FIDELITY BANKSHARES, INC.
CHANGE IN CONTROL AGREEMENT
FOR
XXXXXX X. XXXXXX
This CHANGE IN CONTROL AGREEMENT ("Agreement") is made effective as of
December __, 2005 by and between Fidelity Bankshares, Inc., a Delaware
corporation (the "Company") with its principal office at 000 Xxxxxx Xxxxxx, Xxxx
Xxxx Xxxxx, Xxxxxxx 00000, and Xxxxxx X. Xxxxxx (the "Executive").
WHEREAS, the Company and the Executive had previously entered into a Change
in Control Agreement, effective as of January 1, 2004; and
WHEREAS, the Executive has been elected to, and has agreed to serve in the
position of Executive Vice President and Banking Operations Manager for the
Fidelity Federal Bank and Trust (the "Bank"), the wholly-owned subsidiary of the
Company, a position of substantial responsibility; and
WHEREAS, the Company recognizes the substantial contribution the Executive
has made to the Bank and the Company and wishes to protect his position
therewith for the period provided in this Agreement; and
WHEREAS, the Executive is deemed a "Specified Employee" for purposes of new
Section 409A of the Internal Revenue Code ("Code") and the payments under this
Agreement are deemed to be "deferred compensation," such that the Agreement is
required to be modified to conform to the requirements of Code Section 409A.
NOW, THEREFORE, in consideration of the contribution of the Executive, and
upon the other terms and conditions hereinafter provided, the parties hereto
agree as follows:
1. TERM OF AGREEMENT
The term of this Agreement shall be deemed to have commenced as of the date
first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement ("Anniversary Date") and continuing at each Anniversary Date
thereafter, the Board of Directors of the Company (the "Board") may extend the
Agreement for an additional year. The Board will conduct a performance
evaluation of the Executive for purposes of determining whether to extend the
Agreement, and the results thereof shall be included in the minutes of the
Board's meeting.
2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL
(a) Upon the occurrence of a Change in Control of the Bank or the Company
(as herein defined) the provisions of Section 3 shall apply.
(b) A "Change in Control" of the Bank or the Company shall mean (i) a
change in ownership of the Bank or the Company under paragraph (a) below, or
(ii) a change in effective control of the Bank or the Company under paragraph
(b) below, or (iii) a change in the ownership of a substantial portion of the
assets of the Bank or the Company under paragraph (c) below:
(a) Change in the ownership of the Bank or the Company. A
change in the ownership of the Bank or the Company
shall occur on the date that any one person, or more
than one person acting as a group (as defined in
Proposed Treasury Regulation Section
1.409A-3(g)(5)(v)(B)), acquires ownership of stock of
the corporation 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.
(b) Change in the effective control of the Bank or the
Company. A change in the effective control of the
Bank or the Company shall occur on the date that
either (i) any one person, or more than one person
acting as a group (as defined in Proposed Treasury
Regulation Section 1.409A-3(g)(5)(v)(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
corporation possessing 35 percent or more of the
total voting power of the stock of such corporation;
or (ii) a majority of members of the corporation'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
corporation's Board of directors prior to the date
of the appointment or election, provided that this
sub-section (ii) is inapplicable where a majority
shareholder of the Bank or the Company is
another corporation.
(c) Change in the ownership of a substantial portion
of the Bank or the Company's assets. A change in the
ownership of a substantial portion of the Bank or
the Company's assets shall occur on the date that
any one person, or more than one person acting as
a group (as defined in Proposed Treasury Regulation
Section 1.409A-3(g)(5)(v)(B)), 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 corporation that have
a total gross fair market value equal to or more than
40% of the total gross fair market value of (i) all
of the assets of the Bank or 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.
(d) For all purposes hereunder, the definition of Change
in Control shall be construed to be consistent with
the requirements of Proposed Treasury Regulation
Section 1.409A-3(g), except to the extent that such
proposed regulations are superseded by subsequent
guidance.
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(c) The Executive shall not have the right to receive benefits pursuant to
Section 3 hereof in the event of Termination for Cause prior to the Change in
Control. The term "Termination for Cause" shall mean termination because of the
Executive's intentional failure to perform stated duties, personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, willful violation of any law, rule, regulation (other than
traffic violations or similar offenses) or final cease and desist order, or any
material breach of any material provision of this Agreement. In determining
incompetence, the acts or omissions shall be measured against standards
generally prevailing in the savings institution industry. For purposes of this
paragraph, no act or failure to act on the part of the Executive shall be
considered "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive's action or omission
was in the best interest of the Company. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to him a copy of a resolution duly adopted by
the affirmative vote of not less than three-fourths of the members of the Board
at a meeting of the Board called and held for that purpose (after reasonable
notice to the Executive and an opportunity for him, together with counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
the Executive was guilty of conduct justifying Termination for Cause and
specifying the particulars thereof in detail. The Executive shall not have the
right to receive compensation or other benefits for any period after Termination
for Cause. Any stock options granted to Executive under any stock option plan of
the Company or any subsidiary or affiliate thereof, shall become null and void
effective upon Executive's Termination for Cause and shall not be exercisable by
Executive at any time subsequent to such Termination for Cause.
