-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EsnvzGMGxCqxxpKg+HqQzvVA9iBt9j/KZ6HQPzYvsh13CPBWYv5GJXIUofQIgMG9 JaeinEcSE6mh1lPDc0OTKg== 0000943374-08-001813.txt : 20081120 0000943374-08-001813.hdr.sgml : 20081120 20081120171811 ACCESSION NUMBER: 0000943374-08-001813 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20081117 ITEM INFORMATION: Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20081120 DATE AS OF CHANGE: 20081120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITIZENS SOUTH BANKING CORP CENTRAL INDEX KEY: 0001051871 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 542069979 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-23971 FILM NUMBER: 081204654 BUSINESS ADDRESS: STREET 1: 245 WEST MAIN AVENUE CITY: GASTONIA STATE: NC ZIP: 28052-4140 BUSINESS PHONE: 7048685200 MAIL ADDRESS: STREET 1: P.O. BOX 2249 CITY: GASTONIA STATE: NC ZIP: 28053-2249 FORMER COMPANY: FORMER CONFORMED NAME: GASTON FEDERAL BANCORP INC DATE OF NAME CHANGE: 19971222 8-K 1 form8k_111708.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 Date of Report: November 17, 2008 ----------------- Citizens South Banking Corporation ---------------------------------- (Exact Name of Registrant as Specified in Charter) Delaware 0-23971 54-2069979 - ---------------------------- ------------------------ -------------- (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification No.) 519 South New Hope Road, Gastonia, North Carolina 28054-4040 - ------------------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: 704-868-5200 ------------ Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CRF 240.13e-4(c)) Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. (a) Not applicable. (b) Not applicable. (c) Not applicable. (d) Not applicable. (e) Amended and Restated Employment Agreements. On November 17, 2008, Citizens South Banking Corporation (the "Company") and Citizens South Bank (the "Bank"), a wholly-owned subsidiary of the Company, entered into an amended and restated employment agreement with Kim S. Price, President and Chief Executive Officer of the Company and the Bank, and the Bank entered into amended and restated employment agreements with James Louis Brewer, Senior Vice President of the Bank, and Ira McDonald Flowe, Jr., Senior Vice President of the Bank (collectively, the "Amended and Restated Employment Agreements"). The Amended and Restated Employment Agreements supersede and replace the prior employment agreements entered into with Messrs. Price, Brewer and Flowe. The Amended and Restated Employment Agreements were primarily amended and restated in order to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), including the final regulations issued by the Internal Revenue Service. Section 409A of the Code governs the deferral of compensation where a director, officer or employee has a legally binding right to compensation that is payable in a future year. Section 409A imposes new requirements with respect to deferral elections, payment events and payment elections. As part of the revisions to comply with Section 409A of the Code, the Bank provided that certain cash severance payments will be delayed by six months if Mr. Price is deemed to be a specified employee under the final regulations under Section 409A of the Code. A specified employee is generally any employee whose annual compensation exceeds a specified dollar amount ($150,000 for 2008), which amount adjusts annually. Furthermore, various defined terms, including the definitions of disability and change in control, were revised to be consistent with Section 409A of the Code. As amended, Mr. Price's employment agreement provides that cash severance and other benefits will be payable upon the occurrence of a change in control. Previously, the employment agreement required a termination of employment following a change in control for cash severance and benefits to be payable. Similar changes were made in the Amended and Restated Employment Agreements between Messrs. Brewer and Flowe and the Bank. In addition, the amount of the disability pay was increased to provide that the executive will be entitled to his current base salary, less any amounts payable under a disability insurance plan, for the remaining term of the employment agreement. The foregoing description of the Amended and Restated Employment Agreements are qualified in its entirety by reference to the Amended and Restated Employment Agreements that are attached hereto as Exhibits 10.1, 10.2 and 10.3 of this Current Report, and is incorporated by reference into this Item 5.02. Amended and Restated Severance Agreements. On November 17, 2008, the Bank entered into amended and restated severance agreements with Daniel M. Boyd, IV, Gary F. Hoskins, J. Stephen Huffstetler, Michael R. Maguire and Paul L. Teem, Jr. (collectively, the "Amended and Restated Severance Agreements"). The Amended and Restated Severance Agreements supersede and replace the prior severance agreements entered into with Messrs. Boyd, Hoskins, Huffstetler, Maguire and Teem. The Amended and Restated Severance Agreements were primarily amended in order to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), including the final regulations issued by the Internal Revenue Service. As part of the revisions to comply with Section 409A of the Code, the Bank provided that certain cash severance payments will be delayed by six months if the executive is deemed to be a specified employee under the final regulations under Section 409A of the Code. A specified employee is generally any employee whose annual compensation exceeds a specified dollar amount ($150,000 for 2008), which amount adjusts annually. Each Amended and Restated Severance Agreement provides that cash severance and benefits will be payable upon a voluntary or involuntary termination of employment following a change in control. Previously, a termination was required to occur within twelve months of a change in control and an executive could voluntarily terminate only under certain adverse conditions to receive cash severance and benefits. The foregoing description of the amendment is qualified in its entirety by reference to the form of the amended and restated agreement which is attached hereto as Exhibit 10.4 of this Current Report, and is incorporated by reference into this Item 5.02. Form of Amendment to the Salary Continuation Agreements. On November 17, 2008, the Bank entered into an amendment to the salary continuation agreements entered into with Daniel M. Boyd, IV, Mark A. Carswell, II, Gary F. Hoskins, J. Stephen Huffstetler, Michael R. Maguire, Kim S. Price and Paul L. Teem, Jr., (collectively, the "Salary Continuation Agreements"). The Salary Continuation Agreements were primarily amended in order to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), including the final regulations issued by the Internal Revenue Service. As part of the revisions to comply with Section 409A of the Code, the Bank provided that certain cash severance payments will be delayed by six months if the executive is deemed to be a specified employee under the final regulations under Section 409A of the Code. A specified employee is generally any employee whose annual compensation exceeds a specified dollar amount ($150,000 for 2008),which amount adjusts annually. Various defined terms, including the definitions of disability, good reason and change in control, were revised to be consistent with Section 409A of the Code. The Bank also deleted a provision that would have otherwise allowed a benefit to be paid at an earlier time, in order to comply with Section 409A of the Code. The foregoing description of the amendment is qualified in its entirety by reference to the form of the amendment attached hereto as Exhibit 10.5 of this Current Report, and is incorporated by reference into this Item 5.02. Form of Amendment to the Director Agreements. On November 17, 2008, the Bank entered into an amendment to the director agreements entered into with James J. Fuller, David W. Hoyle, Sr., Charles D. Massey, Eugene R. Matthews, II, and Ben R. Rudisill, II (collectively, the "Director Agreements"). The Director Agreements were primarily amended in order to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), including the final regulations issued by the Internal Revenue Service. As part of the revisions to comply with Section 409A of the Code, the Bank revised various defined terms, including the definitions of disability and change in control, to be consistent with Section 409A of the Code. The foregoing description of the amendment is qualified in its entirety by reference to the form of the amendment attached hereto as Exhibit 10.6 of this Current Report, and is incorporated by reference into this Item 5.02. Form of Amendment to the Director Compensation Agreements. On November 17, 2008, the Bank entered into an amendment to the amended deferred compensation and income continuation agreements entered into with James J. Fuller, David W. Hoyle, Sr., Charles D. Massey and Ben R. Rudisill, II (collectively, the "Director Compensation Agreements"). The Director Compensation Agreements were primarily amended in order to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), including the final regulations issued by the Internal Revenue Service. As part of the revisions to comply with Section 409A of the Code, the Bank revised various defined terms, including the definitions of diability and change in control, to be consistent with Section 409A of the Code. The foregoing description of the amendment is qualified in its entirety by reference to the form of the amendment attached hereto as Exhibit 10.7 of this Current Report, and is incorporated by reference into this Item 5.02. Item 9.01. Financial Statements and Exhibits. (a) Financial Statements of Businesses Acquired: None (b) Pro Forma Financial Information: None (c) Shell Company Transactions. None (d) Exhibits: Exhibit Number Description -------------- ----------- Exhibit 10.1 Amended and Restated Employment Agreement between Citizens South Bank and Kim S. Price, dated November 17, 2008. Exhibit 10.2 Amended and Restated Employment Agreement between Citizens South Bank and James Louis Brewer, dated November 17, 2008. Exhibit 10.3 Amended and Restated Employment Agreement between Citizens South Bank and Ira McDonald Flowe, Jr., dated November 17, 2008. Exhibit 10.4 Form of Amended and Restated Severance Agreements between Citizens South Bank and certain officers, dated November 17, 2008. Exhibit 10.5 Form of Amendment to the Salary Continuation Agreement between Citizens South Bank and certain officers, dated November 17, 2008. Exhibit 10.6 Form of Amendment to the Director Retirement Agreement between Citizens South Bank and certain directors, dated November 17, 2008. Exhibit 10.7 Form of Amendment to the Director Compensation Agreement between Citizens South Bank and certain directors, dated November 17, 2008. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. CITIZENS SOUTH BANKING CORPORATION DATE: November 17, 2008 By: /s/ Kim S. Price ---------------------------------------- Kim S. Price President and Chief Executive Officer By: /s/ Gary F. Hoskins ---------------------------------------- Gary F. Hoskins Chief Financial Officer EX-10.1 2 exhibit101_111708.txt EXHIBIT 10.1 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Employment Agreement") is made and entered into as of November 17, 2008 by and among Citizens South Banking Corporation, a Delaware corporation, Citizens South Bank, a federally chartered savings bank and wholly owned subsidiary of Citizens South Banking Corporation (the "Company"), and Kim S. Price, President and Chief Executive Officer (the "EXECUTIVE"). Citizens South Banking Corporation and Citizens South Bank are hereinafter sometimes collectively or individually referred to as "CITIZENS SOUTH." WHEREAS, the Executive is currently employed as the President and Chief Executive Officer of Citizens South pursuant to an employment agreement between Citizens South and the Executive originally entered into as of May 17, 2004 (the "Original Agreement"); WHEREAS, Citizens South desires to amend and restate the Original Agreement in order to make changes to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), as well as certain other changes; WHEREAS, Citizens South desires to ensure that Citizens South is assured of the continued availability of the Executive's services as provided in this Agreement; WHEREAS, the Executive is willing to serve Citizens South on the terms and conditions hereinafter set forth; and WHEREAS, none of the conditions or events included in the definition of the term "golden parachute payment" that is set forth in Section 18(k)(4)(A)(ii) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule 359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists or, to the best knowledge of Citizens South, is contemplated insofar as Citizens South or any affiliates are concerned; NOW THEREFORE, in consideration of these premises, the mutual covenants contained herein, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 EMPLOYMENT 1.1 EMPLOYMENT. Citizens South Banking Corporation and Citizens South Bank hereby employ the Executive to serve as President and Chief Executive Officer according to the terms and conditions of this Employment Agreement, effective on the date first written above (the "Effective Date") and for the period stated in Article 3. The Executive hereby accepts employment according to the terms and conditions of this Employment Agreement and for the period stated in Article 3. The Executive also agrees to serve as an officer or director of any subsidiary or affiliate of Citizens South, if elected. For purposes of this Employment Agreement, the term "affiliate" means any entity that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with Citizens South Bank. 1.2 SERVICE ON THE BOARD OF DIRECTORS. (a) BOARD OF DIRECTORS OF CITIZENS SOUTH BANKING CORPORATION. The Executive is currently serving as a director of Citizens South Banking Corporation. Citizens South Banking Corporation shall nominate the Executive for election as a director at such times as necessary so that the Executive will, if elected by stockholders, remain a director of Citizens South Banking Corporation throughout the term of this Employment Agreement. The Executive hereby consents to serve as a director of Citizens South Banking Corporation, and the Executive hereby consents to being named as a director of Citizens South Banking Corporation in documents filed by Citizens South Banking Corporation with the Securities and Exchange Commission. The Executive shall be deemed to have resigned as a director of Citizens South Banking Corporation effective immediately after termination of the Executive's employment under Article 5 of this Employment Agreement, regardless of whether the Executive submits a formal, written resignation as director. (b) BOARD OF DIRECTORS OF CITIZENS SOUTH BANK. The Executive is currently serving as a director of Citizens South Bank. The board of directors of Citizens South Banking Corporation and the board of directors of Citizens South Bank shall undertake every lawful effort to ensure that the Executive continues throughout the term of his employment to be elected or reelected as a director of Citizens South Bank. The Executive shall be deemed to have resigned as a director of Citizens South Bank effective immediately after termination of the Executive's employment under Article 5 of this Employment Agreement, regardless of whether the Executive submits a formal, written resignation as director. ARTICLE 2 DUTIES As President and Chief Executive Officer of Citizens South Banking Corporation, the Executive shall serve under the direction of Citizens South Banking Corporation's board of directors and in accordance with Citizens South Banking Corporation's Articles of Incorporation and Bylaws, as each may be amended or restated from time to time. As President and Chief Executive Officer of Citizens South Bank, the Executive shall serve under the direction of Citizens South Bank's board of directors and in accordance with Citizens South Bank's Charter and Bylaws, as each may be amended or restated from time to time. The Executive shall report directly to the board of directors. He shall serve Citizens South faithfully, diligently, competently, and to the best of his ability, and he shall exclusively devote his full time, energy, and attention to the business of Citizens South and to the promotion of Citizens South's interests throughout the term of this Employment Agreement. Without the written consent of Citizens South Banking Corporation's board of directors, the Executive shall not render services to or for any person, firm, corporation, or other entity or organization in exchange for compensation, regardless of the form in which such compensation is paid and regardless of whether it is paid directly or indirectly to the Executive. Nothing in this Article 2 shall prevent the Executive from managing his personal investments and affairs, provided that doing so does not interfere with the proper performance of his duties and responsibilities as President and Chief Executive Officer. ARTICLE 3 TERM OF EMPLOYMENT The initial term of this Employment Agreement shall be for a period of three years, commencing on the Effective Date. On the first anniversary of the Effective Date of this Employment Agreement and on each anniversary thereafter, this Employment Agreement shall be extended automatically for one additional year unless Citizens South's board of directors determines that the term shall not be extended. If the board of directors determines not to extend the term, it shall notify the Executive in writing at least ten days before the anniversary date. If the board decides not to extend the term of this Employment Agreement, this Employment Agreement shall nevertheless remain in force until its term expires. The board's decision not to extend the term of this Employment Agreement shall not - by itself - give the Executive any rights under this Employment Agreement to claim an adverse change in his position, compensation, or circumstances or otherwise to claim entitlement to severance or termination benefits under Articles 6 or 7 of this Employment Agreement. References herein to the term of this Employment Agreement shall refer to the initial term, as the same may be extended. Unless sooner terminated, the Executive's employment shall terminate when he attains age 65. For one full year after expiration of the term of this Employment Agreement or termination of the Executive's employment, the Executive shall furnish information and assistance to Citizens South as may reasonably be required by Citizens South in any litigation in which Citizens South or any of subsidiary or affiliate is or may become a party, upon reasonable notice to the Executive. ARTICLE 4 COMPENSATION AND OTHER BENEFITS 4.1 BASE SALARY. In consideration of the Executive's performance of his obligations under this Employment Agreement, Citizens South Banking Corporation shall pay or cause to be paid to the Executive a salary at the annual rate of not less than $259,375, payable in semi-monthly installments. The Executive's salary shall be reviewed annually by the Compensation Committee of Citizens South's board of directors or by such other board committee as has jurisdiction over executive compensation. The Executive's salary may be increased at the discretion of the committee having jurisdiction over executive compensation. However, the Executive's salary shall not be reduced. The Executive's salary, as the same may be increased from time to time, is referred to in this Employment Agreement as the "BASE SALARY." Nothing in this Employment Agreement is intended to govern or restrict the kind or amount of compensation the Executive may receive in his capacity as a director of Citizens South. 4.2 BENEFIT PLANS AND PERQUISITES. The Executive shall be entitled throughout the term of this Employment Agreement to participate in any and all officer or employee compensation, bonus, incentive, and benefit plans in effect from time to time, including without limitation plans providing pension, medical, dental, disability, and group life benefits, including Citizens South's 401(k) Plan, and to receive any and all other fringe benefits provided from time to time, provided that the Executive satisfies the eligibility requirements for any such plans or benefits. Without limiting the generality of the foregoing: (a) PARTICIPATION IN STOCK PLANS. The Executive shall be eligible to participate in Citizens South's stock option plans and other stock-based compensation, incentive, bonus, or purchase plans existing on the date of this Employment Agreement or adopted during the term of this Employment Agreement. (b) CLUB DUES. During the term of this Employment Agreement, Citizens South shall pay or cause to be paid the Executive's membership assessments and dues in civic clubs and such expenses shall be paid promptly by Citizens South and in any event no later than March 15 of the year immediately following the year in which the expenses were incurred. (c) REIMBURSEMENT OF BUSINESS EXPENSES. The Executive shall be entitled to reimbursement of all reasonable business expenses incurred in performing his obligations under this Employment Agreement, including but not limited to all reasonable business travel and entertainment expenses incurred while acting at the request of or in the service of Citizens South and reasonable expenses for attendance at annual and other periodic meetings of trade associations and such reimbursement shall be paid promptly by Citizens South and in any event no later than March 15 of the year immediately following the year in which the expenses were incurred. (d) USE OF AUTOMOBILE. The Executive shall have the use of an automobile titled in Citizens South's name for use by the Executive in carrying out his duties for Citizens South, the insurance and maintenance expenses of which shall be paid by Citizens South. As additional compensation, the Executive may use such automobile for personal purposes, provided that the Executive renders an accounting of his business and personal use to Citizens South in accordance with regulations under the Code. 4.3 VACATION. The Executive shall be entitled to paid annual vacation and sick leave in accordance with the policies established from time to time by Citizens South. The Executive shall not be entitled to any additional compensation for failure to use allotted vacation or sick leave, nor shall the Executive be entitled to accumulate unused sick leave from one year to the next unless authorized by Citizens South's board of directors to do so. Vacation days not used in a given year may not be carried over from one calendar year to the next. 4.4 INDEMNIFICATION AND INSURANCE. (a) INDEMNIFICATION. Citizens South Banking Corporation shall indemnify the Executive or cause the Executive to be indemnified with respect to his activities as a director, officer, employee, or agent of Citizens South Banking Corporation or Citizens South Bank or as a person who is serving or has served at the request of Citizens South Banking Corporation (a "REPRESENTATIVE") as a director, officer, employee, agent, or trustee of an affiliated corporation, joint venture trust or other enterprise, domestic or foreign, in which Citizens South Banking Corporation has a direct or indirect ownership interest against expenses (including