-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BMU3tMghReOkl36Lr25l0j2W6cTHyaN/+uPJYli3hlqxYWYSJlcXTI3dkKEXzmsw YkWe3/hq7wWGFzrKuWgmRA== 0000891020-98-001032.txt : 19980624 0000891020-98-001032.hdr.sgml : 19980624 ACCESSION NUMBER: 0000891020-98-001032 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19980623 EFFECTIVENESS DATE: 19980623 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERITAGE FINANCIAL CORP /WA/ CENTRAL INDEX KEY: 0001046025 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] STATE OF INCORPORATION: WA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-8 SEC ACT: SEC FILE NUMBER: 333-57513 FILM NUMBER: 98652647 BUSINESS ADDRESS: STREET 1: 201 5TH AVE SW STREET 2: P O BOX 1578 CITY: OLYMPIA STATE: WA ZIP: 98507 BUSINESS PHONE: 3609431500 MAIL ADDRESS: STREET 1: 201 5TH AVE SW STREET 2: P O BOX 1578 CITY: OLYMPIA STATE: WA ZIP: 98507 S-8 1 FORM S-8 1 As filed with the Securities and Exchange Commission on June 22, 1998. Registration No. 333-____ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------- FORM S-8 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- HERITAGE FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) WASHINGTON 91-1857900 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification Number) 201 5TH AVENUE S.W., OLYMPIA, WASHINGTON 98501 (Address, including zip code, and telephone number, including area code of registrant's principal executive offices) 1997 STOCK OPTION AND RESTRICTED STOCK AWARD PLAN (Full title of the plan) DONALD V. RHODES CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER HERITAGE FINANCIAL CORPORATION 201 5TH AVENUE S.W. OLYMPIA, WASHINGTON 98501 (360) 943-1500 Copies of communications to: SANDRA L. GALLAGHER, ESQ. GORDON, THOMAS, HONEYWELL, MALANCA, PETERSON & DAHEIM, P.L.L.C. 2200 WELLS FARGO PLAZA TACOMA, WASHINGTON 98402 (206) 572-5050 (Name, address, including zip code and telephone number, including area code, of agent for service) CALCULATION OF REGISTRATION FEE
==================================================================================================================================== Proposed Maximum Title of Securities to be Amount to be Maximum Offering Price Aggregate Offering Amount of Registration Registered Registered (1) Per Share(2) Price(2) Fee - ------------------------------------------------------------------------------------------------------------------------------------ Common stock, no par value 257,460 $13.69 $3,524,627.40 $1,039.77 - ------------------------------------------------------------------------------------------------------------------------------------
(1) The registration statement also includes an indeterminable number of additional shares that may become issuable as a result of terminated, expired or surrendered options for Common Stock, or pursuant to the antidilution provisions of the plan. This Registration Statement covers, pursuant to Rule 416(a), any increases in the number of shares offered under the Plan to prevent dilution resulting from stock splits, stock dividends or similar transactions. 2 (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) and (h), based upon the average of the high and low prices reported on June 22, 1998, as reported on the Nasdaq Stock Market. - 2 - 3 PART I INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS The documents containing the information required by Part I of this registration statement on Form S-8 (the "Registration Statement") will be sent or given to Plan participants as specified by Rule 428(b)(1) under the Securities Act. Such documents and the documents incorporated by reference herein pursuant to Item 3 of Part II hereof, taken together, constitute a prospectus that meets the requirements of Section 10(a) of the Securities Act. PART II INFORMATION REQUIRED IN THE REGISTRATION STATEMENT ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE The following documents have been filed with the Commission by Heritage Financial Corporation (the "Company") and are incorporated herein by reference and made a part hereof: 1. The Company's Prospectus filed with the Commission on November 12, 1997 pursuant to Rule 424(b) under the Act containing audited financial statements for the years ending June 30, 1997, 1996 and 1995 of Heritage Savings Bank and Subsidiaries. 2. The description of the Common Stock of the Company contained in the Company's Registration Statement on Form 8-A filed with the Commission. 3. All reports filed by the Company pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 since the end of the fiscal year covered by the financial statements in the Prospectus referred to in paragraph 1 above. 4. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934 subsequent to the date hereof and prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold shall be deemed to be incorporated by reference herein and to be part hereof from the date of the filing of such documents. ITEM 4. DESCRIPTION OF SECURITIES Not applicable. - 3 - 4 ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL The validity of the Common stock to be offered hereby will be passed upon for the Company by Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim, P.L.L.C. attorneys who are members or who are employed by Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim who have provided advice with respect to this matter in the aggregate own, directly and indirectly 64,141 shares of the common stock of the Company. ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Washington Business Corporation Act, RCW Chapter 23B.08, authorizes indemnification of directors, officers and employees under certain circumstances. The Company's Articles of Incorporation provide, among other things, for the indemnification of directors, and authorize the Board to pay reasonable expenses incurred by, or to satisfy a judgment or fine against, a current or former director in connection with any personal legal liability incurred by the individual while acting for the Company within the scope of his or her employment, and which was not the result of conduct finally adjudged to be "egregious" conduct. "Egregious" conduct is defined as intentional misconduct, a knowing violation of law, or participation in any transaction from which the person will personally receive a benefit in money, property or services to which that person is not legally entitled. The Articles of Incorporation also include a provision that limits the liability of directors of the Company from any personal liability to the Company or its shareholders for conduct not found to have been egregious. The Company has purchased an officers and directors liability insurance policy which provides for insurance of directors and officers of the Company against certain liabilities they may incur in their capacities as such. ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED Not Applicable ITEM 8. EXHIBITS Exhibit No. Exhibits 4.1 Articles of Incorporation filed as an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 333-35573) and incorporated by this reference. 5.1 Opinion of Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim, P.L.L.C. as to the legality of the securities being registered (including consent of counsel).* 23.1 Consent of KPMG Peat Marwick LLP.* - 4 - 5 23.2 Consent of Counsel (included in the opinion of Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim, P.L.L.C. filed as Exhibit 5.1)* 24 Power of Attorney pursuant to which certain Directors have signed this Form S-8 Registration Statement* 99.1 1997 Stock Option and Restricted Stock Award Plan* - ------------ * Filed herewith ITEM 9. UNDERTAKINGS (a) The Company hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; Provided, however, that paragraph (a)(1)(i) and (a)(1)(ii) shall not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Company pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Company hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Company's annual report pursuant to Section - 5 - 6 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling persons of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling persons in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. - 6 - 7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Company certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-8 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Olympia, State of Washington, on June 23, 1998. HERITAGE FINANCIAL CORPORATION (Registrant) By:/s/ Donald V. Rhodes -------------------------------------- Donald V. Rhodes Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated, on June 23, 1998. Signature Title /s/ Donald V. Rhodes Chairman, President and Chief - ------------------------------------- Executive Officer Donald V. Rhodes /s/ James Hastings Senior Vice President - ------------------------------------- Treasurer James Hastings Donald V. Rhodes Director Lynn M. Brunton Director John A. Clees Director Daryl D. Jensen Director H. Edward Odegard Director James P. Senna Director Philip S. Weigand Director Donald V. Rhodes, by signing his name hereto, does hereby sign this document in his capacity as a director and pursuant to powers of attorney duly executed by the persons named, filed with the Securities and Exchange Commission as an exhibit to this document, on behalf of such persons, all in the capacities and on the date stated, such persons including a majority of the directors of the registrant. /s/ Donald V. Rhodes ----------------------------------------- Donald V. Rhodes Attorney-in-Fact EX-5.1 2 OPINION OF COUNSEL 1 EXHIBIT 5 [Letterhead of Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim, P.L.L.C] June 22, 1998 Heritage Financial Corporation 201 5th Avenue S.W. Olympia, WA 98501 RE: LEGALITY OF SECURITIES TO BE ISSUED Ladies and Gentlemen: We have acted as your counsel in connection with the registration by Heritage Financial Corporation (the "Company") under the Securities Act of 1933, as amended (the "Act") of up to 257,460 shares of the Company's common stock, no par value (the "Shares"), to be issued by the Company pursuant to the exercise of options or awards under the Company's 1997 Stock Option and Restricted Stock Award Plan ("Options"). The Shares will be sold in the manner set forth in the Registration Statement on Form S-8 ("Registration Statement") that is being filed under the Act with respect to the offering of the Shares. In connection with the offering of the Shares, we have examined (1) the Company's Restated Articles of Incorporation, and amendments filed thereto, (2) the Registration Statement, (3) the Company's 1997 Stock Option and Restricted Stock Award Plan (the "Plan") and (4) such other documents as we have deemed necessary to form the opinion expressed below. As to various questions of fact independently established, we have relied upon statements of officers of the Company. Based on this examination, we advise you that in our opinion the shares to be issued upon exercise of Options have been duly authorized, and when issued by the Company in the manner described in the Registration Statement and the Plan will be validly issued, fully paid, and non-assessable. 