2005 E XECUTIVE O FFICER AND D IRECTOR
S TOCK
A CCOUNT
D EFERRED
C OMPENSATION P LAN
* * * * * *
1. P
URPOSE OF THIS
P LAN . The
purpose of the 2005 Executive Officer and Director Stock Account
Deferred Compensation Plan (this “Plan”) is to further
the growth and development of Banner Corporation (the
“Holding Company”) and its subsidiary banks (the
“Banks” and collectively with the Holding Company as
“Banner” or “Service Recipient”) by
providing a select group of senior management and Directors of
Banner and their subsidiaries the opportunity to defer a portion of
their Compensation, as defined herein, and thereby encourage their
productive efforts on behalf of Banner. This Plan is also intended
to provide Participants (“Service Providers”) with an
opportunity to supplement their retirement income through deferral
of Compensation as provided herein.
1.1 R
ULES OF C ONSTRUCTION - A GGREGATED P LANS . Banner establishes, within this Plan, a
nonqualified deferred compensation plan maintained primarily for
the purpose of providing deferred compensation for a select group
of management or highly compensated employees (a “top-hat
plan”) under ERISA §§ 201(2), 301(a)(3) and
401(a)(1). Furthermore, to the extent that this Plan covers any
Contractor or Contractors (as defined in Section 2.7), this Plan
shall also be exempt from Title I of ERISA with respect to such
Contractor(s). Banner shall administer this Plan in accordance with
the “Plan Aggregation Rules” in a manner so that all
“like-plans” are treated as a single plan. As such, all
plans that allow deferrals of Compensation at the
“election” of the Service Provider will be Aggregated
Plans, and all plans that allow for the deferral of Compensation
“other than” at the election of the Service Provider
will likewise be treated as separately Aggregated Plans.
Furthermore, plans treated as “non-account balance”
plans must also be aggregated together and treated as Aggregated
Plans. For purposes of the Aggregated Plans requirement,
“separation pay plans,” split-dollar life plans, and
similar in-kind reimbursement plans will be treated separately from
the foregoing Aggregated Plans requirement, and the provisions of
final Treasury Regulations under Section 1.409A-1(c)(2) shall
apply. The effect of this aggregation rule is that if a Service
Provider is covered under more than one 409A Plan of the
“same type,” and there is an operational violation
under the “like-plans,” the 409A sanctions will apply
to the Service Provider under all such Aggregated Plans.
However, if a Participant in two or more like-plans participates in
one plan as an Employee and one or more other plans as a
Contractor, the plans will not be Aggregated Plans as to
that Service Provider. If an Employee also serves on the
Employer’s board of directors and participates in a like-type
plan or plans, but also participates in one plan as an Employee,
and in another plan as a Director, the plans similarly will
not be Aggregated Plans, provided that the plan for
Directors is substantially similar to the plan or plans that the
Employer maintains for all such individuals who serve in the
capacity only as Directors. Any plan or plans maintained for a
Director will not be subject to aggregation under this requirement
with any plan or plans maintained for Contractors, as defined in
Section 2.7.
2. D
EFINITIONS
.
2.1 B
ENEFICIARY
. The person designated by a Participant on the
Participant’s Deferred Compensation Agreement to receive any
Plan benefits payable after the Participant’s Death.
See also, Section 5.4.
2.2 B
ONUS . Discretionary monetary bonuses earned by a
Participant which are authorized and declared by the board of
directors or Compensation Committees of Banner.
2.3 C
HANGE IN
C ONTROL . A
Change in Control shall mean the occurrence of an event in either
Sections 2.3.1, 2.3.2 or 2.3.3, below, or any combination of said
event(s) as described within the meaning of Treasury Regulation
1.409A-3(i)(5):
2.3.1 C
HANGE OF
O WNERSHIP OF T HE H OLDING C OMPANY . A
change of ownership of the Holding Company occurs on the date that
any one person or persons acting as a Group (as that term is
defined in Subsection 2.3.4) acquires ownership of the stock of the
Holding Company, that, together with stock held by such person or
Group, constitutes more than fifty percent (50%) of the total fair
market value or total voting power of the stock of the Holding
Company or of any corporation that owns at least fifty percent
(50%) of the total fair market value or total voting power of the
Holding Company. However, if any person or Group is considered to
own more than fifty percent (50%) of the total fair market value or
total voting power of the stock of the Holding Company, the
acquisition of additional stock by the same person or Group of
persons is not considered to cause a Change in Control. In
addition, the term “Change in Control” shall apply if
there is an increase in the percentage of stock owned by any one
person or persons, acting as a Group, as a result of a transaction
in which the Holding Company acquires its stock in exchange for
property. The rule set forth in the immediately preceding sentence
applies only when there is a transfer of stock of the Holding
Company (or issuance of stock of the Holding Company) and the stock
of the Holding Company remains outstanding after the
transaction.