without limitation attorneys' fees, judgments, fines, and amounts paid in settlement) actually and reasonably incurred by him ("EXPENSES") in connection with any claim against the Executive that is the subject of any threatened, pending, or completed action, suit, or other type of proceeding, whether civil, criminal, administrative, investigative, or otherwise and whether formal or informal (a "PROCEEDING"), to which the Executive was, is, or is threatened to be made a party by reason of the Executive being or having been such a director, officer, employee, agent, or representative. The indemnification provided herein shall not be exclusive of any other indemnification or right to which the Executive may be entitled and shall continue after the Executive has ceased to occupy a position as an officer, director, employee, agent or representative with respect to Proceedings relating to or arising out of the Executive's acts or omissions during his service in such position. The benefits provided to the Executive under this Employment Agreement for the Executive's service as a representative shall be payable if and only if and only to the extent that reimbursement to the Executive by the affiliated entity with which the Executive has served as a representative, whether pursuant to agreement, applicable law, articles of incorporation or association, by-laws or regulations of the entity, or insurance maintained by such affiliated entity, is insufficient to compensate the Executive for Expenses actually incurred and otherwise payable by Citizens South under this Employment Agreement. Any payments in fact made to or on behalf of the Executive directly or indirectly by the affiliated entity with which the Executive served as a representative shall reduce the obligation of Citizens South hereunder. (b) EXCLUSIONS. Anything herein to the contrary notwithstanding, however, nothing in this section 4.4 requires indemnification, reimbursement, or payment by Citizens South Banking Corporation or Citizens South Bank, and the Executive shall not be entitled to demand indemnification, reimbursement or payment hereunder: (1) if and to the extent indemnification, reimbursement, or payment constitutes a "prohibited indemnification payment" within the meaning of Federal Deposit Insurance Corporation Rule 359.1(l)(1) [12 CFR 359.1(l)(1)], or (2) for any claim or any part thereof as to which the Executive shall have been determined by a court of competent jurisdiction, from which no appeal is or can be taken, by clear and convincing evidence, to have acted with deliberate intent to cause injury to Citizens South Banking Corporation or Citizens South Bank or with reckless disregard for the best interests of Citizens South Banking Corporation, or (3) for any claim or any part thereof arising under Section 16(b) of the Securities Exchange Act of 1934 as a result of which the Executive is required to pay any penalty, fine, settlement, or judgment, or (4) for any obligation of the Executive based upon or attributable to the Executive gaining in fact any personal gain, profit, or advantage to which he was not entitled, or (5) any proceeding initiated by the Executive without the consent or authorization of Citizens South Banking Corporation's board of directors, but this exclusion shall not apply with respect to any claims brought by the Executive (a) to enforce his rights under this Employment Agreement, or (b) in any Proceeding initiated by another person or entity whether or not such claims were brought by the Executive against a person or entity who was otherwise a party to such proceeding. (c) INSURANCE. Citizens South Banking Corporation shall maintain or cause to be maintained liability insurance covering the Executive throughout the term of this Employment Agreement. ARTICLE 5 TERMINATION OF EMPLOYMENT 5.1 TERMINATION BY THE EMPLOYER. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically on the date of the Executive's death. If the Executive dies in active service to Citizens South, his estate, legal representatives, or named beneficiaries (as directed by Executive in writing) shall for one year after the date of the Executive's death be paid the Base Salary at the rate in effect at the time Executive's death which shall commence within 30 days following the date of the Executive's death, and Citizens South shall continue to provide non-taxable medical and dental benefits normally provided for an executive's family for one year after the Executive's death. By delivery of written notice 30 days in advance to the Executive, Citizens South may terminate the Executive's employment if the Executive is disabled. For purposes of this Employment Agreement, the Executive shall be deemed to be "DISABLED" if: (i) the Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, or last for a continuous period of not less than 12 months; (ii) by reason of any medically determinable physical or mental impairment that can be expected to result in death, or last for a continuous period of not less than 12 months, the Executive is receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Citizens South; or (iii) Executive is determined to be totally disabled by the Social Security Administration. If the Executive is terminated by either of Citizens South Banking Corporation or Citizens South Bank because of disability, his employment with the other shall also terminate at the same time. (b) TERMINATION WITHOUT CAUSE. With written notice to the Executive 60 days in advance, Citizens South may terminate the Executive's employment without Cause. If the Executive is terminated without Cause by either of Citizens South Banking Corporation or Citizens South Bank, he shall be deemed also to have been terminated without Cause by the other. (c) TERMINATION WITH CAUSE. Effective on the date on which termination notice is given to the Executive and without the requirement of advance notice to the Executive, Citizens South may terminate the Executive's employment with Cause. If the Executive is terminated for Cause by either of Citizens South Banking Corporation or Citizens South Bank, he shall be deemed also to have been terminated for Cause by the other. The Executive shall not be deemed to have been terminated for Cause under this Employment Agreement unless and until there is delivered to him a copy of a resolution duly adopted at a meeting of the board of directors called and held for such purpose, which resolution shall (1) contain findings that, in the good faith opinion of the board, the Executive has committed an act constituting Cause, and (2) specify the particulars thereof. The resolution shall be deemed to have been duly adopted if and only if it is adopted by the affirmative vote of at least 75% of the directors of Citizens South Banking Corporation then in office or 75% of the directors of Citizens South Bank then in office, in either case excluding the Executive, at a meeting duly called and held for that purpose. Notice of the meeting and the proposed termination for Cause shall be given to the Executive a reasonable amount of time before the board's meeting. The Executive and his counsel (if the Executive chooses to have counsel present) shall have a reasonable opportunity to be heard by the board at the meeting. Nothing in this Employment Agreement limits the Executive's or his beneficiaries' right to contest the validity or propriety of the board's determination of Cause. (d) DEFINITION OF CAUSE. For purposes of this Employment Agreement, "CAUSE" means termination because of the Executive's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, material breach of Citizens South's Code of Ethics, material violation of the Sarbanes-Oxley requirements for officers of public companies that in the reasonable opinion of the directors of Citizens South will likely cause substantial financial harm or substantial injury to the reputation of Citizens South, willfully engaging in actions that in the reasonable opinion of the directors of Citizens South will likely cause substantial financial harm or substantial injury to the business reputation of Citizens South, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than routine traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the contract. 5.2 TERMINATION BY THE EXECUTIVE. The Executive may terminate his employment with written notice to Citizens South Banking Corporation 60 days in advance, whether with or without Good Reason. If the Executive terminates with Good Reason, the termination will take effect at the conclusion of the 60-day period unless the event or circumstance constituting Good Reason is cured by Citizens South or unless the notice of termination for Good Reason is revoked by the Executive within the 60-day period. For purposes of this Agreement, "GOOD REASON" means any of the following events occur - (a) Reduced Base Salary: involuntary reduction of the Executive's Base Salary, (b) Participation in Benefit Plans Reduced or Terminated: involuntary reduction of the Executive's bonus, incentive, and other compensation award opportunities under Citizens South Banking Corporation's benefit plans and Citizens South Bank's benefit plans, unless in the case of either company a company-wide reduction of all officers' award opportunities occurs simultaneously, or involuntary termination of the Executive's participation in any officer or employee benefit plan maintained by Citizens South Banking Corporation or by Citizens South Bank, unless the plan is terminated because of changes in law or loss of tax deductibility to Citizens South with respect to contributions to the plan, or unless the plan is terminated as a matter of Citizens South Banking Corporation policy or Citizens South Bank policy applied equally to all participants in the plan, (c) Reduced Responsibilities or Status: (1) assignment to the Executive of duties that are materially inconsistent with the Executive's position as Citizens South Banking Corporation's principal executive officer or that represent a reduction of his authority, (2) failure to appoint or reappoint the Executive as President and Chief Executive Officer of Citizens South Banking Corporation, (3) failure to nominate the Executive as a director of Citizens South Banking Corporation, or (4) failure to elect or reelect the Executive or cause the Executive to be elected or reelected to the board of directors of Citizens South Bank in accordance with Section 1.2(b) of this Employment Agreement, without the Executive's written consent, (d) Failure to Obtain Assumption Agreement: failure to obtain an assumption of Citizens South's obligations under this Employment Agreement by any successor to Citizens South Banking Corporation, regardless of whether such entity becomes a successor to Citizens South Banking Corporation as a result of a merger, consolidation, sale of assets, or other form of reorganization, (e) Material Breach: a material breach of this Employment Agreement by Citizens South that is not corrected within a reasonable time, or (f) Relocation of the Executive: relocation of Citizens South Banking Corporation's principal executive offices, or requiring the Executive to change his principal work location, to any location that is more than 15 miles from the location of Citizens South Banking Corporation's principal executive offices on the date of this Employment Agreement. 5.3 NOTICE. Any purported termination by Citizens South or by the Executive shall be communicated by written notice of termination to the other. The notice must state the specific termination provision of this Employment Agreement relied upon. The notice must also state the date on which termination shall become effective, which shall be a date not earlier than the date of the termination notice. If termination is for Cause or with Good Reason, the notice must state in reasonable detail the facts and circumstances forming the basis for termination of the Executive's employment. ARTICLE 6 COMPENSATION AND BENEFITS AFTER TERMINATION 6.1 CAUSE. If the Executive's employment terminates for Cause, the Executive shall receive the salary to which he was entitled through the date on which termination became effective and any other benefits that may be available to him under Citizens South's benefit plans and policies in effect on the date of termination. All unvested stock options held by the Executive shall become null and void effective immediately upon the Executive's receipt of notice of termination for Cause. 6.2 TERMINATION BY THE EXECUTIVE OTHER THAN FOR GOOD REASON. If the Executive terminates employment other than for Good Reason, the Executive shall receive the salary to which he is entitled through the date on which his termination becomes effective and any other benefits that may be available to him under Citizens South's benefit plans and policies. 6.3 CONTINUED BASE SALARY IN THE CASE OF TERMINATION BECAUSE OF DISABILITY. If the Executive's employment terminates because of disability, the Executive shall receive the benefits provided under any disability program sponsored by Citizens South. To the extent that such benefits are less than Executive's Base Salary, Citizens South shall pay the Executive an amount equal to the difference between such disability plan benefits and the amount of the Executive's Base Salary for the remaining term of this Employment Agreement or for one year, whichever is longer. Accordingly, any payments required hereunder shall commence within thirty (30) days from the Executive's termination due to disability and be payable in semi-monthly installments. 6.4 TERMINATION WITHOUT CAUSE AND TERMINATION FOR GOOD REASON. (a) CONTINUED SALARY. If Citizens South terminates the Executive's employment without Cause or if the Executive terminates employment for Good Reason, the Executive shall continue to receive the Base Salary for the unexpired term of this Employment Agreement, but he shall not be entitled to continued participation in Citizens South's or a subsidiary's 401(k) retirement plan or any stock-based plans. Payments of Base Salary under this Section 6.4(a) shall not be reduced or offset by any other compensation the Executive receives through other employment after termination of his employment with Citizens South. The provisions of this Section 6.4 are subject to Article 9 of this Employment Agreement. Payments of Base Salary shall be made in semi-monthly installments and shall commence within 30 days following the Executive's termination of employment pursuant to this Section 6.4. Notwithstanding the foregoing, in the event the Executive is a Specified Employee (within the meaning of Treasury Regulations ss.1.409A-1(i)), then, to the extent necessary to avoid penalties under Code Section 409A, any payments to which Executive is entitled for the first six months following termination of employment shall be held and shall be paid to the Executive on the first day of the seventh month following termination of the Executive's employment. The withheld payments plus interest at six percent (6%) shall be paid to the Executive on the first day of the seventh month following the Executive's termination of employment pursuant to this Section 6.4. Citizens South and the Executive acknowledge and agree that the compensation and benefits under this Section 6.4 shall not be payable if compensation and benefits are payable or shall have been previously paid to the Executive under Article 7 of this Agreement. That is, the parties acknowledge and agree that the Executive shall not be entitled to duplicative compensation and benefit payments under this Section 6.4 and under Article 7 if the Executive's employment is terminated without Cause or if the Executive terminates employment with Good Reason. (b) CASH-OUT OF VALUE OF UNVESTED STOCK OPTIONS. If Citizens South terminates the Executive's employment without Cause or if the Executive terminates employment with Good Reason before full vesting of stock options then held by him, the Executive shall be entitled to receive from Citizens South an amount in cash equal to the value of the unvested stock options as of the effective date of termination. Amounts payable under this paragraph (b) shall be paid in a single lump sum at the same time the first payment is made pursuant to Section 6.4(a) above. (c) CASH-OUT OF THE EXECUTIVE'S 401(K) RETIREMENT PLAN ACCOUNT. If Citizens South terminates the Executive's employment without Cause or if the Executive terminates employment with Good Reason before full vesting of the amounts credited to his account as a result of matching or discretionary contributions by Citizens South under Citizens South's 401(k) Plan, the Executive shall be entitled to receive from Citizens South an amount in cash equal to the value of any unvested contributions payable at the same time the first payment is made pursuant to Section 6.4(a) above. (d) SEPARATION FROM SERVICE. For purposes of Section 6.4, termination of the Executive's employment without Cause and the Executive's termination of employment for Good Reason as used herein shall be construed to require a "Separation from Service" as defined in Code Section 409A and the Treasury Regulations promulgated thereunder, provided, however, that Citizens South and the Executive reasonably anticipate that the level of bona fide services the Executive would perform after termination would permanently decrease to a level that is less than 50% of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period. 6.5 POST-TERMINATION LIFE AND MEDICAL COVERAGE. If the Executive's employment terminates involuntarily but without Cause, or voluntarily but with Good Reason, or because of disability, until expiration of the remaining term of this Employment Agreement Citizens South shall continue, or cause to be continued at Citizens South's expense, life insurance and non-taxable medical and dental coverage substantially identical to the coverage maintained by Citizens South Bank for the Executive prior to his termination; provided, however, that such benefits shall not be provided if they would constitute an unsafe or unsound banking practice relating to executive compensation and employment contracts according to 12 CFR 563.39 and 12 CFR 563.161, as in effect currently or as in effect hereafter. 6.6 SUPPLEMENTAL RETIREMENT PLAN. Citizens South and the Executive have entered into a Salary Continuation Agreement dated as of January 1, 2004 (as may be amended from time to time). Unless the Salary Continuation Agreement explicitly provides otherwise, whether benefits are properly payable to the Executive under the Salary Continuation Agreement shall be determined solely by reference to that agreement. ARTICLE 7 CHANGE IN CONTROL BENEFITS 7.1 CHANGE IN CONTROL BENEFITS. (a) CHANGE IN CONTROL BENEFITS. If a Change in Control occurs during the term of this Employment Agreement, Citizens South shall make or cause to be made a lump-sum payment to the Executive in an amount in cash equal to three times the Executive's annual compensation within thirty (30) days following the effective date of the Change in Control. For this purpose, annual compensation means (1) the Executive's Base Salary at the time of the Change in Control plus (2) the average of the cash bonuses and cash incentive compensation earned for the three calendar years immediately preceding the year in which the Change in Control occurs, regardless of when the bonus or incentive compensation is paid and regardless of whether all or part of the bonus or incentive compensation is subject to elective deferral. For this purpose bonus and incentive compensation includes cash bonus and cash incentive compensation only and specifically excludes the value of stock-based compensation, including stock options and restricted stock. The amount payable to the Executive hereunder shall not be reduced to account for the time value of money or discounted to present value. (b) BENEFIT PLANS: In addition to life insurance and non-taxable medical and dental coverage under Section 6.5 of this Employment Agreement and any benefits to which the Executive may be entitled under the Salary Continuation Agreement referred to in Section 6.6 of this Employment Agreement, if a Change in Control occurs, Citizens South shall (1) cause the Executive to become fully vested in any non-qualified plans, programs, or arrangements in which the Executive participated if the plan, program, or arrangement does not address the effect of a Change in Control, and (2) pay the Executive a lump sum cash amount equal to the amount of the matching and profit sharing contributions that would have been contributed to the Executive's 401(k) plan account, if any, that would have been made had the Executive's employment not terminated before the end of the plan year, with such payment to be made within thirty (30) days following the effective date of a Change in Control. 7.2 DEFINITION OF CHANGE IN CONTROL For purposes of this Employment Agreement, "CHANGE IN CONTROL" means any one of the following events occurs - (a) CHANGE IN THE OWNERSHIP OF THE COMPANY OR THE BANK. A change in the ownership of the Company or the Bank (collectively, as applicable, the "Employers") shall occur on the date that any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), acquires ownership of stock of the Employers 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 the Employers. However, if any one person or more than one person acting as a group, is considered to own more than 50 percent of the total fair market value or total voting power of the stock of the Employers, the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of the Employers (or to cause a change in the effective control of the Employers (within the meaning of paragraph (b) below). An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the Employers acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this section. This paragraph (a) applies only when there is a transfer of stock of a corporation (or issuance of stock of a corporation) and stock in such corporation remains outstanding after the transaction (b) CHANGE IN THE EFFECTIVE CONTROL OF THE COMPANY OR THE BANK. A change in the effective control of the Employers shall occur on the date that either (i) any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(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 30 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 for purposes of this paragraph (b)(ii), the term corporation refers solely to a corporation for which no other corporation is a majority shareholder. In the absence of an event described in paragraph (i) or (ii), a change in the effective control of a corporation will not have occurred. If any one person, or more than one person acting as a group, is considered to effectively control a corporation (within the meaning of this paragraph (b)), the acquisition of additional control of the corporation by the same person or persons is not considered to cause a change in the effective control of the corporation (or to cause a change in the ownership of the corporation within the meaning of paragraph (a)). Persons will not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the same time, or as a result of the same public offering. (c) CHANGE IN THE OWNERSHIP OF A SUBSTANTIAL PORTION OF THE COMPANY'S OR BANK'S ASSETS. A change in the ownership of a substantial portion of the Employer's assets shall occur on the date that any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(5)(vii)(C)), 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 all of the assets of the corporation immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the corporation, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. There is no Change in Control under this paragraph (c) when there is a transfer to an entity that is controlled by the shareholders of the transferring corporation immediately after the transfer. Each of the subparagraphs (a) through (c) of this Section shall be construed and interpreted consistent with the requirements of Code Section 409A and any Treasury Regulations or other guidance issued thereunder. 