Document:

exv10w4

Exhibit 10.4

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of September 15, 2009, by and
among FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION, a federally-chartered savings and loan and
(the “Association”), and THOMAS K. STERNER (the “Executive”).

     WHEREAS, the Executive serves in a position of substantial responsibility with the
Association; and

     WHEREAS, the Association wishes to set forth the terms of the Executive’s continued employment
in these positions; and

     WHEREAS, the Executive is willing and desires to serve in this position with the Association.

     NOW THEREFORE, in consideration of these premises, the mutual covenants contained herein, and
other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows.

ARTICLE 1

EMPLOYMENT

     1.1 Employment. The Association hereby employs the Executive to serve as
Chief Executive Officer and Chairman of the Board of Directors of the Association according to the
terms and conditions of this Agreement and for the period stated in Section 1.3 of this Agreement.
The Executive hereby accepts employment according to the terms and conditions of this Agreement and
for the period stated in Section 1.3 of this Agreement.

     1.2 Duties. As Chief Executive Officer, the Executive shall report directly
to the board of directors of the Association. The Executive shall serve the Association
faithfully, diligently, competently, and to the best of the Executive’s ability. It is
contemplated by this Agreement that the Executive’s duties shall be comparable to those presently
undertaken by the Executive. The duties of employment shall include such additional executive
duties on behalf of the Association and its operations of a character in keeping with the
Executive’s position as may, from time to time, be assigned to the Executive by the Board of
Directors of the Association. The Executive shall exclusively devote full working time, energy,
and attention to the business of the Association and to the promotion of the interests of the
Association throughout the term of this Agreement. Without the prior written consent of the board
of directors of the Association, during the term of this Agreement the Executive shall not render
services to or for any person, firm, corporation, or other entity or organization in exchange for
compensation, regardless of the form in which the compensation is paid and regardless of whether it
is paid directly or indirectly to the Executive. Nothing in this Section 1.2 shall prevent the
Executive from managing personal investments and affairs, provided that doing so does not interfere
with the proper performance of the Executive’s duties and responsibilities under this Agreement.

 

 

     1.3 Term.

     (a) The term of this Agreement shall include: (i) the initial term, consisting of
the period commencing on the date of this Agreement (the “Effective Date”) and ending on the third
anniversary of the Effective Date, plus (ii) any and all extensions of the initial term made
pursuant to this Section 1.3.

     (b) Commencing on the first anniversary of the Effective Date and continuing on each
anniversary of the Effective Date thereafter, the disinterested members of the Board of Directors
may extend the Agreement term for an additional year, so that the remaining term of the Agreement
again becomes thirty-six (36) months, unless the Executive elects not to extend the term of this
Agreement by giving proper written notice. The board of directors of the Association will review
the Agreement and Executive’s performance annually for purposes of determining whether to extend
the Agreement term and will include the rationale and results of its review in the minutes of the
meetings. The board of directors will notify the Executive as soon as possible after each annual
review whether it has determined to extend the Agreement.

ARTICLE 2

COMPENSATION AND BENEFITS

     2.1 Base Salary. In consideration of the Executive’s performance of the
obligations under this Agreement, the Association shall pay or cause to be paid to the Executive a
salary at the annual rate of $193,743.90, payable according to the regular payroll practices of the
Association. The Executive’s salary shall be subject to annual review. The Executive’s salary, as
the same may be modified from time to time, is referred to in this Agreement as the “Base Salary.”
All compensation under this Agreement shall be subject to customary income tax withholding and such
other employment taxes as are imposed by law.

     2.2 Benefit Plans and Perquisites. For as long as the Executive is employed
by the Association, the Executive shall be eligible (x) to participate in any and all officer or
employee compensation, incentive compensation and benefit plans in effect from time to time,
including without limitation plans providing retirement, medical, dental, disability, and group
life benefits and including incentive or bonus plans existing on the date of this Agreement or
adopted after the date of this Agreement, provided that the Executive satisfies the eligibility
requirements for any the plans or benefits, and (y) to receive any and all other fringe and other
benefits provided from time to time, including the specific items described in (a)-(c) below.

     (a) Reimbursement of business expenses. The Executive shall be entitled to
reimbursement for all reasonable business expenses incurred while performing his obligations under
this Agreement, including but not limited to all reasonable business travel and entertainment
expenses incurred while acting at the request of or in the service of the Association and
reasonable expenses for attendance at annual and other periodic meetings of trade associations.
Expenses will be reimbursed if they are submitted in accordance with the Association’s policies and
procedures.

     (b) Facilities. The Association will furnish the Executive with the working
facilities and staff customary for executive officers with the comparable titles and duties of the
Executive

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as set forth in Sections 1.1 and 1.2 of this Agreement and as are necessary for the Executive
to perform his duties. The location of such facilities and staff shall be at the principal
administrative offices of the Association, or at such other site or sites customary for such
offices and as agreed to by the parties.

     (c) Automobile and Associated Costs. The Executive shall, during the term
hereof, be entitled to the use of an Association owned vehicle. The make and model of the vehicle
to be determined, from time to time, by the Board of Directors of the Association. Further, the
Association shall furnish to the Executive a credit card to be used by the Executive to purchase
fuel and oil for the operation of the vehicle and repairs to the vehicle. It shall be the
responsibility of the Executive to maintain all records appropriate to Internal Revenue rules and
regulations pertaining to the use of employer-owned vehicles and, should the use of the
employer-owned vehicle result in additional tax consequences to the Executive, the tax shall be the
responsibility of the Executive to pay.

     2.3 Vacation; Leave. The Executive shall be entitled to sick leave and paid
annual vacation in accordance with policies established from time to time by the Association. In
addition to paid vacations and other leave, the board of directors may grant the Executive a leave
or leaves of absence, with or without pay, at such time or times and upon such terms and conditions
as the board of directors may determine. Vacation time must be taken during the calendar year in
which it is accrued and may be carried over into succeeding calendar years or paid out to the
Executive in accordance with the policies of the Association. The Executive shall take his
vacation at a reasonable time or times taking into consideration the needs of the Association.

     2.4 Insurance. The Association shall maintain or cause to be maintained
liability insurance covering the Executive throughout the term of this Agreement.

     2.5 Supplemental Executive Retirement Plan. The Association has established
for the benefit of the Executive and other employees under date of June 29, 2004, a “Trust Account”
in the form customarily referred to as the “Rabbi Trust”. This Trust will be funded by the
Association placing into the Trust Account for the benefit of the Executive, the sum of $812.50
each and every month during the term of this Agreement. Executive’s right to the principal and the
earnings thereon shall be one-hundred percent (100%) vested in employee at all times. The
Executive’s interest in this benefit shall include all contributions (and earnings) made by the
Association prior to the effective date of this Agreement (that is, pursuant to the terms of any
prior arrangement).

     Notwithstanding any other provisions of this Agreement to the contrary, following a separation
from service (as such term is defined for purpose of Section 409A of the Code) for any reason,
including death, the Association shall commence the payment of benefits set forth in this Section
2.5 on the 90th day following the date the separation from service occurs. The payment
of all principal and accumulated income allocated to the Executive shall be paid over a fifteen
(15) year period on a weekly basis. The weekly amount to be paid shall be determined by dividing
the outstanding account balance as of the immediately preceding weekly pay date by the number of
weeks remaining in the 15-year period. Following the occurrence of a Change in

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Control described in Section 5.2, all amounts due to or for the benefit of the Executive shall
be paid in a lump-sum cash payment on the 90th day following the Change in Control.

     The substantive terms of this Section 2.5 are consistent with the comparable terms under the
employment agreement between the Executive and the Association, dated July 20, 2004, as amended
December 13, 2005, and as amended December 16, 2008, and no changes have been made under this
Agreement with regard to the timing or form of the payment of the benefit.

     Notwithstanding any provision of this Agreement to the contrary, if Executive is a “specified
employee” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”), then benefit distributions under this Section 2.5 that are made upon separation from
service may not commence earlier than six (6) months after the date of such separation from
service. Therefore, in the event this paragraph is applicable to the Executive, any distribution
under this Section 2.5 which would otherwise be paid to the Executive within the first six months
following the separation from service shall be accumulated and paid to the Executive in a lump sum
on the first business day of the seventh month following the separation from service. All
subsequent distributions shall be paid in the manner specified.

ARTICLE 3

EMPLOYMENT TERMINATION

     3.1 Termination Because of Death or Disability.

     (a) Death. The Executive’s employment shall terminate automatically at the
Executive’s death. If the Executive dies in active service to the Association, the Executive’s
estate shall receive any sums due to the Executive as Base Salary and reimbursement of expenses
through the end of the month in which death occurs.

