S-8

As filed with the Securities and Exchange Commission on July 24, 2006.

Registration No. 333-                    

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-8

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

STERLING FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

WASHINGTON
(State or other jurisdiction of
incorporation or organization) 91-1572822
(I.R.S. Employer
Identification No.)

111 North Wall Street
Spokane, Washington 99201
(Address of Principal Executive Offices) (Zip Code)

Lynnwood Financial Group Qualified and Nonqualified Stock Option Plan
(Full title of the plan)

Andrew J. Schultheis, Secretary
Sterling Financial Corporation
111 North Wall Street
Spokane, Washington 99201
(509) 227-5389
(Name, address and telephone number, including area code, of agent for service)

Copies to:

Andrew J. Schultheis, Esq.
Richard A. Repp, Esq.
Witherspoon, Kelley, Davenport
& Toole, P.S.
West 422 Riverside Avenue, Suite 1100
Spokane, Washington 99201
(509) 624-5265

CALCULATION OF REGISTRATION FEE

Title of each class of	Amount to be	Proposed maximum	Proposed maximum	Amount of
securities to be registered	registered (1)	offering price per share (2)	aggregate offering price (2)	registration fee (2)
Common Stock, par value $1.00 per share	77,528	$8.19	$634,954.32	$67.95

(1)

Consists of common shares (the “Common Stock”) of Sterling Financial Corporation, a Washington corporation (“Sterling” or “Registrant”) to be issued upon exercise of currently outstanding stock options (the “Options”) granted under the Lynnwood Financial Group Qualified and Nonqualified Stock Option Plan (the “Lynnwood Plan”). The Lynnwood Plan was assumed by Sterling pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) dated as of February 12, 2006 by and between Sterling and Lynnwood Financial Group, Inc., a Washington corporation (“Lynnwood”). Pursuant to Rule 416(a) of the Securities Act of 1933, as amended (the “Securities Act”), this registration statement also covers any additional securities that may be offered or issued as a result of a stock split, stock dividend or similar adjustment to the outstanding Common Stock.

(2)

Estimated pursuant to Rule 457(c) and (h) based upon the estimated weighted average exercise price per share.

TABLE OF CONTENTS

PART I
PART II
	Item 3. Incorporation of Documents by Reference
	Item 4. Description of Securities
	Item 5. Interests of Named Experts and Counsel
	Item 6. Indemnification of Directors and Officers
	Item 7. Exemption From Registration Claimed
	Item 8. Exhibits
	Item 9. Undertakings
SIGNATURES
EXHIBIT INDEX
EXHIBIT 5.1
EXHIBIT 23.1
EXHIBIT 99.1

PART I

INFORMATION REQUIRED IN SECTION 10(A) PROSPECTUS

     The documents containing the information specified in Part I of this Form S-8 will be sent or given to participants in the Lynnwood Plan, as specified by Rule 428(b)(1) promulgated by the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”). In accordance with Rule 428 and the requirements of Part I of Form S-8, such document(s) are not being filed with the Commission, either as part of this registration statement or as prospectuses or prospectus supplements pursuant to Rule 424 under the Securities Act, but constitute (along with the documents incorporated by reference into the Registration Statement pursuant to Item 3 of Part II hereof) a prospectus that meets the requirements of Section 10(a) of the Securities Act.

2

PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 3. Incorporation of Documents by Reference.

     The following documents filed with the Commission are incorporated herein by reference:

(a)	Sterling’s Annual Report on Form 10-K for the year ended December 31, 2005.
(b)	All other reports filed by Sterling pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 since the end of the fiscal year covered by the Annual Report on Form 10-K referred to in Item 3(a) above.
(c)	The description of Sterling’s common stock contained in its registration statement on Form S-3 (Registration No. 333-130512) filed on December 20, 2005, including any amendment or report filed for the purpose of updating such description.

     Notwithstanding the foregoing, we are not incorporating any document or information deemed to have been furnished and not filed in accordance with SEC rules.

     All documents filed by Sterling pursuant to Section 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof, and prior to the filing of a post-effective amendment which indicates that the securities offered hereby have been sold or which deregisters the securities covered hereby then remaining unsold, shall also be deemed to be incorporated by reference into this Registration Statement and to be a part hereof commencing on the respective dates on which such documents are filed.