7.3 NO MULTIPLE SEVERANCE PAYMENTS. If the Executive receives payment under Section 7.1 he shall not be entitled to any additional severance benefits under Section 6.4 of this Employment Agreement. 7.4 GROSS-UP FOR TAXES. (a) Reimbursement to Account for Excise Taxes. If the Executive receives the lump sum payment under Section 7.1 of this Employment Agreement and acceleration of benefits under any other benefit, compensation, or incentive plan or arrangement with Citizens South (collectively, the "TOTAL BENEFITS"), and if any part of the Total Benefits is subject to the Excise Tax under Code Section 280G and Code Section 4999(the "EXCISE TAX"), Citizens South shall reimburse the Executive the following additional amounts, consisting of (1) a payment equal to the Excise Tax payable by the Executive under Code Section 4999 on the Total Benefits (the "EXCISE TAX PAYMENT") and (2) a payment equal to the amount necessary to provide the Excise Tax Payment net of all income, payroll, and excise taxes. Together, the additional amounts described in clauses (1) and (2) are referred to in this Employment Agreement as the "GROSS-UP PAYMENT AMOUNT." Payment of the Gross-Up Payment Amount shall be made within thirty (30) days following the effective date of the Change in Control. CALCULATING THE EXCISE TAX. For purposes of determining whether any of the Total Benefits will be subject to the Excise Tax and for purposes of determining the amount of the Excise Tax, (1) Determination of "Parachute Payments" Subject to the Excise Tax: any other payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether under the terms of this Employment Agreement or any other agreement or any other benefit plan or arrangement with Citizens South, any person whose actions result in a Change in Control, or any person affiliated with Citizens South or such person) shall be treated as "PARACHUTE PAYMENTS" within the meaning of Code Section 280G(b)(2), and all "EXCESS PARACHUTE PAYMENTS" within the meaning of Code Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of the certified public accounting firm that is retained by Citizens South as of the date immediately before the Change in Control (the "ACCOUNTING FIRM") such other payments or benefits do not constitute (in whole or in part) parachute payments, or such excess parachute payments represent (in whole or in part) reasonable compensation for services actually rendered within the meaning of Code Section 280G(b)(4) in excess (as defined in Code Section 280G(b)(3)), or are otherwise not subject to the Excise Tax, (2) Calculation of Benefits Subject to Excise Tax: the amount of the Total Benefits that shall be treated as subject to the Excise Tax shall be equal to the lesser of (a) the total amount of the Total Benefits reduced by the amount of such Total Benefits that in the opinion of the Accounting Firm are not parachute payments, or (b) the amount of excess parachute payments within the meaning of Code Section 280G(b)(1) (after applying clause (1), above), and (3) Value of Noncash Benefits and Deferred Payments: the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accounting Firm in accordance with the principles of Code Sections 280G(d)(3) and (4). ASSUMED MARGINAL INCOME TAX RATE. For purposes of determining the Gross-Up Payment Amount, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar years in which the Gross-Up Payment Amount is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the date of termination of employment, net of the reduction in federal income taxes that can be obtained from deduction of such state and local taxes (calculated by assuming that any reduction under Code Section 68 in the amount of itemized deductions allowable to the Executive applies first to reduce the amount of such state and local income taxes that would otherwise be deductible by the Executive, and applicable federal FICA and Medicare withholding taxes). RETURN OF REDUCED EXCISE TAX PAYMENT OR PAYMENT OF ADDITIONAL EXCISE TAX. If the Excise Tax is later determined to be less than the amount taken into account hereunder when the Executive's employment terminated, the Executive shall repay to Citizens South - when the amount of the reduction in Excise Tax is finally determined - the portion of the Gross-Up Payment Amount attributable to the reduction (plus that portion of the Gross-Up Payment Amount attributable to the Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed on the Gross-Up Payment Amount being repaid by the Executive to the extent that the repayment results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or a federal, state or local income tax deduction). The Executive shall repay Citizens South as soon as practicable, but no later than two and one-half months after the end of the year in which the reimbursement amount has been so determined. If the Excise Tax is later determined to be more than the amount taken into account hereunder when the Executive's employment terminated (due, for example, to a payment whose existence or amount cannot be determined at the time of the Gross-Up Payment Amount), Citizens South shall reimburse the Executive for that excess (plus any interest, penalties or additions payable by the Executive for the excess) within thirty (30) days of such determination. (b) Responsibilities of the Accounting Firm and Citizens South. DETERMINATIONS SHALL BE MADE BY THE ACCOUNTING FIRM. Subject to the provisions of Section 7.4(a), all determinations required to be made under this Section 7.4(b) - including whether and when a Gross-Up Payment Amount is required, the amount of the Gross-Up Payment Amount and the assumptions to be used to arrive at the determination (collectively, the "DETERMINATION") - shall be made by the Accounting Firm, which shall provide detailed supporting calculations both to Citizens South and the Executive within 15 business days after receipt of notice from Citizens South or the Executive that there has been a Gross-Up Payment Amount, or such earlier time as is requested by Citizens South. FEES AND EXPENSES OF THE ACCOUNTING FIRM AND AGREEMENT WITH THE ACCOUNTING FIRM. All fees and expenses of the Accounting Firm shall be borne solely by Citizens South. Citizens South shall enter into any agreement requested by the Accounting Firm in connection with the performance of its services hereunder. ACCOUNTING FIRM'S OPINION. If the Accounting Firm determines that no Excise Tax is payable by the Executive, the Accounting Firm shall furnish the Executive with a written opinion to that effect, and to the effect that failure to report Excise Tax, if any, on the Executive's applicable federal income tax return will not result in the imposition of a negligence or similar penalty. ACCOUNTING FIRM'S DETERMINATION IS BINDING; UNDERPAYMENT AND OVERPAYMENT. The Determination by the Accounting Firm shall be binding on Citizens South and the Executive. Because of the uncertainty in determining whether any of the Total Benefits will be subject to the Excise Tax at the time of the Determination, it is possible that a Gross-Up Payment Amount that should have been made will not have been made by Citizens South ("UNDERPAYMENT"), or that a Gross-Up Payment Amount will be made that should not have been made by Citizens South ("OVERPAYMENT"). If, after a Determination by the Accounting Firm, the Executive is required to make a payment of additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred. The Underpayment (together with interest at the rate provided in Code Section 1274(d)(2)(B) of the) shall be paid promptly by Citizens South to or for the benefit of the Executive. If the Gross-Up Payment Amount exceeds the amount necessary to reimburse the Executive for his Excise Tax according to Section 7.4(a), the Accounting Firm shall determine the amount of the Overpayment that has been made. The Overpayment (together with interest at the rate provided in Code Section 1274(d)(2)(B)) shall be paid promptly by the Executive to or for the benefit of Citizens South. Provided that his expenses are reimbursed by Citizens South, the Executive shall cooperate with any reasonable requests by Citizens South in any contests or disputes with the Internal Revenue Service relating to the Excise Tax. ACCOUNTING FIRM CONFLICT OF INTEREST. If the Accounting Firm is serving as accountant or auditor for the individual, entity, or group effecting the Change in Control, the Executive may appoint another nationally recognized public accounting firm to make the Determinations required hereunder (in which case the term "Accounting Firm" as used in this Employment Agreement shall be deemed to refer to the accounting firm appointed by the Executive under this paragraph). ARTICLE 8 MISCELLANEOUS 8.1 SUCCESSORS AND ASSIGNS. (a) This Employment Agreement Is Binding on Citizens South's Successors. This Employment Agreement shall be binding upon Citizens South Banking Corporation and any successor to Citizens South Banking Corporation, including any persons acquiring directly or indirectly all or substantially all of the business or assets of Citizens South Banking Corporation by purchase, merger, consolidation, reorganization, or otherwise. Any such successor shall thereafter be deemed to be "Citizens South Banking Corporation" for purposes of this Employment Agreement. But this Employment Agreement and Citizens South's obligations under this Employment Agreement are not otherwise assignable, transferable, or delegable by Citizens South. By agreement in form and substance satisfactory to the Executive, Citizens South Banking Corporation shall require any successor to all or substantially all of the business or assets of Citizens South Banking Corporation expressly to assume and agree to perform this Employment Agreement in the same manner and to the same extent Citizens South would be required to perform if no such succession had occurred. (b) This Employment Agreement Is Enforceable by the Executive and His Heirs. This Employment Agreement will inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, and legatees. (c) This Employment Agreement Is Personal in Nature and Is Not Assignable. This Employment Agreement is personal in nature. Without written consent of the other parties, no party shall assign, transfer, or delegate this Employment Agreement or any rights or obligations under this Employment Agreement, except as expressly provided herein. Without limiting the generality or effect of the foregoing, the Executive's right to receive payments hereunder is not assignable or transferable, whether by pledge, creation of a security interest, or otherwise, except for a transfer by the Executive's will or by the laws of descent and distribution. If the Executive attempts an assignment or transfer that is contrary to this Section 9.1, Citizens South shall have no liability to pay any amount to the assignee or transferee. 8.2 GOVERNING LAW, JURISDICTION AND FORUM. This Employment Agreement shall be construed under and governed by the internal laws of the State of North Carolina, without giving effect to any conflict of laws provision or rule (whether of the State of North Carolina or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of North Carolina. By entering into this Employment Agreement, the Executive acknowledges that he is subject to the jurisdiction of both the federal and state courts in the State of North Carolina. Any actions or proceedings instituted under this Employment Agreement shall be brought and tried solely in courts located in Gaston County, North Carolina or in the federal court having jurisdiction in Gastonia, North Carolina. The Executive expressly waives his rights to have any such actions or proceedings brought or tried elsewhere. 8.3 ENTIRE AGREEMENT. This Employment Agreement sets forth the entire agreement of the parties concerning the employment of the Executive by Citizens South, and any oral or written statements, representations, agreements, or understandings made or entered into prior to or contemporaneously with the execution of this Employment Agreement, are hereby rescinded, revoked, and rendered null and void by the parties. The Salary Continuation Agreement (as may be amended from time to time) and the Split Dollar Agreement and Endorsement (as may be amended from time to time) and the parties' rights and obligations thereunder shall remain in full force and effect according to the terms thereof, as the same may be amended and restated after the date of this Employment Agreement. Benefits payable under this Employment Agreement shall not be reduced by any benefits payable under the Salary Continuation Agreement, and benefits payable under the Salary Continuation Agreement shall not be reduced by any benefits payable under this Employment Agreement. Without limiting the generality of the foregoing, the parties hereto acknowledge and agree that this Employment Agreement supersedes in its entirety the 2004 employment agreements entered into by the Executive and Citizens South, as amended or supplemented. The 2004 employment agreement shall hereafter be void and of no force or effect. 8.4 NOTICES. Any notice under this Employment Agreement shall be deemed to have been effectively made or given if in writing and personally delivered, delivered by mail properly addressed in a sealed envelope, postage prepaid by certified or registered mail, delivered by a reputable overnight delivery service, or sent by facsimile. Unless otherwise changed by notice, notice shall be properly addressed to the Executive if addressed to the address of the Executive on the books and records of Citizens South Banking Corporation at the time of the delivery of such notice, and properly addressed to Citizens South Banking Corporation if addressed to Citizens South Banking Corporation at 519 South New Hope Road, Gastonia, North Carolina 28054-4040, Attention: Corporate Secretary. 8.5 SEVERABILITY. In the case of conflict between any provision of this Employment Agreement and any statute, regulation, or judicial precedent, the latter shall prevail, but the affected provisions of this Employment Agreement shall be curtailed and limited solely to the extent necessary to bring them within the requirements of law. If any provision of this Employment Agreement is held by a court of competent jurisdiction to be indefinite, invalid, void or voidable, or otherwise unenforceable, the balance of this Employment Agreement shall continue in full force and effect unless such construction would clearly be contrary to the intentions of the parties or would result in an injustice. 8.6 CAPTIONS AND COUNTERPARTS. The captions in this Employment Agreement are solely for convenience. The captions in no way define, limit, or describe the scope or intent of this Employment Agreement. This Employment Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 8.7 NO DUTY TO MITIGATE. Citizens South hereby acknowledges that it will be difficult and could be impossible (a) for the Executive to find reasonably comparable employment after his employment terminates, and (b) to measure the amount of damages the Executive may suffer as a result of termination. Additionally, Citizens South acknowledges that its general severance pay plans do not provide for mitigation, offset, or reduction of any severance payment received thereunder. Accordingly, Citizens South further acknowledges that the payment of severance and termination benefits under this Employment Agreement is reasonable and shall be liquidated damages. The Executive shall not be required to mitigate the amount of any payment provided for in this Employment Agreement by seeking other employment. Moreover, the amount of any payment provided for in this Employment Agreement shall not be reduced by any compensation earned or benefits provided as the result of employment of the Executive or as a result of the Executive being self-employed after termination of his employment. 8.8 AMENDMENT AND WAIVER. This Employment Agreement may not be amended, released, discharged, abandoned, changed, or modified in any manner, except by an instrument in writing signed by each of the parties hereto. The failure of any party hereto to enforce at any time any of the provisions of this Employment Agreement shall in no way be construed to be a waiver of any such provision, nor in any way to affect the validity of this Employment Agreement or any part thereof or the right of any party thereafter to enforce each and every such provision. No waiver or any breach of this Employment Agreement shall be held to be a waiver of any other or subsequent breach. 8.9 PAYMENT OF LEGAL FEES. Citizens South is aware that after a Change in Control management could cause or attempt to cause Citizens South to refuse to comply with its obligations under this Employment Agreement, or could institute or cause or attempt to cause Citizens South to institute litigation seeking to have this Employment Agreement declared unenforceable, or could take or attempt to take other action to deny Executive the benefits intended under this Employment Agreement. In these circumstances, the purpose of this Employment Agreement would be frustrated. It is Citizens South's intention that the Executive not be required to incur the expenses associated with the enforcement of his rights under this Employment Agreement, whether by litigation or other legal action, because the cost and expense thereof would substantially detract from the benefits intended to be granted to the Executive hereunder. It is Citizens South's intention that the Executive not be forced to negotiate settlement of his rights under this Employment Agreement under threat of incurring expenses. Accordingly, if after a Change in Control occurs it appears to the Executive that (a) Citizens South has failed to comply with any of its obligations under this Employment Agreement, or (b) Citizens South or any other person has taken any action to declare this Employment Agreement void or unenforceable, or instituted any litigation or other legal action designed to deny, diminish, or to recover from the Executive the benefits intended to be provided to the Executive hereunder, Citizens South irrevocably authorizes the Executive from time to time to retain counsel of his choice, at Citizens South's expense as provided in this Section 8.9, to represent the Executive in connection with the initiation or defense of any litigation or other legal action, whether by or against Citizens South or any director, officer, stockholder, or other person affiliated with Citizens South, in any jurisdiction. Notwithstanding any existing or previous attorney-client relationship between Citizens South and any counsel chosen by the Executive under this Section 8.9, Citizens South irrevocably consents to the Executive entering into an attorney-client relationship with that counsel, and Citizens South and the Executive agree that a confidential relationship shall exist between the Executive and that counsel. The fees and expenses of counsel selected from time to time by the Executive as provided in this section shall be paid or reimbursed to the Executive by Citizens South on a regular, periodic basis within 30 days following the presentation by the Executive of a statement or statements prepared by such counsel in accordance with such counsel's customary practices, up to a maximum aggregate amount of $500,000. Citizens South's obligation to pay the Executive's legal fees provided by this Section 8.9 operates separately from and in addition to any legal fee reimbursement obligation Citizens South Banking Corporation or Citizens South Bank may have with the Executive under any separate severance or other agreement. ARTICLE 9 REQUIRED PROVISIONS 9.1 CITIZENS SOUTH'S RIGHT TO TERMINATE THE EXECUTIVE'S EMPLOYMENT. Citizens South's board of directors may terminate the Executive's employment at any time, but any termination by the board of directors, other than termination for Cause, shall not prejudice the Executive's right to compensation or other benefits under this Employment Agreement. The Executive shall not have the right to receive compensation or other benefits for any period after termination for Cause. 9.2 SUSPENSION OF CITIZENS'S SOUTH OBLIGATIONS IF THE EXECUTIVE IS SUSPENDED. If the Executive is suspended from office or temporarily prohibited from participating in Citizens South Bank's affairs by a notice served under section 8(e)(3) (12 U.S.C. 1818(e)(3)) or 8(g) (12 U.S.C. 1818(g)) of the Federal Deposit Insurance Act, Citizens South's obligations under this Employment Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, Citizens South may in its discretion (1) pay the Executive all or part of the compensation withheld while Citizens South's obligations were suspended and (2) reinstate in whole or in part any of the obligations that were suspended. 9.3 TERMINATION OF CITIZENS SOUTH'S OBLIGATIONS IF THE EXECUTIVE IS REMOVED. If the Executive is removed or permanently prohibited from participating in Citizens South Bank's affairs by an order issued under section 8(e) (12 U.S.C. 1818(e)) or 8(g) (12 U.S.C. 1818(g)) of the Federal Deposit Insurance Act, all obligations of Citizens South under this Employment Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected. 9.4 TERMINATION IF CITIZENS SOUTH BANK IS IN DEFAULT. If Citizens South Bank is in default as defined in section 3(x) (12 U.S.C. 1813(x)(1)) of the Federal Deposit Insurance Act, all obligations of Citizens South under this Employment Agreement shall terminate as of the date of default, but this paragraph (d) shall not affect any vested rights of the parties. 9.5 TERMINATION ASSOCIATED WITH REGULATORY ACTION. All obligations of Citizens South under this Employment Agreement shall terminate, except to the extent determined that continuation of the contract is necessary for the continued operation of the institution, (1) by the Director of the OTS or the Director's designee, when the Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to provide assistance to or on behalf of Citizens South Bank under the authority contained in section 13(c) of the Federal Deposit Insurance Act (12 U.S.C. 1823(c)), or (2) by the Director or the Director's designee when the OTS approves a supervisory merger to resolve problems related to the operations of Citizens South Bank or when Citizens South Bank is determined by the OTS or by the FDIC to be in an unsafe or unsound condition. Vested rights of the parties shall not be affected, however. 9.6 PAYMENTS ARE SUBJECT TO COMPLIANCE WITH 12 USC 1828(K). Any payments made to the Executive under this Employment Agreement or otherwise are subject to and conditioned upon their compliance with section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. 