2.3.2 E
FFECTIVE
C HANGE IN C ONTROL . If
the Holding Company does not incur an event under Subsection 2.3.1,
above, then it may still meet the definition of Change in Control,
on the date that either:
(a)
Any one
person, or more than one person acting as a Group, acquires (or has
acquired during the twelve (12) month period ending on the date of
the most recent acquisition by such person or persons) ownership of
stock of the Holding Company possessing thirty percent (30%) or
more of the total voting power of the stock of the Holding Company;
or
(b)
A
majority of the members of the Holding Company’s Board are
replaced during any twelve (12) month period by Directors whose
appointment or election is not endorsed by a majority of the
members of the Holding Company’s Board prior to the date of
the appointment or election.
2.3.3 C
HANGE IN
O WNERSHIP OF T HE H OLDING C OMPANY’S A SSETS .
A change in the ownership of a substantial portion of the Holding
Company’s assets occurs on the date that any person, or more
than one person acting as a Group, acquires (or has acquired during
the twelve
(12) month period ending on the
date of the most recent acquisition by such person or persons)
assets from the Holding Company that have a total gross fair market
value equal to more than forty percent (40%) of the total gross
fair market value of all of the assets of the Holding Company
immediately prior to such acquisition or acquisitions. For this
purpose, “gross fair market value” means the value of
the assets of the Holding Company, or the value of the assets being
disposed of, determined without regard to any liabilities
associated with such assets.
(a)
There
will be no Change in Control under this Subparagraph 2.3.3 when
there is a transfer to an entity that is controlled by the
shareholders of the Holding Company immediately after the transfer.
A transfer of assets by the Holding Company shall not be treated as
a change in ownership of such assets if the assets are transferred
to:
(i)
A
shareholder of the Holding Company (immediately before the asset
transfer) in exchange for or with respect to its stock;
(ii) An
entity, fifty percent (50%) or more of the total value or voting
power of which is owned, directly or indirectly, by the Holding
Company;
(iii) A person, or
more than one person acting as a Group, that owns, directly or
indirectly, fifty percent (50%) or more of the total value or
voting power of all the outstanding stock of the Holding Company;
or
(iv) An entity, at
least fifty percent (50%) of the total value or voting power of
which is owned, directly or indirectly, by a person described in
the immediately preceding Subparagraph (a)(iii).
2.3.4 P
ERSONS A CTING AS A G ROUP . Persons will not be considered to be acting as a
Group for purposes of Subsections 2.3.1, 2.3.2 and/or 2.3.3 solely
because they purchase or own stock of the Holding Company at the
same time, or as a result of the same public offering. However,
persons will be considered to be acting as a Group if they are
shareholders of the Holding Company and it, or its parent, enters
into a merger, consolidation, purchase or acquisition of stock or
similar business transaction with another corporation. If a person,
including an entity, owns stock in the Holding Company and in
another corporation that together are involved in a merger,
consolidation, purchase or acquisition or stock or similar
transaction, then the shareholder of the Holding Company is deemed
to be acting as a Group with other shareholders in the Holding
Company prior to the transaction. For purposes of applying the
provisions of this Subsection 2.3.4, stock ownership is determined
in accordance with Code § 318(a) as modified under Treasury
Regulation § 1.409A-3(i)(5)(iii).
Notwithstanding
the above, the definition of Change in Control shall comply with
the definition provided by the Internal Revenue Service in its
regulations, as amended from time to time with regard to Section
409A.
2.4
C ODE
. Shall mean the Internal Revenue Code of 1986, as
amended, and corresponding provisions of succeeding law.
2.5 C
OMPENSATION
. A Participant’s Salary and Bonus.
Compensation (either Salary or Bonus) shall not include any amounts
paid by Banner to a Participant that are not strictly monetary
consideration for personal services, such as expense reimbursement,
cost-of-living allowance, education allowance, premium on excess
group life insurance or any qualified plan sponsored by Banner; the
fact that an amount constitutes taxable income to the Participant
shall not be controlling for this purpose. Compensation shall not
include any taxable income realized by, or payments made to, a
Participant as a result of the grant or exercise of an option to
acquire stock of Banner or as a result of the disposition of such
stock.
2.6 C
OMPENSATION
C OMMITTEES . The
Compensation Committee of the Banks and Holding Company, as
designated from time to time under the Compensation Committee
Charter of Banner (the “Charter”).
