UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended SEPTEMBER 30,
1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from _______________ to _______________
Commission File Number: 0-22445
FIRSTSPARTAN FINANCIAL CORP.
(Exact name of Registrant as specified in its charter)
Delaware 56-2015272
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
380 East Main Street, Spartanburg, South Carolina 29302
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(Address of principal executive office)
(864) 582-2391
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(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock Issued and Outstanding: 4,430,375 as of October 27, 1997.
FIRSTSPARTAN FINANCIAL CORP.
Table of Contents
PAGE
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets at September 30, 1997 and
June 30, 1997 1
Consolidated Statements of Income for the Three-Month
Periods Ended September 30, 1997 and 1996 2
Consolidated Statements of Cash Flows for the Three-Month
Periods Ended September 30, 1997 and 1996 3-4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-9
PART II. OTHER INFORMATION 10
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SIGNATURES 11
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
FIRSTSPARTAN FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
September 30, June 30,
ASSETS 1997 1997
------ ------
Cash $ 5,979 $ 6,688
Federal funds sold and overnight interest-bearing deposits 65,526 270,384
------ ------
Total cash and cash equivalents 71,505 277,072
Investment securities available-for-sale - at fair value
(amortized cost: $16,242 and $10,172 at September 30,
1997 and June 30, 1997, respectively) 16,302 10,201
Mortgage-backed securities held-to-maturity - at amortized
cost (fair value: $117 and $125 at September 30,
1997 and June 30, 1997, respectively) 116 121
Loans receivable, net 379,096 362,728
Loans held-for-sale - at lower of cost or market (market
value: $1,880 and $1,617 at September 30, 1997 and
June 30, 1997, respectively) 1,880 1,617
Office properties and equipment, net 6,871 6,594
Federal Home Loan Bank of Atlanta Stock - at cost 3,011 3,011
Accrued interest receivable 2,751 2,590
Real estate acquired in settlement of loans 36 36
Other assets 746 1,476
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TOTAL ASSETS $ 482,314 $665,446
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LIABILITIES AND EQUITY
LIABILITIES:
Deposit accounts $ 345,444 $353,193
Stock subscription escrow accounts 259,329
Advances from borrowers for taxes and insurance 1,324 1,001
Other liabilities 6,312 4,945
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Total liabilities 353,080 618,468
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EQUITY:
Common stock, $0.01 par value: Authorized 12,000,000
shares; issued and outstanding September 30, 1997 -
4,430,375 shares 44
Additional paid in capital 87,099
Unallocated ESOP shares (6,941)
Retained earnings 48,995 46,960
Unrealized gain on securities available-for-sale, net 37 18
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Total equity 129,234 46,978
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TOTAL LIABILITIES AND EQUITY $ 482,314 $ 665,446
======= =======
See accompanying notes to consolidated financial statements.
1
FIRSTSPARTAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended
September 30,
1997 1996
------ ------
INVESTMENT INCOME:
Interest on loans $ 7,626 $ 6,582
Interest and dividends on investment
securities, mortgage-backed securities
and other 1,785 415
------ ------
Total investment income 9,411 6,997
INTEREST EXPENSE:
Deposit accounts 4,299 3,740
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NET INTEREST INCOME 5,112 3,257
PROVISION FOR LOAN LOSSES 90 29
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,022 3,228
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NONINTEREST INCOME (LOSS):
Service charges and fees 329 269
Loss on sale of investments (16)
Other, net 120 55
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Total noninterest income, net 449 308
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NONINTEREST EXPENSE:
Employee compensation and benefits 1,207 843
Federal deposit insurance premium 77 1,994
Occupancy and equipment expense 248 202
Computer services 153 125
Advertising and promotions 133 85
Office supplies, postage, printing, etc. 146 132
Other 247 213
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Total noninterest expense 2,211 3,594
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INCOME (LOSS) BEFORE INCOME TAXES 3,260 (58)
PROVISION (BENEFIT) FOR INCOME TAXES 1,225 (22)
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NET INCOME (LOSS) $ 2,035 $ (36)
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Earnings per share $ 0.50 $ N/A
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Weighted average shares outstanding (1) 4,078 N/A
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(1) FirstSpartan's initial public offering closed on July 8, 1997. For
purposes of earnings per share calculations, shares issued on July 8, 1997
have been assumed to be outstanding as of July 1, 1997.
See accompanying notes to consolidated financial statements.
2
FIRSTSPARTAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
September 30,
1997 1996
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,035 $ (36)
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 90 29
Deferred income tax benefit (44) (109)
Amortization of deferred income (32) (30)
Accretion of discounts on investment
and mortgage-backed securities (6)
Depreciation 138 112
Allocation of ESOP shares at fair value 266
Decrease (increase) in other assets 569 (432)
Additions to loans held-for-sale (2,258) (4,558)
Proceeds from sale of loans held-for-sale 1,995 2,490
Gain on sale of real estate acquired in settlement
of loans (16)
Loss on sale of investments available-for-sale 16
Increase in other liabilities 1,722 850
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Net cash provided by (used in) operating activities 4,481 (1,690)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net loan originations and principal collections (11,325) (10,062)
Purchase of loans (5,101) (217)
Purchase of investment securities (8,070) (1,142)
Proceeds from sale of investment securities
available-for-sale 5,000
Proceeds from maturities of investment securities
available-for-sale 2,000 1,000
Principal repayments and proceeds from maturities
of mortgage-backed securities 5 43
Proceeds from sale of real estate acquired in
settlement of loans 57
Purchase of property and equipment (415) (265)
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Net cash used in investing activities (22,906) (5,586)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 12,293 6,132
Stock subscription refunds (197,851)
Stock issuance costs (1,584)
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Net cash (used in)provided by financing activities (187,142) 6,132
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3
FIRSTSPARTAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
September 30,
1997 1996
------ ------
NET DECREASE IN CASH AND CASH EQUIVALENTS $ (205,567) $ (1,144)
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 277,072 10,784
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 71,505 $ 9,640
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 4,444 $ 3,697
======= =======
Income taxes $ 75 $ 75
======= =======
Transfers from loans to real estate acquired in
settlement of loans $ $ 106
======= =======
Increase in unrealized gain on available-for-sale
investments and marketable equity securities $ 31 $ 52
======= =======
Decrease in deferred tax asset related
to unrealized gain on investments $ (12) $ (20)
======= =======
Sale of common stock funded by subscription
escrow accounts $ 61,478 $
======= =======
Sale of common stock funded by deposit accounts $ 20,042 $
======= =======
See accompanying notes to consolidated financial statements
4
FIRSTSPARTAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
FirstSpartan Financial Corp. ("FirstSpartan" or the "Company"), a Delaware
corporation, was incorporated on February 4, 1997 for the purpose of
becoming the holding company for First Federal Savings and Loan
Association of Spartanburg ("First Federal" or the "Association") upon the
Association's conversion from a federally chartered mutual savings and
loan association to a federally chartered stock savings and loan
association ("Conversion"). The Conversion was completed on July 8, 1997
through the sale and issuance of 4,430,375 shares of common stock by the
Company. Information set forth in this report relating to periods prior to
the Conversion, including consolidated financial statements and related
data, relates to the Association and its subsidiary.