1828(k)) and any regulations promulgated thereunder. IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date first written above. WITNESSES CITIZENS SOUTH BANKING CORPORATION /s/ Paul L. Teem, Jr. By: /s/ David W. Hoyle, Sr. - ---------------------------- ---------------------------------- Paul L. Teem, Jr. David W. Hoyle, Sr. /s/ Gary F. Hoskins Its: Chairman of the Board of Directors - ---------------------------- ---------------------------------- Gary F. Hoskins WITNESSES CITIZENS SOUTH BANK /s/ Paul L. Teem, Jr. By: /s/ David W. Hoyle, Sr. - ---------------------------- ----------------------------------- Paul L. Teem, Jr. /s/ Gary F. Hoskins Its: Chairman of the Board of Directors - ---------------------------- ----------------------------------- Gary F. Hoskins WITNESSES EXECUTIVE /s/ Paul L. Teem, Jr. /s/ Kim S. Price - ---------------------------- ---------------------------------------- Paul L. Teem, Jr. Kim S. Price County of Gaston) ss: State of North Carolina) Before me this 17th day of November, 2008, personally appeared the above named and Kim S. Price, who acknowledged that they did sign the foregoing instrument and that the same was their free act and deed. /s/ Brendy Pogorzelski ----------------------------------- (Notary Seal) Notary Public My Commission Expires: May 30, 2009 ------------ EX-10.2 3 exhibit102_111708.txt EXHIBIT 10.2 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of November 17, 2008, by and among the Citizens South Bank (the "Bank"), a federally chartered savings bank and a wholly-owned subsidiary of the Citizens South Banking Corporation (the "Company"), and James Louis Brewer (the "Executive"). WHEREAS, the Executive is currently employed as a Senior Vice President of the Bank, pursuant to an employment agreement between the Bank and the Executive originally entered into as of September 1, 2007 (the "Original Agreement"); WHEREAS, the Bank desires to assure itself of the continued services of Executive and in consideration for such continued services is willing to establish minimum severance benefits for the Executive in the event of a termination of employment; WHEREAS, the Bank desires to amend and restate the Original Agreement in order to make changes to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), as well as certain other changes; WHEREAS, the Bank desires to ensure that the Bank is assured of the continued availability of the Executive's services as provided in this Agreement; WHEREAS, the Executive is willing to serve the Bank on the terms and conditions hereinafter set forth; and NOW THEREFORE, in consideration of these premises, the mutual covenants contained herein, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows. ARTICLE 1 EMPLOYMENT The Bank hereby employs the Executive as Senior Vice President in accordance with the terms and conditions of this Agreement and for the period stated in Article 3. The Executive hereby accepts employment in accordance with the terms and conditions of this Agreement, effective on the date first written above (the "Effective Date") and for the period stated in Article 3. The Executive also agrees to serve as an officer or director of any subsidiary or affiliate of the Bank, if elected. For purposes of this Agreement, the term "affiliate" means any entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the Bank. ARTICLE 2 DUTIES As Senior Vice President of the Bank, the Executive shall serve under the direction of the Bank's President and Chief Executive Officer ("CEO"), and the Bank's Board of Directors (the "Board"). The Executive shall report directly to the Executive Vice President, Commercial Banking Group, or such other executive officer as directed by the President and CEO. He shall serve the Bank faithfully, diligently, competently, and to the best of his ability, and he shall exclusively devote his full time, energy, and attention to the business of the Bank and to the promotion of the Bank's interests throughout the term of this Agreement. Without the written consent of the President and CEO, the Executive shall not render services to or for any person, firm, corporation, or other entity or organization in exchange for compensation, regardless of the form in which such compensation is paid and regardless of whether it is paid directly or indirectly to the Executive. Nothing in this Article 2 shall prevent the Executive from managing his personal investments and affairs, provided that doing so does not interfere with the proper performance of his duties and responsibilities with the Bank. ARTICLE 3 TERM OF EMPLOYMENT The term of this Agreement shall commence as of the date first above written and shall expire on September 1, 2010. ARTICLE 4 COMPENSATION AND OTHER BENEFITS 4.1 BASE SALARY. In consideration of the Executive's performance of his obligations under this Agreement, the Bank shall pay or cause to be paid to the Executive a salary at the annual rate of not less than $135,000, payable in such installments as employees in general are paid. The Executive's salary may be increased but may not be reduced without his written consent. It is anticipated that the Executive's salary will be increased annually in conjunction with his annual performance review. The Executive's salary, as the same may be increased from time to time, is referred to in this Agreement as the "Base Salary." 4.2 BENEFIT PLANS AND PERQUISITES. The Executive shall be entitled throughout the term of this Agreement to participate in any and all officer or employee compensation, bonus, incentive, and benefit plans in effect from time to time and available to employees and officers in general (on such terms as such plans are made available to employees and officers), including, without limitation, plans providing pension, medical, dental, disability, and group life benefits, including the Bank's 401(k) Plan, and to receive any and all other fringe benefits provided from time to time, provided that the Executive satisfies the eligibility requirements for any such plans or benefits. 4.3 VACATION. The Executive shall be entitled to paid annual vacation and sick leave in accordance with the policies established from time to time by the Bank. The Executive shall not be entitled to any additional compensation for failure to use allotted vacation or sick leave, nor shall the Executive be entitled to accumulate unused sick leave or vacation days from one year to the next, unless permitted under the policies of the Bank then in effect. 4.4 INDEMNIFICATION. (a) The Bank shall indemnify Executive to the fullest extent permitted 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 an officer of the Bank (whether or not he continues to be an 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 (such settlements must be approved by the Board), provided that the Bank shall not be required to indemnify or reimburse Executive for legal expenses or liabilities incurred in connection with an action, suit or proceeding arising from any illegal or fraudulent act committed by Executive. Any such indemnification shall be made consistent with Section 545.121 of the Office of Thrift Supervision ("OTS") Regulations and Section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. ss. 1828(k), and the regulations issued thereunder in 12 C.F.R. Part 359. (b) No indemnification shall be made unless the Bank gives the OTS at least 60 days' notice of its intention to make such indemnification. Such notice shall state the facts on which the action arose, the terms of any settlement, and any disposition of the action by a court. Such notice, a copy thereof, and a certified copy of the resolution containing the required determination by the Board, and shall be sent to the regional director of the OTS, who shall promptly acknowledge receipt thereof. The notice period shall run from the date of such receipt. No such indemnification shall be made if the OTS advises the Bank in writing within such notice period, of its objection thereto. ARTICLE 5 TERMINATION OF EMPLOYMENT 5.1 TERMINATION BY THE EMPLOYER. (a) Death or Disability. The Executive's employment shall terminate automatically and without further obligation on the date of the Executive's death (other than the payment of Base Salary through the date of death). The Bank may terminate this Agreement if the Executive is disabled. For purposes of this Agreement, the Executive shall be deemed to be "disabled" if the Executive: (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, or last for a continuous period of not less than 12 months; (ii) by reason of any medically determinable physical or mental impairment that can be expected to result in death, or last for a continuous period of not less than 12 months, the Executive is receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Bank; or (iii) is determined to be totally disabled by the Social Security Administration. The Executive shall be entitled to receive benefits under any short or long-term disability plan maintained by the Bank. (b) Termination Without Cause. With written notice to the Executive thirty (30) days in advance, the Bank may terminate the Executive's employment for any reason and without Cause. If requested by the Bank in the aforementioned notice, upon receipt of the notice Executive shall refrain from performing services at the offices of the Bank, and/or refrain from acting or holding himself out to the public as acting on behalf of the Bank (and any affiliates thereof). Notwithstanding the foregoing, if Executive is requested to refrain from providing any further services as outlined in the preceding sentence, he shall nevertheless be entitled to receive his Base Salary and all benefits previously provided him for the duration of the thirty day notice period. (c) Termination With Cause. Effective on the date on which termination notice is given to the Executive and without the requirement of advance notice to the Executive, the Bank may terminate the Executive's employment with Cause. For purposes of this Agreement, "Cause" means the Executive's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, material breach of the Bank's Code of Ethics, material violation of the Sarbanes-Oxley requirements for officers of public companies that in the reasonable opinion of the CEO or the Board will likely cause substantial financial harm or substantial injury to the reputation of the Bank, willfully engaging in actions that in the reasonable opinion of the CEO or the Board will likely cause substantial financial harm or substantial injury to the business reputation of the Bank, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than routine traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the contract. 5.2 TERMINATION BY THE EXECUTIVE. The Executive may terminate his employment with written notice to the Bank thirty (30) days in advance, whether with or without Good Reason. If the Executive terminates with Good Reason, the termination will take effect at the conclusion of the 30-day period unless the event or circumstance constituting Good Reason is cured by the Bank or unless the notice of termination for Good Reason is revoked by the Executive within the 30-day period. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following events: (a) REDUCED BASE SALARY OR BENEFITS: a material reduction in the benefits and perquisites, including a reduction in Base Salary, being provided to Executive relative to those being provided as of the Effective Date (except for any reduction that is part of a reduction in pay or benefits that is generally applicable to officers or employees), (b) REDUCED RESPONSIBILITIES OR STATUS: assignment to the Executive of duties that are materially inconsistent with the Executive's position as Senior Vice President, (c) MATERIAL BREACH: a material breach of this Agreement by the Bank that is not corrected within thirty (30) days following notice from Executive, and (d) RELOCATION OF THE EXECUTIVE: requiring the Executive to change his principal work location, to any location that is more than fifty (50) miles from the location on the date of this Agreement. 5.3 NOTICE. Any purported termination by the Bank or by the Executive shall be communicated by written notice of termination to the other. The notice must state the specific termination provision of this Agreement relied upon. Except for termination for Cause, which becomes effective upon receipt by Executive of the notice, a termination of employment shall become effective 30 days after receipt of the notice. If termination is for Cause or with Good Reason, the notice must state in reasonable detail the facts and circumstances forming the basis for termination. ARTICLE 6 COMPENSATION AND BENEFITS AFTER TERMINATION 6.1 CAUSE. If the Executive's employment terminates for Cause, the Executive shall receive the Base Salary to which he was entitled through the date on which termination becomes effective and any other benefits that may be available to him under the Bank's benefit plans and policies in effect on the date of termination. Executive shall not be entitled to any further payments or benefits. 6.2 TERMINATION BY THE EXECUTIVE OTHER THAN FOR GOOD REASON. If the Executive terminates employment other than for Good Reason, the Executive shall receive the Base Salary to which he is entitled, and any other benefits that may be available to him under the Bank's benefit plans and policies, through the date on which his termination becomes effective. 6.3 CONTINUED BASE SALARY IN THE CASE OF TERMINATION BECAUSE OF DISABILITY. If the Executive's employment terminates because of disability, the Executive shall receive the benefits provided under any disability program sponsored by the Bank. To the extent that such benefits are less than Executive's Base Salary, the Bank shall pay the Executive an amount equal to the difference between such disability plan benefits and the amount of Executive's Base Salary for the remaining term of this Agreement. Any payments required hereunder shall commence within thirty (30) days from the Executive's termination due to disability and be payable in semi-monthly installments. 6.4 TERMINATION BY THE BANK WITHOUT CAUSE AND TERMINATION BY EXECUTIVE FOR GOOD REASON OTHER THAN FOLLOWING A CHANGE IN CONTROL. If the Bank terminates the Executive's employment without Cause or if the Executive terminates employment for Good Reason, the Executive shall (i) continue to receive his Base Salary and other employee benefits through the date of the termination, (ii) receive a lump sum cash payment from the Bank equal to one-half of the Base Salary in effect immediately prior to the notice of termination, which payment shall be made by the Bank no later than the date of termination, or in the event the Executive is a Specified Employee (within the meaning of Treasury Regulations ss.1.409A-1(i)), and to the extent necessary to avoid penalties under Code Section 409A, payment shall be made to the Executive on the first day of the seventh month following the date of termination, and (iii) continue to receive life insurance and non-taxable medical and dental coverage, substantially identical to the coverage maintained by the Bank for the Executive immediately prior to his termination (except to the extent such coverage is changed in application to all employees or officers), which coverage shall continue for a period of six (6) months following the date of termination. The Bank and the Executive acknowledge and agree that the compensation and benefits under this Section 6.4 shall not apply if the Bank terminates the Executive's employment without Cause or if the Executive terminates employment for Good Reason, in either case as of or following a Change in Control, as provided in Section 7. 6.5 SEPARATION FROM SERVICE. For purposes of Section 6.4, termination by the Bank without Cause and the Executive's termination of employment for Good Reason as used herein shall be construed to require a "Separation from Service" as defined in Code Section 409A and the Treasury Regulations promulgated thereunder, provided, however, that the Bank and the Executive reasonably anticipate that the level of bona fide services the Executive would perform after termination would permanently decrease to a level that is less than 50% of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period. ARTICLE 7 CHANGE IN CONTROL BENEFITS 7.1 CHANGE IN CONTROL TERMINATION BENEFITS. (a) TERMINATION OF EXECUTIVE OR THE EXECUTIVE'S VOLUNTARY RESIGNATION FROM THE BANK'S EMPLOY FOR ANY REASON AFTER A CHANGE IN CONTROL. If a Change in Control occurs during the term of this Agreement, the Executive shall be entitled to the lump sum cash payment specified in paragraph (b) and the benefits provided in (c) below if the Executive's employment is involuntarily terminated by the Bank without Cause at any time after the Change in Control or if the Executive voluntarily resigns from employment for any reason at any time after the Change in Control. (b) LUMP SUM CASH PAYMENT. the Bank shall make or cause to be made a lump sum cash payment to the Executive in an amount equal to the greater of (i) the Base Salary in effect immediately prior to the Change in Control, or (ii) the Base Salary in effect immediately prior to the termination of employment. The payment required under this paragraph (b) is payable no later than five (5) BUSINESS DAYS AFTER THE EXECUTIVE'S EMPLOYMENT terminates, or in the event the Executive is a Specified Employee (within the meaning of Treasury Regulations ss.1.409A-1(i)), and to the extent necessary to avoid penalties under Code Section 409A, payment shall be made to the Executive on the first day of the seventh month after the Executive's employment terminates. (c) INSURANCE COVERAGE. Executive shall be entitled to continued life insurance and non-taxable medical and dental coverage, substantially identical to the coverage maintained by the Bank (or its successor) for Executive immediately prior to his termination (except to the extent such coverage is changed in application to all employees or officers), which coverage shall continue for a period of twelve (12) months following the effective date of termination. (d) SEPARATION FROM SERVICE. For purposes of Section 7.1, the Executive's termination of employment following a Change in Control shall be construed to require a "Separation from Service" as defined in Code Section 409A and the Treasury Regulations promulgated thereunder, provided, however, that the Bank and the Executive reasonably anticipate that the level of bona fide services the Executive would perform after termination would permanently decrease to a level that is less than 50% of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period. 7.2 DEFINITION OF CHANGE IN CONTROL. For purposes of this Agreement, "Change in Control" means any one of the following events occurs: (a) CHANGE IN OWNERSHIP OF THE COMPANY OR THE BANK. A change in the ownership of the Company or the Bank (collectively, as applicable, the "Employers") shall occur on the date that any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), acquires ownership of stock of the Employers 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 the Employers. However, if any one person or more than one person acting as a group, is considered to own more than 50 percent of the total fair market value or total voting power of the stock of the Employers, the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of the Employers (or to cause a change in the effective control of the Employers (within the meaning of paragraph (b) below). An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the corporation acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this section. This paragraph (a) applies only when there is a transfer of stock of a corporation (or issuance of stock of a corporation) and stock in such corporation remains outstanding after the transaction (b) CHANGE IN THE EFFECTIVE CONTROL OF THE COMPANY OR THE BANK. A change in the effective control of the Employers shall occur on the date that either (i) any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(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 30 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 for purposes of this paragraph (b)(ii), the term corporation refers solely to a corporation for which no other corporation is a majority shareholder. In the absence of an event described in paragraph (i) or (ii), a change in the effective control of a corporation will not have occurred. If any one person, or more than one person acting as a group, is considered to effectively control a corporation (within the meaning of this paragraph (b)), the acquisition of additional control of the corporation by the same person or persons is not considered to cause a change in the effective control of the corporation (or to cause a change in the ownership of the corporation within the meaning of paragraph (a)). Persons will not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the same time, or as a result of the same public offering. (c) CHANGE IN THE OWNERSHIP OF A SUBSTANTIAL PORTION OF THE COMPANY'S OR BANK'S ASSETS. A change in the ownership of a substantial portion of the Employer's assets shall occur on the date that any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(5)(vii)(C)), 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 all of the assets of the corporation immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the corporation, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. There is no Change in Control under this paragraph (c) when there is a transfer to an entity that is controlled by the shareholders of the transferring corporation immediately after the transfer. Each of the subparagraphs (a) through (c) of this Section shall be construed and interpreted consistent with the requirements of Code Section 409A and any Treasury Regulations or other guidance issued thereunder. 7.3 NO MULTIPLE SEVERANCE PAYMENTS. If the Executive receives payment under Section 7.1 he shall not be entitled to any additional severance benefits under Section 6.4 of this Agreement. ARTICLE 8 POST TERMINATION OBLIGATIONS 8.1 NON-COMPETITION AND NON-SOLICITATION. The Executive hereby covenants and agrees that, for a period of six months following any termination of his employment, other than a termination of employment following a Change in Control, he shall not, without the written consent of the Bank, either directly or indirectly: (i) solicit, offer employment to, or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any officer or employee of the Bank or any of its affiliates to terminate his or her employment and accept employment or become affiliated with, or provide services for compensation in any capacity whatsoever to, any business whatsoever that competes with the business of the Bank or any of its affiliates or has headquarters or offices within 50 miles of the locations in which the Bank or its affiliates has business operations or has filed an application for regulatory approval to establish an office; (ii) become an officer, employee, consultant, director, independent contractor, agent, sole proprietor, joint venturer, greater than 5% equity-owner or stockholder, partner or trustee of or provide services for compensation in any capacity whatsoever to, any savings bank, savings and loan association, savings and loan holding company, credit union, bank or bank holding company, insurance company or agency, any mortgage or loan broker or any other financial services entity or business whatsoever that competes with the business of the Bank or any of its affiliates or has headquarters or offices within 50 miles of Cornelius, North Carolina; provided, however, that this restriction shall no apply if the Executive's employment is terminated, either by Executive, with or without Good Reason, or by the Bank, following a Change in Control; or (iii) solicit, provide any information, advice or recommendation or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any customer of the Bank or its affiliates to terminate an existing business or commercial relationship with the Bank or its affiliates. 