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Jefferson Bancshares, Inc. 10-K [jfbi-10k_063012.htm]
 
Exhibit 10.2
 
EMPLOYMENT AGREEMENT

THIS AGREEMENT is made effective as of the 16th day of May, 2012, by and between
JEFFERSON FEDERAL BANK (“Bank”), Morristown, Tennessee, and JOHN WILLIAM BEARD
(“Executive”).

WHEREAS, Bank wishes to assure itself of the services of Executive for the
period provided in this Agreement; and

WHEREAS, Executive is willing to serve in the employment of Bank on a full-time
basis for said period.

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

1.             POSITION AND RESPONSIBILITIES.

During the period of his employment hereunder, Executive agrees to serve as
Executive Vice-President and Chief Credit Officer of Bank and/or such other
assignments as the Bank may determine.

2.            TERMS AND DUTIES.

(a)           The term of this Agreement shall be (i) the initial term,
consisting of the period commencing on May 16, 2012 (the “Effective Date”) and
ending on the second anniversary of the Effective Date, plus (ii) any and all
extensions of the initial term made pursuant to Paragraph 3.  Upon the
expiration of this Agreement and for a period of twelve (12) months thereafter,
Executive agrees that he will not compete with Bank in the Bank’s market area as
that term is defined in Paragraph 9.  For the purposes of this paragraph, the
term “compete” shall have the same meaning as that more fully described in
Paragraph 9, Non-Competition and Non-Disclosure.

(b)           Commencing on the first anniversary date of this Agreement, and
continuing on each anniversary thereafter, the disinterested members of the
Board of Directors of the Bank may extend the Agreement an additional year such
that the remaining term of the Agreement shall be twenty-four (24) months,
unless Executive elects not to extend the term of this Agreement by giving
written notice in accordance with Paragraph 9 of this Agreement.  The Board of
the Directors of the Bank will review the Agreement and Executive’s performance
annually for purposes of determining whether to extend the Agreement and the
rationale and results thereof shall be included in the minutes of the Board’s
meeting.  The Board of Directors shall give notice to Executive as soon as
possible after such review as to whether the Agreement is to be extended.

(c)           During the period of his employment hereunder, except for periods
of absence occasioned by illness, vacation periods, and leaves of absence,
Executive shall devote substantially all his business time, attention, skill,
and efforts to the faithful performance of his duties hereunder including
activities and services related to the promotion, operation and management of
the Bank; provided, however, that, from time to time, Executive may serve, or
continue to serve, on the boards of directors of, and hold any other offices or
positions in, companies or organizations, which will not materially affect or
conflict with the performance of Executive's duties pursuant to this Agreement.

(d)           Executive warrants that he is not bound by any other agreement or
understanding with any other company, such as a non-competition or
non-solicitation agreement, that would prohibit Executive from entering into
this Agreement or otherwise performing his duties hereunder.
 
 
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3.           COMPENSATION AND REIMBURSEMENT.

(a)           The compensation specified under this Agreement shall constitute
the salary and benefits paid for the duties described in Paragraphs 1 and
2.  Bank shall pay Executive as compensation a salary of One Hundred
Seventy-five Thousand and no/100 Dollars ($175,000.00) per year (“Base
Salary”).  The Base Salary shall be payable in accordance with the customary
payroll practices of Bank.  During the term of this Agreement, Executive’s Base
Salary shall be reviewed not later than twelve (12) months after the effective
date of this Agreement and at least annually thereafter.  Increases in
compensation shall be determined by the Board of Directors of Bank or the
Compensation Committee of the Board of Directors in accordance with the Bank’s
performance evaluation plan.  In addition to the Base Salary provided in this
Paragraph 3(a) and except as provided herein, Bank shall provide to Executive
all such other benefits as are provided to regular full-time employees of
Bank.  Executive further acknowledges that if the Board of Directors of Bank
institutes a “pay for performance” bonus plan and/or stock option plan in the
future that he will be subject to that plan when adopted, subject to regulatory
and/or shareholder approval as may be required by law or policy.

(b)           Except as specifically provided herein, Executive will be entitled
to participate in or receive benefits under any employee benefit plans
including, but not limited to, stock options, retirement plans, supplemental
retirement plans, pension plans, profit-sharing plans, health-and-accident
plans, medical coverage or any other employee benefit plan or arrangement made
available by Bank in the future to its senior executives and key management
employees, subject to, and on a basis consistent with, the terms, conditions and
overall administration of such plans and arrangements.

