Document:

12-20-12 Change in Control - Wright

THIRD AMENDED AND RESTATED
CHANGE IN CONTROL AGREEMENT

THIS THIRD AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT (“Agreement”), dated as of December 20, 2012, is made by and between Tractor Supply Company, a Delaware corporation (the “Company”), and James F. Wright (“Wright”) and amends and restates that certain Second Amended and Restated Change in Control Agreement made by and between the Company and Wright dated June 6, 2012.

WHEREAS, the Company considers it essential to the best interests of its stockholders to foster the continued employment of certain management personnel; and

WHEREAS, the Board recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions that it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders; and

WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of certain members of the Company's senior management, including Wright, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control.

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and Wright hereby agree as follows:

1.Defined Terms.  The definitions of capitalized terms used in this Agreement are provided in the last Section hereof.

2.Term of Agreement.  The Term of this Agreement shall commence on the date hereof and shall continue in effect through the earlier of (i) December 31, 2013 or (ii) two (2) years following a Change in Control; provided, however, that if a Change in Control occurs during the Term, the Term shall expire no earlier than the second anniversary of the date on which such Change in Control occurs.

3.Company's Covenants.  In order to induce Wright to remain in the employ of the Company and in consideration of Wright's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay Wright the Severance Payments and the other payments and benefits described herein.  Except as provided in Section 5(c) hereof, no Severance Payments or other benefits shall be payable or provided under this Agreement unless there shall have been a termination of Wright's employment with the Company on or following a Change in Control and during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between Wright and the Company, Wright shall not have any right to be retained in the employ of the Company.

4.Wright's Covenants.  

(a)    Employment.  Wright agrees that, subject to the terms and conditions of this Agreement, in the event of a Change in Control during the Term, Wright will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of such Change in Control, (ii) the Date of Termination by Wright of Wright's employment for Good Reason or by reason of death, Disability or Retirement, or (iii) the termination by the Company of Wright's employment for any reason. 

(b)    Noncompetition, etc.  Wright agrees that he will not, for a period of eighteen (18) months from the Date of Termination of Wright's employment by the Company, (i) directly or indirectly become an employee, director, consultant or advisor of, or otherwise affiliated with, any retailer principally in the farm and ranch sector with more 

than five (5) stores or more than $15 million in annual revenues in the United States, (ii) directly or indirectly solicit or hire, or encourage the solicitation or hiring of, any person who was an employee of the Company at any time on or after such Date of Termination (unless more than six months shall have elapsed between the last day of such person's employment by the Company and the first date of such solicitation or hiring), or (iii) disparage the name, business reputation or business practices of the Company or any of its officers or directors, or interfere with the Company's existing or prospective business relationships.  Wright also agrees that he will not, during his employment and following the Date of Termination of his employment, without the written consent of the Company, disclose to any person, other than as required by law or court order, any confidential information or trade secrets obtained by Wright while in the employ of the Company; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by Wright) or any specific information or type of information generally not considered confidential by persons engaged in the same business as the Company.  Wright acknowledges that these restrictions are reasonable and necessary to protect the Company's legitimate interests, that the Company would not have entered into this Agreement in the absence of such restrictions, and that any violation of these restrictions will result in irreparable harm to the Company. Wright agrees that the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, as well as an equitable accounting of all earnings, profits and other benefits arising from any violation hereof, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. 

(c)     Return of Confidential Information.  Upon termination of Wright's employment with the Company or at any other time upon the Company's request, Wright shall promptly return to the Company all originals and all copies (including photocopies and facsimiles and copies on computers or other means of electronic storage) of all materials relating in any way to confidential information or the business of the Company or any affiliates of the Company, whether made or compiled by Wright or furnished to Wright by virtue of his employment with the Company and will so represent to the Company.  Upon Wright's termination of employment with the Company, Wright shall also return to the Company all Company property in his possession.

5.Compensation Other Than Severance Payments. 

(a)    If Wright's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay Wright's full salary to him through the Date of Termination (the “Accrued Salary”) at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, together with all compensation and benefits payable to Wright through the Date of Termination under and in accordance with the terms of the Company's compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to Wright, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason.  The Accrued Salary shall be paid to Wright within thirty (30) days of the Date of Termination, with the payment date determined by the Company in its sole discretion.

(b)    If Wright's employment shall terminate for any reason following a Change in Control and during the Term, the Company shall pay to Wright his normal post-termination compensation and benefits, if any; provided, however, that, except as set forth in Section 4.9 of the Second Amended and Restated Employment Agreement dated December 20, 2012 between the Company and Wright (the “Employment Agreement”), the severance benefits provided in Section 6 hereof shall be exclusive and Wright shall not be entitled to participate in, or receive severance benefits under, any other severance plan or program that may be adopted by the Company or any other employment agreement.  For the avoidance of doubt, where there are conflicting forms of payment (e.g., installment or lump sum payments) which could occur due to the application of Section 4.9 of the Employment Agreement, the form of such conflicting payments shall be determined pursuant to this Agreement. Neither the length of installment payments nor the length of benefit continuation periods shall be deemed to be a conflicting provision for purposes of this Section 5(b).  Any post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to Wright, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason.

(c)    Notwithstanding any provision of any stock option plan, stock incentive plan, restricted stock plan, stock option or similar plan or agreement to the contrary, immediately upon the occurrence of a Change in Control during the Term, and without regard to whether Wright's employment is terminated, Wright shall be fully vested in all then outstanding options to acquire stock of the Company (or if such options have been assumed by, or replaced with options for shares of, a parent, surviving or acquiring company, such assumed or replacement options), and all then outstanding restricted shares of stock of the Company and other equity-based awards (including restricted stock units of the Company) (or, in each case, the stock or equity of any parent, surviving or acquiring company into which such restricted shares have been converted or for which they have been exchanged) held by Wright.  For the avoidance of doubt, settlement of any restricted stock units, the vesting of which is accelerated pursuant to this Agreement, shall occur upon vesting pursuant to this Section 5(c), subject to any previous legally binding deferral election regarding such units.

6.Severance Payments.

(a)    Severance Payments.  If Wright's employment is terminated following a Change in Control and during the Term, other than (A) by the Company for Cause, (B) by reason of death, Disability or Retirement, or (C) by Wright without Good Reason, then the Company shall pay Wright the following amounts, and provide Wright the following benefits (collectively, the “Severance Payments”), in addition to any payments and benefits to which Wright is entitled under Section 5 hereof: 

(i)    In lieu of any further salary payments to Wright for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to Wright (including pursuant to any employment agreement), the Company shall pay to Wright a lump sum severance payment, in cash, equal to 2.0 times Wright's base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason. 

(ii)    For the two year period immediately following the Date of Termination (the “Benefits Continuation Period”), the Company shall arrange to provide Wright and his dependents life, disability, accident and health insurance benefits substantially similar to those provided to Wright and his dependents immediately prior to the Date of Termination or, if more favorable to Wright, those provided to Wright and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater cost to Wright than the cost to Wright immediately prior to such date or occurrence; provided, however, such insurance benefits shall be provided through a third-party insurer.  The Company's payment of such premiums shall be paid directly to the relevant third party insurers on a monthly basis.  Benefits otherwise receivable by Wright pursuant to this Section 6(a)(ii) shall be reduced to the extent benefits of the same type are received by or made available to Wright by a subsequent employer of Wright during the two year period following Wright's termination of employment (and any such benefits received by or made available to Wright shall be reported to the Company by Wright); provided, however, that the Company shall reimburse Wright for the excess, if any, of the cost of such benefits to Wright over such cost immediately prior to the Date of Termination or, if more favorable to Wright, the first occurrence of an event or circumstance constituting Good Reason.  Such reimbursement, if any, shall be made on a monthly basis during the Benefits Continuation Period.  

(iii)    Notwithstanding any provision of any stock option plan, stock incentive plan, restricted stock plan or similar plan or agreement to the contrary, as of the Date of Termination, (x) Wright shall be fully vested in all outstanding options to acquire stock of the Company (or the options of any parent, surviving, or acquiring company then held by Wright) and all then outstanding restricted shares of stock of the Company and other equity-based awards (including restricted stock units of the Company) (or, in each case, such parent, surviving or acquiring company) held by Wright, and (y) subject to any limitation on exercise in any such plan or agreement that may not be amended without stockholder approval, all options referred to in clause (x) above shall be immediately exercisable and shall remain exercisable until the earlier of (1) the second anniversary of the Date of Termination, or (2) the otherwise applicable expiration date of the term of such option.  For the avoidance of doubt, settlement of any restricted stock units, the vesting of which is accelerated pursuant to 

this Agreement, shall occur upon vesting pursuant to this Section 6(a)(iii), subject to any previous legally binding deferral election regarding such units.

(iv)    To the extent that the full vesting of any stock option, share of restricted stock or other equity-based award, or the full exercisability of any stock option or other equity-based award, provided for in Section 5(c) or Section 6(a)(iii) should violate any law, rule or regulation of any governmental authority or self-regulatory organization applicable to the Company, or to the extent otherwise determined by the Company in its sole discretion, the Company may, in lieu of providing any vesting or exercisability rights pursuant to Section 5(c) or 6(a)(iii), (x) cancel any or all of Wright's outstanding options in exchange for a lump sum payment, in cash, equal to the excess of the fair market value of the shares of stock underlying such options (whether or not vested or exercisable) on the Date of Termination (as reasonably determined by the Board in good faith) over the aggregate exercise price provided for in such stock options, and (y) repurchase any shares of restricted stock or other equity-based awards (including restricted stock units of the Company) at their fair market value (as determined by the Board without regard to the restrictions on such shares of stock).  The lump sum payment provided for in this Section 6(a)(iv) shall be made, if at all, within thirty (30) days of the Date of Termination, with the payment date determined by the Company in its sole discretion.  For the avoidance of doubt, settlement of any restricted stock units, the vesting of which is accelerated pursuant to this Agreement, shall occur pursuant to this Section 6(a)(iv), subject to any previous legally binding deferral election regarding such units.