The accompanying consolidated financial statements of the Corporation have
been prepared in accordance with instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. However, such information reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim
periods.
The results of operations for the three months ended September 30, 1997
are not necessarily indicative of the results to be expected for the year
ending June 30, 1998. The consolidated financial statements and notes
thereto should be read in conjunction with the audited financial
statements and notes thereto for the year ended June 30, 1997.
2. EARNINGS PER SHARE
Earnings per share has been computed for the quarter ended September 30,
1997 based upon weighted average common shares outstanding of 4,078,380.
For the purposes of computing weighted average shares outstanding, shares
issued in the Conversion on July 8, 1997 were assumed to have been
outstanding since July 1, 1997. Earnings per share for the quarter ended
September 30, 1996 is not presented as there was no common stock issued or
outstanding.
Statement of Financial Accounting Standards No. 128, Earnings Per Share,
establishes new standards for computing and presenting earnings per share.
The standard is effective for annual and interim periods ending after
December 31, 1997. Management of the Company has determined that this
standard will have no impact on the computation of the Company's earnings
per share upon adoption.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1997 AND JUNE 30, 1997
Total assets were $482.3 million at September 30, 1997 and $665.4 million
at June 30, 1997, a decrease of $183.1 million or 27.5%. This decrease
resulted primarily from a $204.9 million decrease in federal funds sold
and overnight interest-bearing deposits offset by an increase of $16.4
million, or 4.5%, in loans receivable, net and an increase of $6.1
million, or 59.8%, in investment securities available-for-sale. The
primary reason for the decrease in interest-bearing deposits was the
refund of subscription escrow accounts of $197.9 million related to the
Conversion. Loans receivable, net, increased primarily as a result of an
increase of $11.8 million in mortgage loans. Included in the $11.8 million
increase was the purchase of $5.1 million of one- to- four family mortgage
loans from the mortgage banking company in which the Association's service
corporation has an equity investment, a $3.2 million increase in
construction loans (excluding any undisbursed portion of loans in
process), a $2.1 million increase in nonresidential property mortgage
loans, a $1.0 million increase in land mortgage loans and a $1.0 million
increase in multifamily mortgage loans. Loans receivable, net, also
increased due to a $3.2 million increase in non-mortgage commercial loans.
The increases in mortgage loans were attributable to market demand
unaffected by any promotional interest rate pricing or other promotions.
The increase in loans receivable, net, was funded primarily through an
increase in deposits before withdrawals to purchase common stock issued in
the Conversion.
Deposit accounts decreased $7.8 million as a result of $20.0 million of
withdrawals used to purchase stock issued in the Conversion. This decrease
was offset by an increase in deposit accounts of $12.2 million. The
increase in deposits was the result of interest credited to deposit
accounts during the period, a special checking account promotion and
deposits of funds by account holders who had been issued stock in the
Conversion but sold their stock after issuance. Stock subscription escrow
accounts decreased by $259.3 million as a result of $61.4 million of stock
issued in the Conversion funded by the escrow accounts and refunds to
subscribers of $197.9 million.
Stockholders' equity increased by $82.2 million as a result of net
proceeds received in the Conversion of $79.9 million, net income of $2.0
million and allocation of ESOP shares of $266,000.
Nonperforming assets and troubled debt restructurings increased by
$382,000, or 13.8%, to $3.3 million at September 30, 1997 from $2.9
million at June 30, 1997. The increase was due primarily to a $359,000
increase in construction loans contractually past due more than 90 days
and still accruing.
6
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
AND SEPTEMBER 30, 1996
NET INCOME. Net income increased to $2.0 million for the three months
ended September 30, 1997 from a $36,000 net loss for the three months
ended September 30, 1996 primarily as a result of increased investment
income, increased noninterest income and decreased noninterest expense
offset partially by an increased provision for income taxes due to
increased income before income taxes. The increase in investment income is
principally the result of additional investable funds as the result of the
Conversion in the three months ended September 30, 1997. The decrease in
noninterest expense is principally the result of decreased federal deposit
insurance premiums which were impacted in the quarter ended September 30,
1996 by the legislatively-mandated, one-time assessment levied by the
Federal Deposit Insurance Corporation ("FDIC") on all institutions insured
by the Savings Association Insurance Fund ("SAIF") to recapitalize the
SAIF.
NET INTEREST INCOME. Net interest income increased 54.5% to $5.1 million
for the three months ended September 30, 1997 from $3.3 million for the
three months ended September 30, 1996. Investment income increased 34.3%
to $9.4 million for the three months ended September 30, 1997 from $7.0
million for the three months ended September 30, 1996 as a result of an
increase in the average balance of interest-earning assets to $478.9
million from $347.9 million more than offsetting a decrease in average
yield on interest-earning assets to 7.86% from 8.02%. The decrease in the
average yield on interest-earning assets was due primarily to the
subscription funds held prior to the consummation of the Conversion and
proceeds of the Conversion being invested primarily in overnight
interest-bearing deposits during the quarter ended September 30, 1997. The
average balance of interest-earning assets increased as a result of the
holding of subscription escrow accounts prior to the consummation of the
Conversion which were invested in overnight interest-bearing deposits, the
net proceeds retained from the Conversion and an increase in the average
balance of loans receivable.
