EMPLOYMENT AGREEMENT Form 8 K

a.

Base Salary. Employer agrees to pay Executive a base salary of FIVE HUNDRED FIFTEEN THOUSAND DOLLARS ($515,000.00) per year beginning on the Effective Date. Any changes to Executive's base salary shall be in the sole and absolute discretion of Employer's Board or the Compensation Committee of the Board (the "Compensation Committee"). Executive's salary shall be paid in accordance with Employer's standard payroll practices. Employer shall deduct therefrom all taxes which may be required to be deducted or withheld under any provision of the law (including, but not limited to, social security payments and income tax withholding) now in effect or which may become effective anytime during the term of this Agreement.

b.

Annual Bonus. Executive will be eligible for an incentive bonus as a percentage of Executive's base salary and as authorized and declared by the Board or the Compensation Committee ("Annual Bonus"). Payments of Annual Bonus provided for under this Agreement must be paid no later than seventy-five (75) days after the end of the year in which the Executive obtains a legally binding right to those payments, or such other time that still qualifies the payment as a "short-term deferral" under Section 409A of the Internal Revenue Code (the "Code").

c.

Equity Awards. The Executive will be eligible to receive equity incentive awards under the Employer's equity incentive plan, as it may be amended from time to time, or any successor plan. Except as otherwise provided herein, any such award shall be subject to the terms of the Employer's equity incentive program under which it is granted.

d.

Vacation and Sick Leave. Executive is entitled to (i) annual paid vacation in accordance with the policies established by the Board or the Compensation Committee for executive officers, and (ii) voluntary leaves of absence, with or without pay, from time to time at the times and upon the conditions as the Board and the Compensation Committee may determine in their discretion. Executive will be paid for all accrued unused vacation upon termination of employment. In addition, Executive is entitled to seven (7) days of annual paid sick leave, which may be used for the purposes specified under the Washington Paid Sick Leave law. Unused sick leave may be accumulated until retirement or separation (without limitation). After completing five (5) full years of service, Executive will be paid for one-half of the unused sick leave, not to exceed two hundred forty (240) hours, upon termination of employment. Executive will not receive any additional compensation from Employer for unused sick leave, except to the extent authorized by the Board or the Compensation Committee in writing or required by applicable law. Payments of accrued vacation pay or unused sick leave will be made as soon as reasonably and administratively practicable and as required by applicable law following Executive's termination of employment.

e.

Employee Benefits. Executive shall be entitled to participate in any and all other employee benefits and plans that may be developed and adopted by Employer and in which Executive is eligible to participate under the terms of such plans, subject to the Employer's right to amend or terminate such plans.

f.

Fringe Benefits and Perquisites. Employer agrees to reimburse Executive for all ordinary and customary expenses for business-related entertainment, meals, travel (including parking and ferry tolls), and incidental business expense in accordance with Employer's policies. Executive shall also receive reimbursement for cellular phone, an individual gym membership, and a car allowance in accordance with Employer's policies. Reasonable costs incurred for professional education, publications, seminars, and meetings shall also be reimbursed in accordance with Employer's policies.

a.

Termination by Employer. Employer shall have the right to terminate this Agreement with or without Cause (as defined below) by serving written notice upon Executive. Termination of the Executive's employment shall not be deemed to be for Cause unless and until the Board delivers to the Executive a written notice finding that the Executive has engaged in the conduct constituting Cause. For purposes of this Agreement, "Cause" shall mean any of the following: (i) embezzlement, willful misconduct, gross negligence, dishonesty, or other fraudulent acts involving Employer or Employer's business operations or in the performance of Executive's duties under this Agreement, including but not limited to Executive's refusal to comply with legal directives of the Board; (ii) a material breach of Executive's fiduciary duties to Employer if such breach has not been remedied, or is not being remedied, to Employer's reasonable satisfaction within 30 days after written notice, including a detailed description of such breach, has been delivered to Executive; (iii) Executive's material breach of Section 9 of this Agreement or any confidentiality policy of Employer; (iv) an act or omission that materially injures Employer's reputation, business affairs, or financial condition, if such injury could have been reasonably avoided by Executive; or (v) Executive's conviction of or a plea of no contest or nolo contendere to a felony or crime involving dishonesty or moral turpitude.

b.