For purposes of this Agreement, Wright's employment shall be deemed to have been terminated following a Change in Control by the Company without Cause or by Wright with Good Reason, if (x) Wright's employment is terminated by the Company without Cause (whether or not a Change in Control ever occurs) and, at the time of such termination, the Company is a party to a written agreement the consummation of which would constitute a Change in Control, or (y) Wright terminates his employment for Good Reason (whether or not a Change in Control ever occurs), within six (6) months of the occurrence of the event which constitutes Good Reason, or if shorter, the end of the term, and, both at the time the event occurs that constitutes Good Reason and at the time of such termination, the Company is a party to such an agreement.  In such event, Wright shall be entitled to the severance benefits described herein, but notwithstanding anything to the contrary herein, any severance benefits owing to Wright pursuant to this paragraph shall be paid at the same time and in the same manner as provided in the Employment Agreement. 

Notwithstanding anything herein to the contrary, to the maximum extent permitted by applicable law, the Severance Payments and/or other benefits to be made to Wright pursuant to this Section 6(a) shall be made in reliance upon Treasury Regulations promulgated under Section 409A of the Code, including Section 1.409A-1(b)(9) of the Treasury Regulations (including any exceptions from the application of Section 409A thereunder) and Section 1.409A-1(b)(4) of the Treasury Regulations.  For this purpose, each Severance Payment shall be considered a separate and distinct payment for purposes of Section 409A of the Code.  However, to the extent any such payments are treated as non-qualified deferred compensation subject to Section 409A of the Code, then (a) no amount shall be payable pursuant to this Section 6(a) unless Wright's termination of employment constitutes a “separation from service” within the meaning of Section 1.409A-1(h) of the Treasury Regulations and (b) if Wright is deemed at the time of his separation from service to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, then to the extent delayed commencement of any portion of the Severance Payments to which Wright is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of Wright's Severance Payments shall not be provided to Wright prior to the earlier of (x) the expiration of the six-month period measured from the date of Wright's “separation from service” with the Company (as such term is defined in Section 1.409A-1(h) of the Treasury Regulations) or (y) the date of Wright's death.  Upon the earlier of such dates, all payments deferred pursuant to this paragraph shall be paid in a lump sum to Wright, and any remaining payments due under the Agreement shall be paid as otherwise provided herein.  The determination of whether Wright is a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code as of the time of his separation from service shall be made by the Company in accordance with the terms of Section 409A of the Code and applicable guidance thereunder (including without limitation Section 1.409A-1(i) of the Treasury Regulations and any successor provision thereto).

(b)    Certain Reductions in Payment  

(i)  Notwithstanding anything contained in this Agreement to the contrary, if any payment or benefit Wright would receive from the Company pursuant to this Agreement or otherwise (“Payment,” “Payments,” in the aggregate) would, as determined by tax counsel to the Company reasonably acceptable to Wright (“Tax Counsel”), (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this Section 6(b), be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then the Payments will be adjusted to equal the Reduced Amount.  The “Reduced Amount” will be either (1) the largest portion of the Payments that would result in no portion of the Payments (after reduction) being subject to the Excise Tax or (2) the entire amount of the Payments, whichever amount after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes), results in Wright's receipt, on an after-tax basis, of the greatest amount of the Payments.  If a reduction in Payments is to be made so that the Payments equal the Reduced Amount, (x) the Payments will be paid only to the extent permitted under the Reduced Amount alternative, and Wright will have no rights to any additional payments and/or benefits constituting the Payments.  In no event will the Company or any stockholder be liable to Wright for any amounts not paid as a result of the operation of this Section 6(b).  No portion of any Payment shall be taken into account which in the opinion of Tax Counsel does not constitute a “parachute payment” within the meaning of Code Section 280G(b)(2), including by reason of Code Section 280G(b)(4)(A) (regarding reasonable compensation for services rendered after a change in control).

(ii)    The Company shall reduce or eliminate the Payments by (i) first reducing or eliminating those payments or benefits which are payable in cash and (ii) then reducing or eliminating non-cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the furthest in time from the Change in Control. Any reduction made pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing Wright's rights and entitlements to any benefits or compensation.  In applying these principles, any reduction or elimination of the Payments shall be made in a manner consistent with the requirements of Section 409A of the Code and where two economically equivalent amounts are subject to reduction but payable at different times, such amounts shall be reduced on a pro rata basis but not below zero.

(c)    The payments provided for in Section 6(a)(i) or 9(a) (as adjusted by Section 6(b)(i)) hereof shall be made not later than the tenth business day following the Date of Termination, with the payment date determined by the Company in its sole discretion.

(d)     Wright and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments.  The Company shall pay to Wright all legal fees and expenses incurred by Wright (i) in obtaining or enforcing any benefit or right provided by this Agreement or (ii) in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder, provided that, in either case, Wright prevails on the merits of such action.  Such amounts shall be paid in accordance with Section 409A of the Code, including Sections 1.409A-1(b)(11), 1.409A-3(g) and 1.409A-3(i)(1)(v) of the Treasury Regulations.  In the event of a claim as to which Wright only obtains partial recovery or relief, Wright shall be considered to have prevailed if Wright should receive more than 50% of the amount or relief claimed.  Such payments shall be made within five (5) business days after the later of (y) delivery of Wright's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require delivered within 20 days of a final, non-appealable judgment from a court of competent jurisdiction or the binding conclusion of an audit, investigation or proceeding by the IRS or applicable agency and (z) a final, non-appealable judgment from a court of competent jurisdiction or the binding conclusion of an audit, investigation or proceeding by the IRS or applicable agency.

(e)    All reimbursements and in-kind benefits described in this Agreement shall be made in accordance with Treasury Reg. § 1.409A-3(i)(1)(iv) to the extent applicable, including the amount of expenses eligible for 

reimbursement, and the in-kind benefits provided, during any year pursuant to this Agreement shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided in any other year, the reimbursement is made on or before the last day of the calendar year following the calendar year the expense was incurred, and the right to reimbursement or in kind benefit is not subject to liquidation or exchange for another benefit.

(f)     For the avoidance of doubt, the parties acknowledge that the amount of any Company-paid premiums for the health insurance benefits provided pursuant to this Agreement shall be taxable to Wright and included in Wright's gross income, and that none of the amounts payable hereunder are intended to reimburse Wright for any income taxes payable with respect to such income.

7.Termination Procedures and Compensation During Dispute.
             
(a)    Notice of Termination.  After a Change in Control and during the Term, any purported termination of Wright's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Wright's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include an invitation to attend a meeting of the Board, to be held no sooner than fifteen (15) days and no later than thirty (30) days following the date of such Notice of Termination for the purpose of considering whether Cause existed for Wright's termination.  If Wright elects to attend the meeting, Wright and his counsel shall be given the opportunity to address the Board.  At the conclusion of the meeting, the Board shall vote whether Wright was guilty of conduct giving rise to Cause hereunder, which vote shall require not less than three-quarters (3/4) of the entire membership of the Board in order to confirm Wright's termination for Cause.  If the Board fails to confirm Wright's termination for Cause, the Board may elect to reinstate Wright or treat the termination as a termination without Cause for purposes of this Agreement.  The Company shall have no liability to Wright with respect to any benefit other than cash compensation that is denied Wright during the period between the delivery of a Notice of Termination for Cause and the Board's subsequent failure to confirm that Cause existed.  Notice of Termination due to a Good Reason must be provided by Wright to the Company within ninety (90) days of the occurrence of the event which is the basis for such Good Reason exists.

(b)    Date of Termination.  The “Date of Termination,” with respect to any termination of Wright's employment after a Change in Control and during the Term, shall mean the date specified in the Notice of Termination which, except in the case of a termination for Cause, shall not be less than fifteen (15) days and no more than thirty (30) days from the date such Notice of Termination is given and in the case of a “Good Reason,” shall mean the notice and cure period requirements contained in Sections 7(a) and 16(m) herein.  Notwithstanding the foregoing, the Company shall have the right to restrict Wright's access to company facilities and properties, and to terminate Wright's authority to act on behalf of the Company, in such manner as the Company, in its sole discretion, shall deem appropriate during the period between the delivery of such a Notice of Termination and the Date of Termination.  The Date of Termination with respect to a termination for Cause shall be the date the Notice of Termination is delivered to Wright or such later date as the Company shall expressly provide; provided, however, that if a Notice of Termination for Cause is delivered to Wright and the Board subsequently determines pursuant to Section 7(a) hereof that Cause did not exist but does not reinstate Wright, the Date of Termination shall be deemed to be the date of such Board determination.

8.No Mitigation.  The Company agrees that, if Wright's employment with the Company terminates during the Term, Wright is not required to seek other employment or to attempt in any way to reduce any amounts payable to Wright by the Company pursuant to Section 6 hereof. Further, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by Wright as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by Wright to the Company, or otherwise except as set forth in Section 6 or as otherwise expressly provided herein. 

9.Successors; Binding Agreement.
 

(a)    In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to or upon the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Wright to compensation from the Company in the same amount and on the same terms (including the determination of the applicable payment date) as Wright would be entitled to hereunder if Wright were to terminate Wright's employment for Good Reason after a Change in Control (a “Change in Control Payment”), except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination.  For purposes of a Change in Control Payment described in the previous sentence, such payment shall only occur if the succession is a “change in control” of the Company as defined in Treasury Regulation 1.409A-3(i)(5).  For the avoidance of doubt, if Wright receives a Change in Control Payment pursuant to this Section 9(a), then Wright shall not be entitled to any payment under Section 6(a)(i) following his subsequent termination of employment. Notwithstanding the foregoing, if the Company successfully obtains such assumption and agreement prior to or upon the effectiveness of any such succession and the successor extends an offer of employment to Wright, any termination of Wright's employment with the Company incident to such succession shall be ignored for purposes of this Agreement; provided that nothing contained in this Section 9(a) shall limit Wright's right to terminate employment with the successor for Good Reason if the succession constitutes a Change in Control and the successor takes any action subsequent to such succession that would constitute Good Reason hereunder.