     Any statement contained in this Registration Statement, or in a document incorporated or deemed to be incorporated by reference herein, shall be deemed to be modified or superseded for purposes of this Registration Statement to the extent that a statement contained herein, or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein, modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Registration Statement.

Item 4. Description of Securities.

     Not Applicable

Item 5. Interests of Named Experts and Counsel.

     Not Applicable

Item 6. Indemnification of Directors and Officers.

     Section 23B.08.570 of the Washington Business Corporation Act authorizes a court to award, or a corporation’s board of directors to grant indemnity to directors, officers, employees and other agents of the corporation (“Agents”) in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended.

     Our Board of Directors has resolved to indemnify the officers and directors of the registrant to the full extent permitted by Section 23B.08.570 of the Washington Business Corporation Act, and Article XI of our Amended and Restated Articles of Incorporation and Article X of our Amended and Restated Bylaws authorize the registrant to provide for indemnification of officers and directors to the same extent. This indemnification limits the personal monetary liability of directors in performing their duties on behalf of the registrant, to the extent permitted by the Washington Business Corporation Act, and permits the registrant to indemnify its directors and officers against certain liabilities and expenses, to the extent permitted by the Washington Business Corporation Act. In addition, the registrant maintains a directors and officers liability insurance policy that insures its directors and officers against certain liabilities, including certain liabilities under the Securities Act of 1933.

II-1

Item 7. Exemption From Registration Claimed.

     Not Applicable

Item 8. Exhibits.

     The following exhibits are filed with or incorporated by reference into this Registration Statement on Form S-8:

Exhibit
Number	Description
4.1	Restated Articles of Incorporation of Sterling. Filed as Exhibit 4.1 to Sterling’s registration statement on Form S-3 filed on December 20, 2005 and incorporated by reference herein.
4.2	Articles of Amendment of Restated Articles of Incorporation of Sterling. Filed as Exhibit 4.2 to Sterling’s registration statement on Form S-3 filed on December 20, 2005 and incorporated by reference herein.
4.3	Amended and Restated Bylaws of Sterling. Filed as Exhibit 3.3 to Sterling’s registration statement on Form S-4 filed on December 9, 2002 and incorporated by reference herein.
5.1	Opinion of Witherspoon, Kelley, Davenport & Toole, P.S.
23.1	Consent of BDO Seidman, LLP.
23.2	Consent of Witherspoon, Kelley, Davenport & Toole, P.S. (included in Exhibit 5.1 to this Registration Statement).
24.1	Power of attorney (set forth on the signature pages to the Registration Statement).
99.1	Lynnwood Financial Group Qualified and Nonqualified Stock Option Plan.

II-2

Item 9. Undertakings.

     The undersigned registrant 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;

          (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. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective 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 paragraphs (1)(i) and (1)(ii) do not apply if the Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by Sterling pursuant to Section 13 or 15(d) of the Exchange Act that are incorporated by reference in the Registration Statement.

     2. That, for the purpose of determining any liability under the Securities Act, 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.

     4. That, for purposes of determining any liability under the Securities Act, each filing of Sterling’s annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) 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.

     5. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of Sterling pursuant to the foregoing provisions, or otherwise, Sterling has been advised that in the opinion of the 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 Sterling of expenses incurred or paid by a director, officer or controlling person of Sterling in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Sterling 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 Securities Act and will be governed by the final adjudication of such issue.

II-3

SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended, Sterling certifies that it has reasonable grounds to believe that it meets all of 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 Spokane, State of Washington, on July 24, 2006.

	STERLING FINANCIAL CORPORATION
By	/s/ DANIEL G. BYRNE
	DANIEL G. BYRNE, Executive Vice President,
	Assistant Secretary, and Principal Financial Officer

