Document:

Exhibit

10.24

 

THE AMENDED AND RESTATED

PACIFIC NORTHWEST BANCORP

EMPLOYEE STOCK OWNERSHIP PLAN/

MONEY PURCHASE PENSION PLAN

 

As of April 1, 2002

 

 

 

 

1

 

TABLE OF CONTENTS

 

	

  ARTICLE I  Name and Purpose

  
	

   

  
	

  ARTICLE II  Definitions

  
	

   

  	

  A.

  	

   

  	

  “Accrued

  Benefit”

  
	

   

  	

  B.

  	

   

  	

  “Administrative

  Committee”

  
	

   

  	

  C.

  	

   

  	

  “Anniversary

  Date”

  
	

   

  	

  D.

  	

   

  	

  “Board”

  
	

   

  	

  E.

  	

   

  	

  “Code”

  
	

   

  	

  F.

  	

   

  	

  “Compensation”

  
	

   

  	

  G.

  	

   

  	

  “Effective Date”

  
	

   

  	

  H.

  	

   

  	

  “Eligibility Computation

  Period”

  
	

   

  	

  I.

  	

   

  	

  “Employee”

  
	

   

  	

  J.

  	

   

  	

  “Employer”

  
	

   

  	

  K.

  	

   

  	

  “Employer Stock”

  
	

   

  	

  L.

  	

   

  	

  “Enrollment

  Date”

  
	

   

  	

  M.

  	

   

  	

  “ERISA”

  
	

   

  	

  N.

  	

   

  	

  “Event of

  Forfeiture”

  
	

   

  	

  O.

  	

   

  	

  “Fiscal Year”

  
	

   

  	

  P.

  	

   

  	

  “Fund”

  
	

   

  	

  Q.

  	

   

  	

  “Highly-Compensated

  Employee”

  
	

   

  	

  R.

  	

   

  	

  “Hour of Service”

  
	

   

  	

  S.

  	

   

  	

  “Investment

  Account” or “Pre-April 1, 2002 ESOP Investment Account”

  
	

   

  	

  T.

  	

   

  	

  “Investment

  Committee”

  
	

   

  	

  U.

  	

   

  	

  “Money

  Purchase Pension Plan Employer Contribution Account” or “Post-March 31, 2002

  Money Purchase Pension Plan Employer Contribution Account”

  
	

   

  	

  V.

  	

   

  	

  “One-Year Break in Service”

  
	

   

  	

  W.

  	

   

  	

  “Participant”

  
	

   

  	

  X.

  	

   

  	

  “Plan”

  
	

   

  	

  Y.

  	

   

  	

  “Plan Year”

  
	

   

  	

  Z.

  	

   

  	

  “Spouse”

  
	

   

  	

  AA.

  	

   

  	

  “Stock Account” or “Pre-April 1, 2002

  ESOP Employer Stock Account”

  
	

   

  	

  BB.

  	

   

  	

  “Trust”

  
	

   

  	

  CC.

  	

   

  	

  “Trustee”

  
	

   

  	

  DD.

  	

   

  	

  “Valuation Date”

  
	

   

  	

  EE.

  	

   

  	

  “Vesting

  Computation Period”

  
	

   

  	

  FF.

  	

   

  	

  “Year of Service”

  
	

   

  	

  GG.

  	

   

  	

  “Miscellaneous”

  
	

   

  	

   

  	

   

  	

   

  
	

  ARTICLE III  Eligible Employees

  
	

   

  
	

  ARTICLE IV  Contributions

  
	

   

  	

  A.

  	

   

  	

  Employer

  Contribution

  
	

   

  	

  B.

  	

   

  	

  Date of Payment

  
	

   

  	

  C.

  	

   

  	

  Participant Contributions

  
	

   

  	

   

  	

   

  	

   

  
	

  ARTICLE V  Participant’s Accounts, Valuation,

  Maximum Contribution

  
	

   

  	

  A.

  	

   

  	

  Participant’s

  Accounts

  
	

   

  	

  B.

  	

   

  	

  Cash Dividends

  
	

   

  	

  C.

  	

   

  	

  Trust Valuation

  
	

   

  	

  D.

  	

   

  	

  Maximum

  Contributions

  
					

 

2

 

	

   

  	

   

  	

  1.

  	

  Annual Addition

  
	

   

  	

   

  	

  2.

  	

  Excess

  Annual Addition

  
	

   

  	

  E.

  	

   

  	

  Forfeitures and

  Reinstatement of Forfeitures

  
	

   

  	

   

  	

   

  	

   

  
	

  ARTICLE VI  Nonforfeitable Accrued

  Benefit

  
	

   

  	

  A.

  	

   

  	

  Allocations Not Vested

  
	

   

  	

  B.

  	

   

  	

  Vesting Period.

  
	

   

  	

  C.

  	

   

  	

  Amendment

  to Vesting Computation Period or Vesting Schedule

  
	

   

  	

  D.

  	

   

  	

  Full Vesting

  
	

   

  	

   

  	

   

  	

   

  
	

  ARTICLE VII  Distribution

  of Benefits

  
	

   

  	

  A.

  	

   

  	

  Retirement Age and Options

  
	

   

  	

   

  	

  1.

  	

  Employment

  After Normal Retirement Age

  
	

   

  	

   

  	

  2.

  	

  Date of Retired

  Participant’s First Payment

  
	

   

  	

   

  	

  3.

  	

  Deferral

  of Benefits

  
	

   

  	

   

  	

  4.

  	

  Form of Payment

  
	

   

  	

  B.

  	

   

  	

  Death

  
	

   

  	

   

  	

  1.

  	

  Death Prior to

  Commencement of Benefits

  
	

   

  	

   

  	

  2.

  	

  Explanation

  of Death Benefit

  
	

   

  	

  C.

  	

   

  	

  Disability

  
	

   

  	

  D.

  	

   

  	

  Termination of

  Employment

  
	

   

  	

  E.

  	

   

  	

  Time of First Payment

  
	

   

  	

  F.

  	

   

  	

  Distribution of

  Allocation Attributable to Last Year of Participation

  
	

   

  	

  G.

  	

   

  	

  Distribution

  to Persons Under Disability

  
	

   

  	

  H.

  	

   

  	

  No

  Reduction in Benefits by Reason of Increase in Social Security Benefits

  
	

   

  	

  I.

  	

   

  	

  Provisions for

  Nontradeable Stock

  
	

   

  	

  J.

  	

   

  	

  Diversification and

  Distribution of Investments in Pre-April 1, 2002 ESOP Employer Stock Account

  
	

   

  	

   

  
	

  ARTICLE VIII  Provision Against

  Anticipation

  
	

   

  	

  A.

  	

   

  	

  No Alienation of Benefits

  
	

   

  	

  B.

  	

   

  	

  Qualified

  Domestic Relations Orders

  
													

 

3

 

	

  ARTICLE IX  Administrative

  Committee and Investment Committee Duties

  
	

   

  	

  A.

  	

   

  	

  Appointment of Administrative

  Committee

  
	

   

  	

  B.

  	

   

  	

  Administrative

  Committee Action

  
	

   

  	

  C.

  	

   

  	

  Rights and Duties

  
	

   

  	

  D.

  	

   

  	

  No Administrative Committee

  Investment Authority

  
	

   

  	

  E.

  	

   

  	

  Information

  - Reporting and Disclosure

  
	

   

  	

  F.

  	

   

  	

  Administrative

  Committee Allocation and Delegation of Responsibility

  
	

   

  	

  G.

  	

   

  	

  Claims

  Procedure

  
	

   

  	

  H.

  	

   

  	

  Investment Committee

  Authority

  
	

   

  	

  I.

  	

   

  	

  Funding Policy

  
	

   

  	

  J.

  	

   

  	

  Investment Committee Action

  
	

   

  	

  K.

  	

   

  	

  Investment

  Committee Allocation and Delegation of Responsibilit

  
	

   

  	

  L.

  	

   

  	

  Bonding

  
	

   

  	

  M.

  	

   

  	

  Indemnification

  
	

   

  	

  N.

  	

   

  	

  Standard

  of Care Imposed upon the Administrative Committee and the Investment

  Committee

  
	

   

  	

   

  	

   

  	

   

  
	

  ARTICLE X  Investment

  of Plan Assets

  
	

   

  	

  A.

  	

   

  	

  Investments

  
	

   

  	

   

  	

  1.

  	

  ESOP Accounts

  
	

   

  	

   

  	

  2.

  	

  Money Purchase

  Pension Plan Employer Contribution Account

  
	

   

  	

   

  	

  3.

  	

  Trustee’s

  Investment Procedures

  
	

   

  	

  B.

  	

   

  	

  Employer Stock

  
	

   

  	

  C.

  	

   

  	

  Voting and

  Tender of Employer Stock

  
	

   

  	

  D.

  	

   

  	

  ESOP

  Employer Stock Accounts

  
	

   

  	

   

  	

   

  	

   

  
	

  ARTICLE XI  Suits

  
	

   

  
	

  ARTICLE XII  Mergers and Consolidations

  
	

   

  
	

  ARTICLE XIII  Amendment

  and Termination of Plan and Trust

  
	

   

  	

  A.

  	

   

  	

  Right to

  Amend and Terminate

  
	

   

  	

  B.

  	

   

  	

  No Revesting

  
	

   

  	

  C.

  	

   

  	

  Exclusive Benefit of

  Employees

  
	

   

  	

  D.

  	

   

  	

  Termination

  
	

   

  	

   

  	

   

  	

   

  
	

  ARTICLE XIV  Top Heavy

  Plans Defined and Other Definitions 2

  
	

   

  	

  A.

  	

   

  	

  Top Heavy Plan

  
	

   

  	

  B.

  	

   

  	

  Additional

  Definitions for Use in this Article and Article XV

  
	

   

  	

  C.

  	

   

  	

  Top-Heavy

  Requirements Effective for Plan Years Beginning After December 31, 2001

  
	

   

  	

   

  	

   

  	

   

  
	

  ARTICLE XIX  Additional

  Requirements Applicable to Top Heavy Plans

  
	

   

  	

  A.

  	

   

  	

  Minimum Vesting

  Requirements

  
	

   

  	

  B.

  	

   

  	

  Minimum Employer

  Contributions

  
	

   

  	

   

  	

  1.

  	

  General Rule

  
	

   

  	

   

  	

  2.

  	

  Exceptions

  
	

   

  	

   

  	

  3.

  	

  Employee

  Participating in Defined Benefit Plan

  
	

   

  	

   

  	

  4.

  	

  Specific Rules

  
	

   

  	

   

  	

   

  	

   

  
	

  ARTICLE XX  Right to Discharge

  Employees

  
	

   

  
	

  ARTICLE

  XXI  Return of Contributions;

  Declaration of Trust Contingent on Internal Revenue Service Approval

  
	

   

  
										

 

4

 

	

   

  
	

  ARTICLE XXII  Direct Rollover Contributions

  
	

   

  	

  A.

  	

   

  	

  Direct Rollover Contributions

  
	

   

  	

  B.

  	

   

  	

  Definitions

  
	

   

  	

   

  	

  1.

  	

  Eligible Rollover

  Distribution

  
	

   

  	

   

  	

  2.

  	

  Eligible Retirement Plan

  
	

   

  	

   

  	

  3.

  	

  Distributee

  
	

   

  	

   

  	

  4.

  	

  Direct Rollover

  
	

   

  	

   

  	

   

  	

   

  
	

  ARTICLE XXIII  Transfer of InterWest

  Bancorp, Inc. Stock From predecessor Pacific Northwest Bank 

  
	

  Retirement Plan

  

 

5

 

THE AMENDED AND RESTATED

PACIFIC  NORTHWEST

BANCORP

EMPLOYEE STOCK OWNERSHIP PLAN/MONEY

PURCHASE PENSION PLAN

 

THIS AGREEMENT is

made and entered into at Seattle, Washington, to be effective as of the dates

stated herein, by Pacific Northwest Bancorp, a Washington corporation, having

its principal place of business at Seattle, Washington, and its affiliates

listed in Schedule A, hereinafter called the “Employer.”

 

WHEREAS, the

Employer established for the exclusive benefit of its Employees eligible to

participate, and their beneficiaries, an employee stock ownership plan,

effective as of January 1, 1988;

 

WHEREAS, this Plan

was previously a money purchase plan that was effective January 1, 1972;

 

WHEREAS, the Board

of Directors of InterWest Bancorp, Inc. amended and restated the Plan effective

as of January 1, 1997 to rename the Plan the “InterWest Bancorp, Inc. Employee

Stock Ownership Plan and Trust”;

 

WHEREAS, the Board

of Directors of InterWest Bancorp, Inc. amended and restated the Plan effective

January 1, 1999 to add the Predecessor Pacific Northwest Bank, Pioneer National

Bank (until January 19, 1999), and Kittitas Valley Bank, N.A., as co-sponsors

of the Plan; to change the Plan Enrollment Dates to the first day of each

calendar quarter; to change the definition of Compensation to exclude Christmas

bonuses and to clarify that executive deferred compensation is excluded; to

amend the categories of employees excluded from participating in the Plan; to

amend the provisions relating to the granting of past service for eligibility

and vesting purposes; to change the Plan Valuation Dates to June 30 and

December 31; to change the Hours of Service equivalency method for salaried,

exempt employees; to change the Plan definition of disability; as soon as

administratively possible after August 1, 1999, to accept the transfer of

InterWest Bancorp stock (now Pacific Northwest Bancorp stock) from the

Predecessor Pacific Northwest Bank Retirement Plan; and to bring the Plan into compliance

with the Uniformed Services Employment and Reemployment Rights Act, the Small

Business Job Protection Act of 1996, and the Taxpayer Relief Act of 1997,

effective as of the applicable Effective Dates stated herein;

 

WHEREAS, the Plan

was amended effective September 1, 2000, to change the name of the Plan to the

Pacific Northwest Bancorp Employee Stock Ownership Plan and Trust;

 

WHEREAS, the Plan

was amended and restated effective July 1, 2001 to incorporate prior

amendments; bring the Plan into compliance with current law including the

Internal Revenue Service Restructuring and Reform Act of 1998; exclude W-2

temporary employees from participating in the Plan; eliminate the requirement

that an Employee must attain age 18 to be eligible for Employer contributions

effective October 1, 2001; clarify the provisions excluding individuals that

the Employer treats as leased employees or independent contractors; provide

that the forfeiture of the nonvested account balance of a Participant who has

terminated employment with the Employer occurs as of the date the Event of

Forfeiture occurs; add provisions to the Plan regarding the treatment of

missing Participants; provide that an eligible Employee is enrolled in the Plan

on the Enrollment Date following his completion of the eligibility provisions;

update the names of the Employers co-sponsoring the Plan; update the names of

the Plan Trustees; make other minor administrative changes and clarifications

recommended by management, and effective January 1, 2001, clarify provisions

relating to the Plan’s normal vesting schedule and top-heavy vesting schedule;

and

 

WHEREAS, the Board

of Directors of Pacific Northwest Bancorp now wishes to amend and restate this

Plan effective April 1, 2002, to operate as a money purchase pension plan

as to Post-March 31, 2002 contributions but remain an employee stock ownership

plan as to Pre-April 1, 2002 contributions; to permit Participants to choose to

invest in mutual funds selected by the Investment Committee or to direct the Trustee

to apply Participant accrued benefits to purchase Employer stock; to permit

Participants to sell Employer stock in their Pre-April 1, 2002 ESOP

Employer Stock Accounts and Post-March 31, 2002 Money Purchase Pension Plan

Employer Contribution Accounts on and after the dates permitted in the Plan; to

credit cash dividends to Participants’ Post–March 31, 2002 Money

Purchase Pension Plan Employer Contribution Accounts and Pre-April 1, 2002 ESOP

Investment Accounts to be invested among the Plan investment funds; to appoint

T. Rowe Price Trust Company as directed Trustee of the Plan; to establish an

Investment Committee with duties including the prudent selection and monitoring

of the Plan investment funds; and to make other administrative changes and

clarifications recommended by Management or required or permitted under

applicable law;

 

NOW, THEREFORE, it

is agreed as follows:

 

6

 

ARTICLE  I

NAME AND PURPOSE

 

The Plan shall be

known as The Amended and Restated Pacific Northwest Bancorp Employee Stock

Ownership Plan/Money Purchase Pension Plan (the “Plan”).  Effective April 1, 2002, this Plan is an

employee stock ownership plan as to Pre-April 1, 2002 ESOP Accounts and is a

money purchase pension plan as to Post-March 31, 2002 Money Purchase

Pension Plan Employer Contribution Accounts. 

Between September 1, 2000 and March 31, 2002, the Plan was known as the

Amended and Restated Pacific Northwest Bancorp Employee Stock Ownership Plan

and Trust.  Between January 1, 1999 and

August 31, 2000, the Plan was known as the Amended and Restated InterWest

Bancorp, Inc. Employee Stock Ownership Plan and Trust.  Prior to January 1, 1999, the Plan was known

as the InterWest Savings Bank Employee Stock Ownership Plan and Trust.  With respect to the Pre-April 1, 2002 ESOP

Employer Stock Accounts, the Plan is designed to invest primarily in Employer

Stock.