(b)    This Agreement shall inure to the benefit of and be enforceable by Wright's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Wright shall die while any amount would still be payable to Wright hereunder (other than amounts which, by their terms, terminate upon the death of Wright) if Wright had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of Wright's estate.

10.Notices.  For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to Wright, to the address inserted below Wright's signature on the final page hereof and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:

To the Company:

Tractor Supply Company
200 Powell Place
Brentwood, TN 37027
Attention:  Corporate Secretary

11.Miscellaneous.  No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Wright and such officer as may be designated by the Board and complies with Section 409A of the Code. No waiver by either party hereto at any time of any breach by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Tennessee.  All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections.  Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which Wright has agreed. The obligations of the Company and Wright under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 4, 6 and 7 hereof) shall survive such expiration.

12.Validity.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

13.Counterparts.  This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

14.Settlement of Disputes.  Except as otherwise provided by law, this Agreement or the specific terms of any employee benefit plan of the Company, all claims by Wright for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing.  Wright shall provide the Board with all materials and information reasonably requested by the Board in connection with its review of any such claim.  Any denial by the Board of a claim for benefits under this Agreement shall be delivered to Wright in writing within 90 days of its receipt of the claim and shall set forth the specific reasons for the denial, the specific provisions of this Agreement relied upon, a description of any additional material or information necessary to perfect the claim, and a statement of Wright's right to file an action under ERISA.  The Board shall afford a reasonable opportunity to Wright for a review of the decision denying a claim and shall further allow Wright to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that Wright's claim has been denied.  In pursuing his appeal, Wright shall be permitted to submit written comments, documents, records or other relevant information relating to his claim.  In addition, Wright will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to his claim.  The Company's review will take into account all information submitted by Wright regarding the claim, regardless of whether or not such information was submitted or considered in the initial determination.  The Company will render its decision on such review within a reasonable period of time, but not later than 60 days from the Company's receipt of Wright's written appeal.  If the appeal is denied in whole or in part, Wright will receive a written notification of the denial which will include (i) the specific reasons for the denial, (ii) reference to the specific provisions of the Agreement upon which the denial was based and (iii) a statement of Wright's right to bring an action under ERISA.    The resolution of any disputes shall be made strictly in accordance with Section 409A and the Treasury Regulations issued thereunder, to the extent applicable.

15.Compliance with Section 409A.  The parties acknowledge and agree that, to the extent applicable, this Agreement shall be interpreted in accordance with, and the parties agree to use their best efforts to achieve timely compliance with, Section 409A of the Code and the Treasury Regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Effective Date. Notwithstanding any provision of this Agreement to the contrary, in the event that the Company determines that any compensation or benefits payable or provided under this Agreement may be subject to Section 409A of the Code, the Company may adopt such limited amendments to this Agreement and appropriate policies and procedures, including amendments and policies with retroactive effect, that the Company reasonably determines are necessary or appropriate to (i) exempt the compensation and benefits payable under this Agreement from Section 409A of the Code and/or preserve the intended tax treatment of the compensation and benefits provided with respect to this Agreement or (ii) comply with the requirements of Section 409A of the Code.

16.Definitions.  For purposes of this Agreement, the following terms shall have the meanings indicated below:

(a)    “Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.

(b)    “Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act.

(c)    “Board” shall mean the Board of Directors of the Company.

(d)    “Cause” for termination by the Company of Wright's employment shall mean (i) Wright's failure or refusal to carry out the lawful directions of the Company, which are reasonably consistent with the responsibilities of Wright's position; (ii) a material act of dishonesty or disloyalty by Wright related to the business of 

the Company; (iii) Wright's conviction of a felony, a lesser crime against the Company, or any crime involving dishonest conduct; (iv) Wright's habitual or repeated misuse or habitual or repeated performance of Wright's duties under the influence of alcohol or controlled substances; or (v) any incident materially compromising Wright's reputation or ability to represent the Company with the public or any act or omission by Wright that substantially impairs the Company's business, good will or reputation.

(e)    “Change in Control” shall be deemed to have occurred if:

(i)Any one person (or more than one person acting as a group (as defined in Section 1.409A-3(i)(5)(v)(B) of the Treasury Regulations) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons), ownership of the securities of the Company representing more than 35% of the total voting power of the Company's then outstanding securities; provided, however, that no Change of Control shall be deemed to have occurred as a result of a change in ownership percentage resulting solely from an acquisition of securities by the Company; or

(ii) During any twelve (12) month period during the Term, the majority of the individuals who at the beginning of such twelve (12) month period constitute the Board and any new director whose election to the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved (such individuals and any such new director being referred to as the “Incumbent Board”) are replaced; provided, however, that to the extent consistent with Section 409A of the Code, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened “Election Contest” (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a “Proxy Contest”) including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or

(iii)Consummation of a reorganization, merger or consolidation of the Company (a “Business Combination”), in each case, unless, following such Business Combination, all or substantially all of the individuals and entities who were the beneficial owners of outstanding voting securities of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, 50% or more of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the company resulting from such Business Combination (including, without limitation, a company which, as a result of such transaction, owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the outstanding voting securities of the Company; or

(iv)A sale or other disposition of all or substantially all of the assets of the Company (other than in a transaction in which all or substantially all of the individuals and entities who were the Beneficial Owners of outstanding voting securities of the Company immediately prior to such sale or other disposition beneficially own, directly or indirectly, substantially all of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the acquirer of such assets (either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such sale or other disposition), or the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

For the avoidance of doubt, the definition of a Change in Control in this Section 16(e) is intended to comply with and shall be interpreted in accordance with Section 1.409A-3(i)(5) of the Treasury Regulations and any inconsistencies between such section and this definition (except for the selection of a higher percentage or more 

stringent ownership requirement contained in this Section 16(e)) shall be reformed to the definition of an applicable “change in the ownership,” change in the effective control” or a “change in the ownership of a substantial portion of the assets” of the Company, as such terms are defined in Section 1.409A-3(i)(5) if the Treasury Regulations.  As a result, a Change in Control shall only be deemed to occur if such event meets the requirements of Section 1.409A-3(i)(5) of the Treasury Regulations, as such definition may be permissibly limited by this Section 16(e).

(f)    “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

(g)    “Company” shall mean Tractor Supply Company and, except in determining whether or not any Change in Control of the Company has occurred, shall include any successor to its business or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise.

(h)    “Date of Termination” shall have the meaning set forth in Section 7(b) hereof.

(i)    “Disability” shall be deemed the reason for the termination by the Company of Wright's employment, if, as a result of Wright's incapacity due to physical or mental illness, Wright shall have been absent from the full-time performance of Wright's duties with the Company for a period of six (6) consecutive months, the Company shall have given Wright a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, Wright shall not have returned to the full-time performance of Wright's duties.

(j)    “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

(k)    “Excise Tax” shall mean any excise tax imposed under Section 4999 of the Code.

(l)    “Good Reason” for termination by Wright of Wright's employment shall mean the occurrence (without Wright's express written consent) after any Change in Control, of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described below, such act or failure to act is corrected within the later of 30 days of the Company's receipt of notice of Good Reason from Wright or prior to the Date of Termination specified in the Notice of Termination given in respect thereof:

(i)    the assignment to Wright of any duties materially inconsistent with Wright's status as a senior officer of the Company or a material adverse alteration in the nature or status of Wright's responsibilities from those in effect immediately prior to the Change in Control; 

(ii)    the assignment to Wright of any duties materially inconsistent with Wright's status as a senior officer of the Company or a material adverse alteration in the nature or status of Wright's responsibilities from those in effect immediately prior to the Change in Control;

(iii)    the relocation of Wright's principal place of employment to a location more than 50 miles from Wright's principal place of employment immediately prior to the Change in Control or the Company's requiring Wright to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company's business to an extent substantially consistent with Wright's present business travel obligations;

(iv)    the failure by the Company to pay to Wright any material portion of Wright's current compensation, or to pay to Wright any material portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due;

(v)    the failure by the Company to continue in effect any compensation plan in which Wright participates immediately prior to the Change in Control which is material to Wright's total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue Wright's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of Wright's participation relative to other participants, as existed immediately prior to the Change in Control; or

(vi)    the failure by the Company to continue to provide Wright with benefits substantially similar to those enjoyed by Wright under any of the Company's pension, savings, life insurance, medical, health and accident, or disability plans in which Wright was participating immediately prior to the Change in Control (except for across the board changes similarly affecting all senior officers of the Company and all senior officers of any Person in control of the Company), the taking of any other action by the Company which would directly or indirectly materially reduce any of such benefits or deprive Wright of any material fringe benefit enjoyed by Wright at the time of the Change in Control, or the failure by the Company to provide Wright with the number of paid vacation days to which Wright is entitled in accordance with the Company's normal vacation policy in effect at the time of the Change in Control.  

Wright's right to terminate Wright's employment for Good Reason shall not be affected by Wright's incapacity due to physical or mental illness. Wright's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.

(m)    “Notice of Termination” shall have the meaning set forth in Section 7(a) hereof.

(n)    “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company

(o)    “Retirement” shall be deemed the reason for the termination by Wright of Wright's employment if such employment is terminated in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees.

(p)    “Severance Payments” shall have the meaning set forth in Section 6(a) hereof.

(q)    “Term” shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein).

(r)    “Wright” shall mean the individual named in the preamble to this Agreement.

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

IT WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. 
 
	
			
	 
	 
	By: /s/ Anthony F. Crudele

	 
	 
	Name: Anthony F. Crudele

	 
	 
	Title: Executive Vice President - Chief Financial Officer and Treasurer

	 
	 
	 

	 
	 
	EXECUTIVE

	 
	 
	/s/ James F. Wright

	 
	 
	Name: James F. Wright

	 
	 
	Address:settlementagreement121912.htm

Exhibit 10.1

 

SETTLEMENT AGREEMENT AND MUTUAL RELEASES

 

This SETTLEMENT AGREEMENT AND MUTUAL RELEASES ("Agreement") is made and entered into, as of the date on which it is fully executed, as indicated by the signatures below, by and among the Stilwell Group (as defined below), Spencer L. Schneider, an individual, First Financial Northwest, Inc., a Washington corporation (the "Company"), Raymond J. Riley, an individual, Carl T. Hagberg and Associates, a sole proprietorship registered in New Jersey, and Victor Karpiak, an individual (collectively, "the parties" and each a "party").

