SEVERANCE PLAN
FIRST FEDERAL BANC OF THE SOUTHWEST, INC.
ROSWELL, NEW MEXICO
-------------------------------------
Effective
on October 10, 2006
<PAGE>
FIRST FEDERAL BANC OF THE SOUTHWEST, INC.
SEVERANCE PLAN
ARTICLE I
PURPOSE
-------
Section 1.1 Statement of Purpose
--------------------
First Federal Banc of the Southwest, Inc. adopts this Severance Plan for
the benefit
of its eligible employees and those of other Participating
Employers. The Company recognizes that it may be subject to the
possibility of a
negotiated or
unsolicited
Change in Control, which may result in a loss of
employment for some of
its Employees.
The purpose of the
Plan is to encourage
the Bank's Employees
and those of other
Participating
Employers to continue
working for their employers with their full time and attention
devoted to their
employer's
affairs by
providing prescribed income security and benefit
continuation in the
event of an
Involuntary Severance
following a Change in
Control.
Section 1.2 Other
Severance Plans,
Policies, and Practices Superseded
---------------------------------------------------------------
As
of the Effective Date,
this Plan supersedes in its entirety any
plan,
policy, or
practice of the Bank
for the provision
of severance benefits to
Employees in the
event of termination of employment following a Change in
Control, whether
written or oral or formal or informal. No severance benefits
shall be provided to any person who incurs a termination of
employment with
the
Bank on or after the
Effective Date
following a Change in
Control, except as
provided under the terms of the Plan or as provided under the terms
of a written
executed employment
agreement or change in control agreement specifically
providing for the payment of benefits following termination of employment with
the Bank or other
Participating Employer
in connection with or following a
Change in Control.
ARTICLE II
DEFINITIONS
-----------
For
purposes of the Plan,
the following terms shall have the meanings
assigned to them below, unless a different meaning is plainly indicated by
the
context:
Section 2.1 Affiliated
Employer
means
the Bank; any corporation
---------------------
which is amember of a controlled group of corporations (as
defined in section
414(b) of the Code)
that includes
the Bank; any trade or
business (whether or not incorporated) that is under common control (as
defined
in section 414(c) of the Code) with the Bank; any organization (whether or not
incorporated) that is
a member of an
affiliated service
group (as defined
in
section 414(m) of the Code) that includes the Bank; any leasing
organization (as
defined in section
414(n) of the Code) to the extent that any of its employees
are required pursuant
to section 414(n) of
the Code to be treated as employees
of the Bank; and any
other entity that is
required to be
aggregated with
the
Bank pursuant to regulations under section 414(o) of the Code.
<PAGE>
Section 2.2 Bank means
First Federal Bank.
----
Section 2.3 Base
Salary means, for any Employee as of any date of
------------
reference, the Employee's annual rate of base salary. However,
amounts earned in
excess of $220,000 (as
indexed) will not be included in an Employee's Base
Salary. For these purposes, Base Salary will be indexed in the
same time and in
the same manner as required under Code Section 401(a)(17).
Section 2.4 Board
means the Board of Directors of First Federal Banc
-----
of the Southwest, Inc.
Section 2.5 Cause
means, with respect to
the conduct of an Employee
-----
in connection with his
employment with any
Participating
Employer, personal
dishonesty, incompetence, willful misconduct, breach of fiduciary
duty involving
personal profit,
intentional
failure to
perform stated duties, or willful
violation of any law,
rule or regulation (other than traffic violations or
similar offenses) or final cease and desist order, or any material
breach of any
material provision
of this Plan,
in each case as
measured against
standards
generally prevailing
at the relevant time in the community banking industry;
provided, however,
that, solely for purposes of the Plan, an Employee shall not
be deemed to have been
discharged for
Cause unless and until the Committee
determines (after reasonable notice to the Employee and a
reasonable opportunity
for the Employee to make oral and written presentations to the
Committee, on his
own behalf, or through a representative, who may be his legal
counsel, to refute
the grounds for the proposed determination) that grounds exist for
discharging
the Employee for
"Cause". No act or
failure to act on the part of the Employee
shall be considered
"willful" unless done, or omitted to be done, by the
Employee not in good
faith and without
reasonable belief that
the Employee's
action or omission was in the best interest of the Bank.
