**EXHIBIT 10.5**

 

SEVERANCE AGREEMENT 

 

THIS SEVERANCE AGREEMENT entered into this      day of                    , 200   (the “Effective Date”) by and between The Patapsco Bank (the “Bank”) and                     (the “Employee”). 

 

WHEREAS, the Employee has heretofore been employed by the Bank as an officer; and 

 

WHEREAS, the Bank deems it to be in its best interest to enter into this Agreement as additional incentive to the Employeeto continue as an officer of the Bank; and 

 

WHEREAS, theparties desire by this writing to set forth their understanding as to their respective rights and obligations in the event of termination of Employee’s employment under the circumstances set forth in this Agreement. 

 

NOW, THEREFORE, it is AGREED as follows: 

 

1. Change in Control

 

(a) Payment in the Event of Change in Control. (1) If the Employee’s employment is terminated by the Bank,without the Employee’s prior written consent and for a reason other than Just Cause (as defined in Section 2(a) hereof), in connection with or within twelve (12) months after any change in control of the Bank or Patapsco Bancorp, Inc.(the “Company”), the Employee shall, subject to paragraph (2) of this Section 1(a), be paid an amount equal to his base salary and bonus paid in the prior calendar year, but in no event greater than the difference between(i) the product of 2.99 times his “base amount” as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the “Code”) and regulations promulgated thereunder (the “Maximum Amount”), and(ii) the sum of any other parachute payments (as defined under Section 280G(b)(2) of the Code) that the Employee receives on account of the change in control. Said sum shall be paid in one lump sum within ten (10) days of suchtermination. 

 

(2) In the event that the Employee and the Bankjointly determine and agree that the total parachute payments receivable under clauses (i) and (ii) of Section l(a)(1) hereof exceed the Maximum Amount, notwithstanding the payment procedure set forth in Section l(a)(1) hereof, theEmployee shall determine which and how much, if any, of the parachute payments to which he is entitled shall be eliminated or reduced so that the total parachute payments to be received by the Employee do not exceed the Maximum Amount. If theEmployee does not make his determination within ten business days after receiving a written request from the Bank, the Bank may make such determination, and shall notify the Employee promptly thereof. Within five business days of the earlier of theBank’s receipt of the Employee’s determination pursuant to this paragraph or the Bank’s determination in lieu of a determination by the Employee, the Bank shall pay to or distribute to or for the benefit of the Employee such amountsas are then due the Employee under this Agreement. 

 

(3) As aresult of uncertainty in application of Section 280G of the Code at the time of payment hereunder, it is possible that such payments will have been made by the Bank which should not have been made (“Overpayment”) or that additionalpayments will not have been made by the Bank which should have been made (“Underpayment”), in each case, consistent with the calculations required to be made under Section 1(a)(1) hereof. In the event that the Employee, based upon theassertion by the Internal Revenue Service against the Employee of a deficiency which the Employee believes has a high probability of success, determines that an Overpayment has been made, any such Overpayment paid or distributed by the Bank to orfor the benefit of Employee shall be treated for all purposes as a loan ab initio, which the Employee shall repay to the Bank together with interest at the applicable federal rate provided for in Section 7872(f)(2)(B) of the Code;provided, however, that no such loan shall be deemed to have been made and no amount shall be payable by the Employee to the Bank if and to the extent such deemed loan and payment would not either reduce the amount on which the Employee is subjectto tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that the Employee and the Bank determine, based upon controlling precedent or other substantial authority, that an Underpayment hasoccurred, any such Underpayment shall be promptly paid by the Bank to or for the benefit of the Employee together with interest at the applicable federal rate provided for in Section 7872(f)(2)(B) of the Code. 

 

(4) “Change in Control” shall mean any one of the following events:(1) the acquisition of ownership, holding or power to vote more than 25% of the Bank’s or the Company’s voting stock, (2) the acquisition of the ability to control the election of a majority of the Bank’s or theCompany’s directors, (3) the acquisition of a controlling influence over the management or policies of the Bank or the Company by any person or by persons 

acting as a “group” (within the meaning of Section 13(d) of the Securities Exchange Act of 1934) (provided that in the case of (1),(2) and (3) hereof, ownership or control of the Bank by the Company itself shall not constitute a “change in control”), or (4) during any period of two consecutive years, individuals (the “Continuing Directors”)who at the beginning of such period constitute the Board of Directors of the Company or the Bank (the “Existing Board”) cease for any reason to constitute at least two-thirds thereof, provided that any individual whose election ornomination for election as a member of the Existing Board was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director. For purposes of this subparagraph only, the term“person” refers to an individual or a corporation, partnership, trust, Bank, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. The decision of theBank’s non-employee directors as to whether a change in control has occurred shall be conclusive and binding. 