(c)           Executive shall receive four (4) weeks paid vacation per year
during the term of this Agreement.
(d)           Executive shall be reimbursed for his reasonable expenses incurred
in the performance of his duties as Executive Vice-President and Chief Credit
Officer, subject to Board-approved policy.

4.           PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.

(a)           Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Paragraph 4 shall apply.  As used in this Agreement, an “Event of
Termination” shall mean and include any one or more of the following:

(i)           the termination by Bank of Executive's full-time employment
hereunder for any reason other than for Cause as defined in Paragraph 7 hereof,
disability as defined in Paragraph 5(a) hereof, death, retirement as defined in
Paragraph 6 hereof, or

(ii)           Executive's resignation from Bank's employment upon

(A)           a material reduction in the benefits and perquisites to Executive
from those being provided as of the effective date of this Agreement;

(B)           the liquidation or dissolution of Bank; or

(C)           any material breach of this Agreement by Bank which has not be
cured within thirty (30) days after written notice to Bank.

Upon the occurrence of any event described in clauses (A), (B), or (C) above,
Executive shall have the right to elect to terminate his employment under this
Agreement by resignation upon not less than sixty (60) days prior written notice
to Bank given within a reasonable period of time not to exceed, except in case
of a continuing breach, four (4) calendar months after the event giving rise to
said right to elect.

 
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(b)           Upon the occurrence of an Event of Termination, Bank 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 payment equal to twelve (12) months’ Base
Salary.  In addition, accrued but unpaid expenses due and payable to Executive
that conform to Bank’s customary reimbursement policy shall be paid to Executive
upon the occurrence of an Event of Termination.

(c)           Upon the occurrence of an Event of Termination, Bank will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by Bank for Executive prior to his
termination for a period of twelve (12) months at Bank's expense.  A COBRA
notice will issue upon the Date of Termination.  Any COBRA-mandated coverage
extensions beyond the first twelve (12) months will be at the option of
Executive and paid for by him as provided by law unless he has secured other
coverage from another source extinguishing his coverage rights.

5.           TERMINATION FOR DISABILITY.

If Executive shall become disabled as defined in Bank’s then current disability
plan, Bank may terminate Executive’s employment for “Disability.”  Upon
Executive’s termination of employment for Disability, disability pay shall be in
accordance with the terms and conditions of Bank’s disability plan.

6.           TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE.

Executive’s termination by Bank based on “Retirement” shall mean retirement at
age 70 or in accordance with any retirement arrangement established with
Executive’s consent with respect to him.  Upon termination of Executive upon
Retirement, Executive shall be entitled to all benefits under any retirement
plan of Bank and other plans to which Executive is a party, but shall not be
entitled to any further payments under this Agreement.  Upon the death of
Executive during the term of this Agreement, Bank shall pay to Executive’s
estate the compensation due to Executive through the last day of the calendar
month in which his death occurred.

7.           TERMINATION FOR CAUSE.

For purposes of this Agreement, “Termination for Cause” shall include
termination because of Executive’s personal dishonesty; incompetence; willful
misconduct (including, without limitation, personal behavior that would cause
disruption in the workplace with third parties, other employees, customers, or
Board members); breach of fiduciary duty involving personal profit; moral
turpitude; intentional failure to perform stated duties; willful violation of
any law, rule, or regulation which negatively impacts Bank (other than traffic
violations or similar offenses) or willful violation of a final cease-and-desist
order; or a material breach of any provision of this Agreement.  For purposes of
this Paragraph 7, the term “willful” is defined to include any act or omission
which demonstrates an intentional or reckless disregard for the duties and
responsibilities owed to the business of Bank by Executive.  Notwithstanding the
foregoing, Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of not less than three-fourths (3/4) of the
members of the Board, finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and specifying
the reasons thereof.  Executive shall not have the right to receive compensation
or other benefits for any period after Termination for Cause.  Any unexercised
stock options granted to Executive under any stock option plan or any unvested
awards granted under any other stock benefit plan of Bank, or any subsidiary or
affiliate thereof, shall become null and void, effective upon Executive's
receipt of Notice of Termination for Cause pursuant to Paragraph 8 hereof, and
shall not be exercisable by Executive at any time subsequent to such Termination
for Cause.

 
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8.           NOTICE.

(a)           Any purported termination by Bank or Executive shall be
communicated by Notice of Termination to the other party thereto.  For purposes
of this Agreement, a “Notice of Termination” shall mean a written notice which
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.  In the case of termination for “incompetence” under Paragraph 7
hereof, Bank shall deliver to Executive a written notice that specifies the
basis of the proposed termination for incompetence and shall afford Executive
thirty (30) days within which to cure the criticisms that have led Bank to seek
to terminate Executive for the cause of incompetence.  If Executive is unable or
unwilling to cure within the 30-day period, Bank may, in its discretion, proceed
to terminate Executive in accordance with the provisions of Paragraphs 7 and 8
hereof.

