EXHIBIT 10.7
THIRD AMENDMENT TO THE
SERVICE 1ST BANK
SALARY CONTINUATION AGREEMENT
DATED SEPTEMBER 10, 2003
FOR XXXXX XXXXX
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This Third Amendment (Amendment) to the Salary Continuation Agreement between
Service 1st Bank located in Stockton, California (referenced herein as Company
and Bank) and Xxxxx Xxxxx (Executive) is adopted effective as of August 21,
2008, as set forth below.
The Bank and the Executive executed the Salary Continuation Agreement on
September 10, 2003 (Agreement).
The undersigned hereby amends, in part, said Agreement for the purpose of: (i)
removing the requirement of termination of employment as a condition to becoming
eligible to receive the Normal Retirement Benefit upon a Change in Control; (ii)
modifying article 2.5 to provide that if all or any portion of the amounts
payable to Executive pursuant to this agreement, taken together with any other
payments from Bank to the executive, constitutes an "excess parachute payment"
within the meaning of section 280G of the Internal Revenue Code, as amended
(Code), that such amounts shall be reduced by first applying the reduction to
this agreement; and (iii) complying with section 409A of the Code. Therefore,
the following changes shall be made
1. Article 1.4 of the Agreement shall be deleted in its entirety and
replaced by article 1.4, below.
1.4 "Change in Control" means the occurrence of any of the
following events with respect to the Bank:
A. Change In Ownership Of The Company.
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Any one person, or more than one person acting as a group,
acquires ownership of stock of the Company that, together with
stock held by such person or group, constitutes more than
fifty percent (50%) of the total fair market value or total
voting power of the stock of the Company; provided, however:
1. If any one person, or more than one person acting as
a group, is considered to own more than fifty percent
(50%) of the total fair market value or total voting
power of the stock of the Company, the acquisition of
additional stock by the same person or persons shall
not be a "Change In Control" under this Change In
Ownership Of The Company subsection.
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2. If any one person, or more than one person acting as
a group, is considered to own more than thirty
percent (30%) of the total voting power of the stock
of the Company, the acquisition of additional stock
by the same person or persons shall not be a "Change
In Control" under this Change In Ownership Of The
Company subsection.
3. An increase in the percentage of stock of the Company
owned by any one person, or persons acting as a
group, as a result of a transaction in which the
Company acquires its stock in exchange for property
will be treated as an acquisition of stock for
purposes of this Change In Ownership Of The Company
subsection.
4. This Change In Ownership Of The Company subsection
applies only when there is a transfer of stock of the
Company (or issuance of stock of the Company) and
stock in the Company remains outstanding after the
transaction.
5. Persons will not be considered to be acting as a
group solely because they purchase or own stock of
the Company at the same time or as a result of the
same public offering. However, persons will be
considered to be acting as a group if they are owners
of a corporation that enters into a merger,
consolidation, purchase or acquisition of stock, or
similar business transaction with the Company. If a
person, including an entity, owns stock in both
corporations that enter into a merger, consolidation,
purchase or acquisition of stock, or similar
transaction, such shareholder is considered to be
acting as a group with other shareholders in a
corporation prior to the transaction giving rise to
the change and not with respect to the ownership
interest in the other corporation.
6. Code section 318(a), as modified by the lawful
guidance published by the Treasury Department or the
Internal Revenue Service pursuant to Code section
409A, shall apply for purposes of determining stock
ownership under this Change In Ownership Of The
Company subsection.
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B. Change In Effective Control - Ownership.
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Any one person, or more than one person acting as a group,
acquires (or has acquired during the twelve (12) month period
ending on the date of the most recent acquisition by such
person or persons) ownership of stock of the Company
possessing thirty percent (30%) or more of the total voting
power of the stock of the Company; provided, however:
1. If any one person, or more than one person acting as
a group, is considered to own more than fifty percent
(50%) of the total fair market value or total voting
power of the stock of the Company, the acquisition of
additional stock by the same person or persons is not
considered a "Change In Control" under this Change In
Effective Control - Ownership subsection.
