EXHIBIT 10.5
FIRST AMENDMENT TO
SALARY CONTINUATION AGREEMENT
First Amendment, dated as of _________ __, 2008 (the "Amendment"), to the
Salary Continuation Agreement, dated as of January 1, 2004 (as amended, the
"Salary Continuation Agreement"), by and among Citizens South Bank (the "Bank")
and _______________ (the "Executive"). Capitalized terms which are not defined
herein shall have the same meaning as set forth in the Salary Continuation
Agreement.
W I T N E S S E T H:
WHEREAS, the parties desire to amend the Salary Continuation Agreement to
comply with the final regulations issued in April 2007 by the Internal Revenue
Service under Section 409A of the Internal Revenue Code of 1986, as amended (the
"Code"); and
WHEREAS, pursuant to Sections 7.1 and 7.14 of the Salary Continuation
Agreement, the parties to the Salary Continuation Agreement desire to amend the
Salary Continuation Agreement;
NOW, THEREFORE, in consideration of the premises, the mutual agreements
herein set forth and such other consideration the sufficiency of which is hereby
acknowledged, the Bank and the Executive hereby agree as follows:
Section 1. Amendment to Section 1.4 of the Salary Continuation Agreement.
The definition of Change in Control in Section 1.4 of the Salary Continuation
Agreement is hereby amended to read in its entirety as follows:
"Change in Control means a change in the ownership of Citizens South
Banking Corporation (the "Company") or the Bank, a change in the effective
control of the Company or the Bank or a change in the ownership of a
substantial portion of the assets of the Company or the Bank, in each case
as provided under Section 409A of the Code and the regulations thereunder."
Section 2. Amendment to Section 1.5 of the Salary Continuation Agreement.
The definition of Disability in Section 1.5 of the Salary Continuation Agreement
is hereby amended to read in its entirety as follows:
"Disability means the Executive (i) is unable to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
can be expected to last for a continuous period of not less than 12 months,
or (ii) is, by reason of any medically determinable physical or mental
impairment which can be expected to result in death or can be expected to
last for a continuous period of not less than 12 months, receiving income
replacement benefits
for a period of not less than three months under an accident and health
Agreement covering employees of the Bank."
Section 3. Amendment to Section 1.9 of the Salary Continuation Agreement.
The definition of Good Reason in Section 1.9 of the Salary Continuation
Agreement is hereby amended to read in its entirety as follows:
"Good Reason means the occurrence of any of the following conditions:
(i) any material breach of this Agreement by the Bank, including
without limitation any of the following: (A) a material diminution in the
Executive's base compensation, (B) a material diminution in the Executive's
authority, duties or responsibilities, or (C) a material diminution in the
authority, duties or responsibilities of the officer to whom the Executive
is required to report, or
(ii) any material change in the geographic location at which the
Executive must perform his services under this Agreement;
provided, however, that prior to any termination of employment for Good
Reason, the Executive must first provide written notice to the Bank within
ninety (90) days of the initial existence of the condition, describing the
existence of such condition, and the Bank shall thereafter have the right
to remedy the condition within thirty (30) days of the date the Bank
received the written notice from the Executive. If the Bank remedies the
condition within such thirty (30) day cure period, then no Good Reason
shall be deemed to exist with respect to such condition. If the Bank does
not remedy the condition within such thirty (30) day cure period, then the
Executive may deliver a notice of termination for Good Reason at any time
within sixty (60) days following the expiration of such cure period."
Section 4. Amendment to Section 1.16 of the Salary Continuation Agreement.
Section 1.16 of the Salary Continuation Agreement is hereby amended to read in
its entirety as follows:
"Termination of Employment," for purposes of this Agreement, shall
mean a "Separation from Service" as such term is defined in Section 409A of
the Code and the final regulations issued thereunder, provided that whether
a Separation from Service has occurred shall be determined based on whether
the facts and circumstances indicate that the Bank and the Executive
reasonably anticipated that no further services would be performed after a
certain date or that the level of bona fide services the Executive would
perform after such date (whether as an employee or as an independent
contractor) would permanently decrease to less than fifty percent (50%) of
the average level of bona fide services performed (whether as an employee
or an independent contractor) over the immediately preceding thirty-six
(36) month period (or the full period of services to the Bank if the
Executive has been providing services to the Bank less than thirty-six (36)
months)."
Section 5. Deletion of Section 2.6 of the Salary Continuation Agreement.
Section 2.6 of the Salary Continuation Agreement is hereby deleted in its
entirety.
Section 6. New Section 2.8 of the Salary Continuation Agreement. A new
Section 2.8 of the Salary Continuation Agreement is hereby added to read in its
entirety as follows:
"2.8 Restriction on Commencement of Distributions. Notwithstanding any
provision of this Agreement to the contrary, if the Executive is considered
a Specified Employee (within the meaning of Treasury Regulation
1.409A-1(i)), the provisions of this Section 2.8 shall govern the timing of
all distributions under Sections 2.1, 2.2, 2.3 and 2.4 of this Agreement.
