First Amendment of the Employment Agreement
First
Amendment of the
This First
Amendment of the Employment Agreement (this “Amendment”) is entered into
as of this day
of , 2008, by and
among First Reliance Bancshares, Inc., a South Carolina corporation (the
“Corporation”), First Reliance Bank, a South Carolina-chartered bank and a
wholly owned subsidiary of the Corporation (the “Bank”), and
F.R.
Xxxxxxxx, Jr., President and Chief Executive Officer of the Corporation and the
Bank (the “Executive”).
Whereas,
the Corporation and the Bank entered into an Employment Agreement dated as of
November 24, 2006 with the Executive, and
Whereas,
the Executive, the Corporation, and the Bank desire now to amend the Employment
Agreement to ensure that it complies in form and in operation with Internal
Revenue Code section 409A and the rules and regulations of the Internal Revenue
Service promulgated thereunder.
Now
Therefore, in consideration of these premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Executive, the Corporation, and the Bank hereby agree as follows.
1. Deletion
of the indemnification provision of section 2.5. To ensure
that the Employment Agreement is consistent with South Carolina law governing
indemnification of corporate officers, section 2.5 of the November 24, 2006
Employment Agreement, captioned “Indemnification and Insurance,” is
deleted.
2. Amended
definition of Good Reason. The definition of the term “Good
Reason” in section 3.2 is replaced by the following revised section 3.2
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3.2 Voluntary Termination with Good
Reason. With advance written notice to the Employer as
provided in clause (y),
the Executive may terminate employment with Good Reason. If the
Executive’s employment terminates involuntarily without Cause or voluntarily but
with Good Reason, the Executive shall be entitled to the benefits specified in
sections 4.4 and 4.5 of this Agreement. For purposes of this
Agreement a voluntary termination by the Executive shall be considered a
voluntary termination with Good Reason if the conditions stated in both clauses
(x) and (y) are satisfied
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(x) a
voluntary termination by the Executive shall be considered a voluntary
termination with Good Reason if any of the following occur without the
Executive’s advance written consent, and the term Good Reason shall mean the
occurrence of any of the following without the Executive’s advance written
consent –
1) a
material diminution of the Executive’s Base Salary,
2) a
material diminution of the Executive’s authority, duties, or
responsibilities,
3) a
material diminution in the authority, duties, or responsibilities of the
supervisor to whom the Executive is required to report,
4) a
material diminution in the budget over which the Executive retains
authority,
5) a
material change in the geographic location at which the Executive must perform
services for the Employer, or
6) any
other action or inaction that constitutes a material breach by the Employer of
this Agreement.
(y) the
Executive must give notice to the Employer of the existence of one or more of
the conditions described in clause (x) within 90 days after the
initial existence of the condition, and the Employer shall have 30 days
thereafter to remedy the condition. In addition, the Executive’s
voluntary termination because of the existence of one or more of the conditions
described in clause (x)
must occur within 24 months after the initial existence of the
condition.
3. Deletion
of the notice provision in section 3.3. Because notice of
involuntary termination by the Employer is governed by section 3.1 and notice of
voluntary termination by the Executive is governed by revised section 3.2,
section 3.3 of the Employment Agreement, captioned “Notice,” is no longer
necessary and is deleted.
4. Cash
severance benefits under section 4.4. To ensure that cash
severance benefits payable after termination without Cause or voluntary
termination with Good Reason are exempt from the requirement of section 409A
that separation-from-service benefits payable to a specified employee, as
defined in section 409A, be delayed for at least six months, section 4.4 is
replaced by the following revised section 4.4, providing that cash severance
benefits shall be paid in a single lump sum rather than in installments
–
4.4 Cash Severance after Termination
Without Cause or Termination with Good
Reason. (a) Subject to the possibility that cash
severance after employment termination might be delayed under section 4.4(b), if
the Executive’s employment terminates involuntarily but without Cause or if the
Executive voluntarily terminates employment with Good Reason, 30 days after
employment termination the Employer shall pay to the Executive in a single lump
sum cash in an amount equal to (x) the Executive’s Base
Salary for the unexpired term of the Agreement (the Executive’s monthly salary
multiplied by the number of whole months remaining in the term of the
Agreement), without discount for the time value of money, plus (y) the bonus earned for the
calendar year ended immediately before the year in which employment termination
occurs. The Employer and the Executive acknowledge and agree that
benefits under this section 4.4 shall not be payable if benefits are payable or
shall have been paid to the Executive under Article 5 of this
Agreement.