Interest expense increased 16.2% to $4.3 million for the three months
ended September 30, 1997 from $3.7 million for the three months ended
September 30, 1996 as a result of an increase in the average balance of
deposits to $369.9 million from $310.0 million in the comparable three
month period. The increase in the average balance of deposits more than
offset a decrease in the average cost of deposits to 4.65% for the three
months ended September 30, 1997 from 4.83% for the three months ended
September 30, 1996. The average balance of deposits during the quarter
ended September 30, 1997 includes the average balance of the special
escrow accounts established to hold subscription funds received in
connection with the Conversion. These accounts amounted to $259.3 million
and were outstanding for approximately two weeks during the quarter. The
average balance also increased as a result of increases in average deposit
balances as the result of various deposit promotions that have increased
deposit balances since the prior year's quarter and was offset by the
withdrawal of approximately $20.0 million of deposits to fund stock
purchases in the Conversion as discussed under "Comparison of Financial
Condition at September 30, 1997 and June 30, 1997." The decrease in the
average cost of deposits resulted from the passbook rate of interest
(2.5%) being paid on the subscription escrow accounts and an increase in
the amount of deposits in lower cost
7
negotiable order of withdrawal ("NOW") and passbook accounts as a result
of promotions of NOW and passbook accounts. Interest rate spread increased
to 3.21% for the three months ended September 30, 1997 from 3.19% for the
three months ended September 30, 1996.
PROVISION FOR LOAN LOSSES. Provisions for loan losses are charges to
earnings to bring the total allowance for loan losses to a level
considered by management as adequate to provide for estimated loan losses
based on management's evaluation of the collectibility of the loan
portfolio, including the nature of the portfolio, credit concentrations,
trends in historical loss experience, specific impaired loans and economic
conditions. Management also considers the level of problem assets that the
Company classifies according to OTS regulations. The Company gives greater
weight to the level of classified assets than to the level of
nonperforming assets (nonaccrual loans, accruing loans contractually past
due 90 days or more, and real estate acquired in settlement of loans)
because classified assets include not only nonperforming assets but also
performing assets that otherwise exhibit, in management's judgment,
potential credit weaknesses.
The provision for loan losses was $90,000 for the three months ended
September 30, 1997 compared to $29,000 for the three months ended
September 30, 1996. Although classified assets decreased slightly during
the three months ended September 30, 1997, management deemed the increase
in the provision for loan losses necessary in light of the increase in the
relative level of estimated losses caused by the growth and composition of
the loan portfolio. Although no assurances can be given, management
expects classified assets to increase moderately based upon its
expectation for continued loan growth, particularly in the areas of
construction, commercial real estate and consumer lending. Management
deemed the allowance for loan losses adequate at September 30, 1997.
NONINTEREST INCOME. Noninterest income increased to $449,000 for the three
months ended September 30, 1997 from $308,000 for the three months ended
September 30, 1996, primarily as a result of an increase in service
charges and fees. Service charges and fees increased to $329,000 for the
three months ended September 30, 1997 from $269,000 for the three months
ended September 30, 1996 primarily as a result of increased income
associated with the origination and sale of FHA and VA mortgage loans and
increased deposit account fees, particularly on the increased number of
NOW accounts. Other income, net increased to $120,000 for the three months
ended September 30, 1997 from $55,000 for the three months ended September
30, 1996, which was attributable partially to income of $9,000 in the
current period (versus a $29,000 loss in the same period for the previous
year) representing the Company's share of net income of the mortgage
banking company in which the Association's service corporation subsidiary
has an equity investment.
8
NONINTEREST EXPENSE. Noninterest expense was $2.2 million for the three
months ended September 30, 1997 compared to $3.6 million for the same
period in 1996. This decrease resulted primarily from the FDIC special
assessment on all SAIF-insured institutions to recapitalize the SAIF. The
Association's assessment amounted to $1.8 million and was accrued during
the quarter ended September 30, 1996. Prior to the SAIF recapitalization,
the Association's total annual deposit insurance premiums amounted to
0.23% of assessable deposits. Effective January 1, 1997, the rate
decreased to 0.065% of assessable deposits. Employee compensation and
benefits, increased to $1.2 million for the three months ended September
30, 1997 from $843,000 for the three months ended September 30, 1996
primarily as a result of the hiring of additional personnel to staff two
new branch offices, the establishment of a commercial lending department,
normal annual salary increases and implementation of the Association's
Employee Stock Ownership Plan. The increases in other categories of other
operating expenses generally are attributable to the growth of the
Company, additional costs associated with operating as a public company
and to inflation. The Company anticipates that other operating expenses
continue to increase in subsequent periods as a result of increased costs
associated with operating as a public company. The two new branch offices
also will contribute to increased operating expenses in future periods.
INCOME TAXES. The provision for income taxes was $1.2 million for the
three months ended September 30, 1997 compared to a benefit of $22,000 for
the three months ended September 30, 1996 as a result of higher income
before taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are customer deposits, proceeds
from principal and interest payments from and the sale of loans, maturing
securities and FHLB of Atlanta advances. While maturities and scheduled
amortization of loans are a predictable source of funds, deposit flows and
mortgage prepayments are influenced greatly by general interest rates,
other economic conditions and competition. The Company must maintain an
adequate level of liquidity to ensure the availability of sufficient funds
to fund loan originations and deposit withdrawals, to satisfy other
financial commitments and to take advantage of investment opportunities.
The Company generally maintains sufficient cash and short-term investments
to meet short-term liquidity needs. At September 30, 1997, cash and cash
equivalents totaled $71.5 million, or 14.8% of total assets, and
investment securities classified as available-for-sale with maturities of
one year or less totaled $12.2 million. At September 30, 1997, the
Association also maintained, but did not draw upon, an uncommitted credit
facility with the FHLB of Atlanta, which provides for immediately
available advances up to an aggregate amount of $40.0 million.
As of September 30, 1997, the Association's regulatory capital was in
excess of all applicable regulatory requirements. At September 30, 1997,
under regulations of the Office of Thrift Supervision, the Association's
actual tangible, core and risk-based capital ratios were 17.7%, 17.7% and
31.5%, respectively, compared to requirements of 1.5%, 3.0% and 8.0%,
respectively.
At September 30, 1997, the Company had loan commitments (excluding
undisbursed portions of interim construction loans) of approximately $5.8
million ($4.9 million at fixed rates ranging from 6.75% to 9.00%). In
addition, at September 30, 1997, the unused portion of lines of credit
(principally variable rate home equity lines of credit) extended by the
Company was approximately $32.3 million.