2 June 19, 1998 Page 2 The foregoing opinion is limited to the Federal laws of the United States and the laws of the State of Washington, and we express no opinion as to the effect of the laws of any other jurisdiction. We consent to the filing of this opinion as an Exhibit to the Registration Statement and to the reference in the Prospectus delivered pursuant to Form S-8 to this firm under the caption "Legal Matters" as having passed upon the validity of the Shares. In giving this consent, we do not admit that we come within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Securities and Exchange Commission adopted under the Act. Very truly yours, /s/ SANDRA L. GALLAGHER ----------------------------- Sandra L. Gallagher SLG:jwh EX-23.1 3 CONSENT OF KPMG PEAT MARWICK LLP 1 [PEAT MARWICK LLP LOGO] 3100 Two Union Square 601 Union Street Seattle, WA 98101-2327 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS - ------------------------------------------------------------------------------- The Board of Directors Heritage Savings Bank: We consent to the use of our report incorporated herein and to the reference to our firm under the headings "Heritage Savings Bank and Subsidiaries Consolidated Statements of Income," "The Conversion - Effects of Conversion to Stock Form on Deposits and Borrowers of the Bank - Tax Effects," "Legal and Tax Opinions," and "Experts" in the prospectus. /s/ KPMG PEAT MARWICK LLP ------------------------------- KPMG Peat Marwick LLP Seattle, Washington June 22, 1998 EX-24 4 POWER OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY Each director of Heritage Financial Corporation (the "Company"), whose signature appears below, hereby appoints Donald V. Rhodes, as his or her attorney to sign, in his or her name and behalf and in any and all capacities stated below, the Company's Registration Statement on Form S-8 (the "Registration Statement(s)") for the registration of securities in connection with the participation of directors and employees in and acquisition of securities through the Company's 1997 Stock Option and Restricted Stock Award Plan, and likewise to sign any and all amendments and other documents relating thereto as shall be necessary to cause the Registration Statements to become effective (including post-effective amendments), and to sign any and all such documents upon the advice of legal counsel to carry out the exercise and sale of the option shares, each such person hereby granting to each such attorney power to act with or without the other and full power of substitution and revocation, and hereby ratifying all of that any such attorney or his substitute may do by virtue hereof. This Power of Attorney has been signed by the following persons in the capacities indicated on the 23rd day of June, 1998. Signature Title /s/ DONALD V. RHODES - -------------------------------- DIRECTOR Donald V. Rhodes /s/ LYNN M. BRUNTON - -------------------------------- Director Lynn M. Brunton /s/ JOHN A. CLEES - -------------------------------- Director John A. Clees /s/ DARYL D. JENSEN - -------------------------------- Director Daryl D. Jensen /s/ H. EDWARD ODEGARD - -------------------------------- Director H. Edward Odegard /s/ JAMES P. SENNA - -------------------------------- Director James P. Senna /s/ PHILIP S. WEIGAND - -------------------------------- Director Philip S. Weigand -{page|2}- EX-99.1 5 1997 STOCK OPTION AND RESTRICTED STOCK AWARD PLAN 1 EXHIBIT 99.1 HERITAGE BANK 1997 STOCK OPTION AND RESTRICTED STOCK AWARD PLAN I. GENERAL PROVISIONS 1. PURPOSE OF THE PLAN. The purpose of this Plan is to provide additional incentives to selected eligible key personnel of Heritage Bank (the "Bank") and future subsidiaries and affiliates of the Bank, including its mutual holding company, thereby helping to attract and retain the best available personnel for positions of responsibility with such corporations and otherwise promoting the success of the business activities of such corporations. The incentives will be in the form of incentive or nonqualified options to purchase shares of the Bank's common stock and/or restricted stock awards of the Bank's common stock. 