Executive's Death or Disability. This Agreement will terminate immediately upon Executive's death. Employer shall have the right to terminate this Agreement in the event of a Disability by serving written notice upon Executive or his conservator, as the case may be. For purposes of this Agreement, "Disability" means a physical or mental disability rendering Executive incapable of performing the essential functions of his position, with or without reasonable accommodation.

c.

Termination by Executive. Executive may terminate this Agreement with or without Good Reason. For purposes of this Agreement "Good Reason" shall mean the occurrence of any of the following, in each case, during the Term without the Executive's written consent: (i) a material reduction in the Executive's base salary; (ii) a relocation of the Executive's principal place of employment by more than 35 miles; or (iii) a material adverse change in the Executive's authority, duties, or responsibilities (other than temporarily while the Executive is physically or mentally incapacitated or as required by applicable law); provided however, that Good Reason shall only be deemed to have occurred if (x) within 90 days after the initial existence of the circumstances constituting Good Reason, Executive provides the Employer with a written notice describing such circumstances; (y) the Employer fails to cure the circumstance within 30 days after the Employer receives Executive's notice; and (z) Executive terminates his employment with the Employer and all affiliates of the Employer within 90 days of the date of Executive's initial notice. Executive agrees and acknowledges that the provisions of this Agreement do not give rise to Good Reason. Executive must provide 90 days' prior written notice to the Board to terminate without Good Reason.

d.

Effect of Termination. In the event this Agreement is terminated for any reason, Executive shall be deemed to have resigned from positions that the Executive holds as an officer or member of the Board (or a committee thereof) of the Employer or any of its affiliates immediately.

a.

In the event this Agreement is terminated by Employer for Cause, by Executive for any reason, or by reason of Executive's death or Disability, Executive shall not be entitled to any severance pay.

b.

In the event this Agreement is terminated by Employer without Cause or is terminated by Executive for Good Reason, Executive shall be entitled to severance equal to the sum of (i) Executive's annual base salary as of the date of the Executive's termination of employment, and (ii) Executive's COBRA premiums for continuation of group health insurance coverage for ninety (90) days based on such premiums in effect on the date of Executive's termination. The severance shall be paid in a single lump sum and Executive shall not be obligated to use any portion of the payment for COBRA premiums.

c.

The payment referenced in Section 6(b) is referred to herein as "Severance." Executive acknowledges and agrees that the entitlement to Severance hereunder is in lieu of all damages, payments, and liabilities on account of the early termination of this Agreement and is the sole and exclusive remedy for Executive. Severance shall be subject to Executive's execution and delivery to Employer, within 45 days after termination, of a complete release of all claims Executive may have against the Employer, its officers, directors, agents, employees, predecessors, successors, parents, subsidiaries, and affiliates, and Executive not revoking such release. Severance shall be paid within 60 days after termination. If the 60-day period begins in one calendar year and ends in the following calendar year, then payment shall not begin until the latter calendar year. If upon termination of employment Executive chooses to arbitrate any claims pursuant to Section 15, Executive shall be deemed to have waived Executive's right, if any, to Severance.

a.