     (b) Disability. By delivery of written notice thirty (30) days in advance
to the Executive, the Association may terminate the Executive’s employment due to the Executive’s
Disability (as defined below). In the event that the Executive’s employment hereunder terminates
due to his Disability, no termination benefits shall be payable to or in respect of the Executive.
For purposes of this Agreement, “Disability” shall mean a physical or mental condition due to which
the Executive shall have been absent from his duties on a full-time basis for a twelve (12)
consecutive month period. The Executive’s employment shall be deemed to have terminated as a
result of Disability on the date provided in the notice of termination provided to the Executive by
the Association. The Executive shall not be considered Disabled, however, if the Executive has
returned to employment on a full-time basis within thirty (30) days of receiving such notice.

     3.2 Involuntary Termination with Cause. The Association may terminate the
Executive’s employment for Cause. If the Executive’s employment terminates for Cause, the
Executive shall receive the Base Salary through the date on which termination becomes effective and
reimbursement of expenses to which the Executive is entitled when termination becomes effective.
The Executive shall not be deemed to have been terminated for Cause under this Agreement unless and
until there is delivered to the Executive a copy of a resolution adopted at a meeting of the board
of directors called and held for the purpose, which resolution shall (x)

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contain findings that the Executive has committed an act constituting Cause, and (y) specify
the particulars thereof. The resolution of the board of directors shall be deemed to have been
duly adopted if and only if it is adopted by the affirmative vote of a majority of the directors of
the Association then in office, excluding the Executive. Notice of the meeting and the proposed
termination for Cause shall be given to the Executive a reasonable time before the meeting of the
board of directors. The Executive and the Executive’s counsel (if the Executive chooses to have
counsel present) shall have a reasonable opportunity to be heard by the board of directors at the
meeting. For purposes of this Agreement “Cause” means any of the following:

	 	(1)	 	Personal dishonesty;
	 
	 	(2)	 	Incompetence;
	 
	 	(3)	 	Willful misconduct;
	 
	 	(4)	 	Breach of fiduciary duty involving personal profit;
	 
	 	(5)	 	Intentional failure to perform stated duties;
	 
	 	(6)	 	Willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order; or
	 
	 	(7)	 	Material breach of any provision of this Agreement.

     3.3 Voluntary Termination by the Executive Without Good Reason. If the
Executive terminates employment without Good Reason, the Executive shall receive the Base Salary
and expense reimbursement to which the Executive is entitled through the date on which termination
becomes effective.

     3.4 Involuntary Termination Without Cause and Voluntary Termination with Good
Reason. With written notice to the Executive thirty (30) days in advance, the Association may
terminate the Executive’s employment without Cause. Termination shall take effect at the end of
the thirty (30) day period. With advance written notice to the Association as provided in clause
(y), the Executive may terminate employment for Good Reason. If the Executive’s employment
terminates involuntarily without Cause or voluntarily but with Good Reason, the Executive shall be
entitled to the benefits specified in Article 4 of this Agreement. For purposes of this Agreement
a voluntary termination by the Executive shall be considered a voluntary termination with Good
Reason if the conditions stated in both clauses (x) and (y) of this Section 3.4 are satisfied:

     (x) a voluntary termination by the Executive shall be considered a voluntary termination with
Good Reason if any of the following occur without the Executive’s written consent, and the term
Good Reason shall mean the occurrence of any of the following without the Executive’s written
consent:

	 	(1)	 	a material diminution of the Executive’s Base Salary (unless the
reduction is part of a company-wide or executive-level restructuring of
compensation),
	 
	 	(2)	 	a material diminution of the Executive’s authority, duties, or
responsibilities, or

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	 	(3)	 	a change in the geographic location at which the Executive must
perform services for the Association by more than 30 miles from such location
at the effective date.

     (y) the Executive must give notice to the Association of the existence of one or more of the
conditions described in clause (x) within sixty (60) days after the initial existence of the
condition, and the Association shall have thirty (30) days thereafter to remedy the condition. In
addition, the Executive’s voluntary termination because of the existence of one or more of the
conditions described in clause (x) must occur within six (6) months after the initial existence of
the condition.

ARTICLE 4

SEVERANCE COMPENSATION

     4.1 Cash Severance after Termination Without Cause or Termination for Good
Reason.

     (a) Subject to the possibility that cash severance after employment termination
might be delayed under Section 4.1(b), if the Executive’s employment terminates involuntarily but
without Cause or if the Executive voluntarily terminates employment with Good Reason, the Executive
shall for thirty-six (36) months and in accordance with the Association’s regular pay practices
continue to receive the Base Salary in effect at termination of employment. However, the
Association and the Executive acknowledge and agree that the compensation and benefits under this
Section 4.1 shall not be payable if compensation and benefits are payable or shall have been paid
to the Executive under Article 5 of this Agreement.

     (b) If when employment termination occurs the Executive is a “specified employee”
within the meaning of Section 409A of the Code, if the cash severance payment under Section 4.1(a)
would be considered deferred compensation under Section 409A of the Code, and finally if an
exemption from the six-month delay requirement of Section 409A(a)(2)(B)(i) of the Code is not
available, the Executive’s continued Base Salary under Section 4.1(a) for the first six months
after employment termination shall be paid to the Executive in a single lump sum without interest
on the first business day of the seventh (7th) month after the month in which the
Executive’s employment terminates.

     4.2 Post-Termination Insurance Coverage.

     (a) If the Executive’s employment terminates involuntarily but without Cause or
voluntarily but with Good Reason, the Association shall continue or cause to be continued at the
Association’s expense health and life insurance benefits for the Executive and any of his
dependents covered at the time of his termination. The health and life insurance benefits shall
continue until the first to occur of (w) the Executive’s return to employment with the Association
or another employer, (x) the Executive’s attainment of age 65, (y) the Executive’s (or dependent’s)
death, or (z) the end of the thirty-six (36) month period following his termination of employment.

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     (b) If (x) under the terms of the applicable policy or policies for the insurance
benefits specified in section 4.2(a) it is not possible to continue coverage for the Executive and
his dependents, or (y) when employment termination occurs the Executive is a “specified
employee” within the meaning of Section 409A of the Code, if any of the continued insurance
coverage benefits specified in Section 4.2(a) would be considered deferred compensation under
Section 409A of the Code, and finally, if an exemption from the six-month delay requirement of
Section 409A(a)(2)(B)(i) of the Code is not available for that particular insurance benefit, the
Association shall pay to the Executive in a single lump sum an amount in cash equal to the present
value of the Association’s projected cost to maintain that particular insurance benefit (and
associated income tax gross-up benefit, if applicable) had the Executive’s employment not
terminated, assuming continued coverage for 36 months. The lump-sum payment shall be made thirty
(30) days after employment termination or, if Section 4.1(b) applies, on the first business day of
the seventh (7th) month after the month in which the Executive’s employment terminates.

     4.3 In addition, the Executive shall have the right to purchase from the Association
the Association owned vehicle that had been used by him at the then “Kelly Blue Book Trade in
Value” valuation, provided the Executive notifies Association within seven (7) days of the
termination of his intent to purchase the vehicle. Should, at the time of termination, the “Kelly
Blue Book Trade in Value” not be published, the parties hereto agree to use the valuation book then
in use by institutions lending on used vehicles.

ARTICLE 5

CHANGE IN CONTROL BENEFITS

     5.1 Change in Control Benefits. If a Change in Control occurs during the
term of this Agreement and, thereafter during the then remaining term of the Agreement, the
Executive’s employment terminates involuntarily but without Cause or if the Executive voluntarily
terminates employment with Good Reason, the Association shall make or cause to be made a lump-sum
payment to the Executive in an amount in cash equal to 2.99 times the Executive’s average annual
compensation. For this purpose, average annual compensation means the Executive’s taxable income
reported by the Association for the five (5) calendar years immediately preceding the calendar year
in which the Change in Control occurs. The payment required under this paragraph is payable no
later than five (5) business days after the Executive’s termination of employment. If the
Executive receives payment under Section 5.1, the Executive shall not be entitled to any additional
severance benefits under Section 4.1 of this Agreement. In addition, the Association shall provide
the Executive and his dependents with the same post-termination insurance coverage provided for in
Section 4.2 of the Agreement.

     5.2 Change in Control Defined. For purposes of this Agreement “Change in
Control” means a change in control as defined in Internal Revenue Section 409A of the Code and
rules, regulations, and guidance of general application thereunder issued by the Department of the
Treasury, including a “change in ownership,” “change in effective control” or “change in ownership
of a substantial portion of assets.” Notwithstanding the foregoing, a Change in Control shall not
occur as a result of a conversion of the Association from mutual to stock form or a reorganization
of the Association to the mutual holding company form of ownership.