8.2 FURTHER ASSISTANCE. Executive shall, upon reasonable notice, furnish such information - and assistance to the Bank and/or its affiliates, as may reasonably be required by the Bank and/or its affiliates, in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party; provided, however, that Executive shall not be required to provide information or assistance with respect to any litigation between the Executive and the Bank, or any of its affiliates. 8.3 EQUITABLE REMEDIES. All payments and benefits to the Executive under this Agreement shall be subject to the Executive's compliance with this Section. The parties hereto, recognizing that irreparable injury will result to the Bank, its business and property in the event of the Executive's breach of this Section, agree that, in the event of any such breach by the Executive, the Bank will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by the Executive and all persons acting for or with the Executive. The Executive represents and admits that the Executive's experience and capabilities are such that the Executive can obtain employment in a business engaged in other lines and/or of a different nature than the Bank, and that the enforcement of a remedy by way of injunction will not prevent the Executive from earning a livelihood. Nothing herein will be construed as prohibiting the Bank from pursuing any other remedies for such breach or threatened breach, including the recovery of damages from the Executive. ARTICLE 9 MISCELLANEOUS 9.1 SUCCESSORS AND ASSIGNS. (a) THIS AGREEMENT IS BINDING ON THE BANK'S SUCCESSORS. This Agreement shall be binding upon the Bank and any successor to the Bank, including any persons acquiring directly or indirectly all or substantially all of the business or assets of the Bank by purchase, merger, consolidation, reorganization, or otherwise. Any such successor shall thereafter be deemed to be "the Bank" for purposes of this Agreement. But this Agreement and the Bank's obligations under this Agreement are not otherwise assignable, transferable, or delegable by the Bank. By agreement in form and substance satisfactory to the Executive, the Bank shall require any successor to all or substantially all of the business or assets of the Bank expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Bank would be required to perform if no such succession had occurred. (b) THIS AGREEMENT IS ENFORCEABLE BY THE EXECUTIVE AND HIS HEIRS. This Agreement will inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, and legatees. (c) THIS AGREEMENT IS PERSONAL IN NATURE AND IS NOT ASSIGNABLE. This Agreement is personal in nature. Without written consent of the other parties, no party shall assign, transfer, or delegate this Agreement or any rights or obligations under this Agreement, except as expressly provided herein. Without limiting the generality or effect of the foregoing, the Executive's right to receive payments hereunder is not assignable or transferable, whether by pledge, creation of a security interest, or otherwise, except for a transfer by the Executive's will or by the laws of descent and distribution. If the Executive attempts an assignment or transfer that is contrary to this Section 9.1, the Bank shall have no liability to pay any amount to the assignee or transferee. 9.2 GOVERNING LAW, JURISDICTION AND FORUM. This Agreement shall be construed under and governed by the internal laws of the State of North Carolina, without giving effect to any conflict of laws provision or rule (whether of the State of North Carolina or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of North Carolina. By entering into this Agreement, the Executive acknowledges that he is subject to the jurisdiction of both the federal and state courts in the State of North Carolina. Any actions or proceedings instituted under this Agreement shall be brought and tried solely in courts located in Gaston County, North Carolina or in the federal court having jurisdiction in Gastonia, North Carolina. The Executive expressly waives his rights to have any such actions or proceedings brought or tried elsewhere. 9.3 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties concerning the employment of the Executive by the Bank, and any oral or written statements, representations, agreements, or understandings made or entered into prior to or contemporaneously with the execution of this Agreement, are hereby rescinded, revoked, and rendered null and void by the parties. Benefits payable under this Agreement shall not be reduced by other benefits paid to the Executive by the Bank. 9.4 NOTICES. Any notice under this Agreement shall be deemed to have been effectively made or given if in writing and personally delivered, delivered by mail properly addressed in a sealed envelope, postage prepaid by certified or registered mail, delivered by a reputable overnight delivery service, or sent by facsimile. Unless otherwise changed by notice, notice shall be properly addressed to the Executive if addressed to the address of the Executive on the books and records of the Bank at the time of the delivery of such notice, and properly addressed to the Bank if addressed to the Bank at 519 South New Hope Road, Gastonia, North Carolina 28054-4040, Attention: Corporate Secretary. 9.5 SEVERABILITY. In the case of conflict between any provision of this Agreement and any statute, regulation, or judicial precedent, the latter shall prevail, but the affected provisions of this Agreement shall be curtailed and limited solely to the extent necessary to bring them within the requirements of law. If any provision of this Agreement is held by a court of competent jurisdiction to be indefinite, invalid, void or voidable, or otherwise unenforceable, the balance of this Agreement shall continue in full force and effect unless such construction would clearly be contrary to the intentions of the parties or would result in an injustice. 9.6 CAPTIONS AND COUNTERPARTS. The captions in this Agreement are solely for convenience. The captions in no way define, limit, or describe the scope or intent of this Agreement This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 9.7 NO DUTY TO MITIGATE. the Bank hereby acknowledges that it will be difficult and could be impossible (a) for the Executive to find reasonably comparable employment after his employment terminates, and (b) to measure the amount of damages the Executive may suffer as a result of termination. Additionally, the Bank acknowledges that its general severance pay plans do not provide for mitigation, offset, or reduction of any severance payment received thereunder. Accordingly, the Bank further acknowledges that the payment of severance and termination benefits under this Agreement is reasonable and shall be liquidated damages. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment. Moreover, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned or benefits provided as the result of employment of the Executive or as a result of the Executive being self-employed after termination of his employment. 9.8 AMENDMENT AND WAIVER. This Agreement may not be amended, released, discharged, abandoned, changed, or modified in any manner, except by an instrument in writing signed by each of the parties hereto. The failure of any party hereto to enforce at any tune any of the provisions of this Agreement shall in no way be construed to be a waiver of any such provision, nor in any way to affect the validity of this Agreement or any part thereof or the right of any party thereafter to enforce each and every such provision. No waiver or any breach of this Agreement shall be held to be a waiver of any other or subsequent breach. ARTICLE 10 REQUIRED PROVISIONS 10.1 BANK'S RIGHT TO TERMINATE THE EXECUTIVE'S EMPLOYMENT. The Bank's Board of Directors may terminate the Executive's employment at any time, but any termination by the Board of Directors, other than termination for Cause, shall not prejudice the Executive's right to compensation or other benefits under this Agreement. The Executive shall not have the right to receive compensation or other benefits for any period after termination for Cause. 10.2 SUSPENSION OF BANK'S OBLIGATIONS IF THE EXECUTIVE IS SUSPENDED. If the Executive is suspended from office or temporarily prohibited from participating in the Bank's affairs by a notice served under section 8(e)(3) (12 U.S.C. 1818(e)(3)) or 8(g) (12 U.S.C. 1818(g)) of the Federal Deposit Insurance Act, Citizen South's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (1) pay the Executive all or part of the compensation withheld while the Bank's obligations were suspended and (2) reinstate in whole or in part any of the obligations that were suspended. 10.3 TERMINATION OF BANK'S OBLIGATIONS IF THE EXECUTIVE IS REMOVED. If the Executive is removed or permanently prohibited from participating in the Bank's affairs by an order issued under section 8(e) (12 U.S.C. 1818(e)) or 8(g) (12 U.S.C. 1818(g)) of the Federal Deposit Insurance Act, all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected. 10.4 TERMINATION IF BANK IS IN DEFAULT. If the Bank is in default as defined in section 3(x) (12 U.S.C. 1813(x)(1)) of the Federal Deposit Insurance Act, all obligations of the Bank under this Agreement shall terminate as of the date of default, but this paragraph 10.4 shall not affect any vested rights of the parties. 10.5 TERMINATION ASSOCIATED WITH REGULATORY ACTION. All obligations of the Bank under this Agreement shall terminate, except to the extent determined that continuation of the contract is necessary for the continued operation of the institution, (1) by the Director of the OTS or the Director's designee, when the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in section 13(c) of the Federal Deposit Insurance Act (12 U.S.C. 1823(c)), or (2) by the Director or the Director' designee when the OTS approves a supervisory merger to resolve problems related to the operations of the Bank or when the Bank is determined by the OTS or by the Federal Deposit Insurance Corporation to be in an unsafe or unsound condition. Vested rights of the parties shall not be affected, however. 10.6 PAYMENTS ARE SUBJECT TO COMPLIANCE WITH 12 U.S.C. 1828(K). Any payments made to the Executive under this Agreement or otherwise are subject to and conditioned upon their compliance with section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. 1828(k)) and any regulations promulgated thereunder. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. WITNESS: CITIZENS SOUTH BANK /s/ Paul L. Teem, Jr. /s/ Kim S. Price - ---------------------------------- ------------------------------------- Paul L. Teem, Jr. Kim S. Price President and Chief Executive Officer WITNESS: EXECUTIVE /s/ Paul L. Teem, Jr. /s/ James Louis Brewer - ---------------------------------- ------------------------------------- Paul L. Teem, Jr. James Louis Brewer EX-10.3 4 exhibit103_111708.txt EXHIBIT 10.3 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of November 17, 2008, by and among the Citizens South Bank (the "Bank"), a federally chartered savings bank and a wholly-owned subsidiary of the Citizens South Banking Corporation (the "Company"), and Ira McDonald Flowe, Jr. (the "Executive"). WHEREAS, the Executive is currently employed as a Senior Vice President of the Bank, pursuant to an employment agreement between the Bank and the Executive originally entered into as of June 1, 2007 (the "Original Agreement"); WHEREAS, the Bank desires to assure itself of the continued services of Executive and in consideration for such continued services is willing to establish minimum severance benefits for the Executive in the event of a termination of employment; WHEREAS, the Bank desires to amend and restate the Original Agreement in order to make changes to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), as well as certain other changes; WHEREAS, the Bank desires to ensure that the Bank is assured of the continued availability of the Executive's services as provided in this Agreement; WHEREAS, the Executive is willing to serve the Bank on the terms and conditions hereinafter set forth; and NOW THEREFORE, in consideration of these premises, the mutual covenants contained herein, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows. ARTICLE 1 EMPLOYMENT The Bank hereby employs the Executive as Senior Vice President in accordance with the terms and conditions of this Agreement and for the period stated in Article 3. The Executive hereby accepts employment in accordance with the terms and conditions of this Agreement, effective on the date first written above (the "Effective Date") and for the period stated in Article 3. The Executive also agrees to serve as an officer or director of any subsidiary or affiliate of the Bank, if elected. For purposes of this Agreement, the term "affiliate" means any entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the Bank. ARTICLE 2 DUTIES As Senior Vice President of the Bank, the Executive shall serve under the direction of the Bank's President and Chief Executive Officer ("CEO"), and the Bank's Board of Directors (the "Board"). The Executive shall report directly to the Executive Vice President, Commercial Banking Group, or such other executive officer as directed by the President and CEO. He shall serve the Bank faithfully, diligently, competently, and to the best of his ability, and he shall exclusively devote his full time, energy, and attention to the business of the Bank and to the promotion of the Bank's interests throughout the term of this Agreement. Without the written consent of the President and CEO, the Executive shall not render services to or for any person, firm, corporation, or other entity or organization in exchange for compensation, regardless of the form in which such compensation is paid and regardless of whether it is paid directly or indirectly to the Executive. Nothing in this Article 2 shall prevent the Executive from managing his personal investments and affairs, provided that doing so does not interfere with the proper performance of his duties and responsibilities with the Bank. ARTICLE 3 TERM OF EMPLOYMENT The term of this Agreement shall commence as of the date first above written and shall expire on June 1, 2010. ARTICLE 4 COMPENSATION AND OTHER BENEFITS 4.1 BASE SALARY. In consideration of the Executive's performance of his obligations under this Agreement, the Bank shall pay or cause to be paid to the Executive a salary at the annual rate of not less than $140,000, payable in such installments as employees in general are paid. The Executive's salary may be increased but may not be reduced without his written consent. It is anticipated that the Executive's salary will be increased annually in conjunction with his annual performance review. The Executive's salary, as the same may be increased from time to time, is referred to in this Agreement as the "Base Salary." 4.2 BENEFIT PLANS AND PERQUISITES. The Executive shall be entitled throughout the term of this Agreement to participate in any and all officer or employee compensation, bonus, incentive, and benefit plans in effect from time to time and available to employees and officers in general (on such terms as such plans are made available to employees and officers), including, without limitation, plans providing pension, medical, dental, disability, and group life benefits, including the Bank's 401(k) Plan, and to receive any and all other fringe benefits provided from time to time, provided that the Executive satisfies the eligibility requirements for any such plans or benefits. 4.3 VACATION. The Executive shall be entitled to paid annual vacation and sick leave in accordance with the policies established from time to time by the Bank. The Executive shall not be entitled to any additional compensation for failure to use allotted vacation or sick leave, nor shall the Executive be entitled to accumulate unused sick leave or vacation days from one year to the next, unless permitted under the policies of the Bank then in effect. 4.4 INDEMNIFICATION. (a) The Bank shall indemnify Executive to the fullest extent permitted 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 an officer of the Bank (whether or not he continues to be an 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 (such settlements must be approved by the Board), provided that the Bank shall not be required to indemnify or reimburse Executive for legal expenses or liabilities incurred in connection with an action, suit or proceeding arising from any illegal or fraudulent act committed by Executive. Any such indemnification shall be made consistent with Section 545.121 of the Office of Thrift Supervision ("OTS") Regulations and Section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. ss. 1828(k), and the regulations issued thereunder in 12 C.F.R. Part 359. (b) No indemnification shall be made unless the Bank gives the OTS at least 60 days' notice of its intention to make such indemnification. Such notice shall state the facts on which the action arose, the terms of any settlement, and any disposition of the action by a court. Such notice, a copy thereof, and a certified copy of the resolution containing the required determination by the Board, and shall be sent to the regional director of the OTS, who shall promptly acknowledge receipt thereof. The notice period shall run from the date of such receipt. No such indemnification shall be made if the OTS advises the Bank in writing within such notice period, of its objection thereto. ARTICLE 5 TERMINATION OF EMPLOYMENT 5.1 TERMINATION BY THE EMPLOYER. (a) Death or Disability. The Executive's employment shall terminate automatically and without further obligation on the date of the Executive's death (other than the payment of Base Salary through the date of death). The Bank may terminate this Agreement if the Executive is disabled. For purposes of this Agreement, the Executive shall be deemed to be "disabled" if the Executive: (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, or last for a continuous period of not less than 12 months; (ii) by reason of any medically determinable physical or mental impairment that can be expected to result in death, or last for a continuous period of not less than 12 months, the Executive is receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Bank; or (iii) is determined to be totally disabled by the Social Security Administration. The Executive shall be entitled to receive benefits under any short or long-term disability plan maintained by the Bank. (b) Termination Without Cause. With written notice to the Executive thirty (30) days in advance, the Bank may terminate the Executive's employment for any reason and without Cause. If requested by the Bank in the aforementioned notice, upon receipt of the notice Executive shall refrain from performing services at the offices of the Bank, and/or refrain from acting or holding himself out to the public as acting on behalf of the Bank (and any affiliates thereof). Notwithstanding the foregoing, if Executive is requested to refrain from providing any further services as outlined in the preceding sentence, he shall nevertheless be entitled to receive his Base Salary and all benefits previously provided him for the duration of the thirty day notice period. (c) Termination With Cause. Effective on the date on which termination notice is given to the Executive and without the requirement of advance notice to the Executive, the Bank may terminate the Executive's employment with Cause. For purposes of this Agreement, "Cause" means the Executive's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, material breach of the Bank's Code of Ethics, material violation of the Sarbanes-Oxley requirements for officers of public companies that in the reasonable opinion of the CEO or the Board will likely cause substantial financial harm or substantial injury to the reputation of the Bank, willfully engaging in actions that in the reasonable opinion of the CEO or the Board will likely cause substantial financial harm or substantial injury to the business reputation of the Bank, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than routine traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the contract. 5.2 TERMINATION BY THE EXECUTIVE. The Executive may terminate his employment with written notice to the Bank thirty (30) days in advance, whether with or without Good Reason. If the Executive terminates with Good Reason, the termination will take effect at the conclusion of the 30-day period unless the event or circumstance constituting Good Reason is cured by the Bank or unless the notice of termination for Good Reason is revoked by the Executive within the 30-day period. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following events: (a) REDUCED BASE SALARY OR BENEFITS: a material reduction in the benefits and perquisites, including a reduction in Base Salary, being provided to Executive relative to those being provided as of the Effective Date (except for any reduction that is part of a reduction in pay or benefits that is generally applicable to officers or employees), (b) REDUCED RESPONSIBILITIES OR STATUS: assignment to the Executive of duties that are materially inconsistent with the Executive's position as Senior Vice President, (c) MATERIAL BREACH: a material breach of this Agreement by the Bank that is not corrected within thirty (30) days following notice from Executive, and (d) RELOCATION OF THE EXECUTIVE: requiring the Executive to change his principal work location, to any location that is more than fifty (50) miles from the location on the date of this Agreement. 5.3 NOTICE. Any purported termination by the Bank or by the Executive shall be communicated by written notice of termination to the other. The notice must state the specific termination provision of this Agreement relied upon. Except for termination for Cause, which becomes effective upon receipt by Executive of the notice, a termination of employment shall become effective 30 days after receipt of the notice. If termination is for Cause or with Good Reason, the notice must state in reasonable detail the facts and circumstances forming the basis for termination. ARTICLE 6 COMPENSATION AND BENEFITS AFTER TERMINATION 6.1 CAUSE. If the Executive's employment terminates for Cause, the Executive shall receive the Base Salary to which he was entitled through the date on which termination becomes effective and any other benefits that may be available to him under the Bank's benefit plans and policies in effect on the date of termination. Executive shall not be entitled to any further payments or benefits. 6.2 TERMINATION BY THE EXECUTIVE OTHER THAN FOR GOOD REASON. If the Executive terminates employment other than for Good Reason, the Executive shall receive the Base Salary to which he is entitled, and any other benefits that may be available to him under the Bank's benefit plans and policies, through the date on which his termination becomes effective. 