 

ARTICLE

II

DEFINITIONS

 

A.            “Accrued

Benefit” means the balance at any time of a Participant’s

Pre-April 1, 2002 ESOP Employer Stock Account, Pre-April 1, 2002 ESOP

Investment Account, Post-March 31, 2002 Money Purchase Pension Plan Employer

Contribution Account, and Frozen Employer Matching Contribution Account, if

any.

 

B.            “Administrative

Committee” means Administrative Committee appointed by

the Board.

 

C.            “Anniversary

Date” means the last day of each Plan Year.

 

D.            “Board” means

the Board of Directors of Pacific Northwest Bancorp.

 

E              “Code” means

the Internal Revenue Code of 1986, as amended from time to time.

 

F.             “Compensation” means an Employee’s salary or wages

from the Employer before any deferral of income pursuant to the Employer’s

Salary Deferral 401(k) Plan, and before any salary reductions to the Employer’s

Internal Revenue Code Section 125 flexible benefits plan and Code

Section 132(f)(4) transportation fringe benefit plan, if any, including

bonuses (except holiday bonuses), overtime pay, commissions, compensation on

the basis of a percentage of profits, and cash incentive payments, but

excluding mileage reimbursements, holiday bonuses, compensation deferred under

an executive deferred compensation plan maintained by the Employer,

compensation from exercise of stock options, Employer contributions hereunder

pursuant to Paragraph A of Article IV, Employer contributions pursuant to

Paragraphs A and C of Article IV of the Employer’s Salary Deferral 401(k)

Plan, any noncash compensation, any amounts paid to an Employee in connection

with such Employee’s relocation (such as reimbursement of moving expenses and

closing costs) even if such amounts are includable in the Employee’s gross

income, and payments by the Employer on account of medical, disability and life

insurance.  This definition of

Compensation for Plan contribution purposes specifically excludes all noncash

remuneration.  By excluding all noncash

remuneration, it differs from the following definition of Compensation for

purposes of Code Sections 415 and 416.

 

For purposes of

the Code Section 415 limitations on contributions and benefits (Article V,

Paragraph E hereof) and the Code Section 416 top heavy requirements (Articles

XIV and XV hereof) Compensation means wages, salaries, fees for professional

service and other amounts received (without regard to whether or not an amount

is paid in cash) for personal services actually rendered in the course of

employment with the Employer maintaining the Plan to the extent that the

amounts are includable in gross income (including, but not limited to,

commissions paid salesmen, compensation for services on the basis of a percentage

of profits, commissions on insurance premiums, tips, bonuses, fringe benefits,

reimbursements, and expense allowances), and effective January 1, 1998, any

elective deferrals as defined in Code Section 402(g)(3) and Code

Section 132(f)(4) transportation fringe benefit plan salary reduction

contributions, and any amount which is contributed or deferred by the Employer

at the election of the Employee and which is not includable in the gross income

of the Employee by reason of Code Section 125 or 457.  Such compensation does not include:

1.             Contributions to a

plan of deferred compensation which are not includable in the Employee’s gross

income for the taxable year in which contributed;

 

2.             Employer

contributions to a simplified employee pension described in Section 408(k) of

the Code to the extent deductible by the Employee;

 

7

 

3.             Distributions from

a plan of deferred compensation regardless of whether such amounts are

includable in gross income when distributed (except amounts paid to an Employee

under an unfunded nonqualified plan of deferred compensation will be considered

as compensation for Code Sections 415 and 416 in the year such amounts are

includable in gross income);

 

4.             Amounts realized

from the exercise of a nonqualified stock option or when restricted property

becomes freely transferable or is no longer subject to a substantial risk of

forfeiture;

 

5.             Amounts realized

from the sale, exchange or other disposition of stock acquired under a

qualified stock option;

 

6.             Other amounts which

receive special tax benefits such as premiums for group term life insurance

(but only to the extent that the premiums are not includable in gross income)

or contributions made by an Employer (whether or not under a salary reduction

agreement) towards the purchase of an annuity contract described in Section

403(b) of the Code (whether or not contributions are excludable from gross

income).

 

For Plan Years

beginning prior to January 1, 1994, Compensation in excess of $200,000 (as

adjusted pursuant to Code Section 415(d) in any Plan Year shall not be

considered for purposes of the Plan.

 

In addition to

other applicable limitations set forth in the Plan, and notwithstanding any

other provision of the Plan to the contrary, for Plan Years beginning on or

after January 1, 1994, the annual compensation of each employee taken into

account under the Plan shall not exceed the OBRA ‘93 annual compensation

limit.  The OBRA ‘93 annual compensation

limit for the 2002 Plan Year is $200,000, and thereafter shall be as adjusted

by the Commissioner for increases in the cost of living in accordance with Code

Section 401(a)(17)(B) of the Internal Revenue Code.  The cost-of-living adjustment in effect for a calendar year

applies to any period, not exceeding 12 months, over which compensation is

determined (determination period) beginning in such calendar year.  If a determination period consists of fewer

than 12 months, the OBRA ‘93 annual compensation limit will be multiplied by a

fraction, the numerator of which is the number of months in the determination

period, and the denominator of which is 12.

 

For Plan Years

beginning on or after January 1, 1994, any reference in this Plan to the

limitation under Code Section 401(a)(17) shall mean the OBRA ‘93 annual

compensation limit set forth in this provision.

 

G.            “Effective Date” means April 1, 2002,

the effective date of the amendment and restatement of this Plan, except as

specifically provided herein, and except that those provisions of this amended

and restated Plan which comply with requirements of (a) the Uniformed Services

Employment and Reemployment Rights Act to the extent applicable to

reemployments initiated on or after December 12, 1994 shall be effective

December 12, 1994, (b) the Small Business Job Protection Act of 1996 to the

extent applicable to Plan Years beginning in 1997 shall be effective as of the

first day of the 1997 Plan Year and to the extent applicable to Plan Years

beginning in 1998 shall be effective the first day of the 1998 Plan Year, (c)

the Taxpayer Relief Act of 1997 to the extent applicable to Plan Years

beginning in 1998 shall be effective as of the first day of the 1998 Plan Year,

(d) the Internal Revenue Service Restructuring and Reform Act of 1998

shall be effective with respect to distributions made on or after

January 1, 2000, (e) the Community Renewal Tax Relief Act of 2000 shall be

effective January 1, 2001, and (f) the Economic Growth and Tax Relief

Reconciliation Act of 2001 shall be effective January 1, 2002.  The Employer’s plan was originally adopted

effective January 1, 1972 as a money purchase plan and was amended and restated

as an Employee Stock Ownership Plan, effective January 1, 1988.  Effective April 1, 2002, this Plan is

amended and restated as an employer stock ownership plan with respect to

pre-April 1, 2002 contributions and as a money purchase pension plan with

respect to post-March 31, 2002 contributions.

 

H.            “Eligibility Computation Period” initially

means the 12-consecutive-month period beginning with the date on which the

Employee first performs an Hour of Service for the Employer (the “Employment

Commencement Date”), or in the case of an Employee who has had a One-Year Break

in Service, the 12-consecutive-month period beginning with the first date on

which the Employee completes an Hour of Service following the last computation

period in which a One-Year Break in Service occurred (the “Reemployment

Commencement Date”).  After the initial

Computation Period, the succeeding Eligibility Computation Periods shall be the

Plan Year which includes the first anniversary of the Employment Commencement

Date or Reemployment Commencement Date and each succeeding Plan Year.

 

I.              “Employee” means

any person in the service of the Employer receiving a wage or salary.  A leased employee as defined in Code

Section 414(n)(2) shall be considered an Employee hereunder solely for

 

8

 

purposes of Code Section

414(n)(3) unless (i) leased employees constitute less than twenty percent (20%)

of the Employer’s non-highly-compensated workforce as defined in Code Section

414(n)(5)(c)(ii) and (ii) the leased employee is a participant in a plan

described in Code Section 414(n)(5)(B). 

A leased employee for purposes of Code Section 414(n)(3) means any

person who is not an Employee of the Employer and who provides services for the

Employer pursuant to an agreement between the Employer and a leasing

organization, who has performed such services for the Employer and related

persons on a substantially full-time basis for a period of at least one year,

and whose services are performed under the primary direction or control of the

Employer.  Notwithstanding that a leased

employee is treated as an Employee hereunder solely for purposes of Code

Section 414(n)(3), such a leased employee shall not be considered an

eligible Employee or receive credit for service or share in Employer

contributions under this Plan.

 

Individuals

classified by the Employer as independent contractors shall not be Employees

under this Plan, regardless of whether such classification is controlling for

federal employment tax purposes or under any other applicable federal, state,

or local law and regardless of whether such individual is classified as an

employee by a court or by any federal, state or local agency.

 

J.             “Employer” means

Pacific Northwest Bancorp and its affiliates listed in Schedule A.  Prior to September 1, 2000, Pacific

Northwest Bancorp was known as InterWest Bancorp, Inc.  Effective July 1, 2000, the affiliate then

known as Pacific Northwest Bank merged into InterWest Bank, and the affiliate

Pacific Northwest Bank ceased to exist as a separate entity at that time.  Effective September 1, 2000, InterWest Bank

changed its name to Pacific Northwest Bank. 

For purposes of this Plan, the term “Pacific Northwest Bank” refers to

the post-August 31, 2000 affiliate of Pacific Northwest Bancorp which

co-sponsors this Plan, and the term “Predecessor Pacific Northwest Bank” refers

to the affiliate which ceased to exist effective July 1, 2000.

 

K.           

“Employer Stock” means common stock

issued by Pacific Northwest Bancorp.

 

L.            “Enrollment Date” means the date on

which an Employee who has complied with the eligibility requirements shall

become eligible to participate in the Plan. 

The Enrollment Dates shall be the first day of each calendar month.  Prior to April 1, 2002, the Enrollment Dates

were the first day of any calendar quarter (January 1, April 1, July 1, and

October 1).

 

M.           “ERISA” means the Employee Retirement Income

Security Act of 1974, as amended from time to time.

 

N.            “Event of Forfeiture” means with

respect to a Participant who terminates employment, either the incurring of

five consecutive One-Year Breaks in Service or a cash-out payment in full in a

single lump sum of all of his vested Accrued Benefit, subject to the

reinstatement of forfeitures requirements of the Plan.  A Participant who terminates employment with

no vested Accrued Benefit shall be deemed to have received a cash-out payment.

 

O.            “Fiscal Year” means January 1 to December

31.

 

P.            “Fund” means the trust fund established pursuant

to this Plan and the Trust Agreement in which all of the assets of the Plan are

held.  The fund shall be divided into a

number of separate Plan investment funds selected from time to time by the

Investment Committee and communicated to Participants.  Participants shall also be permitted to

invest their Plan Accounts in shares of Employer Stock.  Notwithstanding any provision of this Plan

to the contrary, a Participant’s Pre-April 1, 2002 ESOP Employer Stock

Account shall not hold any assets other than shares of Employer Stock and

fractional shares thereof, but a Participant may elect to sell such shares of

Employer Stock and have the proceeds invested in his Pre-April 1, 2002

ESOP Investment Account at the time and in the manner provided in this Plan.

 

Q.            “Highly-Compensated Employee” means

any Employee who during the Plan Year or the preceding Plan Year is (i) a more

than 5% owner (as defined by Code Section 416(i)(1)), or (ii) an Employee who

for the preceding Plan Year receives Compensation in excess of $85,000 (or the

amount in effect for the Plan Year, as adjusted in accordance with Code Section

414(q)(1)).

 

“Compensation”

means compensation within the meaning of Code Section 415(c)(3), that is,

compensation of the Participant from the employer for the applicable Plan Year

or preceding Plan Year, including elective or salary reduction contributions to

a cafeteria plan under Code Section 125, cash or deferred arrangement under

Code Section 401(k) or tax-sheltered annuity under Code Section 403(b).  The “employer” for purposes of this

Paragraph is the entity employing the Employee and includes all other entities

aggregated with such employing entity under the aggregation requirements of

Code Sections 414(b), (c), (m), or (o).

 

9

 

A former Employee

shall be considered a Highly-Compensated Employee if he was a

Highly-Compensated Employee when he separated from service or if he was a

Highly-Compensated Employee at any time after attaining age 55.

 

R.            “Hour of Service” means

 

(a)           Each

hour for which the Employee is directly or indirectly paid, or entitled to

payment, by the Employer for the performance of duties.  These hours shall be credited to the

Employee for the computation period or periods in which the duties are

performed.  Effective with respect to

reemployments initiated on or after December 12, 1994, an Employee in qualified

military service as defined in Code Section 414(u)(5) shall be credited with

Hours of Service at his customary rate; and

 

(b)           Each

hour for which an Employee is directly or indirectly paid, or entitled to

payment, by the Employer on account of a period of time during which no duties

are performed (irrespective of whether the employment relationship was

terminated) due to vacation, holiday, illness, incapacity (including

disability), layoff, jury duty, military duty or leave of absence.  No more than 501 Hours of Service shall be

credited under this subsection (b) for any single continuous period (whether or

not such period occurs in a single computation period).  Hours under this subsection (b) shall be

calculated and credited pursuant to Section 2530.200b-2(b) and 2(c) of the

Department of Labor Regulations which are incorporated herein by this

reference; and

 

(c)           Each

hour for which back pay, irrespective of mitigation of damages, is either

awarded or agreed to by the Employer. 

The same Hours of Service shall not be credited under subsection (a) or

(b), as the case may be, and under this subsection (c).  These hours shall be credited to the

Employee for the Eligibility or Vesting Computation Period or Periods to which

the award or agreement pertains rather than the computation period in which the

award, agreement, or payment is made.

 

Provided, for the

purpose of determining whether an Employee has incurred a One-Year Break in

Service (i) Hours of Service described in subsection (b) shall be credited

without regard to the 501-hour limitation of subsection (b); (ii) hours at the

Employee’s customary rate shall be credited during any period the Employee is

on authorized leave of absence or temporary layoff, and (iii) in the case of an

Employee who is absent from work for any period by reason of pregnancy, birth

of a child, placement with the Employee of a child for adoption, or caring for

such child immediately following birth or placement, Hours of Service (up to

501 hours) shall be credited equal to the Hours of Service that otherwise would

normally have been credited to the Employee but for such absence (or if such

hours cannot be determined, equal to 8 Hours of Service per day of

absence).  The hours credited under

(iii) above shall be credited to the applicable computation period in which the

absence begins if such crediting will prevent a One-Year Break in Service, or

otherwise to the following computation period. 

No such credit shall be given unless the Employee provides the

Administrative Committee with timely information (including, if requested, a

written statement of a doctor or adoption official) to establish that the

absence is for reasons referred to in this paragraph and the number of days for

which there was such an absence. 

Provided, further, there shall be no duplication of credit under the Plan.

 

Hours of Service

for any other trade or business that is along with the Employer a member of a

group of trades or businesses (whether or not incorporated) which are under

common control, as defined in Code Section 414(b) and (c), or an affiliated

service group as defined in Code Section 414(m) as modified by Code

Section 414(m)(5) and (6), shall be considered Hours of Service for the

Employer.

 

A salaried

Employee who is exempt from state overtime law and who during a calendar month

would be entitled to credit for at least one Hour of Service shall receive

credit for 190 Hours of Service.  All

other Employees shall be credited with actual hours (i) for which they are paid

or entitled to payment by the Employer, and (ii) for purposes of determining

whether a One-Year Break in Service has occurred, at their regular rate during

unpaid leave of absence.

 

S.            “Investment Account” or “Pre-April 1, 2002 ESOP

Investment Account” means an account created for each

Participant who was a Participant in the Plan before April 1, 2002, which

includes (1) the sale proceeds of Employer Stock that the Participant has

elected to sell from his Pre-April 1, 2002 ESOP Employer Stock Account at

the time and in the manner permitted by this Plan, (2) any cash or other

assets held in the Participant’s ESOP Investment Account prior to April 1,

2002, and (3) earnings (if any) on amounts in the Participant’s Pre-April 1,

2002 ESOP Investment Account plus cash dividends after March 31, 2002 on

Employer Stock held in the Participant’s Pre-April 1, 2002 ESOP Employer Stock

Account.  Such an Investment Account

shall be invested as provided in Article X, Paragraph A.1.

 

10

 

T.            “Investment Committee” means the

committee appointed by the Board to select the investment funds available under

this Plan and to perform other duties pursuant to Article IX of this Plan.

 

U.            “Money Purchase Pension Plan Employer Contribution

Account” or “Post-March 31, 2002 Money Purchase Pension Plan Employer

Contribution Account” means an account created for each

Participant who receives Employer contributions pursuant to the terms of this

Plan after March 31, 2002, which account includes (1) Employer

contributions made on behalf of each such Participant after March 31,

2002, and (2) earnings on those post-March 31, 2002 Employer contributions

plus any cash dividends on Employer Stock purchased with each such

Participant’s post-March 31, 2002 Employer contributions.