2. DEFINITIONS. As used in this Plan, the following definitions shall apply: (a) Award" or "Restricted Stock Award" shall mean Common Stock of the Bank granted to an Employee or Director pursuant to and subject to the limitations described in the Restricted Stock Award provisions of this Plan (Part III). (b) "Bank" shall mean Heritage Bank, a Washington State chartered stock savings bank located in Olympia, Washington. (c) "Board" shall mean the Board of Directors of the Bank. (d) "Common Stock" shall mean the Bank's common stock. (e) "Committee" shall mean the Committee appointed by the Board in accordance with Section 4(a) of this Part I. (f) "Continuous Status as an Employee or Director" shall mean the absence of any interruption or termination of service as an Employee or Director. Continuous Status as an Employee or Director shall not be considered interrupted in the case of sick leave, military leave, or any other leave of absence approved by the Committee. (g) "Director" shall mean any duly elected director of the Bank or any Parent or Subsidiary. 2 (h) "Employee" shall mean any person employed by the Bank or any Parent or Subsidiary of the Bank that now exists or is hereafter organized or acquired by the Bank. (i) "Employer" shall mean the Bank or any Parent or Subsidiary of the Bank that now exists or hereafter organized or acquired by the Bank. (j) "Grantee" shall mean any Employee or Director who receives an Award. (k) "Incentive Stock Options" shall mean incentive stock options within the meaning of Section 422 of the Internal Revenue Code, as now in effect or as hereafter amended. (l) "Nonqualified Stock Options" shall mean any options granted pursuant to this Plan that are not Incentive Stock Options. (m) "Option" shall mean a right to purchase Common Stock of the Bank pursuant to the Stock Option provisions of this Plan (Part II). Options shall include both Incentive Stock Options and Nonqualified Stock Options. (n) "Optioned Stock" shall mean the Common Stock subject to an Option. (o) "Optionee" shall mean an Employee or Director who receives an Option. (p) "Parent" shall mean any corporation having a relationship with the Bank as described in Section 423(e) of the Internal Revenue Code. (q) "Plan" shall mean this Plan, including without limitation both the Stock Option and Restricted Stock Award provisions of this Plan. (r) "Shareholder-Employee" shall mean an Employee who owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Employer or of any Parent or Subsidiary. For this purpose, the attribution of stock ownership rules provided in Section 423(d) of the Internal Revenue Code shall apply. (s) "Subsidiary" shall mean any corporation having a relationship with the Bank as described in Section 423(f) of the Internal Revenue Code. - 2 - 3 3. SHARES SUBJECT TO THE PLAN. (a) Total Shares Available. The number of shares that may be issued and sold pursuant to Options granted under the Stock Option provisions of this Plan (Part II) and that may be issued pursuant to the Restricted Stock Award provisions of this Plan (Part III) shall not, in the aggregate, exceed 50,000 shares of the Common Stock of the Bank. Common Stock issued under this Plan may be either authorized and unissued shares or shares issued and thereafter acquired by the Bank. If any Options granted under this Plan shall, for any reason, expire without having been exercised in full, or if any Awards shall, for any reason, be forfeit and cancelled, the Common Stock not purchased under such options, or so forfeited, shall be available again for the purposes of this Plan. (b) Adjustments to Shares Available. The number of shares of Common Stock covered by each outstanding Option and Award, the number of shares of Common Stock available for grant of additional Options and Awards, and the price per share of Common Stock specified in each outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from any stock split or other subdivision or consolidation of shares, the payment of any stock dividend (but only on the Common Stock), or any other increase or decrease in the number of such shares of Common Stock effected without receipt of consideration by the Bank; provided, however, that conversion of any convertible securities of the Bank shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. No Option shall be adjusted by the Committee pursuant to this Section 3 in a manner that causes the Option, if an Incentive Stock Option, to fail to continue to qualify as an Incentive Stock Option. 4. ADMINISTRATION OF THE PLAN. (a) The Committee. This Plan shall be administered by the Compensation Committee of the Board or such other Committee as shall be appointed by the Board. The Committee shall consist of not less than three members of the Board. Once appointed, the Committee shall continue to serve until otherwise directed by the Board. From time to time, the Board may increase the size of the Committee and appoint additional members, remove members (with or without cause), appoint new members in substitution for existing members, and fill vacancies (however caused). The Committee shall select one of its members as chairman, and shall hold meetings at - 3 - 4 such times and places as the chairman or a majority of the Committee may determine. Members of the Committee who are either eligible for Options or Awards or who have been granted Options or Awards shall be counted for all purposes in determining the existence of a quorum at any meeting of the Committee