EXECUTION VERSION

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (this “Agreement”) is entered into as of the 18th day
of March 2014, and made effective as of the Effective Time, as defined below, by
and between Home Federal Savings and Loan Association, a federally chartered
stock savings and loan association (the “Association”) and Bruce VanHorn
(“Executive”). The Association and Executive are sometimes collectively referred
to herein as the “parties.” Any reference to the “Company” shall mean Poage
Bankshares, Inc., the stock holding company of the Association. The Company is a
signatory to this Agreement for the purpose of guaranteeing the Association’s
performance hereunder.

 

WITNESSETH

 

WHEREAS, Executive is the President and Chief Executive Officer of Town Square
Financial Corporation, a Kentucky corporation, and Town Square Bank, the
wholly-owned subsidiary of Town Square Financial Corporation; and

 

WHEREAS, the Company, Poage Merger Subsidiary, Inc., the Association, Town
Square Financial Corporation and Town Square Bank have entered into an Agreement
and Plan of Merger dated October 21, 2013 (the “Merger Agreement”), whereby
Poage Merger Subsidiary shall merge with and into Town Square Financial
Corporation, with Town Square Financial as the surviving corporation at the
Effective Time (as defined in the Merger Agreement); and

 

WHEREAS, the Company and the Association recognize the substantial contributions
Executive has made to Town Square Financial Corporation and Town Square Bank,
Inc. and wish to retain Executive as an employee of the Association and wish to
protect Executive’s position with the Association for the period provided in the
Agreement; and

 

WHEREAS, in order to induce Executive to accept employment with the Association,
the parties desire to specify the severance benefits which shall be due the
Executive by the Association in the event that his employment with the
Association is terminated under specified circumstances; and

 

WHEREAS, Executive has agreed to serve in the employ of the Association.

 

NOW THEREFORE, in consideration of the mutual agreements herein contained, and
upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:

 

1.POSITION AND RESPONSIBILITIES.

 

The Executive shall serve the Association as Executive Vice President of the
Company and President of the Association. In such capacity, the Executive shall
perform such services and duties in connection with the business, affairs and
operations of the Bank as may be assigned or delegated to the Executive from
time to time by or under the authority of the President and Chief Executive
Officer of the Company and the Chief Executive Officer of the Association and
the Boards of Directors of the Company and Association. The Executive shall
adhere to all policies established by the Boards of Directors of the Company and
Association or Committees thereof at all times. The Executive’s office shall be
located at 1500 Carter Avenue, Ashland, Kentucky 41105-0509.

 

 

 

  

2.TERM AND DUTIES.

 

(a) Three Year Contract; Annual Renewal. The term of this Agreement will begin
as of the Effective Time and shall continue thereafter for a period of three (3)
years. Beginning on May 1, 2014, and on each annual anniversary date thereafter,
the term of this Agreement shall be extended for a period of one year in
addition to the then-remaining term; provided that (1) the Association has not
given notice to the Executive in writing at least thirty (30) days prior to such
renewal date that the term of this Agreement shall not be extended further; and
(2) prior to such renewal date, the disinterested members of the Board of
Directors of the Association (the “Board”) have explicitly reviewed and approved
the extension and the results thereof shall be included in the minutes of the
Board’s meeting. On an annual basis prior to the deadline for the notice period
referenced above, the Board shall conduct a performance review of the Executive
for purposes of determining whether to provide notice of non-renewal. Reference
herein to the term of this Agreement shall refer to both such initial term and
such extended terms.

 

(b) Termination of Agreement. Notwithstanding anything contained in this
Agreement to the contrary, either Executive, the Company or the Association may
terminate Executive’s employment with the Company or the Association at any time
during the term of this Agreement, subject to the terms and conditions of this
Agreement.

 

(c) Continued Employment Following Expiration of Term. Nothing in this Agreement
shall mandate or prohibit a continuation of Executive’s employment following the
expiration of the term of this Agreement, upon such terms and conditions as the
Association and Executive may mutually agree.