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     5.3 Potential Limitation of Benefits Under Certain Circumstances.
Notwithstanding any other provisions of this Agreement, in the event that (x) the aggregate
payments or benefits to be made or afforded to the Executive under this Agreement or otherwise,
which are deemed to be parachute payments as defined in Section 280G of the Code, or any
successor thereof (the “Termination Benefits”), would be deemed to include an “excess parachute
payment” under Section 280G of the Code; and (y) if such Termination Benefits were reduced to an
amount (the “Non-Triggering Amount”), the value of which is one dollar ($1.00) less than an amount
equal to three (3) times the Executive’s “base amount,” as determined in accordance with Section
280G of the Code and the Non-Triggering Amount less the product of the marginal rate of any
applicable state and federal income tax and the Non-Triggering Amount would be greater than the
aggregate value of the Termination Benefits (without such reduction) minus (1) the amount of tax
required to be paid by the Executive thereon by Section 4999 of the Code and further minus (2) the
product of the Termination Benefits and the marginal rate of any applicable state and federal
income tax, then the Termination Benefits shall be reduced to the Non-Triggering Amount. The
allocation of the reduction required hereby among the Termination Benefits shall be determined by
the Executive. Notwithstanding the foregoing, the Association shall not pay the Executive
severance benefits under this Agreement in excess of three (3) times his average annual
compensation (or such other amount that may be permitted by the Office of Thrift Supervision
pursuant to regulation or regulatory guidance). The Association’s independent public accountants
will determine the value of any reduction in the payments and benefits; the Association will pay
for the accountants’ opinion. If the Association and/or the Executive do not agree with the
accountants’ opinion, the Association will pay to the Executive the maximum amount of payments and
benefits pursuant to this Agreement or otherwise, as selected by Executive, that the opinion
indicates have a high probability of not causing any of the payments and benefits to be
non-deductible and subject to the excise tax imposed under Section 4999 of the Code. The
Association may also request, and the Executive has the right to demand that, a ruling from the IRS
as to whether the disputed payments and benefits have such tax consequences. The Association will
promptly prepare and file the request for a ruling from the IRS, but in no event will the
Association make this filing later than thirty (30) days from the date of the accountant’s opinion
referred to above. The request will be subject to the Executive’s approval prior to filing; the
Executive shall not unreasonably withhold his approval. The Association and the Executive agree to
be bound by any ruling received from the IRS and to make appropriate payments to each other to
reflect any IRS rulings, together with interest at the applicable federal rate provided for in
Section 7872(1)(2) of the Code. Nothing contained in this Agreement shall result in a reduction of
any payments or benefits to which the Executive may be entitled upon termination of employment
other than pursuant to this Section 5.3 hereof, or a reduction in the payments and benefits
specified, below zero.

ARTICLE 6

CONFIDENTIALITY AND CREATIVE WORK

     6.1 Non-disclosure. The Executive covenants and agrees not to reveal to any
person, firm, or corporation any confidential information of any nature concerning the Association
or its business, or anything connected therewith. As used in this Article 6 the term “confidential
information” means all of the Association’s and the Association’s affiliates’ confidential and
proprietary information and trade secrets in existence on the date hereof or existing at any time
during the term of this Agreement, including but not limited to:

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     (a) the whole or any portion or phase of any business plans, financial information,
purchasing data, supplier data, accounting data, or other financial information,

     (b) the whole or any portion or phase of any research and development information,
design procedures, algorithms or processes, or other technical information,

     (c) the whole or any portion or phase of any marketing or sales information, sales
records, customer lists, prices, sales projections, or other sales information, and

     (d) trade secrets, as defined from time to time by the laws of Maryland. This
Section 6.1 does not prohibit disclosure required by an order of a court having jurisdiction or a
subpoena from an appropriate governmental agency or disclosure made by the Executive in the
ordinary course of business and within the scope of the Executive’s authority.

     6.2 Return of Materials. The Executive agrees to immediately deliver or
return to the Association upon termination, upon expiration of this Agreement, or as soon
thereafter as possible, all written information and any other similar items furnished by the
Association or prepared by the Executive in connection with the Executive’s services hereunder and
to immediately delete all electronically stored data of the Association maintained on the
Executive’s personal computers and to return all Association-provided computers or communication
devices (i.e., laptop, Blackberry, PDA, etc.). The Executive will retain no copies thereof after
termination of this Agreement or termination of the Executive’s employment.

     6.3 Creative Work. The Executive agrees that all creative work and work
product, including but not limited to all technology, business management tools, processes,
software, patents, trademarks, and copyrights developed by the Executive during the term of this
Agreement, regardless of when or where such work or work product was produced, constitutes work
made for hire, all rights of which are owned by the Association. The Executive hereby assigns to
the Association all rights, title, and interest, whether by way of copyrights, trade secret,
trademark, patent, or otherwise, in all such work or work product, regardless of whether the same
is subject to protection by patent, trademark, or copyright laws.

     6.4 Affiliates’ Confidential Information is Covered; Confidentiality Obligation
Survives Termination. For purposes of this Agreement, the term “affiliate” of the Association
includes any entity that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the Association. The rights and obligations set
forth in this Article 6 shall survive termination of this Agreement.

     6.5 Injunctive Relief. The Executive acknowledges that it is impossible to
measure in money the damages that will accrue to the Association if the Executive fails to observe
the obligations imposed by this Article 6. Accordingly, if the Association institutes an action to
enforce the provisions hereof, the Executive hereby waives the claim or defense that an adequate
remedy at law is available to the Association, and the Executive agrees not to urge in any such
action the claim or defense that an adequate remedy at law exists. The confidentiality and
remedies provisions of this Article 6 shall be in addition to and shall not be deemed to supersede
or restrict, limit, or impair the Association’s rights under applicable state or federal statute or

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regulation dealing with or providing a remedy for the wrongful disclosure, misuse, or
misappropriation of trade secrets or proprietary or confidential information.

ARTICLE 7

COMPETITION AFTER EMPLOYMENT TERMINATION

     7.1 Covenant Not to Solicit Employees. The Executive agrees not to,
directly or indirectly, solicit or employ the services of any officer or employee of the
Association (including an individual who was an officer or employee of the Association during the
one year period following the Executive’s termination) for two years after the Executive’s
employment termination.

     7.2 Covenant Not to Compete.

     (a) The Executive covenants and agrees not to compete directly or indirectly with
the Association for one year after employment termination. For purposes of this Section 7.2:

	 	(1)	 	the term compete means:

	 	(i)	 	providing financial products or services on behalf of any
financial institution for any person residing in the territory,
	 
	 	(ii)	 	assisting (other than through the performance of ministerial
or clerical duties) any financial institution in providing financial
products or services to any person residing in the territory, or
	 
	 	(iii)	 	inducing or attempting to induce any person who was a
customer of the Association at the date of the Executive’s employment
termination to seek financial products or services from another
financial institution.

	 	(2)	 	the words directly or indirectly mean:

	 	(i)	 	acting as a consultant, officer, director, independent
contractor, or employee of any financial institution in competition
with the Association in the territory, or
	 
	 	(ii)	 	communicating to such financial institution the names or
addresses or any financial information concerning any person who was a
customer of the Association when the Executive’s employment terminated.

	 	(3)	 	the term customer means any person to whom the Association is
providing financial products or services on the date of the Executive’s
employment termination or within one year thereafter.
	 
	 	(4)	 	the term financial institution means any bank, savings association, or
bank or savings association holding company, or any other institution, the

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	 	 	 	business of which is engaging in activities that are financial in nature or
incidental to such financial activities as described in Section 4(k) of the
Bank Holding Company Act of 1956, other than the Association or any of its
affiliated corporations.

	 	(5)	 	financial product or service means any product or service that a
financial institution or a financial holding company could offer by engaging in
any activity that is financial in nature or incidental to such a financial
activity under Section 4(k) of the Bank Holding Company Act of 1956 and that is
offered by the Association or an affiliate on the date of the Executive’s
employment termination, including but not limited to banking activities and
activities that are closely related and a proper incident to banking.
	 
	 	(6)	 	the term person means any individual or individuals, corporation,
partnership, fiduciary or association.
	 
	 	(7)	 	the term territory means the area within a 25-mile radius of any
office of the Association at the date of the Executive’s employment
termination.

     (b) If any provision of this section or any word, phrase, clause, sentence or other
portion thereof (including, without limitation, the geographical and temporal restrictions
contained therein) is held to be unenforceable or invalid for any reason, the unenforceable or
invalid provision or portion shall be modified or deleted so that the provisions hereof, as
modified, are legal and enforceable to the fullest extent permitted under applicable law.

     (c) The Executive acknowledges that the Association’s willingness to enter into this
Agreement and to make the payments contemplated by Articles 3 and 4 of this Agreement is
conditioned on the Executive’s acceptance of the covenants set forth in Articles 6 and 7 of this
Agreement and that the Association would not have entered into this Agreement without such
covenants in force.

