Letter to be Delivered by Mr. Donohue Pursuant to Section 6.11.1 of the
Agreement and Plan of Merger between Flushing Financial Corporation and Atlantic
Liberty Financial Corp.
December 20, 2005
Flushing Financial Corporation Atlantic Liberty Financial Corp. Atlantic Liberty Savings, F.A.
1979 Marcus Avenue, Suite E140 186 Montague Street 186 Montague Street
Lake Success, New York 11042 Brooklyn, New York 11201 Brooklyn, New York 11201
Ladies and Gentlemen:
This letter is being delivered to you pursuant to section 6.11.1 of the
Agreement and Plan of Merger by and between Flushing Financial Corporation
("FFC") and Atlantic Liberty Financial Corp. ("ALFC") and Atlantic Liberty
Savings, F.A. (such agreement, the "Merger Agreement").
1. 2005 Payment. On or before December 31, 2005, ALFC will pay, or cause
Atlantic Liberty Savings, F.A. to pay, to me the sum of $375,000 (the "2005
Payment") This payment is made in consideration of my execution and delivery of
this letter, will be subject to applicable federal, state and local income and
employment withholding taxes and will be reported as wages on the Wage and Tax
Statement on IRS Form W-2 issued for me for 2005. In the event this letter
agreement is terminated as hereinafter provided, I understand and agree that the
Employment Agreements between me, ALFC and Atlantic Liberty Savings, F.A.are
hereby amended to provide that any payment that may become payable to me under
section 3(b) (relating to incentive compensation or bonuses) or section 6 of
such Employment Agreements, if any, shall, without any further action or consent
on my part, be reduced by the amount of the 2005 Payment until such amount is
fully offset.
2. Acceleration of Restricted Stock. ALFC will accelerate, or cause the
acceleration, of the vesting date of all shares of restricted stock issued to me
with a scheduled vesting date that is later than December 31, 2005 (the
"Unvested Restricted Stock") to be fully vested and nonforfeitable as of a date
not earlier than 3 business days after the date of this letter and not later
than December 31, 2005 (the "Accelerated Vesting Date"). The fair market value
of the Unvested Restricted Stock on the Accelerated Vesting Date will be subject
to applicable federal, state and local income and employment withholding taxes
and will be reported as wages on the Wage and Tax Statement on IRS Form W-2
issued for me for 2005. ALFC will take or cause to be taken all necessary or
appropriate actions to permit me to satisfy the applicable minimum tax required
withholding (the "Tax Withholding Amount") by surrendering to ALFC that number
of whole shares of Unvested Restricted Stock with an aggregate fair market value
on the Accelerated Vesting Date that is closest to but not in excess of the Tax
Withholding Amount. Any remaining portion of the Tax Withholding Amount may be
withheld from any cash payment made to me on or after the Accelerated Vesting
Date. The fair market value of the Unvested Restricted Stock shall, for all
purposes of this paragraph 2, be determined in accordance with the provisions of
the ALFC 2003 Stock Option Plan.
3. Acceleration of Stock Options. ALFC will take or cause to be taken all
necessary actions to cause each option to purchase common stock of ALFC that is
outstanding to me under the Stock Benefit Plan (the ALFC Stock Options") to be
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Flushing Financial Corporation
Decemebr 20, 2005 Page 2.
fully vested and exercisable for a period of 10 business days prior to the
Closing Date (as defined below).
4. Cash Payment on the Closing Date. Subject to paragraphs 8 and 9 below
and my execution of the Termination Agreement and Release attached hereto as
Exhibit B, on the Closing Date of the transaction contemplated by the Merger
Agreement (the "Closing Date"), FFC shall pay or cause to be paid to me the sum
of $965,632 (the "Closing Date Payment"), which shall be subject to federal,
state and local tax withholding. Once this payment is made, the Employment
Agreements shall terminate and be of no further effect.
5. Insurance Continuation. Atlantic Liberty Savings, F.A. will preserve
through the Closing Date, and subject to paragraph 8 below, FFC will honor
following the Closing Date, the terms of the split dollar insurance arrangement
in effect for me pursuant to which a permanent life insurance benefit in the
amount of $699,966 under New York Life Insurance Company policy number 56604942
will be provided on and after the Closing Date (the "Split Dollar Benefit").
6. Non-Competition Agreement. Concurrently with the execution and delivery
of this letter, FFC and I have executed and delivered the Non-Competition
Agreement attached hereto as Exhibit A (the "Non-Competition Agreement").