9
FIRSTSPARTAN FINANCIAL CORP.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
-----------------
Not applicable
ITEM 2. Changes in Securities
---------------------
Not applicable
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable
ITEM 5. Other Information
-----------------
None
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
(3) (a) Certificate of incorporation of the Registrant*
(3) (b) Bylaws of the Registrant*
(10) (a) Employment Agreement with Billy L. Painter**
(10) (b) Employment Agreement with Hugh H. Brantley**
(10) (c) Employment Agreement with J. Stephen Sinclair**
(10) (d) Employment Agreement with R. Lamar Simpson
(10) (e) Severance Agreement with Rand Peterson**
(10) (f) Severance Agreement with Thomas Bridgeman**
(10) (g) Severance Agreement with Katherine A. Dunleavy
(10) (h) Employee Severance Compensation Plan**
(10) (i) Employee Stock Ownership Plan**
(21) Subsidiaries of the Registrant**
(27) Financial Data Schedule
(b) Reports on Form 8-K: No Forms 8-K were filed during
the quarter ended September 30, 1997.
* Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(333-23015).
** Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRSTSPARTAN FINANCIAL CORP.
Date: October 28, 1997 By:/s/BILLY L. PAINTER
--------------------
Billy L. Painter
President and Chief Executive Officer
Date: October 28, 1997 By:/s/R. LAMAR SIMPSON
--------------------
R. Lamar Simpson
Treasurer, Secretary and Chief
Financial Officer
Exhibit 10 (d)
Employment Agreement with R. Lamar Simpson
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of October 1, 1997, by and between
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG (the "ASSOCIATION"),
FIRSTSPARTAN FINANCIAL CORP. (the "COMPANY"), a Delaware corporation; and R.
LAMAR SIMPSON ("EXECUTIVE").
WHEREAS, EXECUTIVE serves in a position of substantial responsibility;
WHEREAS, the ASSOCIATION wishes to assure itself of the services of
EXECUTIVE for the period provided in this Agreement; and
WHEREAS, EXECUTIVE is willing to serve in the employ of the ASSOCIATION on
a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, EXECUTIVE agrees to serve
as Chief Financial Officer of the ASSOCIATION. During said period, EXECUTIVE
also agrees to serve, if elected, as an officer of the COMPANY or any subsidiary
or affiliate of the COMPANY or the ASSOCIATION. Executive shall render
administrative and management duties to the ASSOCIATION such as are customarily
performed by persons situated in a similar executive capacity.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date, and
continuing at each anniversary date thereafter, the Board of Directors of the
ASSOCIATION (the "Board") may extend the Agreement for an additional year. Prior
to the extension of the Agreement as provided herein, the Board of Directors of
the ASSOCIATION will conduct a formal performance evaluation of EXECUTIVE for
purposes of determining whether to extend the Agreement, and the results thereof
shall be included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, EXECUTIVE shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the ASSOCIATION; provided, however, that, with the
approval of the Board, as evidenced by a resolution of such Board, from time to
time, EXECUTIVE may serve, or continue to serve, on the boards of directors of,
and hold any other offices or positions in, companies or organizations, which,
in such Board's judgment, will not present any conflict of interest with the
ASSOCIATION, or materially affect the performance of EXECUTIVE's duties pursuant
to this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Sections 1 and 2. The
ASSOCIATION shall pay EXECUTIVE as compensation a salary of $86,100.00 per year
("Base Salary"). Such Base Salary shall be payable in accordance with the
customary payroll practices of the ASSOCIATION. During the period of this
Agreement, EXECUTIVE's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year
from the date of this Agreement. Such review shall be conducted by a Committee
designated by the Board, and the Board may increase EXECUTIVE's Base Salary. In
addition to the Base Salary provided in this Section 3(a), the ASSOCIATION shall
provide EXECUTIVE at no cost to EXECUTIVE with all such other benefits as are
provided uniformly to permanent full-time employees of the ASSOCIATION.
(b) The ASSOCIATION will provide EXECUTIVE with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
EXECUTIVE was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the ASSOCIATION will not,
without EXECUTIVE's prior written consent, make any changes in such plans,
arrangements or perquisites which would adversely affect EXECUTIVE's rights or
benefits thereunder. Without limiting the generality of the foregoing provisions
of this Subsection (b), EXECUTIVE will be entitled to participate in or receive
benefits under any employee benefit plans including, but not limited to,
retirement plans, supplemental retirement plans, pension plans, profit-sharing
plans, health-and-accident plan, medical coverage or any other employee benefit
plan or arrangement made available by the ASSOCIATION in the future to its
senior executives and key management employees, subject to, and on a basis
consistent with, the terms, conditions and overall administration of such plans
and arrangements. EXECUTIVE will be entitled to incentive compensation and
bonuses as provided in any plan, or pursuant to any arrangement of the
ASSOCIATION, in which EXECUTIVE is eligible to participate. Nothing paid to
EXECUTIVE under any such plan or arrangement will be deemed to be in lieu of
other compensation to which EXECUTIVE is entitled under this Agreement, except
as provided under Section 5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the ASSOCIATION shall pay or reimburse EXECUTIVE for all reasonable
travel and other obligations under this Agreement and may provide such
additional compensation in such form and such amounts as the Board may from time
to time determine.
2
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during EXECUTIVE's term of employment under this Agreement, the provisions of
this Section shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the ASSOCIATION of EXECUTIVE's full-time employment hereunder for any reason
other than a Change in Control, as defined in Section 5(a) hereof; disability,
as defined in Section 6(a) hereof; death; retirement, as defined in Section 7
hereof; or Termination for Cause, as defined in Section 8 hereof; (ii)
EXECUTIVE's resignation from the ASSOCIATION's employ, upon (A) unless consented
to by EXECUTIVE, a material change in EXECUTIVE's function, duties, or
responsibilities, which change would cause EXECUTIVE's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Sections 1 and 2, above (any such material change shall be
deemed a continuing breach of this Agreement), (B) a relocation of EXECUTIVE's
principal place of employment by more than 35 miles from its location at the
effective date of this Agreement, or a material reduction in the benefits and
perquisites to EXECUTIVE from those being provided as of the effective date of
this Agreement, (C) the liquidation or dissolution of the ASSOCIATION, or (D)
any breach of this Agreement by the ASSOCIATION. Upon the occurrence of any
event described in clauses (A), (B), (C) or (D), above, EXECUTIVE shall have the
right to elect to terminate his employment under this Agreement by resignation
upon not less than sixty (60) days prior written notice given within a
reasonable period of time not to exceed, except in case of a continuing breach,
four (4) calendar months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the ASSOCIATION shall
pay EXECUTIVE, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to EXECUTIVE for the remaining
term of the Agreement, including Base Salary, bonuses, and any other cash or
deferred compensation paid or to be paid (including the value of employer
contributions that would have been made on EXECUTIVE's behalf over the remaining
term of the agreement to any tax-qualified retirement plan sponsored by the
ASSOCIATION as of the Date of Termination), to EXECUTIVE for the term of the
Agreement provided, however, that if the ASSOCIATION is not in compliance with
its minimum capital requirements or if such payments would cause the
ASSOCIATION's capital to be reduced below its minimum capital requirements, such
payments shall be deferred until such time as the ASSOCIATION is in capital
compliance. All payments made pursuant to this Section 4(b) shall be paid in
substantially equal monthly installments over the remaining term of this
Agreement following EXECUTIVE's termination; provided, however, that if the
remaining term of the Agreement is less than one (1) year (determined as of
EXECUTIVE's Date of Termination), such payments and benefits shall be paid to
EXECUTIVE in a lump sum within thirty (30) days of the Date of Termination.