 

(d) Duties; Membership on Other Boards. During the term of this Agreement,
except for periods of absence occasioned by illness, reasonable vacation
periods, and reasonable leaves of absence approved by the Board, Executive shall
devote substantially all of his business time, attention, skill, and efforts to
the faithful performance of his duties hereunder, including activities and
services related to the organization, operation and management of the
Association; provided, however, that, Executive may serve, or continue to serve,
on the boards of directors of, and hold any other offices or positions in,
business companies or business or civic organizations, which, in the Board’s
judgment, will not present any conflict of interest with the Association, or
materially affect the performance of Executive’s duties pursuant to this
Agreement. Executive shall provide the Board of Directors annually for its
approval a list of organizations for which the Executive acts as a director or
officer.

 

3.COMPENSATION, BENEFITS AND REIMBURSEMENT.

 

(a)                Base Salary. In consideration of Executive’s performance of
the duties set forth in Section 2, the Association shall provide Executive the
compensation specified in this Agreement. The Association shall pay Executive a
salary of $202,000 per year (“Base Salary”). The Base Salary shall be payable
biweekly, or with such other frequency as officers of the Association are
generally paid. During the term of this Agreement, the Base Salary shall be
reviewed at least annually by the Board or by a committee designated by the
Board, and the Association may increase, but not decrease (except for a decrease
that is generally applicable to all employees) Executive’s Base Salary. Any
increase in Base Salary shall become “Base Salary” for purposes of this
Agreement.

 

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(b)               Retention Payment. As an incentive for the Executive to remain
in the employ of the Association, the Executive will be eligible for the
following payments (the “Retention Payment”) only if the Executive is employed
with the Association on the following dates (“Required Employment Date”):

 

 

If Employed On:

Payment Amount Effective Time $30,000 One Year Anniversary of Effective Time
$30,000 Second Annual Anniversary of Effective Time $30,000 Third Annual
Anniversary of Effective Time $30,000

 

If the Executive voluntarily terminates employment without Good Reason (as
defined in Section 4(a)(ii) of this Agreement) or if the Executive’s employment
is involuntarily terminated by the Association for Cause (as defined in Section
7 of this Agreement), the Executive will not receive any Retention Payments
subsequent to the Executive’s date of termination. The Retention Payment, if
any, will be paid on the next regular pay date following a Required Employment
Date.

 

(c)                Stock Options. As of the Effective Time, the Executive shall
receive a grant of 20,000 incentive stock options, which shall vest in five
equal annual installments (i.e., 20% per year), commencing on the first
anniversary of the date of grant and continuing on each anniversary thereafter.

 

(d)               Automobile. The Executive shall be entitled to the continued
use of the same automobile, which he currently uses as of the Effective Time,
with the Association providing for the maintenance and adequate automobile
insurance, including collision and uninsured motorist coverage, as well as any
other insurance coverage required under the laws of the State of Kentucky. If
within three years of the Effective Time, the automobile is returned to the
leasing company, the Association shall pay Executive (i) a cash automobile
allowance of at least $5,000 per year to cover the expenses of an automobile,
and (ii) mileage reimbursement for any business use of the automobile at a rate
established by the Internal Revenue Service or as mutually agreed to by the
Association and Executive. The Association shall annually include on Executive’s
Form W-2 any amount attributable to Executive’s personal use of such automobile.

 

(e)                Social Memberships. In addition, the Association shall
reimburse or pay Executive amounts sufficient to establish or maintain
membership in a country club or any other club or organization (business, social
or otherwise) which will benefit the Association, as mutually agreed to by the
Association and the Executive, with such reimbursement or payment to occur as
soon as practicable upon presentation to the Association of an itemized account
of such expenses in such form as the Association may reasonably require,
provided that such payment or reimbursement shall be made as soon as practicable
but in no event later than March 15 of the year following the year in which such
right to such payment or reimbursement occurred.

 

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(f)                Bonus and Incentive Compensation. Executive shall be entitled
to equitable participation in incentive compensation and bonuses in any plan or
arrangement of the Association or the Company in which Executive is eligible to
participate. Nothing paid to Executive under any such plan or arrangement will
be deemed to be in lieu of other compensation to which Executive is entitled
under this Agreement.

