Exhibit 10.5
NEWPORT FEDERAL SAVINGS
BANK
CHANGE IN CONTROL SEVERANCE
COMPENSATION PLAN
The purpose of the Newport Federal
Savings Bank Change in Control Severance Compensation Plan (the
“Plan”) is to ensure the successful continuation of the
business of Newport Federal Savings Bank (the “Bank”)
and the fair and equitable treatment of the Bank’s employees
following a Change in Control (as defined below).
Subject to paragraph C below, any
employee of the Bank with at least one year of service as of his or
her termination date shall be eligible to receive a Change in
Control Severance Benefit (as defined below) if, within the period
beginning on the effective date of a Change in Control and ending
on the first anniversary of such date, (i) the
employee’s employment with the Bank is involuntarily
terminated or (ii) the employee terminates employment with the
Bank voluntarily after being offered continued employment in a
position that is not a Comparable Position (as defined
below).
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C.
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Limitations on Eligibility for Change in Control
Severance Benefits .
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1. No employee shall be eligible for
a Change in Control Severance Benefit if (a) his or her
employment is terminated for “Cause”, (b) he or
she is offered a Comparable Position within the Bank and declines
to accept such position or (c) the employee is, at the time of
termination of employment, a party to an individual employment
agreement or change in control agreement with the Bank.
2. For purposes of this Plan, a
termination of employment for “Cause” shall include
termination because of the employee’s personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or violation of any
final cease-and- desist order, or material breach of any provision
of the plan.
3. For purposes of this Plan, a
“Comparable Position” shall mean a position that would
(i) provide the employee with base compensation and benefits
that are comparable in the aggregate to those provided to the
employee prior to the Change in Control, (ii) provide the
employee with an opportunity for variable bonus compensation that
is comparable to the opportunity provided to the employee prior to
the Change in Control, (iii) be in a location that would not
require the employee to increase his or her daily one way commuting
distance by more than twenty-five (25) miles as compared to
the employee’s commuting distance immediately prior to the
Change in Control and (iv) have job skill requirements and
duties that are comparable to the requirements and duties of the
position held by the employee prior to the Change in
Control.
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D.
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Definition of Change in Control
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For purposes of this Plan,
“Change in Control” means the occurrence of any one of
the following events:
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i.
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Merger : The Bank merges into or consolidates with
another entity, or merges another entity into the Bank, and as a
result less than a majority of the combined voting power
of
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the resulting entity immediately
after the merger or consolidation is held by persons who were
members of the Bank immediately before the merger or
consolidation;
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ii.
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Change in
Board Composition :
During any period of two consecutive years, individuals who
constitute the Bank’s Board of Directors at the beginning of
the two-year period cease for any reason to constitute at least a
majority of the Bank’s Board of Directors; provided, however,
that for purposes of this clause (iii), each director who is first
elected by the board (or first nominated by the board for election
by the members) by a vote of at least two-thirds (2/3) of the
directors who were directors at the beginning of the two-year
period shall be deemed to have also been a director at the
beginning of such period; or
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iii.
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Sale of
Assets : The Bank sells
to a third party all or substantially all of its assets.
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Notwithstanding anything in this
Section D, a “Change in Control” for purposes of this
Plan shall not include any corporate restructuring transaction by
the Bank in mutual or stock form, including but not limited to a
mutual to stock conversion or mutual holding company reorganization
or minority stock offering, provided that the Board of Directors of
the Bank immediately preceding such transaction constitutes at
least a majority of the Board of Directors of the Bank after such
transaction.
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E.
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Determination of the Change in Control Severance
Benefit .
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The Change in Control Severance
Benefit payable to an eligible employee under this Plan shall be
determined as follows:
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(1)
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An eligible
employee who become entitled to receive a Change in Control
Severance Payment under the Plan shall receive a benefit determined
under the following schedule:
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(a)
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The basic
benefit under the Plan shall be determined as the product of
(i) the employee’s years of service from his or her hire
date (including partial years) through the termination date and
(ii) one (1) month of the employee’s Base
Compensation (as defined below). A “year of service”
shall mean each 12-month period of service following an
employee’s hire date determined without regard the number of
hours worked during such period(s).
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(b)
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Notwithstanding
anything in this Plan to the contrary, the minimum payment to an
eligible employee under this Plan shall be one (1) month of
Base Compensation and the maximum payment to an eligible employee
shall not exceed 199% of the employee’s Base
Compensation.
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(2)
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The Change in
Control Severance payment shall be made in a lump sum not later
than five (5) business days after the date of the
employee’s termination of employment.
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(3)
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For purpose of
determinations under this Section E, “Base
Compensation” shall mean:
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(a)
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for salaried
employees, the employee’s annual base salary at the rate in
effect on his or her termination date or, if greater, the rate in
effect on the date immediately preceding the Change in
Control.
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(b)
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for employees whose compensation
is determined in whole or in part on the basis of commission
income, the employee’s base salary at termination (or, if
greater, the base salary on date immediately preceding the
effective date of the Change in
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2
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Control), if any, plus the
commissions earned by the employee in the twelve (12) full
calendar months preceding his or her termination date (or, if
greater, the commissions earned in the twelve (12) full
calendar months immediately preceding the effective date of the
Change in Control).
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(c)
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for hourly
employees, the employee’s total hourly wages for the twelve
(12) full calendar months preceding his or her termination
date or, if greater, the twelve (12) full calendar months
preceding the effective date of the Change in Control.
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All payments will be subject to
customary withholding for federal, state and local tax
purposes.
Notwithstanding anything in this
Plan to the contrary, if a benefit to a employee who is a
“Disqualified Individual” shall be in an amount which
includes an “Excess Parachute Payment” taking into
account payments under this Plan and otherwise, the benefit under
this Plan to that employee shall be reduced to the maximum amount
which does not include an Excess Parachute Payment. The terms
“Disqualified Individual” and “Excess Parachute
Payment” shall have the same meanings as under
Section 280G of the