 

(b) Change in Control; Voluntary Termination. Notwithstanding any other provision of this Agreement to the contrary, the Employee may voluntarilyterminate his employment under this Agreement within twelve (12) months following a change in control of the Bank or the Company, as defined in paragraph (a)(4) of this Section 1, and the Employee shall thereupon be entitled to receive thepayment described in Section 1(a)(1) and (2) of this Agreement, within ninety (90) days following the occurrence of any of the following events, which has not been consented to in advance by the Employee in writing: (i) therequirement that the Employee move his personal residence, or perform his principal executive functions, more than fifteen (15) linear miles from his primary office as of the date of the change in control; (ii) a material reduction in theEmployee’s base compensation as in effect on the date of the change in control or as the same may be increased from time to time; (iii) the failure by the Bank to continue to provide the Employee with compensation and benefits provided forunder this Agreement, as the same may be increased from time to time, or with benefits substantially similar to those provided to him under any of the employee benefit plans in which the Employee now or hereafter becomes a participant, or the takingof any action by the Bank which would directly or indirectly reduce any of such benefits or deprive the Employee of any material fringe benefit enjoyed by him at the time of the change in control; (iv) the assignment to the Employee of dutiesand responsibilities materially different from those normally associated with his position; (v) a failure to elect or reelect the Employee to the Board of Directors of the Bank, if the Employee is serving on the Board on the date of the changein control; or (vi) a material diminution or reduction in the Employee’s responsibilities or authority (including reporting responsibilities) in connection with his employment with the Bank. 

 

(c) Compliance with 12 U.S.C. Section 1828(k). Any payments madeto the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder. 

 

(d) Term. This Agreement shall remain in effect for the periodcommencing on the Effective Date and ending on the earlier of (i) the date twelve (12) months after the Effective Date, and (ii) the date on which the Employee terminates employment with the Bank; provided that the Employee’srights hereunder shall continue following the termination of this employment with the Bank under any of the circumstances described in Section 1(a) or (b) hereof. Additionally, on each anniversary date from the Effective Date, the term ofthis Agreement shall be extended for an additional one-year period beyond the then effective expiration date, provided that the Employee is elected an officer of the Bank at the meeting of the Bank’s Board of Directors held on the date of theCompany’s annual meeting of stockholders called for the purpose of electing the officer position which the Employee holds. 

 

2. Termination or Suspension Under Federal Law. 

 

(a) Termination for “Just Cause” shall mean termination because of, in the good faith determination of the Bank’s Board of Directors, theEmployee’s personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violationsor similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. The Employee shall have no right to receive compensation or other benefits for any period after termination for Just Cause. No act, orfailure to act, on the Employee’s part shall be considered “willful” unless he has acted, or failed to act, with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest ofthe Bank. 

 

(b) If the Employee is removed and/or permanentlyprohibited from participating in the conduct of the Bank’s affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (“FDIA”) (12 U.S.C. 1818(e)(4) or (g)(1)), all obligations of the Bank underthis Agreement shall terminate, as of the effective date of the order, but the vested rights of the parties shall not be affected. 

 

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(c) If the Bank is in default (as defined in Section 3(x)(1) of the FDIA), all obligations underthis Agreement shall terminate as of the date of default; however, this Paragraph shall not affect the vested rights of the parties. 

 

(d) All obligations under this Agreement shall terminate, except to the extent that continuation of this Agreement is necessary for the continuedoperation of the Bank as determined by: (i) the appropriate federal banking agency at the time that the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authoritycontained in Section 13(c) of the FDIA; or (ii) by the appropriate federal banking agency at the time it approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the appropriatefederal banking agency to be in an unsafe or unsound condition. Such action shall not affect any vested rights of the parties. 

 

(e) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)) suspends and/or temporarily prohibits theEmployee from participating in the conduct of the Bank’s affairs, the Bank’s obligations under this Agreement shall be suspended as of the date of such service, unless stayed by appropriate proceedings. If the charges in the notice aredismissed, the Bank shall (i) pay the Employee 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. 

 

(f) The terms of this Section 2 shall prevail over any other provisionsof this Agreement. 

 

3. Expense Reimbursement. 

 

In the event that any dispute arises between the Employee and the Bank as tothe terms or interpretation of this Agreement, whether instituted by formal legal proceedings or otherwise, including any action that the Employee takes to enforce the terms of this Agreement or to defend against any action taken by the Bank or theCompany, the Employee shall be reimbursed for all costs and expenses, including reasonable attorneys’ fees, arising from such dispute, proceedings or actions, provided that the Employee shall obtain a final judgment in favor of the Employee ina court of competent jurisdiction or in binding arbitration under the rules of the American Arbitration Bank. Such reimbursement shall be paid within ten (10) days of Employee’s furnishing to the Bank and the Company written evidence,which may be in the form, among other things, of a cancelled check or receipt, of any costs or expenses incurred by the Employee. 

 

4. Successors and Assigns. 

 

(a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank or Company which shall acquire, directlyor indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank or Company. 

 

(b) Since the Bank is contracting for the unique and personal skills of the Employee, the Employee shall be precluded from assigning or delegating hisrights or duties hereunder without first obtaining the written consent of the Bank. 

 

5. Amendments. No amendments or additions to this Agreement shall be binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided. 

 

6. Applicable Law. Except to the extent preempted by Federal law, the laws of theState of Maryland shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise. 

 

7. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validityor enforceability of the other provisions hereof. 

 

8. Entire Agreement.This Agreement, together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto. 

 

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IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first hereinabovewritten. 

 

ATTEST:
 THE PATAPSCO BANK
 
 By: 
 
Secretary   Its Chairman of the BoardWITNESS: EMPLOYEE