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby grants a power of attorney to Harold B. Gilkey and Daniel G. Byrne and each of them, with full power of substitution and resubstitution, for him and his name, place and stead, in any and all capacities (including his capacity as a director or officer of Sterling Financial Corporation) to sign for such person, and in such person’s name and capacity indicated below, any and all amendments to the Registration Statement of Sterling Financial Corporation and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or each of them or any substitute therefor may do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Harold B. Gilkey Harold B. Gilkey	Chairman of the Board and Chief Executive Officer	July 24, 2006
/s/ William W. Zuppe William W. Zuppe	President, Chief Operating Officer and Director	July 24, 2006
/s/ Daniel G. Byrne Daniel G. Byrne	Executive Vice President, Assistant Secretary, and Principal Financial Officer	July 24, 2006
/s/ William R. Basom William R. Basom	Vice President, Treasurer and Principal Accounting Officer	July 24, 2006
/s/ Rodney W. Barnett Rodney W. Barnett	Director	July 24, 2006
/s/ Donald N. Bauhofer Donald N. Bauhofer	Director	July 24, 2006
/s/ William L. Eisenhart William L. Eisenhart	Director	July 24, 2006
/s/ James P. Fugate James P. Fugate	Director	July 24, 2006

II-4

Signature	Title	Date
/s/ Robert D. Larrabee Robert D. Larrabee	Director	July 24, 2006
/s/ Donald J. Lukes Donald J. Lukes	Director	July 24, 2006

II-5

EXHIBIT INDEX

Exhibit
Number	Description
4.1	Restated Articles of Incorporation of Sterling. Filed as Exhibit 4.1 to Sterling’s registration statement on Form S-3 filed on December 19, 2005 and incorporated by reference herein.
4.2	Articles of Amendment of Restated Articles of Incorporation of Sterling. Filed as Exhibit 4.2 to Sterling’s registration statement on Form S-3 filed on December 19, 2005 and incorporated by reference herein.
4.3	Amended and Restated Bylaws of Sterling. Filed as Exhibit 3.3 to Sterling’s registration statement on Form S-4 filed on December 9, 2002 and incorporated by reference herein.
5.1	Opinion of Witherspoon, Kelley, Davenport & Toole, P.S.
23.1	Consent of BDO Seidman, LLP.
23.2	Consent of Witherspoon, Kelley, Davenport & Toole, P.S. (included in Exhibit 5.1 to this Registration Statement).
24.1	Power of attorney (set forth on the signature pages to the Registration Statement).
99.1	Lynnwood Financial Group Qualified and Nonqualified Stock Option Plan.

EX-5.1

                                                                     EXHIBIT 5.1

                               OPINION RE LEGALITY

          [Letterhead of Witherspoon, Kelley, Davenport & Toole, P.S.]

                                  July 24, 2006

Sterling Financial Corporation
111 North Wall Street
Spokane, WA 99201

Ladies and Gentlemen:

      At your request, we have examined the Registration Statement on Form S-8
(the "Registration Statement") to be filed by Sterling Financial Corporation, a
Washington corporation ("Sterling"), with the Securities and Exchange Commission
on or about July 24, 2006 in connection with the registration under the
Securities Act of 1933, as amended, of an aggregate of 34,662 shares of
Sterling's Common Stock, $1.00 par value per common share (the "Shares"),
subject to the issuance by Sterling upon the exercise of stock options (the
"Assumed Options") granted under the Lynnwood Stock Option Plan (the "Plan") and
assumed by Sterling pursuant to the terms of an Agreement and Plan of Merger
dated as of February 12, 2006 (the "Merger Agreement") by and between Sterling
and Lynnwood Financial Group, Inc., a Washington corporation ("Lynnwood").

      In rendering this opinion, we have examined such matters of fact as we
have deemed necessary in order to render the opinion set forth herein, which
included examination of the following:

      1.    Sterling's currently effective Amended and Restated Articles of
            Incorporation filed with the Washington Secretary of State on April
            29, 2003 and Sterling's Articles of Amendment of Restated Articles
            of Incorporation as filed with the Washington Secretary of State on
            September 1, 2005;

      2.    Sterling's Amended and Restated Bylaws, as of May 24, 1999.

      3.    the Registration Statement, together with the other exhibits filed
            as a part thereof or incorporated by reference therein;

      4.    the Prospectus prepared in connection with the Registration
            Statement;

      5.    the Merger Agreement;

      6.    all actions, consents, and minutes of meetings of Sterling's Board
            of Directors in our possession, including the resolutions that a
            representative of Sterling has represented to us were adopted at a
            meeting of Sterling's Board of Directors on February 12, 2006,
            approving acquisition of Lynnwood;

      7.    the Plan; and

      8.    a Management Certificate (the "Management Certificate") addressed to
            us and dated of even date herewith executed by Sterling containing
            certain factual and other representations, including representations
            as to the number of (i) issued and outstanding shares of capital
            stock, (ii) issued and outstanding options, warrants and rights to
            purchase capital stock, and (iii) any additional shares of capital
            stock reserved for future issuance in connection with stock option
            and purchase plans and all other plans, agreements or rights.



