Document:

exh10-9_1481143.htm

EXHIBIT 10.9

 

PLEDGE AGREEMENT

 

THIS PLEDGE AGREEMENT (this “Agreement”) is dated as of June 29, 2011 between SILICON VALLEY BANK, a California corporation with a loan production office located at 275 Grove Street, Suite 2-200, Newton, Massachusetts 02466 (the “Pledgee”), and each of the parties listed on the signature pages hereto as pledgors (each, a “Pledgor,” and collectively, the “Pledgors”).

 

W I T N E S S E T H:

 

WHEREAS, pursuant to that certain Loan and Security Agreement dated as of the date hereof (as may be amended, restated, or otherwise modified from time to time, the “Loan Agreement”) by and among GLOBAL TELECOM & TECHNOLOGY, INC., a Delaware corporation, GLOBAL TELECOM & TECHNOLOGY AMERICAS, INC., a Virginia Corporation, WBS CONNECT, LLC., a Colorado limited liability company, PACKETEXCHANGE, INC., a Delaware corporation and PACKETEXCHANGE (USA), INC., a Delaware corporation (individually and collectively, “Borrower”) and the Pledgee, the Pledgee has agreed to extend credit from time to time to Borrower, on the terms and conditions set forth in such Loan Agreement, but only upon the condition that the Pledgors execute and deliver this Agreement.

 

WHEREAS, each Pledgor legally and beneficially owns the issued and outstanding equity interests as described on Exhibit A hereto; and

 

WHEREAS, each Pledgor will derive substantial benefit and advantage from the financial accommodations as set forth in the Loan Agreement; and

 

WHEREAS, to induce the Pledgee to enter into the Loan Agreement, in order to secure the payment and performance by each Pledgor of the Liabilities (as hereinafter defined), each Pledgor has respectively agreed to pledge to Pledgee, one hundred percent (100%) of such Pledgor’s equity interests in each issuer organized in the United States, the District of Columbia or any territory thereof (“Domestic Issuer”) and sixty-five percent (65%) of such Pledgor’s voting equity interests and one hundred percent (100%) of its non-voting equity interests in each issuer organized in a jurisdiction outside the United States, where a guarantee of the Obligations (as such term is defined in the Loan Agreement) by such issuer would result in adverse U.S. federal income tax consequences to the Pledgor, and one hundred percent (100%) thereof otherwise (“Foreign Issuer”), now or hereafter owned or acquired by Pledgor as security for the Liabilities;

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged:

 

Section 1.  Defined Terms.  Unless otherwise defined herein, all capitalized terms used herein shall have the respective meanings ascribed thereto in the Loan Agreement.  Terms defined in the Uniform Commercial Code, as in effect in the State of New York from time to time (the “UCC”), which are not otherwise defined in this Agreement or in the Loan Agreement are used in this Agreement as defined in the UCC as in effect on the date hereof.  For purposes

 

  

  

  

hereof, “equity interest” of or in any issuer shall include, without limitation, all limited liability company membership interests and units, together with all options, warrants and other rights or instruments exercisable or exchangeable for, or convertible into, such interests or units.

 

Section 2.  Pledge.  Each Pledgor hereby pledges, assigns, hypothecates, transfers, delivers and grants to Pledgee, a security interest in the following assets, properties and items ((i) whether now existing or hereafter existing, and (ii) whether consisting of investment property, accounts, payment intangibles or other general intangibles, or proceeds of any Pledged Collateral as hereafter defined (collectively the “Pledged Collateral”)): (i) all of such Pledgor’s equity interests in each Domestic Issuer and sixty-five percent (65%) of such Pledgor’s voting equity interests and one hundred percent (100%) of such Pledgor’s non-voting equity interests in each Foreign Issuer or one hundred percent (100%) of the equity in such Foreign Issuer if a guarantee of the Obligations by such issuer would not have an adverse U.S. Federal income tax consequence to such Pledgor, now owned or hereafter acquired by such Pledgor, including, without limitation, such Pledgor’s (A) interests in the profits and losses of each such issuer, (B) rights and interests to receive distributions of each such issuer’s assets and properties and (C) rights and interests, if any, to participate in the management of each such issuer related to such equity interests (collectively, the “Pledged Interests”), (ii) all rights, privileges, authority and powers of such Pledgor as an owner or holder of the limited liability company or membership interests or units of such issuers/Pledgors as owners of such issuers, (iii) all other property hereafter delivered to, or in the possession or in the custody of, Pledgee in substitution for or in addition to the Pledged Interests, (iv) any other property of such Pledgor in connection with the Pledged Interests, as described in Section 4 below, now or hereafter delivered to, or in the possession or custody of Pledgor, and (v) all proceeds of the Pledged Collateral, as collateral security for:

 

(a)           the prompt and complete payment when due in accordance with the terms of the Loan Documents (whether at the stated maturity, by acceleration or otherwise) of all the Obligations; and

 

(b)           the due and punctual payment and performance by each Pledgor of its obligations and liabilities under, arising out of or in connection with this Agreement;

 

(all of the foregoing being referred to hereinafter collectively as the “Liabilities”).