 

RECITALS

 

WHEREAS, the Company is the parent holding company of First Savings Bank Northwest (the "Bank"), a Washington chartered stock savings bank which is located in Renton, Washington, and of First Financial Diversified Corporation ("Diversified"), a Washington corporation;

 

WHEREAS, Victor Karpiak is President, Chief Executive Officer and Chairman of the Board of Directors of the Company (the "Board"); Executive Chairman and Chairman of the Board of Directors and, until his resignation on or about September 17, 2012, was President and Chief Executive Officer of the Bank; and President, Chief Executive Officer and Chairman of the Board of Directors of Diversified;

 

WHEREAS, the "Stilwell Group" consists of Joseph Stilwell, an individual whose business address is 111 Broadway, 12th Floor, New York, NY 10006, and the following Delaware limited partnerships and Delaware limited liability companies:

 

	
·  

	
Stilwell Value Partners II, L.P.;

	
·  

	
Stilwell Value Partners V, L.P.;

	
·  

	
Stilwell Value Partners VI, L.P.;

	
·  

	
Stilwell Value Partners VII, L.P.;

	
·  

	
Stilwell Partners, L.P.;

	
·  

	
Stilwell Associates, L.P.;

	
·  

	
Stilwell Associates Insurance Fund of the S.A.L.I. Multi-Series Fund, L.P.;

	
·  

	
Stilwell Value LLC; and

	
·  

	
Stilwell Advisers LLC.

 

WHEREAS, members of the Stilwell Group are, and have been, the beneficial owners of a substantial number of shares of the common stock of the Company, together and in the aggregate owning approximately 9.41 percent of the Company's common stock ("Common Stock");

 

WHEREAS, Spencer L. Schneider is, inter alia, an attorney who represents the Stilwell Group;

 

 

  

  

  

 

WHEREAS, on March 29, 2012, the Stilwell Group announced its intention to nominate Mr. Schneider to stand as a candidate at the election of directors to be held at the Company's 2012 Annual Meeting;

 

WHEREAS, the Company's 2012 Annual Meeting was scheduled for May 24, 2012 in Renton, Washington, and at that meeting three of the Company's eight directors, including Mr. Karpiak, were to stand for election for three year terms;

 

WHEREAS, the Stilwell Group on April 9, 2012, and the Company, on April 11, 2012, filed definitive Proxy Statements soliciting proxies from the Company's shareholders; the Company sought proxies to vote for its slate of three director candidates, including Mr. Karpiak; and the Stilwell Group sought proxies to vote for Mr. Schneider and two of the Company's candidates, but not Mr. Karpiak;

 

WHEREAS, on May 24, 2012, the 2012 Annual Meeting was held with Raymond J. Riley of Carl T. Hagberg and Associates serving as the Independent Inspector of Election (the "Inspector");

 

WHEREAS, at and after the 2012 Annual Meeting certain disputes arose concerning the counting of votes in the director election;

 

WHEREAS, on May 29, 2012, the Inspector issued his Final Report in which he concluded, among other things, that Mr. Karpiak received more votes than Mr. Schneider in the director election;

 

WHEREAS, on June 7, 2012, Stilwell Value Partners II, L.P.; Stilwell Value Partners V, L.P.; Stilwell Value Partners VI, L.P.; Stilwell Value Partners VII, L.P.; Stilwell Partners, L.P., Stilwell Associates, L.P.; Stilwell Associates Insurance Fund of the S.A.L.I. Multi-Series Fund, L.P.; and Mr. Schneider (collectively, "Plaintiffs") filed a Complaint and Information in the Superior Court of Washington in and for King County (No. 12-2-20022-0 KNT) (the "Litigation") against the Company, Mr. Karpiak and the Inspector (collectively, "Defendants"), and Defendants have denied all of Plaintiffs' claims;

 

WHEREAS, there have been extensive motion practice and discovery in the Litigation;

 

WHEREAS, the Court presiding over the Litigation has scheduled an expedited trial for Friday, January 11, 2013 and Friday, January 18, 2013;

 

WHEREAS, on August 10, 2012, the Company, the Bank and Diversified entered into a Transition Agreement with Mr. Karpiak pursuant to which Mr. Karpiak retired as President and Chief Executive Officer of the Bank as of September 17, 2012, but continues to be an employee of the Bank (as well as President, Chief Executive Officer and Chairman of the Board of Directors of the Company and of Diversified) until his planned retirement date in April 2014;

 

WHEREAS, on November 20, 2012, the Stilwell Group served a demand on the Board to prosecute an action against certain of the Company's agents relating to certain matters pertaining to the 2012 Annual Meeting (the "Demand"); and

 

 

  

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WHEREAS, while each of the parties remains convinced of the merits of its or his position in the Litigation, each has respectively determined that it is in its or his best interests to settle the Litigation on the terms set forth herein solely to avoid the burden, inconvenience, expense, risk and distraction of further litigation.

 

NOW, THEREFORE, in consideration of the mutual promises, representations, covenants and agreements of the parties contained herein, and for other good and valuable consideration, the receipt and legal sufficiency of which the parties hereby acknowledge, the parties hereto, intending to be legally bound, agree as follows:

 

TERMS

 

ARTICLE 1 — BOARD OF DIRECTORS

 

	
1.1  

	
Appointment of Mr. Schneider as a Company Director Through

the 2013 Annual Meeting

 

      (a)           No later than five business days after the execution of this Agreement by all parties, the Board shall vote to increase the size of the Board by one (1) director to a total of nine (9) directors and to appoint Mr. Schneider to fill that new position and to serve as a director of the Company until the later of the date of the Annual Meeting of Shareholders of the Company in 2013 (the "2013 Annual Meeting") or the date on which his successor should be elected and qualified, the effectiveness of such appointment and Board votes to be subject only to:  (i) if necessary, Mr. Schneider receiving all approvals by state and federal regulatory agencies (specifically, the Washington Department of Financial Institutions, the Federal Deposit Insurance Corporation and the Federal Reserve Bank of San Francisco, or their successors) necessary for him to serve as a director of the Company and of the Bank, and (ii) Mr. Schneider and the Stilwell Group fully complying with their obligations under this Agreement.

 

(b)           No later than fifteen business days after the execution of this Agreement by all parties, if required by the applicable regulators, Mr. Schneider shall submit all required applications, or, if permitted, updates to previous applications, to the Washington Department of Financial Institutions, the Federal Deposit Insurance Corporation and the Federal Reserve Bank of San Francisco, or their successors, for regulatory approval of Mr. Schneider to serve in the positions set forth in Sections 1.1(a), 1.1(c) and 1.2 of this Agreement.  The Company and its agents shall act in good faith with regard to all matters concerning Mr. Schneider's regulatory approval applications and shall fully cooperate with and support Mr. Schneider in his effort to obtain such regulatory approval, by:  (i) submitting an Interagency Notice of Change in Director or Senior Executive Officer form in support of Mr. Schneider's application in which the Company affirmatively states that it consents to Mr. Schneider's appointment to the Board and to the board of the Bank; (ii) providing information that Mr. Schneider is not able independently to obtain from other sources and that is necessary to assist Mr. Schneider in completing his application(s) for regulatory approval; (iii) taking all actions reasonably necessary to respond to any and all inquiries from regulatory agencies to the effect that the Company's position is that the resolution of the Litigation, including the appointment of Mr. Schneider to the Board and to the board of the Bank, is in the best interests of the Company; and (iv) not making any disparaging 

 

 

  

3

  

comments to the regulators regarding Mr. Schneider and withdrawing any previous objections to Mr. Schneider's appointment to such boards.

 

(c)           Within one business day following receipt of notice that Mr. Schneider has received all required regulatory approvals, if any, for him to serve as a director of the Company, the Company shall notify Mr. Schneider that his appointment to the Board is effective, and that he may immediately commence to serve as a director of the Company, with a term of appointment lasting through the date of the 2013 Annual Meeting.  Immediately upon Mr. Schneider commencing his service as a director of the Company, the Company will take all steps necessary to appoint Mr. Schneider for the entirety of his term as a member of both (i) the Board's Nominating and Corporate Governance Committee and Compensation Committee, and (ii) the boards of directors of each of the Bank and Diversified.

 

(d)           The Company, Mr. Schneider and all members of the Stilwell Group (including Joseph Stilwell in his individual capacity) shall enter into a Non-Disclosure Agreement, substantially in the form attached as Exhibit A hereto, which shall remain in force through Mr. Schneider's tenure on the Board.

 

	
1.2  

	
Nomination of Mr. Schneider as a Director Candidate for

the 2013 Annual Meeting

 

(a)           The Company agrees that, consistent with the customary timing of its annual meetings, the 2013 Annual Meeting will not be held prior to May 1, 2013.  The Company and its Board shall nominate and support Mr. Schneider for election as a director at the 2013 Annual Meeting for a three (3) year term, including but not limited to preparing, filing with the Securities and Exchange Commission and disseminating to the Company's shareholders proxy soliciting materials in substantially the same form and using substantially the same solicitation efforts in support of Mr. Schneider's candidacy as the Company uses for its other director candidates to be nominated at the 2013 Annual Meeting.  The Company's proxy holders shall vote in favor of Mr. Schneider's election all proxies received in response to these solicitation efforts that direct the proxy holders to cast votes in favor of Mr. Schneider's election as a director at the 2013 Annual Meeting.