      In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity and completeness of all documents submitted
to us as originals, the conformity to originals and completeness of all
documents submitted to us as copies, and the legal capacity of all persons or
entities executing the same, the lack of any undisclosed termination,
modification, waiver or amendment to any document reviewed by us and the due
authorization, execution and delivery of all documents where due authorization,
execution and delivery are prerequisites to the effectiveness thereof. We have
also assumed that any certificates representing the Shares have been, or when
issued will be, properly signed by authorized officers of Sterling or their
agents.

      As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information obtained from the documents
referred to above and the representations and warranties made by representatives
of Sterling to us, including but not limited to those set forth in the
Management Certificate. We have made no independent investigation or other
attempt to verify the accuracy of any of such information or to determine the
existence or non-existence of any other factual matters; however, we are not
aware of any facts that would cause us to believe that the opinion expressed
herein is not accurate.

      We are admitted to practice law in the State of Washington, and we render
this opinion only with respect to, and express no opinion herein concerning the
application or effect of the laws of any jurisdiction other than, the existing
laws of the United States of America and of the State of Washington.

      Based upon the foregoing, it is our opinion that the 34,662 Shares that
may be issued and sold by Sterling upon the exercise of the Assumed Options,
when issued, sold and delivered in accordance with the Plan, stock option grant
agreement and stock option exercise agreement, and in the manner and for the
consideration stated in the Registration Statement and the relevant Prospectus,
will be validly issued, fully paid and nonassessable.

      We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto. This opinion is intended solely for your use in connection
with the above issuance and sale of the Shares subject to the Registration
Statement and is not to be relied upon for any other purpose. We assume no
obligation to advise you of any fact, circumstance, event or change in the law
or the facts that may hereafter be brought to our attention whether or not such
occurrence would affect or modify the opinions expressed herein.

                                Very truly yours,

                                /s/ Witherspoon, Kelley, Davenport & Toole, P.S.
                                -----------------------------------------------
                                Witherspoon, Kelley, Davenport & Toole, P.S.

EX-23.1

                                  EXHIBIT 23.1

                       CONSENT OF INDEPENDENT ACCOUNTANTS

                        [Letterhead of BDO Seidman, LLP]

Sterling Financial Corporation
Spokane, Washington

We hereby consent to the incorporation by reference in this Registration
Statement on form s-8 of our reports dated january 28, 2006, relating to the
consolidated financial statements, the effectiveness of Sterling Financial
Corporation's internal control over financial reporting, and schedules of
Sterling Financial Corporation appearing in the company's Annual Report on Form
10-K for the year ended December 31, 2005.

/S/ BDO Seidman, LLP

Spokane, Washington
July 24, 2006

EX-99.1

                                                                    EXHIBIT 99.1

                            LYNNWOOD FINANCIAL GROUP

                  QUALIFIED AND NONQUALIFIED STOCK OPTION PLAN

      1. PURPOSE OF THE PLAN. Under this Stock Option Plan (the "Plan") of
Lynnwood Financial Group, a Washington corporation (the "Company") options may
be granted to eligible employees to purchase shares of the Company's capital
stock. The Plan is designed to enable the Company and its subsidiaries to
attract, retain and motivate their employees by providing for or increasing the
proprietary interests of such employees in the Company. The Plan provides for
options which qualify as incentive stock options ("Incentive Options") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as
well as options which do not so qualify.

      2. STOCK SUBJECT TO PLAN. The maximum number of shares of stock for which
options granted hereunder may be exercised shall be 400,000 shares of no par
common stock, subject to the adjustments provided in Sections 6 and 11. Shares
of stock subject to the unexercised portions of any options granted under this
Plan which expire or terminate or are canceled may again be subject to options
under the Plan. When the exercise price for an option granted under this Plan is
paid with previously outstanding shares or with shares as to which the option is
being exercised, as permitted in Section 9, the total number of shares of stock
for which further options may be granted under this Plan shall be irrevocably
reduced by the total number of shares for which such option is thus exercised,
without regard to the number of shares received or retained by the Company in
connection with that exercise.