In the event there is a Change in Control (as defined below) and the Executive's employment hereunder is terminated by the Executive for Good Reason or by the Employer without Cause within 12 months following the Change in Control, the Executive shall be entitled to be paid, in a single lump sum, severance ("CIC Severance") equal to the sum of (1) Executive's annual base salary, as of the date of the Executive's termination of employment, multiplied by 1.5, and (2) Executive's COBRA premiums for continuation of group health insurance coverage for ninety (90) days based on such premiums in effect on the date of Executive's termination; provided, that Executive shall not be obligated to use any portion of the payment for COBRA premiums. Executive acknowledges and agrees that the entitlement to CIC Severance hereunder is in lieu of all damages, payments and liabilities on account of the early termination of this Agreement (including, without limitation, Severance under Section 6 of this Agreement) and is the sole and exclusive remedy for Executive. CIC Severance shall be subject to Executive's execution and delivery to Employer, within 45 days after termination, of a complete release of all claims Executive may have against the Employer, its officers, directors, agents, employees, predecessors, successors, parents, subsidiaries, and affiliates, and Executive not revoking such release. CIC Severance shall be paid within 60 days after termination. If the 60-day period referred to above begins in one calendar year and ends in the following calendar year, then the payment shall be made in the latter calendar year. If upon termination of employment Executive chooses to arbitrate any claims pursuant to Section 15, Executive shall be deemed to have waived Executive's right, if any, to CIC Severance under this Section 7. "Change in Control" means a change in the ownership or effective control or in the ownership of a substantial portion of the assets of the Bank or Company, within the meaning of Section 409A of the Code; provided, however that (i) an internal reorganization of Employer or (ii) the placement of the Bank into receivership or conservatorship by the Federal Deposit Insurance Corporation ("FDIC") shall not constitute a "Change in Control." Notwithstanding the above, payments under a change in control related to this agreement shall be paid within any limits and subject to any approvals that may be imposed by the FDIC for "parachute payments" under applicable provisions of 12 C.F.R. 359.

b.

Excess Parachute Payments. If any of the payments or benefits received or to be received by the Executive (including, without limitation, any payment or benefits received in connection with a change in control or the Executive's termination of employment, whether pursuant to the terms of this Agreement or any other plan, arrangement, or agreement or otherwise) (all such payments collectively referred to herein as the "280G Payments") constitute "parachute payments" within the meaning of Section 280G of the Code and would, but for this Section 7(b), be subject to the excise tax imposed under Section 4999 of the Code (the "Excise Tax"), then such 280G Payments shall be reduced in a manner determined by the Employer (by the minimum possible amounts) that is consistent with the requirements of Section 409A until no amount payable to the Executive will be subject to the Excise Tax. If two economically equivalent amounts are subject to reduction but are payable at different times, the amounts shall be reduced (but not below zero) on a pro rata basis.

a.

Employee Nonsolicitation. Executive agrees that, during Executive's employment with Employer (other than in connection with his duties for Employer) and for a period of one year thereafter, Executive shall not directly or indirectly solicit or attempt to solicit any employee of Employer to leave the employ of Employer, or in any way interfere with the relationship between Employer or any other employee of Employer. The obligations in this Section 8(a) shall apply regardless of whether Section 8(c) is in effect.

b.

No Solicitation of Current Customers. Executive agrees that, during Executive's employment with Employer and for a period of one year thereafter, Executive shall not directly or indirectly solicit or attempt to solicit any customers of Employer (the "Current Customers"), including but not limited to all successors, owners, directors, partners, and management personnel of such Current Customers, to cease doing business with Employer, or to otherwise divert the Current Customers' business from Employer, or solicit or attempt to solicit any supplier, licensee, or other business associate of Employer to cease doing business with Employer. The obligations in this Section 8(b) shall apply regardless of whether Section 8(c) is in effect.

c.