 

(b)           The Company and Board shall also appoint Mr. Schneider, upon his election and for the entirety of his three-year elected term as a Board director, as a member of (i) the Board's Nominating and Corporate Governance Committee and Compensation Committee and (ii) the boards of the Bank and Diversified; moreover, in the event that Mr. Schneider dies or becomes incapacitated or is unable or unwilling to serve as a director (or ceases to represent the Stilwell Group as an attorney) during the period of time he is to serve as a director under Sections 1.1 and 1.2 hereof, the Company and the Stilwell Group shall take all reasonable actions to immediately replace Mr. Schneider for the periods he would have served on the Board under Sections 1.1 and 1.2 with another individual designated by the Stilwell Group and approved by the Company, which approval shall only be withheld in good faith, subject to such regulatory approvals as may be required at that time.

 

 

  

4

  

 

	
1.3  

	
Victor Karpiak

 

Mr. Karpiak agrees to resign as Chairman of the Board immediately after Mr. Schneider joins the Board.  Following his resignation as Chairman, Mr. Karpiak will remain a member of the Board until September 1, 2013, at which time Mr. Karpiak shall resign as a member of the Board and thereupon cease all service on the Board.  No later than the Annual Meeting of Shareholders of the Company in 2014, Mr. Karpiak shall resign as a member of the Bank and Diversified boards, and shall thereafter cease all service on the Bank and Diversified boards.  To the extent the Transition Agreement is inconsistent with this Agreement, the Transition Agreement will be amended to make the two agreements consistent.  Except as set forth in this Section 1.3, all terms of the Transition Agreement shall remain in full force and effect and may not be altered except as set forth in the Transition Agreement.

 

1.4           Stilwell Group

 

Provided that the Effective Date occurs and the Company complies with its obligations under Section 1.2 of this Agreement to nominate Mr. Schneider and support Mr. Schneider's nomination at the 2013 Annual Meeting and that he is elected as a director, the Stilwell Group and Mr. Schneider agree and covenant that in connection with the 2013, 2014 and 2015 Annual Meetings of the Company they shall not:

 

	
(a)        

	
provide a notice to the Company that they intend to nominate, or nominate, any person for election as director; or

 

	
(b)        

	
directly or indirectly solicit proxies or participate in the solicitation of proxies for any person to be elected to the Board that has not been nominated by the Company's Board; or

 

	
(c)        

	
join with or assist any person or entity, directly or indirectly, in opposing, or make any statement in opposition to, any director nomination submitted by the Company's Board to a vote of the Company's shareholders.

 

The Stilwell Group and each of its members, and Mr. Schneider, further agree and covenant that at the 2013, 2014 and 2015 Annual Meetings of the Company, they will vote all Common Stock that they own, either as registered shareholders or beneficially, in support of director candidates nominated by the Company.

 

Nothing in this Section 1.4 shall in any way prevent the Stilwell Group from soliciting proxies or consents, or participating in any such solicitations, with respect to any matter other than the election of directors at the 2013, 2014 and 2015 Annual Meetings, or restrict the Stilwell Group's ability to vote its shares, either in person or by proxy, on any matters other than the election of directors at the 2013, 2014 and 2015 Annual Meetings.

 

 

  

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ARTICLE 2 — RESOLUTION OF LITIGATION

 

	
2.1

	
Joint Motions for Stay and Dismissal and for Dismissal with Prejudice of Mr. Riley

 

(a)           No later than three court days following the execution of this Agreement by all parties, counsel for the parties shall cause to be filed in the Litigation a joint motion to stay the Litigation, and all proceedings or deadlines therein, until the Effective Date (defined in Article 5 below) has or has not occurred.  The parties further agree that during the pendency of the stay they will not take any other action that would be barred if the releases set forth in Article 4 had already been in effect.

 

(b)           Immediately upon occurrence of the Effective Date, the parties shall file a stipulated joint dismissal with prejudice of the Litigation, in the form attached hereto as Exhibit B.

 

(c)           The joint motion to stay referred to in this Section 2.1 shall not apply to the claims against defendant Raymond J. Riley.  Subject to the Court's approval, all claims against Mr. Riley shall be dismissed with prejudice pursuant to a Stipulation and Order for Dismissal of Defendant Raymond J. Riley With Prejudice ("Riley Stipulation") that counsel for the parties shall file at the same time that they file the joint motion to stay the Litigation.  The Riley Stipulation shall be in the form set forth in Exhibit C.  The Company and Mr. Karpiak shall not assert in the Litigation that the dismissal of Mr. Riley pursuant to the Riley Stipulation in any way has any effect on either the claims against them or the relief available against them in the Litigation.

 

2.2         Demand Withdrawal

 

Upon the execution of this Agreement by all parties, the Stilwell Group shall be deemed to have consented to the Board staying its consideration of the Demand until after the Effective Date has or has not occurred.  Upon the Effective Date, the Demand shall be deemed withdrawn and of no further force or effect.  If the Effective Date does not occur, then the Board shall treat the Demand as if the time for responding to it was tolled during the stay of the Litigation.  Under no circumstances shall the Stilwell Group or Mr. Schneider contend that the Board should have acted on the Demand during the stay of the Litigation.

 

ARTICLE 3 — PAYMENT

3.1         Proxy expense reimbursement

 

No later than five business days after the Effective Date, the Stilwell Group shall:  (i) document in writing and provide to the Company, with copies of supporting invoices and/or receipts, all expenses that it incurred up through and including May 24, 2012 in connection with the 2012 Annual Meeting and the 2012 contest for election of directors and that it either has paid or is obligated to pay (that is, if any incurred expenses have been forgiven, then they do not qualify for reimbursement); and (ii) identify in writing an entity to which the Company shall make a payment in partial reimbursement of such documented expenses (together, the "Reimbursement Expense Information").  Reimbursement Expense Information shall be 

 

 

  

6

  

designated and maintained as confidential by all recipients thereof and shall not be used for any purpose other than the reimbursement of proxy expenses pursuant to this Section 3.1.  Nothing herein shall require the Stilwell Group to provide any documentation showing that said expenses were reasonable or necessary.  No later than 10 (ten) business days following the later of the Effective Date or receipt of the Reimbursement Expense Information, the Company shall pay or cause to be paid to the entity identified by the Stilwell Group all expenses documented in the Reimbursement Expense Information up to the amount of two hundred thousand dollars ($200,000.00) (the "Reimbursement Payment").  The Reimbursement Payment shall be made in a manner (check or wire transfer) to be agreed by the Company and the Stilwell Group.

 

ARTICLE 4 — RELEASES

 

	
4.1  

	
Release by Mr. Riley, Carl T. Hagberg and Associates,

Mr. Karpiak and the Company

 

As of the Effective Date, Mr. Riley and Mr. Karpiak, each on behalf of himself and his agents, heirs, executors, administrators, assigns and marital community, and Carl T. Hagberg and Associates and the Company, on behalf of themselves and their past, present and future agents, predecessors, successors, assigns, subsidiaries, affiliates, principals, parents, officers, directors, owners, shareholders solely in their capacity as shareholders, members, representatives, employees, insurers, reinsurers and legal counsel, each hereby forever fully releases, discharges and holds harmless all members of the Stilwell Group, Joseph Stilwell, Mr. Schneider and their respective officers, directors, shareholders solely in their capacity as shareholders, controlling persons, principals, representatives, agents, affiliates, employees, partners, attorneys, proxy solicitors, insurers, reinsurers, assigns, heirs, executors, administrators, parents, subsidiaries, advisors, consultants, predecessors, successors and marital communities, and each of them, past, present and future, from any and all rights, claims, warranties, demands, debts, obligations, liabilities, costs, attorneys' fees, expenses, suits, losses, and causes of action of any nature whatsoever arising from, connected with, or in any way relating to or resulting from (i) the 2012 Annual Meeting, (ii) the 2012 contested director election, (iii) the Demand, and/or (iv) the Litigation, the claims made therein and any facts and circumstances relating thereto.

 

4.2         Release By Members of the Stilwell Group and Mr. Schneider

 

As of the Effective Date, Mr. Schneider and Mr. Stilwell, each on behalf of himself and his agents, heirs, executors, administrators, assigns and marital community, and each of the limited partnerships and limited liability companies that comprise the Stilwell Group, on behalf of themselves and their past, present and future agents, predecessors, successors, assigns, subsidiaries, affiliates, principals, parents, officers, directors, owners, shareholders solely in their capacity as shareholders, members, representatives, employees, insurers, reinsurers and legal counsel, each hereby forever fully releases, discharges and holds harmless Mr. Riley, Mr. Karpiak, Carl T. Hagberg and Associates and the Company, and their respective officers, directors, shareholders solely in their capacity as shareholders, controlling persons, principals, representatives, agents, affiliates, employees, partners, attorneys, proxy solicitors, insurers, reinsurers, assigns, heirs, executors, administrators, parents, subsidiaries, advisors, consultants, predecessors, successors and marital communities, and each of them, past, present and future, from any and all rights, claims, warranties, demands, debts, obligations, liabilities, costs, 

 

 

  

7

  

attorneys' fees, expenses, suits, losses, and causes of action of any nature whatsoever arising from, connected with, or in any way relating to or resulting from (i) the 2012 Annual Meeting, (ii) the 2012 contested director election, (iii) the Demand, and/or (iv) the Litigation, the claims made therein and any facts and circumstances relating thereto.

 

Items (i) through (iv) of Sections 4.1 and 4.2 shall be collectively referred to as the "Subject Matter of the Released Claims."

 

4.3         Effect of Releases

 

The releasing persons acknowledge that they may discover facts in addition to or different from those that they now know or believe to be true with respect to the Subject Matter of the Released Claims, but that it is their intention to fully, finally, and forever settle and release any and all claims related to the Subject Matter of the Released Claims, whether known or unknown, suspected or unsuspected, which now exist or heretofore existed or may hereafter exist and without regard to the subsequent discovery or existence of such additional or different facts concerning the Subject Matter of the Released Claims only.  Accordingly, the releases set forth in Sections 4.1 and 4.2 of this Agreement shall extend to claims that the releasing persons do not know or suspect to exist in their favor at the time of the release relating to the Subject Matter of the Released Claims only, which if known, might have affected their decision to enter into the release or whether or how to object to the Settlement.  All parties shall be deemed to waive any and all provisions, rights, and benefits conferred by any law of the United States, any state or territory of the United States, foreign law or any principle of common law that may have the effect of limiting the releases above, including but not limited to those that are similar, comparable or equivalent to California Civil Code Section 1542, which provides:

 

	 	A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor. 	 