 

V.            “One-Year Break in Service” means the

applicable Eligibility or Vesting Computation Period during which an Employee

completes fewer than 501 Hours of Service.

 

W.           “Participant” means an Employee who has

satisfied the eligibility requirements of Article III.  A Participant who terminates employment with

the Employer and receives an involuntary or voluntary cash-out shall no longer

be considered a Participant in this Plan or a Participant under ERISA.

 

X.            “Plan” means The Amended and Restated Employee

Stock Ownership Plan/Money Purchase Pension Plan set forth in this agreement

and all subsequent amendments thereto.

 

Y.            “Plan Year” means the twelve-month period on

which the records of the Plan are kept. 

Each Plan Year shall begin on January 1 and end on December 31.

 

Z.            “Spouse” means the lawful husband or wife of

the Participant.

 

AA.         “Stock Account” or “Pre-April 1, 2002 ESOP Employer Stock

Account” means an account created for each Participant in the

Plan who was a Participant before April 1, 2002, which holds (1) shares of

Employer Stock that were credited to such Participant’s Plan Accounts prior to

April 1, 2002 and that have not been sold at the Participant’s direction

as permitted by this Plan, and (2) shares of Employer Stock that are purchased

from the Participant’s ESOP Investment Account as directed by the Participant

at a time and in the manner permitted by this Plan.

 

BB.         “Trust” means the Trust Agreement entered into

between the Employer and the Trustee.

 

CC.         “Trustee ” means T. Rowe Price Trust Company

and any successor Trustee hereunder appointed by the Board.

 

DD.         “Valuation Date” means the date upon

which the assets of the Trust are valued. 

Each day that the New York Stock Exchange is open shall be a Valuation

Date.

 

EE.         

“Vesting Computation Period” means

the Plan Year.

 

FF.          “Year of Service” means the applicable

computation period during which the Employee completes not fewer than 1,000

Hours of Service as defined in Paragraph R.

 

GG.        

“Miscellaneous.” Unless some other

meaning and intent is apparent from the context, the plurals shall mean the

singular, and vice versa, and masculine, feminine, and neuter words shall be

used interchangeably.

 

ARTICLE III

ELIGIBLE

EMPLOYEES

 

Employees shall be

excluded from those eligible to participate if they are included in a unit of

Employees covered by a collective bargaining agreement between employee

representatives and one or more employers, if there is evidence that retirement

benefits were the subject of good faith bargaining and if the collective

bargaining agreement does not provide for participation by such Employees.  Temporary Employees shall be excluded from

those eligible to participate.  A

temporary Employee is a W-2 Employee who is employed to work fewer than six months.  If such an Employee works six months or

more, he shall be credited with Hours of Service retroactively to his

employment commencement date on which he first completed an Hour of Service

with the Employer.  Notwithstanding any

Plan provision to the contrary, any individual who is classified as an

independent contractor by the Employer, regardless of whether such individual

is classified as an employee by a court or by any federal, state or local

agency, shall not be eligible to participate in this Plan.  Notwithstanding any Plan provision to the

contrary, any individual who performs services pursuant to an agreement between

the Employer and a leasing organization shall not be eligible to participate in

this Plan.  Nonresident aliens who

receive no earned income from the Employer that constitutes income from sources

within the United States are excluded from participation.

 

11

 

Each Plan

Participant on April 1, 2002 shall continue to participate in the Plan as of

that date, unless otherwise excluded by reason of the preceding paragraph.  Each Employee who is not already a Plan

Participant and who is not excluded by reason of the preceding paragraph shall

become eligible to participate upon the later of (1) April 1, 2002,

or (2) the date on which he first performs an Hour of Service with the

Employer, and shall be enrolled as a Plan Participant as of the Enrollment Date

following completion of such requirements, provided the Employee has not

separated from service before such Enrollment Date.

 

In the case of a

Participant who terminates employment and is rehired, he shall become a

Participant on the Enrollment Date following his re-employment commencement

date, which date shall be the date on which he completes one Hour of Service

after his termination of employment.

 

The Administrative

Committee may request each eligible Employee to apply for Plan participation in

writing on a form to be supplied by the Administrative Committee, agreeing to

the terms of the Plan and giving such information as may be required by the

Administrative Committee, including beneficiary designation.  An Employee shall not be precluded from Plan

participation if he does not complete such form.

 

ARTICLE IV

CONTRIBUTIONS

 

A.            Employer Contribution. As of

each June 30 and December 31, the Employer shall contribute to the

Post-March 31, 2002 Money Purchase Pension Plan Employer Contribution

Account of each Participant who is employed on that date an amount equal to

five percent (5%) of that Participant’s Compensation since the last Employer

contribution date.  The Employer may

decide to make this five percent (5%) of Compensation Employer contribution

more frequently than semi-annually.  In

that case, Employer contributions will be based on a Participant’s Compensation

since the last Employer contribution date, and a Participant will be required

to be employed by the Employer through the date as of which the contribution is

allocated in order to receive those contributions.  Compensation for purposes of this Employer contribution includes

only Compensation received while a Participant.  Employer contributions to Participants’ Post-March 31, 2002

Money Purchase Pension Plan Employer Contribution Accounts shall be paid in

cash.

 

Notwithstanding

the foregoing, for the 2002 Plan Year only, the following Employer contribution

rules shall apply for Participants who are employed by the Employer on March

31, 2002:

 

1.             As

of March 31, 2002, the Employer shall contribute to the Pre-April 1, 2002 ESOP

Employer Stock Account of each Participant employed on March 31, 2002 an amount

equal to the greater of (a) five percent (5%) of the Compensation that

each Participant employed on March 31, 2002 received during the first

calendar quarter of 2002, or (b) that percentage of Compensation that each

Participant employed on March 31, 2002 received during the first calendar

quarter of 2002 which in total for all those Participants equals the amount

necessary to repay in full the balance of the principal and interest on the

ESOP loan, so that all remaining shares of Employer Stock in the ESOP suspense

account will be released and allocated to the Pre-April 1, 2002 ESOP Employer

Stock Accounts of Participants employed on March 31, 2002.

 

2.             If

that March 31, 2002 Employer contribution on behalf of such a Participant

exceeds five percent (5%) of that Participant’s Compensation for the first

quarter of 2002, then such excess Employer contribution shall be treated as a

pre-funded or early Employer contribution and shall be applied towards the five

percent (5%) of Compensation Employer contribution for the period April 1,

2002 through December 31, 2002 that would otherwise be made for that

Participant by June 30, 2002 and by December 31, 2002.  Such pre-funded 2002 Employer contribution

shall be held in the Participant’s Pre-April 1, 2002 ESOP Accounts instead of

his Post-March 31, 2002 Money Purchase Pension Plan Employer Contribution

Account.

 

3.             If

a Participant received a March 31, 2002 Employer contribution which exceeded

five percent (5%) of such Participant’s Compensation for the first calendar

quarter of 2002, and such Participant terminates employment with the Employer

during 2002, such Participant will be entitled to receive the vested portion of

that pre-funded 2002 Employer contribution, to the extent that such

contribution would not violate the applicable nondiscrimination tests and other

contribution limits that apply to this Plan. 

Any amount of pre-funded 2002 Employer contributions that would violate

those nondiscrimination tests or contribution limits shall be forfeited.

 

Forfeitures from

terminated Participants’ Plan Accounts shall be applied as set forth in Article

V, Paragraph E, of this Plan.

 

12

 

The Board’s

determination of any Employer contributions shall be binding on all

Participants, the Administrative Committee, the Investment Committee, and the

Trustee.  The Trustee shall have no

right or duty to inquire into the amount of the annual Employer contribution or

the method used in determining the amount of such contribution, but shall be accountable

only for the funds actually received by it.

 

Notwithstanding

any provision of this Plan to the contrary, effective with respect to

reemployments initiated on or after December 12, 1994, Employer contributions

with respect to qualified military service shall be made in accordance with

Code Section 414(u).

 

This Plan is

designed to qualify as a money purchase pension plan for purposes of Internal

Revenue Code Section 401(a) and as to Pre-April 1, 2002 ESOP Accounts as an

employee stock ownership plan as described in Code Section 4975(e)(7).

 

B.            Date of Payment. The Employer shall

pay to the Trustee, within the time provided by law for filing of the

Employer’s income tax return (including extensions), the amounts to be

contributed pursuant to Paragraph A.

 

C.            Participant Contributions. Participants

shall not be allowed to make contributions under this Plan.

 

ARTICLE V

PARTICIPANT’S

ACCOUNTS,

VALUATION, MAXIMUM CONTRIBUTION

 

A.            Participant’s Accounts. The

Administrative Committee or its delegate shall establish and maintain a

separate Pre-April 1, 2002 ESOP Employer Stock Account, a separate Pre-April 1,

2002 ESOP Investment Account, a separate Post-March 31, 2002 Money

Purchase Pension Plan Employer Contribution Account, and a separate frozen Employer

Matching Contribution Account, if applicable, for each Participant which shall

reflect the Participant’s Accrued Benefit. 

The Administrative Committee shall furnish each Participant who requests

the same in writing a statement reflecting, on the basis of the latest

available information, his Accrued Benefit and the nonforfeitable portion

thereof, or if no benefits are nonforfeitable, the earliest date on which

benefits will be nonforfeitable.  Only

one such statement need be furnished a Participant each 12 months.  The Employer may appoint the Trustee or any

qualified third party to perform recordkeeping functions.

 

B.            Cash Dividends. For calendar quarters

beginning on or after April 1, 2002, cash dividends on shares of Employer

Stock in a Participant’s Pre-April 1, 2002 ESOP Employer Stock Account

shall be credited to his Pre-April 1, 2002 ESOP Investment Account, and cash

dividends on shares of Employer Stock in a Participant’s Post-March 31, 2002

Money Purchase Pension Plan Employer Contribution Account shall be credited to

his Post-March 31, 2002 Money Purchase Pension Plan Employer Contribution

Account to be invested in the Plan investment funds selected by the

Participant.

 

C.            Trust Valuation. As of each Valuation

Date, the Trustee shall (1) determine the fair market value of each Plan

investment fund in order to determine the percentage of increase or decrease in

such fair market value when compared with the fair market value of such Plan

investment fund as of the immediately preceding Valuation Date and

(2) adjust the Participants’ Accounts accordingly.  The Employer, the Administrative Committee,

the Investment Committee, and the Trustee do not in any manner or to any extent

whatever warrant, guarantee or represent that the value of a Participant’s accounts

shall at any time exceed or equal the amount previously contributed

thereto.  The fair market value of

Employer Stock allocated to Participants’ Accounts shall be equal to the NASDAQ

bid price on the applicable Valuation Date or if not available, on the date

preceding such date on which such bid price is available, unless such fair

market value is determined using the average sale price as described in

Article X, Paragraph B.  If

there is no established market for Employer Stock, the fair market value shall

be as determined by independent appraisal which shall be performed by an

appraiser selected by the Investment Committee and at such intervals and

pursuant to such procedures as the Investment Committee shall determine.

 

D.            Maximum Contributions.

 

1.            Annual

Addition.  The

term “annual addition” for any Plan Year means the sum of:

 

(a)           The

Employer’s contributions on a Participant’s behalf to the Employer’s defined

contribution plan(s) (any profit sharing, ESOP, and money purchase pension

plans) including (i)

 

13

 

401(k) tax-deferred contributions and (ii) both contributions used to

repay an exempt loan under this Plan and other contributions allocated to the

Participant’s account;

 

(b)           The

Participant’s voluntary nondeductible contributions, if any, to the defined

contribution plan(s) maintained by the Employer;

 

(c)           Any

forfeitures allocated to the Participant’s accounts under the Employer’s

defined contribution plan(s);

 

(d)           Amounts

allocated for a Plan Year beginning after March 31, 1984, to a Code Section

415(l)(2) individual medical account that is part of a defined benefit plan

maintained by the Employer;

 

(e)           Amounts

paid or accrued after December 31, 1985, in taxable years ending after that

date, for post-retirement benefits allocated to a separate account in a Code

Section 419(e) welfare benefit fund maintained by the Employer.  These amounts will not be subject to the

present limitations of Code Section 415(c)(1)(B); and

 

(f)            Amounts

allocated under a simplified employee pension plan established pursuant to Code

Section 408(k).

 

Notwithstanding

any other provision hereof, the annual addition to a Participant’s accounts for

any Plan Year shall not exceed the lesser of $40,000, as adjusted under Code

Section 415(d), or (ii) 25% of the Participant’s Compensation from the Employer

for the Plan Year as defined for purposes of Code Section 415 in

Paragraph F of Article II. 

Effective for limitation years beginning after December 31, 2001, 25%

shall be changed to 100% in (ii) above, and such Compensation limit shall not

apply to any contribution for medical benefits after separation from service

(within the meaning of Code Section 401(h) or 419A(f)(2)) which is otherwise

treated as an annual addition.

 

The Compensation

limitation referred to in the preceding paragraph shall not apply to:  (i) any contributions for medical benefits

(within the meaning of Code Section 419A(f)(2) or 401(n)) which are made after

separation from service and which are otherwise treated as an Annual Addition;

or (ii) any amount otherwise treated as an Annual Addition under Code Section

415(1)(1) or 419A(d)(2).

 

2.             Excess Annual Addition. If, as

a result of the allocation of forfeitures, a reasonable error in estimating a

Participant’s Compensation, or other facts and circumstances to which Code

Regulation Section 1.415-6(b)(6) shall be applicable, the annual addition for a

Participant exceeds the applicable limitations for the Plan Year, the annual

addition shall be reduced as follows:

 

(a)           The

amount of such excess consisting of the Employee’s unmatched tax-deferred

income contributions to the Employer’s Salary Deferral 401(k) Plan shall be

paid to the Employee as soon as administratively feasible.

 

(b)           The

amount of any remaining excess consisting of matched tax-deferred contributions

on behalf of an Employee and Employer matching contributions on behalf of such

Employee to the Employer’s Salary Deferral 401(k) Plan shall be reduced pro

rata (currently one dollar of Employer matching contributions for every one

dollar of matched tax-deferred contributions). 

Such tax-deferred contributions shall be paid to the Employee as soon as

administratively feasible, and such Employer matching contributions shall be

allocated to a suspense account as forfeitures and applied as provided in (c)

below).

 

(c)           The

amount of any remaining excess consisting of Employer contributions to the

Employer’s Salary Deferral 401(k) Plan shall be allocated to a suspense account

as forfeitures and held therein until the next succeeding date on which

forfeitures could be applied to reduce future Employer contributions under such

Plan.

 

(d)           The

amount of any remaining excess consisting of Employer contributions to this

Plan shall be allocated to a suspense account as forfeitures and held therein

until the next succeeding date on which forfeitures could be applied under this

Plan.

 

The limitation

year is the Plan Year.  Notwithstanding

any other provisions, the Employer shall not contribute any amount that would

cause an allocation to the suspense account as of the date the contribution is

allocated.  If the contribution is made

prior to the date as of which it is to be allocated, then such contribution

shall not exceed an amount that would cause an allocation to the suspense

account if the date of contribution were an allocation date.  If an allocation is made to such suspense

account, it shall contain no investment gains and losses or other income.  Amounts in the suspense account are

allocated as of each allocation date on which forfeitures may be allocated

until the account is exhausted.

 

14

 

3.             For the purpose of this Paragraph

E, the following rules shall control:

 

(a)           The

$40,000 maximum shall be deemed adjusted for any Plan Year to conform to

increases in the cost of living in accordance with regulations to be adopted by

the Secretary of Treasury.

 

(b)           All

qualified defined benefit plans (whether terminated or not) ever maintained by

the Employer shall be treated as one defined benefit plan, and all qualified

defined contribution plans (whether terminated or not) ever maintained by the

Employer shall be treated as one defined contribution plan.

 

(c)           If

the Employer is a member of a controlled group of corporations, trades or

businesses under common control (as defined by Code Section 1563(a) or Code

Section 414(b) and (c) as modified by Code Section 415(h)) or is a member of an

affiliated service group (as defined by Code Section 414(m)), all Employees of

such Employers shall be considered to be employed by a single Employer.

 

E.             Forfeitures and Reinstatement of

Forfeitures.  The

nonvested Accrued Benefit of each Participant with respect to whom an Event of

Forfeiture has occurred and who is not in the employ of the Employer on the

date the Event of Forfeiture occurs shall be forfeited as of the date that the

Event of Forfeiture occurs.  If a

Participant terminates employment with the Employer, incurs an Event of

Forfeiture, is thereafter reemployed, and has not incurred five consecutive

One-Year Breaks in Service as of the Valuation Date coinciding with or

following the date of his reemployment, his forfeited Accrued Benefit shall be

reinstated as if that nonvested Accrued Benefit has not been forfeited,

provided the terminated Participant repays the amount of the vested Accrued

Benefit previously distributed, which was attributable to Employer

Contributions and earnings, back to the Plan Trustee to be credited to the

Participant.  Such a repayment must

occur before the earlier of:  (1) the

date five years after the date on which the Participant is subsequently

re-employed by the Employer; or (2) the date the Participant would have

incurred five consecutive one-year Breaks in Service following the date of

distribution had he not been re-employed. 