Noncompetition and Nonsolicitation. Executive agrees that, during Executive's employment with Employer and for a period of one year thereafter, Executive will not directly or indirectly (i) become interested in, as a founder, organizer, principal shareholder, director, officer, or employee of or consultant to any bank, savings bank, savings and loan association, credit union, or similar financial institution or holding company of such an entity, now existing or organized hereafter, that competes or may compete with Employer, including any successor, within any county in which Employer operates a full-service branch office or lending center, or (ii) without limitation of Executive's obligations under Section 8(b) with respect to Current Customers, solicit or attempt to solicit any (A) customers that sought or received services from Employer within the 12 month period before Executive's date of termination, or (B) potential customers whom Employer actively solicited at any time during the 12 month period before Executive's date of termination ((A) and (B) collectively, the "Restricted Customers"), including but not limited to all successors, owners, directors, partners, and management personnel of such Restricted Customers, to cease doing business with Employer, not commence doing business with Employer, or to otherwise divert the Restricted Customers' business from Employer. Executive will not be deemed a "principal shareholder" unless (1) Executive's investment in such institution exceeds three percent (3%) of the institution's outstanding voting securities or (2) Executive is active in the organization, management, or affairs of the institution. The provisions restricting competition and solicitation by Executive in this Section 8(c) may be waived by written action of the Board.

d.

Interpretation. The parties agree that the terms of Section 8(a) through Section 8(c) (collectively, the "Restrictive Covenants") are reasonable as to both time and scope. The parties additionally agree (i) that the Restrictive Covenants are necessary for the protection of the Employer's business and goodwill; (ii) that the Restrictive Covenants are not any greater than are reasonably necessary to secure Employer's business and goodwill; and (iii) that the degree of injury to the public from the loss of the service and skill of Executive or the restrictions placed on Executive's opportunity to make a living with Executive's skills upon enforcement of the Restrictive Covenants does not and will not warrant non-enforcement of them. If an arbitrator, court, or any other administrative body with jurisdiction over a dispute related to this Agreement determines that the Restrictive Covenants are unreasonably broad, the parties hereby authorize and direct the arbitrator, court, or administrative body to narrow them so as to make them reasonable, given all relevant circumstances, and to enforce them. This Section 8 will survive the termination of Executive's employment for any reason.

e.

Acknowledgement. The parties acknowledge that the compensation and benefits under this Agreement, including the Severance and the other payments described in this Section 8, are good and valuable consideration provided in exchange for the Executive's obligations hereunder. The parties also acknowledge that the terms of this Section 8 are a restatement and limitation (but not an expansion) of the Restrictive Covenants contained in the Prior Agreement.

a.

Confidential Information. Employer has and will develop and own certain Confidential Information, which has a great value in its business. Employer also has and will have access to Confidential Information of its Customers. "Customers" shall mean any persons or entities for whom Employer performs services or from whom Employer obtains information. Confidential Information includes information disclosed to Executive during the course of his employment and information developed or learned by Executive during the course of his employment. Confidential Information is broadly defined and includes all information which has or could have commercial value or other utility in Employer's business or the businesses of Employer's Customers. Confidential Information also includes all information which could be detrimental to the interests of Employer or its Customers if it were disclosed. By example and without limitation, Confidential Information includes all information concerning loan information, Customer data, including but not limited to Customer and supplier identities, Customer characteristics or agreements and Customer lists, applicant data, employment categories, job classifications, employment histories, job analyses and validations, preferences, credit history, agreements, and any personally identifiable information related to Customers; any information provided to Executive by a Customer, including but not limited to electronic information, documents, software, and trade secrets; historical sales information; advertising and marketing materials and strategies; financial information related to Employer, Customers, Customer's employees or any other party; labor relations strategies; research and development strategies and results, including new materials research; pending projects and proposals; production processes; scientific or technological data, formulae and prototypes; employee data; pricing and product information; computer data information; inventory levels and products; supplier information and data; testing techniques; processes; formulas; trade secrets; inventions; discoveries; improvements; specifications; data, know-how, and formats; marketing plans; pending projects and proposals; business plans; computer processes; computer programs and codes; technological data; strategies; forecasts; budgets; and projections.

b.