     7.3 Injunctive and Other Relief. Because of the unique character of the
services to be rendered by the Executive hereunder, the Executive understands that the Association
would not have an adequate remedy at law for the material breach or threatened breach by the
Executive of any one or more of the Executive’s covenants in this Article 7. Accordingly, the
Executive agrees that the Association’s remedies for a breach of this Article 7 include, but are
not limited to, (x) forfeiture of any money representing accrued salary, contingent payments, or
other fringe benefits (including any amount payable pursuant to Article 4) due and payable to the
Executive during the period of any breach by Executive, and (y) a suit in equity by the Association
to enjoin the Executive from the breach or threatened breach of such covenants. The Executive
hereby waives the claim or defense that an adequate remedy at law is available to the Association
and the Executive agrees not to urge in any such action the claim or defense that an adequate
remedy at law exists. Nothing herein shall be construed to prohibit the Association from pursuing
any other or additional remedies for the breach or threatened breach.

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     7.4 Article 7 Survives Termination But Is Void After a Change in Control.
The rights and obligations set forth in this Article 7 shall survive termination of this Agreement.
However, Article 7 shall become null and void effective immediately upon a Change in Control.

ARTICLE 8

MISCELLANEOUS

     8.1 Successors and Assigns.

     (a) This Agreement shall be binding upon the Association and any successor to the
Association, including any persons acquiring directly or indirectly all or substantially all of the
business or assets of the Association by purchase, merger, consolidation, reorganization, or
otherwise. But this Agreement and the Association’s obligations under this Agreement are not
otherwise assignable, transferable, or delegable by the Association. By agreement in form and
substance satisfactory to the Executive, the Association shall require any successor to all or
substantially all of the business or assets of the Association expressly to assume and agree to
perform this Agreement in the same manner and to the same extent the Association would be required
to perform had no succession occurred.

     (b) This Agreement shall inure to the benefit of and be enforceable by the
Executive’s personal or legal representatives, executors, administrators, successors, heirs,
distributees, and legatees.

     (c) Without written consent of the other parties, no party shall assign, transfer,
or delegate this Agreement or any rights or obligations under this Agreement, except as expressly
provided herein. Without limiting the generality or effect of the foregoing, the Executive’s right
to receive payments hereunder is not assignable or transferable, whether by pledge, creation of a
security interest, or otherwise, except for a transfer by the Executive’s will or by the laws of
descent and distribution. If the Executive attempts an assignment or transfer that is contrary to
this Section 8.1, the Association shall have no liability to pay any amount to the assignee or
transferee.

     8.2 Governing Law, Jurisdiction and Forum. This Agreement shall be
construed under and governed by the internal laws of the State of Maryland, without giving effect
to any conflict of laws provision or rule that would cause the application of the laws of any
jurisdiction other than Maryland. By entering into this Agreement, the Executive acknowledges that
the Executive is subject to the jurisdiction of both the federal and state courts in Maryland.

     8.3 Entire Agreement. This Agreement sets forth the entire agreement of the
parties concerning the employment of the Executive by the Association. Any oral or written
statements, representations, agreements, or understandings made or entered into prior to or
contemporaneously with the execution of this Agreement are hereby rescinded, revoked, and rendered
null and void by the parties.

     8.4 Notices. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or
mailed, certified or registered mail, return receipt requested, with postage prepaid. Unless
otherwise

12

 

changed by notice, notice shall be properly addressed to the Executive if addressed to
the address of the Executive on the books and records of the Association at the time of the
delivery of such notice, and properly addressed to the Association if addressed to the board of
directors of the Association.

     8.5 Severability. If there is a conflict between any provision of this
Agreement and any statute, regulation, or judicial precedent, the latter shall prevail, but the
affected provisions of this Agreement shall be curtailed and limited solely to the extent necessary
to bring them within the requirements of law. If any provisions of this Agreement is held by a
court of competent jurisdiction to be indefinite, invalid, void or voidable, or otherwise
unenforceable, the remainder of this Agreement shall continue in full force and effect unless that
would clearly be contrary to the intentions of the parties or would result in an injustice.

     8.6 Captions and Counterparts. The captions in this Agreement are solely
for convenience. The captions do not define, limit, or describe the scope or intent of this
Agreement. This Agreement may be executed in several counterparts, each of which shall be deemed
to be an original but all of which together shall constitute one and the same instrument.

     8.7 No Duty to Mitigate. The Executive shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking other employment. Moreover,
provided the Executive is not in breach of any obligation under Articles 6 and 7 of this Agreement,
the amount of any payment provided for in this Agreement shall not be reduced by any compensation
earned or benefits provided as the result of employment of the Executive or as a result of the
Executive being self-employed after employment termination.

     8.8 Amendment and Waiver. This Agreement may not be amended, released,
discharged, abandoned, changed, or modified in any manner, except by an instrument in writing
signed by each of the parties hereto. The failure of any party hereto to enforce at any time any
of the provisions of this Agreement shall not be construed to be a waiver of any such provision,
nor affect the validity of this Agreement or any part thereof or the right of any party thereafter
to enforce each and every such provision. No waiver or any breach of this Agreement shall be held
to be a waiver of any other or subsequent breach.

     8.9 Compliance with Internal Revenue Code Section 409A.

     (a) The Executive will be deemed to have a termination of employment for purposes of
determining the timing of any payments that are classified as deferred compensation only upon a
“separation from service” within the meaning of Section 409A.

     (b) If at the time of the Executive’s separation from service, (i) the Executive is
a “specified employee” (within the meaning of Section 409A and using the methodology selected by
the Association) and (ii) the Association makes a good faith determination that an amount payable
or the benefits to be provided hereunder constitutes deferred compensation (within the meaning of
Section 409A), the payment of which is required to be delayed pursuant to the six-month delay rule
of Section 409A in order to avoid taxes or penalties under Section 409A, then the Association will
not pay the entire amount on the otherwise scheduled payment date but will instead pay on the
scheduled payment date the maximum amount permissible in order to comply

13

 

with Section 409A (i.e., any amount that satisfies an exception under the Section 409A rules from being categorized as
deferred compensation) and will pay the remaining amount (if any) in a lump sum on the first
business day after such six month period.

     (c) To the extent the Executive would be subject to an additional 20% tax imposed on
certain deferred compensation arrangements pursuant to Section 409A as a result of any provision of
this Agreement, such provision shall be deemed amended to the minimum extent necessary to avoid
application of such tax and the parties shall promptly execute any amendment reasonably necessary
to implement this Section 8.9. The Executive and the Association agree to cooperate to make such
amendment to the terms of this Agreement as may be necessary to avoid the imposition of penalties
and taxes under Section 409A; provided, however, that the Executive agrees that any such amendment
shall provide the Executive with economically equivalent payments and benefits, and the Executive
agrees that any such amendment will not materially increase the cost to, or liability of, the
Association with respect to any payment.

     (d) For purposes of this Agreement, Section 409A shall refer to Section 409A of the
Internal Revenue Code of 1986, as amended, and the Treasury regulations and any other authoritative
guidance issued thereunder.

     8.10 Required Provisions. In the event any of the foregoing provisions of
this Agreement conflict with the terms of this Section 8.10, this Section 8.10 shall prevail.

     (a) The Association’s Board of Directors may terminate the Executive’s employment at
any time, but any termination by the Association, other than termination for Cause, shall not
prejudice the Executive’s right to compensation or other benefits under this Agreement. The
Executive shall not have the right to receive compensation or other benefits for any period after
termination for Cause as defined in Section 3.2 of this Agreement.

     (b) If the 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)
or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(e)(3) or (g)(1), the
Association’s obligations under this Agreement 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 the Executive all or part of the compensation withheld while its
contract obligations were suspended; and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.

     (c) If the 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) or 8(g)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1818(e)(4) or (g)(1), 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) of the Federal
Deposit Insurance Act, 12 U.S.C. Section 1813(x)(1), all obligations under this Agreement shall
terminate as of the date of default, but this paragraph shall not affect any vested rights of the
contracting parties.

14

 

     (e) All obligations under this Agreement shall terminate, except to the extent
determined that continuation of the Agreement is necessary for the continued operation of the
institution: (i) by the Director of the Office of Thrift Supervision (OTS), or his designee, at the
time the Federal Deposit Insurance Corporation (FDIC) enters into an agreement to provide
assistance to or on behalf of the Association under the authority contained in Section 13(c) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1823(c), or (ii) by the Director of the OTS (or
his designee) at the time the Director (or his designee) approves a supervisory merger to resolve
problems related to the operations of the Association or when the Association is determined by the
Director 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) Any payments made to the Executive pursuant to this Agreement, or otherwise, 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.

     IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date first
written above.

	 	 	 	 	 
	 	FRATERNITY FEDERAL SAVINGS AND LOAN
ASSOCIATION

 	 
	 	/s/ William D. Norton
 	 
	 	For the Board of Directors 	 
	 	 	 
	 

	 	 	 	 	 
	 	 	 
	 	                                                     /s/ Thomas K. Sterner
 	 
	 	Executive 	 
	 	 	 
	 

15exv10w5

Exhibit 10.5

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of September 15, 2009, by and
among FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION, a federally-chartered savings and loan (the
“Association”), and RICHARD C. SCHULTZE (the “Executive”).