2.7 C
ONTRACTOR
. The term “Contractor” means a person
or entity providing services to Banner (other than as an Employee)
as described in Treasury Regulation § 1.409A-1(f)(1) under
circumstances where the Contractor is on the cash receipts and
disbursements method of accounting for federal income tax purposes
for any taxable year. A person serving on a board of directors is a
Contractor as to Compensation for such services without regard to
whether the person is an Employee for any other purpose or
purposes. A Contractor is not subject to the Code § 409A
restrictions and provisions if in the taxable year in which the
legally binding right to Compensation arises: (a) the Contractor is
actively engaged in the trade or business of performing services
other than as an Employee or as a Director; (b) the
Contractor provides significant services to Banner and to at least
two (2) other unrelated service recipients, where the Contractor,
Banner and the other service recipients are all
“unrelated” to each other within the meaning of
Treasury Regulations §§ 1.409A-1(f)(2)(i)(B) and (C) (as
applicable); and (c) the services are not “management
services” within the meaning of Treasury Regulation §
1.409A-1(f)(2)(iv). For purposes of the above definition, the term
“significant services” will be determined under
Treasury Regulation § 1.409A-1(f)(2)(iii).
2.8 D
EFERRED A CCOUNT . The
record maintained by Banner for each Participant of the cumulative
amount, adjusted for any distributions made pursuant to Section 5
as valued from time to time of (a) Compensation deferred pursuant
to this Plan, (b) imputed gains or losses on those amounts accrued
as provided in Section 4.7.
2.9 D
EFERRED C OMPENSATION A GREEMENT . A
written agreement between a Participant and Banner in substantially
the form set forth in Exhibit A, whereby a Participant agrees to
defer receipt of a portion of the Participant’s Compensation
and Banner agrees to make benefit payments in accordance with the
provisions of this Plan.
2.10 D
EFERRED C OMPENSATION AND B ENEFITS T RUST . The
revocable trust (the “DCB Trust”) established by Banner
with an independent trustee for the benefit of Participants
entitled to receive payments or benefits hereunder, the assets of
which will be subject to claims of Banner’s creditors in the
event of bankruptcy or insolvency.
2.11
D IRECTOR
. A duly elected member of the board of directors
of the Banks or Holding Company.
2.12 D
ISABILITY
. A Participant shall be considered disabled if
the Participant is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than twelve
(12) months, or is, by reason of any medically determinable
physical or mental impairment which can be expected to result in
death or can be expected to last for a continuous period of not
less than twelve (12) months, receiving income replacement benefits
for a period of not less than three (3) months under an accident
and health plan covering Employees of Banner.
2.13 E
XECUTIVE
O FFICER . Any
Employee Officer of Banner holding a position of senior vice
president or higher.
2.14 M
ARKET P RICE . If
the Stock is traded or quoted on the NASDAQ Stock Market or other
national securities exchange on any Measurement Date, then the
market price shall be the average of the highest and lowest selling
price on such Measurement Date or, if there were no sales on such
Measurement Date, then on the next prior business day on which
there was a sale. If the Stock is not traded or quoted on the
NASDAQ Stock Market or other national securities exchange, then the
market price on any Measurement Date shall be a value determined by
the Compensation Committees in good faith on such basis as it deems
appropriate. Currently, the Stock is traded on the NASDAQ Market
under ticker symbol “BANR”.
2.15 M
EASUREMENT
D ATE . The
date on which a valuation of any Stock is necessary for purposes of
computing a Participant’s Deferred Account balance under
Section 4.7 or determining amounts to be distributed under Section
5.
2.16 P
ARTICIPANT
. An Executive Officer or Director who has entered
into a written Deferred Compensation Agreement with Banner in
accordance with the provisions of this Plan.
2.17 S
ALARY . A
monetary payment to a Participant in the form of salary,
commission, Director’s fees or other payments solely for
personal services rendered by a Participant to Banner during a
calendar year, determined prior to giving effect to any deferral
election under this Plan or any incentive compensation plan
sponsored by Banner. “Salary” shall not include any
amounts paid by Banner to a Participant that are not strictly
monetary consideration for personal services, such as expense
reimbursement, cost-of-living allowance, education allowance,
premium on excess group life insurance or any qualified plan
sponsored by Banner; the fact that an amount constitutes taxable
income to the Participant shall not be controlling for this
purpose.
2.18 S
TOCK . Shares of Stock in the Holding Company,
including fractional shares, (currently trading under ticker symbol
“BANR”).
2.19 S
EPARATION
FROM S ERVICE .