Section 2.6 Change
in Control shall be deemed to have occurred at
-------------------
such time as (a) any "person" (as the term is used in Sections
13(d) and l4(d)
of the Securities
Exchange Act of 1934 ("Exchange Act")) is or becomes the
"beneficial owner" (as
defined in Rule l3d-3 under the Exchange Act), directly
or indirectly, of
securities of the Company representing more than 50% of the
combined voting power
of the Company's
outstanding securities
except for any
securities purchased
by the Bank's employee
stock ownership plan
or trust; or
(b) individuals
who constitute the Board on the date hereof (the
"Incumbent
Board") cease for any reason to constitute at least a majority
thereof, provided
that any person becoming a director subsequent to the date hereof
whose election
was approved by a vote of at least three-quarters of the directors comprising
the Incumbent
Board, or whose nomination for election by the Company's
stockholders was
approved by the same
Nominating Committee
serving under an
Incumbent Board, shall be, for purposes of this clause (b),
considered as though
he were a member
of the Incumbent Board; or (c) consummation of a plan of
reorganization,
merger, consolidation,
sale of all or
substantially
all the
assets of the Bank or the Company or similar transaction unless, immediately
following such
transaction, at least
a majority of the members of the board of
directors or other
governing body of the
resulting or surviving entity are
individuals who were members of the Board immediately prior to the transaction
and equity interests representing at least a majority of the voting
power in the
election of
directors or other members of the board of directors or other
governing board of the
resulting or surviving entity are owned, immediately
following such transaction, by persons who owned common stock of
the Company
2
<PAGE>
immediately prior to
such transaction and
in substantially
the same relative
proportions as their ownership of common stock of the Company
immediately prior
to such transaction; or (d) consummation of a tender offer pursuant
to which the
shareholders owning
beneficially or of
record more than 50% of the outstanding
securities of the
Company have tendered
their shares
pursuant to such
tender
offer and such tendered shares have been accepted by the tender
offeror; or (e)
consummation of a
dissolution
or complete liquidation of the Bank or the
Company, or
shareholder
approval of a plan for the dissolution or complete
liquidation of the Bank or the Company. Notwithstanding anything to
the contrary
herein, in the event of an Employee's Involuntary Severance due to a
reason set
forth in section
2.14(b) hereof,
"Change in Control"
shall also
satisfy the
definition set forth in the Regulations.
Section 2.7 Code
means the Internal Revenue Code of 1986, as amended.
----
Section 2.8 Code
Section 409A Key Employee means a "key employee" within
------------------------------
the meaning of Code Section 409A.
Section 2.9 Committee
means the Benefits Committee of the Bank or such
---------
other person or entity
as the Board may
specify to perform
the duties of the
Committee under the Plan; provided, however, that following a
Change in Control,
the Committee shall
consist exclusively
of those individuals serving on the
Committee immediately
prior to the Change in Control and such other individuals
as may be appointed by the incumbent members of the Committee.
Section 2.10 Company means First Federal Banc of the Southwest, Inc.
-------
Section 2.11 Effective Date means October 10, 2006.
--------------
Section 2.12 Employee means an employee of a Participating Employer who
--------
is listed on Exhibit A.
Section 2.13 FDI Act
mean s the Federal Deposit Insurance Act, as the same
-------
may be amended
from time to time, and the corresponding provisions of any
successor statute.
Section 2.14 Involuntary Severance means a) the discharge or dismissal
---------------------
of an Employee
by a Participating Employer other than for Cause or (b)
termination of employment at an Employee's election after any
action following a
Change in Control which, either alone or together with
other actions,
results
in: (i) the material
reduction of the Employee's base compensation or benefits
by more than 20% or (ii) the relocation of the Employee's principal place of
employment by more
than 30 miles from its
location immediately prior to the
Change in Control'.
Section 2.15 Participating Employer means the Bank and its wholly
------------------------
owned subsidiaries and
any successor thereto and any other Affiliated Employer
which, with the prior
written approval of the Board and subject
to such terms
and conditions as may be imposed by the Board, shall adopt this
Plan.