 

(g)               Employee Benefits. Subject to the terms of the applicable plan
documents, generally applicable policies of the Association, and applicable law,
the Executive shall be entitled to participate in any tax-qualified plan, and at
the discretion of the Board of Directors or any administrative or other
committee provided for in or contemplated by any such plan, employee benefit
plans, medical insurance plans, life insurance plans, disability income plans,
retirement plans, vacation plans, expense reimbursement plans and other benefit
plans or credit card privileges which the Association may from time to time have
in effect for its senior executives, with credit recognized for Executive’s
prior service with Town Square Bank, Inc. for purposes of eligibility and
vesting (but not benefit accrual) and as provided in the Merger Agreement (for
purposes of clarity, this Agreement does not give the Executive the right to
participate in the Association’s frozen defined benefit pension plan). Nothing
contained in this Agreement shall be construed to create any obligation on the
part of the Association to establish any such plan or to maintain the
effectiveness of any such plan which may be in effect from time to time.

 

(h)               Paid Time Off. Executive shall be entitled to four weeks of
paid vacation time each year during the term of this Agreement (measured on a
fiscal or calendar year basis, in accordance with the Association’s usual
practices), as well as sick leave, holidays and other paid absences in
accordance with the Association’s policies and procedures for senior executives.
Any unused paid time off during an annual period shall be treated in accordance
with the Association’s personnel policies as in effect from time to time.

 

(i)                 Expense Reimbursements. The Association shall also pay or
reimburse Executive for all reasonable travel, entertainment and other
reasonable expenses incurred by Executive during the course of performing his
obligations under this Agreement, including, without limitation, fees for
memberships in such clubs and organizations as Executive and the Board shall
mutually agree are necessary and appropriate in connection with the performance
of his duties under this Agreement, upon presentation to the Association of an
itemized account of such expenses in such form as the Association may reasonably
require, provided that such payment or reimbursement shall be made as soon as
practicable but in no event later than March 15 of the year following the year
in which such right to such payment or reimbursement occurred.

 

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4.PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.

 

(a)                Upon the occurrence of an Event of Termination (as herein
defined) during the term of this Agreement, the provisions of this Section 4
shall apply; provided, however, that in the event such Event of Termination
occurs within eighteen (18) months following a Change in Control (as defined in
Section 5 hereof), Section 5 shall apply instead. As used in this Agreement, an
“Event of Termination’’ shall mean and include any one or more of the following:

 

(i)                 the involuntary termination of Executive’s employment
hereunder by the Association for any reason other than termination governed by
Section 5 (in connection with or following a Change in Control), Section 6 (due
to Retirement), or Section 7 (for Cause), provided that such termination
constitutes a “Separation from Service” within the meaning of Section 409A of
the Internal Revenue Code (“Code”); or

 

(ii)               Executive’s resignation from the Association’s employ upon
any of the following, unless consented to by Executive:

 

(A) failure to appoint Executive to the position set forth in Section 1,;

 

(B) a relocation of Executive’s principal place of employment to a location that
is more than 20 miles from the location of the Association’s principal executive
offices as of the date of this Agreement;

 

(C) a material reduction in the benefits and perquisites, including Base Salary,
to Executive from those being provided as of the Effective Time (except for any
reduction that is part of a reduction in pay or benefits that is generally
applicable to officers or employees of the Association);

 

(D) a liquidation or dissolution of the Association; or

 

(E) a material breach of this Agreement by the Association.

 

Upon the occurrence of any event described in clause (ii) above, Executive shall
have the right to elect to terminate his employment under this Agreement by
resignation for “Good Reason” upon not less than thirty (30) days prior written
notice given within a reasonable period of time (not to exceed ninety (90) days)
after the event giving rise to the right to elect, which termination by
Executive shall be an Event of Termination. The Association shall have thirty
(30) days to cure the condition giving rise to the Event of Termination,
provided that the Association may elect to waive said thirty (30) day period.

 

(b)               Upon the occurrence of an Event of Termination, the
Association shall pay Executive, or, in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, as severance
pay or liquidated damages, or both, a lump sum cash payment equal to one times
the sum of (i) Executive’s highest annual rate of Base Salary paid to Executive
at any time under this Agreement, plus (ii) the highest bonus paid to Executive
with respect to the three completed fiscal years prior to the Event of
Termination, plus (iii) the remaining Retention Payments that have not yet been
paid. Such payment shall be paid in a lump sum within ten (10) days of the
Executive’s Separation from Service (within the meaning of Section 409A of the
Code) and shall not be reduced in the event Executive obtains other employment
following the Event of Termination. Notwithstanding the foregoing, Executive
shall not be entitled to any payments or benefits under this Section 4 unless
and until Executive executes a release of his claims against the Association,
the Company and any affiliate, and their officers, directors, successors and
assigns, releasing said persons from any and all claims, rights, demands, causes
of action, suits, arbitrations or grievances relating to the employment
relationship, including claims under the Age Discrimination in Employment Act,
but not including claims for benefits under tax-qualified plans or other benefit
plans in which Executive is vested, claims for benefits required by applicable
law or claims with respect to obligations set forth in this Agreement that
survive the termination of this Agreement.