(c) Upon the occurrence of an Event of Termination, the ASSOCIATION will
cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the ASSOCIATION for
EXECUTIVE prior to his termination. Such coverage shall cease upon the
expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall have
occurred a Change in Control of the COMPANY or the ASSOCIATION. For purposes of
this Agreement, a "Change in Control" of the COMPANY or the ASSOCIATION shall be
deemed to occur if and when (a) there occurs a change in control of the
ASSOCIATION or the COMPANY within the meaning of the Home Owners Loan Act of
1933 and 12 C.F.R. Part 574, (b) any person (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or becomes the
beneficial owner, directly or indirectly, of securities of
3
the COMPANY or the ASSOCIATION representing 25% or more of the combined voting
power of theCOMPANY's or the ASSOCIATION's then outstanding securities, (c) the
membership of the board of directors of the COMPANY or the ASSOCIATION changes
as the result of a contested election, such that individuals who were directors
at the beginning of any twenty-four (24) month period (whether commencing before
or after the date of adoption of this Agreement) do not constitute a majority of
the Board at the end of such period, or (d) shareholders of the COMPANY or the
ASSOCIATION approve a merger, consolidation, sale or disposition of all or
substantially all of the COMPANY's or the ASSOCIATION's assets, or a plan of
partial or complete liquidation.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board of the ASSOCIATION or the COMPANY
has reasonably determined that a Change in Control has occurred, EXECUTIVE shall
be entitled to the benefits provided in paragraphs (c), (d) and (e) of this
Section 5 upon his subsequent involuntary termination following the effective
date of a Change in Control (or voluntary termination within twelve (12) months
of the effective date of a Change in Control following any demotion, loss of
title, office or significant authority, reduction in his annual compensation or
benefits (other than a reduction affecting the ASSOCIATION's personnel
generally), or relocation of his principal place of employment by more than
thirty-five (35) miles from its location immediately prior to the Change in
Control), unless such termination is because of his death, retirement as
provided in Section 7, termination for Cause, or termination for Disability.
(c) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the ASSOCIATION shall pay EXECUTIVE, or in the event
of his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, as severance pay or liquidated damages, or both, a sum equal to
2.99 times EXECUTIVE's "base amount," within the meaning of ss.280G(b)(3) of the
Internal Revenue Code of 1986 ("Code"), as amended. Such payment shall be made
in a lump sum paid within ten (10) days of EXECUTIVE's Date of Termination.
(d) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the ASSOCIATION will cause to be continued life,
medical, dental and disability coverage substantially identical to the coverage
maintained by the ASSOCIATION for EXECUTIVE prior to his severance. In addition,
EXECUTIVE shall be entitled to receive the value of employer contributions that
would have been made on EXECUTIVE's behalf over the remaining term of the
agreement to any tax-qualified retirement plan sponsored by the ASSOCIATION as
of the Date of Termination. Such coverage and payments shall cease upon the
expiration of thirty-six (36) months.
(e) Upon the occurrence of a Change in Control, EXECUTIVE shall be
entitled to receive benefits due him under, or contributed by the COMPANY or the
ASSOCIATION on his behalf, pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the ASSOCIATION or the COMPANY on EXECUTIVE's behalf to the extent
that such benefits are not otherwise paid to EXECUTIVE upon a Change in Control.
(f) Notwithstanding the preceding paragraphs of this Section 5, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in Control,
would be deemed to include an "excess parachute payment" under ss.280G of the
Code, then, at the election of EXECUTIVE, (i) such payments or benefits shall be
payable or provided to EXECUTIVE over the minimum period necessary to reduce the
present value of such payments or benefits to an amount which is one dollar
($1.00) less than three (3) times EXECUTIVE's "base amount" under ss.280G(b)(3)
of the Code or (ii) the payments or benefits to be provided under this Section 5
shall be reduced to the extent necessary to avoid treatment as an excess
parachute payment with the allocation of the reduction among such payments and
benefits to be determined by EXECUTIVE.
4
6. TERMINATION FOR DISABILITY.
(a) If EXECUTIVE shall become disabled as defined in the ASSOCIATION's
then current disability plan (or, if no such plan is then in effect, if
EXECUTIVE is permanently and totally disabled within the meaning of Section
22(e)(3) of the Code as determined by a physician designated by the Board), the
ASSOCIATION may terminate EXECUTIVE's employment for "Disability."
(b) Upon EXECUTIVE's termination of employment for Disability, the
ASSOCIATION will pay EXECUTIVE, as disability pay, a bi-weekly payment equal to
three-quarters (3/4) of EXECUTIVE's bi-weekly rate of Base Salary on the
effective date of such termination. These disability payments shall commence on
the effective date of EXECUTIVE's termination and will end on the earlier of (i)
the date EXECUTIVE returns to the full-time employment of the ASSOCIATION in the
same capacity as he was employed prior to his termination for Disability and
pursuant to an employment agreement between EXECUTIVE and the ASSOCIATION; (ii)
EXECUTIVE's full-time employment by another employer; (iii) EXECUTIVE attaining
the age of sixty-five (65); or (iv) EXECUTIVE's death; or (v) the expiration of
the term of this Agreement. The disability pay shall be reduced by the amount,
if any, paid to EXECUTIVE under any plan of the ASSOCIATION providing disability
benefits to EXECUTIVE.
