FIDELITY BANKSHARES, INC.
AMENDED AND RESTATED EXECUTIVE AGREEMENT
WHEREAS, Daniel F. Turk ("Executive") and Fidelity Bankshares, Inc. (the
"Company") originally entered into an Executive Agreement dated March 26, 2003,
which is now being amended and restated effective as of the date set forth
below, in order to comply with Section 409A of the Internal Revenue Code of
1986, as amended ("Executive Agreement") to guarantee and ensure that the
Executive shall receive the full value of the benefits to which he is entitled
under various benefit plans sponsored by the Company or by Fidelity Federal Bank
& Trust (the "Bank") in which the Executive is a participant; and
WHEREAS, tax law provisions relating to "golden parachute payments" could
have the effect of reducing the benefits otherwise promised to Executive under
the various benefit plans sponsored by the Bank as a result of a Change in
Control of the Company or the Bank, either as the result of cut-backs in the
benefit due to restrictions imposed by the Bank's regulators or the imposition
of an excise tax on the deemed "excess parachute payment"; and
WHEREAS, the Board believes that this Executive Agreement is in the best
interests of the Company and its shareholders and will provide the benefits
intended to be provided to Executive in the event of a change in control of the
Company or the Bank, without any reduction because of tax code "penalties" or
excise taxes relating to a change in control; and
WHEREAS, the Company and the Executive also desire to enter into this
Executive Agreement for the purpose of providing further incentive to the
Executive to achieve successful results in the management and operations of the
Company.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereto
hereby agree as follows:
1. In the event of a Change in Control (as defined herein) of the Bank or
the Company, the Executive shall be entitled to receive, pursuant to this
Executive Agreement, an amount payable by the Company, in addition to any
compensation or benefits otherwise paid by the Bank or the Company, which shall
equal the difference, if any, between (i) the amount that would be paid by the
Bank under the terms of the various benefit plans without regard to any
reduction that may be required or imposed by any regulatory authority having
jurisdiction over the Bank, and (ii) the amount that is actually paid to or for
the benefit of the Executive by the Bank under the terms of the various benefit
plans.
2. In addition, in each calendar year that Executive is entitled to receive
payments or benefits under the provisions of a benefit plan and this Executive
Agreement, the independent accountants of the Company shall determine if an
excess parachute payment (as defined in Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code")) exists. Such determination shall be made
after taking any reductions permitted pursuant to Section 280G of the Code and
the regulations thereunder. Any amount determined to be an excess parachute
payment after taking into account such reductions shall be hereafter referred to
as the "Initial Excess Parachute Payment". As soon as practicable after a Change
in Control, the Initial Excess Parachute Payment shall be determined. At the
time at which the Executive would be entitled to a payment under the provisions
of a benefit plan and this Executive Agreement or, if the Executive is a
Specified Employee (as defined in Proposed Treasury Regulations Section
1.409A-1(i)) and the payment is due to the Executive's Separation from Service
(as defined in Proposed Treasury Regulations Section 1.409A-1(h)), the date
which is six (6) months after the date of the Executive's Separation from
Service (but only if such delay is required by Code Section 409A), the Company
shall pay Executive, subject to applicable withholding requirements under
applicable state or federal law an amount equal to:
(i) twenty (20) percent of the Initial Excess Parachute
Payment (or such other amount equal to the tax
imposed under Section 4999 of the Code), and
(ii) such additional amount (tax allowance) as may be
necessary to compensate Executive for the payment by
Executive of state and federal income and excise
taxes on the payment provided under Clause (i) and on
any payments under this Clause (ii). In computing
such tax allowance, the payment to be made under
Clause (i) shall be multiplied by the "gross up
percentage" ("GUP"). The GUP shall be determined as
follows:
Tax Rate
GUP = ---------------
1- Tax Rate
The Tax Rate for purposes of computing the GUP shall
be the highest marginal federal and state income and
employment-related tax rate, including any applicable
excise tax rate, applicable to the Executive in the
year in which the payment under Clause (i) is made.