 

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(c)                Upon the occurrence of an Event of Termination, the
Association shall provide, at the Association’s expense, for twelve months
following such Event of Termination, nontaxable medical and dental coverage and
life insurance coverage substantially comparable, as reasonably available, to
the coverage maintained by the Association for Executive prior to the Event of
Termination, except to the extent such coverage may be changed in its
application to all Association employees. Notwithstanding the foregoing, if
applicable law (including, but not limited to, laws prohibiting discriminating
in favor of highly compensated employees), or, if participation by the Executive
is not permitted under the terms of the applicable health plans, or if providing
such benefits would subject the Association to penalties, then the Association
shall pay the Executive a cash lump sum payment reasonably estimated to be equal
to the value of such non-taxable medical, dental and life insurance benefits,
with such payment to be made within ten (10) days of the Event of Termination,
or if later, the date on which the Association determines that such insurance
coverage (or the remainder of such insurance coverage) cannot be provided for
the foregoing reasons.

 

(d)               For purposes of this Agreement, a “Separation from Service”
shall have occurred if the Association and Executive reasonably anticipate that
either no further services will be performed by the Executive after the date of
the Event of Termination (whether as an employee or as an independent
contractor) or the level of further services performed will not exceed 49% of
the average level of bona fide services in the 12 months immediately preceding
the Event of Termination. For all purposes hereunder, the definition of
Separation from Service shall be interpreted consistent with Treasury Regulation
Section 1.409A-1(h)(ii). If Executive is a Specified Employee, as defined in
Code Section 409A and any payment to be made under sub-paragraph (b) or (c) of
this Section 4 shall be determined to be subject to Code Section 409A, then if
required by Code Section 409A, such payment or a portion of such payment (to the
minimum extent possible) shall be delayed and shall be paid on the first day of
the seventh month following Executive’s Separation from Service.

 

5.CHANGE IN CONTROL.

 

(a)                Any payments made to Executive pursuant to this Section 5 are
in lieu of any payments that may otherwise be owed to Executive pursuant to this
Agreement under Section 4, such that Executive shall either receive payments
pursuant to Section 4 or pursuant to Section 5, but not pursuant to both
Sections.

 

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(b)               For purposes of this Agreement, the term “Change in Control”
shall mean:

 

(i)                 a change in control of a nature that would be required to be
reported in response to Item 5.01(a) of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”); or

 

(ii)               a change in control of the Association within the meaning of
the Home Owner’s Loan Act, as amended (“HOLA”), and applicable rules and
regulations promulgated thereunder, as in effect at the time of the Change in
Control; or

 

(iii)             any of the following events, upon which a Change in Control
shall be deemed to have occurred:

 

(A) any “person” (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Association or the Company representing 25% or more of the combined voting power
of such outstanding securities, except for any securities purchased by any
employee stock ownership plan or trust established by the Association or the
Company; or

 

(B) individuals who constitute the Board on the Effective Time (the “Incumbent
Board”) cease for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the Effective Time 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 stockholders
of the Association or the Company was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this subsection (B),
considered as though they were members of the Incumbent Board; or

 

(C) a sale of all or substantially all the assets of the Association or the
Company, or a plan of reorganization, merger, consolidation, or similar
transaction occurs in which the security holders of the Association or the
Company immediately prior to the consummation of the transaction do not own at
least 50.1% of the securities of the surviving entity to be outstanding upon
consummation of the transaction; or

 

(D) a tender offer is made for 25% or more of the voting securities of the
Association or the Company, and stockholders owning beneficially or of record
25% or more of the outstanding securities of the Association or the Company have
tendered or offered to sell their shares pursuant to such tender offer and such
tendered shares have been accepted by the tender offeror.