The reinstatement shall occur on the Valuation Date coinciding with or

following such Participant’s date of re-employment, by allocating the required

amount to the Participant’s Account first, from forfeitures occurring on such Valuation

Date, second, from Trust earnings allocated as of such Valuation Date, and

third, from extraordinary Employer contributions as required.

 

Forfeitures shall

be used first to reinstate previously forfeited account balances as provided

above.  Forfeitures shall then be

utilized to reduce Employer Contributions to this Plan.

 

Notwithstanding

the above, in the event the distribution to a terminated Participant is less

than his Accrued Benefit, the Administrative Committee shall establish a

separate bookkeeping account for the Participant which shall be known as the

“Termination Account.”  At any relevant

time, the Participant’s vested portion of his Termination Account shall not be

less than an amount (“X”) determined by the following formula:

 

X = P(AB + (RxD)) - (RxD)

 

For purposes of applying the formula: 

P is the vested percentage at the relevant time; AB is the Termination

Account balance at the relevant time; R is the ratio of the account balance at

the relevant time to the account balance after distribution; and D is the

amount distributed when the Employee terminated employment.

 

15

 

ARTICLE VI

NONFORFEITABLE

ACCRUED BENEFIT

 

A.            Allocations Not Vested. Allocations to

Participants in accordance with the provisions of Article V shall not vest any

right or title to any part of the assets of the Trust.

 

B.            Vesting Period. With respect to the Pre-April 1, 2002 ESOP Employer

Stock Account, the Pre-April 1, 2002 ESOP Investment Account, and the

Post-March 31, 2002 Money Purchase Pension Plan Employer Contribution Account

of a Participant who is credited with at least one Hour of Service on or after

January 1, 2001, such accounts shall vest in accordance with the following

schedule:

 

Completion of Less

than 1 Year of Service        0%

Completion of 1 or

More Years of Service        20%

Completion of 2 or

More Years of Service        40%

Completion of 3 or

More Years of Service        60%

Completion of 4 or

More Years of Service        80%

Completion of 5 or

More Years of Service       100%

 

With respect to

the Pre-April 1, 2002 ESOP Employer Stock Account and the Pre-April 1, 2002

ESOP Investment Account of a Participant who is not credited with at least one

Hour of Service on or after January 1, 2001, such accounts shall vest in

accordance with the Plan vesting schedule in effect at the time of that

Participant’s termination of employment or the last Hour of Service credited to

that Participant prior to January 1, 2001.

 

In crediting Years

of Service to determine a Participant’s nonforfeitable Accrued Benefit, the

Administrative Committee shall apply the following rules using the Vesting

Computation Period for purposes of determining Years of Service and One-Year

Breaks in Service:

 

1.             Except

as specifically hereinafter provided, all of an Employee’s Years of Service

with the Employer both prior to becoming a Participant and thereafter shall be

taken into account.  Employees will also

receive credit for service with another bank listed in Schedule B if Pacific

Northwest Bancorp or its predecessor InterWest Bancorp, Inc. acquired that bank

through a merger, acquisition, or similar transaction, provided that (1) the

employee was employed by the acquired bank immediately prior to the date of

such merger, acquisition, or similar transaction, and (2) immediately after

such date, the Employee became an Employee of Pacific Northwest Bancorp, its

predecessor InterWest Bancorp, Inc., or an employer listed in Schedule C.  The credit the Employee receives will be

equal to the Years of Service credit the Employee had earned under the other

bank’s qualified plan for vesting purposes as of the date of merger,

acquisition, or similar transaction, plus any Hours of Service with that bank

in the Plan Year in which the Employee becomes employed by the Employer.  Employees of an acquired bank that did not

sponsor any qualified plan that credited vesting service shall receive credit

for all Years of Service they would have completed based on their actual Hours

of Service.  Provided, however, that

there shall be no duplication of vesting credit for the Plan Year in which the

Employee becomes employed by the Employer.

 

2.  In the case

of a Participant who terminates employment with the Employer and has no

nonforfeitable right to an Accrued Benefit derived from Employer contributions,

the Employer shall not give credit for Years of Service occurring before a

One-Year Break in Service if, on the date the Participant first completes an

Hour of Service following the date of termination, the number of his

consecutive One-Year Breaks in Service equals or exceeds the aggregate number

of Years of Service (whether or not consecutive) prior to the last such break

if the number of consecutive One-Year Breaks in Service is five or more.  Years of Service before the break shall not

include Years of Service not required to be taken into account by reason of any

other rule under this Paragraph B.

 

3.             The

Employer shall not give credit for Years of Service which are not disregarded

under subparagraph 2 until the Participant has completed a Year of Service upon

his return during the Vesting Computation Period.

 

4.  The

nonforfeitable percentage of a Participant’s Accrued Benefit derived from

Employer contributions made prior to five consecutive One-Year Breaks in

Service shall be determined without regard to Years of Service occurring after

such five consecutive One-Year Breaks in Service.  Separate accounting shall be maintained for the pre-break Accrued

Benefit.

 

16

 

5.             Years

of Service during Plan Years commencing before the Participant attains age 18

shall be disregarded.  Effective October

1, 2001, this subparagraph 5. shall no longer apply, and Years of Service

during Plan Years commencing before the Participant attains age 18 shall be

counted for purposes of determining the nonforfeitable percentage of such

Participant’s Accrued Benefit.

 

Notwithstanding

any provision of this Plan to the contrary, an employee of National Bank of

Tukwila on September 30, 1999 who remained employed by National Bank of

Tukwila or directly transferred to employment with InterWest Bancorp, Inc. or

one of its affiliates co-sponsoring the Plan on October 1, 1999, shall

receive credit for vesting purposes for his Hours of Service and Years of

Service with National Bank of Tukwila, including Hours of Service and Years of

Service prior to October 1, 1999, based on service with National Bank of

Tukwila during the applicable Vesting Computation Period(s) in accordance with

the terms of this Plan.

 

C.            Amendment to Vesting Computation Period or Vesting

Schedule.The Board may amend the Plan to provide for a

different Vesting Computation Period so long as the new Vesting Computation

Period, as amended, begins prior to the last day of the preceding Vesting

Computation Period.  No Plan amendment

shall reduce a Participant’s nonforfeitable Accrued Benefit.  If the Plan vesting schedule is amended or

the Plan is amended in any way that directly or indirectly affects the

computation of a Participant’s nonforfeitable percentage, or if a different

vesting schedule is applicable because a previously Top-Heavy Plan is no longer

Top-Heavy, each Participant with at least three (3) Years of Service with the

Employer may elect, within a reasonable period after the adoption of the

amendment, to have his nonforfeitable Accrued Benefit (accrued before and after

the amendment) computed under the Plan without regard to such amendment.  The period during which the election may be

made shall commence with the date the amendment is adopted and shall end on the

later of:

 

1.             Sixty

(60) days after the amendment is adopted;

2.             Sixty

(60) days after the amendment becomes effective; or

3.             Sixty

(60) days after the Participant is issued written notice of the amendment by

the Employer or Administrative Committee.

 

D.            Full Vesting. If a Participant dies,

becomes permanently and totally disabled, or attains normal retirement age and

such event occurs while the Participant is still employed by the Employer, the

full amount credited to the Participant’s Pre-April 1, 2002 ESOP Employer Stock

Account, Pre-April 1, 2002 ESOP Investment Account, Post-March 31,

2002 Money Purchase Pension Plan Employer Contribution Account pursuant to

Article V and frozen Employer Matching Contribution Account pursuant to

Article XXIII shall become fully vested and nonforfeitable.

 

ARTICLE VII

DISTRIBUTION

OF BENEFITS

 

A.            Retirement Age and Options. The

normal retirement age shall be the later of the Participant’s attainment of age

65 or the Participant’s fifth anniversary of Plan participation, and each

Participant or former Participant shall be entitled to retire upon the first

day of the month coinciding with or following the date the Participant or

former Participant attains normal retirement age, which day shall be his Normal

Retirement Date.

 

1.             Employment

After Normal Retirement Age. If a Participant continues

in the employ of the Employer beyond his Normal Retirement Date, he shall,

pursuant to the terms of this Plan, continue to share in Employer

contributions, forfeitures, and increases and decreases in value, including

fees and expenses until actual retirement.

 

a.             Election to Receive Benefits While

Still Employed. A Participant who has attained normal

retirement age (or who has attained age 70-1/2, even if he has not yet completed

five years of Plan participation) may elect in writing to receive his Accrued

Benefit prior to his actual retirement date in accordance with procedures

established by the Administrative Committee; such a Participant shall continue

to share in Employer contributions, forfeitures, and increases and decreases in

value, including fees and expenses, until actual retirement.

 

b.             Required Receipt of Benefits. Distribution

of benefits shall commence to a Participant upon the later of his attaining age

70-1/2 or termination of employment. 

The required distribution shall commence no later than April 1 of the

calendar year following the calendar year in which the later event

 

17

 

occurs.  Provided, however, that in the case of a

Participant who is a more than five percent (5%) owner of the Employer, the

required distribution shall commence no later than April 1 of the calendar year

following the calendar year in which occurs the earlier of the Participant’s

retirement or attainment of age 70-1/2. 

A Participant who is still employed by the Employer and to whom this

subparagraph b applies shall continue until actual retirement to share in

Employer contributions, forfeitures, and increases and decreases in value,

including fees and expenses.

 

A Participant who

is not a more than 5% owner of the Employer who commenced required

distributions prior to 1997 and did not retire from employment with the

Employer before January 1, 1997 may elect (subject to any applicable

Qualified Domestic Relations Order) to cease receiving distributions until the

date required by this subparagraph b.

 

2.             Date of

Retired Participant’s First Payment. A Participant who

retires hereunder shall begin receiving his benefits as soon as is reasonably possible

after his retirement date but no later than the date sixty (60) days after the

close of the Plan Year in which the Participant retires, unless he elects to

defer payment pursuant to subparagraph (3) below.

 

3.             Deferral

of Benefits. A Participant who retires hereunder or

terminates employment with a nonforfeitable Accrued Benefit in excess of $5,000

shall not be required to receive a distribution without his written

consent.  A Participant may elect to

defer the commencement of his Plan benefits to a later date, but not later than

April 1 of the calendar year following the calendar year in which he attains

age 70-1/2.  Such a Participant must

make this election in writing on a form provided by the Administrative

Committee.  Such election shall include

the current amount of the Participant’s nonforfeitable Accrued Benefit, the

form of payment of the benefit, and the date on which payment shall

commence.  The Participant may change

such election prior to the commencement of his deferred benefits, provided

payments commence no later than the date required above.  Such reasonable time shall be determined by

the Administrative Committee and uniformly applied.

 

Failure of a

Participant to consent to a distribution while a nonforfeitable Accrued Benefit

in excess of $5,000 at the time of termination or retirement is immediately

distributable shall be deemed an election to defer commencement of payment.

 

4.             Form of

Payment.

 

a.             Pre-April 1, 2002 ESOP Accounts. If

a Participant’s vested Plan benefits are more than $5,000 at the time of

retirement or termination of employment and a Plan distribution is to be made

to him, the Participant’s nonforfeitable Pre-April 1, 2002 ESOP Employer Stock

Account shall be distributed to him in whole shares of Employer Stock, as long

as that Employer Stock remains readily tradable on an established market, and

any fractional shares of Employer Stock will be distributed to him in

cash.  In the event that the Employer

Stock ceases to be readily tradable on an established market, the proceeds from

the sale of the whole shares in the Participant’s nonforfeitable Pre-April 1,

2002 ESOP Employer Stock Account and any fractional shares shall be distributed

to the Participant in a lump sum cash payment. 

That Participant’s nonforfeitable Pre-April 1, 2002 ESOP Investment

Account shall be distributed to him in a lump-sum cash payment, unless the

Participant elects to receive that nonforfeitable Pre-April 1, 2002 ESOP

Investment Account in whole shares of Employer Stock, with any fractional share

value distributed to him in cash.

 

b.             Post-March 31, 2002 Money Purchase

Pension Plan Employer Contribution Account. Within the

election period, a Participant who is eligible to receive benefits under this

paragraph may elect, in writing on a form provided by the Administrative

Committee (and, if married, with his Spouse’s consent), his choice from the

following options for distribution of his nonforfeitable Post-March 31, 2002

Money Purchase Pension Plan Employer Contribution Account:

 

i.              A

nontransferable annuity contract which will be an annuity for the life of the

Participant, with a survivor annuity for the life of his Spouse which is 50% of

the amount payable during the joint lives of the Participant and his Spouse (a

qualified joint and survivor annuity); or

 

ii.             A

nontransferable annuity contract which will be a monthly straight life annuity

for the life of the Participant; or

 

iii.            A

single payment equal to the Participant’s nonforfeitable Post-March 31, 2002

Money Purchase Pension Plan Employer Contribution Account.

 

18

 

If a Participant’s nonforfeitable Post-March 31, 2002

Money Purchase Pension Plan Employer Contribution Account is distributed to him

in the form of an annuity contract pursuant to options i. or ii. above, the

Employer Stock in his Post-March 31, 2002 Money Purchase Pension Plan

Employer Contribution Account shall be sold by the Trustee and the proceeds

applied toward the purchase of such annuity contract.

 

If a Participant’s nonforfeitable Post-March 31, 2002

Money Purchase Pension Plan Employer Contribution Account is distributed to him

in the form of a single sum payment pursuant to option iii. above, such

Participant shall receive the vested portion of that account, if any, that is

invested in Employer Stock in whole shares of Employer Stock, as long as such

Employer Stock remains readily tradable on an established market.  In the event that such Employer Stock ceases

to be readily tradable on an established market, the proceeds from the sale of

that Employer Stock shall be distributed to the Participant in a lump sum cash

payment.  Any fractional share value

shall be distributed to the Participant in a lump-sum cash payment.

 

All annuity contracts described in this Article VII

shall have a value equal to the Participant’s nonforfeitable Post-March 31,

2002 Money Purchase Pension Plan Employer Contribution Account as of the date

such contract(s) are purchased.

 

Within a period of no less than 30 days and no more

than 90 days before the annuity starting date, the Spouse of a married

Participant must consent in writing to the election of a form of benefit other

than i. above and acknowledge the effect of that consent.  The consent shall be witnessed by a Plan

representative or a notary public. 

Within a period no less than 30 days and no more than 90 days before the

annuity starting date, the Administrative Committee shall furnish such a

married Participant a written explanation in nontechnical language of the terms

and conditions of a qualified joint and survivor annuity under i. above, the

right to elect some other form of benefit, and the rights of his Spouse.  Prior to the annuity starting date, such a

married Participant may request the Administrative Committee to furnish him a

written explanation of the specific amount of the particular joint and survivor

annuity he will receive and the financial effect of his election of some other

form of benefit.  The Participant and

his Spouse may change their election as provided herein at any time prior to

the annuity starting date.  The Spouse

may revoke a consent to a form of benefit other than i. above at any time prior

to the annuity starting date.  If an

annuity is to be the form of benefit, the Administrative Committee shall

instruct the Trustee to purchase a nontransferable annuity contract from an

insurance company authorized to do business in the State of Washington and to

distribute the annuity to the Participant.

 

Notwithstanding the foregoing, the annuity starting

date for a distribution of a Participant’s nonforfeitable Post-March 31,

2002 Money Purchase Pension Plan Employer Contribution Account in a form of

annuity other than a qualified joint and survivor annuity may be less than 30

days after receipt of the written explanation described in the preceding

paragraph, provided:  (a) the

Participant has been provided with information that clearly indicates that the

Participant has at least 30 days to consider whether to waive the qualified

joint and survivor annuity and elect (with spousal consent) a form of

distribution other than a qualified joint and survivor annuity; (b) the

Participant is permitted to revoke any affirmative distribution election at

least until the annuity starting date or, if later, at any time prior to the

expiration of the 7-day period that begins the day after the explanation of the

qualified joint and survivor annuity is provided to the Participant; and (c)

the annuity starting date is a date after the date that the written explanation

was provided to the Participant.

 

Notwithstanding the foregoing, the Administrative

Committee may provide a Participant who has elected an annuity form of payment

the written explanation described above after the annuity starting date, in

which case the election period shall not end before the 30th day after the date

on which such explanation is provided, unless the Participant waives the

remainder of the 30-day election period, subject to the right to revoke the

election within 7 days after the written explanation is given.

 

A Participant may change his election any time prior

to the annuity starting date.

 

The annuity starting date means the first day of the

first period for which an amount is payable hereunder in the form of an annuity

or in the case of a benefit not payable in the form of an annuity, the first

date on which all events have occurred which entitle the Participant to the

benefit.  Except as provided above, the

election period is the 90-day period ending on the annuity starting date.

 

The Participant’s nonforfeitable Post-March 31, 2002

Money Purchase Pension Plan Employer Contribution Account shall be valued in

accordance with procedures adopted by the Administrative Committee from time to

time and uniformly applied.