Protection of Confidential Information. Executive agrees that at all times during and after his employment by Employer, Executive will keep confidential and not disclose to any third party or make any use of the Confidential Information of Employer or its Customers, except for the benefit of Employer or its Customers and in the course of his employment. For purposes of this Agreement, the disclosure of any Confidential Information, at any time except as required by law or as expressly provided in this Agreement, shall be considered to be "unfair competition." Executive acknowledges that he is aware that the unauthorized disclosure of Confidential Information of Employer or its Customers may be highly prejudicial to their interests, an invasion of privacy, and an improper disclosure of trade secrets and financial information in violation of state and federal law.

c.

Return of Property. In the event Executive's employment with Employer is terminated (voluntarily or otherwise), Executive agrees to inform Employer of all Employer property, documents, and other data relating to his employment which is in his possession and control and to deliver promptly all such property, documents, and data to Employer.

d.

Sanctions for Unauthorized Taking of Trade Secrets. Executive understands that taking of Employer's trade secrets is a crime and could also result in civil liability under the Washington Trade Secrets Act and that willful misappropriation may result in an award against Executive of double the amount of the Employer's damages and Employer's attorney fees for collecting such damages.

e.

Notice of Immunity. Notwithstanding any other provision of this Agreement:

i.

Executive will not be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that: (A) is made (1) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (2) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed under seal in a lawsuit or other proceeding.

ii.

If Executive files a lawsuit for retaliation by Employer for reporting a suspected violation of law, Executive may disclose Employer's trade secrets to Executive's attorney and use the trade secret information in the court proceeding if Executive: (A) files any document containing trade secrets under seal; and (B) does not disclose trade secrets except pursuant to court order.

f.

Exceptions. Nothing in this Agreement shall be construed to prevent disclosure of Confidential Information as may be required by applicable law or regulation, or pursuant to the valid order of a court of competent jurisdiction or an authorized government agency, provided that the disclosure does not exceed the extent of disclosure required by such law, regulation, or order. If permitted to do so, Executive will provide Employer and its legal counsel with immediate notice of such request so that Employer may consider seeking a protective order. Nothing in this Agreement prohibits or restricts Executive from reporting, without any prior authorization from, or notification to Employer, possible violations of federal or state law or regulation to any governmental agency or entity, or self-regulatory agency, including but not limited to the Securities and Exchange Commission or the Financial Industry Regulatory Authority, or making other disclosures that are protected under the whistleblower provisions of federal or state law or regulation.

g.

Injunctive Relief. Executive acknowledges that breach of this Section 9 may cause Employer irreparable harm for which money is inadequate compensation. Executive therefore agrees that Employer will be entitled to injunctive relief consistent with Section 15 below, without the necessity of posting a bond, to enforce this section and this Agreement, in addition to damages and other available remedies, and Executive consents to such injunctive relief in accordance with Section 15 below.

1.

A provision in an employment agreement which provides that an employee shall assign or offer to assign any of the employee's rights in an invention to the employer does not apply to an invention for which no equipment, supplies, facilities, or trade secret information of the employer was used and which was developed entirely on the employee's own time, unless (a) the invention relates (i) directly to the business of the employer, or (ii) to the employer's actual or demonstrably anticipated research or development, or (b) the invention results from any work performed by the employee for the employer. Any provision which purports to apply to such an invention is to that extent against the public policy of this state and is to that extent void and unenforceable.

2.

An employer shall not require a provision made void and unenforceable by subsection (1) of this section as a condition of employment or continuing employment.

3.

If an employment agreement entered into after September 1, 1979, contains a provision requiring the employee to assign any of the employee's rights in any invention to the employer, the employer must also, at the time the agreement is made, provide a written notification to the employee that the agreement does not apply to an invention for which no equipment, supplies, facility, or trade secret information of the employer was used and which was developed entirely on the employee's own time, unless (a) the invention relates (i) directly to the business of the employer, or (ii) to the employer's actual or demonstrably anticipated research or development, or (b) the invention results from any work preformed [performed] by the employee for the employer.