 

(c)                Upon the occurrence of a Change in Control followed within
eighteen (18) months by an Event of Termination (as defined in Section 4
hereof), Executive, shall receive as severance pay or liquidated damages, or
both, a lump sum cash payment equal to three times the sum of (i) Executive’s
highest annual rate of Base Salary paid to Executive at any time under this
Agreement, plus (ii) the highest bonus paid to Executive with respect to the
three completed fiscal years prior to the Change in Control, plus (iii) the
remaining Retention Payments that have not yet been paid. Such payment shall be
paid in a lump sum within ten (10) days of the Executive’s Separation from
Service (within the meaning of Section 409A of the Code) and shall not be
reduced in the event Executive obtains other employment following the Event of
Termination.

 

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(e)                (d) Upon the occurrence of a Change in Control followed
within eighteen (18) months by an Event of Termination (as defined in Section 4
hereof), the Association (or its successor) shall provide at the Association’s
(or its successor’s) expense, nontaxable medical and dental coverage and life
insurance coverage substantially comparable, as reasonably available, to the
coverage maintained by the Association for Executive prior to his termination,
except to the extent such coverage may be changed in its application to all
Association employees and then the coverage provided to Executive shall be
commensurate with such changed coverage. Such coverage shall cease thirty-six
(36) months following the termination of Executive’s employment. Notwithstanding
the foregoing, if applicable law (including, but not limited to, laws
prohibiting discriminating in favor of highly compensated employees), or, if
participation by the Executive is not permitted under the terms of the
applicable health plans, or if providing such benefits would subject the
Association to penalties, then the Association shall pay the Executive a cash
lump sum payment reasonably estimated to be equal to the value of such
non-taxable medical, dental and life insurance benefits, with such payment to be
made within ten (10) days of the Event of Termination, or if later, the date on
which the Association determines that such insurance coverage (or the remainder
of such insurance coverage) cannot be provided for the foregoing
reasons.Notwithstanding the preceding paragraphs of this Section 5, in the event
that the aggregate payments or benefits to be made or afforded to Executive in
the event of a Change in Control would be deemed to include an “excess parachute
payment” under Section 280G of the Internal Revenue Code or any successor
thereto, then such payments or benefits shall be reduced to an amount, the value
of which is one dollar ($1.00) less than an amount equal to three (3) times
Executive’s “base amount,” as determined in accordance with Section 280G of the
Code. In the event a reduction is necessary, then the cash severance payable by
the Association pursuant to Section 5 shall be reduced by the minimum amount
necessary to result in no portion of the payments and benefits payable by the
Association under Section 5 being non-deductible to the Association pursuant to
Section 280G of the Code and subject to excise tax imposed under Section 4999 of
the Code.

 

6.TERMINATION UPON RETIREMENT.

 

Termination of Executive’s employment based on “Retirement” shall mean
termination of Executive’s employment at any time after Executive reaches age 65
or in accordance with any retirement policy established by the Board with
Executive’s consent with respect to him. Upon termination of Executive based on
Retirement, no amounts or benefits shall be due Executive under this Agreement,
and Executive shall be entitled to all benefits under any retirement plan of the
Association and other plans to which Executive is a party.

 

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7.TERMINATION FOR CAUSE.

 

(a) The Association may terminate Executive’s employment at any time, but any
termination other than termination for “Cause,” as defined herein, shall not
prejudice Executive’s right to compensation or other benefits under this
Agreement. Executive shall have no right to receive compensation or other
benefits for any period after termination for “Cause.”

 

(b) The term termination for “Cause” shall mean termination because of
Executive’s: (i) personal dishonesty; (ii) incompetence; (iii) willful
misconduct; (iv) breach of fiduciary duty involving personal profit; (v)
intentional failure to perform stated duties; (vi) willful violation of any law,
rule or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order; or (vii) material breach of any provision of this
Agreement. Notwithstanding the foregoing, Cause shall not be deemed to exist
unless there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than a majority of the entire
membership of the Board at a meeting of the Board called and held for the
purpose (after reasonable notice to the Executive and an opportunity for the
Executive to be heard before the Board), finding that in the good faith opinion
of the Board the Executive was guilty of conduct described above and specifying
the particulars thereof. Prior to holding a meeting at which the Board is to
make a final determination whether Cause exists, if the Board determines in good
faith at a meeting of the Board, by not less than a majority of its entire
membership, that there is probable cause for it to find that the Executive was
guilty of conduct constituting Cause as described above, the Board may suspend
the Executive from his duties hereunder for a reasonable period of time not to
exceed fourteen (14) days pending a further meeting at which the Executive shall
be given the opportunity to be heard before the Board. Upon a finding of Cause,
the Board shall deliver to the Executive a Notice of Termination, as more fully
described in Section 9 below.