and shall be eligible to vote on all matters before the Committee respecting the granting of Options or Awards or administration of this Plan, except only that such members shall not vote or otherwise act upon the grant or the modification of the terms of any Option or Award granted or to be granted to himself or herself. At least annually, the Committee shall present a written report to the Board indicating the Employees to whom Options and Awards have been granted since the date of the last such report, and, in each case, the date or dates of Options and Awards granted, the number of shares optioned and awarded, and the Option price and Award value per share. The Board further shall have the power at any time to remove all members of the Committee and thereafter to directly administer this Plan as a Committee of the whole. In such event, all references in the Plan to the "Committee" shall refer to the Board. (b) Powers of the Committee. Subject to the provisions and limitations of this Plan, the Committee shall have the authority and discretion: (1) to determine the Employees and Directors to whom Options and Awards are to be granted, the times of grant, and the number of shares to be represented by each Option and Award; (2) to determine the Option price for the shares of Common Stock to be issued pursuant to each Option, subject to the provisions of Subparagraph 3(b) of Part II of this Plan in the case of Incentive Stock Options; (3) to determine all other terms and conditions of each Option and Award granted under this Plan, which need not be identical: (4) to modify or amend the terms of any Option or Award previously granted, or to grant substitute Options or Awards; (5) to interpret this Plan; (6) to authorize any person or persons to execute and deliver Option and Award agreements or to take any other actions deemed by the Committee to be necessary or appropriate to - 4 - 5 effectuate the grant of Options and Awards by the Committee; (7) to make all other determinations and take all other actions that the Committee deems necessary or appropriate to administer the Plan in accordance with its terms and conditions and applicable law. All actions of the Committee shall be either by (i) a majority vote of the members of the full Committee at a meeting of the Committee, or (ii) by unanimous written consent of all members of the full Committee without a meeting of the Committee. All decisions, determinations, and interpretations of the Committee shall be final and binding upon all persons, including all Optionees, Grantees and any other holders or persons interested in any Option or Award, unless otherwise expressly determined by a vote of the majority of the entire Board. No member of the Committee or of the Board shall be liable for any action or determination made in good faith with respect to this Plan, an Option or an Award. II. NONQUALIFIED STOCK OPTIONS AND INCENTIVE STOCK OPTIONS Options in the form of Nonqualified Stock Options and Options that qualify as Incentive Stock Options may be granted under the Plan. 1. Eligibility. Options may be granted only to Employees, in the case of Incentive Stock Options, and Employees and Directors in the case of nonqualified stock options, whom the Committee, in its discretion, determines to be key Employees and Directors of the Bank, a Parent or a Subsidiary. Granting of Options pursuant to this Plan shall be entirely discretionary with the Committee, and the adoption of this Plan shall not confer upon any person any right to receive any Option or Options pursuant to this Plan unless and until such Options are granted by the Committee, in its sole discretion. Neither the adoption of this Plan nor the granting of any Options pursuant to this Plan shall confer upon any Employee any right with respect to continuation of employment, nor shall the same interfere in any way with his or her right (or with the right of the Bank or a Subsidiary or a Parent) to terminate his or her employment at any time. 2. Terms and Conditions of Options. All Options granted pursuant to this Plan must be authorized by the Committee, and must be documented in written agreements in such form as the Committee shall from time to time approve, which agreements shall comply with and be subject to all of the following terms and conditions: - 5 - 6 (a) Number of Shares; Annual Limitation. Each option agreement shall state the number of shares subject to Option. Any number of Options may be granted to a single eligible Optionee at any time and from time to time; except in the case of Incentive Stock Options, the aggregate fair market value (determined as of the time each Option is granted) of all shares of Common Stock with respect to which Options are exercisable for the first time by such Optionee in any one calendar year (under all Incentive Stock Option plans of the Bank, its Parent and all of its Subsidiaries taken together) shall not exceed $100,000. (b) Option Price and Consideration. The Option price for the shares of Common Stock to be issued pursuant to the Option shall be such price as is determined by the Committee, but, in the case of Incentive Stock Options, shall in no event be less than the fair market