     WHEREAS, the Executive serves in a position of substantial responsibility with the
Association; and

     WHEREAS, the Association wishes to set forth the terms of the Executive’s continued employment
in these positions; and

     WHEREAS, the Executive is willing and desires to serve in this position with the Association.

     NOW THEREFORE, in consideration of these premises, the mutual covenants contained herein, and
other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows.

ARTICLE 1

EMPLOYMENT

     1.1 Employment. The Association hereby employs the Executive to serve as President
and Chief Operating Officer of the Association according to the terms and conditions of this
Agreement and for the period stated in Section 1.3 of this Agreement. The Executive hereby accepts
employment according to the terms and conditions of this Agreement and for the period stated in
Section 1.3 of this Agreement.

     1.2 Duties. As President, the Executive shall report directly to the board of
directors of the Association. The Executive shall serve the Association faithfully, diligently,
competently, and to the best of the Executive’s ability. It is contemplated by this Agreement that
the Executive’s duties shall be comparable to those presently undertaken by the Executive. The
duties of employment shall include such additional executive duties on behalf of the Association
and its operations of a character in keeping with the Executive’s position as may, from time to
time, be assigned to the Executive by the Board of Directors of the Association. The Executive
shall exclusively devote full working time, energy, and attention to the business of the
Association and to the promotion of the interests of the Association throughout the term of this
Agreement. Without the prior written consent of the board of directors of the Association, during
the term of this Agreement the Executive shall not render services to or for any person, firm,
corporation, or other entity or organization in exchange for compensation, regardless of the form
in which the compensation is paid and regardless of whether it is paid directly or indirectly to
the Executive. Nothing in this Section 1.2 shall prevent the Executive from managing personal
investments and affairs, provided that doing so does not interfere with the proper performance of
the Executive’s duties and responsibilities under this Agreement.

     1.3 Term.

     (a) The term of this Agreement shall include: (i) the initial term, consisting of the period
commencing on the date of this Agreement (the “Effective Date”) and ending on the third anniversary
of the Effective Date, plus (ii) any and all extensions of the initial term made pursuant to this
Section 1.3.

     (b) Commencing on the first anniversary of the Effective Date and continuing on each
anniversary of the Effective Date thereafter, the disinterested members of the board of directors
may

 

 

extend the Agreement term for an additional year, so that the remaining term of the Agreement
again becomes thirty-six (36) months, unless the Executive elects not to extend the term of this
Agreement by giving proper written notice. The board of directors of the Association will review
the Agreement and Executive’s performance annually for purposes of determining whether to extend
the Agreement term and will include the rationale and results of its review in the minutes of the
meetings. The board of directors will notify the Executive as soon as possible after each annual
review whether it has determined to extend the Agreement.

ARTICLE 2

COMPENSATION AND BENEFITS

     2.1 Base Salary. In consideration of the Executive’s performance of the obligations
under this Agreement, the Association shall pay or cause to be paid to the Executive a salary at
the annual rate of $193,743.90, payable according to the regular payroll practices of the
Association. The Executive’s salary shall be subject to annual review. The Executive’s salary, as
the same may be modified from time to time, is referred to in this Agreement as the “Base Salary.”
All compensation under this Agreement shall be subject to customary income tax withholding and such
other employment taxes as are imposed by law.

     2.2 Benefit Plans and Perquisites. For as long as the Executive is employed by the
Association, the Executive shall be eligible (x) to participate in any and all officer or employee
compensation, incentive compensation and benefit plans in effect from time to time, including
without limitation plans providing retirement, medical, dental, disability, and group life benefits
and including incentive or bonus plans existing on the date of this Agreement or adopted after the
date of this Agreement, provided that the Executive satisfies the eligibility requirements for any
the plans or benefits, and (y) to receive any and all other fringe and other benefits provided from
time to time, including the specific items described in (a)-(c) below.

     (a) Reimbursement of business expenses. The Executive shall be entitled to
reimbursement for all reasonable business expenses incurred while performing his obligations under
this Agreement, including but not limited to all reasonable business travel and entertainment
expenses incurred while acting at the request of or in the service of the Association and
reasonable expenses for attendance at annual and other periodic meetings of trade associations.
Expenses will be reimbursed if they are submitted in accordance with the Association’s policies and
procedures.

     (b) Facilities. The Association will furnish the Executive with the working
facilities and staff customary for executive officers with the comparable titles and duties of the
Executive as set forth in Sections 1.1 and 1.2 of this Agreement and as are necessary for the
Executive to perform his duties. The location of such facilities and staff shall be at the
principal administrative offices of the Association, or at such other site or sites customary for
such offices and as agreed to by the parties.

     (c) Automobile and Associated Costs. The Executive shall, during the term hereof, be
entitled to the use of an Association owned vehicle. The make and model of the vehicle to be
determined, from time to time, by the board of directors of the Association. Further, the
Association shall furnish to the Executive a credit card to be used by the Executive to purchase
fuel and oil for the operation of the vehicle and repairs to the vehicle. It shall be the
responsibility of the Executive to maintain all records appropriate to Internal Revenue rules and
regulations pertaining to the use of employer-owned vehicles and, should the use of the
employer-owned vehicle result in additional tax consequences to the Executive, the tax shall be the
responsibility of the Executive to pay.

2

 

     2.3 Vacation; Leave. The Executive shall be entitled to sick leave and paid annual
vacation in accordance with policies established from time to time by the Association. In addition
to paid vacations and other leave, the board of directors may grant the Executive a leave or leaves
of absence, with or without pay, at such time or times and upon such terms and conditions as the
board of directors may determine. Vacation time must be taken during the calendar year in which it
is accrued and may be carried over into succeeding calendar years or paid out to the Executive in
accordance with the policies of the Association. The Executive shall take his vacation at a
reasonable time or times taking into consideration the needs of the Association.

     2.4 Insurance. The Association shall maintain or cause to be maintained liability
insurance covering the Executive throughout the term of this Agreement.

     2.5 Supplemental Executive Retirement Plan. The Association has established for the
benefit of the Executive and other employees under date of June 29, 2004, a “Trust Account” in the
form customarily referred to as the “Rabbi Trust”. This Trust will be funded by the Association
placing into the Trust Account for the benefit of the Executive, the sum of $812.50 each and every
month during the term of this Agreement. Executive’s right to the principal and the earnings
thereon shall be one-hundred percent (100%) vested in employee at all times. The Executive’s
interest in this benefit shall include all contributions (and earnings) made by the Association
prior to the effective date of this Agreement (that is, pursuant to the terms of any prior
arrangement).

     Notwithstanding any other provisions of this Agreement to the contrary, following a separation
from service (as such term is defined for purpose of Section 409A of the Code) for any reason,
including death, the Association shall commence the payment of benefits set forth in this Section
2.5 on the 90th day following the date the separation from service occurs. The payment
of all principal and accumulated income allocated to the Executive shall be paid over a fifteen
(15) year period on a weekly basis. The weekly amount to be paid shall be determined by dividing
the outstanding account balance as of the immediately preceding weekly pay date by the number of
weeks remaining in the 15-year period. Following the occurrence of a Change in Control described
in Section 5.2, all amounts due to or for the benefit of the Executive shall be paid in a lump-sum
cash payment on the 90th day following the Change in Control.

     The substantive terms of this Section 2.5 are consistent with the comparable terms under the
employment agreement between the Executive and the Association, dated July 20, 2004, as amended
December 13, 2005, and as amended December 16, 2008, and no changes have been made under this
Agreement with regard to the timing or form of the payment of the benefit.

     Notwithstanding any provision of this Agreement to the contrary, if Executive is a “specified
employee” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”), then benefit distributions under this Section 2.5 that are made upon separation from
service may not commence earlier than six (6) months after the date of such separation from
service. Therefore, in the event this paragraph is applicable to the Executive, any distribution
under this Section 2.5 which would otherwise be paid to the Executive within the first six months
following the separation from service shall be accumulated and paid to the Executive in a lump sum
on the first business day of the seventh month following the separation from service. All
subsequent distributions shall be paid in the manner specified.

3

 

ARTICLE 3

EMPLOYMENT TERMINATION

     3.1 Termination Because of Death or Disability.

     (a) Death. The Executive’s employment shall terminate automatically at the
Executive’s death. If the Executive dies in active service to the Association, the Executive’s
estate shall receive any sums due to the Executive as Base Salary and reimbursement of expenses
through the end of the month in which death occurs.