In the event the Executive is a Specified Employee, and to the extent
necessary to avoid penalties under Section 409A of the Code, payments to
the Executive shall not commerce until the later of (i) the first day of
the month following the lapse of six months after the date of the
Termination of Employment, or (ii) the first day of the month following the
Executive's attainment of Normal Retirement Age. Any distribution which
would otherwise be paid to the Executive during such period shall be
accumulated and paid to the Executive in a lump sum on the first day of the
month following the lapse of six months after the date of the Termination
of Employment. All subsequent distributions shall be paid in the manner
specified."
Section 7. Amendment to Section 7.1 of the Salary Continuation Agreement.
Section 7.1 of the Salary Continuation Agreement is hereby amended to read in
its entirety as follows:
"7.1 Amendments and Termination.
(a) Subject to Section 7.14 of this Agreement, (a) this Agreement may
be amended solely by a written agreement signed by the Bank and by the
Executive, and (b) except for termination occurring under Article 5, this
Agreement may be terminated solely by a written agreement signed by the
Bank and by the Executive. Except as provided in Section 7.1(b), the
termination of this Agreement shall not cause a distribution of benefits
under this Agreement.
(b) Notwithstanding anything to the contrary in Section 7.1(a), if the
Bank irrevocably terminates this Agreement in the following circumstances:
(i) Within thirty (30) days before a Change in Control, provided
that all distributions are made no later than twelve (12) months
following such irrevocable termination of this Agreement and further
provided that all of the arrangements sponsored by the Bank that would
be aggregated with this Agreement under Treasury Regulation
ss.1.409A-1(c)(2) are terminated so the Executive and all Executives
under the other aggregated arrangements are required to receive all
amounts of compensation deferred under the terminated arrangements
within twelve (12) months of the date the Bank irrevocably takes all
necessary action to terminate such arrangements;
(ii) With twelve (12) months of a dissolution of the Bank taxed
under Section 331 of the Code or with the approval of a bankruptcy
court pursuant to 11 U.S.C. ss.503(b)(1)(A), provided that the amounts
deferred under this Agreement are included in the Executive's gross
income in the latest of (i) the calendar year in which this Agreement
terminates; (ii) the calendar year in which the amount is no longer
subject to a substantial risk of forfeiture; or (iii) the first
calendar year in which the distribution is administratively
practicable; or
(iii) Upon the Bank's termination of this and all other
arrangements that would be aggregated with this Agreement pursuant to
Treasury Regulation ss.1.409A-1(c) if the Executive participated in
such arrangements ("Similar Arrangements"), provided that (i) the
termination and liquidation does not occur proximate to a downturn in
the financial health of the Bank, (ii) no payments are made within
twelve (12) months of the termination of the arrangements other than
payments that would be payable under the terms of the arrangements if
the termination had not occurred, (iii) all termination distributions
are made no later than twenty-four (24) months following such
termination, and (iv) the Bank does not adopt any new arrangement that
would be a Similar Arrangement for a minimum of three (3) years
following the date the Bank takes all necessary action to irrevocably
terminate and liquidate the Agreement;
the Bank may distribute the Accrual Balance, determined as of the
date of the termination of this Agreement (without regard to vesting
in the event of a termination pursuant to Section 7(b)(i)), to the
Executive in a lump sum subject to the above terms.
Section 8. Amendment to Section 7.13 of the Salary Continuation Agreement.
The second to last sentence in Section 7.13 of the Salary Continuation Agreement
is hereby amended to read in its entirety as follows:
"The fees and expenses of counsel selected from time to time by the
Executive as provided in this section shall be paid or reimbursed to the
Executive by the Bank on a regular, periodic basis upon presentation within
thirty (30) days following the Executive's presentation of a statement or
statements prepared by such counsel in accordance with such counsel's
customary practices, up to a maximum aggregate amount of $25,000."
Section 9. Effectiveness. This Amendment shall be deemed effective as of
the date first above written, as if executed on such date. Except as expressly
set forth herein, this Amendment shall not by implication or otherwise alter,
modify, amend or in any way affect any of the terms, conditions, obligations,
covenants or agreements contained in the Salary Continuation Agreement, all of
which are ratified and affirmed in all respects and shall continue in full force
and effect and shall be otherwise unaffected.
Section 10. Governing Law. This Amendment and the rights and obligations
hereunder shall be governed by and construed in accordance with the laws of the
State of North Carolina.
Section 11. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall for all purposes be deemed an original, and
all of which together shall constitute but one and the same instrument.
Section 12. Compliance with Section 409A. This Agreement shall be
interpreted and administered consistent with Section 409A of the Code.
IN WITNESS WHEREOF, the Bank and the Executive have duly executed this
Amendment as of the day and year first written above.
CITIZENS SOUTH BANK
Attest:
By:
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Name: Paul L. Teem, Jr. Name: Kim S. Price
Title: Executive Vice President, Title: President and Chief
Chief Administrative Officer Executive Officer
EXECUTIVE
Attest:
- ------------------------ ---------------------------------
Name: Paul L. Teem, Jr. -----------------------