value of the Common Stock on the date of grant of the Incentive Stock Option. In the case of an Incentive Stock Option granted to an Employee who, immediately before the grant of such Incentive Stock Option, is a Shareholder-Employee, the Incentive Stock Option price shall be at least 110% of the fair market value of the Common Stock on the date of grant of the Incentive Stock Option. The fair market value shall be determined by the Committee in its discretion; provided, however, that in the event that there is a public market for the Common Stock, the fair market value shall be the mean of the bid and asked prices of the Common Stock as of the date of grant as reported on the National Association of Securities Dealers Automatic Quotation System (NASDAQ), or, in the event the Common Stock is listed on a stock exchange, the closing price on the exchange as of the date of grant of the Option. The Option price shall be payable either (i) in United States dollars upon exercise of the Option, or (ii) if so determined by the Committee and specified in the Option agreement, in other property, including, without limitation, Common Stock of the Bank at its fair market value on the date of exercise. (c) Term of Option. No Stock Option granted pursuant to this Plan shall in any event be exercisable after the expiration of ten (10) years from the date such Option is granted, except that the term of an Incentive Stock Option granted to an Employee who, immediately before such Incentive Stock Option is granted, is a Shareholder-Employee shall be for not more than five (5) years from the date of grant of the Incentive Stock Option. Subject to the foregoing and other applicable provisions of this Plan, the term of each Option shall be determined by the Committee in its discretion. - 6 - 7 (d) Manner of Exercise; Rights as Shareholder. An Option shall be deemed to be exercised when written notice of exercise has been given to the Bank in accordance with the terms of the Option by the person entitled to exercise the Option, together with full payment for the shares of Common Stock subject to such notice. (e) Death of Optionee. In the event of the death of an Optionee who at the time of his or her death was an Employee or Director and, if an Employee, who had been in Continuous Status as an Employee since the date of grant of the Option, the Option shall (unless the Committee determines otherwise) terminate on the earlier of (i) one year after the date of death of the Optionee, or (ii) the expiration date otherwise provided in the Option agreement, except that in no event will any Nonqualified Stock Option expire before the end of the 90-day period immediately following the Optionee's death. The Option rights shall be exercisable at any time prior to such termination by the Optionee's estate, or by such person or persons who have acquired the right to exercise the Option by bequest or by inheritance or by reason of the death of the Optionee. (f) Disability of Optionee. If an Optionee's status as an Employee is terminated at any time during the Option period by reason of a disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code), and if such Optionee had been in Continuous Status as an Employee at all times between the date of grant of the Option and the termination of his or her status as an Employee, his or her Option shall terminate on the earlier of (i) one year after the date of termination of his or her status as an Employee, or (ii) the expiration date otherwise provided in his or her Option agreement. The Option shall be exercisable by the Optionee at any time prior to such termination date. (g) Termination of Status as an Employee. (1) If an Optionee's status as an Employee is terminated at any time after the grant of his or her Option for any reason other than death, disability or termination by reason of fraud or willful misconduct, as provided in (2) below, his or her Option shall terminate on the earlier of (i) the same day of the third month after the date of termination of his or her status as an Employee, or (ii) the expiration date otherwise provided in his or her Option agreement. The Option shall be exercisable by the Optionee at any time prior to such termination date, but only to the extent that it was exercisable by the Optionee on the date of termination of employment. (2) If an Optionee's status as an Employee is terminated at any time after the grant of his or her Option by reason of fraud or willful misconduct, then his or her Option shall terminate on the date of termination of his or her status - 7 - 8 as an Employee. (h) Non-Transferability of Options. An Option granted pursuant to this Plan may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution, and may be exercised, during the lifetime of the Optionee, only by the Optionee. (i) Date of Grant of Option. The date of grant of an Option shall, for all purposes, be the date on which the Committee makes the determination granting such Option. Such date of grant shall be specified in the Option agreement. (j) Conditions upon Issuance of Shares. Shares of Common Stock shall not be issued with respect to an Option granted under this Plan unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the