

	
 

	
(b)

	
The Monthly Benefit payable with respect to
 Phantom Stock Retirements Awards granted pursuant to Section 6(c), shall
 commence on the June 30th or December 31st coinciding with or next following
 the tenth anniversary of his Retirement Age (for 

11

	
 

	
 

	
 

	
 

	
 

	
Trustees who came onto the Board prior to
 September 1, 1990: for other Trustees it will be their fifth anniversary).
 The Monthly Benefits shall continue for one hundred and twenty (120) months.
 The Monthly Benefit shall be based on the Phantom Stock Benefit attributable
 to his Phantom Stock Retirement Awards granted pursuant to Section 6(c).

	
 

	
 

	
 

	
 

	
(c)

	
If the Participant dies prior to the
 commencement of the Monthly Benefits due him under his Agreement, no benefit
 shall be paid under this Section 12. In lieu thereof, the Participant’s
 Beneficiary shall receive a lump sum death benefit from a life insurance
 contract maintained by the Bank on the Participant’s behalf, equal to the
 present value of the Monthly Benefit Payments that would have been payable to
 the Participant had he terminated employment with the Bank on the day
 preceding the date of his death, had a 100 percent Vested Interest in his
 Monthly Benefit, and such Monthly Benefit commenced at the Participant’s
 Retirement Age. If the Participant dies after his Monthly Benefits have
 commenced but prior to payment of all monthly payments due him under his
 Agreement, no further benefit shall be paid under this Section 12. In lieu
 thereof, the Participant’s Beneficiary shall receive a lump sum death benefit
 from a life insurance contract maintained by the Bank on the Participant’s
 behalf, equal to the present value of the remaining Monthly Benefit payments
 that would have been paid to the Participant had he lived. Present values
 under this Section 12(c) shall be determined using an interest rate factor of
 6 percent per annum, and such other equivalency factors as the Committee
 determines appropriate. Life insurance contract payments under this Section
 12(c) shall be paid as soon as practicable after the Participant’s death. 

	
 

	
 

	
 

	
 

	
(d)

	
A Participant will not be credited with
 earnings on the value of his Phantom Stock Benefit attributable to his
 Phantom Stock Retirement Award after the earlier of his Separation From
 Service or his Retirement Age. 

	
 

	
 

	
 

	
 

	
13.

	
Phantom Stock Benefits Attributable to
 Phantom Stock Option Awards. 

	
 

	
 

	
 

	
 

	
(a)

	
Except as provided in Section 13(b), with
 respect to each Phantom Stock Option Award, if before the Fifth Anniversary
 the Participant either has not experienced a Separation From Service, dies,
 becomes Disabled while providing services to the Bank, or attains his
 Retirement Age, then on the Fifth Anniversary the Participant shall receive
 in full settlement of that Phantom Stock Option Award a cash lump sum equal
 to the value of his Phantom Stock Benefit attributable to that Phantom Stock
 Option Award.

	
 

	
 

	
 

	
 

	
(b)

	
If the Participant elects in his Agreement
 to defer the receipt of the Phantom Stock Benefit attributable to that
 Phantom Stock Option Award until his Retirement Age, then (1) after the Fifth
 Anniversary the value of such Phantom Stock Benefit shall no longer be
 adjusted in accordance with Section 8, (2) such Phantom Stock Benefit 

12

	
 

	
 

	
 

	
 

	
 

	
shall be credited, as of each succeeding
 Valuation Date until the earlier of the date the Participant attains his
 Retirement Age or dies, with an interest factor, and (3) the Phantom Stock
 Benefit shall be paid to him in a cash lump sum on his Retirement Age. If the
 Participant dies prior to receiving the payment due him under this Section
 13, then no further benefit shall be paid under this Section 13. In lieu
 thereof, the Participant’s Beneficiary shall receive a lump sum death benefit
 from a life insurance contract maintained by the Bank on the Participant’s
 behalf, equal to the value of his unpaid Phantom Stock Benefits attributable
 to the Participant’s Phantom Stock Option Award(s), determined on the date of
 the Participant’s death.

	
 

	
 

	
 

	
 

	
(c)

	
Except as provided for herein, if the
 Participant experiences a Separation From Service prior to the Fifth
 Anniversary of the date of his Phantom Stock Option Award, then no benefits
 shall be paid with respect to that Award. 

	
 

	
 

	
 

	
 

	
(d)

	
Regardless of when benefits commence under
 this Section 13, the Phantom Stock units that formed the basis of a
 Participant’s Phantom Stock Option Award shall be considered canceled (and
 again made available for subsequent Awards) on the earlier of the
 Participant’s Separation From Service or the Fifth Anniversary.

	
 

	
 

	
 

          14.     Effect
of Change in Control. In the event of a Change in Control, (i) each
Participant employed by the Bank immediately preceding the date of such Change
in Control shall have a one hundred percent (100%) Vested Interest in his
Phantom Stock Benefit, and (ii) no later than 60 days following the date of
such Change in Control, each such Participant shall receive a cash lump sum
equal to the value of his entire Phantom Stock Benefit.