7. No Other Payments or Benefits. I hereby acknowledge and agree with FFC
that, except for vested accrued benefits to which I am or become entitled under
the Atlantic Liberty Savings, F.A. Employee Stock Ownership Plan, The Retirement
Plan of Atlantic Liberty Savings, F.A., and/or the Atlantic Liberty Savings,
F.A. 401(k) Savings Plan (collectively, the "Qualified Plans"), the continuation
coverage or conversion rights available at my own expense under any group life,
medical, dental or disability plans or flexible spending accounts (the "Welfare
Plans"), my rights under the Non-Competition Agreement, and any rights to
indemnification or to errors and omissions insurance coverage, rights as a
stockholder of FFC and/or ALFC, rights with respect to my ALFC Stock Options
and/or under contracts between me and FFC that are, in each case, expressly
provided for in the Merger Agreement (the "Additional Rights") (such payments
and benefits under the Qualified Plans, Welfare Plans, Non-Competition Agreement
and Additional Rights, collectively, the "Basic Benefits") and the payments,
benefits and other rights set forth in this letter, no other payments, benefits
or other rights are due to me.
8. Code Section 280G Matters. I further understand and agree that if:
(a) The 2005 Payment is made on or before December 31, 2005 and
reported on my Wage and Tax Statement on IRS Form W-2 for 2005; and
(b) The Unvested Restricted Stock is in fact vested on or before
December 31, 2005 and the fair market value thereof reported on my Wage and
Tax Statement on IRS Form W-2 for 2005; and
(c) All of the ALFC Stock Options are in fact vested and exercisable
for a period of at least 10 business days prior to the Closing Date; and
(d) FFC does not take any action that would prevent, and does not fail
to take any action which failure would prevent, the payments made under the
Non-Competition Agreement, or any portion thereof, from being regarded as
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Flushing Financial Corporation
Decemebr 20, 2005 Page 3.
reasonable compensation for service rendered after the Closing Date for
purposes of section 280G of the Internal Revenue Code of 1986 (the "Code");
then the aggregate amounts payable to me, and any benefits provided to me, in
respect of all payments and benefits from or with respect to ALFC and its
affiliates from any source whatsoever shall be further limited, if necessary,
such that none of the payments made or benefits provided will be an "excess
parachute payment" within the meaning of section 280G of the Code . The
determination whether any of such payments and benefits will be an "excess
parachute payment" shall be made as of the Closing Date and as of any other
relevant date thereafter by FFC's tax advisors with the concurrence of my
personal tax advisors (which concurrence shall not be unreasonably withheld or
delayed). If such determination results in a requirement that my payments or
benefits or both be further limited, the reduction shall be effected in the
following manner:
(i) First, to the extent that any portion of my Split Dollar Benefit
is regarded as an "excess parachute payment," FFC's obligation to provide
this benefit at its expense shall be waived. Such waiver shall be applied
on a calendar year basis in reverse chronological order such that the
calendar years closest to the Closing Date are the last years to be
affected. FFC shall afford me the opportunity to maintain the life
insurance coverage in any affected year by paying to FFC the premium
equivalent value of the coverage for that year.
(ii) Second, to the extent that the required reduction cannot be fully
effected through the Split Dollar Benefit, FFC may reduce the amount of any
unpaid cash payment due to me by the minimum amount required to prevent the
existence of an excess parachute payment.
(iii) Third, to the extent that the required reduction cannot be fully
effected as provided in paragraphs (a) and (b) above, I agree to repay to
FFC, with interest determined at the applicable AFR rate prescribed by the
Internal Revenue Service for such payment, the minimum amount necessary to
prevent the existence of an excess parachute payment.
I shall have the right, by written notice to FFC, to specify an alternate method
of satisfying any required reduction; provided that such alternate method
satisfies the requirements of this paragraph 8 and does not result in any
"excess parachute payment" within the meaning of sections 280G and 4999 of the
Code.
9. Effect on other Agreements. To the extent necessary to give effect to
the purposes hereof, this letter shall constitute an amendment to each and every
governing documents for each and every plan, agreement or arrangement under
which I may have a right to payments and benefits to reflect the relevant terms
and conditions of this letter. This letter shall take effect upon the signing of
the Merger Agreement and thereafter shall not be revocable except upon the
termination of the Merger Agreement in connection with the abandonment of the
transactions contemplated thereby. If the Merger Agreement is terminated, this
letter agreement, other than paragraphs 1 and 2 hereof, shall be of no further
force or effect, but paragraphs 1 and 2 hereof shall remain in effect.
Flushing Financial Corporation
Decemebr 20, 2005 Page 4.
I acknowledge that this letter will serve as an inducement to FFC to
execute, enter into and perform the Merger Agreement and that FFC is relying on
the promises that I have made herein in deciding to proceed therewith.
Very truly yours,
/S/ Barry M. Donohue
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Barry M. Donohue
Flushing Financial Corporation
Decemebr 20, 2005 Page 5.
Accepted and Agreed to: Accepted and Agreed to: Accepted and Agreed to:
FLUSHING FINANCIAL ATLANTIC LIBERTY. ATLANTIC LIBERTY
CORPORATION FINANCIAL CORP SAVINGS, F.A.
/s/John R. Buran /s/ Richard T. Arkwright /s/ Richard T. Arkwright
- -------------------- ----------------------- -------------------------
Name: John R. Buran Name: Richard T. Arkwright Name: Richard T. Arkwright
Title:President and Title: Chairman Title: Chairman
Chief Executive Officer