AMENDMENT NO. 1 TO SPLIT-DOLLAR AGREEMENT
Exhibit 10.6
AMENDMENT
NO. 1
TO
This
Amendment No. 1, dated as of November 19, 2008 (this “Amendment”), amends the
Split-Dollar Agreement between Prudential Savings Bank (formerly known as
“Prudential Savings Bank, PaSA”), a Pennsylvania-chartered stock savings bank
(the “Company”), and Xxxxxx X. Xxxxxx, Xx. (the “Director”) dated June 22, 1994
(the “Agreement”).
WITNESSETH:
WHEREAS,
Section 7 of the Agreement permits either party, with the consent of the other
party, to terminate the Agreement by giving written notice of termination to the
other party;
WHEREAS, upon
any termination of the Agreement, the Director has the right to purchase the
policy from the Company and to thereafter obtain the cash surrender value of the
policy;
WHEREAS, as a
result of the Director’s right to obtain the cash surrender value of the policy
upon a termination of the Agreement, the Agreement does not satisfy the
exemption for death benefit only plans under Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”);
WHEREAS, the
parties desire to amend the Agreement in order to grandfather the Agreement for
purposes of Section 409A of the Code, with the amount of the grandfathered cash
surrender value to be determined in accordance with the “proportional allocation
method” set forth in Notice 2007-34 issued by the Internal Revenue Service (the
“IRS”);
WHEREAS, the
Agreement is currently deemed to be grandfathered under Treasury Regulation
§1.61-22, which grandfathering treatment under the split dollar regulations
would normally be lost in the event of a material modification of the
Agreement;
WHEREAS, Part
III.D.2 of IRS Notice 2007-34 expressly states that a modification of a
split-dollar life insurance arrangement necessary to avoid the application of
Section 409A of the Code will not be treated as a material modification of the
arrangement for purposes of Treasury Regulation §1.61-22(j);
WHEREAS, this
Amendment satisfies the requirements in Part III.D.2 of IRS Notice 2007-34 for
having the Agreement no longer be subject to Section 409A of the Code, and the
Amendment does not materially enhance the value of the benefits to the Director
under the Agreement;
WHEREAS,
Section 10 of the Agreement permits the parties to amend the Agreement by a
written instrument signed by each of the parties and attached to the Agreement;
and
WHEREAS, the
parties do not expect or intend to make any material modifications to the
Agreement which would result in the grandfathering treatment being lost under
either Treasury Regulation §1.61-22 or Section 409A of the
Code;
NOW,
THEREFORE, in consideration of the mutual agreements herein set forth and
such other consideration the sufficiency of which is hereby acknowledged, the
parties hereby amend the Agreement as follows:
1. Amendment
to Section 6 of the Agreement. Section 6 of the Agreement is
hereby amended to read in its entirety as follows:
“6. DISPOSITION
OF POLICY PROCEEDS. Notwithstanding any beneficiary designation made
on the policy, the Company shall be entitled to the following amounts from the
policy:
(a) Death
of Director and Spouse – At the death of both the Director and his spouse, the
Company shall be entitled to an amount equal to the sum of (i) the Aggregate
Premiums Paid (as defined below) by the Company at the time of such death, and
(ii) the “Non-Grandfathered Cash Surrender Value” (as defined below) of the
policy.
(b) Termination
of Agreement – In the event of the termination of this agreement, the Company
shall be entitled to receive an amount equal to the sum of (i) the Aggregate
Premiums Paid (as defined below) by the Company at the time of the termination
of the agreement, and (ii) the Non-Grandfathered Cash Surrender Value of the
policy.
(c) If
Section 6(a) above is applicable or if the Company surrenders the policy
following a termination of the agreement under Section 6(b) above, then any
indebtedness owed by the Company to the Insurer on the policy shall be deemed to
have been paid by the Company with the proceeds that the Company would have
otherwise received from the Insurer. If the Director purchases the
policy following a termination of the agreement under Section 6(b) above, then
the amount, if any, of the indebtedness owed by the Company to the Insurer on
the policy shall be paid by the Director to the Insurer in satisfaction of such
indebtedness.
(d) For
purposes of this agreement, the “Total Cash Surrender Value” of the policy at
any time shall mean an amount equal at such time to the cash value set forth in
the policy’s table of values, plus the cash value of any paid-up additions, plus
any dividend accumulations and unpaid dividends, less any policy loans to the
Assignee and accrued interest thereon.
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(e) For
purposes of this agreement, the “Grandfathered Cash Surrender Value” of the
policy at any time shall be determined in accordance with the “proportional
allocation method” described in Part III.A.2 of IRS Notice 2007-34 or any
successor thereto. Under such method, the Grandfathered Cash
Surrender Value as of any valuation date shall equal the greater of (i) the
Total Cash Surrender Value of the policy that was earned and vested at December
31, 2004, and (ii) an amount equal to the Total Cash Surrender Value on the
valuation date multiplied by a fraction, the numerator of which is the sum of
the grandfathered premiums actually paid on the policy and the denominator of
which is the sum of all premiums actually paid on the policy by the valuation
date. Grandfathered premiums shall include both premiums actually
paid on or before December 31, 2004 that were earned and vested (as defined in
Treas. Reg. §1.409A-6(a)(2)) as of December 31, 2004 and premiums paid after
such date pursuant to a legally binding right that was earned and vested (as
defined in Treas. Reg. §1.409A-6(a)(2)) as of such date.
(f) For
purposes of this agreement, the “Non-Grandfathered Cash Surrender Value” of the
policy at any time shall equal the Total Cash Surrender Value at such time minus
the Grandfathered Cash Surrender Value at such time.
(g) For
purposes of this agreement, “Aggregate Premiums Paid” at any time shall equal
the cumulative premiums paid by the Company pursuant to Section 3 hereof,
reduced by the amount of any policy dividends paid in cash to the Company or
used to reduce or offset such premiums, and further reduced by any policy loans
to the Company and accrued interest thereon and by any amount received by the
Company from the Director or the Insured for the economic benefit under the
split-dollar arrangement.”
2. Amendment
to Section 7 of the Agreement. The third sentence of Section 7
of the Agreement is hereby amended to read in its entirety as
follows:
“The
purchase price of such policy shall be an amount equal to that which would have
been payable to the Company under Section 6(b) hereof and any payment pursuant
to Section 6(c) hereof with respect to any indebtedness owed by the Company to
the Insurer.”
3. Change in
References to the Insurer. All references in the Agreement to
“Provident Mutual Life Insurance Company” are hereby changed to “Nationwide Life
Insurance Company of America,” with all references to the Insurer being a
reference to Nationwide Life Insurance Company of America.
4. Other
Provisions of the Agreement. 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 other terms or provisions of the
Agreement, all of which are ratified and affirmed in all respects and shall
continue in full force and effect and shall be otherwise
unaffected.
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5. Effectiveness. This
Amendment shall be deemed effective as of the date first written above, as if
executed on such date.
6. Governing
Law. Except to the extent that federal law is applicable, this
Amendment shall be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania.
IN
WITNESS WHEREOF, the Company and the Director have duly executed this Amendment
as of the day and year first written above.
| Attest: | PRUDENTIAL SAVINGS BANK | ||||
| By: | By: | ||||
| Name: | Name: | Xxxxxx X. Xxxxx | |||
| Title: | Title: | President and Chief Executive Officer | |||
| Witness: | DIRECTOR | ||||
| By: | By: | ||||
| Name: | Name: | Xxxxxx X. Xxxxxx, Xx. | |||
| Title: | |||||
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