 

19

 

In the event a Participant’s benefits are to commence

and he has made no election of the form of payment prior to the annuity

starting date, distribution of such Participant’s Post-March 31, 2002 Money

Purchase Pension Plan Employer Contribution Account shall be made pursuant to

option i. above if he is married and option ii. above if he is not married.

 

B.            Death. Each

Participant shall designate a beneficiary or beneficiaries on a form to be

furnished by the Administrative Committee. 

The beneficiary of a married Participant shall be his spouse, unless the

spouse consents in writing to the designation of some other beneficiary and

acknowledges the effect of the consent. 

The consent shall be witnessed by a Plan representative or a notary

public.  Such designation shall be filed

with the Administrative Committee and may be changed by the Participant from

time to time by filing a new designation in writing (together with the Spouse’s

consent where required).  The designation

last filed with the Administrative Committee shall control.

 

If any Participant shall fail to designate a

beneficiary or if the person or persons designated predecease the Participant

and there is no successor, the Participant’s beneficiary shall be the following

in the order named:

 

a.             Surviving

spouse at date of death,

 

b.             Then

living issue, per stirpes (lawful issue and adopted),

 

c.             Then

living parents, in equal shares,

 

d.             Brothers

and sisters, in equal shares, provided that if any brother or sister is not

then living, his or her share shall be distributed to his or her then living

issue, per stirpes, and

 

e.             Estate

of the Participant.

 

1.             Death Prior to

Commencement of Benefits.

 

a.             Pre-April 1, 2002 ESOP Accounts. The

Participant’s beneficiary shall receive the Participant’s nonforfeitable

Pre-April 1, 2002 ESOP Employer Stock Account and the Participant’s

nonforfeitable Pre-April 1, 2002 ESOP Investment Account in a single

payment.  Such payment shall be made in

the form described in Paragraph A.4.a of this Article.  If the Participant’s beneficiary is someone

other than his Spouse, the beneficiary must receive this payment by

December 31 of the calendar year in which the fifth anniversary of the

Participant’s death occurs.  If the

Participant’s beneficiary is his Spouse, the Participant’s Spouse may elect to

postpone this payment until the later of (i) December 31 of the

calendar year in which the fifth anniversary of the Participant’s death occurs,

or (ii) December 31 of the calendar year in which the Participant

would have attained age 70-1/2.

 

b.             Post-March 31, 2002 Money Purchase

Pension Plan Employer Contribution Account. A Participant’s

beneficiary may elect to receive the Participant’s Post-March 31, 2002 Money

Purchase Pension Plan Employer Contribution Account in a form of payment

provided in Paragraph A.4.b.(ii) or (iii) of this Article, that is, a straight

life annuity for the life of the Participant’s beneficiary or a single

payment.  The beneficiary may select the

date payment of the Participant’s nonforfeitable Post-March 31, 2002 Money

Purchase Pension Plan Employer Contribution Account shall commence, subject to

the following rules:

 

i.              A

beneficiary may elect to have the payment commence on any date that is a

reasonable time after the Participant’s death.

 

ii.             All

payments to the beneficiary shall be completed by December 31 of the calendar

year in which the fifth anniversary of the Participant’s death occurs, except

that such payments may extend beyond that five-year period under the following

circumstances:

 

(a)           If

the Participant’s beneficiary is not the Participant’s Spouse, that beneficiary

may elect to receive a single life annuity contract for the beneficiary’s life

commencing not later than December 31 of the calendar year immediately

following the calendar year in which the Participant died; or

 

(b)           If

the Participant’s beneficiary is his Spouse, his Spouse may elect a single

payment or a single life annuity contract that commences not later than the

later of (i) December 31 of the calendar year in which the Participant

would have attained age 70-1/2, or (ii) December 31 of the

calendar year in which the fifth anniversary of the Participant’s death occurs.

 

The beneficiary’s selection of the date of payment

shall be in writing on a form furnished by the Administrative Committee.  If the beneficiary is the Participant’s

Spouse and the Spouse elects to postpone

 

20

 

payment of the Participant’s Accrued Benefit, the Spouse shall

designate a beneficiary or beneficiaries in accordance with the provisions of

this Paragraph B as if the Spouse was the Participant.  If such Spouse dies before payments commence

hereunder, the provisions of this Paragraph B shall be applied as if the Spouse

was the Participant.

 

If the Participant’s beneficiary fails to make a

written election as to the time of payment before December 31 of the calendar

year in which the fifth anniversary of the Participant’s death occurs, and the

Participant did not designate his Spouse as beneficiary, the Administrative

Committee shall direct the Trustee to pay the benefit in a single sum to the

Participant’s beneficiary not later than such December 31.  If the Participant’s Spouse as designated

beneficiary fails to make a written election as to the form and time of payment

before the later of (i) December 31 after the Participant would have attained

age 70-1/2 or (ii) December 31 of the calendar year in which the fifth

anniversary of the death of the Participant occurs, the Administrative

Committee shall direct the Trustee to distribute the Participant’s Accrued

Benefit in a single sum on or before the later of December 31 of the calendar

year in which the Participant would have attained age 70-1/2 or December 31 of

the calendar year in which the fifth anniversary of the death of the

Participant occurs.

 

A payment hereunder shall be valued in accordance with

the terms of this Plan and the procedures adopted by the Administrative

Committee from time to time and uniformly applied.

 

The number of shares of Employer Stock in the

Participant’s Pre-April 1, 2002 ESOP Employer Stock Account and a

Participant’s Post-March 31, 2002 Money Purchase Pension Plan Employer

Contribution Account will be determined on the Valuation Date immediately

preceding the distribution, unless the value is determined using the average

sale price as described in Article X, Paragraph B.  The beneficiary will receive the proceeds

from the liquidation of the Participant’s Pre-April 1, 2002 ESOP Investment

Account and from the portion of a Participant’s Post-March 31, 2002 Money

Purchase Pension Plan Employer Contribution Account that is not invested in

Employer Stock.  Payments shall be in

the form described in Paragraph A(4) of this Article.

 

2.             Explanation

of Death Benefit.

 

This subparagraph 2. shall apply with respect to a Participant’s

Post-March 31, 2002 Money Purchase Pension Plan Employer Contribution

Account.  The Administrative Committee

shall provide to each Participant, at the time(s) described below, a written

explanation of (a) the death benefit provided by the Plan to the Participant’s

Spouse attributable to the Participant’s Post-March 31, 2002 Money Purchase

Pension Plan Employer Contribution Account, (b) the Participant’s right to

designate a beneficiary other than his Spouse to receive that death benefit,

provided he obtains the Spouse’s written consent witnessed by a notary public

or Plan representative, and (c) the Participant’s and Spouse’s right to revoke

that designation or consent, and the effect of such a revocation.  Such notice shall be provided to a

Participant both at the time he wishes to elect a beneficiary other than his

Spouse and during whichever of the following applicable periods ends last:

 

i.              The period beginning with the first day of the Plan

Year in which the Participant attains age 32 and ending with the close of the

Plan Year preceding the Plan Year in which the Participant attains age 35;

 

ii.             A reasonable period after the

individual becomes a Participant; or

 

iii.            A reasonable period after separation

from service, in case of a Participant who separates from service before

attaining age 35; or

 

iv.            A reasonable period following the

date on which the Participant first becomes entitled to a vested Accrued

Benefit.

 

For purposes of applying the preceding paragraph, a

reasonable period ending after the enumerated events described in (ii), (iii)

and (iv) is the end of the two-year period beginning one year prior to the date

the applicable event occurs, and ending one year after that date.  In the case of a Participant who separates

from service before the Plan Year in which age 35 is attained, notice shall be

provided within the two-year period beginning one year prior to separation and

ending one year after separation.  If

such a Participant thereafter returns to employment with the Employer, the

applicable period for such Participant shall be redetermined.

 

Any beneficiary designation made prior to the first

day of the Plan Year in which the Participant attains age 35 and which

designates a beneficiary other than the Participant’s Spouse is invalid on and

after that date, unless the Participant completes another beneficiary

designation form, again obtains his Spouse’s

 

21

 

written consent to the designation of a beneficiary other than his

Spouse, and the Spouse’s consent is witnessed by a notary public or a Plan

representative.

 

C.            Disability. Disability

means that a Participant, by reason of mental or physical disability, is

incapable of performing the duties of his customary position with the Employer

for an indefinite period which, in the opinion of the Administrative Committee,

is expected to be of a long continual duration.  In the event of disability said Participant’s nonforfeitable

Accrued Benefit shall be distributed to him if he so elects in the same manner

as if he had attained full retirement age as provided in Paragraph A

above.  Such benefit will be valued in

accordance with Paragraph A(4) above. 

Disability shall be established to the satisfaction of the Administrative

Committee.  If the Participant shall

disagree with the Administrative Committee’s findings, disability shall be

established by the certificate of a physician, selected by the Participant and

approved by the Administrative Committee, or if the physician selected by the

Participant shall not be approved by the Administrative Committee, then by a

majority of three physicians, one selected by the Participant (or his Spouse,

child, parent, or legal representative in the event of his inability to select

a physician), one by the Administrative Committee, and the third by the two

physicians selected by the Participant and the Administrative Committee.

 

D.            Termination of

Employment. In the event a Participant terminates employment

with a nonforfeitable Accrued Benefit of not more than $5,000, the Participant

shall be paid such Accrued Benefit in accordance with Paragraph A(4) of this

Article as soon as is reasonably possible after the date he terminates

employment.  A Participant whose

nonforfeitable Accrued Benefit at termination of employment is zero shall be

deemed to be cashed out.  If a

Participant terminated employment prior to January 1, 1998 and did not receive

a distribution, he shall be paid his nonforfeitable Accrued Benefit in

accordance with Paragraph A(4) of this Article as soon as administratively

possible following the January 1, 1998 effective date of this $5,000 cashout

amendment if his nonforfeitable Accrued Benefit is not more than $5,000 both on

the Valuation Date coinciding with or preceding his termination of employment

and the Valuation Date coinciding with or preceding his distribution.  If the Participant’s nonforfeitable Accrued

Benefit exceeds $5,000 at the time it first becomes available for distribution,

such benefit shall be paid as provided in Paragraph A(4) of this Article within

60 days after the close of the Plan Year in which the Participant attains

Normal Retirement Age unless the Participant consents to an earlier

distribution or elects to defer receipt of the distribution pursuant to Article

VII, Paragraph A(3).

 

If, at the time a Participant terminates employment,

the Participant has completed 1,000 Hours of Service in the Plan Year, the

vesting percentage used to compute his distribution shall reflect an additional

Year of Service.

 

The Administrative Committee shall file such reports

with the Secretary of Labor and Treasury and provide such information to a

terminated Plan Participant as is required by law and regulations.

 

Anything in this Article VII, Paragraph D to the

contrary notwithstanding, the forfeitable portion of a Participant’s account

shall be subject to the forfeiture provisions of Article V, Paragraph E.

 

In the event that a terminated Participant’s current

address and whereabouts are unknown and the Administrative Committee has made a

good faith effort to locate the missing Participant, then if the Participant

cannot be located after that good faith effort, the nonforfeitable Accrued

Benefit of the missing Participant shall be forfeited, subject to reinstatement

of such benefit (unadjusted for gains or losses subsequent to the forfeiture)

if the missing Participant is later found or makes a claim for Plan benefits.

 

E.             Time of First

Payment. Upon death, attainment of normal retirement age by a

Participant who has separated from service with the Employer, retirement,

termination of employment with a vested Accrued Benefit of not more than $5,000

or receipt by the Administrative Committee of a disabled Participant’s election

to receive disability benefits, distribution of an affected Participant’s

nonforfeitable Accrued Benefit shall commence as soon as is reasonably

possible, but in no event shall distribution commence later than sixty (60)

days following the Plan Year during which such aforementioned event occurs,

provided that if a Participant or beneficiary is entitled to elect to defer

receipt of such a distribution pursuant to the provisions of Paragraphs A(3) or

B of Article VII and he makes such an election, commencement of benefits

shall be deferred to the date elected by the Participant or beneficiary.

 

F.             Distribution

of Allocation Attributable to Last Year of Participation. The

amount, if any, allocated to the Participant’s Plan Accounts for the Plan Year

in which an event described in Paragraph E occurs shall be paid no later than

sixty days after the end of the Plan Year, unless the Participant or

beneficiary

 

22

 

elects to defer the commencement of benefits in accordance with

Paragraph A(3) or B of Article VII, or fails to consent to the

distribution as required by this Article.

 

G.            Distribution

to Persons Under Disability. Distributions to minors or

incompetents may be made by the Trustee either (1) directly to the minor, (2)

to the legal guardians of the minor or incompetent, or (3) to the parent of the

minor.  The Trustee shall not be

required to see to the application of any such distribution so made to any of

said persons, but his or their receipts therefor shall be a full discharge of

the Trustee.

 

H.            No

Reduction in Benefits by Reason of Increase in Social Security Benefits. Notwithstanding

any other provision of the Plan, in the case of a Participant who is receiving

benefits under the Plan, or in the case of a Participant who has terminated

employment with the Employer and who has a nonforfeitable Accrued Benefit, such

benefits will not be decreased by reason of any increase in the benefit levels

payable under Title II of the Social Security Act.

 

I.              Provisions for Nontradeable Stock. If

at any time Employer Stock shall cease to be readily tradeable, the following

provisions shall apply with respect to a Participant’s Pre-April 1, 2002 ESOP

Employer Stock Account:

 

1.             If

Employer Stock is not readily tradeable on an established market at the time of

a distribution, the Participant shall have the right to receive a distribution

from his Pre-April 1, 2002 ESOP Employer Stock Account in cash, by making

demand in the same manner and time as described in Paragraph A.4 above.

 

2.             If

Employer Stock ceases to be readily tradeable after distribution, a Participant

who received such stock from his Pre-April 1, 2002 ESOP Employer Stock Account

shall promptly be granted an option to put the stock to the Employer if allowed

by law, or otherwise to a third party with substantial net worth.  Such put option shall be exercisable during

a 60-day period after notice is given to the Participant of the availability of

the put.

 

3.             With

respect to any transaction between a disqualified person as defined under ERISA

and the Plan, fair market value shall be determined as of the date of the

transaction.

 

J.             Diversification and Distribution of

Investments in Pre-April 1, 2002 ESOP Employer Stock Account. Upon

the later of (a) the date a Participant reaches age fifty-five (55), or

(b) the date the Participant completes at least ten (10) years of participation

in the Plan, the Participant may elect to receive a distribution of part of the

Employer Stock in his Pre-April 1, 2002 ESOP Employer Stock Account.  Such a Participant has the right to elect to

receive a distribution of a percentage of the Employer Stock in his

Pre-April 1, 2002 ESOP Employer Stock Account over a six-year election

period beginning with the Plan Year in which he meets these requirements.  During the first five years of that election

period, that Participant may sell an aggregate total of up to 25% of the

Employer Stock in his Pre–April 1, 2002 ESOP Employer Stock Account

and receive a distribution of the proceeds in cash.  This election can be incremental or all at once, as long as by

the end of the first five years in the election period, no more than 25% of the

Employer Stock held in that Participant’s Pre-April 1, 2002 ESOP Employer

Stock Account has been sold and distributed as described below.

 

In the sixth and last year of the election period, the

aggregate total of the Employer Stock that may be sold and distributed to that

Participant increases to 50%.  This

means if that Participant sold and received a distribution of the proceeds of

25% of his Employer Stock holdings in his Pre-April 1, 2002 ESOP Employer

Stock Account in the first five years of his election period, then he would be

allowed to sell and receive a distribution of the proceeds of an additional 25%

of those Employer Stock holdings in his Pre-April 1, 2002 ESOP Employer Stock

Account in the sixth year of his election period.

 

If that Participant wants to take advantage of this

special diversification election period for a Plan Year, he must make an

election within 90 days following the end of that Plan Year.  Within 180 days after the end of the

applicable Plan Year, the portion of his Pre-April 1, 2002 ESOP Employer

Stock Account to which the election applies will, at his election, either be (a) distributed

to him in cash, or (b) directly transferred to an individual retirement

account (IRA) or another eligible retirement plan on his behalf.

 

23

 

ARTICLE VIII

PROVISION

AGAINST ANTICIPATION

 

A.            No Alienation

of Benefits. Until distribution pursuant to the terms hereof

and except as hereinafter provided in this Article VIII, no Participant shall

have the right or power to alienate, anticipate, commute, pledge, encumber, or

assign any of the benefits, proceeds, or avails of the funds set aside for him

under the terms of this Plan, and no such benefits, proceeds, or avails shall

be subject to seizure by any creditor of the eligible Employee under any writ

or proceedings at law or in equity.

 

B.            Qualified

Domestic Relations Orders. Notwithstanding any other Plan

provision, the following procedures shall apply when any domestic relations

order (entered on or after January 1, 1985) is received by the Plan with

respect to a Participant.