(b) If
when employment termination occurs the Executive is a specified employee within
the meaning of section 409A of the Internal Revenue Code of 1986, and if the
cash severance payment under section 4.4(a) would be considered deferred
compensation under section 409A, and finally if an exemption from the six-month
delay requirement of section 409A(a)(2)(B)(i) is not available, the Executive’s
cash severance payment under section 4.4(a) shall be paid to the Executive in a
single lump sum on the first day of the seventh month after the month in which
the Executive’s employment terminates. References in this Agreement
to section 409A of the Internal Revenue Code of 1986 include rules, regulations,
and guidance of general application issued by the Department of the Treasury
under Internal Revenue Code section 409A.
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5. Post-termination
insurance benefits under section 4.5. To eliminate the
Employer’s election between providing continued insurance benefits to the
terminated Executive for the period specified in section 4.5(a) or making a
lump-sum payment in cash to the Executive of the present value of the Employer’s
cost to provide insurance benefits for the specified period, section 4.5 is
replaced by the following revised section 4.5 –
4.5 Post-Termination Insurance
Coverage. (a) Subject to section 4.5(b), if the
Executive’s employment terminates involuntarily but without Cause, voluntarily
but with Good Reason, or because of disability, the Employer shall continue or
cause to be continued at the Employer’s expense medical insurance benefits, the
disability reimbursement and gross-up benefit under section 2.2(c), and the
long-term care insurance benefit under section 2.2(d), in each case as in effect
during the two years preceding the date of the Executive’s
termination. The medical and disability (including income tax gross
up) insurance benefits provided by this section 4.5 shall continue until the
first to occur of (w)
the Executive’s return to employment with the Employer or another employer,
(x) the Executive’s
attainment of age 65, (y) the Executive’s death, or
(z) the end of the term
remaining under this Agreement when the Executive’s employment
terminates. The long-term care insurance benefit under section 2.2(d)
shall continue until the policy is fully paid. If continued long-term
care insurance benefits under section 2.2(d) constitute taxable income to the
Executive, the Employer shall reimburse the Executive for federal and state
income taxes imposed on the Executive that are attributable to continued
maintenance of the long-term care insurance coverage, and the amount reimbursed
by the Employer shall be grossed up to compensate the Executive for federal and
state income taxes imposed as a result of the Employer’s
reimbursement.
(b) If
(x) under the terms of
the applicable policy or policies for the insurance benefits specified in
section 4.5(a) it is not possible to continue the Executive’s coverage or (y) when employment
termination occurs the Executive is a specified employee within the meaning of
section 409A of the Internal Revenue Code of 1986, if any of the continued
insurance benefits specified in section 4.5(a) would be considered deferred
compensation under section 409A, and finally if an exemption from the six-month
delay requirement of section 409A(a)(2)(B)(i) is not available for that
particular insurance benefit, instead of continued insurance coverage under
section 4.5(a) the Employer shall pay to the Executive in a single lump sum an
amount in cash equal to the present value of the Employer’s projected cost to
maintain that particular insurance benefit had the Executive’s employment not
terminated, assuming continued coverage for the lesser of 36 months or the
number of months until the Executive attains age 65. The lump-sum
payment shall be made 30 days after employment termination or, if section 4.4(b)
applies and a six-month delay is required under Internal Revenue Code section
409A, on the first day of the seventh month after the month in which the
Executive’s employment terminates. Instead of providing the continued
long-term care insurance benefit under section 4.5(a) (including income tax
gross up), the Employer shall pay to the Executive in a single lump sum an
amount in cash equal to the present value of the Employer’s projected cost to
maintain the long-term care insurance policy (including income tax gross up)
until the Executive attains age 65, (x) if under the terms of the
policy it is not possible to continue the Executive’s coverage or (y) if when employment
termination occurs the Executive is a specified employee within the meaning of
section 409A of the Internal Revenue Code of 1986, if the continued long-term
care insurance benefit specified in section 4.5(a) would be considered deferred
compensation under section 409A, and finally if an exemption from the six-month
delay requirement of section 409A(a)(2)(B)(i) is not available for that
particular insurance benefit. The lump-sum payment shall be made 30
days after employment termination or, if section 4.4(b) applies and a six-month
delay is required under Internal Revenue Code section 409A, on the first day of
the seventh month after the month in which the Executive’s employment
terminates.