3. Notwithstanding the foregoing, if it shall subsequently be determined in
a final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is different from the Initial
Excess Parachute Payment (such different amount being hereafter referred to as
the "Determinative Excess Parachute Payment") then the Company's independent
accountants shall determine the amount (the "Adjustment Amount") the Executive
must pay to the Company or the Company must pay to the Executive in order to put
the Executive (or the Company, as the case may be) in the same position as the
Executive (or the Company, as the case may be) would have been if the Initial
Excess Parachute Payment had been equal to the Determinative Excess Parachute
Payment. In determining the Adjustment Amount, the independent accountants shall
take into account any and all taxes (including any penalties and interest) paid
by or for Executive or refunded to Executive or for Executive's benefit. As soon
as practicable after the Adjustment Amount has been so determined, the Company
shall pay the Adjustment Amount to Executive or the Executive shall repay the
Adjustment Amount to the Company, as the case may be. The purpose of this
paragraph is to assure that (i) the Executive is not paid more as reimbursement
for the golden parachute excise tax than it may ultimately be determined is
necessary to make him whole, and (ii) if it is subsequently determined that
additional golden parachute excise tax is owed by him, additional reimbursement
payments will be made to him to make him whole for the additional excise tax.
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4. In each calendar year that Executive receives payments or benefits under
one or more benefit plans sponsored by the Bank or the Company, Executive shall
report on his state and federal income tax returns such information as is
consistent with the determination made by the independent accountants of the
Company as described above. The Company shall indemnify and hold Executive
harmless from any and all losses, costs and expenses (including without
limitation, reasonable attorney's fees, interest, fines and penalties) that
Executive incurs as a result of so reporting such information. Executive shall
promptly notify the Company in writing whenever the Executive receives notice of
the institution of a judicial or administrative proceeding, formal or informal,
in which the federal tax treatment under Section 4999 of the Code of any amount
paid or payable under this Supplemental Agreement is being reviewed or is in
dispute. The Company shall assume control at its expense over all legal and
accounting matters pertaining to such federal tax treatment (except to the
extent necessary or appropriate for Executive to resolve any such proceeding
with respect to any matter unrelated to amounts paid or payable pursuant to this
contract). The Executive shall cooperate fully with the Company in any such
proceeding. The Executive shall not enter into any compromise or settlement or
otherwise prejudice any rights the Company may have in connection therewith
without prior consent to the Company.
5. For these purposes, a "Change in Control" shall mean any of the
following:
(a) "Change in Control" shall mean (i) a change in the ownership
of the Company, (ii) a change in the effective control of the Company,
or (iii) a change in the ownership of a substantial portion of the
assets of the Company, as described below.
(b) A change in the ownership of a corporation occurs on the date
that any one person, or more than one person acting as a group (as
defined in Proposed Treasury Regulations section 1.409A-3(g)(5)(v)(B)),
acquires ownership of stock of the Company that, together with stock
held by such person or group, constitutes more than 50 percent of the
total fair market value or total voting power of the stock of such
corporation. For these purposes, a change in ownership will not be
deemed to have occurred if no stock of the Company is outstanding.
(c) A change in the effective control of the Company occurs on
the date that either (i) any one person, or more than one person acting
as a group (as defined in Proposed Treasury Regulations section
1.409A-3(g)(5)(vi)(B)) acquires (or has acquired during the 12-month
period ending on the date of the most recent acquisition by such person
or persons) ownership of stock of the Company possessing 35 percent or
more of the total voting power of the stock of such Company, or (ii) a
majority of the members of the Company's board of directors is replaced
during any 12-month period by directors whose appointment or election
is not endorsed by a majority of the members of the Company's board of
directors prior to the date of the appointment or election, provided
that this subsection "(ii)" is inapplicable where a majority
shareholder of the Company is another corporation.
(d) A change in a substantial portion of the Company's assets
occurs on the date that any one person or more than one person acting
as a group (as defined in Proposed Treasury Regulations section
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1.409A-3(g)(5)(vii)(C)) acquires (or has acquired during the 12-month
period ending on the date of the most recent acquisition by such person
or persons) assets from the Company that have a total gross fair market
value equal to or more than 40 percent of the total gross fair market
value of (i) all of the assets of the Company, or (ii) the value of the
assets being disposed of, either of which is determined without regard
to any liabilities associated with such assets. For all purposes
hereunder, the definition of Change in Control shall be construed to be
consistent with the requirements of Proposed Treasury Regulations
section 1.409A-3(g)(5), except to the extent that such proposed
regulations are superseded by subsequent guidance.
6. This Executive Agreement shall be binding on the Company, its successors
and assigns and the benefits hereunder shall inure to the benefit of Executive,
his heirs and beneficiaries.
IN WITNESS WHEREOF, Fidelity Bankshares, Inc. has caused this Executive
Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer, and Executive has signed this Executive Agreement as of the
____ day of December, 2005.
ATTEST: FIDELITY BANKSHARES, INC.
By:
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Secretary
WITNESS: EXECUTIVE
By:
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Daniel F. Turk
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