(c) The ASSOCIATION will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
ASSOCIATION for EXECUTIVE prior to his termination for Disability. This coverage
and payments shall cease upon the earlier of (i) the date EXECUTIVE returns to
the full-time employment of the ASSOCIATION, in the same capacity as he was
employed prior to his termination for Disability and pursuant to an employment
agreement between EXECUTIVE and the ASSOCIATION; (ii) EXECUTIVE's full-time
employment by another employer; (iii) EXECUTIVE's attaining the age of
sixty-five (65); (iv) EXECUTIVE's death; or (v) the expiration of the term of
this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to EXECUTIVE during any period during which
EXECUTIVE is incapable of performing his duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE; RESIGNATION
Termination by the ASSOCIATION of EXECUTIVE based on "Retirement" shall
mean retirement at or after attaining age sixty-five (65) or in accordance with
any retirement arrangement established with EXECUTIVE's consent with respect to
him. Upon termination of EXECUTIVE upon Retirement, EXECUTIVE shall be entitled
to all benefits under any retirement plan of the ASSOCIATION or the COMPANY and
other plans to which EXECUTIVE is a party. Upon the death of EXECUTIVE during
the term of this Agreement, the ASSOCIATION shall pay to EXECUTIVE's estate the
compensation due to EXECUTIVE through the last day of the calendar month in
which his death occurred. Upon the voluntary resignation of EXECUTIVE during the
term of this Agreement, the ASSOCIATION shall pay to EXECUTIVE the compensation
due to EXECUTIVE through his Date of Termination.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of EXECUTIVE's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
For purposes of this Section, no act, or the failure to act, on EXECUTIVE's part
shall be "willful" unless done, or omitted to be done, not in good faith and
without reasonable belief
5
that the action or omission was in the best interest of the ASSOCIATION or its
affiliates. Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
him a copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths (3/4) of the members of the Board at a meeting of the Board called
and held for that purpose (after reasonable notice to EXECUTIVE and an
opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, EXECUTIVE was guilty of
conduct justifying termination for Cause and specifying the reasons thereof.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after termination for Cause. Any stock options granted to EXECUTIVE
under any stock option plan or any unvested awards granted under any other stock
benefit plan of the ASSOCIATION, the COMPANY, or any subsidiary or affiliate
thereof, shall become null and void effective upon EXECUTIVE's receipt of Notice
of Termination for Cause pursuant to Section 10 hereof, and shall not be
exercisable by EXECUTIVE at any time subsequent to such Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The ASSOCIATION may terminate EXECUTIVE's employment at any time, but
any termination by the ASSOCIATION, other than Termination for Cause, shall not
prejudice EXECUTIVE's right to compensation or other benefits under this
Agreement. EXECUTIVE shall not have the right to receive compensation or other
benefits for any period after Termination for Cause as defined in Section 8
herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the ASSOCIATION's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(3) and (g)(1)), the ASSOCIATION's obligations under the
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
ASSOCIATION may, in its discretion, (i) pay EXECUTIVE all or part of the
compensation withheld while its contract obligations were suspended and (ii)
reinstate (in whole or in part) any of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the ASSOCIATION's affairs by an order issued
under Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)),
all obligations of the ASSOCIATION under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties shall
not be affected.
(d) If the ASSOCIATION is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement shall be terminated (except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the ASSOCIATION): (i) by the Director of the Office of
Thrift Supervision (the "Director") or his designee at the time the Federal
Deposit Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the ASSOCIATION under the
authority contained in Section 13(c) of the FDIA or (ii) by the Director, or his
designee at the time the Director or such designee approves a supervisory merger
to resolve problems related to operation of the ASSOCIATION or when the
ASSOCIATION is determined by the Director to be in an unsafe or unsound
condition. Any rights of the parties that have already vested, however, shall
not be affected by such action.
(f) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
section 1828(k) and any regulations promulgated thereunder.
6
10. NOTICE.
(a) Any purported termination by the ASSOCIATION or by EXECUTIVE shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of EXECUTIVE's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if EXECUTIVE's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, other than Termination for Cause,
the date specified in the Notice of Termination . In the event of EXECUTIVE's
Termination for Cause, the Date of Termination shall be the same as the date of
the Notice of Termination.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by EXECUTIVE in which case the Date
of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal there from having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the ASSOCIATION will continue
to pay EXECUTIVE his full compensation in effect when the notice giving rise to
the dispute was given (including, but not limited to, Base Salary) and continue
him as a participant in all compensation, benefit and insurance plans in which
he was participating when the notice of dispute was given, until the dispute is
finally resolved in accordance with this Agreement. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.
11. NON-COMPETITION.
(a) Upon any termination of EXECUTIVE's employment hereunder pursuant to
an Event of Termination as provided in Section 4 hereof, EXECUTIVE agrees not to
compete with the ASSOCIATION and/or the COMPANY for a period of one (1) year
following such termination in any city, town or county in which the ASSOCIATION
and/or the COMPANY has an office or has filed an application for regulatory
approval to establish an office, determined as of the effective date of such
termination. EXECUTIVE agrees that during such period and within said cities,
towns and counties, EXECUTIVE shall not work for or advise, consult or otherwise
serve with, directly or indirectly, any entity whose business materially
competes with the depository, lending or other business activities of the
ASSOCIATION and/or the COMPANY. The parties hereto, recognizing that irreparable
injury will result to the ASSOCIATION and/or the COMPANY, its business and
property in the event of EXECUTIVE's breach of this Subsection 11(a) agree that
in the event of any such breach by EXECUTIVE, the ASSOCIATION and/or the COMPANY
will be entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by EXECUTIVE, EXECUTIVE's partners,
agents, servants, employers, employees and all persons acting for or with
EXECUTIVE. EXECUTIVE represents and admits that in the event of the termination
of his employment pursuant to Section 8 hereof, EXECUTIVE's experience and
capabilities are such that EXECUTIVE can obtain employment in a business engaged
in other lines and/or of a different nature than the ASSOCIATION and/or the
COMPANY, and that the enforcement
7
of a remedy by way of injunction will not prevent EXECUTIVE from earning a
livelihood. Nothing herein will be construed as prohibiting the ASSOCIATION
and/or the COMPANY from pursuing any other remedies available to the ASSOCIATION
and/or the COMPANY for such breach or threatened breach, including the recovery
of damages from EXECUTIVE.