 

8.RESIGNATION FROM BOARDS OF DIRECTORS

 

In the event of Executive’s termination of employment due to an Event of
Termination, Executive’s service, if any, as a director of the Association, the
Company, and any affiliate of the Association or the Company shall immediately
terminate. This Section 8 shall constitute a resignation notice for such
purposes.

 

9.NOTICE.

 

(a)                Any purported termination by the Association for Cause shall
be communicated by Notice of Termination to Executive. If, within thirty (30)
days after any Notice of Termination for Cause is given, Executive notifies the
Association that a dispute exists concerning the termination, the parties shall
promptly proceed to arbitration, as provided in Section 19. Notwithstanding the
pendency of any such dispute, the Association shall discontinue paying
Executive’s compensation until the dispute is finally resolved in accordance
with this Agreement. If it is determined that Executive is entitled to
compensation and benefits under Section 4 or 5, the payment of such compensation
and benefits by the Association shall commence immediately following the date of
resolution by arbitration, with interest due Executive on the cash amount that
would have been paid pending arbitration (at the prime rate as published in The
Wall Street Journal from time to time).

 

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(b)               Any other purported termination by the Association or by
Executive shall be communicated by a “Notice of Termination” (as defined in
Section 9(c)) to the other party. If, within thirty (30) days after any Notice
of Termination is given, the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the parties
shall promptly proceed to arbitration as provided in Section 19. Notwithstanding
the pendency of any such dispute, the Association shall continue to pay
Executive his Base Salary, and other compensation and benefits in effect when
the notice giving rise to the dispute was given (except as to termination of
Executive for Cause); provided, however, that such payments and benefits shall
not continue beyond the date that is 36 months from the date the Notice of
Termination is given. In the event the voluntary termination by Executive of his
employment is disputed by the Association, and if it is determined in
arbitration that Executive is not entitled to termination benefits pursuant to
this Agreement, he shall return all cash payments made to him pending resolution
by arbitration, with interest thereon at the prime rate as published in The Wall
Street Journal from time to time, if it is determined in arbitration that
Executive’s voluntary termination of employment was not taken in good faith and
not in the reasonable belief that grounds existed for his voluntary termination.
If it is determined that Executive is entitled to receive severance benefits
under this Agreement, then any continuation of Base Salary and other
compensation and benefits made to Executive under this Section 9 shall offset
the amount of any severance benefits that are due to Executive under this
Agreement.

 

(c)                For purposes of this Agreement, a “Notice of Termination”
shall mean a written notice that shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Executive’s employment under the provision so indicated.

 

10.POST-TERMINATION OBLIGATIONS.

 

(a) Non-Solicitation of Employees. Executive agrees that during his employment
and for a period of two years following the end of his employment, he shall not,
directly or indirectly, 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 Association or the
Company, or any of their respective subsidiaries or 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 Association or the Company, or any of
their direct or indirect subsidiaries or affiliates or has headquarters or
offices in any of the locations in which the Association or the Company has
business operations or has filed an application for regulatory approval to
establish an office.

 

(b) Non-Solicitation of Customers. Executive agrees that during his employment
and for a period of two years following the end of his employment, he shall not
influence or attempt to influence previous and existing customers, or otherwise,
either directly or indirectly, divert or attempt to divert from Association, any
business Association had enjoyed or solicited anywhere during the last two years
of Executive’s employment.