Washington Securities Act or applicable securities statutes of other states, the rules and regulations promulgated under all such statutes, and the requirements of any stock exchange upon which the Common Stock may then be listed, and shall be further subject to the approval of counsel for the Bank with respect to such compliance. As a condition to the exercise of an Option, the Bank may require the person exercising such Option to represent and warrant at the time of exercise that the shares of Common Stock are being purchased only for investment and without any present intention to sell or distribute such Common Stock if, in the opinion of counsel for the Bank, such a representation is required by any applicable law. (k) Merger, Sale of Assets, etc. In the event of a proposed merger of the Bank with or into any other corporation, or in the event of a proposed sale of substantially all of the assets of the Bank, or in the event of a proposed dissolution or liquidation of the Bank, the Committee may, in the exercise of its sole discretion, terminate all outstanding options as of a date fixed by the Committee. In such event, however, the Committee shall notify each Optionee of such action in writing not less than sixty (60) days prior to the termination date fixed by the Committee, and each Optionee shall have the right to exercise his or her Option prior to such termination date. (l) Substitute Stock Options. In connection with the acquisition or proposed acquisition by the Bank or any Subsidiary, whether by merger, acquisition of stock or assets, or other reorganization transaction, of a business any employees of which have been granted stock options, the Committee is - 8 - 9 authorized to issue, in substitution of any such unexercised stock option, a new Option under this Plan that confers upon the Optionee substantially the same benefits as the old option; provided, however, that the issuance of any new Incentive Stock Option for an old incentive stock option shall satisfy the requirements of Section 424(a) of the Internal Revenue Code. (m) Tax Compliance. The Employer, in its sole discretion, may take any actions reasonably believed by it to be required to comply with any local, state, or federal tax laws relating to the reporting or withholding of taxes attributable to the grant or exercise of any Option or the disposition of any shares of Common Stock issued upon exercise of an Option, including, but not limited to, (i) withholding from any Optionee exercising an Option a number of shares of Common Stock having a fair market value equal to the amount required to be withheld by the Employer under applicable tax laws, and (ii) withholding from any form of compensation or other amount due an Optionee or holder of shares of Common Stock issued upon exercise of an Option any amount required to be withheld by the Employer under applicable tax laws. Withholding or reporting shall be considered required for purposes of this subparagraph if any tax deduction or other favorable tax treatment available to Employer is conditioned upon such reporting or withholding. (n) Other Provisions. Option agreements executed pursuant to this Plan may contain such other provisions as the Committee shall deem advisable, provided, in the case of Incentive Stock Options, that the provisions are not inconsistent with the provisions of Section 422 of the Internal Revenue Code or with any of the other terms and conditions of this Plan. III. RESTRICTED STOCK Common Stock of the Bank may be awarded to an eligible person in the form of a Restricted Stock Award pursuant to the provisions and subject to the limitations of this Part III. 1. Eligibility. Eligibility for the grant of a Restricted Stock Award under this Part III shall be determined as provided in Section 1 of Part II of the Plan and, unless inconsistent with the provisions of this Part III of the Plan, the terms and conditions of a Restricted Stock Award shall be determined as provided in Section 2 of Part II of the Plan. 2. Shares Subject To Award. The shares of Common Stock subject to Restricted Stock Awards are as stated in Section 3 of Part I of the Plan. 3. Escrow. Stock certificates evidencing shares of Common Stock granted as a Restricted Stock Award shall be issued in the - 9 - 10 name of the Grantee and deposited in escrow with a person or entity (the "Escrow Agent") to be held by the Escrow Agent subject to the terms hereof and subject to delivery to the Grantee or redelivery to the Escrow Agent in accordance with the terms and provisions of this Part III. By acceptance of an Award, the Grantee grants an irrevocable power of attorney to the Escrow Agent to transfer and deliver such Common Stock and stock certificates evidencing the same in accordance with the terms and provisions hereof and the directions of the Committee given pursuant to this Plan. 4. Dividends and Voting Rights. During the period while the stock certificates evidencing restricted stock are held in escrow as provided in this Plan, all dividends payable with respect to such stock shall be paid by the Escrow Agent directly to the Grantee named therein and such Grantee shall be entitled to exercise all voting rights with respect to such stock, all in the same manner and to the full extent as though such stock were held by the Grantee free of the escrow. 