(b) EXECUTIVE recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the ASSOCIATION and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the ASSOCIATION. EXECUTIVE will not, during
or after the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the ASSOCIATION or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever. Notwithstanding the foregoing, EXECUTIVE may
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the ASSOCIATION. In the event of a breach or threatened
breach by EXECUTIVE of the provisions of this Section, the ASSOCIATION will be
entitled to an injunction restraining EXECUTIVE from disclosing, in whole or in
part, the knowledge of the past, present, planned or considered business
activities of the ASSOCIATION or affiliates thereof, or from rendering any
services to any person, firm, corporation, other entity to whom such knowledge,
in whole or in part, has been disclosed or is threatened to be disclosed.
Nothing herein will be construed as prohibiting the ASSOCIATION from pursuing
any other remedies available to the ASSOCIATION for such breach or threatened
breach, including the recovery of damages from EXECUTIVE.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the ASSOCIATION. The COMPANY, however,
guarantees all payments and the provision of all amounts and benefits due
hereunder to EXECUTIVE and, if such payments are not timely paid or provided by
the ASSOCIATION, such amounts and benefits shall be paid or provided by the
COMPANY.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment or severance agreement between the
ASSOCIATION or any predecessor of the ASSOCIATION, the COMPANY and EXECUTIVE,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to EXECUTIVE of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that EXECUTIVE is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the ASSOCIATION, the COMPANY and their respective successors and
assigns.
8
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
9
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of South
Carolina, unless otherwise specified herein; provided, however, that in the
event of a conflict between the terms of this Agreement and any applicable
federal or state law or regulation, the provisions of such law or regulation
shall prevail.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within one
hundred (100) miles from the location of the ASSOCIATION, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that EXECUTIVE shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
20. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the ASSOCIATION, if successful pursuant to a legal judgment,
arbitration or settlement.
21. INDEMNIFICATION.
The ASSOCIATION shall provide EXECUTIVE (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
EXECUTIVE (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred by
him in connection with or arising out of any action, suit or proceeding in which
he may be involved by reason of his having been a director or officer of the
ASSOCIATION (whether or not he continues to be a directors or officer at the
time of incurring such expenses or liabilities), such expenses and liabilities
to include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements.
10
22. SUCCESSOR TO THE ASSOCIATION OR THE COMPANY.
The ASSOCIATION and the COMPANY shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise, to
all or substantially all the business or assets of the ASSOCIATION or the
COMPANY, expressly and unconditionally to assume and agree to perform the
ASSOCIATION's or the COMPANY's obligations under this Agreement, in the same
manner and to the same extent that the ASSOCIATION or the COMPANY would be
required to perform if no such succession or assignment had taken place.
IN WITNESS WHEREOF, the ASSOCIATION and the COMPANY have caused this
Agreement to be executed and their seal to be affixed hereunto by a duly
authorized officer, and EXECUTIVE has signed this Agreement, all on the 1st day
of October, 1997.
ATTEST: FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG
/s/E.L. Sanders BY:/s/Billy L. Painter
- ---------------- --------------------
[SEAL]
ATTEST: FIRSTSPARTAN FINANCIAL CORP.
/s/E.L. Sanders BY:/s/Billy L. Painter
- --------------- --------------------
[SEAL]
WITNESS:
/s/Kelley R. Theus /s/R. Lamar Simpson
- ------------------- --------------------
R. LAMAR SIMPSON
Exhibit 10 (g)
Severance Agreement with Katherine A. Dunleavy
AGREEMENT
This AGREEMENT is made effective as of October 1, 1997 by and between
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG (the "ASSOCIATION");
FIRSTSPARTAN FINANCIAL CORP. ("COMPANY"); and KATHERINE A. DUNLEAVY
("EXECUTIVE").
WHEREAS, the ASSOCIATION recognizes the substantial contribution EXECUTIVE
has made to the ASSOCIATION and wishes to protect her position therewith for the
period provided in this Agreement in the event of a Change in Control (as
defined herein); and
WHEREAS, EXECUTIVE serves in the position of Senior Vice President of
the ASSOCIATION, a position of substantial responsibility;
NOW, THEREFORE, in consideration of the foregoing and upon the other terms
and conditions hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT
The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter. Commencing on the first anniversary date of
this Agreement and continuing at each anniversary date thereafter, the Board of
Directors of the ASSOCIATION ("Board") may extend the Agreement for an
additional year. The Board will conduct a performance evaluation of EXECUTIVE
for purposes of determining whether to extend the Agreement, and the results
thereof shall be included in the minutes of the Board's meeting.
2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control (as herein defined)
followed within twelve (12) months of the effective date of the Change in
Control by the voluntary or involuntary termination of EXECUTIVE's employment,
other than for Cause, as defined in Section 2(c) hereof, the provisions of
Section 3 shall apply. For purposes of this Agreement, "voluntary termination"
shall be limited to the circumstances in which EXECUTIVE elects to voluntarily
terminate her employment within twelve (12) months of the effective date of a
Change in Control following any demotion, loss of title, office or significant
authority, reduction in her annual compensation or benefits (other than a
reduction affecting the Bank's personnel generally), or relocation of her
principal place of employment by more than 35 miles from its location
immediately prior to the Change in Control.
(b) A "Change in Control" of the COMPANY or the ASSOCIATION shall be
deemed to occur if and when (a) there occurs a change in control of the
ASSOCIATION or the COMPANY within the meaning of the Home Owners Loan Act of
1933 and 12 C.F.R. Part 574, (b) any person (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or becomes the
beneficial owner, directly or indirectly, of securities of the COMPANY or the
ASSOCIATION representing 25% or more of the combined voting power of the
COMPANY's or the ASSOCIATION's then outstanding securities, (c) the membership
of the board of directors of the COMPANY or the ASSOCIATION changes as the
result of a contested election, such that individuals who were directors at the
beginning of any twenty-four month period (whether commencing before or after
the date of adoption of this Agreement) do not constitute a majority of the
Board at the end of such period, or (d) shareholders of the COMPANY or the
ASSOCIATION approve a merger, consolidation, sale or disposition of all or
substantially all of the COMPANY's or the ASSOCIATION's assets, or a plan of
partial or complete liquidation.
(c) EXECUTIVE shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of EXECUTIVE's intentional failure to
perform stated duties, personal dishonesty, incompetence, willful
misconduct, any breach of fiduciary duty involving personal profit, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses) or final cease and desist order, or any material breach of any
material provision of this Agreement. In determining incompetence, the acts or
omissions shall be measured against standards generally prevailing in the
savings institution industry. Notwithstanding the foregoing, EXECUTIVE shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to her a copy of a resolution duly adopted by the affirmative
vote of not less than three-fourths of the members of the Board at a meeting of
the Board called and held for that purpose (after reasonable notice to EXECUTIVE
and an opportunity for her, together with counsel, to be heard before the
Board), finding that in the good faith opinion of the Board, EXECUTIVE was
guilty of conduct justifying Termination for Cause and specifying the
particulars thereof in detail. EXECUTIVE shall not have the right to receive
compensation or other benefits for any period after Termination for Cause.