 

ARTICLE 5 — EFFECTIVE DATE

5.1           Occurrence or Non-Occurrence

 

The Effective Date shall be the date that, in accordance with Section 1.1(c), Mr. Schneider is permitted to commence service as a director of the Company.  In the event that the Effective Date has not occurred by 5:00 p.m. Pacific time on February 15, 2013, the Effective Date shall be deemed to have not occurred.  Any obligation under this Agreement that is conditioned on occurrence of the Effective Date, or which pertains to any period after February 15, 2013, shall be null and void in the event that the Effective Date has not occurred, unless the parties otherwise agree in writing.

 

5.2         Impact on Litigation of Non-Occurrence of Effective Date

 

In the event the Effective Date has not occurred, the stay entered in the Litigation pursuant to Section 2.1(a) shall expire, the Litigation shall be permitted to resume, and the 

 

 

 

  

8

  

parties shall advise the Court of the failure of the Settlement and report on the status of the Litigation.  All other obligations undertaken by the parties in this Agreement that are conditioned on the occurrence of the Effective Date shall be deemed null and void, unless the parties otherwise agree in writing.

 

ARTICLE 6 — MISCELLANEOUS

 

6.1          Settlement Not An Admission

 

The parties understand and acknowledge that this Agreement reflects a compromise of disputed allegations and that the provisions contained in this Agreement shall not be deemed a presumption, concession, or admission by any party of any fault, liability or wrongdoing as to any facts or claims that have been or might be alleged or asserted in the Litigation, the Demand or any other action or proceeding that has been, will be, or could be brought, and shall not be interpreted, construed, deemed, invoked, offered, or received in evidence or otherwise used by any person in the Litigation, or in any other action or proceeding, whether civil, criminal, or administrative, for any purpose other than to enforce the terms of this Agreement, or as provided for expressly herein.  Nor shall this Agreement and any negotiations, statements, or proceedings in connection therewith be construed as, or deemed evidence of, a presumption, concession, or admission by any party of any defect or weakness in the facts, claims or defenses alleged in the Complaint or the Answers and Additional or Affirmative Defenses.

 

6.2          Notices

 

All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given to a party if delivered in person or sent by overnight delivery (providing proof of delivery) to the party at the following addresses on the date of delivery.

 

	
If to the Company or Mr. Karpiak:

	
John F. Breyer, Jr.

Breyer & Associates, PC

8180 Greensboro Drive, Suite 785

McLean, Virginia  22102

Telephone:  (703) 883-1100

Email:  jbreyer@b-a.net

 

-and-

 

Ronald L. Berenstain

Perkins Coie LLP

1201 Third Avenue, Suite 4900

Seattle, Washington  98101

Telephone:  (206) 359-8000

Email:  RBerenstain@perkinscoie.com

 

 

 

 

 

  

9

  

 

 

	
If to Mr. Riley or Carl T. Hagberg and Associates:

	
James P. Savitt

Savitt Bruce & Willey LLP

1425 Fourth Avenue, Suite 800

Seattle, Washington  98101

Telephone:  (206) 749-0500

Email:  jsavitt@jetcitylaw.com

 

	
If to the Stilwell Group or Mr. Schneider:

	
Richard B. Kapnick

Sidley Austin LLP

One South Dearborn Street

Chicago, Illinois  60603

Telephone: (312) 853-7846

Email: rkapnick@sidley.com

 

6.3          Communications

 

The parties agree that the Joint Press Release attached as Exhibit D will be issued upon execution of this Agreement; and that the Company will file with the U.S. Securities and Exchange Commission ("SEC") a Form 8-K announcing the settlement, to which copies of this Agreement and the Joint Press Release will be attached as exhibits.

 

6.4          Governing Law and Venue

 

This Agreement shall be governed and construed in accordance with the laws of the State of Washington, without regard to the conflict of law principles thereof.  Should any dispute arise between or among the parties regarding the interpretation or performance of this Agreement, the parties agree that such dispute shall be resolved in the Superior Court for the State of Washington in King County.

 

6.5          Amendments

 

Subject to applicable law, this Agreement may be amended only pursuant to a written agreement executed by all the parties, and no waiver of compliance with any provision or condition of this Agreement and no consent provided for in this Agreement shall be effective unless evidenced by a written instrument executed by the party against whom such waiver or consent is to be effective.

 

6.6          No Waivers

 

No failure or delay by a party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege hereunder.

 

 

  

10

  

 

6.7          Confidentiality and Return/Destruction of Confidential Documents and Information

 

The parties acknowledge and agree that the Stipulation and Protective Order entered in the Litigation on July 27, 2012, survives this Agreement and that all Confidential Information (as that term is used in the Stipulation and Protective Order) obtained in the Litigation may be used only as set forth in the Stipulation and Protective Order.  In accord with Paragraph 9 of the Stipulation and Protective Order, within sixty (60) days of the Effective Date, the parties shall either return to the producing party the originals and all copies of documents and information designated as Confidential or certify the destruction of all such documents and information, subject only to the exceptions set forth in Paragraph 9 of the Stipulation and Protective Order.

 

6.8          Costs, Expenses and Attorneys' Fees

 

Except for the Reimbursement Payment referenced in Section 3.1 of this Agreement, the parties shall bear their own costs, expenses and attorneys' fees as they were originally incurred in connection with the matters covered by this Agreement, including, without limitation, costs, expenses and attorneys' fees incurred in connection with the Litigation.  Nothing in this Section 6.8 shall apply to obligations imposed on the Company under and subject to the March 29, 2012 engagement agreement between the Company and Carl T. Hagberg and Associates; e.g., this Agreement does not release or impact the indemnification obligations set forth in that agreement.

 

6.9          Free Will

 

The parties to this Agreement hereby represent and warrant that they have each entered into this Agreement of their own free will and in accordance with their own judgment and upon advice of their own legal counsel, and state that they have not been induced to enter into this Agreement by any statement, act or representation of any kind or character on the part of anyone except as expressly set forth in this Agreement.  This Agreement is executed by each party without relying on any statement or representation by any other party or its representatives, including but not limited to any representations concerning the nature and extent of any injury, damages or legal liability.  Each party to this Agreement has made its own independent investigation of the facts and law pertaining to this settlement and this Agreement, and of all matters related thereto, to the full extent that party deems necessary or advisable.

 

6.10       Entire Agreement

 

This Agreement constitutes the entire agreement of all the parties and supersedes any and all prior and contemporaneous agreements, memoranda, arrangements and understandings, both written and oral, between or among the parties, or any of them, with respect to the subject matter hereof.  No representation, warranty, promise, inducement or statement of intention has been made by any party which is not contained in this Agreement and no party shall be bound by, or be liable for, any alleged representation, promise, inducement or statement of intention not contained herein.  The parties expressly disclaim reliance on any information, statement, representations or warranties regarding the subject matter of this Agreement other than the terms of this Agreement.

 

 

  

11

  

 

6.11        Severance

 

Should any non-material provision of this Agreement be declared or determined by any court or tribunal to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall not be deemed to be part of this Agreement.  Should any material provision of this Agreement be declared or determined by any court or tribunal to be illegal or invalid, the parties will have a right to void this Agreement for a period of ten (10) days from notice of such illegality or invalidity by providing written notice to all parties that the party is voiding the Agreement.  In the event no party voids the Agreement within those ten (10) days, the validity of the remaining parts, terms and provisions shall not be affected by the determination of illegality or invalidity, and said illegal or invalid part, term or provision shall not be deemed to be part of this Agreement.

 

6.12       Counterparts

 

To facilitate execution, this Agreement may be executed in any number of counterparts (including by facsimile and email/pdf transmission), each of which shall be deemed to be an original, but all of which together shall constitute one agreement binding on all the parties, notwithstanding that not all parties are signatories to the same counterpart.

 

6.13       Headings and Captions

 

The headings and captions contained in this Agreement are for convenience only and shall not affect the construction or interpretation of any provisions of this Agreement.

 

6.14       Authorizations

 

Each signatory to this Agreement represents that it or he has read and understood this Agreement and is fully authorized to execute the Agreement on behalf of the party or parties on whose behalf the signatory is signing.  The Stilwell Group, the Company, and Carl T. Hagberg and Associates represent and warrant that execution of this Agreement has been duly and validly authorized by all necessary corporate action and expressly approved by their respective governing bodies (for the Stilwell Group, Mr. Stilwell; for the Company, the Board; and for Carl T. Hagberg and Associates, Carl T. Hagberg).

 

6.15       Specific Performance

 

The parties agree that irreparable damage would occur in the event any of the provisions of this Agreement were not performed in accordance with the terms hereof, that remedies available at law are insufficient to fully remedy such damage, and that the parties are entitled to an injunction or specific performance of the terms hereof in addition to any other remedies at law or in equity that may be available.

 

 

  

12

  

 

6.16        Joint Drafting

 

The parties agree that they have jointly participated in the drafting and preparation of this Agreement and that this Agreement shall be construed as a whole according to the fair meaning of the language employed herein, and not construed in a manner either favorable or adverse to any of the parties hereto.

 

6.17       Scope of Riley and Carl T. Hagberg and Associates Participation

 

Mr. Riley and Carl T. Hagberg and Associates are not parties to, and assume no obligations or duties under, Articles 1 and 3 of this Agreement.  Furthermore, Mr. Riley and Carl T. Hagberg and Associates do not have knowledge of certain of the Recitals stated above and, for those, simply rely upon the assent of the other parties hereto to such Recitals.

 

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the last date shown below.

 

 

 

	 	VICTOR KARPIAK
	 	 
	 	
/s/Victor Karpiak                                                    

	 	Date: December 19, 2012                                    
	 	 
	 	 
	 	FIRST FINANCIAL NORTHWEST, INC.
	 	 