(b)           “Date of Termination” shall mean:

(A)           if  Executive’s employment is terminated for Disability, thirty
(30) days after a Notice of Termination is given (provided that Executive shall
not have returned to the performance of his duties on a full-time basis during
such thirty (30) day period); and

(B)           if  Executive’s employment is terminated for any other reason, the
date specified in the Notice of Termination.

9.           NON-COMPETITION AND NON-DISCLOSURE

(a)           Upon any termination of Executive's employment hereunder for any
reason, including but not limited to expiration of this Agreement, Executive
agrees not to compete with Bank for a period of twelve (12) months following
such termination in Bank’s “market area.”  Executive agrees that, during such
period, Executive shall not work for or advise, consult or otherwise serve with,
directly or indirectly, any entity whose business materially competes with the
depository, lending or other business activities of Bank.  Executive
specifically further agrees that he will not, for the twelve (12) month
non-competition period, work, in either a paid or unpaid capacity with any
individual or group proposing to establish a new bank or other regulated
financial institution in Bank’s market area.  For purposes of this provision,
Bank’s “market area” shall be deemed to include all of Hamblen, Knox, Sullivan,
Hawkins, and Washington counties in Tennessee and any other county in which Bank
operates a main office, branch office or loan or deposit production office on
date of termination.  The parties hereto, recognizing that irreparable injury
will result to Bank, its business and property in the event of Executive’s
breach of this Subparagraph 9(a), agree that in the event of any such breach by
Executive, Bank will be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation hereof by Executive,
Executive's partners, agents, servants, employers, employees and all persons
acting for or with Executive.  Executive represents and admits that in the event
of the termination of his employment pursuant to Paragraph 8 hereof, 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 Bank, 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 Bank from
pursuing any other remedies available to Bank for such breach or threatened
breach, including the recovery of damages from Executive.

(b)           Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of Bank.  Executive will not, during or after the term of
his employment, disclose any knowledge of the past, present, planned or
considered business activities of Bank or affiliates thereof to any person,
firm, corporation or other entity for any reason or purpose
whatsoever.  Notwithstanding the foregoing, Executive may disclose any knowledge
of banking, financial and/or economic principles, concepts or ideas that are not
solely and exclusively derived from the business plans and activities of
Bank.  In the event of a breach or threatened breach by Executive of the
provisions of this Subparagraph 9(b), Bank will be entitled to an injunction
restraining Executive from disclosing, in whole or in part, the knowledge of the
past, present, planned or considered business activities of Bank or affiliates
thereof, or from rendering any services to any person, firm, corporation, other
entity to whom such knowledge, in whole or in part, has been disclosed or is
threatened to be disclosed.  Nothing herein will be construed as prohibiting
Bank from pursuing any other remedies available to Bank for such breach or
threatened breach, including the recovery of damages from Executive.

 
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10.           SOURCE OF PAYMENTS.

All payments provided in this Agreement shall be timely paid in cash or check
from Bank’s general funds.

11.           EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.

This Agreement contains the entire understanding among the parties thereto and
supersedes any prior employment agreement, written or oral, between Bank 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.

12.           NO ATTACHMENT; SUCCESSORS AND ASSIGNS.

(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 affect 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 Bank and their respective successors and assigns.

13.           MODIFICATION AND WAIVER.

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

(b)           No term or condition of this Agreement shall be deemed to have
been waived, nor shall there by 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.

14.           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.

15.           HEADINGS FOR REFERENCE ONLY.

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

 
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16.           GOVERNING LAW.

This Agreement shall be governed by the substantive laws and procedural
provisions of the State of Tennessee, including, without limitation, that
state’s statutory and common law of privilege, unless otherwise specified
herein; provided, however, that in the event of a conflict between the terms of
this Agreement and any applicable federal or state law or regulation, the
provisions of such law or regulation shall prevail.

17.           PAYMENT OF LEGAL FEES.

All reasonable legal fees paid or incurred by Bank or Executive pursuant to any
dispute or question or interpretation relating to this Agreement shall be paid
or reimbursed by the non-prevailing party.

