FIRST AMENDMENT
TO THE
EMPLOYMENT AGREEMENT
BY AND BETWEEN
FIRST FEDERAL BANC OF THE SOUTHWEST, INC.
AND
XXXXXX X. XXXX, XX.
This First Amendment (the "Amendment") to that certain employment agreement
(the "Company Employment Agreement") by and between First Federal Banc of the
Southwest, Inc., a Delaware corporation (the "Company"), with its principal
administrative office at 000 Xxxxx Xxxxxxxxxxxx Xxxxxx, Xxxxxxx, Xxx Xxxxxx
00000, and Xxxxxx X. Xxxx, Xx. (the "Executive") is made effective as of this
10th day of October, 2006.
WHEREAS, the Executive is currently employed as President and Chief
Executive Officer of the Company; and
WHEREAS, the Board of Directors of the Company has met and has determined
that it is in the best interests of the Executive and the Company to amend the
Company Employment Agreement in accordance with the terms of this Amendment; and
WHEREAS, Section 12(b) of the Company Employment Agreement permits the
Company and the Executive to amend the Company Employment Agreement at any time.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions hereinafter set forth, the Company and Executive hereby agree to
the following amendments to the Company Employment Agreement, it being
understood and agreed that except to the amendments specifically provided for
herein, the remaining terms of the Company Employment Agreement shall remain in
full force and effect:
1. Section 4(b)(iii) of the Company Employment Agreement is hereby replaced
in its entirety with the following:
"(iii) at the Company's expense, continued medical, dental and life
insurance coverage substantially identical to the coverage maintained by the
Company or the Bank for Executive prior to his termination of employment. Such
coverage shall continue for each of Executive and his spouse and shall cease
thirty-six (36) months following the Event of Termination."
2. A new Section 4(c) is hereby added to the Company Employment Agreement,
that reads as follows:
"(c)(i) In the event of a Change in Control of the Bank or the Company, the
independent accountants of the Company shall determine if an excess parachute
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
after 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:
(A) 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
(B) 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 (A) and on any payments
under this Clause (B). In computing such tax allowance, the payment to be made
under Clause (A) 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 (A) is made.
(ii) 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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(iii) In each calendar year that Executive receives payments or benefits
under 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.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed on
its behalf by its duly authorized officers, and Executive has set his hand as of
the date first written above.
EXECUTIVE
Dated: October 10, 2006 By: /s/ Xxxxxx X. Xxxx, Xx.
------------------------ --------------------------------------
Xxxxxx X. Xxxx, Xx.
FIRST FEDERAL BANC
OF THE SOUTWEST INC.
Dated: October 10, 2006 By:/s/ Xxxxxx X. Xxxxx
------------------------ --------------------------------------
Xxxxxx X. Xxxxx, Chairman of the Board
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