 

1.            The Administrative Committee shall promptly notify the

Participant, and (a) each person named in the order as entitled to payment of

Plan benefits, and (b) any other person entitled to any portion of the

Participant’s Plan benefits (persons referred to in (a) and (b) are hereafter

alternate payees) of the receipt of such order and of the Administrative

Committee’s procedures for determining the qualified status of the order.  The Administrative Committee shall permit

each alternate payee to designate a representative for receipt of copies of

notices.

 

2.            Immediately upon receipt of such order, the

Administrative Committee shall direct the Trustee to segregate in a separate

account the amounts which are in pay status and which are payable to the

alternate payee under the order.

 

3.            The Administrative Committee shall meet promptly after

receipt of the order and determine whether the order is a Qualified Domestic

Relations Order.  The Administrative

Committee shall promptly notify the Participant and each alternate payee of its

decision.  A Qualified Domestic

Relations Order is any judgment, decree or order (including approval of a

property settlement agreement) that:

 

a.             Relates to the provision of child support, alimony

payments, or marital property rights to a spouse, former spouse, child or other

dependent of a Participant;

 

b.            Is made pursuant to a State domestic relations law

(including a community property law);

 

c.             Creates or recognizes the existence of an alternate

payee’s right to receive all or a portion of a Participant’s Plan benefits;

 

d.            Clearly specifies (i) the name and last known mailing

address, if any, of the Participant, and the name and mailing address of each

alternate payee covered by the order; (ii) the amount or percentage of the

Participant’s benefits to be paid by the Plan to each alternate payee, or the

manner in which the amount or percentage is to be determined; (iii) the number

of payments or period to which the order applies; and (iv) the plan to which

the order applies;

 

e.             Does

not require the Plan to provide any form of benefit not otherwise provided by

the Plan or any increased benefits, and does not require the payment of

benefits to an alternate payee which are required to be paid to another

alternate payee under another order previously determined to be a Qualified

Domestic Relations Order.  Notwithstanding

any other provision of this Plan to the contrary, the time of payment in the

Qualified Domestic Relations Order shall govern the time of payment under this

Plan, even if prior to the earliest retirement age as defined in Code Section

414(p)(4)(B).

 

4.            The Administrative Committee’s decision shall be final

unless the Participant or an alternate payee gives written notice of appeal

within 60 days after receipt of the Administrative Committee’s decision.

 

5.            If within 18 months an order is finally determined to be

a Qualified Domestic Relations Order, the segregated amounts plus interest (if

any) shall be paid to the persons entitled thereto, and thereafter the

alternate payee shall receive payments pursuant to the terms of the order.  Amounts subject to the order which are not

in pay status shall be transferred to a separate account in the name of the

alternate payee and thereafter held for such payee’s benefit pursuant to the

terms of the order.  If within 18 months

the order is determined not to be a Qualified Domestic Relations Order, or if

the issue has not been finally determined, the Administrative Committee shall

pay the segregated amounts to the person who would have been entitled thereto

if there had been no order.  Any

determination that an order is qualified after the close of the 18 month period

shall be applied prospectively only.

 

6.            The Administrative Committee’s procedures shall generally

conform to the Plan’s claims procedures.

 

24

 

ARTICLE IX

ADMINISTRATIVE COMMITTEE AND INVESTMENT COMMITTEE DUTIES

 

A.            Appointment of Administrative

Committee. The Board of Directors of Pacific Northwest

Bancorp shall appoint an Administrative Committee of not fewer than two (2)

persons (herein referred to as the “Administrative Committee”).  The Administrative Committee shall perform

administrative duties set forth in part hereinafter and serve for such terms as

the Board of Directors may designate or until a successor has been appointed or

until removal by the Board of Directors. 

The Board of Directors shall advise the Trustee in writing of the names

of the members of the Administrative Committee and any changes thereafter made

in the membership of the Administrative Committee.  Vacancies due to resignation, death, removal, or other causes

shall be filled by the Board of Directors. 

Members shall serve without compensation for service.  All reasonable expenses of the Administrative

Committee shall be paid by the Employer. 

The number of Administrative Committee members may be changed by the

Board of Directors at any time.

 

B.            Administrative Committee Action. The

Administrative Committee shall choose a secretary who shall keep minutes of the

Administrative Committee’s proceedings and all data, records, and documents

pertaining to the Administrative Committee’s administration of the Plan.  The Administrative Committee shall act by a

majority of its members at the time in office, and such action may be taken

either by a vote at a meeting or in writing without a meeting.  The Administrative Committee may by such

majority action authorize its secretary or any one or more of its members to

execute any document or documents on behalf of the Administrative Committee, in

which event the Administrative Committee shall notify the Trustee in writing of

such action and the name or names of those so designated.  The Trustee thereafter shall accept and rely

conclusively upon any direction or document executed by such secretary, member,

or members as representing action by the Administrative Committee until the

Administrative Committee shall file with the Trustee a written revocation of

such designation.  A member of the

Administrative Committee who is also a Participant hereunder shall not vote or

act upon any matter relating solely to himself.

 

C.            Rights and

Duties. The Administrative Committee shall be the Plan

Administrator and named fiduciary of the Plan, and shall have the power and

authority in its sole, absolute, and uncontrolled discretion to control and

manage the operation and administration of the Plan and shall have all powers

necessary to accomplish those purposes. 

Any decision, of fact or law, that is not arbitrary or capricious, or an

abuse of discretion, must be upheld by a court of law.  The responsibility and authority of the

Administrative Committee shall include but shall not be limited to the

following:

 

1.             Determining all questions relating to the eligibility of

Employees to participate;

 

2.             Computing and certifying to the Trustee the amount and

kind of benefit payable to Participants, Spouses and beneficiaries;

 

3.             Authorizing all disbursements by the Trustee from the

Trust;

 

4.             Establishing and reducing to writing and distributing to

any Participant as beneficiary a claims procedure, and administering that

procedure, including the processing and determination of all appeals

thereunder;

 

5.             Maintaining all necessary records for the administration

of the Plan other than those which the Trustee has specifically agreed to

maintain pursuant to this Plan and Trust Agreement;

 

6.             Interpretation of the provisions of the Plan and

publication of such rules for the regulation of the Plan as in the

Administrative Committee’s sole, absolute and uncontrolled discretion are

deemed necessary and advisable and which are not inconsistent with the terms of

the Plan or ERISA.

 

D.            No

Administrative Committee Investment Authority. The

Administrative Committee shall have no authority or discretion with respect to

the management and control of the investments of the Trust, all of which

authority and discretion is hereby specifically allocated to the Investment

Committee to be carried out in accordance with the terms of this Plan.

 

E.             Information

- Reporting and Disclosure. To enable the Administrative

Committee to perform its functions, the Employer shall supply full and timely

information to the Administrative Committee on all matters relating to the

compensation of all Participants, their continuous regular employment, their

retirement, death, or the cause for termination of employment, and such other

pertinent facts as the Administrative Committee may require, and the

Administrative Committee shall furnish the Trustee such information as may be

pertinent to the Trustee’s administration of the Plan.  The Administrative Committee as

 

25

 

plan administrator shall

have the responsibility of complying with the reporting and disclosure

requirements of ERISA to the extent applicable.

 

F.             Administrative Committee Allocation

and Delegation of Responsibility.  The Administrative Committee may by written

rule promulgated under Paragraph C above allocate fiduciary responsibilities

among Administrative Committee members and may delegate to persons other than

Administrative Committee members the authority to carry out fiduciary

responsibilities under the Plan, provided that no such responsibility shall be

allocated or delegated to the Trustee without its written consent.

 

In the event that

a responsibility is allocated to an Administrative Committee member, no other

Administrative Committee member shall be liable for any act or omission of the

person to whom the responsibility is allocated except as may be otherwise

required by law.  If a responsibility is

delegated to a person other than an Administrative Committee member, the

Administrative Committee shall not be responsible or liable for an act or

omission of such person in carrying out such responsibility except as may

otherwise be required by law.

 

G.            Claims

Procedure.  The

Administrative Committee shall establish a claims procedure which shall be

reduced to writing and provided to any Participant or beneficiary whose claim

for benefits under the Plan has been denied. 

The procedure shall provide for adequate notice in writing to any such Participant

or beneficiary and the notice shall set forth the specific reasons for denial

of benefits written in a manner calculated to be understood by the Participant

or beneficiary.  The procedure shall

afford a reasonable opportunity to the Participant or beneficiary for a full

and fair review by the Administrative Committee of the decision denying the

claim.  The Trustee shall have no

responsibility for establishing such a procedure or assuring that it is carried

out.

 

H.            Investment Committee Authority.  The Board shall appoint an Investment

Committee of four or more members to prudently select the Plan investment funds

available to Participants in this Plan. 

The Investment Committee shall be a named fiduciary with the power

(1) to prudently select separate Plan investment funds to be communicated

to Participants, who shall have the right to allocate assets in their Plan

Accounts among the Plan investment funds at the times and in the manner

permitted by the Investment Committee; (2) to prudently monitor the

investment performance of those Plan investment funds; and (3) with

respect to Participants who do not allocate assets in their Pre-April 1,

2002 ESOP Investment Account and their Post-March 31, 2002 Money Purchase

Pension Plan Employer Contribution Account among the Plan investment funds, to

prudently select the Plan investment fund(s) in which such assets shall be

invested.  The Investment Committee

shall also have the authority to follow Participants’ directions as to the

purchase and sale of Employer Stock.

 

The Investment Committee

shall not be liable for any loss or for any breach of fiduciary responsibility

which results from a Participant’s exercise of control over all or part of the

investments of his Plan Accounts.  Where

a Participant is directing the investment of all or part of his Accounts, the

Investment Committee shall have no responsibility to maintain diversification

of the self-directed portion of such Accounts. 

The Investment Committee also shall have no responsibility to diversify the

investment of the Participants’ Pre–April 1, 2002 ESOP Employer

Stock Accounts.

 

The Board shall advise

the Trustee in writing of the names of the members of the Investment Committee

and any changes thereafter made in the membership of the Investment Committee.  Vacancies due to resignation, death,

removal, or other causes shall be filled by the Board.  Members shall serve without compensation for

service.  All reasonable expenses of the

Investment Committee shall be paid by the Employer.  The number of Investment Committee members may be changed by the

Board at any time.

 

No Plan amendment

affecting the Investment Committee’s duties shall become effective without the

prior approval of the Investment Committee, notwithstanding any language in

Article XIII to the contrary.

 

I.              Funding

Policy.  The

Investment Committee shall be responsible for establishing and carrying out a

funding policy for the Employer’s Plan. 

In establishing such a policy, the short-term and long-term liquidity

needs of the Plan shall be determined to the extent possible by considering

among other factors the anticipated retirement date of Participants, turnover

and contributions to be made by the Employer. 

The funding policy and method so established shall be communicated to

the Trustee.

 

J.             Investment

Committee Action. 

The Investment Committee shall choose a secretary who shall keep minutes

of the Investment Committee’s proceedings and all data, records, and documents

pertaining to the Investment Committee’s duties under the Plan.  The Investment Committee shall act by a

majority of its

 

26

 

members at the time in

office, and such action may be taken either by a vote at a meeting or in

writing without a meeting.  The

Investment Committee may by such majority action authorize its secretary or any

one or more of its members to execute any document or documents on behalf of

the Investment Committee, in which event the Investment Committee shall notify

the Trustee in writing of such action and the name or names of those so

designated.  The Trustee thereafter

shall accept and rely conclusively upon any direction or document executed by

such secretary, member, or members as representing action by the Investment

Committee until the Investment Committee shall file with the Trustee a written

revocation of such designation.  A

member of the Investment Committee who is also a Participant hereunder shall

not vote or act upon any matter relating solely to himself.

 

K.            Investment Committee Allocation and

Delegation of Responsibility.  The Investment Committee may by written rule above allocate

fiduciary responsibilities among Investment Committee members and may delegate

to persons other than Investment Committee members the authority to carry out

fiduciary responsibilities under the Plan, provided that no such responsibility

shall be allocated or delegated to the Trustee without its written consent.

 

In the event that a

responsibility is allocated to an Investment Committee member, no other

Investment Committee member shall be liable for any act or omission of the

person to whom the responsibility is allocated except as may be otherwise

required by law.  If a responsibility is

delegated to a person other than an Investment Committee member, the Investment

Committee shall not be responsible or liable for an act or omission of such

person in carrying out such responsibility except as may otherwise be required

by law.

 

L.            Bonding.  Where required by law, each fiduciary of the

Plan and every person handling Plan funds shall be bonded.  It shall be the obligation of the

Administrative Committee to assure compliance with applicable bonding

requirements as to Administrative Committee members.  It shall be the obligation of the Investment Committee to assure

compliance with the applicable bonding requirements as to the Investment

Committee members.  The Trustee shall

not be responsible for assuring compliance with the bonding requirements.

 

M.           Indemnification.  The Employer does hereby indemnify and hold

harmless each Administrative Committee member and each Investment Committee

member from any loss, claim, or suit arising out of the performance of

obligations imposed hereunder and not arising from said Administrative

Committee member’s or Investment Committee member’s willful neglect or

misconduct or gross negligence.

 

N.            Standard

of Care Imposed upon the Administrative Committee and the Investment

Committee.  The

Administrative Committee and the Investment Committee shall each discharge its

duties with respect to the Plan solely in the interest of the Participants and

beneficiaries and (1) for the exclusive purpose of providing benefits to

Participants and their beneficiaries and defraying reasonable expenses of the

Plan; (2) with the care, skill, prudence, and diligence under the circumstances

then prevailing that a prudent man acting in a like capacity and familiar with

such matters would use in the conduct of an enterprise of like character and

with like aims; and (3) in accordance with the Plan provisions.  In addition, the Investment Committee shall

discharge its duties with respect to the Post-March 31, 2002 Money Purchase

Pension Plan Employer Contribution Accounts and Pre-April 1, 2002 ESOP

Investment Accounts by diversifying the investments of such Accounts so as to

minimize the risk of large losses, unless under the circumstances it is clearly

prudent not to do so.  Provided,

however, that where a Participant is directing the investment of all or part of

such Accounts, the Administrative Committee and Investment Committee shall have

no responsibility to maintain diversification of the Participant-directed

portion of such Accounts.  The

Administrative Committee and the Investment Committee shall not be liable for

any loss or for any breach of fiduciary responsibility which results from a

Participant’s exercise of control over all or part of the investment of his

Plan Accounts.

 

ARTICLE X

INVESTMENT

OF PLAN ASSETS

 

A.            Investments.  Participants’ Plan Accounts shall be

invested as follows:

 

1.             ESOP

Accounts.  A Participant’s Pre-April 1, 2002 ESOP

Employer Stock Account will remain invested in Pacific Northwest Bancorp common

stock, unless on or after July 1, 2002 (or an earlier date determined by the

Plan Administrative Committee in its discretion and communicated to Plan

Participants), the Participant directs the Plan Trustee to sell all or a

portion of the Employer Stock in his

 

27

 

Pre-April 1, 2002

ESOP Employer Stock Account and to allocate the sales proceeds to his Pre-April

1, 2002 ESOP Investment Account to be invested as the Participant directs among

the permitted Plan investment funds selected by the Investment Committee.  A Participant may later elect to apply

assets in his Pre-April 1, 2002 ESOP Investment Account to purchase shares

of Employer Stock on the open market, and that Employer Stock will be allocated

to his Pre-April 1, 2002 ESOP Employer Stock Account.

 

A Participant’s

Pre-April 1, 2002 ESOP Investment Account shall include (a) the sales

proceeds of Employer Stock the Participant has elected to sell from his

Pre-April 1, 2002 ESOP Employer Stock Account, and (b) any cash or

other assets previously held in that ESOP Investment Account, and

(c) earnings on amounts in that ESOP Investment Account plus cash

dividends after March 31, 2002 on Employer Stock held in that

Participant’s Pre-April 1, 2002 ESOP Employer Stock Account.

 

2.             Money Purchase Pension Plan Employer Contribution

Account.  A Participant may direct the Trustee

to invest his Post-March 31, 2002 Money Purchase Pension Plan Employer

Contribution Account among the permitted Plan investment funds selected by the

Investment Committee, and in shares of Employer Stock purchased on the open

market.

 

A Participant’s

Post-March 31, 2002 Money Purchase Pension Plan Employer Contribution

Account includes (a) Employer contributions made on the Participant’s

behalf after March 31, 2002, and (b) earnings on those Post-March 31,

2002 Employer contributions on the Participant’s behalf plus any cash dividends

on Employer Stock purchased with the Participant’s Post–March 31,

2002 Employer contributions.

 

3.             Trustee’s

Investment Procedures. 

The Trustee will provide Participants with a description of the Plan

investment fund options.  Participants

will be able to transfer amounts among the Plan investment funds and to

purchase and sell shares of Employer Stock at the times and in the manner

permitted by the Investment Committee.

 

With respect to the

assets in the Post-March 31, 2002 Money Purchase Pension Plan Employer

Contribution Accounts and Pre-April 1, 2002 ESOP Investment Accounts of

Participants who do not allocate the assets in such Accounts among the Plan

investment funds or in Employer Stock, such assets shall be invested in the

Plan investment fund(s) selected by the Investment Committee.