	 	By: /s/Victor Karpiak                                            
	 	Victor Karpiak                                                       
	 	Title:Chief Executive Officer                              
	 	Date: December 19, 2012                                    
	 	 
	 	 
	 	RAYMOND J. RILEY
	 	 
	 	/s/Raymond J. Riley                                             
	 	Date: December 19, 2012                                   
	 	 
	 	 
	 	CARL T. HAGBERG AND ASSOCIATES
	 	By: /s/Carl T. Hagberg and Associates                 
	 	
[Print Name]Carl T. Hagberg                               

	 	Title: Chairman, Carl T. Hagberg and Associates
	 	Date: December 20, 2012                                     
	 	 

 

 

 

                                                                           

 

  

13

  

 

	 	
THE STILWELL GROUP

	 	Joseph Stilwell; 
	 	Stilwell Value Partners II, L.P.; 
	 	Stilwell Value Partners V, L.P.; 
	 	Stilwell Value Partners VI, L.P.; 
	 	Stilwell Value Partners VII, L.P.; 
	 	Stilwell Partners, L.P.; 
	 	Stilwell Associates, L.P.; 
	 	Stilwell Associates Insurance Fund of the 
	 	    S.A.L.I. Multi-Series Fund, L.P.;
	 	Stilwell Value LLC; and 
	 	Stilwell Advisers LLC 
	 	 
	 	By:/s/Joseph Stilwell                                           
	 	Joseph Stilwell
	 	Title: G.P.                                                               
	 	Date: December 19, 2012
	 	 
	 	
SPENCER L. SCHNEIDER

	 	 
	 	
/s/Spencer L. Schneider                                       

	 	
Date: December 19, 2012

 

                                                              

  

14

  

 

                                                                           

Exhibit A

 

 

NON-DISCLOSURE AGREEMENT

 

THIS NON-DISCLOSURE AGREEMENT (this "Agreement"), is made and entered into as of the date on which it is fully executed, as indicated by signatures below,  by and among First Financial Northwest, Inc. (the "Company"), the Stilwell Group (composed of Stilwell Associates, L.P., Stilwell Partners, L.P., Stilwell Value Partners II, L.P., Stilwell Value Partners V, L.P., Stilwell Value Partners VI, L.P., Stilwell Value Partners VII, L.P., Stilwell Value LLC, Stilwell Associates Insurance Fund of The S.A.L.I. Multi-Series Fund L.P., Stilwell Advisers LLC, and Joseph Stilwell, an individual, and their employees and representatives), and Spencer L. Schneider, a director nominee of the Stilwell Group ("Schneider").

 

WHEREAS, the Company has agreed to place Schneider on its board of directors, subject to approval by interested state and federal regulatory agencies;

 

WHEREAS, the Company, the Stilwell Group and Schneider have agreed that it is in their mutual interests to enter into this Agreement as hereinafter described.

 

NOW THEREFORE, for good and valuable consideration, the parties hereto mutually agree as follows:

 

1.           In connection with Schneider serving on the Company's board, Schneider and other Company employees, directors, and agents may divulge nonpublic information concerning the Company and its subsidiaries to the Stilwell Group and such information may be shared among the Stilwell Group's employees and agents who have a need to know such information.  The Stilwell Group expressly agrees to maintain all nonpublic information concerning the Company and its subsidiaries in confidence.  The Stilwell Group expressly acknowledges that federal and state securities laws may prohibit a person from purchasing or selling securities of a company, or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such other person is likely to purchase or sell such securities, while the first-mentioned person is in possession of material nonpublic information about such company.  The Stilwell Group agrees to comply with the Company's insider trading and disclosure policies, as in effect from time to time, to the same extent as if it were a director of the Company.  To the extent the nonpublic information concerning the Company and its subsidiaries received by the Stilwell Group is material, this Agreement is intended to satisfy the confidentiality agreement exclusion of Regulation FD of the Securities and Exchange Commission (the "SEC") set forth in Section 243.100(b)(2)(ii) of Regulation FD.

 

2.           Each of the Stilwell Group and Schneider represents and warrants to the Company that this Agreement has been duly and validly authorized (in the case of the entity members of the Stilwell Group), executed and delivered by them, and is a valid and binding agreement enforceable against them in accordance with its terms.

 

 

  

  

  

 

3.           Schneider hereby further represents and warrants to the Company that: (a) he satisfies all of the qualifications to be a director of the Company as set forth in Article III, Section 4 of the Company's bylaws and any additional applicable qualifications under the laws of the State of Washington or under the regulations of any bank regulatory authority, and that he is not in any way precluded from serving as a director by order or other action of any court, regulatory or other governmental authority; and (b) no event has occurred with respect to Schneider that would require disclosure in a document filed by the Company with the SEC pursuant to the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, under Item 401(f) of SEC Regulation S-K.

 

4.           The Stilwell Group acknowledges that with regard to its obligations to maintain the confidentiality of nonpublic information of the Company and its subsidiaries, monetary damages may not be a sufficient remedy for any breach or threatened breach of this Agreement and that, in addition to all other remedies, the Company may be entitled to seek specific performance and injunctive or other equitable relief as a remedy for such breach, and in conjunction therewith the Company shall not be required to post any bond.

 

5.           This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions of the parties in connection therewith not referred to herein.

 

6.           This Agreement shall be governed by, and construed in accordance with, the laws of the State of Washington, without regard to choice of law principles that may otherwise compel the application of the laws of any other jurisdiction.  Each of the parties hereby irrevocably consents to the exclusive jurisdiction of the state and federal courts sitting in the State of Washington to resolve any dispute arising from this Agreement and waives any defense of inconvenient or improper forum.

 

7.           The terms and provisions of this Agreement shall be deemed severable and, in the event any term or provision hereof or portion thereof is deemed or held to be invalid, illegal or unenforceable, such provision shall be conformed to prevailing law rather than voided, if possible, in order to achieve the intent of the parties, and, in any event, the remaining terms and provisions of this Agreement shall nevertheless continue and be deemed to be in full force and effect and binding upon the parties.

 

8.           All representations, warranties, covenants and agreements made herein shall survive the execution and delivery of this Agreement.

 

9.           This Agreement may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by all of the parties hereto.

 

10.         This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement.

 

 

  

16

  

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by duly authorized officers of the undersigned as of the day and year first above written.

 

	 	
THE STILWELL GROUP

	 	 	
FIRST FINANCIAL NORTHWEST, INC.

	 	 	 	 	 
	  	/s/Joseph Stilwell 	  	  	/s/Victor Karpiak  
	
By:

 

Date

	
Joseph Stilwell

 

12-20, 2012

	  	
By:

 

 

 

Date

	
Victor Karpiak, President, Chief Executive Officer 

and Chairman of the Board

 

 

December 19, 2012

 

SPENCER L. SCHNEIDER

 

/s/Spencer L. Schneider                    

Date:  12/20, 2012

 

 

  

17

  

Exhibit B

 

The Honorable Beth Andrus

DRAFTED 12/10/2012

SUPERIOR COURT OF WASHINGTON IN AND FOR KING COUNTY

	
STILWELL VALUE PARTNERS II, L.P., a Delaware Limited Partnership, STILWELL VALUE PARTNERS V, L.P., a Delaware Limited Partnership, STILWELL VALUE PARTNERS VI, L.P., a Delaware Limited Partnership, STILWELL VALUE PARTNERS VII, L.P., a Delaware Limited Partnership, STILWELL PARTNERS, L.P., a Delaware Limited Partnership, STILWELL ASSOCIATES, L.P., a Delaware Limited Partnership, STILWELL ASSOCIATES INSURANCE FUND of the S.A.L.I. MULTI-SERIES FUND, L.P., a Delaware Limited Partnership, and SPENCER L. SCHNEIDER, an individual,

 

                                                                                                                                     Plaintiffs,

 

v.

 

FIRST FINANCIAL NORTHWEST, INC., a Washington corporation, RAYMOND J. RILEY, an individual, and VICTOR KARPIAK, an individual,

 

                                                                                                                                     Defendants.

	
)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

	
 

 

No. 12-2-20022-0 KNT

 

 

STIPULATION AND [PROPOSED] ORDER OF DISMISSAL

 

CLERK’S ACTION REQUIRE

 

STIPULATION

 

The parties, through their respective counsel who have authority to do so, hereby stipulate to entry of the subjoined Order dismissing all claims in the above-captioned action with prejudice and without fees or costs to any party.

 

	STIPULATION AND [PROPOSED] ORDER OF DISMISSAL - 1

 

 

  

  

  

 

DATED this ____ day of _______, ____.

 

	
BYRNES KELLER CROMWELL LLP

 

 

BY   /s/John A. Tondini                                                                                      

        John A. Tondini, WSBA #19092

Paul R. Taylor, WSBA #14851

1000 Second Avenue, 38th Floor

Seattle, WA  98104

Telephone: 206.622-2000

Facsimile:  206.622-2522

 

David F. Graham (pro hac vice)

Richard B. Kapnick (pro hac vice)

Sidley Austin LLP

One South Dearborn Street

Chicago, IL  60603

Telephone: 312.853-7846

Facsimile:  312.853-7036

Attorneys for Plaintiffs

 

 

	
PERKINS COIE LLP

 

By:  /s/Ronald L. Berenstain                                                                                   

        Ronald L. Berenstain, WSBA #7573

Joseph E. Bringman, WSBA #15236

Austin Rice-Stitt, WSBA #42166

1201 Third Avenue, Suite 4900

Seattle, Washington 98101

Telephone:  206.359.8000

Facsimile:   206.359.9000

Attorneys for Defendants First Financial 

Northwest, Inc. and Victor Karpiak

 

SAVITT BRUCE & WILLEY LLP

 

By:  /s/James P. Savitt                                                                                        

        James P. Savitt, WSBA #16847

Duncan E. Manville, WSBA #30304

1425 Fourth Avenue, Suite 800

Seattle, WA  98101

Telephone:  206.749.0500

Facsimile:   206.749.0600

Attorneys for Defendant Raymond J. Riley

 

ORDER

 

Based upon the foregoing, it is hereby ORDERED that all claims in this case are dismissed with prejudice and without award of fees or costs to any party.