     (b) Disability. By delivery of written notice thirty (30) days in advance to the
Executive, the Association may terminate the Executive’s employment due to the Executive’s
Disability (as defined below). In the event that the Executive’s employment hereunder terminates
due to his Disability, no termination benefits shall be payable to or in respect of the Executive.
For purposes of this Agreement, “Disability” shall mean a physical or mental condition due to which
the Executive shall have been absent from his duties on a full-time basis for a twelve (12)
consecutive month period. The Executive’s employment shall be deemed to have terminated as a
result of Disability on the date provided in the notice of termination provided to the Executive by
the Association. The Executive shall not be considered Disabled, however, if the Executive has
returned to employment on a full-time basis within thirty (30) days of receiving such notice.

     3.2 Involuntary Termination with Cause. The Association may terminate the Executive’s
employment for Cause. If the Executive’s employment terminates for Cause, the Executive shall
receive the Base Salary through the date on which termination becomes effective and reimbursement
of expenses to which the Executive is entitled when termination becomes effective. The Executive
shall not be deemed to have been terminated for Cause under this Agreement unless and until there
is delivered to the Executive a copy of a resolution adopted at a meeting of the board of directors
called and held for the purpose, which resolution shall (x) contain findings that the Executive has
committed an act constituting Cause, and (y) specify the particulars thereof. The resolution of
the board of directors shall be deemed to have been duly adopted if and only if it is adopted by
the affirmative vote of a majority of the directors of the Association then in office, excluding
the Executive. Notice of the meeting and the proposed termination for Cause shall be given to the
Executive a reasonable time before the meeting of the board of directors. The Executive and the
Executive’s counsel (if the Executive chooses to have counsel present) shall have a reasonable
opportunity to be heard by the board of directors at the meeting. For purposes of this Agreement
“Cause” means any of the following:

	 	(1)	 	Personal dishonesty;
	 
	 	(2)	 	Incompetence;
	 
	 	(3)	 	Willful misconduct;
	 
	 	(4)	 	Breach of fiduciary duty involving personal profit;
	 
	 	(5)	 	Intentional failure to perform stated duties;
	 
	 	(6)	 	Willful violation of any law, rule or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order; or
	 
	 	(7)	 	Material breach of any provision of this Agreement.

     3.3 Voluntary Termination by the Executive Without Good Reason. If the Executive
terminates employment without Good Reason, the Executive shall receive the Base Salary and expense
reimbursement to which the Executive is entitled through the date on which termination becomes
effective.

4

 

     3.4 Involuntary Termination Without Cause and Voluntary Termination with Good Reason.
With written notice to the Executive thirty (30) days in advance, the Association may terminate the
Executive’s employment without Cause. Termination shall take effect at the end of the thirty (30)
day period. With advance written notice to the Association as provided in clause (y), the
Executive may terminate employment for Good Reason. If the Executive’s employment terminates
involuntarily without Cause or voluntarily but with Good Reason, the Executive shall be entitled to
the benefits specified in Article 4 of this Agreement. For purposes of this Agreement a voluntary
termination by the Executive shall be considered a voluntary termination with Good Reason if the
conditions stated in both clauses (x) and (y) of this Section 3.4 are satisfied:

     (x) a voluntary termination by the Executive shall be considered a voluntary termination with
Good Reason if any of the following occur without the Executive’s written consent, and the term
Good Reason shall mean the occurrence of any of the following without the Executive’s written
consent:

	 	(1)	 	a material diminution of the Executive’s Base Salary (unless
the reduction is part of a company-wide or executive-level restructuring of
compensation),
	 
	 	(2)	 	a material diminution of the Executive’s authority, duties, or
responsibilities, or
	 
	 	(3)	 	a change in the geographic location at which the Executive must
perform services for the Association by more than 30 miles from such location
at the effective date.

     (y) the Executive must give notice to the Association of the existence of one or more of the
conditions described in clause (x) within sixty (60) days after the initial existence of the
condition, and the Association shall have thirty (30) days thereafter to remedy the condition. In
addition, the Executive’s voluntary termination because of the existence of one or more of the
conditions described in clause (x) must occur within six (6) months after the initial existence of
the condition.

ARTICLE 4

SEVERANCE COMPENSATION

     4.1 Cash Severance after Termination Without Cause or Termination for Good Reason.

     (a) Subject to the possibility that cash severance after employment termination might be
delayed under Section 4.1(b), if the Executive’s employment terminates involuntarily but without
Cause or if the Executive voluntarily terminates employment with Good Reason, the Executive shall
for thirty-six (36) months and in accordance with the Association’s regular pay practices continue
to receive the Base Salary in effect at termination of employment. However, the Association and
the Executive acknowledge and agree that the compensation and benefits under this Section 4.1 shall
not be payable if compensation and benefits are payable or shall have been paid to the Executive
under Article 5 of this Agreement.

     (b) If when employment termination occurs the Executive is a “specified employee” within the
meaning of Section 409A of the Code, if the cash severance payment under Section 4.1(a) would be
considered deferred compensation under Section 409A of the Code, and finally if an exemption from
the six-month delay requirement of Section 409A(a)(2)(B)(i) of the Code is not available, the
Executive’s continued Base Salary under Section 4.1(a) for the first six months after employment
termination shall be paid to the Executive in a single lump sum without interest on the first
business day of the seventh (7th) month after the month in which the Executive’s
employment terminates.

5

 

     4.2 Post-Termination Insurance Coverage.

     (a) If the Executive’s employment terminates involuntarily but without Cause or voluntarily
but with Good Reason, the Association shall continue or cause to be continued at the Association’s
expense health and life insurance benefits for the Executive and any of his dependents covered at
the time of his termination. The health and life insurance benefits shall continue until the first
to occur of (w) the Executive’s return to employment with the Association or another employer, (x)
the Executive’s attainment of age 65, (y) the Executive’s (or dependent’s) death, or (z) the end of
the thirty-six (36) month period following his termination of employment.

     (b) If (x) under the terms of the applicable policy or policies for the insurance benefits
specified in section 4.2(a) it is not possible to continue coverage for the Executive and his
dependents, or (y) when employment termination occurs the Executive is a “specified employee”
within the meaning of Section 409A of the Code, if any of the continued insurance coverage benefits
specified in Section 4.2(a) would be considered deferred compensation under Section 409A of the
Code, and finally, if an exemption from the six-month delay requirement of Section 409A(a)(2)(B)(i)
of the Code is not available for that particular insurance benefit, the Association shall pay to
the Executive in a single lump sum an amount in cash equal to the present value of the
Association’s projected cost to maintain that particular insurance benefit (and associated income
tax gross-up benefit, if applicable) had the Executive’s employment not terminated, assuming
continued coverage for 36 months. The lump-sum payment shall be made thirty (30) days after
employment termination or, if Section 4.1(b) applies, on the first business day of the seventh
(7th) month after the month in which the Executive’s employment terminates.

     4.3 In addition, the Executive shall have the right to purchase from the Association the
Association owned vehicle that had been used by him at the then “Kelly Blue Book Trade in Value”
valuation, provided the Executive notifies Association within seven (7) days of the termination of
his intent to purchase the vehicle. Should, at the time of termination, the “Kelly Blue Book Trade
in Value” not be published, the parties hereto agree to use the valuation book then in use by
institutions lending on used vehicles.

ARTICLE 5

CHANGE IN CONTROL BENEFITS

     5.1 Change in Control Benefits. If a Change in Control occurs during the term of this
Agreement and, thereafter during the then remaining term of the Agreement, the Executive’s
employment terminates involuntarily but without Cause or if the Executive voluntarily terminates
employment with Good Reason, the Association shall make or cause to be made a lump-sum payment to
the Executive in an amount in cash equal to 2.99 times the Executive’s average annual compensation.
For this purpose, average annual compensation means the Executive’s taxable income reported by the
Association for the five (5) calendar years immediately preceding the calendar year in which the
Change in Control occurs. The payment required under this paragraph is payable no later than five
(5) business days after the Executive’s termination of employment. If the Executive receives
payment under Section 5.1, the Executive shall not be entitled to any additional severance benefits
under Section 4.1 of this Agreement. In addition, the Association shall provide the Executive and
his dependents with the same post-termination insurance coverage provided for in Section 4.2 of the
Agreement.

     5.2 Change in Control Defined. For purposes of this Agreement “Change in Control”
means a change in control as defined in Internal Revenue Section 409A of the Code and rules,
regulations, and guidance of general application thereunder issued by the Department of the
Treasury, including a “change in ownership,” “change in effective control” or “change in ownership
of a substantial portion of assets.” Notwithstanding the foregoing, a Change in Control shall not
occur as a result of a

6

 

conversion of the Association from mutual to stock form or a reorganization of the Association
to the mutual holding company form of ownership.