5. Escrow Stock Not Transferable. No transfer or other disposition of Common Stock held in escrow under this Plan may be made by the Grantee so long as such stock is held under and remains subject to the escrow. 6. Release Of Stock From Escrow. Common Stock held in escrow pursuant to the provisions of this Part III shall be released from such escrow by the delivery of the stock certificate evidencing such shares to the Grantee (or, in the case of death or disability of the Grantee, to the Grantee's estate or legal guardian) at: (a) The completion by the Grantee of such number of years of Continuous Status as an Employee or Director measured from the date of the Award as the Committee shall determine; (b) The death of the Grantee; (c) The determination by the Committee, acting in its sole discretion, to authorize the release of such stock to the Grantee upon the occurrence of any event that the Committee determines to warrant such release; or (d) The occurrence of a change in control of the Bank. The term "control" shall refer to the acquisition of 25 percent or more of the voting securities of the Bank by any person or by persons acting as a group within the meaning of Section 13(d) of the Securities Exchange Act of 1934; provided, however, that for the purposes of this subsection no change in control shall be deemed to have occurred if prior to the acquisition of, or offer to acquire, 25 percent or more of the voting securities of the Bank, the full Board of Directors shall have adopted by not less - 10 - 11 than a two-thirds vote a resolution specifically approving such acquisition or offer. For purposes of this subsection, the term "person" refers to an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. 7. Termination of Employment. In the event of the termination of employment or status as a Director of the Grantee during the period that any Common Stock is held in escrow hereunder for the Grantee's account, other than by reason of death, normal retirement or approved early retirement (and such Common Stock is not then subject to release under items (a), (b) or (c) of Section 6 above), such stock shall be forfeited to the Bank and all rights of the Grantee with respect thereto terminated, unless, in the case of termination by act of the Bank, the Committee, within thirty (30) days following such termination, authorizes the release of such Common Stock to such Grantee under the authority granted to it by item (d) of Section 6. Upon the expiration of such thirty (30) day period without action by the Committee to release such Common Stock to the Grantee, the Common Stock shall be deemed forfeited and the stock certificates evidencing the same shall be redelivered to the Bank, whereupon they shall be cancelled and retired. IV. ADOPTION, AMENDMENT AND TERMINATION PROVISIONS 1. Term of the Plan. This Plan shall become effective on the earlier of (a) the date of adoption of this Plan by the Board; or (b) the date of shareholder approval of the Plan as hereinafter set forth in this Part IV. Unless sooner terminated as provided below, the Plan shall terminate on the tenth anniversary of its effective date. Options may be granted at any time after the effective date and prior to the date of termination of the Plan. 2. Amendment or Early Termination of the Plan. (a) Amendment or Early Termination. The Board may terminate this Plan at any time. The Board may amend this Plan at any time and from time to time in such respects as the Board may deem advisable, except that, without approval of the holders of a majority of the outstanding shares of the Common Stock, no such revision or amendment shall: (i) increase the number of shares of Common Stock subject to the Plan other than in connection with an adjustment under Section 3 of Part I, or (ii) change the designation of the class of Employees eligible to be granted Options or Awards. - 11 - 12 (b) Effect of Amendment or Termination. No amendment or termination of the Plan shall affect Options or Awards granted prior to such amendment or termination, and all such Options and Awards shall remain in full force and effect notwithstanding such amendment or termination. 3. Shareholder Approval. Continuance of the Plan shall be subject to approval of the Plan by affirmative vote of the holders of a majority of the outstanding shares of Common Stock of the Bank at a duly convened meeting of the shareholders of the Bank, which approval must occur within twelve (12) months before or after the date of adoption of the Plan by the Board. CERTIFICATE OF ADOPTION I certify that the foregoing Plan was adopted by the Board of Directors of Heritage Bank on August 28, 1996. /s/ WENDY K. GAUKSHEIM ----------------------------------------- Secretary I further certify that the foregoing Plan was adopted by the shareholders of the Bank owning a majority of the common shares not held by Heritage Financial Corporation, MHC on September 24, 1996. /s/ WENDY K. GAUKSHEIM ----------------------------------------- Secretary - 12 - -----END PRIVACY-ENHANCED MESSAGE-----