2.19.1 E
MPLOYEES
. In the case of an Employee, the term
“Separation from Service” shall mean the
Employee’s termination of employment with Banner, whether on
account of death, retirement, Disability or otherwise. Banner will
determine whether an Employee has
terminated his or her employment
(and therefore incurred a “Separation from Service”)
based on whether the facts and circumstances as described in
Treasury Regulation § 1.409A-1(h)(1)(ii) are applicable. An
Employee incurs a Separation from Service if the parties reasonably
anticipate, based upon the facts and circumstances, that the
Employee will not perform any additional services after a certain
date, or that the level of bona fide services (whether performed as
an Employee or as a Contractor) will permanently decrease to no
more than twenty percent (20%) of the average level of bona
fide services performed (whether performed as an Employee or as a
Contractor) over the immediately preceding 36-month period (or, if
less, the period that the Employee has rendered services to
Banner), which period shall be referred to as the Employee’s
“average prior service.” An Employee is presumed to
have incurred a Separation from Service if the Employee’s
level of service decreased to twenty percent (20%) or less of his
or her average prior service, and an Employee is presumed
not to have incurred a Separation from Service if the
Employee’s level of service continues at a rate which is
fifty percent (50%) or more of the Employee’s average prior
service. No presumption shall be applied where the Employee’s
level of service is more than twenty percent (20%) but less than
fifty percent (50%) of his or her level of average prior service,
and Banner shall make any determination as to the status of such
individuals in its best judgment.
2.19.2 T
REATMENT OF
L EAVE . An
Employee will not incur a Separation from Service if the
Employee is on military leave, sick leave, or other bona fide leave
of absence, if such leave does not exceed a period of six (6)
months, or if longer, the period for which a statute or contract
provides the Employee with the right to re-employment with Banner.
If a Participant’s leave exceeds six (6) months, but the
Participant is not entitled to re-employment under a statute or
other contract right, the Participant will incur a Separation from
service on the next day following the expiration of the six (6)
month period. A leave of absence constitutes a “bond fide
leave” for purposes of this Subsection 2.19.2 if there is a
reasonable expectation that the Employee will return to perform
services for Banner. Where a leave of absence is due to any
medically determinable physical or mental impairment that can be
expected to result in death, or to last for a continuous period of
at least six (6) months, and where the Participant cannot perform
his or her duties, or the duties of any substantially similar
position, in determining whether a Separation from Service has
occurred, the above six (6) month period is modified to be
twenty-nine (29) months unless Banner, or the Employee,
terminates the leave prior to such time. For purposes of
determining “average prior service” under this
Subsection 2.19.2, during a paid leave of absence which is not a
Separation from Service, the Employee is treated as rendering bona
fide services at a level that would have been required to earn the
amount paid during the leave. If the leave of absence is unpaid,
the period of leave is disregarded in determining “average
prior service.”
2.19.3 C
ONTRACTORS
. The term “Separation from Service,”
in the case of a Contractor, means the expiration of the contract
or contracts under which the Contractor performs services for
Banner, provided that the expiration constitutes a
good-faith and complete termination of the contractual relationship
between the Contractor and Banner. A good-faith and complete
termination does not occur if Banner anticipates a renewal
of the service contract, or Banner anticipates that the Contractor
will become an Employee of Banner. Banner will be considered to
anticipate a renewal of the contract if Banner intends to once
again contract for the services provided under the expired
contract, and neither Banner nor the Contractor has eliminated the
Contractor as a possible provider of such additional services.
Banner is deemed to intend to renew any such
contract or contracts of the
Contractor, if renewal is conditioned only upon incurring a need
for services, Banner’s ability to pay for such services, or
both.
2.19.4 D
UAL S TATUS . If a
Participant renders services to Banner in the capacity as both an
Employee and as a Contractor, the Participant must incur a
Separation from Service in both capacities in order to constitute a
Separation from Service for purposes of this Plan. However, if a
Participant renders services both as an Employee and as a member of
the Employer’s board of directors, then the Director services
are disregarded in determining whether the Participant has incurred
a Separation from Service as to this Plan, provided that the plan
or plans are not Aggregated Plans as determined under final
Treasury Regulations. See Section 1.1, above.
2.20 S
PECIFIED
E MPLOYEE . The
term “Specified Employee” means a Participant who is a
key employee as described in Code § 416(i)(1)(A), disregarding
paragraph (5) thereof, and using a definition of
“compensation” as defined under Treasury Regulations
§ 1.415(c)-2(a). However, a Participant is not a Specified
Employee unless any stock of the Employer is publicly traded on an
established securities market or otherwise, and the Participant is
a Specified Employee on the date of his or her Separation from
Service. At present, the stock of Banner is publicly traded on the
NASDAQ Market under the ticker symbol “BANR.” If a
Participant is a key employee at any time during the twelve (12)
month period ending on the Specified Employee’s
“identification date,” then the Participant is a
Specified Employee for the twelve (12) month period commencing on
the Specified Employee “effective date.” The Specified
Employee identification date is December 31. The
Specified Employee effective date is April 1 of the
year following the Specified Employee’s identification date.
Banner, in determining whether this Section 2.20 and any related
Plan provisions shall apply, will determine whether it has any
publicly traded stock as of the date of a Participant’s
Separation from Service. In the case of certain corporate
transactions, as specified under Treasury Regulations, or in the
case of a nonresident alien Employee(