     5.3 Potential Limitation of Benefits Under Certain Circumstances. Notwithstanding any
other provisions of this Agreement, in the event that (x) the aggregate payments or benefits to be
made or afforded to the Executive under this Agreement or otherwise, which are deemed to be
parachute payments as defined in Section 280G of the Code, or any successor thereof (the
“Termination Benefits”), would be deemed to include an “excess parachute payment” under Section
280G of the Code; and (y) if such Termination Benefits were reduced to an amount (the
“Non-Triggering Amount”), the value of which is one dollar ($1.00) less than an amount equal to
three (3) times the Executive’s “base amount,” as determined in accordance with Section 280G of the
Code and the Non-Triggering Amount less the product of the marginal rate of any applicable state
and federal income tax and the Non-Triggering Amount would be greater than the aggregate value of
the Termination Benefits (without such reduction) minus (1) the amount of tax required to be paid
by the Executive thereon by Section 4999 of the Code and further minus (2) the product of the
Termination Benefits and the marginal rate of any applicable state and federal income tax, then the
Termination Benefits shall be reduced to the Non-Triggering Amount. The allocation of the reduction
required hereby among the Termination Benefits shall be determined by the Executive.
Notwithstanding the foregoing, the Association shall not pay the Executive severance benefits under
this Agreement in excess of three (3) times his average annual compensation (or such other amount
that may be permitted by the Office of Thrift Supervision pursuant to regulation or regulatory
guidance). The Association’s independent public accountants will determine the value of any
reduction in the payments and benefits; the Association will pay for the accountants’ opinion. If
the Association and/or the Executive do not agree with the accountants’ opinion, the Association
will pay to the Executive the maximum amount of payments and benefits pursuant to this Agreement or
otherwise, as selected by Executive, that the opinion indicates have a high probability of not
causing any of the payments and benefits to be non-deductible and subject to the excise tax imposed
under Section 4999 of the Code. The Association may also request, and the Executive has the right
to demand that, a ruling from the IRS as to whether the disputed payments and benefits have such
tax consequences. The Association will promptly prepare and file the request for a ruling from the
IRS, but in no event will the Association make this filing later than thirty (30) days from the
date of the accountant’s opinion referred to above. The request will be subject to the Executive’s
approval prior to filing; the Executive shall not unreasonably withhold his approval. The
Association and the Executive agree to be bound by any ruling received from the IRS and to make
appropriate payments to each other to reflect any IRS rulings, together with interest at the
applicable federal rate provided for in Section 7872(0(2) of the Code. Nothing contained in this
Agreement shall result in a reduction of any payments or benefits to which the Executive may be
entitled upon termination of employment other than pursuant to this Section 5.3 hereof, or a
reduction in the payments and benefits specified, below zero.

ARTICLE 6

CONFIDENTIALITY AND CREATIVE WORK

     6.1 Non-disclosure. The Executive covenants and agrees not to reveal to any person,
firm, or corporation any confidential information of any nature concerning the Association or its
business, or anything connected therewith. As used in this Article 6 the term “confidential
information” means all of the Association’s and the Association’s affiliates’ confidential and
proprietary information and trade secrets in existence on the date hereof or existing at any time
during the term of this Agreement, including but not limited to:

     (a) the whole or any portion or phase of any business plans, financial information, purchasing
data, supplier data, accounting data, or other financial information,

7

 

     (b) the whole or any portion or phase of any research and development information, design
procedures, algorithms or processes, or other technical information,

     (c) the whole or any portion or phase of any marketing or sales information, sales records,
customer lists, prices, sales projections, or other sales information, and

     (d) trade secrets, as defined from time to time by the laws of Maryland. This Section 6.1
does not prohibit disclosure required by an order of a court having jurisdiction or a subpoena from
an appropriate governmental agency or disclosure made by the Executive in the ordinary course of
business and within the scope of the Executive’s authority.

     6.2 Return of Materials. The Executive agrees to immediately deliver or return to the
Association upon termination, upon expiration of this Agreement, or as soon thereafter as possible,
all written information and any other similar items furnished by the Association or prepared by the
Executive in connection with the Executive’s services hereunder and to immediately delete all
electronically stored data of the Association maintained on the Executive’s personal computers and
to return all Association-provided computers or communication devices (i.e., laptop, Blackberry,
PDA, etc.). The Executive will retain no copies thereof after termination of this Agreement or
termination of the Executive’s employment.

     6.3 Creative Work. The Executive agrees that all creative work and work product,
including but not limited to all technology, business management tools, processes, software,
patents, trademarks, and copyrights developed by the Executive during the term of this Agreement,
regardless of when or where such work or work product was produced, constitutes work made for hire,
all rights of which are owned by the Association. The Executive hereby assigns to the Association
all rights, title, and interest, whether by way of copyrights, trade secret, trademark, patent, or
otherwise, in all such work or work product, regardless of whether the same is subject to
protection by patent, trademark, or copyright laws.

     6.4 Affiliates’ Confidential Information is Covered; Confidentiality Obligation Survives
Termination. For purposes of this Agreement, the term “affiliate” of the Association includes
any entity that directly, or indirectly through one or more intermediaries, controls, is controlled
by, or is under common control with the Association. The rights and obligations set forth in this
Article 6 shall survive termination of this Agreement.

     6.5 Injunctive Relief. The Executive acknowledges that it is impossible to measure in
money the damages that will accrue to the Association if the Executive fails to observe the
obligations imposed by this Article 6. Accordingly, if the Association institutes an action to
enforce the provisions hereof, the Executive hereby waives the claim or defense that an adequate
remedy at law is available to the Association, and the Executive agrees not to urge in any such
action the claim or defense that an adequate remedy at law exists. The confidentiality and
remedies provisions of this Article 6 shall be in addition to and shall not be deemed to supersede
or restrict, limit, or impair the Association’s rights under applicable state or federal statute or
regulation dealing with or providing a remedy for the wrongful disclosure, misuse, or
misappropriation of trade secrets or proprietary or confidential information.

ARTICLE 7

COMPETITION AFTER EMPLOYMENT TERMINATION

     7.1 Covenant Not to Solicit Employees. The Executive agrees not to, directly or
indirectly, solicit or employ the services of any officer or employee of the Association (including
an

8

 

individual who was an officer or employee of the Association during the one year period
following the Executive’s termination) for two years after the Executive’s employment termination.

     7.2 Covenant Not to Compete.

     (a) The Executive covenants and agrees not to compete directly or indirectly with the
Association for one year after employment termination. For purposes of this Section 7.2:

	 	(1)	 	the term compete means:

	 	(i)	 	providing financial products or services on
behalf of any financial institution for any person residing in the
territory,
	 
	 	(ii)	 	assisting (other than through the performance
of ministerial or clerical duties) any financial institution in
providing financial products or services to any person residing in the
territory, or
	 
	 	(iii)	 	inducing or attempting to induce any person
who was a customer of the Association at the date of the Executive’s
employment termination to seek financial products or services from
another financial institution.

	 	(2)	 	the words directly or indirectly mean:

	 	(i)	 	acting as a consultant, officer, director,
independent contractor, or employee of any financial institution in
competition with the Association in the territory, or
	 
	 	(ii)	 	communicating to such financial institution the
names or addresses or any financial information concerning any person
who was a customer of the Association when the Executive’s employment
terminated.

	 	(3)	 	the term customer means any person to whom the Association is
providing financial products or services on the date of the Executive’s
employment termination or within one year thereafter.
	 
	 	(4)	 	the term financial institution means any bank, savings
association, or bank or savings association holding company, or any other
institution, the business of which is engaging in activities that are financial
in nature or incidental to such financial activities as described in Section
4(k) of the Bank Holding Company Act of 1956, other than the Association or any
of its affiliated corporations.
	 
	 	(5)	 	financial product or service means any product or service that
a financial institution or a financial holding company could offer by engaging
in any activity that is financial in nature or incidental to such a financial
activity under Section 4(k) of the Bank Holding Company Act of 1956 and that is
offered by the Association or an affiliate on the date of the Executive’s
employment termination, including but not limited to banking activities and
activities that are closely related and a proper incident to banking.
	 
	 	(6)	 	the term person means any individual or individuals,
corporation, partnership, fiduciary or association.

9

 

	 	(7)	 	the term territory means the area within a 25-mile radius of
any office of the Association at the date of the Executive’s employment
termination.

     (b) If any provision of this section or any word, phrase, clause, sentence or other portion
thereof (including, without limitation, the geographical and temporal restrictions contained
therein) is held to be unenforceable or invalid for any reason, the unenforceable or invalid
provision or portion shall be modified or deleted so that the provisions hereof, as modified, are
legal and enforceable to the fullest extent permitted under applicable law.

     (c) The Executive acknowledges that the Association’s willingness to enter into this Agreement
and to make the payments contemplated by Articles 3 and 4 of this Agreement is conditioned on the
Executive’s acceptance of the covenants set forth in Articles 6 and 7 of this Agreement and that
the Association would not have entered into this Agreement without such covenants in force.