3
<PAGE>
Section 2.16 Plan
means this First
Federal Banc of
the Southwest, Inc.
----
Severance Plan, as the same may be amended from time to time.
Section 2.17 Regulations means the proposed or final U.S. Treasury
-----------
Department Regulations under Code Section 409A.
Section 2.18 Separation from Service means, consistent with Code Section
-----------------------
409A(2)(a)(i), an Employee's death, retirement, or termination of
employment. No
Separation from
Service shall be
deemed to occur due to military leave, sick
leave or other bona
fide leave of absence
if the period of such leave does not
exceed six months or, if longer, so long as an Employee's right to
reemployment
is provided
by law or contract. If the leave exceeds six months and an
Employee's right to reemployment is not provided by law or by
contract, then an
Employee shall have a
Separation
from Service on the first date
immediately
following such
six-month period.
An Employee shall not
be treated as having a
Separation from
Service if the Employee provides more than insignificant
services for the Bank and Company following the Employee's
actual or
purported
termination of
employment with Bank
and Company. Services
shall be treated as
not being insignificant if such services are performed at an annual
rate that is
at least equal to 20 percent of the services rendered by the Employee for
Bank
and Company, on
average, during the
immediately preceding
three full calendar
years of employment
(or if employed less than three years, such shorter period
of employment) and the
annual base
compensation for such
services is at least
equal to 20 percent of the average base compensation earned during the final
three full calendar
years of employment
(or if employed less than three years,
such shorter
period of employment). Where an Employee continues to provide
services to a previous
employer in a capacity other than as an employee, a
Separation from
Service will not be deemed to have occurred if the Employee is
providing services at
an annual rate that is 50 percent or more of the services
rendered, on average,
during the immediate
preceding three full calendar years
of employment (or if employed less than three years, such lesser
period) and the
annual base
compensation for such
services is 50 percent or more of the annual
base compensation
earned during the final three full calendar years of
employment (or if less, such lesser period).
Section 2.19 Severance Period means (a) in the case of a Tier One
Employee,
----------------
a period of twelve
(12) months
-; (b) in the case of
a Tier Two Employee,
a
period of six (6) months; and (c) in the case of a Tier Three
Employee, a period
of three (3) months .
Section 2.20 Tier One
Employee means an Employee listed as a Tier One
-------------------
Employee in Exhibit A.
Section 2.21 Tier Two
Employee means an
Employee listed as a Tier Two
------------------
Employee in Exhibit A.
Section 2.22 Tier Three Employee means an Employee listed as a Tier
Three
-------------------
Employee in Exhibit
A.
4
<PAGE>
ARTICLE III
BENEFITS
--------
Section 3.1 Severance
Benefits
------------------
(a)
An Employee
whose employment with all Participating Employers is
terminated under circumstances constituting an Involuntary
Severance and
whose
termination occurs
upon or within
twelve (12) months following a Change in
Control shall be entitled to the following benefits: a Tier One Employee shall
receive as severance
pay under this Plan a
lump sum payment
representing one
hundred percent
(100%) of Base Salary;
a Tier Two Employee
shall receive as
severance pay under
this Plan a lump sum
payment representing
fifty percent
(50%) of Base Salary;
and a Tier Three
Employee shall receive as severance pay
under this Plan a lump sum payment representing twenty-five percent (25%) of
Base Salary.
Except as provided in
section 3.4, the lump
sum shall be due and
payable on the date of the Employee's Involuntary Severance. Notwithstanding
anything in the Plan to the contrary: if an Employee's Involuntary Severance
occurs prior to his
Separation from
Service, his
severance benefit shall be
deferred until and shall be payable on the date of his Separation from Service
provided, however, if such Employee is also a Code Section 409A Key
Employee and
the following is required by Code Section 409A and the regulations thereunder,
his severance benefit shall be deferred until and shall be payable
in a lump sum
on the six-month
anniversary of the later of his Involuntary Severance or his
Separation from Service. Any severance benefit that is not paid in full
within
eight (8) calendar days following the recipient's Involuntary Severance shall
accrue interest at the applicable federal rate ("AFR") as determined
under Code
Sections 280G and 1274(d), credited daily and compounded annually,
from the date
of Involuntary Severance to the actual date of payment.