18.           INDEMNIFICATION.

Bank shall provide Executive with coverage under a standard directors' and
officers' liability insurance policy at its expense, or in lieu thereof, shall
indemnify Executive to the fullest extent permitted under applicable Tennessee
and federal law and regulations and Bank's Charter and Bylaws against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding initiated by a person or entity
not a party to this Agreement in which he may be involved by reason of his
having been an officer or director of Bank (whether or not he continues to be an
officer or director at the time of incurring such expense or liabilities), and
that is a result of actions or omissions taken in the course and scope of his
duties as an officer or director of Bank.  Such expense and liabilities include,
but are not limited to, judgment, court costs, and reasonable attorneys’ fees
and the cost of reasonable settlement.

19.           SUCCESSOR TO THE BANK OR ITS HOLDING COMPANY.

Bank and its holding company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of Bank, expressly and unconditionally
to assume and agree to perform Bank’s obligations under this Agreement, in the
same manner and to the same extent that Bank would be required to perform if no
such succession or assignment had taken place.

20.           COMPLIANCE WITH SECTION 409A OF THE INTERNAL REVENUE CODE.
 
(a) It is Bank’s intent that the payments and benefits provided under this
Agreement shall be exempt from the application of, or otherwise comply with, the
requirements of Section 409A (“Section 409A”) of the Internal Revenue Code (the
“Code”).  Specifically, any taxable benefits or payments provided under this
Agreement are intended to be separate payments that qualify for the “short-term
deferral” exception to Section 409A to the maximum extent possible, and to the
extent they do not so qualify, are intended to qualify for the involuntary
separation pay exceptions to maximum extent possible.  This Agreement shall be
construed, administered, and governed in a manner that effects such intent, and
Bank shall not take any action that would be inconsistent with such
intent.  Without limiting the foregoing, the payments and benefits provided
under this Agreement may not be deferred, accelerated, extended, paid out or
modified in a manner that would result in the imposition of an additional tax
under Section 409A upon Executive.

(b) If neither the “short-term deferral” nor the involuntary separation pay
exceptions to Section 409A described above applies to a benefit, payment, or
reimbursement under this Agreement, then notwithstanding any provision in this
Agreement to the contrary, the remaining provisions of this Paragraph 20 shall
apply.
 
 
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(i)           If Executive is a “specified employee,” as determined under Bank’s
policy for identifying specified employees on the Date of Termination, then to
the extent required in order to comply with Section 409A, all payments, benefits
or reimbursements paid or provided under this Agreement that constitute a
“deferral of compensation” within the meaning of Section 409A, that are provided
as a result of a “separation from service” within the meaning of Section 409A
and that would otherwise be paid or provided during the first six (6) months
following such Date of Termination shall be accumulated through and paid or
provided (together with interest on the delayed amount at the applicable federal
rate under Section 7872(f)(2)(A) of the Code in effect on the Date of
Termination) within 30 days after the first business day following the six (6)
month anniversary of such Date of Termination (or, if Executive dies during such
six-month period, within thirty (30) days after Executive’s death).

(ii)           To the extent required to comply with Section 409A, any
reimbursement of expenses pursuant to this Agreement, that will not be excluded
from Executive’s income when received is subject to the following
requirements:  (1) the amount of expenses eligible for reimbursement during a
calendar year may not affect the expenses eligible for reimbursement, or in-kind
benefits to be provided in any other calendar year; (2) the reimbursement of the
eligible expense must be made on or before the last day of the calendar year
following the calendar year in which the expense was incurred; and (3) the right
to reimbursement is not subject to liquidation or exchange for another benefit.

21.           LIMITATIONS ON EXECUTIVE COMPENSATION.

Notwithstanding any other provisions of this Agreement, it is intended that, in
the event that Bank elects to participate in any program of the United States
government which, by its terms, limits the total amount of executive
compensation that Executive may receive, this Agreement shall be amended by
operation of law to comply with the limitations set out in such program.
 
22.           REGULATORY REQUIREMENTS.
 
The parties agree that any payments contemplated pursuant to this Agreement are
subject to and conditioned upon their compliance with 12 U.S.C. Section 1828(k)
and FDIC Regulation 12 C.F.R. Part 359 (“golden parachute” and indemnification
payments), as such laws and regulations may hereafter be amended from time to
time.
 
IN WITNESS WHEREOF, Executive and a duly authorized officer or director of Bank
have executed this Agreement, effective on the date first written above.

JEFFERSON FEDERAL BANK
       
By:
/s/Anderson L. Smith
 
 
Anderson L. Smith, President and CEO  

 
EXECUTIVE
       
By:
/s/John William Beard
 
 
John William Beard
 

 
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