     7.3 Injunctive and Other Relief. Because of the unique character of the services to
be rendered by the Executive hereunder, the Executive understands that the Association would not
have an adequate remedy at law for the material breach or threatened breach by the Executive of any
one or more of the Executive’s covenants in this Article 7. Accordingly, the Executive agrees that
the Association’s remedies for a breach of this Article 7 include, but are not limited to, (x)
forfeiture of any money representing accrued salary, contingent payments, or other fringe benefits
(including any amount payable pursuant to Article 4) due and payable to the Executive during the
period of any breach by Executive, and (y) a suit in equity by the Association to enjoin the
Executive from the breach or threatened breach of such covenants. The Executive hereby waives the
claim or defense that an adequate remedy at law is available to the Association and the Executive
agrees not to urge in any such action the claim or defense that an adequate remedy at law exists.
Nothing herein shall be construed to prohibit the Association from pursuing any other or additional
remedies for the breach or threatened breach.

     7.4 Article 7 Survives Termination But Is Void After a Change in Control. The rights
and obligations set forth in this Article 7 shall survive termination of this Agreement. However,
Article 7 shall become null and void effective immediately upon a Change in Control.

ARTICLE 8

MISCELLANEOUS

     8.1 Successors and Assigns.

     (a) This Agreement shall be binding upon the Association and any successor to the Association,
including any persons acquiring directly or indirectly all or substantially all of the business or
assets of the Association by purchase, merger, consolidation, reorganization, or otherwise. But
this Agreement and the Association’s obligations under this Agreement are not otherwise assignable,
transferable, or delegable by the Association. By agreement in form and substance satisfactory to
the Executive, the Association shall require any successor to all or substantially all of the
business or assets of the Association expressly to assume and agree to perform this Agreement in
the same manner and to the same extent the Association would be required to perform had no
succession occurred.

     (b) This Agreement shall inure to the benefit of and be enforceable by the Executive’s
personal or legal representatives, executors, administrators, successors, heirs, distributees, and
legatees.

10

 

     (c) Without written consent of the other parties, no party shall assign, transfer, or delegate
this Agreement or any rights or obligations under this Agreement, except as expressly provided
herein. Without limiting the generality or effect of the foregoing, the Executive’s right to
receive payments hereunder is not assignable or transferable, whether by pledge, creation of a
security interest, or otherwise, except for a transfer by the Executive’s will or by the laws of
descent and distribution. If the Executive attempts an assignment or transfer that is contrary to
this Section 8.1, the Association shall have no liability to pay any amount to the assignee or
transferee.

     8.2 Governing Law, Jurisdiction and Forum. This Agreement shall be construed under
and governed by the internal laws of the State of Maryland, without giving effect to any conflict
of laws provision or rule that would cause the application of the laws of any jurisdiction other
than Maryland. By entering into this Agreement, the Executive acknowledges that the Executive is
subject to the jurisdiction of both the federal and state courts in Maryland.

     8.3 Entire Agreement. This Agreement sets forth the entire agreement of the parties
concerning the employment of the Executive by the Association. Any oral or written statements,
representations, agreements, or understandings made or entered into prior to or contemporaneously
with the execution of this Agreement are hereby rescinded, revoked, and rendered null and void by
the parties.

     8.4 Notices. All notices, requests, demands, and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified
or registered mail, return receipt requested, with postage prepaid. Unless otherwise changed by
notice, notice shall be properly addressed to the Executive if addressed to the address of the
Executive on the books and records of the Association at the time of the delivery of such notice,
and properly addressed to the Association if addressed to the board of directors of the
Association.

     8.5 Severability. If there is a conflict between any provision of this Agreement and
any statute, regulation, or judicial precedent, the latter shall prevail, but the affected
provisions of this Agreement shall be curtailed and limited solely to the extent necessary to bring
them within the requirements of law. If any provisions of this Agreement is held by a court of
competent jurisdiction to be indefinite, invalid, void or voidable, or otherwise unenforceable, the
remainder of this Agreement shall continue in full force and effect unless that would clearly be
contrary to the intentions of the parties or would result in an injustice.

     8.6 Captions and Counterparts. The captions in this Agreement are solely for
convenience. The captions do not define, limit, or describe the scope or intent of this Agreement.
This Agreement may be executed in several counterparts, each of which shall be deemed to be an
original but all of which together shall constitute one and the same instrument.

     8.7 No Duty to Mitigate. The Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment. Moreover, provided the
Executive is not in breach of any obligation under Articles 6 and 7 of this Agreement, the amount
of any payment provided for in this Agreement shall not be reduced by any compensation earned or
benefits provided as the result of employment of the Executive or as a result of the Executive
being self-employed after employment termination.

11

 

     8.8 Amendment and Waiver. This Agreement may not be amended, released, discharged,
abandoned, changed, or modified in any manner, except by an instrument in writing signed by each of
the parties hereto. The failure of any party hereto to enforce at any time any of the provisions
of this Agreement shall not be construed to be a waiver of any such provision, nor affect the
validity of this Agreement or any part thereof or the right of any party thereafter to enforce each
and every such provision. No waiver or any breach of this Agreement shaft be held to be a waiver
of any other or subsequent breach.

     8.9 Compliance with Internal Revenue Code Section 409A.

     (a) The Executive will be deemed to have a termination of employment for purposes of
determining the timing of any payments that are classified as deferred compensation only upon a
“separation from service” within the meaning of Section 409A.

     (b) If at the time of the Executive’s separation from service, (i) the Executive is a
“specified employee” (within the meaning of Section 409A and using the methodology selected by the
Association) and (ii) the Association makes a good faith determination that an amount payable or
the benefits to be provided hereunder constitutes deferred compensation (within the meaning of
Section 409A), the payment of which is required to be delayed pursuant to the six-month delay rule
of Section 409A in order to avoid taxes or penalties under Section 409A, then the Association will
not pay the entire amount on the otherwise scheduled payment date but will instead pay on the
scheduled payment date the maximum amount permissible in order to comply with Section 409A (i.e.,
any amount that satisfies an exception under the Section 409A rules from being categorized as
deferred compensation) and will pay the remaining amount (if any) in a lump sum on the first
business day after such six month period.

     (c) To the extent the Executive would be subject to an additional 20% tax imposed on certain
deferred compensation arrangements pursuant to Section 409A as a result of any provision of this
Agreement, such provision shall be deemed amended to the minimum extent necessary to avoid
application of such tax and the parties shall promptly execute any amendment reasonably necessary
to implement this Section 8.9. The Executive and the Association agree to cooperate to make such
amendment to the terms of this Agreement as may be necessary to avoid the imposition of penalties
and taxes under Section 409A; provided, however, that the Executive agrees that any such amendment
shall provide the Executive with economically equivalent payments and benefits, and the Executive
agrees that any such amendment will not materially increase the cost to, or liability of, the
Association with respect to any payment.

     (d) For purposes of this Agreement, Section 409A shall refer to Section 409A of the Internal
Revenue Code of 1986, as amended, and the Treasury regulations and any other authoritative guidance
issued thereunder.

     8.10 Required Provisions. In the event any of the foregoing provisions of this
Agreement conflict with the terms of this Section 8.10, this Section 8.10 shall prevail.

     (a) The Association’s Board of Directors may terminate the Executive’s employment at any time,
but any termination by the Association, other than termination for Cause, shall not prejudice the
Executive’s right to compensation or other benefits under this Agreement. The Executive shall not
have the right to receive compensation or other benefits for any period after termination for Cause
as defined in Section 3.2 of this Agreement.

     (b) If the 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) or 8(g)(1)

12

 

of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(e)(3) or (g)(1), the
Association’s obligations under this Agreement 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 the Executive all or part of the compensation withheld while its
contract obligations were suspended; and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.

     (c) If the 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) or 8(g)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1818(e)(4) or (g)(1), 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) of the Federal Deposit
Insurance Act, 12 U.S.C. Section 1813(x)(1), all obligations 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 terminate, except to the extent determined that
continuation of the Agreement is necessary for the continued operation of the institution: (i) by
the Director of the Office of Thrift Supervision (OTS), or his designee, at the time the Federal
Deposit Insurance Corporation (FDIC) enters into an agreement to provide assistance to or on behalf
of the Association under the authority contained in Section 13(c) of the Federal Deposit Insurance
Act, 12 U.S.C. Section 1823(c), or (ii) by the Director of the OTS (or his designee) at the time
the Director (or his designee) approves a supervisory merger to resolve problems related to the
operations of the Association or when the Association is determined by the Director 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) Any payments made to the Executive pursuant to this Agreement, or otherwise, 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.

     IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date first
written above.

	 	 	 	 	 
	 	FRATERNITY FEDERAL SAVINGS AND LOAN
ASSOCIATION

 	 
	 	/s/ William D. Norton
 	 
	 	For the Board of Directors 	 
	 	 	 
	 
	 	 	 
	 	                                                     /s/ Richard C. Schultze
 	 
	 	Executive 	 
	 	 	 
	 

13

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