(b)
Notwithstanding
the preceding paragraphs of this section 3.1, in
no
event shall the benefits payable hereunder, when aggregated with other
benefits
subject to Section 280G of the Internal Revenue Code of 1986, constitute an
"excess parachute
payment" under Section
280G of the Internal
Revenue Code of
1986 or any successor thereto, and in order to avoid such a result,
the benefits
payable hereunder
will be reduced,
if necessary,
to an amount,
the value of
which is one dollar
($1.00) less than the amount which would be considered an
excess parachute payment.
Section 3.2 Insurance
Benefits.
------------------
An
Employee who is eligible for severance benefits under section 3.1
shall
also be eligible for
continuation of
coverage under any group medical, dental
and other plans which
constitute "group
health plans"
(within the meaning
of
section 607(1) of ERISA) for a period equal to the Employee's
Severance Period;
provided the Employee is participating in such group health plans
at the time of
their Involuntary
Serverance. Such
coverage shall be substantially comparable
and on terms and conditions (including, but not limited to, coverage of
spouses
and dependents and any
premium-sharing
arrangements) no less
favorable to the
Employee than those in effect immediately prior to his Involuntary
Severance,
provided, however,
that nothing set forth herein is intended to shorten
the
period that such Employee is entitled to health care continuation
coverage under
Code Section 4980B, or
other applicable
federal, state, or local law. If the
5
<PAGE>
Employee is eligible for a continuation of coverage under this
section 3.2 and a
continuation of
coverage under
applicable
federal, state or local law, the
periods of coverage shall run concurrently.
Section 3.3
Vesting.
-------
The
benefits to be provided under sections 3.1 and 3.2 of the Plan
shall be
completely vested and nonforfeitable upon the occurrence of a
Change in Control.
Section 3.4 Benefits
Contingent on Execution of Release
-------------------------------------------
The
provision of severance benefits under the Plan to any Employee
shall be
subject to the condition that the Employee execute and deliver to the
Committee
an instrument,
in such form as the
Committee shall prescribe, which shall
include a release in favor of the Participating Employers and their officers,
employees,
agents, owners,
heirs,
successors
and assigns for certain
employment-related
claims. Such release shall include, but not be limited to, a
release of any claims
which the Employee
may have against any Participating
Employer under the Age Discrimination in Employment Act of 1967, as
amended; the
Fair Labor Standards
Act, as amended;
the Worker
Adjustment
Retraining
and
Notification Act, as
amended; the Civil
Rights Act of 1866, as amended; Title
VII of the Civil Rights Act of 1964, as amended; and any other
federal, state or
local law, rule or regulation under which the Employee may have
a claim arising
out of his employment with a Participating Employer or the termination of
such
employment. No
Participating
Employer shall have any obligation to provide
benefits under this Plan to any Employee who fails or refuses,
following request
in writing made within five (5) business days after the
Employee's
Involuntary
Severance or the occurrence of a Change in Control (whichever is later) to sign
and deliver
such a release.
If a request
for a release is
timely made,
the
Participating
Employers' obligation to provide benefits under the Plan shall
be
deferred until such
release has been executed and delivered by the Employee and
any period during which the Employee has a legal right to revoke
the release has
expired.
Section 3.5
Withholding.
-----------
Payments under
Section 3.1 hereof shall be subject to all applicable
federal, state and local income withholding taxes.
ARTICLE IV
ADMINISTRATION
--------------
Section 4.1 Named
Fiduciaries.
-----------------
The
term "Named
Fiduciary"
shall mean (but only to the extent of the
responsibilities of each of them) the Plan Administrator,
the Committee and
any
person or entity named
as a fiduciary
pursuant to the
written documentation
pertaining to the
Plan. This
Article IV is intended
to allocate to each Named
Fiduciary the responsibility for the prudent execution of the
functions assigned
6
<PAGE>
to him or it, and none
of such
responsibilities or
any other responsibility
shall be shared by two or more of such Named Fiduciaries. Whenever one Named
Fiduciary is required
by the Plan to follow
the directions
of another
Named
Fiduciary, the two Named Fiduciaries shall no