2. If any one person, or more than one person acting as
a group, is considered to own more than thirty
percent (30%) of the total voting power of the stock
of the Company, the acquisition of additional stock
by the same person or persons shall not be a "Change
In Control" under this Change In Effective Control -
Ownership subsection.
3. Persons will not be considered to be acting as a
group solely because they purchase or own stock of
the Company at the same time or as a result of the
same public offering. However, persons will be
considered to be acting as a group if they are owners
of a corporation that enters into a merger,
consolidation, purchase or acquisition of stock, or
similar business transaction with the Company. If a
person, including an entity, owns stock in both
corporations that enter into a merger, consolidation,
purchase or acquisition of stock, or similar
transaction, such shareholder is considered to be
acting as a group with other shareholders in a
corporation prior to the transaction giving rise to
the change and not with respect to the ownership
interest in the other corporation.
4. Code section 318(a), as modified by the lawful
guidance published by the Treasury Department or the
Internal Revenue Service pursuant to Code section
409A, shall apply for purposes of determining stock
ownership under this Change In Effective Control -
Ownership subsection.
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C. Change In Effective Control - Board Members.
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A majority of members of the Company's board of directors is
replaced during any twelve (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.
D. Change In Ownership Of Substantial Portion Of Assets.
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Any one person, or more than one person acting as a group,
acquires (or has acquired during the twelve (12) month period
ending on the date of the most recent acquisition by such
person or persons) assets from the Company that have a total
gross fair market value equal to or more than forty percent
(40%) of the total gross fair market value of all of the
assets of the Company immediately prior to such acquisition or
acquisitions; provided, however:
1. For this purpose, gross fair market value means the
value of the assets of the Company, or the value of
the assets being disposed of, determined without
regard to any liabilities associated with such
assets.
2. There is no "Change In Control" under this Change In
Ownership Of Substantial Portion Of Assets subsection
where the assets are transferred to:
a. A shareholder of the Company (immediately
before the asset transfer) in exchange for
or with respect to its stock;
b. An entity, fifty percent (50%) or more of
the total value or voting power of which is
owned, directly or indirectly, by the
Company;
c. A person, or more than one person acting as
a group, that owns, directly or indirectly,
fifty percent (50%) or more of the total
value or voting power of all the outstanding
stock of the Company; or
d. An entity, at least fifty percent (50%) of
the total value or voting power of which is
owned, directly or indirectly, by a person
described in the preceding provision.
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3. A person's status is determined immediately after the
transfer of the assets.
4. Persons will not be considered to be acting as a
group solely because they purchase or own stock of
the Company at the same time or as a result of the
same public offering. However, persons will be
considered to be acting as a group if they are owners
of a corporation that enters into a merger,
consolidation, purchase or acquisition of stock, or
similar business transaction with the Company. If a
person, including an entity, owns stock in both
corporations that enter into a merger, consolidation,
purchase or acquisition of stock, or similar
transaction, such shareholder is considered to be
acting as a group with other shareholders in a
corporation prior to the transaction giving rise to
the change and not with respect to the ownership
interest in the other corporation.
5. Code section 318(a), as modified by the lawful
guidance published by the Treasury Department or the
Internal Revenue Service pursuant to Code section
409A, shall apply for purposes of determining stock
ownership under this Change In Ownership Of
Substantial Portion Of Assets subsection.
2. Article 2.4 of the Agreement shall be deleted in its entirety and
replaced by Article 2.4, below.
2.4 Change of Control Benefit. Upon a Change of Control, the Bank
shall pay to the Executive the benefit described in this
Section 2.4 in lieu of any other benefit under this Article.
2.4.1 Amount of Benefit. The annual Change of Control Benefit under
this Section 2.4 is the Normal Retirement Benefit amount set
forth in Section 2.1.
2.4.2 Payment of Benefit. The Bank shall pay the annual Change of
Control benefit to the Executive in twelve (12) equal monthly
installments commencing on the first of the month following
Normal Retirement Age. The Change of Control Benefit shall be
paid to the Executive for fifteen (15) years.