6. Accelerated
vesting in benefits after a Change in Control. To ensure that
accelerated vesting in benefits occurring because of a Change in Control does
not inadvertently cause performance-based compensation to fail to qualify for
the exemption of performance-based compensation from the $1,000,000 deduction
limit of Internal Revenue Code section 162(m), section 5.1(b) is replaced by the
following revised section 5.1(b) –
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(b) If a Change in Control occurs during
the term of this Agreement the Employer shall cause the Executive to become
fully vested in awards under any stock option, stock incentive, or other
non-qualified plans, programs, or arrangements in which the Executive
participated if (x) the plan, program, or arrangement
does not address the effect of a change in control or termination after a change
in control and (y) award vesting occurs automatically
with the passage of time or years of service. Provided the Executive
is at the time a covered employee within the meaning of Internal Revenue Code
section 162(m), accelerated vesting in or entitlement to awards shall not occur
under this section 5.1(b) in the case of any award for which vesting or
entitlement is based on achievement of performance conditions, whether the
conditions have to do with individual performance or corporate performance
measures, including but not limited to stock price or financial statement or
other financial measures.
7. Amended
definition of Change in Control. The definition of the term
“Change in Control” in section 5.2 is replaced by the following revised section
5.2 definition –
5.2 Change in Control
Defined. For purposes of this Agreement, “Change in
Control” means a change in control as defined in Internal Revenue Code
section 409A and rules, regulations, and guidance of general application
thereunder issued by the Department of the Treasury, including –
(a) Change in ownership: a change
in ownership of First Reliance Bancshares, Inc., a South Carolina corporation of
which the Bank is a wholly owned subsidiary, occurs on the date any one person
or group accumulates ownership of First Reliance Bancshares, Inc. stock
constituting more than 50% of the total fair market value or total voting power
of First Reliance Bancshares, Inc. stock, or
(b) Change in effective control:
(x) any one person or
more than one person acting as a group acquires within a 12-month period
ownership of First Reliance Bancshares, Inc. stock possessing 30% or more of the
total voting power of First Reliance Bancshares, Inc., or (y) a majority of First
Reliance Bancshares, Inc.’s board of directors is replaced during any 12-month
period by directors whose appointment or election is not endorsed in advance by
a majority of First Reliance Bancshares, Inc.’s board of directors,
or
(c) Change in ownership of a substantial
portion of assets: a change in ownership of a substantial portion of
First Reliance Bancshares, Inc.’s assets occurs if in a 12-month period any one
person or more than one person acting as a group acquires from First Reliance
Bancshares, Inc. assets having a total gross fair market value equal to or
exceeding 40% of the total gross fair market value of all of First Reliance
Bancshares, Inc.’s assets immediately before the acquisition or
acquisitions. For this purpose, gross fair market value means the
value of First Reliance Bancshares, Inc.’s assets, or the value of the assets
being disposed of, determined without regard to any liabilities associated with
the assets.
8. The
Employment Agreement remains in full force and effect. As
amended by this Amendment, the November 24, 2006 Employment Agreement shall
remain in full force and effect.
9. Use of
defined terms. All terms used but not defined in this
Amendment are used as defined in the November 24, 2006 Employment
Agreement.
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In Witness
Whereof, the Executive and a duly authorized officer of the Bank and the
Corporation have executed this Amendment of the November 24, 2006 Employment
Agreement as of the date first written above.
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Executive:
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Bank:
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First
Reliance Bank
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By:
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F.R.
Xxxxxxxx Jr.
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Xxxxxxx
Xxxxxxxxxx
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Its:
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Chairman
of the Board
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Corporation:
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First
Reliance Bancshares, Inc.
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By:
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Xxxxxxx
Xxxxxxxxxx
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Its:
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Chairman
of the Board
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