 

DATED this ____day of _______, ____.

 

	 	_________________________________________ 
	 	The Honorable Beth Andrus 

 

 

Presented by:

BYRNES KELLER CROMWELL LLP

 

By   /s/John A. Tondini                                                                                                  

John A. Tondini, WSBA #19092

Paul R. Taylor, WSBA #14851

 

 

 

	STIPULATION AND [PROPOSED] ORDER OF DISMISSAL - 2

 

  

  

  

 

1000 Second Avenue, 38th Floor

Seattle, WA  98104

Telephone: (206) 622-2000

Facsimile: (206) 622-2522

David F. Graham (pro hac vice)

Richard B. Kapnick (pro hac vice)

Sidley Austin LLP

One South Dearborn Street

Chicago, IL  60603

Telephone: (312) 853-7846

Facsimile: (312) 853-7036

Attorneys for Plaintiffs

 

 

 

	STIPULATION AND [PROPOSED] ORDER OF DISMISSAL - 3

  

  

  

 

 

 

CERTIFICATE OF SERVICE

The undersigned attorney certifies that on the __ day of _____, ___, a true copy of the foregoing pleading was served on each and every attorney of record herein as follows:

VIA EMAIL

Ronald L. Berenstain

Joseph E. Bringman

Austin J. Rice-Stitt

Perkins Coie

1201 Third Avenue

Suite 4900

Seattle, WA  98101-3099

Attorneys for Defendants First Financial Northwest, Inc.

and Victor Karpiak

James P. Savitt

Duncan E. Manville

Savitt Bruce & Willey LLP

1425 Fourth Avenue

Suite 800

Seattle, WA  98101

Attorneys for Defendant Raymond J. Riley

I declare under penalty of perjury under the laws of the State of Washington that the foregoing is true and correct.

Dated this __ day of _____, ___, at Seattle, Washington.

 

	 	/s/John A. Tondini                                      
	 	
John A. Tondini

1000 Second Avenue, Suite 3800

Seattle, WA  98104-4082

Telephone: (206) 622-2000

Facsimile: (206) 622-2522

Email:  jtondini@byrneskeller.com

 

	STIPULATION AND [PROPOSED] ORDER OF DISMISSAL - 4

 

  

  

  

Exhibit C

 

	  	
THE HONORABLE BETH M. ANDRUS

 

 

	 

 

SUPERIOR COURT OF THE STATE OF WASHINGTON

FOR KING COUNTY

 

	
STILWELL VALUE PARTNERS II, L.P., a Delaware limited partnership; STILWELL VALUE PARTNERS V, L.P., a Delaware limited partnership; STILWELL VALUE PARTNERS VI, L.P., a Delaware limited partnership; STILWELL VALUE PARTNERS VII, L.P., a Delaware limited partnership; STILWELL PARTNERS, L.P., a Delaware limited partnership; STILWELL ASSOCIATES, L.P., a Delaware limited partnership; STILWELL ASSOCIATES INSURANCE FUND OF THE S.A.L.I. MULTI-SERIES FUND, L.P., a Delaware limited partnership; and SPENCER L. SCHNEIDER, an individual,

 

Plaintiffs,

v.

 

FIRST FINANCIAL NORTHWEST, INC., a Washington corporation; RAYMOND RILEY, an individual; and VICTOR KARPIAK, an individual,

Defendants.

 

	
No. 12-2-20022-0 KNT

STIPULATION AND [PROPOSED] ORDER REGARDING DISMISSAL OF DEFENDANT RAYMOND J. RILEY WITH PREJUDICE

 

STIPULATION

The parties, through their undersigned counsel of record, stipulate and agree as follows:

1.           Pursuant to CR 41(a)(1)(A), all of Plaintiffs' claims asserted in this action against defendant Raymond J. Riley shall be dismissed with prejudice.

 

	
STIPULATION AND ORDER RE DISMISSAL

OF DEFENDANT RILEY WITH PREJUDICE - 1 

 

  

  

  

2.           Such dismissal shall be without costs to any party, and each party is to bear its or his own attorneys' fees.

3.           Defendant Riley shall not make any claim against any of the Plaintiffs and Plaintiffs shall not make any claim against Defendant Riley for attorneys' fees or costs incurred in this litigation, including but not limited to claims pursuant to RCW ch. 4.84 or RCW 4.28.185.

DATED this ______ day of December, 2012.

 

	
BYRNES KELLER CROMWELL LLP

 

By   /s/John A. Tondini (per email authorization) 

       John A. Tondini, WSBA #19092

       Paul R. Taylor, WSBA #14851

       1000 Second Avenue, 38th Floor

       Seattle, WA  98104

       Telephone:  (206) 622-2000

       Facsimile:  (206) 622-2522

 

David F. Graham, admitted pro hac vice

Richard B. Kapnick, admitted pro hac vice

SIDLEY AUSTIN LLP

One South Dearborn Street

Chicago, IL  60603

Telephone:  (312) 853-7846

Facsimile:  (312) 853-7036

 

Attorneys for Plaintiffs

 

	
PERKINS COIE LLP

 

By: /s/Ronald L. Berenstain                                               

      Ronald L. Berenstain, WSBA #7573

      RBerenstain@perkinscoie.com

      Joseph E. Bringman, WSBA #15236

      JBringman@perkinscoie.com

      Austin Rice-Stitt, WSBA #42166

      ARiceStitt@perkinscoie.com

1201 Third Avenue, Suite 4900

Seattle, WA  98101-3099

Telephone:  (206) 359-8000

Facsimile:  (206) 359-9000

 

Attorneys for Defendants First Financial 

Northwest, Inc. and Victor Karpiak

 

	  	
Savitt Bruce & Willey LLP

 

 

By /s/Duncan E. Manville (per email authorization)                                                                       

     James P. Savitt, WSBA # 16847

     Duncan E. Manville, WSBA #30304

     1425 Fourth Avenue, Suite 800

     Seattle, WA  98101-2272

     Telephone:  206.749.0500

     Facsimile:  206.749.0600

     Email:  jsavitt@jetcitylaw.com

     Email:  dmanville@jetcitylaw.com

 

Attorneys for Defendant Raymond J. Riley

 

 

	
STIPULATION AND ORDER RE DISMISSAL

OF DEFENDANT RILEY WITH PREJUDICE - 2 

 

  

  

  

 

ORDER

It is so ordered.

DATED this ______ day of ____________, 20___.

	 	 	 
	  	
The Honorable Beth M. Andrus

Washington Superior Court Judge

	  

 

	
STIPULATION AND ORDER RE DISMISSAL

OF DEFENDANT RILEY WITH PREJUDICE - 3 

 

 

  

  

  

Exhibit D

 

 

JOINT PRESS RELEASE

 

 

	**For Immediate Release** 	
For more information, contact:

For First Financial Northwest, Inc.:

  Victor Karpiak, President and Chief Executive Officer

  (425) 255-4400

For The Stillwell Group:

  Megan Parisi, 

  (212) 269 - 1551 

 

 

FIRST FINANCIAL NORTHWEST, INC. AND THE STILWELL GROUP ANNOUNCE 

SETTLEMENT OF LITIGATION

 

Renton, Washington – December 20, 2012 – First Financial Northwest, Inc. (the "Company") (NASDAQ GS: FFNW) and the Stilwell Group announced that they have settled the litigation in which the Stilwell Group challenged the counting of votes in a contested director election at the Company's 2012 Annual Meeting of Shareholders.  In that election, the Stilwell Group's candidate, Spencer L. Schneider, ran against the Company's Chairman, President and Chief Executive Officer, Victor Karpiak.  In accord with the election results certified by an independent Inspector of Election, the Company announced that Mr. Karpiak was the winner of the election, but the Stilwell Group contested the result on the ground that proxies and votes submitted by them had not been counted.

 

The settlement provides, among other things, that (i) Mr. Schneider will be given a seat on the Company's Board after the Company and Mr. Schneider obtain any required regulatory approvals, and will then be nominated by the Company at the 2013 Annual Meeting of Shareholders for a full three-year term; (ii) Mr. Karpiak will resign as Chairman of the Board immediately after Mr. Schneider joins the Board, but Mr. Karpiak will remain a member of the Board until September 1, 2013, whereupon he will resign from the Board; (iii) the Company will reimburse a portion of the Stilwell Group's proxy solicitation expenses in connection with the 2012 Annual Meeting; (iv) the Stilwell Group will support the Board's nominees in the director election to be held at the 2013, 2014 and 2015 Annual Meetings of Shareholders; and (v) the Litigation will be dismissed with mutual releases exchanged.

 

As announced on September 12, 2012, Mr. Karpiak previously entered into a Transition Agreement to facilitate executive succession at First Savings Bank Northwest, a wholly owned subsidiary of the Company.  The Company believes that Mr. Karpiak's agreement to resign as Chairman of the Board and to step down from the Board before completing his term as a director is consistent with his prior decision to reduce his obligations to the Bank, as set forth in the Transition Agreement.

 

Both the Stilwell Group and the Company are pleased that the matter has been resolved.  Victor Karpiak, for the Company, states that "We are delighted that we have found a solution to this costly election dispute that, we believe, is in the best interests of our shareholders."  Joseph 

 

 

  

  

  

Stilwell, for the Stilwell Group, states that "We are very happy that our candidate will be seated on the Board."

 

First Financial Northwest, Inc. is the parent company of First Savings Bank Northwest, a Washington chartered stock savings bank headquartered in Renton, Washington, serving the Puget Sound Region through its full-service banking office.  The Company is a part of the ABA NASDAQ Community Bank Index.  For additional information about the Company, please visit www.fsbnw.com and click on the "Investor Relations" section.

 

The Stilwell Group is a New York-based money management firm which currently owns approximately 9.41% of the Company's outstanding shares of common stock.

 

 

2

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