6.3 CONTINUED BASE SALARY IN THE CASE OF TERMINATION BECAUSE OF DISABILITY. If the Executive's employment terminates because of disability, the Executive shall receive the benefits provided under any disability program sponsored by the Bank. To the extent that such benefits are less than Executive's Base Salary, the Bank shall pay the Executive an amount equal to the difference between such disability plan benefits and the amount of Executive's Base Salary for the remaining term of this Agreement. Any payments required hereunder shall commence within thirty (30) days from the Executive's termination due to disability and be payable in semi-monthly installments. 6.4 TERMINATION BY THE BANK WITHOUT CAUSE AND TERMINATION BY EXECUTIVE FOR GOOD REASON OTHER THAN FOLLOWING A CHANGE IN CONTROL. If the Bank terminates the Executive's employment without Cause or if the Executive terminates employment for Good Reason, the Executive shall (i) continue to receive his Base Salary and other employee benefits through the date of the termination, (ii) receive a lump sum cash payment from the Bank equal to one-half of the Base Salary in effect immediately prior to the notice of termination, which payment shall be made by the Bank no later than the date of termination, or in the event the Executive is a Specified Employee (within the meaning of Treasury Regulations ss.1.409A-1(i)), and to the extent necessary to avoid penalties under Code Section 409A, payment shall be made to the Executive on the first day of the seventh month following the date of termination, and (iii) continue to receive life insurance and non-taxable medical and dental coverage, substantially identical to the coverage maintained by the Bank for the Executive immediately prior to his termination (except to the extent such coverage is changed in application to all employees or officers), which coverage shall continue for a period of six (6) months following the date of termination. The Bank and the Executive acknowledge and agree that the compensation and benefits under this Section 6.4 shall not apply if the Bank terminates the Executive's employment without Cause or if the Executive terminates employment for Good Reason, in either case as of or following a Change in Control, as provided in Section 7. 6.5 SEPARATION FROM SERVICE. For purposes of Section 6.4, termination by the Bank without Cause and the Executive's termination of employment for Good Reason as used herein shall be construed to require a "Separation from Service" as defined in Code Section 409A and the Treasury Regulations promulgated thereunder, provided, however, that the Bank and the Executive reasonably anticipate that the level of bona fide services the Executive would perform after termination would permanently decrease to a level that is less than 50% of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period. ARTICLE 7 CHANGE IN CONTROL BENEFITS 7.1 CHANGE IN CONTROL TERMINATION BENEFITS. (a) TERMINATION OF EXECUTIVE OR THE EXECUTIVE'S VOLUNTARY RESIGNATION FROM THE BANK'S EMPLOY FOR ANY REASON AFTER A CHANGE IN CONTROL. If a Change in Control occurs during the term of this Agreement, the Executive shall be entitled to the lump sum cash payment specified in paragraph (b) and the benefits provided in (c) below if the Executive's employment is involuntarily terminated by the Bank without Cause at any time after the Change in Control or if the Executive voluntarily resigns from employment for any reason at any time after the Change in Control. (b) LUMP SUM CASH PAYMENT. the Bank shall make or cause to be made a lump sum cash payment to the Executive in an amount equal to the greater of (i) the Base Salary in effect immediately prior to the Change in Control, or (ii) the Base Salary in effect immediately prior to the termination of employment. The payment required under this paragraph (b) is payable no later than five (5) business days after the Executive's employment terminates, or in the event the Executive is a Specified Employee (within the meaning of Treasury Regulations ss.1.409A-1(i)), and to the extent necessary to avoid penalties under Code Section 409A, payment shall be made to the Executive on the first day of the seventh month after the Executive's employment terminates. (c) INSURANCE COVERAGE. Executive shall be entitled to continued life insurance and non-taxable medical and dental coverage, substantially identical to the coverage maintained by the Bank (or its successor) for Executive immediately prior to his termination (except to the extent such coverage is changed in application to all employees or officers), which coverage shall continue for a period of twelve (12) months following the effective date of termination. (d) SEPARATION FROM SERVICE. For purposes of Section 7.1, the Executive's termination of employment following a Change in Control shall be construed to require a "Separation from Service" as defined in Code Section 409A and the Treasury Regulations promulgated thereunder, provided, however, that the Bank and the Executive reasonably anticipate that the level of bona fide services the Executive would perform after termination would permanently decrease to a level that is less than 50% of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period. 7.2 DEFINITION OF CHANGE IN CONTROL. For purposes of this Agreement, "Change in Control" means any one of the following events occurs: (a) CHANGE IN OWNERSHIP OF THE COMPANY OR THE BANK. A change in the ownership of the Company or the Bank (collectively, as applicable, the "Employers") shall occur on the date that any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), acquires ownership of stock of the Employers 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 the Employers. However, if any one person or more than one person acting as a group, is considered to own more than 50 percent of the total fair market value or total voting power of the stock of the Employers, the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of the Employers (or to cause a change in the effective control of the Employers (within the meaning of paragraph (b) below). An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the corporation acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this section. This paragraph (a) applies only when there is a transfer of stock of a corporation (or issuance of stock of a corporation) and stock in such corporation remains outstanding after the transaction (b) CHANGE IN THE EFFECTIVE CONTROL OF THE COMPANY OR THE BANK. A change in the effective control of the Employers shall occur on the date that either (i) any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(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 30 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 for purposes of this paragraph (b)(ii), the term corporation refers solely to a corporation for which no other corporation is a majority shareholder. In the absence of an event described in paragraph (i) or (ii), a change in the effective control of a corporation will not have occurred. If any one person, or more than one person acting as a group, is considered to effectively control a corporation (within the meaning of this paragraph (b)), the acquisition of additional control of the corporation by the same person or persons is not considered to cause a change in the effective control of the corporation (or to cause a change in the ownership of the corporation within the meaning of paragraph (a)). Persons will not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the same time, or as a result of the same public offering. (c) CHANGE IN THE OWNERSHIP OF A SUBSTANTIAL PORTION OF THE COMPANY'S OR BANK'S ASSETS. A change in the ownership of a substantial portion of the Employer's assets shall occur on the date that any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(5)(vii)(C)), 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 all of the assets of the corporation immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the corporation, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. There is no Change in Control under this paragraph (c) when there is a transfer to an entity that is controlled by the shareholders of the transferring corporation immediately after the transfer. Each of the subparagraphs (a) through (c) of this Section shall be construed and interpreted consistent with the requirements of Code Section 409A and any Treasury Regulations or other guidance issued thereunder. 7.3 NO MULTIPLE SEVERANCE PAYMENTS. If the Executive receives payment under Section 7.1 he shall not be entitled to any additional severance benefits under Section 6.4 of this Agreement. ARTICLE 8 POST TERMINATION OBLIGATIONS 8.1 NON-COMPETITION AND NON-SOLICITATION. The Executive hereby covenants and agrees that, for a period of six months following any termination of his employment, other than a termination of employment following a Change in Control, he shall not, without the written consent of the Bank, either directly or indirectly: (i) solicit, offer employment to, or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any officer or employee of the Bank or any of its affiliates to terminate his or her employment and accept employment or become affiliated with, or provide services for compensation in any capacity whatsoever to, any business whatsoever that competes with the business of the Bank or any of its affiliates or has headquarters or offices within 50 miles of the locations in which the Bank or its affiliates has business operations or has filed an application for regulatory approval to establish an office; (ii) become an officer, employee, consultant, director, independent contractor, agent, sole proprietor, joint venturer, greater than 5% equity-owner or stockholder, partner or trustee of or provide services for compensation in any capacity whatsoever to, any savings bank, savings and loan association, savings and loan holding company, credit union, bank or bank holding company, insurance company or agency, any mortgage or loan broker or any other financial services entity or business whatsoever that competes with the business of the Bank or any of its affiliates or has headquarters or offices within 50 miles of Cornelius, North Carolina; provided, however, that this restriction shall no apply if the Executive's employment is terminated, either by Executive, with or without Good Reason, or by the Bank, following a Change in Control; or (iii) solicit, provide any information, advice or recommendation or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any customer of the Bank or its affiliates to terminate an existing business or commercial relationship with the Bank or its affiliates. 8.2 FURTHER ASSISTANCE. Executive shall, upon reasonable notice, furnish such information - and assistance to the Bank and/or its affiliates, as may reasonably be required by the Bank and/or its affiliates, in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party; provided, however, that Executive shall not be required to provide information or assistance with respect to any litigation between the Executive and the Bank, or any of its affiliates. 8.3 EQUITABLE REMEDIES. All payments and benefits to the Executive under this Agreement shall be subject to the Executive's compliance with this Section. The parties hereto, recognizing that irreparable injury will result to the Bank, its business and property in the event of the Executive's breach of this Section, agree that, in the event of any such breach by the Executive, the Bank will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by the Executive and all persons acting for or with the Executive. The Executive represents and admits that the Executive's experience and capabilities are such that the Executive can obtain employment in a business engaged in other lines and/or of a different nature than the Bank, and that the enforcement of a remedy by way of injunction will not prevent the Executive from earning a livelihood. Nothing herein will be construed as prohibiting the Bank from pursuing any other remedies for such breach or threatened breach, including the recovery of damages from the Executive. ARTICLE 9 MISCELLANEOUS 9.1 SUCCESSORS AND ASSIGNS. (a) THIS AGREEMENT IS BINDING ON THE BANK'S SUCCESSORS. This Agreement shall be binding upon the Bank and any successor to the Bank, including any persons acquiring directly or indirectly all or substantially all of the business or assets of the Bank by purchase, merger, consolidation, reorganization, or otherwise. Any such successor shall thereafter be deemed to be "the Bank" for purposes of this Agreement. But this Agreement and the Bank's obligations under this Agreement are not otherwise assignable, transferable, or delegable by the Bank. By agreement in form and substance satisfactory to the Executive, the Bank shall require any successor to all or substantially all of the business or assets of the Bank expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Bank would be required to perform if no such succession had occurred. (b) THIS AGREEMENT IS ENFORCEABLE BY THE EXECUTIVE AND HIS HEIRS. This Agreement will inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, and legatees. (c) THIS AGREEMENT IS PERSONAL IN NATURE AND IS NOT ASSIGNABLE. This Agreement is personal in nature. Without written consent of the other parties, no party shall assign, transfer, or delegate this Agreement or any rights or obligations under this Agreement, except as expressly provided herein. Without limiting the generality or effect of the foregoing, the Executive's right to receive payments hereunder is not assignable or transferable, whether by pledge, creation of a security interest, or otherwise, except for a transfer by the Executive's will or by the laws of descent and distribution. If the Executive attempts an assignment or transfer that is contrary to this Section 9.1, the Bank shall have no liability to pay any amount to the assignee or transferee. 9.2 GOVERNING LAW, JURISDICTION AND FORUM. This Agreement shall be construed under and governed by the internal laws of the State of North Carolina, without giving effect to any conflict of laws provision or rule (whether of the State of North Carolina or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of North Carolina. By entering into this Agreement, the Executive acknowledges that he is subject to the jurisdiction of both the federal and state courts in the State of North Carolina. Any actions or proceedings instituted under this Agreement shall be brought and tried solely in courts located in Gaston County, North Carolina or in the federal court having jurisdiction in Gastonia, North Carolina. The Executive expressly waives his rights to have any such actions or proceedings brought or tried elsewhere. 9.3 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties concerning the employment of the Executive by the Bank, and any oral or written statements, representations, agreements, or understandings made or entered into prior to or contemporaneously with the execution of this Agreement, are hereby rescinded, revoked, and rendered null and void by the parties. Benefits payable under this Agreement shall not be reduced by other benefits paid to the Executive by the Bank. 9.4 NOTICES. Any notice under this Agreement shall be deemed to have been effectively made or given if in writing and personally delivered, delivered by mail properly addressed in a sealed envelope, postage prepaid by certified or registered mail, delivered by a reputable overnight delivery service, or sent by facsimile. Unless otherwise changed by notice, notice shall be properly addressed to the Executive if addressed to the address of the Executive on the books and records of the Bank at the time of the delivery of such notice, and properly addressed to the Bank if addressed to the Bank at 519 South New Hope Road, Gastonia, North Carolina 28054-4040, Attention: Corporate Secretary. 9.5 SEVERABILITY. In the case of conflict between any provision of this Agreement and any statute, regulation, or judicial precedent, the latter shall prevail, but the affected provisions of this Agreement shall be curtailed and limited solely to the extent necessary to bring them within the requirements of law. If any provision of this Agreement is held by a court of competent jurisdiction to be indefinite, invalid, void or voidable, or otherwise unenforceable, the balance of this Agreement shall continue in full force and effect unless such construction would clearly be contrary to the intentions of the parties or would result in an injustice. 9.6 CAPTIONS AND COUNTERPARTS. The captions in this Agreement are solely for convenience. The captions in no way define, limit, or describe the scope or intent of this Agreement This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 9.7 NO DUTY TO MITIGATE. the Bank hereby acknowledges that it will be difficult and could be impossible (a) for the Executive to find reasonably comparable employment after his employment terminates, and (b) to measure the amount of damages the Executive may suffer as a result of termination. Additionally, the Bank acknowledges that its general severance pay plans do not provide for mitigation, offset, or reduction of any severance payment received thereunder. Accordingly, the Bank further acknowledges that the payment of severance and termination benefits under this Agreement is reasonable and shall be liquidated damages. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment. Moreover, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned or benefits provided as the result of employment of the Executive or as a result of the Executive being self-employed after termination of his employment. 9.8 AMENDMENT AND WAIVER. This Agreement may not be amended, released, discharged, abandoned, changed, or modified in any manner, except by an instrument in writing signed by each of the parties hereto. The failure of any party hereto to enforce at any tune any of the provisions of this Agreement shall in no way be construed to be a waiver of any such provision, nor in any way to affect the validity of this Agreement or any part thereof or the right of any party thereafter to enforce each and every such provision. No waiver or any breach of this Agreement shall be held to be a waiver of any other or subsequent breach. ARTICLE 10 REQUIRED PROVISIONS 10.1 BANK'S RIGHT TO TERMINATE THE EXECUTIVE'S EMPLOYMENT. The Bank's Board of Directors may terminate the Executive's employment at any time, but any termination by the Board of Directors, other than termination for Cause, shall not prejudice the Executive's right to compensation or other benefits under this Agreement. The Executive shall not have the right to receive compensation or other benefits for any period after termination for Cause. 10.2 SUSPENSION OF BANK'S OBLIGATIONS IF THE EXECUTIVE IS SUSPENDED. If the Executive is suspended from office or temporarily prohibited from participating in the Bank's affairs by a notice served under section 8(e)(3) (12 U.S.C. 1818(e)(3)) or 8(g) (12 U.S.C. 1818(g)) of the Federal Deposit Insurance Act, Citizen South's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (1) pay the Executive all or part of the compensation withheld while the Bank's obligations were suspended and (2) reinstate in whole or in part any of the obligations that were suspended. 10.3 TERMINATION OF BANK'S OBLIGATIONS IF THE EXECUTIVE IS REMOVED. If the Executive is removed or permanently prohibited from participating in the Bank's affairs by an order issued under section 8(e) (12 U.S.C. 1818(e)) or 8(g) (12 U.S.C. 1818(g)) of the Federal Deposit Insurance Act, all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected. 10.4 TERMINATION IF BANK IS IN DEFAULT. If the Bank is in default as defined in section 3(x) (12 U.S.C. 1813(x)(1)) of the Federal Deposit Insurance Act, all obligations of the Bank under this Agreement shall terminate as of the date of default, but this paragraph 10.4 shall not affect any vested rights of the parties. 10.5 TERMINATION ASSOCIATED WITH REGULATORY ACTION. All obligations of the Bank under this Agreement shall terminate, except to the extent determined that continuation of the contract is necessary for the continued operation of the institution, (1) by the Director of the OTS or the Director's designee, when the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in section 13(c) of the Federal Deposit Insurance Act (12 U.S.C. 1823(c)), or (2) by the Director or the Director' designee when the OTS approves a supervisory merger to resolve problems related to the operations of the Bank or when the Bank is determined by the OTS or by the Federal Deposit Insurance Corporation to be in an unsafe or unsound condition. Vested rights of the parties shall not be affected, however. 10.6 PAYMENTS ARE SUBJECT TO COMPLIANCE WITH 12 U.S.C. 1828(k). Any payments made to the Executive under this Agreement or otherwise are subject to and conditioned upon their compliance with section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. 1828(k)) and any regulations promulgated thereunder. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. WITNESS: CITIZENS SOUTH BANK /s/ Paul L. Teem, Jr. /s/ Kim S. Price - ---------------------------------- ------------------------------------- Paul L. Teem, Jr. Kim S. Price President and Chief Executive Officer WITNESS: EXECUTIVE /s/ Paul L. Teem, Jr. /s/ Ira McDonald Flowe, Jr. - ---------------------------------- ------------------------------------- Paul L. Teem, Jr. Ira McDonald Flowe, Jr. EX-10.4 5 exhibt104rep_111708.txt 9 CITIZENS SOUTH BANKING CORPORATION AMENDED AND RESTATED SEVERANCE AGREEMENT This AMENDED AND RESTATED SEVERANCE AGREEMENT (this "Agreement") is made and entered into as of November 17, 2008 by and between Citizens South Banking Corporation, a Delaware corporation (the "Corporation"), and _________________ (the "Executive"). WHEREAS, the Executive entered into a severance agreement with the Corporation on ____________ (the "Original Agreement"); WHEREAS, the Corporation desires to amend and restate the Original Agreement in order to make changes to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), as well as certain other changes; WHEREAS, the Corporation desires to assure itself of the Executive's services and desires to establish minimum severance benefits for the Executive in the event of a change in control; WHEREAS, the Corporation wishes to ensure that the Executive is not distracted from discharging his duties if a change in control is proposed or occurs; and WHEREAS, none of the conditions or events included in the definition of the term "golden parachute payment" that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule 359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists or, to the best knowledge of the Corporation, is contemplated insofar as either of the Corporation or any of its subsidiaries is concerned. NOW THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows. 1. CHANGE IN CONTROL AND TERMINATION OF EMPLOYMENT (a) Termination of Executive Anytime After a Change in Control. If a Change in Control occurs during the term of this Agreement and if either of the following occurs, the Executive shall be entitled to severance benefits specified in Section 2 of this Agreement - (1) Termination by the Corporation or a Subsidiary (as defined herein): if the Executive's employment with the Corporation or its Subsidiary is involuntarily terminated at anytime after a Change in Control, except for a termination of employment under Section 3 of this Agreement, or (2) Voluntary Termination by the Executive: the Executive voluntarily terminates his employment for any reason with the Corporation or Subsidiary at anytime after a Change in Control. If the Executive is removed from office or if his employment terminates after discussions with a third party regarding a Change in Control commence, and if those discussions ultimately conclude with a Change in Control, then for purposes of this Agreement the removal of the Executive or termination of employment shall be deemed to have occurred after the Change in Control. For purposes of this Agreement, "Subsidiary" means an entity in which the Corporation directly or indirectly beneficially owns 50% or more of the outstanding voting securities (b) Definition of Change in Control. For purposes of this Agreement, "Change in Control" means any of the following events occur - (1) Merger: the Corporation merges into or consolidates with another corporation, or merges another corporation into the Corporation, and as a result less than 50% of the combined voting power of the resulting corporation immediately after the merger or consolidation is held by persons who were the holders of the Corporation's voting securities immediately before the merger or consolidation. For purposes of this Agreement, the term "person" means an individual, corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or other entity, or (2) Acquisition of Significant Share Ownership: a report on Schedule 13D, Schedule TO, or another form or schedule (other than Schedule 13G), is filed or is required to be filed under Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, if the schedule discloses that the filing person or persons acting in concert has or have become the beneficial owner of 25% or more of a class of the Corporation's voting securities (but this clause (2) shall not apply to beneficial ownership of voting shares held by a Subsidiary in a fiduciary capacity), or (3) Change in Board Composition: during any period of two consecutive years, individuals who constitute the Corporation's board of directors at the beginning of the two-year period cease for any reason to constitute at least a majority thereof; provided, however, that - for purposes of this clause (3) - each director who is first elected by the board (or first nominated by the board for election by stockholders) by a vote of at least two-thirds (2/3) of the directors who were directors at the beginning of the period shall be deemed to have been a director at the beginning of the two-year period, or (4) Sale of Assets: The Corporation sells to a third party substantially all of the Corporation's assets. For purposes of this Agreement, sale of substantially all of the Corporation's assets includes sale of Citizens South Bank alone. (c) Definition of Separation from Service. For purposes of this Agreement, termination of the Executive's employment as used herein shall be construed to require a "Separation from Service" as defined in Code Section 409A and the Treasury Regulations promulgated thereunder, provided, however, that the Corporation and the Executive reasonably anticipate that the level of bona fide services the Executive would perform after termination would permanently decrease to a level that is less than 50% of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period. 2. SEVERANCE BENEFITS (a) Severance Benefits. The severance benefits to which the Executive is entitled under Section 1 are as follows - (1) Lump Sum Payment: The Corporation shall make or cause to be made a lump sum payment to the Executive in an amount in cash equal to 1.5 times the Executive's annual compensation. For purposes of this Agreement, annual compensation means (a) the Executive's annual base salary on the date of the Change in Control or the Executive's termination of employment, whichever amount is greater, plus (b) any cash bonuses or cash incentive compensation earned for the calendar year immediately before the year in which the Change in Control occurred or immediately before the year in which termination of employment occurred, whichever amount is greater, regardless of when the bonus or incentive compensation is or was paid. The Corporation recognizes that the bonus and incentive compensation earned by the Executive for a particular year's service might be paid in the year after the calendar year in which the bonus or incentive compensation is earned. The amount payable to the Executive hereunder shall not be reduced to account for the time value of money or discounted to present value. The payment required under this Section 2(a)(1) is payable no later than 5 business days after the date the Executive's employment terminates, or in the event the Executive is a Specified Employee (within the meaning of Treasury Regulations ss.1.409A-1(i)), and to the extent necessary to avoid penalties under Code Section 409A, payment shall be made to the Executive on the first day of the seventh month following the date the Executive's employment terminates. (2) Retirement Benefit Plans: The Corporation shall cause the Executive to become fully vested in any qualified and non-qualified plans, programs or arrangements in which the Executive participated if the plan, program, or arrangement does not address the effect of a change in control. The Corporation also shall contribute or cause a Subsidiary to contribute to any account of the Executive under a 401(k) plan, retirement plan, or profit-sharing plan the matching and voluntary contributions, if any, that would have been made had the Executive's employment not terminated before the end of the plan year. In the event the Corporation is unable to fully vest the Executive in a qualified plan that does not address the effect of a change in control due to operation of law, the Executive will be paid in a single cash lump sum distribution the present value of the cash equivalent of the amount of benefits the Executive would have received if he were fully vested in such plan, with such payment made at the same time the cash severance is payable pursuant to Section 2(a)(1) of this Agreement. (3) Other Benefit Plans: The Corporation shall cause to be continued life insurance and non-taxable medical and dental coverage substantially identical to the coverage maintained by the Corporation for the Executive prior to his severance. Such coverage and payments shall cease after 18 months, or sooner if the Executive becomes employed elsewhere. (b) Mitigation Is Not Required. The Corporation hereby acknowledges that it will be difficult and could be impossible (1) for the Executive to find reasonably comparable employment after his employment terminates, and (2) to measure the amount of damages the Executive suffers as a result of termination. Additionally, the Corporation acknowledges that its general severance pay plans do not provide for mitigation, offset or reduction of any severance payment received thereunder. Accordingly, the Corporation further acknowledges that the payment of severance benefits by the Corporation under this Agreement is reasonable and will be liquidated damages, and the Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor will any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of the Executive hereunder or otherwise. 3. TERMINATION FOR WHICH NO SEVERANCE BENEFITS ARE PAYABLE (a) No Severance for Termination for Cause. The Bank may terminate the Executive's employment at any time. Anything in this Agreement to the contrary notwithstanding, under no circumstance shall the Executive be entitled to severance benefits if his employment terminates for Cause. (1) "Cause" Means Commission of Any of the Following Acts: For purposes of this Agreement, "Cause" means the Executive shall have committed any of the following acts - (a) Fraud, Embezzlement, Theft or Other Crime: an act of fraud, embezzlement, or theft in connection with his duties or in the course of his employment with the Corporation or a Subsidiary, or commission of a felony or commission of a misdemeanor involving moral turpitude, or (b) Damage to Property: intentional wrongful damage to the business or property of the Corporation or Subsidiary(ies), which, in the Corporation's sole judgment, causes material harm to the Corporation or Subsidiary(ies), or (c) Negligence and Other Actions: gross negligence, insubordination, disloyalty, or dishonesty in the performance of his duties as an officer of the Corporation or Subsidiary(ies), or (d) Violation of Law or Policy: intentional violation of any law or significant policy of the Corporation or Subsidiary(ies) committed in connection with the Executive's employment, which, in the Corporation's sole judgment, has an adverse effect on the Corporation or Subsidiary(ies), or (e) Disclosure of Trade Secrets: intentional wrongful disclosure of secret processes or confidential information of the Corporation or a Subsidiary, which, in the Corporation's sole judgment, causes material harm to the Corporation or the Subsidiary, or (f) Competing with the Corporation: intentional wrongful engagement in any competitive activity. For purposes of this Agreement, competitive activity means the Executive's participation, without the written consent of a senior executive officer of the Corporation, in the management of any business enterprise if (1) the enterprise engages in substantial and direct competition with the Corporation, (2) the enterprise's revenues derived from any product or service competitive with any product or service of the Corporation or Subsidiary(ies) amounted to 10% or more of the enterprise's revenues for its most recently completed fiscal year, and (3) the Corporation's revenues from the product or service amounted to 10% of the Corporation's revenues for its most recently completed fiscal year. A competitive activity does not include mere ownership of securities in an enterprise and the exercise of rights appurtenant thereto, provided the Executive's share ownership does not give his practical or legal control of the enterprise. For this purpose, ownership of less than 5% of the enterprise's outstanding voting securities shall conclusively be presumed to be insufficient for practical or legal control, and ownership of more than 50% shall conclusively be presumed to constitute practical and legal control. If the Executive is now or hereafter becomes subject to an agreement not to compete with the Corporation or Subsidiary(ies), a breach by the Executive of that other non-competition agreement shall be grounds for denial of severance benefits for Cause under this clause (f) of Section 3(a)(1). However, if the Executive engages in a competitive activity under circumstances justifying denial of severance benefits for Cause under this clause (f), that shall not necessarily be grounds for concluding that the Executive has also breached the other non-competition agreement to which he is or may become subject. This clause (f) is not intended to and shall not be construed to supersede or amend any provision of an employment or non-competition agreement to which the Executive is or may become subject. This clause (f) does not grant to the Executive any right or privilege to engage in other activities or enterprises, whether in competition with the Corporation or otherwise, or (g) Termination for Cause under an Employment Agreement: any actions that have caused the Executive to be terminated for Cause under any employment agreement existing on the date hereof or hereafter entered into between the Executive and the Corporation or a Subsidiary. (2) Definition of "Intentional": For purposes of this Agreement, no act or failure to act on the part of the Executive shall be deemed to have been intentional if it was due primarily to an error in judgment or negligence. An act or failure to act on the Executive's part shall be considered intentional if it is not in good faith and if it is without a reasonable belief that the action or failure to act is in the best interests of the Corporation or a Subsidiary. (b) The Executive's Right to Severance Is Subject to Regulatory Considerations. Payments made to the Executive under this Agreement or otherwise are subject to and conditioned upon their compliance with 12 U.S.C. section 1828(k) and any regulations promulgated thereunder. (c) No Severance under this Agreement for the Executive's Death or Disability. Anything in this Agreement to the contrary notwithstanding, under no circumstance shall the Executive be entitled to severance benefits under this Agreement if - (1) Death: the Executive dies while actively employed by the Corporation or a Subsidiary, or (2) Disability: the Executive becomes totally disabled while actively employed by the Corporation or a Subsidiary. For purposes of this Agreement, the term "totally disabled" means that, because of injury or sickness, the Executive is unable to perform his duties. The benefits, if any, payable to the Executive or his beneficiary(ies) or estate relating to his death or disability shall be determined solely by such benefit plans or arrangements as the Corporation or Subsidiary may have with the Executive relating to death or disability, not by this Agreement. 4. TERM OF AGREEMENT The initial term of this Agreement shall be for a period of three years, commencing on November 1, 2008 (the "Effective Date"). On the first anniversary of the Effective Date of this Agreement, and on each anniversary thereafter, this Agreement shall be extended automatically for one additional year unless the Corporation's board of directors gives notice to the Executive in writing at least 90 days before the anniversary that the term of this Agreement will not be extended. If the board of directors determines not to extend the term, it shall promptly notify the Executive. References herein to the term of this Agreement mean the initial term and extensions of the initial term. Unless terminated earlier, this Agreement shall terminate when the Executive reaches age 65. If the board of directors decides not to extend the term of this Agreement, this Agreement shall nevertheless remain in force until its term expires. The board's decision not to extend the term of this Agreement shall not - by itself - give the Executive any rights under this Agreement to claim an adverse change in his position, compensation or circumstances or otherwise to claim entitlement to severance benefits under this Agreement. 5. THIS AGREEMENT IS NOT AN EMPLOYMENT CONTRACT The parties hereto acknowledge and agree that (a) this Agreement is not a management or employment agreement and (b) nothing in this Agreement shall give the Executive any rights or impose any obligations to continued employment by the Corporation or any Subsidiary or successor of the Corporation, nor shall it give the Corporation any rights or impose any obligations for the continued performance of duties by the Executive for the Corporation or any Subsidiary or successor of the Corporation. 6. WITHHOLDING OF TAXES The Corporation may withhold from any benefits payable under this Agreement all Federal, state, local or other taxes as may be required by law, governmental regulation or ruling. 7. SUCCESSORS AND ASSIGNS (a) This Agreement Is Binding on the Corporation's Successors. This Agreement shall be binding upon the Corporation and any successor to the Corporation, including any persons acquiring directly or indirectly all or substantially all of the business or assets of the Corporation by purchase, merger, consolidation, reorganization, or otherwise. Any such successor shall thereafter be deemed to be "Citizens South Banking Corporation" for purposes of this Agreement. However, this Agreement and the Corporation's obligations under this Agreement are not otherwise assignable, transferable or delegable by the Corporation. By agreement in form and substance satisfactory to the Executive, the Corporation shall require any successor to all or substantially all of the business or assets of the Corporation expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Corporation would be required to perform if no such succession had occurred. (b) This Agreement Is Enforceable by the Executive and His Heirs. This Agreement will inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributes and legatees. (c) This Agreement Is Personal in Nature and Is Not Assignable. This Agreement is personal in nature. Without written consent of the other party, neither party shall assign, transfer, or delegate this Agreement or any rights or obligations under this Agreement except as expressly provided in this Section 7. Without limiting the generality or effect of the foregoing, the Executive's right to receive payments hereunder is not assignable or transferable, whether by pledge, creation of a security interest, or otherwise, except for a transfer by Executive's will or by the laws of descent and distribution. If the Executive attempts an assignment or transfer that is contrary to this Section 7, the Corporation shall have no liability to pay any amount to the assignee or transferee. 8. NOTICES All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid (a) to the Corporation at 519 South New Hope Road, P.O. Box 2249, Gastonia, North Carolina 28053-2249, Attn: Corporate Secretary, (b) to the Executive at the address appearing on the Corporation's records, or (c) to such other address as the party may designate by like notice. 9. CAPTIONS AND COUNTERPARTS The headings and subheadings used in this Agreement are included solely for convenience and shall not affect the interpretation of this Agreement. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. 10. AMENDMENTS AND WAIVERS No provision of this Agreement may be modified or amended except in a writing signed by the Executive and by the Corporation. No waiver by either party of any breach by the other or waiver of compliance with any condition or provision of this Agreement shall be deemed a waiver of similar provisions or conditions at the same time or at any other time. 11. SEVERABILITY The provisions of this Agreement shall be deemed severable. The invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions of this Agreement. Any provision held to be invalid or unenforceable shall be reformed to the extent (and only to the extent) necessary to make it valid and enforceable. 12. GOVERNING LAW The validity, interpretation, construction and performance of this Agreement shall be governed by and construed in accordance with the substantive laws of the State of North Carolina, without giving effect to the principles of conflict of laws of such State. 13. ENTIRE AGREEMENT This Agreement constitutes the entire agreement between the Corporation and the Executive concerning the subject matter hereof. No rights are granted to the Executive under this Agreement other than those specifically set forth herein. No agreements or representations, oral or otherwise, expressed or implied concerning the subject matter of this Agreement have been made by either party that are not set forth expressly in this Agreement. Without limiting the generality of the foregoing, the parties hereto acknowledge and agree that this Agreement supersedes in its entirety any prior Merger/Acquisition Protection Agreement entered into by the Executive and the Corporation or by the Executive and Citizens South Bank, as amended or supplemented. Any Merger/Acquisition Protection Agreement entered into prior to this Agreement shall hereafter be void and of no force or effect. IN WITNESS WHEREOF, the parties have executed this Severance Agreement as of the date first written above. CITIZENS SOUTH BANKING CORPORATION By: ------------------------------ Its: ------------------------------ EXECUTIVE ---------------------------------- EX-10.5 6 exhibit105_111708.txt EXHIBIT 10.5 FIRST AMENDMENT TO SALARY CONTINUATION AGREEMENT First Amendment, dated as of _________ __, 2008 (the "Amendment"), to the Salary Continuation Agreement, dated as of January 1, 2004 (as amended, the "Salary Continuation Agreement"), by and among Citizens South Bank (the "Bank") and _______________ (the "Executive"). Capitalized terms which are not defined herein shall have the same meaning as set forth in the Salary Continuation Agreement. W I T N E S S E T H: WHEREAS, the parties desire to amend the Salary Continuation Agreement to comply with the final regulations issued in April 2007 by the Internal Revenue Service under Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, pursuant to Sections 7.1 and 7.14 of the Salary Continuation Agreement, the parties to the Salary Continuation Agreement desire to amend the Salary Continuation Agreement; NOW, THEREFORE, in consideration of the premises, the mutual agreements herein set forth and such other consideration the sufficiency of which is hereby acknowledged, the Bank and the Executive hereby agree as follows: Section 1. Amendment to Section 1.4 of the Salary Continuation Agreement. The definition of Change in Control in Section 1.4 of the Salary Continuation Agreement is hereby amended to read in its entirety as follows: "Change in Control means a change in the ownership of Citizens South Banking Corporation (the "Company") or the Bank, a change in the effective control of the Company or the Bank or a change in the ownership of a substantial portion of the assets of the Company or the Bank, in each case as provided under Section 409A of the Code and the regulations thereunder." Section 2. Amendment to Section 1.5 of the Salary Continuation Agreement. The definition of Disability in Section 1.5 of the Salary Continuation Agreement is hereby amended to read in its entirety as follows: "Disability means the Executive (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health Agreement covering employees of the Bank." Section 3. Amendment to Section 1.9 of the Salary Continuation Agreement. The definition of Good Reason in Section 1.9 of the Salary Continuation Agreement is hereby amended to read in its entirety as follows: "Good Reason means the occurrence of any of the following conditions: (i) any material breach of this Agreement by the Bank, including without limitation any of the following: (A) a material diminution in the Executive's base compensation, (B) a material diminution in the Executive's authority, duties or responsibilities, or (C) a material diminution in the authority, duties or responsibilities of the officer to whom the Executive is required to report, or (ii) any material change in the geographic location at which the Executive must perform his services under this Agreement; provided, however, that prior to any termination of employment for Good Reason, the Executive must first provide written notice to the Bank within ninety (90) days of the initial existence of the condition, describing the existence of such condition, and the Bank shall thereafter have the right to remedy the condition within thirty (30) days of the date the Bank received the written notice from the Executive. If the Bank remedies the condition within such thirty (30) day cure period, then no Good Reason shall be deemed to exist with respect to such condition. If the Bank does not remedy the condition within such thirty (30) day cure period, then the Executive may deliver a notice of termination for Good Reason at any time within sixty (60) days following the expiration of such cure period." Section 4. Amendment to Section 1.16 of the Salary Continuation Agreement. Section 1.16 of the