      3. ELIGIBLE EMPLOYEES. The employees eligible to be considered for the
grant of any options hereunder are any persons regularly employed by the Company
or its subsidiaries in a managerial, professional or technical capacity on a
full-time, salaried basis. Nonqualified options may be granted to independent
contractors and directors as well.

      4. MINIMUM EXERCISE PRICE. The exercise price for each option granted
hereunder shall be not less than 100% of the fair market value of the stock at
the date of the grant of the option.

      5. NONTRANSFERABILITY. Any option granted under this Plan shall by its
terms be nontransferable by the optionee other than by will or the laws of
descent and distribution and is exercisable during the optionee's lifetime only
by him or by his guardian or legal representative.

      6. ADJUSTMENTS. If the outstanding shares of stock of the class then
subject to this Plan are increased or decreased, or are changed into or
exchanged for a different number or kind of shares or securities, as a result of
one or more reorganizations, recapitalizations, stock splits, reverse stock
splits, stock dividends or the like, appropriate adjustments shall be made in
the number and/or kind of shares or securities for which options may thereafter
be granted under this Plan and for which options then outstanding under this
Plan may thereafter be exercised. Any such adjustment in outstanding options
shall be made without changing the aggregate exercise price applicable to the
unexercised portions of such options.



      7. MAXIMUM OPTION TERM. No option granted under this Plan may be exercised
in whole or in part more than ten (10) years after its date of grant.

      8. PLAN DURATION. Options may not be granted under this Plan more than ten
(10) years after the date of the adoption of this Plan, or of shareholder
approval thereof, whichever is earlier.

      9. PAYMENT. Payment for stock purchased upon any exercise of an option
granted under this Plan shall be made in full in cash concurrently with such
exercise, except that, if and to the extent the instrument evidencing the option
so provides and if the Company is not then prohibited from purchasing or
acquiring shares of such stock, such payment may be made in whole or in part
with shares of the same class of stock as that then subject to the option,
delivered in lieu of cash concurrently with such exercise, the shares so
delivered to be valued on the basis of the fair market value of the stock
(determined in a manner specified in the instrument evidencing the option) on
the day preceding the date of exercise. If and while payment with stock is
permitted for the exercise of an option granted under this Plan in accordance
with the foregoing provision, the person then entitled to exercise that option
may, in lieu of using previously outstanding shares therefor, use some of the
shares as to which the option is then being exercised.

      10. ADMINISTRATION. The Plan shall be administered by the Company's board
of directors (the "Board") or, at the discretion of the Board, by a committee
(the "Committee") of not less than two members of the Board each of whom shall
not at any time during his service as an administrator of the Plan be an officer
or employee of the Company or of any subsidiary corporation of the Company.

The interpretation and construction by the Committee of any term or provision of
the Plan or of any option granted under it shall be ratified by the full Board.
The Board may from time to time adopt rules and regulations for carrying out
this Plan and, subject to the provisions of this Plan, may prescribe the form or
forms of the instruments evidencing any option granted under this Plan.

Subject to the provisions of this Plan, the Board or, by delegation from the
Board, shall have full and final authority in its discretion to select the
employees to be granted options, to grant such options and to determine the
number of shares to be subject thereto, the exercise prices, the terms of
exercise, expiration dates and other pertinent provisions thereof.

      11. CORPORATE REORGANIZATIONS. Upon the dissolution or liquidation of the
Company, or upon a reorganization, merger or consolidation of the Company as a
result of which the outstanding securities of the class then subject to options
hereunder are changed into or exchanged for cash or property or securities not
of the Company's issue, or any combination thereof, or upon a sale of
substantially all the property of the Company to, or the acquisition of stock
representing more than eighty percent (80%) of the voting power of the stock of
the Company then outstanding by, another corporation or person, the Plan shall
terminate, and all options theretofore granted hereunder shall terminate, unless
provision be made in writing in

                                       2


connection with such transaction for the continuance of the Plan and/or for the
assumption of options covering the stock of a successor employer corporation, or
a parent or a subsidiary thereof, with appropriate adjustments as to the number
and kind of shares and prices, in which event the Plan and options theretofore
granted may continue in the manner and under the terms so provided. If the Plan
and unexercised options shall terminate pursuant to the foregoing sentence, all
persons entitled to exercise any unexercised portions of options then
outstanding shall be modified and have the right, at such time prior to the
consummation of the transaction causing such termination as the Company shall
designate, to exercise the unexercised portions of their options, including the
portions thereof which would, but for this paragraph entitled "Corporate
Reorganizations," not yet be exercisable. The instrument evidencing any option
may also provide for such acceleration of otherwise unexercisable portions of
the option upon other specified events or occurrences, such as involuntary
terminations of the option holder's employment following certain changes in the
control of the Company.