3. CHANGE IN CONTROL BENEFITS
Upon the occurrence of a Change in Control, the Company shall be obligated
to pay the Executive, or in the event of his subsequent death, his beneficiary
or beneficiaries, or his estate, as the case may be, the following:
(a) a payment equal to three times the sum of (i) the highest rate of base
salary, and (ii) highest rate of bonus awarded to the Executive during the prior
three years by the Bank and/or the Company, subject to applicable withholding
taxes. The payments shall be made in a lump sum on the effective date of the
Change in Control. Such payments shall not be reduced in the event Executive
obtains other employment following the Change in Control;
(b) for so long as Executive is employed by the Bank and/or Company, and
continuing for a period of thirty-six (36) months following termination of
employment, continued life insurance coverage for Executive and health care
coverage (including dental) for Executive and Executive's dependents at the
Company's own expense (at the end of which, Executive shall be entitled to elect
the maximum continued health care coverage available in accordance with the
COBRA provisions of Section 4980B of the Code) and such coverage shall be
substantially identical to the coverage maintained by the Bank or the Company
for the Executive prior to the Change in Control;
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(c) any outstanding unvested stock options or shares of restricted stock of
the Company that have been awarded to Executive shall become fully vested as of
the Change in Control;
(d) at the time of or within sixty (60) days (or within such shorter period
to the extent that information can be reasonably obtained) following the Change
in Control, a lump sum payment in an amount equal to the present value of the
Bank's contributions that would be made on Executive's behalf under the Bank's
401(k) Plan and employee stock ownership plan (and any other defined
contribution plan maintained by the Bank) if he continued working for the Bank
for a thirty-six (36) month period following the Change in Control, earning the
base salary that would be achieved during the remaining unexpired term of this
Agreement (assuming, if a Change in Control has occurred, that the annual base
salary increases at the rate of six percent (6%) per year on each Anniversary
Date over the remaining unexpired term of the Agreement) and making the maximum
amount of employee contributions permitted, if any, under such plan or plans,
where such present values are to be determined using a discount rate of six
percent (6%) per year;
(e) at the time of or within sixty (60) days (or within such shorter period
to the extent that information can reasonably be obtained) following the Change
in Control, a lump sum payment in an amount equal to the excess, if any, of (A)
the present value of the benefits to which he would be entitled under the
Fidelity Federal Savings Bank of Florida Supplemental Executive Retirement Plan
(and any other deferred compensation plan for management or highly compensated
employees that are maintained by the Bank) if he continued working for the Bank
for the thirty-six (36) month period following the Change in Control at the base
salary and bonus that would be achieved during the remaining unexpired term of
this Agreement (assuming, if a Change in Control has occurred, that annual base
salary and bonus each increase at the rate of six percent (6%) per year on each
Anniversary Date for the remaining unexpired term of the Agreement) over (B) the
present value of the benefits to which he is actually entitled under any such
plan, as of the date of the Change in Control, where the present values are to
be determined using a discount rate of six percent (6%) and the mortality tables
prescribed under Section 72 of the Code;
(f) Payments under Section 3(d) and Section 3(e) above shall be made
irrespective of whether termination of employment has occurred. Notwithstanding
anything herein to the contrary, if termination of employment occurs
simultaneously with the effective date of the Change in Control, and such
termination is deemed a "Separation from Service" within the meaning of Code
Section 409A, then the payments required under this Section 3 shall be delayed
until the first day of the seventh month following such Separation from Service,
but only if required by Code Section 409A.
4. ADDITIONAL PAYMENTS RELATED TO A CHANGE IN CONTROL
(a) In each calendar year that Executive is entitled to receive payments or
benefits under the provisions of this Agreement, a Change in Control Agreement
between Executive and the Bank dated December __, 2005 ("Bank Change in Control
Agreement") and/or a Company or Bank sponsored employee benefit plan, the
independent accountants of the Company shall determine if an excess parachute
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payment (as defined in Section 4999 of 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 in
connection with a Change in Control, the Initial Excess Parachute Payment shall
be determined. For purposes of this determination, Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income tax
(including, but not limited to, the Alternative Minimum Tax under Code Sections
55-59, if applicable) and state and local income tax, if applicable, at the
highest marginal rate of taxation in the state and locality of Executive's
residence on the date such payment is payable, net of the maximum reduction in
the federal income taxes which could be obtained from any available deduction of
such state and local taxes. Any determination by the independent accountants
shall be binding on the Company and Executive. Within five (5) days after such
determination, 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 Executive in the year in which the
payment under Clause (i) is made.