          15.     Assignments
and Transfers. No right or interest of any Participant in the Plan will be
assignable or transferable or subject to any lien or encumbrance, whether
directly or indirectly, by operation of law or otherwise, including, without
limitation, execution, levy, garnishment, attachment, pledge, or bankruptcy
except, in the event of the death of a Participant, to his Beneficiary. 

          16.     Rights
Under the Plan. No Executive or Trustee shall have a right to be selected
as a Participant, and no Executive, Trustee or other person shall have any
claim or right to be granted an Award under the Plan or under any other incentive
or similar plan of the Bank. Neither the Plan nor any action taken hereunder
shall be construed as giving any Participant any right to be retained in the
employ of the Bank. 

          17.     Withholding
Tax. The Bank shall have the right to deduct from all amounts paid under
the Plan any taxes required by law to be withheld with respect to such
payments. 

          18.     Amendment
or Termination. The Bank shall have the right to modify, amend or terminate
the Plan by action of the Board. However, no modification, amendment or
termination shall adversely affect the then Vested Interest of any Participant
in Phantom Stock units previously 

13

granted and the corresponding Phantom Stock
Benefit relating thereto, unless the Participant agrees in writing. No
amendment shall be effective which causes the Plan to violate Section 409A. 

          The
ability of the Bank to terminate this Plan, and the timing and manner of
distributing benefits in connection with the Plan termination, shall in all
respects comply with Section 409A. Accordingly, unless Section 409A permits
otherwise, the Plan may be terminated only if: (a) all arrangements sponsored
by the Bank that are required to be aggregated with this Plan under Section
409A are terminated; (b) no payments other than payments that would be payable
under the terms of the Plan or an aggregated plan if the termination had not
occurred are made within 12 months of the termination of the arrangements; (c)
all payments are made within 24 months of the termination of the Plan and
related arrangements; and (d) the Bank does not adopt a new arrangement that
would be required to be aggregated with this Plan under Section 409A if the
same Participant participated in both arrangements, within five years of the
termination of the Plan. 

          19.          Beneficiary.
Each Participant shall have the right, at any time, to designate
Beneficiary(ies) (both primary as well as contingent) to receive any benefits
payable under the Plan upon the death of a Participant. The Beneficiary
designated under this Plan may be the same as or different from the beneficiary
designated under any other plan of the Bank in which the Participant
participates. A Participant shall designate his Beneficiary by completing and signing
a beneficiary designation form and returning it to the Committee. A Participant
shall have the right to change a Beneficiary by completing, signing and
otherwise complying with the terms of the beneficiary designation form and the
Committee’s rules and procedures, as in effect from time to time. Upon the
acceptance by the Committee of a new beneficiary designation form, all
Beneficiary designations previously filed shall be canceled. The Committee
shall be entitled to rely on the last beneficiary designation form filed by the
Participant and accepted by the Committee prior to his death. In the event of
the death of a Participant without a designated Beneficiary, any benefits
remaining to be paid under the Plan to such Participant shall be paid to the Participant’s
estate in the same manner as such payments would have been paid to the
Participant. 

          20.          No
Funding. Nothing contained in the Plan and no action taken hereunder will
create or be construed to create a trust of any kind, or a fiduciary
relationship between the Bank and any Participant or any other person. Amounts
due under the Plan at any time and from time to time will be paid from the
general funds of the Bank. To the extent that any person acquires a right to
receive payments hereunder, such right shall be that of an unsecured general
creditor of the Bank.

          21.          Indemnification
of Committee. No member of the Committee shall be liable for any act,
omission, or determination taken or made in good faith with respect to the Plan
or any Awards made hereunder; and the members of the Committee shall be
entitled to indemnification and reimbursement by the Bank in respect of any
claim, loss, damage, or expenses (including counsel fees) arising therefrom to
the full extent permitted by law or regulation, and under any directors’ and
officers’ liability or similar insurance coverage that may be in effect from
time to time.

14

          22.          Binding
Effect. The Plan shall inure to the benefit of the Participants hereunder
and their respective estates and legal representatives, and it shall be binding
on the successors of the Bank. 

          23.          Expenses
of the Plan. The expenses of administering the Plan will be borne by the
Bank.

          24.          Governing
Law. The Plan will be construed in accordance with and governed by the laws
of the State of Washington, except to the extent that such laws are preempted
by Federal law.

          25.          Terms.
Whenever any words are used herein in the masculine, they shall be construed as
though they were in the feminine in all cases where they would so apply; and
whenever any words are used herein in the singular or in the plural, they shall
be construed as though they were used in the plural or the singular, as the
case may be, in all cases where they would so apply.

          The
Bank has signed the Plan as of _________, __, 2006, but effective for all
purposes as of January 1, 2005.

	
 

	
 

	
 

	
 

	
ANCHOR MUTUAL SAVINGS BANK

	
 

	
 

	
 

	
 

	
 

	
By: 

	
 

	
 

	
 

	

	
 

	
 

	
 

	
 

	
Title: 

	
 

	
 

	
 

	

15

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