 

With respect to the Plan

investment funds, the Trustee in following the Participants’ directions (or the

Investment Committee’s directions if the Participant does not provide any

investment directions) is hereby granted full power and authority to invest and

reinvest the principal and income of the trust fund in any manner that it deems

advisable.  Without limiting the

generality of the foregoing, the Investment Committee may invest in regulated

investment companies, common stock, collective investment funds (the terms of

which are incorporated herein by reference), real estate, government, municipal

or corporation bonds, debentures or notes, or any other form of

income-producing property, whether real, personal, or mixed, including

corporate stock of the Employer for the benefit of the Plan.

 

B.            Employer Stock.  Employer Stock that is purchased or sold in

accordance with Participants’ directions with respect to assets in

Participants’ Plan Accounts shall be purchased and sold on the open

market.  Employer Stock will be

allocated to Participants’ Plan Accounts based on the price at which purchases

of such Employer Stock are made.

 

Notwithstanding the

foregoing, the Investment Committee may impose restrictions on the trading of

Employer Stock to maintain an orderly market. 

If Plan Participants choose to sell a large amount of Employer Stock,

the sale of those shares may be spread over a period of days.  If that occurs, affected Participants’ Plan

accounts would not be updated until the sale was completed, and the sale price

would be based on the average sale price over the trading period.  The Investment Committee will establish

guidelines as to when the Trustee should contact an Investment Committee member

as to whether to spread a trade over a period of time.

 

C.            Voting and

Tender of Employer Stock.  Each Participant may direct the Trustee as to the manner in which

Employer Stock allocated to the Participant’s Plan Accounts is to be voted at

meetings of shareholders, in accordance with procedures acceptable to the

Trustee and established in accordance with applicable regulations under ERISA

404(c).  Each Participant may likewise

direct the Trustee whether to tender the shares of Employer Stock allocated to

the Participant’s Plan Accounts in response to a tender offer, in accordance

with procedures acceptable to the Trustee and established in accordance with

applicable regulations under ERISA 404(c). 

The Trustee shall vote such stock as provided in the Plan’s Trust Agreement.  Distribution of proxy solicitation materials

to Participants with Employer Stock in their Plan Accounts shall be made by the

Employer and the Trustee pursuant to such procedures as they shall agree upon.  Participants’

 

28

 

individual voting

directions and instructions as to whether to tender Employer Stock shall be

kept confidential.  Information relating

to the purchase, holding, and sale of Employer Stock, and the exercise of

voting, tender and similar rights with respect to Employer Stock by

Participants and their beneficiaries shall be maintained in accordance with

procedures acceptable to the Trustee that are designed to safeguard the

confidentiality of that information, except to the extent necessary to comply

with federal laws or state laws not preempted by ERISA.

 

For purposes of

exercising voting rights and/or responding to a tender offer, each Participant

shall be a named fiduciary under ERISA with respect to the shares of Employer

Stock credited to his Plan Accounts.

 

D.            ESOP

Employer Stock Accounts.  Except as otherwise directed by Plan Participants in accordance

with Paragraph A.1. above, the portion of the Plan Trust held in

Participants’ Pre-April 1, 2002 ESOP Employer Stock Accounts shall be primarily

invested in Employer Stock and up to 100% of such Accounts may be so invested.

 

ARTICLE XI

SUITS

 

If any person or party to

this agreement shall request the Trustee to bring any action at law or suit in

equity to determine any of the provisions or rights arising out of this

agreement, the Trustee shall not be obligated to bring such suit unless the

Trustee is fully indemnified for all costs of such action, including a

reasonable sum for attorneys’ fees.

 

ARTICLE XII

MERGERS AND

CONSOLIDATIONS

 

In the case of any merger

or consolidation with any other plan or a transfer of assets or liabilities to

any other plan, each Participant shall be entitled to receive a benefit

immediately after such a merger, consolidation or transfer, which is equal to the

benefit he would have been entitled to immediately before if the Plan had been

terminated.

 

ARTICLE XIII

AMENDMENT AND TERMINATION OF PLAN AND TRUST.

 

A.            Right to

Amend and Terminate. 

Pacific Northwest Bancorp represents that the Plan is intended to be a

continuing and permanent program for Participants, but its Board reserves the

right to terminate the Plan at any time. 

The Board may modify, alter, or amend this Plan and the Trust in whole

or in part, provided that no such modification, alteration, or amendment shall

enlarge the duties or liabilities of the Trustee without its consent, nor

reduce the Participant’s Accrued Benefit hereunder, except to the extent

permitted by Code Section 412(c)(8). 

For purposes of this Article, a Plan amendment which has the effect of

(1) eliminating or reducing an early retirement benefit or retirement-type

subsidy, or (2) eliminating an optional form of benefit, with respect to

benefits attributable to service before the amendment, shall be treated as

reducing the Accrued Benefit.  In the

case of a retirement-type subsidy, the preceding sentence shall apply only with

respect to a Participant who satisfies (either before or after the amendment)

the preamendment conditions for the subsidy.

 

Subject to the provisions

set forth above, effective April 1, 1998, the Board delegates to the

Investment Committee the right to make administrative amendments to the Plan

and Trust.  An amendment will be

considered an administrative amendment properly within the delegated authority

of the Investment Committee if the amendment is required by a change in the

law, or is of an administrative nature which does not make major Plan design

changes, affect Plan eligibility, or change the benefit or contribution

formulas.  Any such amendment shall be

effective as of the date established by the Trustee.  Any amendment adopted by the Investment Committee pursuant to

this delegated authority shall be reported to the Board within two and one-half

(2-1/2) months after the close of the Plan Year of adoption, or the due date of

Pacific Northwest Bancorp’s tax return (including extensions), if later.

 

B.            No Revesting.  No termination, modification, alteration, or

amendment shall have the effect of revesting in the Employer any part of the

principal or income of the Trust, except as otherwise permitted by the Plan.

 

29

 

C.            Exclusive

Benefit of Employees. 

At no time during the existence of this Plan and the Trust or at its

termination may any part of the Trust corpus or income be used for or directed

to purposes other than for the exclusive benefit of the Participants hereof or

their beneficiaries.

 

D.            Termination.

 

1.            This Plan and the Trust shall

terminate upon the occurrence of any of the following:

 

a.            Written notice of Pacific Northwest Bancorp to the

Trustee;

 

b.            Complete discontinuance of contributions by Pacific

Northwest Bancorp;

 

c.            The dissolution or merger of Pacific Northwest Bancorp

unless a successor to the business agrees to continue the Plan and the Trust by

executing an appropriate agreement, in which event such successor shall succeed

to all the rights, powers and duties of Pacific Northwest Bancorp.

 

2.            In the event that Pacific Northwest

Bancorp is taken over by a successor who agrees to continue the Plan, the

employment of any Employee who is continued in the employ of such successor

shall not be deemed to have been terminated or severed for any purpose

hereunder.

 

3.            Notwithstanding any provision hereof

to the contrary, upon termination or partial termination of the Plan and the

Trust, or upon complete discontinuance of contributions to the Plan, all

affected Participants’ Accounts shall be considered as fully vested and

nonforfeitable, all unallocated assets of the Trust, including but not limited

to Employer contributions and unallocated Trust assets and earnings thereon,

shall be allocated to the accounts of all Participants as of the next Valuation

Date (or if the Plan is being terminated immediately, then on the date of such

Plan termination as if it were the next Valuation Date) in accordance with the

provisions of the Plan hereof; and shall be applied for the benefit of each

such Participant either by a lump-sum distribution, or by the continuance of

the Trust and the payments of benefits thereunder in the manner provided in the

Plan.  The Trustee, in consultation with

the Administrative Committee, shall decide whether a partial termination of the

Plan has occurred.

 

After the Plan’s

initial qualification by the Internal Revenue Service, there will be no

reversion of assets to the Employer under any circumstances.  All Participants shall be treated in a

manner consistent with the terms of this Plan and provisions of the Code and

applicable regulations, as may be amended from time to time.

 

Even if the Plan

ceases to be an ESOP, any Employer Stock acquired with the proceeds of an

Acquisition Loan will be subject to a put option if it is not publicly traded

when distributed, or if subject to a trading limitation when distributed.  The put must be exercisable at least during

a 15-month period which begins on the date the security subject to the put

option is distributed by the Plan.  The

price at which the put option will be exercisable will be the value of the

security as of the date of exercise or as of the most recent Valuation

Date.  If the transaction takes place

between the Plan and a disqualified person, value will be determined as of the

date of transaction.

 

ARTICLE XIV

TOP HEAVY PLANS DEFINED AND OTHER DEFINITIONS

 

A.            Top Heavy Plan. The Plan is Top Heavy and subject to

the requirements of this Article and Article XV if for a Plan Year, as of the

Determination Date, the Accrued Benefits of Key Employees in the Plan

aggregated with the Accrued Benefits of Key Employees in all qualified plans

maintained by the Employer and each member of the Controlled Group exceed 60%

of the Accrued Benefits of all employees (excluding Non-Key Employees who were

Key Employees in a prior plan year) in all qualified plans maintained by the

Employer and all members of the Controlled Group which are in the Required

Aggregation Group (the Top Heavy Test). 

Provided, the foregoing shall not apply and the Plan shall not be Top

Heavy if the Plan is Permissively Aggregated and as a result the Top Heavy Test

results in a percentage of 60% or less.

 

30

 

B.            Additional

Definitions for Use in this Article and Article XV.

 

1.             Accrued

Benefits.  Accrued

Benefits means:

 

a.             for each defined contribution plan, the employee’s

account balances as of the valuation date coinciding with the Determination

Date, adjusted for contributions required to be made under Code Section 412,

and to be allocated as of a date not later than the Determination Date,

although not yet contributed; and

 

b.            for each defined benefit plan, the present value as of

the valuation date coinciding with the Determination Date of the employee’s

accrued benefits determined pursuant to the plan’s provisions.

 

In computing a. and b.,

all benefits attributable to employer contributions and all benefits

attributable to employee contributions (excluding deductible Employee

contributions, if any) are to be taken into consideration.  All such benefits of individuals who have

not performed services for the Employer or a member of the Controlled Group

maintaining this Plan any time during the five-year period ending on the

Determination Date are not taken into consideration.  All distributions made in the plan year including the Determination

Date and in the four preceding plan years are to be added back, including

distributions from a terminated plan of a member of the Controlled Group, and

excluding amounts which were rolled over or transferred to a plan of a member

of the Controlled Group under circumstances which require such amounts to be

considered part of the accrued benefit under the recipient plan.  Rollovers and transfers to this Plan or a

plan of a member of the Controlled Group initiated by an employee and made

after December 31, 1983, are not to be taken into consideration in computing a.

and b. above.  Such rollovers and

transfers on or prior to such date are to be considered.  No accrued benefits of a Non-key Employee

with respect to this Plan (or any plan aggregated under subparagraph 7 or 8

below) for a Plan Year shall be taken into consideration if the Non-key

Employee was a Key Employee with respect to such plan for any prior Plan Year.

 

2.             Controlled

Group.  Controlled

Group means all employers required to be aggregated under Code Section 414(b),

(c) or (m).

 

3.             Determination

Date.  Determination

Date means the last day of the plan year preceding the plan year in question

or, in the first plan year, the last day thereof.  Where plans other than this Plan are in question, the

Determination Date for each plan shall be the last date of the plan year that

falls within the same calendar year.

 

4.             Key

Employee.  Key

Employee means any employee or former employee of an employer (including the

beneficiary of any such deceased person) who at any time during the plan year

or any of the four preceding plan years is or was:

 

a.             an officer receiving annual Compensation greater than

50% of the dollar limit in effect under Code Section 415(b)(1)(A) for any such

plan year.  The number of officers of

all members of the Controlled Group required to be taken into account shall be

limited as follows:

 

(i)            if

the aggregate number of employees of all employers in the Controlled Group is

less than 30, then no more than three individuals shall be considered Key

Employees by reason of being officers;

 

(ii)           if

the number exceeds 30 but is less than 500, no more than 10% shall be

considered Key Employees; and

 

(iii)          if

the number exceeds 500, no more than 50 shall be considered Key Employees.

 

b.            one of the ten employees (i) receiving annual

Compensation greater than the dollar limit in effect under Code Section

415(c)(1)(A) for any such plan year and (ii) owning the largest interest of the

employer; provided if two employees own the same interest in the employer, the

employee receiving greater annual Compensation, shall be treated as having a

larger interest;

 

c.             an employee owning more than 5% of the employer;

 

d.            an employee receiving annual Compensation in excess of

$150,000 and owning more than one percent of the employer.

 

In determining ownership

of an employer, the rules of Code Section 318 shall be applied substituting 5%

for 50% in subparagraph (c) of Code Section 318(a)(2).  In the case of an unincorporated employer,

ownership shall be determined in accordance with regulations promulgated by the

Secretary of the Treasury.  Code Section

414(b), (c) and (m) shall not apply for purposes of determining ownership of an

employer.

 

31

 

5.             Minimum

Benefit Accrual. 

Minimum Benefit Accrual means a benefit payable in the form of a life

annuity at normal retirement age under a defined benefit plan which equals not

less than the lesser of (1) 20% of average compensation or (2) 2% of average

compensation times Years of Service. 

Average compensation means the average of the employee’s compensation

for the five consecutive years when the employee had the highest aggregate

compensation.  Years of Service prior to

January 1, 1984 are not taken into account. 

A Year of Service is disregarded if the Plan is not Top Heavy for the

Plan Year ending during the Year of Service. 

Compensation in years following the last Plan Year in which the Plan is

top heavy is not taken into account.

 

6.             Non-key

Employee.  Non-key

Employee means any employee who is not a Key Employee.

 

7.             Permissively

Aggregated. 

Permissively Aggregated means:

 

a.             the Required Aggregation Group; and

 

b.            such additional plans which may be aggregated without

violating the requirements of Code Sections 410 and 401(a)(4).

 

8.             Required

Aggregation Group. 

Required Aggregation Group means:

 

a.             all qualified plans of the employer and each member of

the Controlled Group in which a Key Employee is a participant; and

 

b.            each other qualified plan which must be considered along

with the plans in a. in order for the Plan to meet the requirements of Code

Sections 410(b) and 401(a)(4).

 

9.             Super Top

Heavy Plan.  A Super

Top Heavy Plan is this Plan with 90% substituted for 60% in the Top Heavy Test.

 

32

 

C.            Top-Heavy

Requirements Effective for Plan Years Beginning After December 31, 2001.

 

1.            Effective

Date.  Notwithstanding

any provision of this Plan to the contrary, this Paragraph C shall apply

for purposes of determining whether the Plan is a top-heavy plan under Code

Section 416(g) for Plan Years beginning after December 31, 2001.

 

2.            Determination

of Top-Heavy Status.

 

a.  Key Employee.  Key Employee means any Employee or former

Employee (including any deceased Employee) who at any time during the Plan Year

that includes the determination date was an officer of the Employer having

annual Compensation greater than $130,000 (as adjusted under Code Section

416(i)(1) for Plan Years beginning after December 31, 2002), a 5-percent owner

of the Employer, or a 1-percent owner of the Employer having annual

Compensation of more than $150,000.  For

this purpose, annual Compensation means Compensation within the meaning of Code

Section 415(c)(3).  The determination of

who is a Key Employee will be made in accordance with Code Section 416(i)(1)

and the applicable regulations and other guidance of general applicability

issued thereunder.

 

b.  Determination of

Amounts.  This

subparagraph b. shall apply for purposes of determining the amounts of account

balances of Employees as of the determination date.

 

i.  Distributions

During Year Ending on the Determination Date.  The amounts of account balances of an

Employee as of the determination date shall be increased by the distributions

made with respect to the Employee under the Plan and any Plan aggregated with

the Plan under Code Section 416(g)(2) during the one-year period ending on

the determination date.  The preceding

sentence shall also apply to distributions under a terminated plan which, had

it not been terminated, would have been aggregated with the Plan under Code

Section 416(g)(2)(A)(i).  In the case of

a distribution made for a reason other than separation from service, death, or

disability, this provision shall be applied by substituting “five-year period”

for “one-year period.”

 

ii.  Employees Not

Performing Services During Year Ending on the Determination Date.  The accounts of any individual who has not

performed services for the Employer during the one-year period ending on the

determination date shall not be taken into account.

 

33

 

 

ARTICLE

XIX

ADDITIONAL REQUIREMENTS

APPLICABLE TO TOP HEAVY PLANS

 

                A.            Minimum Vesting Requirements. For

each Plan Year that the Plan is subject to the provisions of this Article, a Participant’s

nonforfeitable Accrued Benefit in his Employer Contribution Account, shall be

determined in accordance with the following schedule:

 

	

  Years of

  Service

  	

   

  	

  Nonforfeitable

  Percentage

  	

   

  
	

  Less than 1

  	

   

  	

  0

  	

  %

  
	

  1

  	

   

  	

  20

  	

  %

  
	

  2

  	

   

  	

  40

  	

  %

  
	

  3

  	

   

  	

  60

  	

  %

  
	

  4

  	

   

  	

  80

  	

  %

  
	

  5

  	

   

  	

  100

  	

  %

  

 

B.            Minimum

Employer Contributions.