 

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(c) Covenant Not to Compete. Executive agrees that during his employment and for
a period of two years following the end of his employment, he shall not,
directly or indirectly, become an officer, employee, consultant, director,
independent contractor, agent, sole proprietor, joint venturer, greater than 5%
equity owner or stockholder, partner or trustee of any savings association,
savings and loan association, savings and loan holding company, credit union,
association or association holding company, insurance company or agency, any
mortgage or loan broker or any other financial services entity or business that
competes with the business of the Association or its affiliates or has
headquarters or offices within fifty (50) miles of any of the Company’s or
Association’s offices; provided, however, that this restriction shall not apply
if Executive’s employment is terminated following a Change in Control.

 

(d) As used in this Agreement, “Confidential Information” means information
belonging to the Association which is of value to the Association in the course
of conducting its business and the disclosure of which could result in a
competitive or other disadvantage to the Association. Confidential Information
includes, without limitation, financial information, reports, and forecasts;
inventions, improvements and other intellectual property; trade secrets;
know-how; designs, processes or formulae; software; market or sales information
or plans; customer lists; and business plans, prospects and opportunities (such
as possible acquisitions or dispositions of businesses or facilities) which have
been discussed or considered by the management of the Association. Confidential
Information includes information developed by the Executive in the course of the
Executive’s employment by the Association, as well as other information to which
the Executive may have access in connection with the Executive’s employment.
Confidential Information also includes the confidential information of others
with which the Association has a business relationship. Notwithstanding the
foregoing, Confidential Information does not include information in the public
domain. The Executive understands and agrees that the Executive’s employment
creates a relationship of confidence and trust between the Executive and the
Association with respect to all Confidential Information. At all times, both
during the Executive’s employment with the Association and after its
termination, the Executive will keep in confidence and trust all such
Confidential Information, and will not use or disclose any such Confidential
Information without the written consent of the Association, except as may be
necessary in the ordinary course of performing the Executive’s duties to the
Association.

 

(e) Executive shall, upon reasonable notice, furnish such information and
assistance to the Association as may reasonably be required by the Association,
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 Association or any of its subsidiaries
or affiliates.

 

(f) All payments and benefits to Executive under this Agreement shall be subject
to Executive’s compliance with this Section 10. The parties hereto, recognizing
that irreparable injury will result to the Association, its business and
property in the event of Executive’s breach of this Section 10, agree that, in
the event of any such breach by Executive, the Association will be entitled, in
addition to any other remedies and damages available, to an injunction to
restrain the violation hereof by Executive and all persons acting for or with
Executive. Executive represents and admits that Executive’s experience and
capabilities are such that Executive can obtain employment in a business engaged
in other lines and/or of a different nature than the Association, and that the
enforcement of a remedy by way of injunction will not prevent Executive from
earning a livelihood. Nothing herein will be construed as prohibiting the
Association or the Company from pursuing any other remedies available to them
for such breach or threatened breach, including the recovery of damages from
Executive.

 

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11.SOURCE OF PAYMENTS.

 

All payments provided in this Agreement shall be timely paid in cash or check
from the general funds of the Association. The Company may accede to this
Agreement but only for the purposed of guaranteeing payment and provision of all
amounts and benefits due hereunder to Executive.

 

12.EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.

 

This Agreement contains the entire understanding between the parties hereto and
supersedes any prior employment agreement between the Association or any
predecessor of the Association and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.

 

13.NO ATTACHMENT; BINDING ON SUCCESSORS.

 

(a)                Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null,
void, and of no effect.

 

(b)               This Agreement shall be binding upon, and inure to the benefit
of, Executive and the Association and their respective successors and assigns.

 

14.MODIFICATION AND WAIVER.

 

(a)                This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.

 

(b)               No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act other
than that specifically waived.

 

15.REQUIRED PROVISIONS.

 

(a) The Association may terminate Executive’s employment at any time, but any
termination by the Board other than termination for Cause shall not prejudice
Executive’s right to compensation or other benefits under this Agreement.
Executive shall have no right to receive compensation or other benefits for any
period after termination for Cause.

 

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(b) If Executive is suspended from office and/or temporarily prohibited from
participating in the conduct of the Association’s affairs by a notice served
under Section 8(e)(3) [12 USC §1818(e)(3)] or 8(g)(1) [12 USC §1818(g)(1)] of
the Federal Deposit Insurance Act, the Association’s obligations under this
contract shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (i) pay Executive all or part of the
compensation withheld while its contract obligations were suspended and (ii)
reinstate (in whole or in part) any of its obligations which were suspended.