3. TERMINATION
(a) Upon the occurrence of a Change in Control, followed within twelve
(12) months of the effective date of a Change in Control by the voluntary or
involuntary termination of EXECUTIVE's employment other than Termination for
Cause, the ASSOCIATION shall be obligated to pay EXECUTIVE, or in the event of
her subsequent death, her beneficiary or beneficiaries, or her estate, as the
case may be, as severance pay, a sum equal to two (2) times EXECUTIVE's "annual
compensation" as defined herein. For purposes of this Agreement, "annual
compensation" shall mean and include all wages, salary, bonus, and other
compensation, if any, paid (including accrued amounts) by the Company or the
Bank as consideration for the Participant's service during the twelve (12) month
period ending on the last day of the month preceding the effective date of a
Change in Control, which is or would be includable in the gross income of the
Participant receiving the same for federal income tax purposes. Such amount
shall be paid to EXECUTIVE in a lump sum no later than thirty (30) days after
the date of her termination.
(b) Upon the occurrence of a Change in Control of the ASSOCIATION followed
within twelve (12) months of the effective date of a Change in Control by
EXECUTIVE's voluntary or involuntary termination of employment, other than
Termination for Cause, the ASSOCIATION shall cause to be continued life,
medical, dental and disability coverage substantially identical to the coverage
maintained by the ASSOCIATION for EXECUTIVE prior to her severance. Such
coverage and payments shall cease upon expiration of twenty-four (24) months
from the date of EXECUTIVE's termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in Control,
would be deemed to include an "excess parachute payment" under ss.280G of the
Code, then, at the election of EXECUTIVE, (i) such payments or benefits shall be
payable or provided to EXECUTIVE over the minimum period necessary to reduce the
present value of such payments or benefits to an amount which is one dollar
($1.00) less than three (3) times EXECUTIVE's "base amount" under ss.280G(b)(3)
of the Code or (ii) the payments or benefits to be provided under this Section 3
shall be reduced to the extent necessary to avoid treatment as an excess
parachute payment with the allocation of the reduction among such payments and
benefits to be determined by EXECUTIVE.
(d) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
ss.1828(k) and any regulations promulgated thereunder.
4. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the ASSOCIATION and EXECUTIVE,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to EXECUTIVE of a kind elsewhere
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provided. No provision of this Agreement shall be interpreted to mean that
EXECUTIVE is subject to receiving fewer benefits than those available to her
without reference to this Agreement.
5. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the COMPANY, the ASSOCIATION and their respective successors and
assigns.
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6. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by an estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
7. REQUIRED PROVISIONS
(a) The ASSOCIATION may terminate EXECUTIVE's employment at any time, but
any termination by the ASSOCIATION, other than Termination for Cause, shall not
prejudice EXECUTIVE's right to compensation or other benefits under this
Agreement. EXECUTIVE shall not have the right to receive compensation or other
benefits for any period after Termination for Cause as defined in Section 2(c)
herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the ASSOCIATION's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(3) and (g)(1)), the ASSOCIATION's obligations under the
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
ASSOCIATION may, in its discretion, (i) pay EXECUTIVE all or part of the
compensation withheld while its contract obligations were suspended and (ii)
reinstate (in whole or in part) any of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the ASSOCIATION's affairs by an order issued
under Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)),
all obligations of the ASSOCIATION under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties shall
not be affected.
(d) If the ASSOCIATION is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement may be terminated: (i) by the
Director of the Office of Thrift Supervision (the "Director") or his or her
designee at the time the Federal Deposit Insurance Corporation or the Resolution
Trust Corporation enters into an agreement to provide assistance to or on behalf
of the ASSOCIATION under the authority contained in Section 13(c) of the FDIA
and (ii) by the Director, or his or her designee at the time the Director or
such designee approves a supervisory merger to resolve problems related to
operation of the ASSOCIATION or when the ASSOCIATION is determined by the
Director to be in an unsafe or unsound condition. Any rights of the parties that
have already vested, however, shall not be affected by such action.
8. SEVERABILITY
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held
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so invalid, and each such other provision and part thereof shall to the full
extent consistent with law continue in full force and effect.
9. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
10. GOVERNING LAW
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of South Carolina, unless
preempted by Federal law as now or hereafter in effect. In the event that any
provision of this Agreement conflicts with 12 C.F.R. Section 563.39(b), the
latter provision shall prevail.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the ASSOCIATION, in accordance with the rules of
the American Arbitration Association then in effect.
11. SOURCE OF PAYMENTS
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the ASSOCIATION. The COMPANY, however,
guarantees all payments and the provision of all amounts and benefits due
hereunder to EXECUTIVE and, if such payments are not timely paid or provided by
the ASSOCIATION, such amounts and benefits shall be paid or provided by the
COMPANY.
12. PAYMENT OF LEGAL FEES
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the ASSOCIATION if EXECUTIVE is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
13. SUCCESSOR TO THE ASSOCIATION OR THE COMPANY
The ASSOCIATION and the COMPANY shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise, to
all or substantially all the business or assets of the ASSOCIATION or the
COMPANY, expressly and unconditionally to assume and agree to perform the
ASSOCIATION's or the COMPANY's obligations under this Agreement, in the same
manner and to the same extent that the ASSOCIATION or the COMPANY would be
required to perform if no such succession or assignment had taken place.
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14. SIGNATURES
IN WITNESS WHEREOF, the ASSOCIATION and the COMPANY have caused this
Agreement to be executed and their seal to be affixed hereunto by a duly
authorized officer, and EXECUTIVE has signed this Agreement, all on the 1st day
of October, 1997.
ATTEST: FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG
/s/E.L. Sanders BY:/s/Billy L. Painter
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[SEAL]
ATTEST: FIRSTSPARTAN FINANCIAL CORP.
/s/R. Lamar Simpson BY:/s/Billy L. Painter
- -------------------- --------------------
[SEAL]
WITNESS:
/s/R. Lamar Simpson /s/Katherine A. Dunleavy
- -------------------- -------------------------
KATHERINE A. DUNLEAVY