 

1.            General Rule.  Except as provided in

subparagraphs 2. and 3. hereof, for each Plan Year that the Plan is subject to

the provisions of this Article, each Non-key Employee Participant shall receive

an allocation, without regard to any Social Security contribution, to his

Employer Contribution Account of the lesser of:

 

a.             three percent of his Compensation (as defined in Article

II, Paragraph F), or

 

b.            the highest percentage of Compensation (as defined in

Article II, Paragraph F) allocated to the account of a Key Employee.  This subparagraph b. shall not apply and the

required contribution shall be 3% if exclusion of the Plan from the Required

Aggregation Group would cause a defined benefit plan in the Required Aggregation

Group to fail to meet the requirements of Code Section 401(a)(4) or 410.

 

In applying this

subparagraph 1., failure of a Participant to complete a Year of Service, make

mandatory contributions, if required, or receive Compensation sufficient to

justify an allocation during the Plan Year shall not render such Participant

ineligible to receive a minimum employer contribution under this Paragraph B.

 

Employer matching

contributions made to the Employer’s Salary Deferral 401(k) Plan shall be taken

into account for purposes of satisfying the minimum contribution requirements

of Code Section 416(c)(2) and the Plan. 

The preceding sentence shall apply with respect to Employer matching

contributions under the Employer’s Salary Deferral 401(k) Plan or, if the Plan provides

that the minimum contribution requirement shall be met in another plan, such

other plan.  Employer matching

contributions that are used to satisfy the minimum contribution requirements

shall be treated as Employer matching contributions for purposes of the actual

contribution percentage test and other requirements of Code Section 401(m).

 

2.           Exceptions. Subparagraph 1. does not apply with

respect to a Participant who

 

a.             terminates employment with the Employer and all members

of the Controlled Group prior to the last day of the plan year, or

 

b.            is a participant in another defined contribution plan

which is in the Required Aggregation Group and receives an allocation to his

employer contribution account in such plan equal to the above (for the plan year

ending on or before the Determination Date), or

 

c.             is a participant in a defined benefit plan which is in

the Required Aggregation Group and receives thereunder for the plan year the

Minimum Benefit Accrual for the plan year ending on or before the Determination

Date.

 

3.            Employee

Participating in Defined Benefit Plan. For each Non-Key Employee Participant who is also a

participant in a defined benefit plan which is in the Required Aggregation

Group and which does not provide the Minimum Benefit Accrual for the plan year

ending on or before the Determination Date, subparagraph 1. shall be applied

substituting 5% of compensation for subparagraphs 1.a. and b.

 

34

 

4.            Specific

Rules.  In determining the Minimum Employer Contribution

hereunder, the following rules shall govern:

 

a.             Compensation in excess of $200,000 (as adjusted pursuant

to Code Section 416(d)(2)) shall not be considered.

 

b.            The Non-key Employee’s account will receive the Minimum

Employer Contribution notwithstanding a waiver of the minimum funding

requirements of Code Section 412.

 

c.             Tax-deferred contributions by Non-key Employees to a

qualified plan shall be disregarded; tax-deferred contributions by Key

Employees shall be taken into account in determining the minimum required

employer contribution hereunder.

 

ARTICLE XX

RIGHT TO DISCHARGE EMPLOYEES

 

Neither the establishment

of the Plan and the Trust nor any modification thereof, nor the creation of any

funds or accounts nor the payment of any benefit, shall be construed as giving

any Participant, or any other person whomsoever, any legal or equitable right

against the Employer, the Trustee, the Administrative Committee, or the

Investment Committee unless the same shall be specifically provided for in this

agreement or conferred by affirmative action of the Administrative Committee or

the Employer in accordance with the terms and provisions of this agreement or

as giving any Employee or Participant the right to be retained in the service of

the Employer, and all Employees shall remain subject to discharge by the

Employer to the same extent as if this Plan and Trust had never been adopted.

 

ARTICLE XXI

RETURN OF CONTRIBUTIONS;

DECLARATION OF TRUST CONTINGENT

ON INTERNAL REVENUE SERVICE APPROVAL

 

Contributions made hereto

are conditioned on deductibility by the Employer under Section 404 of the Code,

and such contributions may not be made under a mistake of fact.

 

Contributions may be

returned to the Employer in the amount involved, within one year of the

mistaken payment of the contribution, the date of denial of qualification, or

disallowance of a deduction, as the case may be.

 

This Plan and the Trust

shall be contingent upon a favorable Internal Revenue Service ruling as to the

initial acceptability under Section 401(a) of the Internal Revenue Code, as

amended, and exemption from income taxation under Section 501(a) of the

Internal Revenue Code.  In the event

that the Commissioner of Internal Revenue determines that the Plan is not

initially qualified under the Internal Revenue Code, and if the Employer does

not effect an amendment which will cure the defect, then this Plan and Trust

will thereupon terminate and be of no further force or effect, and the Trustee

shall forthwith return to the Employer the current value of all contributions

made incident to that initial qualification by the Employer (plus income, less

any fees or expenses allocable thereto) within one year after the date the

initial qualification is denied, but only if the application for the

qualification is made by the time prescribed by law for filing the Employer’s

return for the taxable year in which the Plan is adopted, or such later date as

the Secretary of the Treasury may prescribe.

 

ARTICLE XXII

DIRECT

ROLLOVER CONTRIBUTIONS

 

A.            Direct

Rollover Contributions. Paragraph B of this Article

applies to distributions made on or after January 1, 1993.  Notwithstanding any provision of the Plan to

the contrary that would otherwise limit a distributee’s election under this

Article, a distributee may elect, at the time and in the manner prescribed by

the Administrative Committee, to have any portion of an eligible rollover

distribution paid directly to an eligible retirement plan specified by the

distributee in a direct rollover.

 

B.            Definitions.

 

1.             Eligible Rollover Distribution. An eligible rollover

distribution is any distribution of all or any portion of the balance to the

credit of the distributee, except that an eligible rollover distribution does

not include:  any distribution that is

one of a series of substantially equal periodic payments (not less frequently

than annually) made for the life (or life expectancy) of the distributee or the

joint lives (or joint life

 

35

 

expectancies) of the distributee and the distributee’s designated

beneficiary, or for a specified period of ten years or more; any distribution

to the extent such distribution is required under Section 401(a)(9) of the

Code; and the portion of any distribution that is not includable in gross

income (determined without regard to the exclusion for net unrealized

appreciation with respect to employer securities), and effective with respect

to distributions made on or after January 1, 2000, hardship withdrawals,

unless such a distribution is made after a permissible distribution event

(other than a hardship withdrawal) occurs under Code Section 401(k)(2)(B).  Effective with respect to distributions made

after December 31, 2001, any amount that is distributed on account of hardship

shall not be an eligible rollover distribution and the distributee may not

elect to have any portion of such a distribution paid directly to an eligible

retirement plan.

 

2.             Eligible

Retirement Plan.

An eligible retirement plan is an individual retirement account described in

Section 408(a) of the Code, an individual retirement annuity described in

Section 408(b) of the Code, an annuity plan described in Section 403(a) of the

Code, or a qualified trust described in Section 401(a) of the Code, that

accepts the distributee’s eligible rollover distribution.  However, in the case of an eligible rollover

distribution to the surviving spouse, an eligible retirement plan is an

individual retirement account or individual retirement annuity.

 

Effective with respect to

distributions made from this Plan after December 31, 2001, an eligible

retirement plan shall also mean an annuity contract described in Code Section

403(b) and an eligible plan under Code Section 457(b) which is maintained by a

state, political subdivision of a state, or any agency or instrumentality of a

state or political subdivision of a state and which agrees to separately

account for amounts transferred into such plan from this plan.  The definition of eligible retirement plan

shall also apply in the case of a distribution to a surviving spouse, or to a

spouse or former spouse who is the alternate payee under a qualified domestic

relation order, as defined in Code Section 414(p).

 

3.             Distributee. A distributee includes an Employee or

former Employee.  In addition, the

Employee’s or former Employee’s surviving spouse and the Employee’s or former

Employee’s spouse or former spouse who is the alternate payee under a qualified

domestic relations order, as defined in Section 414(p) of the Code, are

distributees with regard to the interest of the spouse or former spouse.

 

4.             Direct Rollover.

A direct rollover is a payment by the Plan to the eligible

retirement plan specified by the distributee.

 

ARTICLE XXIII

TRANSFER OF INTERWEST BANCORP, INC.

STOCK FROM PREDECESSOR PACIFIC

NORTHWEST BANK RETIREMENT PLAN

 

Notwithstanding any provision of this Plan to the

contrary, as soon as administratively possible after August 1, 1999, the

InterWest Bancorp, Inc. stock (now Pacific Northwest Bancorp stock) that was

held in the Predecessor Pacific Northwest Bank Retirement Plan (the

“Predecessor PNB Plan”) was transferred to this Plan on behalf of Predecessor

PNB Plan participants whose Predecessor PNB Plan Accounts held such stock.  Such transferred InterWest Bancorp, Inc.

stock (now Pacific Northwest Bank stock) shall be held in separate frozen

Employer Matching Contribution Accounts in this Plan for the benefit of such

Participants, and such accounts shall continue to vest in accordance with the

following schedule, which is the former Predecessor PNB Retirement Plan vesting

schedule for such former Predecessor PNB Plan participants:

 

36

 

Completion of Less than 1 Year of Service 0%

Completion of 1 or More Years of Service 20%

Completion of 2 or More Years of Service 40%

Completion of 3 or More Years of Service 60%

Completion of 4 or More Years of Service 80%

Completion of 5 or More Years of Service 100%

 

A Participant’s frozen Employer Matching Contribution

Account shall become fully vested and nonforfeitable upon the Participant’s

attainment of age 65, death or permanent and total disability, if such

Participant remains employed by the Employer at the time that event occurs.

 

When such a Participant retires, terminates

employment, becomes permanently and totally disabled, or dies, his frozen

Employer Matching Contribution Account will be valued and distributed in the

same manner as his Pre-April 1, 2002 ESOP Accounts.

 

Effective as of July 1, 2002 (or an earlier date that

may be determined by the Plan Administrative Committee and communicated to

affected Participants), such Participants may direct the Plan Trustee to sell

all or a portion of the Employer Stock in their frozen Employer Matching

Contribution Accounts, and to allocate the sales proceeds to that account to be

invested as they directed among the permitted Plan investment funds selected by

the Investment Committee.

 

IN WITNESS WHEREOF, the parties hereto have caused

this Plan and Trust to be executed this 12th day of August, 2002.

 

	

   

  	

   

  	

   

  	

  PACIFIC NORTHWEST BANCORP

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

  By

  	

   /s/ Patrick

  M. Fahey

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

  Its 

  	

  President and Chief Executive Officer

  	

   

  
								

 

37

SCHEDULE A

 

PACIFIC NORTHWEST BANCORP

AFFILIATES CO-SPONSORING

THE PACIFIC NORTHWEST BANCORP

EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

 

Pacific Northwest Bank (formerly InterWest Bank)

 

Pacific Northwest Financial Services (formerly InterWest Financial

Services)

 

Pacific Northwest Insurance Agency (formerly InterWest Agency)

 

38

 

 

SCHEDULE B

 

PACIFIC NORTHWEST BANCORP

AFFILIATES

OR FORMER

AFFILIATES FOR WHICH

PAST SERVICE CREDIT IS GRANTED

 

	

   

  	

   

  	

   

  
	

  Name of

  Affiliate or Former Affiliate

  	

   

  	

  Type of Credit Granted

  
	

   

  	

   

  	

   

  
	

  Central Washington Bank/

  	

   

  	

  Vesting

  
	

  North Central Washington Bank

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  Pacific Northwest Bank

  	

   

  	

  Vesting

  
	

  (referred to as the Predecessor

  	

   

  	

   

  
	

  Pacific Northwest Bank in this

  	

   

  	

   

  
	

  Plan)

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  Pioneer National Bank

  	

   

  	

  Vesting

  
	

   

  	

   

  	

   

  
	

  Kittitas Valley Bank, N.A.

  	

   

  	

  Vesting

  
	

   

  	

   

  	

   

  
	

  First National Bank of

  	

   

  	

  Vesting

  
	

  Port Orchard

  	

   

  

 

39

 

SCHEDULE C

 

 

Pacific Northwest Bank or its predecessor InterWest Bank

 

Pacific Northwest Financial Services or it predecessor InterWest

Financial Services

 

Pacific Northwest Insurance Agency or its predecessor InterWest Agency

 

The Predecessor Pacific Northwest Bank

 

Pioneer National Bank until January 19, 1999, when that bank merged

into the Predecessor Pacific Northwest Bank

 

Kittitas Valley Bank, N.A.

 

40Exhibit

10.25

 

FIRST AMENDMENT TO

 

SEVERANCE/CHANGE

OF CONTROL AGREEMENT

 

Patrick M. Fahey

 

This First

Amendment to Severance/Change of Control Agreement (this “Amendment”) dated

this 22nd day of July, 2002, is made by and between PACIFIC NORTHWEST BANCORP

and PACIFIC NORTHWEST BANK (hereinafter referred to jointly as the “Company”)

and PATRICK M. FAHEY  (the

“Executive”), who agree as follows:

 

Recitals

 

This Amendment is made with reference to the following facts and

objectives:

 

A.            The parties entered into a

Severance/Change of Control Agreement dated November 21, 2000 (the “Agreement”)

in which the Company agreed to provide benefits to the Executive in the event

of severance or change of control.

 

B.            The parties desire to amend the

Agreement to change its name to “Severance/Change of Control/Health Insurance

Agreement” and to provide for health insurance benefits upon termination of

employment.

 

Amendment

 

1.             Paragraph 5, “Termination of the

Agreement,” shall be deleted in its entirety and there shall be inserted in its

place the following:

 

5.             Termination of

the Agreement.  Except for Paragraph

6, “Health Care Insurance,” which shall survive the termination of this

Agreement, this Agreement shall terminate if the Executive shall voluntarily

resign, retire, become permanently and totally disabled, or die; provided,

however, if the Executive becomes permanently and totally disabled

or dies after the Board of Directors has authorized proceeding with

negotiations which result in a Change of Control or within twelve (12) months

after a Change of Control, if the Executive is then employed by the Company,

the Executive or his personal or legal representatives, executors,

administrators, successors, heirs, distributees, devisees and legatees, as the

case may be, shall be entitled to receive the Change of Control payment under

Paragraph 1(c) hereof.

 

2.             The following new paragraph shall

be added as Paragraph 6 of the Agreement:

 

6.             Health Care

Insurance. Upon termination of the Executive’s employment by Company (other

than discharge for cause as defined above) whether such termination is under

Paragraph 1, “Severance Benefits,” or voluntary resignation, retirement,

disability or death, the Executive and/or his spouse shall receive the

following health benefit coverage following such termination of employment.

 

(a)         The

Company will pay all premiums for benefits to the Executive and his covered

spouse and dependent children under and subject to the term of the Consolidated

Omnibus Budget Reconciliation Act (“COBRA”).

 

(b)           Upon expiration of

any applicable COBRA coverage period, if the Executive and/or his spouse are

not then entitled to enroll for Medicare, the Company shall provide, at its

expense, an individual health insurance policy for the Executive and/or his

spouse which will provide them with health care benefits as nearly equivalent

as possible to those provided the Executive and his spouse by the Company prior

to the Executive’s termination of employment.

 

1

 

(c)           Upon reaching an age

when the Executive and his spouse are entitled to receive Medicare, the

Executive and his spouse shall enroll to receive Medicare and the Company shall

pay the premiums due on a Medicare supplement insurance policy so that the

coverage provided through Medicare and the Medicare supplement insurance policy

shall be as nearly equivalent as possible to the coverage provided the

Executive and his spouse prior to the Executive’s termination of employment.

 

The purpose of this paragraph is to provide, to the extent possible,

that upon termination of the Executive’s employment with the Company (other

than discharge for cause as defined above), the Executive and his spouse shall

have, following termination of the Executive’s employment, seamless health care

coverage provided at the Company’s expense that is comparable to the coverage

provided the Executive and his spouse prior to the Executive’s termination of

employment.  The foregoing

notwithstanding, after termination of the Executive’s employment with the

Company, if the Executive should be employed by another company which provides

group health benefits for the Executive, the coverage provided herein shall be

secondary and supplemental to any such coverage.

 

3.             Paragraphs 6 through 11 of the

Agreement shall be re-numbered Paragraphs 7 through 12.

 

IN WITNESS

WHEREOF, the Executive and the Company have executed this Amendment, as of the

day and year first above written.

 

	

  PACIFIC

  NORTHWEST BANCORP

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  By:

  	

   /s/ Michael T. Crawford

  	

   

  	

   /s/ Patrick M. Fahey

  
	

   

  	

  Michael T.

  Crawford

  	

   

  	

  PATRICK M.

  FAHEY

  

 

 

2

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