Salary Continuation Agreement is hereby amended to read in its entirety as follows: "Termination of Employment," for purposes of this Agreement, shall mean a "Separation from Service" as such term is defined in Section 409A of the Code and the final regulations issued thereunder, provided that whether a Separation from Service has occurred shall be determined based on whether the facts and circumstances indicate that the Bank and the Executive reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the Executive would perform after such date (whether as an employee or as an independent contractor) would permanently decrease to less than fifty percent (50%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding thirty-six (36) month period (or the full period of services to the Bank if the Executive has been providing services to the Bank less than thirty-six (36) months)." Section 5. Deletion of Section 2.6 of the Salary Continuation Agreement. Section 2.6 of the Salary Continuation Agreement is hereby deleted in its entirety. Section 6. New Section 2.8 of the Salary Continuation Agreement. A new Section 2.8 of the Salary Continuation Agreement is hereby added to read in its entirety as follows: "2.8 Restriction on Commencement of Distributions. Notwithstanding any provision of this Agreement to the contrary, if the Executive is considered a Specified Employee (within the meaning of Treasury Regulation 1.409A-1(i)), the provisions of this Section 2.8 shall govern the timing of all distributions under Sections 2.1, 2.2, 2.3 and 2.4 of this Agreement. In the event the Executive is a Specified Employee, and to the extent necessary to avoid penalties under Section 409A of the Code, payments to the Executive shall not commerce until the later of (i) the first day of the month following the lapse of six months after the date of the Termination of Employment, or (ii) the first day of the month following the Executive's attainment of Normal Retirement Age. Any distribution which would otherwise be paid to the Executive during such period shall be accumulated and paid to the Executive in a lump sum on the first day of the month following the lapse of six months after the date of the Termination of Employment. All subsequent distributions shall be paid in the manner specified." Section 7. Amendment to Section 7.1 of the Salary Continuation Agreement. Section 7.1 of the Salary Continuation Agreement is hereby amended to read in its entirety as follows: "7.1 Amendments and Termination. (a) Subject to Section 7.14 of this Agreement, (a) this Agreement may be amended solely by a written agreement signed by the Bank and by the Executive, and (b) except for termination occurring under Article 5, this Agreement may be terminated solely by a written agreement signed by the Bank and by the Executive. Except as provided in Section 7.1(b), the termination of this Agreement shall not cause a distribution of benefits under this Agreement. (b) Notwithstanding anything to the contrary in Section 7.1(a), if the Bank irrevocably terminates this Agreement in the following circumstances: (i) Within thirty (30) days before a Change in Control, provided that all distributions are made no later than twelve (12) months following such irrevocable termination of this Agreement and further provided that all of the arrangements sponsored by the Bank that would be aggregated with this Agreement under Treasury Regulation ss.1.409A-1(c)(2) are terminated so the Executive and all Executives under the other aggregated arrangements are required to receive all amounts of compensation deferred under the terminated arrangements within twelve (12) months of the date the Bank irrevocably takes all necessary action to terminate such arrangements; (ii) With twelve (12) months of a dissolution of the Bank taxed under Section 331 of the Code or with the approval of a bankruptcy court pursuant to 11 U.S.C. ss.503(b)(1)(A), provided that the amounts deferred under this Agreement are included in the Executive's gross income in the latest of (i) the calendar year in which this Agreement terminates; (ii) the calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or (iii) the first calendar year in which the distribution is administratively practicable; or (iii) Upon the Bank's termination of this and all other arrangements that would be aggregated with this Agreement pursuant to Treasury Regulation ss.1.409A-1(c) if the Executive participated in such arrangements ("Similar Arrangements"), provided that (i) the termination and liquidation does not occur proximate to a downturn in the financial health of the Bank, (ii) no payments are made within twelve (12) months of the termination of the arrangements other than payments that would be payable under the terms of the arrangements if the termination had not occurred, (iii) all termination distributions are made no later than twenty-four (24) months following such termination, and (iv) the Bank does not adopt any new arrangement that would be a Similar Arrangement for a minimum of three (3) years following the date the Bank takes all necessary action to irrevocably terminate and liquidate the Agreement; the Bank may distribute the Accrual Balance, determined as of the date of the termination of this Agreement (without regard to vesting in the event of a termination pursuant to Section 7(b)(i)), to the Executive in a lump sum subject to the above terms. Section 8. Amendment to Section 7.13 of the Salary Continuation Agreement. The second to last sentence in Section 7.13 of the Salary Continuation Agreement is hereby amended to read in its entirety as follows: "The fees and expenses of counsel selected from time to time by the Executive as provided in this section shall be paid or reimbursed to the Executive by the Bank on a regular, periodic basis upon presentation within thirty (30) days following the Executive's presentation of a statement or statements prepared by such counsel in accordance with such counsel's customary practices, up to a maximum aggregate amount of $25,000." Section 9. Effectiveness. This Amendment shall be deemed effective as of the date first above written, as if executed on such date. 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 terms, conditions, obligations, covenants or agreements contained in the Salary Continuation Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect and shall be otherwise unaffected. Section 10. Governing Law. This Amendment and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of North Carolina. Section 11. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall for all purposes be deemed an original, and all of which together shall constitute but one and the same instrument. Section 12. Compliance with Section 409A. This Agreement shall be interpreted and administered consistent with Section 409A of the Code. IN WITNESS WHEREOF, the Bank and the Executive have duly executed this Amendment as of the day and year first written above. CITIZENS SOUTH BANK Attest: By: - --------------------------------------- --------------------------------- Name: Paul L. Teem, Jr. Name: Kim S. Price Title: Executive Vice President, Title: President and Chief Chief Administrative Officer Executive Officer EXECUTIVE Attest: - ------------------------ --------------------------------- Name: Paul L. Teem, Jr. ----------------------- EX-10.6 7 exhibit106_111708.txt EXHIBIT 10.6 FIRST AMENDMENT TO AMENDED DIRECTOR RETIREMENT AGREEMENT First Amendment, dated as of _________ __, 2008 (the "Amendment"), to the Amended Director Retirement Agreement, dated as of March 15, 2004 (as amended, the "Director Retirement Agreement"), by and among Citizens South Bank (the "Bank") and _______________ (the "Director"). Capitalized terms which are not defined herein shall have the same meaning as set forth in the Director Retirement Agreement. W I T N E S S E T H: WHEREAS, the parties desire to amend the Director Retirement Agreement to comply with the final regulations issued in April 2007 by the Internal Revenue Service under Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, pursuant to Section 8.1 of the Director Retirement Agreement, the parties to the Director Retirement Agreement desire to amend the Director Retirement Agreement; NOW, THEREFORE, in consideration of the premises, the mutual agreements herein set forth and such other consideration the sufficiency of which is hereby acknowledged, the Bank and the Director hereby agree as follows: Section 1. Amendment to Section 1.4 of the Director Retirement Agreement. The definition of Change in Control in Section 1.4 of the Director Retirement Agreement is hereby amended to read in its entirety as follows: "Change in Control means a change in the ownership of Citizens South Banking Corporation (the "Company") or the Bank, a change in the effective control of the Company or the Bank or a change in the ownership of a substantial portion of the assets of the Company or the Bank, in each case as provided under Section 409A of the Code and the regulations thereunder." Section 2. Amendment to Section 1.5 of the Director Retirement Agreement. The definition of Disability in Section 1.5 of the Director Retirement Agreement is hereby amended to read in its entirety as follows: "Disability means the Director (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health agreement covering employees of the Bank (or would be receiving such benefits if he was eligible to participate in such plan)." Section 3. Amendment to Section 1.16 of the Director Retirement Agreement. Section 1.16 of the Director Retirement Agreement is hereby amended to read in its entirety as follows: "Termination of Service," for purposes of this Director Retirement Agreement, shall mean a "Separation from Service" as such term is defined in Section 409A of the Code and the final regulations issued thereunder, provided that whether a Separation from Service has occurred shall be determined based on whether the facts and circumstances indicate that the Bank and the Director reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the Director would perform after such date (whether as an employee or as an independent contractor) would permanently decrease to less than fifty percent (50%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding thirty-six (36) month period (or the full period of services to the Bank if the Director has been providing services to the Bank less than thirty-six (36) months)." Section 4. Amendment to Section 8.1 of the Director Retirement Agreement. Section 8.1 of the Director Retirement Agreement is hereby amended to read in its entirety as follows: "8.1 Amendment and Termination. (a) This Director Retirement Agreement may be amended solely by a written agreement signed by the Bank and by the Director, and (b) except as provided in Article 5, this Director Retirement Agreement may be terminated solely by a written agreement signed by the Bank and by the Director. Except as provided in Section 8.1(b), the termination of this Director Retirement Agreement shall not cause a distribution of benefits under this Director Retirement Agreement. (b) Notwithstanding anything to the contrary in Section 8.1(a), if the Bank irrevocably terminates this Director Retirement Agreement in the following circumstances: (i) Within thirty (30) days before a Change in Control, provided that all distributions are made no later than twelve (12) months following such irrevocable termination of this Director Retirement Agreement and further provided that all of the arrangements sponsored by the Bank that would be aggregated with this Director Retirement Agreement under Treasury Regulation ss.1.409A-1(c)(2) are terminated so the Director and all Directors under the other aggregated arrangements are required to receive all amounts of compensation deferred under the terminated arrangements within twelve (12) months of the date the Bank irrevocably takes all necessary action to terminate such arrangements; (ii) With twelve (12) months of a dissolution of the Bank taxed under Section 331 of the Code or with the approval of a bankruptcy court pursuant to 11 U.S.C. ss.503(b)(1)(A), provided that the amounts deferred under this Director Retirement Agreement are included in the Director's gross income in the latest of (i) the calendar year in which this Director Retirement Agreement terminates; (ii) the calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or (iii) the first calendar year in which the distribution is administratively practicable; or (iii) Upon the Bank's termination of this and all other arrangements that would be aggregated with this Director Retirement Agreement pursuant to Treasury Regulation ss.1.409A-1(c) if the Director participated in such arrangements ("Similar Arrangements"), provided that (i) the termination and liquidation does not occur proximate to a downturn in the financial health of the Bank, (ii) no payments are made within twelve (12) months of the termination of the arrangements other than payments that would be payable under the terms of the arrangements if the termination had not occurred, (iii) all termination distributions are made no later than twenty-four (24) months following such termination, and (iv) the Bank does not adopt any new arrangement that would be a Similar Arrangement for a minimum of three (3) years following the date the Bank takes all necessary action to irrevocably terminate and liquidate the Director Retirement Agreement; the Bank will distribute (i) the Accrual Balance determined as of the date of the termination of this Director Retirement Agreement, or (ii) the Normal Retirement Age Accrual Balance in the event of a termination pursuant to Section 8.1(b)(i) above, to the Director in a lump sum subject to the above terms. Section 5. Amendment to Section 8.13 of the Director Retirement Agreement. The second to last sentence in Section 8.13 of the Director Retirement Agreement is hereby amended to read in its entirety as follows: "The fees and expenses of counsel selected from time to time by the Director as provided in this section shall be paid or reimbursed to the Director by the Bank on a regular, periodic basis upon presentation within thirty (30) days following the Director's presentation of a statement or statements prepared by such counsel in accordance with such counsel's customary practices, up to a maximum aggregate amount of $25,000." Section 6. Effectiveness. This Amendment shall be deemed effective as of the date first above written, as if executed on such date. 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 terms, conditions, obligations, covenants or agreements contained in the Director Retirement Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect and shall be otherwise unaffected. Section 7. Governing Law. This Amendment and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of North Carolina. Section 8. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall for all purposes be deemed an original, and all of which together shall constitute but one and the same instrument. Section 9. Compliance with Section 409A. This Director Retirement Agreement shall be interpreted and administered consistent with Section 409A of the Code. IN WITNESS WHEREOF, the Bank and the Director have duly executed this Amendment as of the day and year first written above. CITIZENS SOUTH BANK Attest: By: - --------------------------------------- --------------------------------- Name: Paul L. Teem, Jr. Name: Kim S. Price Title: Executive Vice President, Title: President and Chief Chief Administrative Officer Executive Officer DIRECTOR Attest: - ------------------------ --------------------------------- Name: Paul L. Teem, Jr. --------------------- EX-10.7 8 exhibit107_111708.txt FIRST AMENDMENT TO AMENDED DEFERRED COMPENSATION AND INCOME CONTINUATION AGREEMENT First Amendment, dated as of November 17, 2008 (the "Amendment"), to the Amended Deferred Compensation and Income Continuation Agreement, dated as of March 15, 2004 (as amended, the "Agreement"), by and among Citizens South Bank (the "Bank") and _______________ (the "Director"). Capitalized terms which are not defined herein shall have the same meaning as set forth in the Agreement. W I T N E S S E T H: WHEREAS, the parties desire to amend the Agreement to comply with the final regulations issued in April 2007 by the Internal Revenue Service under Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, pursuant to Section 8.1 of the Agreement, the parties to the Agreement desire to amend the Agreement; NOW, THEREFORE, in consideration of the premises, the mutual agreements herein set forth and such other consideration the sufficiency of which is hereby acknowledged, the Bank and the Director hereby agree as follows: Section 1. Amendment to Section 1.4 of the Agreement. The definition of Change in Control in Section 1.4 of the Agreement is hereby amended to read in its entirety as follows: "Change in Control means a change in the ownership of Citizens South Banking Corporation (the "Company") or the Bank, a change in the effective control of the Company or the Bank or a change in the ownership of a substantial portion of the assets of the Company or the Bank, in each case as provided under Section 409A of the Code and the regulations thereunder." Section 2. Amendment to Section 1.5 of the Agreement. The definition of Disability in Section 1.5 of the Agreement is hereby amended to read in its entirety as follows: "Disability means the Director (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health agreement covering employees of the Bank (or would be receiving such benefits if he was eligible to participate in such plan)." Section 3. Amendment to Section 1.14 of the Agreement. Section 1.14 of the Agreement is hereby amended to read in its entirety as follows: "Termination of Service," for purposes of this Agreement, shall mean a "Separation from Service" as such term is defined in Section 409A of the Code and the final regulations issued thereunder, provided that whether a Separation from Service has occurred shall be determined based on whether the facts and circumstances indicate that the Bank and the Director reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the Director would perform after such date (whether as an employee or as an independent contractor) would permanently decrease to less than fifty percent (50%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding thirty-six (36) month period (or the full period of services to the Bank if the Director has been providing services to the Bank less than thirty-six (36) months)." Section 4. Amendment to Section 8.1 of the Agreement. Section 8.1 of the Agreement is hereby amended to read in its entirety as follows: 8.1 Amendment and Termination. (a) This Agreement may be amended solely by a written agreement signed by the Bank and by the Director, and (b) except as provided in Article 5, this Agreement may be terminated solely by a written agreement signed by the Bank and by the Director. Except as provided in Section 8.1(b), the termination of this Agreement shall not cause a distribution of benefits under this Agreement. (b) Notwithstanding anything to the contrary in Section 8.1(a), if the Bank irrevocably terminates this Agreement in the following circumstances: (i) Within thirty (30) days before a Change in Control, provided that all distributions are made no later than twelve (12) months following such irrevocable termination of this Agreement and further provided that all of the arrangements sponsored by the Bank that would be aggregated with this Agreement under Treasury Regulation ss.1.409A-1(c)(2) are terminated so the Director and all Directors under the other aggregated arrangements are required to receive all amounts of compensation deferred under the terminated arrangements within twelve (12) months of the date the Bank irrevocably takes all necessary action to terminate such arrangements; (ii) With twelve (12) months of a dissolution of the Bank taxed under Section 331 of the Code or with the approval of a bankruptcy court pursuant to 11 U.S.C. ss.503(b)(1)(A), provided that the amounts deferred under this Agreement are included in the Director's gross income in the latest of (i) the calendar year in which this Agreement terminates; (ii) the calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or (iii) the first calendar year in which the distribution is administratively practicable; or (iii) Upon the Bank's termination of this and all other arrangements that would be aggregated with this Agreement pursuant to Treasury Regulation ss.1.409A-1(c) if the Director participated in such arrangements ("Similar Arrangements"), provided that (i) the termination and liquidation does not occur proximate to a downturn in the financial health of the Bank, (ii) no payments are made within twelve (12) months of the termination of the arrangements other than payments that would be payable under the terms of the arrangements if the termination had not occurred, (iii) all termination distributions are made no later than twenty-four (24) months following such termination, and (iv) the Bank does not adopt any new arrangement that would be a Similar Arrangement for a minimum of three (3) years following the date the Bank takes all necessary action to irrevocably terminate and liquidate the Agreement; the Bank will distribute (i) the Accrual Balance determined as of the date of the termination of this Director Retirement Agreement, or (ii) the Normal Retirement Age Accrual Balance in the event of a termination pursuant to Section 8.1(b)(i) above, to the Director in a lump sum subject to the above terms. Section 5. Amendment to Section 8.13 of the Agreement. The second to last sentence in Section 8.13 of the Agreement is hereby amended to read in its entirety as follows: "The fees and expenses of counsel selected from time to time by the Director as provided in this section shall be paid or reimbursed to the Director by the Bank on a regular, periodic basis upon presentation within thirty (30) days following the Director's presentation of a statement or statements prepared by such counsel in accordance with such counsel's customary practices, up to a maximum aggregate amount of $25,000." Section 6. Effectiveness. This Amendment shall be deemed effective as of the date first above written, as if executed on such date. 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 terms, conditions, obligations, covenants or agreements contained in 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. Section 7. Governing Law. This Amendment and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of North Carolina. Section 8. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall for all purposes be deemed an original, and all of which together shall constitute but one and the same instrument. Section 9. Compliance with Section 409A. This Agreement shall be interpreted and administered consistent with Section 409A of the Code. IN WITNESS WHEREOF, the Bank and the Director have duly executed this Amendment as of the day and year first written above. CITIZENS SOUTH BANK Attest: By: - ---------------------------------- ------------------------------ Name: Paul L. Teem, Jr. Name: Kim S. Price Title: Executive Vice President, Title: President and Chief Chief Administrative Officer Executive Officer DIRECTOR Attest: - ------------------------ ---------------------------------- Name: Paul L. Teem, Jr. -------------------- -----END PRIVACY-ENHANCED MESSAGE-----