      12. RESTRICTED STOCK. If the instrument evidencing the option so provides,
shares of stock issued on exercise of an option granted under this Plan may upon
issuance be subject to any one or more of the following restrictions (and, as
used herein, "restricted stock" means shares issued on exercise of options
granted under this Plan which are still subject to restrictions imposed under
this Section 13 that have not yet expired or terminated):

            (a) shares of restricted stock may not be sold or otherwise
transferred or hypothecated;

            (b) if the employment of the holder of shares of restricted stock
with the Company or a subsidiary is terminated for any reason other than his
death, normal or early retirement in accordance with his employer's established
retirement policies or practices, or total disability, the Company (or any
subsidiary designated by it) shall have the option for sixty (60) days after
such termination of employment to purchase for cash all or any part of his
restricted stock at the lesser of (i) the price paid therefor by the holder, or
(ii) the fair market value of the restricted stock on the date of such
termination of employment (determined in a manner specified in the instrument
evidencing the option); and

            (c) as to the shares of stock affected thereby, any additional
restrictions that may be imposed on particular shares of restricted stock as
specified in the instrument evidencing the option.

The restrictions imposed under this Section 13 shall apply as well to all shares
or other securities issued in respect of restricted stock in connection with any
stock split, reverse stock split, stock dividend, recapitalization,
reclassification, spin-off, split-off, merger, consolidation or reorganization,
but such restrictions shall expire or terminate at such time or times as shall
be specified therefor in the instrument evidencing the option which provides for
the restrictions.

      13. MINIMUM CAPITAL RESTRICTIONS. Notwithstanding any other pro vision of
this Plan, all options granted pursuant to this Plan shall be subject to
Company's primary federal banking regulatory agency's authority to direct
Company to require any plan participant (option holder) to exercise or forfeit
(without compensation) their stock option rights, on such other

                                       3


terms determined by the regulatory authority and Company, if the Company's
capital falls below the then prevailing minimum capital requirements, as
determined by Company's state or primary federal banking regulatory agency.

      14. FINANCIAL ASSISTANCE. The Company is vested with authority under this
Plan to assist any employee to whom an option is granted hereunder (including
any director or officer of the Company or any of its subsidiaries who is also an
employee) in the payment of the purchase price payable on exercise of that
option, by lending the amount of such purchase price to such employee on such
terms and at such rates of interest and upon such security (or unsecured) as
shall have been authorized by or under authority of the Board and in compliance
with all laws.

      15. TRANSFER RESTRICTIONS APPLICABLE UNTIL THE COMPANY IS SUBJECT TO
FEDERAL REPORTING REQUIREMENTS. Notwithstanding any other provisions of this
Plan, unless and until the Company has become a reporting Company with respect
to any class of its equity securities under the Securities Exchange Act of 1934,
as amended, no option granted under this Plan may be transferred, except upon
the death of the grantee of the option to that grantee's estate or the
administrator(s) or executor(s) of that estate (this exception does not extend
to or permit the distribution or other transfer by that estate or executor(s) or
administrator(s) to the grantee's heirs or other beneficiaries of the estate,
and under the circumstances described in this paragraph any portion of the
option remaining unexercised at the time of the final distribution of that
estate will then terminate).

      16. AMENDMENT AND TERMINATION. The Board may alter, amend, suspend or
terminate this Plan, provided that no such action shall deprive an optionee,
without his consent, of any option granted to the optionee pursuant to this Plan
or of any of his rights under such option, Except as herein provided, no such
action of the Board, unless taken with the approval of the shareholders of the
Company, may:

            (a) increase the maximum number of shares for which options granted
under this Plan may be exercised;

            (b) reduce the minimum permissible exercise price;

            (c) extend the ten-year duration of this Plan set forth herein; or

            (d) alter the class of employees eligible to receive options under
the Plan.

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