 

(c) If Executive is removed and/or permanently prohibited from participating in
the conduct of the Association’s affairs by an order issued under Section
8(e)(4) [12 USC §1818(e)(4)] or 8(g)(1) [12 USC §1818(g)(1)] of the Federal
Deposit Insurance Act, all obligations of the Association under this Agreement
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.

 

(d) If the Association is in default as defined in Section 3(x)(1) [12 USC
§1813(x)(1)] of the Federal Deposit Insurance Act, all obligations of the
Association under this Agreement shall terminate as of the date of default, but
this paragraph shall not affect any vested rights of the contracting parties.

 

(e) All obligations under this Agreement shall be terminated, except to the
extent determined that continuation of the contract is necessary for the
continued operation of the Association, (i) by The Office of the Comptroller of
the Currency (the “Comptroller”) or his or her designee, at the time the FDIC
enters into an agreement to provide assistance to or on behalf of the
Association under the authority contained in Section 13(c) [12 USC §1823(c)] of
the Federal Deposit Insurance Act; or (ii) by the Comptroller or his or her
designee at the time the Comptroller or his or her designee approves a
supervisory merger to resolve problems related to operation of the Association
or when the Association is determined by the Comptroller to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.

 

(f) Notwithstanding anything herein contained to the contrary, any payments to
Executive by the Association or the Company, whether pursuant to 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. Section 1828(k), and the
regulations promulgated thereunder in 12 C.F.R. Part 359.

 

16.SEVERABILITY.

 

If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.

 

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17.HEADINGS FOR REFERENCE ONLY.

 

The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

 

18.GOVERNING LAW.

 

This Agreement shall be governed by the laws of the State of Kentucky except to
the extent superseded by federal law.

 

19.ARBITRATION.

 

Any dispute or controversy arising under or in connection with this Agreement
shall be settled exclusively by binding arbitration, as an alternative to civil
litigation and without any trial by jury to resolve such claims, conducted by a
panel of three arbitrators sitting in a location selected by Executive within
fifty (50) miles from the main office of the Association, in accordance with the
rules of the American Arbitration Association’s National Rules for the
Resolution of Employment Disputes (“National Rules”) then in effect. One
arbitrator shall be selected by Executive, one arbitrator shall be selected by
the Association and the third arbitrator shall be selected by the arbitrators
selected by the parties. If the arbitrators are unable to agree within fifteen
(15) days upon a third arbitrator, the arbitrator shall be appointed for them
from a panel of arbitrators selected in accordance with the National Rules.
Judgment may be entered on the arbitrator’s award in any court having
jurisdiction.

 

20.INDEMNIFICATION.

 

(a)                Executive shall be provided with coverage under a standard
directors’ and officers’ liability insurance policy during the term of this
Agreement, and shall be indemnified for the term of this Agreement and for a
period of six years thereafter to the fullest extent permitted under applicable
law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the
Association or any affiliate (whether or not he continues to be a director or
officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys’ fees and the cost of reasonable settlements (such settlements must be
approved by the Board), provided, however, Executive shall not be indemnified or
reimbursed 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
18(k) of the Federal Deposit Insurance Act, 12 U.S.C. §1828(k), and the
regulations issued thereunder in 12 C.F.R. Part 359.

 

(b) Any indemnification by the Association shall be subject to compliance with
any applicable regulations of the Federal Deposit Insurance Corporation.

 

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21.Notice.

 

For the purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by certified or registered mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth below:

 

To the Association:

Home Federal Savings and Loan Association

1500 Carter Avenue

Ashland, KY 41101

 

To Executive:

 

_________

At the address last appearing on

the personnel records of the Association 

   

 

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SIGNATURES

 

IN WITNESS WHEREOF, the Association and the Company have caused this Agreement
to be executed by their duly authorized representatives, and Executive has
signed this Agreement, on the date first above written.

 

 

HOME FEDERAL SAVINGS AND LOAN ASSOCIATION 

                   

By:

/s/ J. Thomas Rupert

 

 

 

  Chairman of the Board  

POAGE BANKSHARES, INC.

                   

By:

/s/ J. Thomas Rupert     Chairman of the Board               EXECUTIVE:        
           

/s/ Bruce VanHorn

  Bruce VanHorn

 

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