(c) 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") Executive must
pay to the Company or the Company must pay to Executive in order to put
Executive (or the Company, as the case may be) in the same position as 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 Executive shall repay the
Adjustment Amount to the Company, as the case may be. The purpose of this
paragraph is to assure that (i) Executive is not reimbursed more for the golden
parachute excise tax than 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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(d) In each calendar year that Executive receives payments or benefits
under the Bank Change in Control Agreement and/or this Agreement and/or a
Company or Bank sponsored employee benefit plan, 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 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 Section 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). Executive shall cooperate
fully with the Company in any such proceeding. Executive shall not enter into
any compromise or settlement or otherwise prejudice any rights the Company may
have in connection therewith without prior consent of the Company.
5. SOURCE OF PAYMENTS
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Company. Notwithstanding any provision
herein to the contrary, to the extent that payments and benefits, as provided in
this Agreement, are paid to or received by Executive under the Bank Change in
Control Agreement, such compensation payments and benefits will be subtracted
from any amounts due simultaneously to Executive under similar provisions of
this Agreement.
(b) For financial statement purposes, Change in Control payments made
pursuant to the provisions of Section 3 of each of the Agreements shall be
charged and paid in accordance with the terms of Section 3(g) of the Bank Change
in Control Agreement and Section 4 of this Agreement.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Company and the Executive, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Executive of a kind elsewhere provided. No provision
of this Agreement shall be interpreted to mean that the Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
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7. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of, the
Executive, the Company and their respective successors and assigns.
8. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REGULATORY PROVISIONS
Notwithstanding anything herein contained to the contrary, any payments to
the Executive by the Company are subject to and conditioned upon their
compliance with Section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1828(k), and the regulations promulgated thereunder in 12 C.F.R. Part
359.
10. SEVERABILITY
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
11. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
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12. GOVERNING LAW
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Florida, unless
preempted by Federal law as now or hereafter in effect.
Except as otherwise expressly provided elsewhere in this Agreement, in the
event that any dispute should arise between the parties as to the meaning,
effect, performance, enforcement, or other issue in connection with this
Agreement, which dispute cannot be resolved by the parties, the dispute shall be
decided by final and binding arbitration of a panel of three arbitrators.
Proceedings in arbitration and its conduct shall be governed by the rules of the
American Arbitration Association ("AAA") applicable to commercial arbitrations
(the "Rules") except as modified by this Section. The Executive shall appoint
one arbitrator, the Company shall appoint one arbitrator, and the third shall be
appointed by the two arbitrators appointed by the parties. The third arbitrator
shall be impartial and shall serve as chairman of the panel. The parties shall
appoint their arbitrators within thirty (30) days after the demand for
arbitration is served, failing which the AAA promptly shall appoint a defaulting
party's arbitrator, and the two arbitrators shall select the third arbitrator
within fifteen (15) days after their appointment, or if they cannot agree or
fail to so appoint, then the AAA promptly shall appoint the third arbitrator.
The arbitrators shall render their decision in writing within thirty (30) days
after the close of evidence or other termination of the proceedings by the
panel, and the decision of a majority of the arbitrators shall be final and
binding upon the parties, nonappealable, except in accordance with the Rules and
enforceable in accordance with the Florida Arbitration Code or any applicable
successor legislation. Any hearings in the arbitration shall be held in Palm
Beach County, Florida unless the parties shall agree upon a different venue, and
shall be private and not open to the public. Each party shall bear the fees and
expenses of its arbitrator, counsel, and witnesses, and the fees and expenses of
the third arbitrator shall be shared equally by the parties. The costs of the
arbitration, including the fees of AAA, shall be borne as directed in the
decision of the panel.
13. PAYMENT OF LEGAL FEES
All reasonable legal fees paid or incurred by the Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Company if the Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
14. INDEMNIFICATION
The Company shall provide the Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
the Executive (and his heirs, executors and administrators) to the fullest
extent permitted under federal law and as provided in the Company's Charter and
Bylaws against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Company
(whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
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15. SUCCESSOR TO THE COMPANY
The Company shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Company, expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Agreement, in the same manner and to the same extent that the Company would
be required to perform if no such succession or assignment had taken place.
16. SIGNATURES
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer, and the Executive has signed this Agreement, on the
day and date first above written.
ATTEST: FIDELITY BANKSHARES, INC.
________________ By:
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President
WITNESS: EXECUTIVE
________________ By:
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Xxxxxx X. Xxxxxx
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