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3. Article 2.5 of the Agreement shall be deleted in its entirety and
replaced by article 2.5, below.
2.5 Internal Revenue Code Section 280G. If all or any portion of
the amounts payable to the Executive pursuant to this
Agreement alone or together with other payments which the
Executive has the right to receive from the Bank, constitute
"excess parachute payments" within the meaning of Section 280G
of the Internal Revenue Code of 1986, as amended (the "Code"),
that are subject to the excise tax imposed by Section 4999 of
the Code (or similar tax and/or assessment), such amounts
payable hereunder shall be reduced so as to cause a reduction
of any excise tax pursuant to Section 4999 of the Code to
equal "zero". Such reduction shall be made first from amounts
payable hereunder to the extent necessary and then, if
necessary, from payments to be received from any other plan or
program sponsored by the Bank from which the Executive has a
right to receive payments subject to Sections 280G and 4999 of
the Code, including without limitation any employment
agreement made between the Bank and the Executive."
4. A new article 2.6 shall be added to the Agreement as set forth, below.
2.6 Delay Of Payment For Specified Employees. Notwithstanding any
provision of this Agreement to the contrary, if Executive is a
"specified employee," no distribution of severance pay under
this Agreement may be made, or may commence, before the date
which is 6 months after the date of Executive's "separation
from service" within the meaning of Code section
409A(a)(2)(A)(i). For purposes of this section, "specified
employee" shall mean an employee who at the time of Separation
from Service is a key employee of the Bank, if any stock of
the Bank is publicly traded on an established securities
market or otherwise. For purposes of this Agreement, an
employee is a key employee if the employee meets the
requirements of Code Section 416(i)(1)(A)(i), (ii), or (iii)
(applied in accordance with the regulations thereunder and
disregarding section 416(i)(5)) at any time during the twelve
(12) month period ending on December 31.
5. A new article 2.7 shall be added to the Agreement as set forth, below.
2.7 Benefits Payable Upon Death of Executive. In the event that
the Executive becomes eligible to receive or begins receiving
benefits under this Agreement and then dies before all
benefits have been paid, the balance of any benefits remaining
due shall be paid to the Executive's Beneficiary/ies at the
same time and in the same form as the benefits would have been
paid to the Executive. If benefits are paid to Executive
and/or Executive's Beneficiary/ies under this Agreement, then
no benefits shall be payable to Executive's Beneficiary/ies
under the Endorsement Split Dollar Insurance Agreement between
Executive and Bank. Likewise, if benefits become payable to
Executive's Beneficiary/ies under the Endorsement Split Dollar
Insurance Agreement upon the Executive's death, then no
benefits shall be paid under this Agreement.
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6. Article 6 of the Agreement shall be deleted in its entirety and
replaced by article 6, below.
This Agreement may be amended or terminated only by a written agreement
signed by the Bank and the Executive. Provided, however, if the Bank's
Board of Directors determines that the Executive is no longer a member
of a select group of management or highly compensated employees, as
that phrase applies to ERISA, for reasons other than death, Disability
or retirement, the Bank may amend or terminate this Agreement in a
manner consistent with Section 409A of the Code. Upon such amendment or
termination the Bank shall no longer accrue any additional liability
under this Agreement, and the Bank shall pay the Accrual Balance to the
Executive lump sum within thirty (30) days following Executive's
Termination of Employment. The preceding sentence shall not apply in
the event that the Executive becomes entitled to receive the Normal
Retirement Benefit as a result of a Change in Control. In that event,
benefits shall be paid as provided in Section 2.4.2.
7. The language of this Amendment shall supersede the provisions of the
Plan to the extent the Plan is inconsistent with the provisions of this
amendment. Except as amended above, the remaining provisions of the
Plan shall remain in full force and effect.
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IN WITNESS WHEREOF, the Bank and the Executive have caused this Amendment to be
executed on this 22nd day of August 2008.
BANK
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SERVICE 1ST BANK
By: /s/ Xxxxxx Xxxxx
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Title: Executive Vice President
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EXECUTIVE
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/s/ Xxxxx Xxxxx
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Xxxxx Xxxxx
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