 

Section 3.  Representations and Warranties of Pledgor.  As of the date hereof, and with respect to any Person who joins this Agreement following such date, each Pledgor represents and warrants to Pledgee, and covenants with Pledgee, that:

 

(a)           Such Pledgor is the record beneficial owner of, and has legal title to, the Pledged Interests listed on Exhibit A, and after giving effect to the Loan Agreement and the transactions contemplated to occur on the Effective Date, such Pledged Interests are and will remain and all other equity interests constituting Pledged Collateral will be, free and clear of all pledges, Liens, security interests and other encumbrances and restrictions whatsoever, except the Liens and security interests created by this Agreement and the Permitted Liens (as defined in, and pursuant to, the Loan Agreement), to the extent applicable to the Pledged Interests;

 

  

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(b)           Each Pledgor has full power and authority to execute and deliver this Agreement and to pledge the Pledged Interests and Pledged Collateral to Pledgee,

 

(c)           this Agreement has been duly authorized, executed and delivered by each Pledgor and constitutes a legal, valid and binding obligation of Pledgor enforceable against Pledgor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, moratorium, reorganization and other similar laws affecting the enforcement of creditors’ rights generally;

 

(d)           the Pledged Interests have been, and the Pledged Collateral constituting interests will be, duly and validly authorized and issued, and are or will be fully paid and non-assessable.  Any Pledged Interest represented by stock certificates, which certificates, with undated assignments separate from such certificates, duly executed in blank by each Pledgor, shall be delivered as of the date hereof to Pledgee, for the benefit of Pledgee, each in form and substance reasonably satisfactory to Pledgee.  Pledgee, shall maintain possession and custody of all certificates representing the Pledged Interests and Pledged Collateral;

 

(e)           no consent, approval or authorization of or designation or filing with any Governmental Authority on the part of any Pledgor is required in connection with the pledge and security interest granted under this Agreement, or, as of the date hereof, the exercise by Pledgee of the voting and other rights provided for in this Agreement of any Governmental Authority or any other Person;

 

(f)           the execution, delivery and performance of this Agreement by each Pledgor will not violate any law or regulation or any order, judgment, writ, award or decree of any court, arbitrator or Governmental Authority or of the certificate of organization or incorporation, as applicable, by-laws or operating agreement of such Pledgor or of any such issuer listed on Exhibit A, or of any securities issued by any such issuer, or, after giving effect to the Loan Agreement, any mortgage, indenture, lease, contract, or other agreement, instrument or undertaking to which such Pledgor is a party or which purports to be binding upon such Pledgor or upon any of its assets, and, after giving effect to the Loan Agreement and the transactions contemplated to occur on the Effective Date, will not result in the creation or imposition of any Lien, charge or encumbrance on or security interest in any of the assets of such Pledgor or any issuer of Pledged Interests except as contemplated by this Agreement and the Loan Agreement;

 

(g)           None of the operating agreements, limited liability agreements, or other agreements governing any Pledged Interests of a Company that is a limited liability company (or similar entity); provided that such Pledged Interests governed thereby are securities governed by Article 8 of the UCC; and

 

(h)           after giving effect to the Loan Agreement and the transactions contemplated to occur on the Effective Date, the pledge, assignment and delivery to Pledgee of the Pledged Interests pursuant to this Agreement creates a valid perfected first priority security interest in the Pledged Interests and the proceeds thereof in favor of Pledgee, subject to no prior pledge, Lien, mortgage, hypothecation, security interest,

 

  

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charge, option or encumbrance, except Permitted Liens (as defined in, and pursuant to, the Loan Agreement), to the extent applicable to the Pledged Interests, or to any agreement purporting to grant to any third party a security interest in the property or assets of Pledgor which would include the Pledged Interests.  Each Pledgor covenants and agrees that it shall use their best efforts to defend Pledgee’s right, title and security interest in and to the Pledged Interests and the proceeds thereof against the claims and demands of all Persons whomsoever.

 

Section 4.  Dividends, Distributions, etc.  If, while this Agreement is in effect, any Pledgor shall become entitled to receive or shall receive any certificate (including, without limitation, any certificate representing an equity dividend or an equity distribution in connection with any reclassification, increase or reduction of capital, or issued in connection with any reorganization, merger or consolidation), or any options or rights, whether as an addition to, in substitution for, or in exchange for any of the Pledged Interests, or otherwise, such Pledgor agrees to accept the same as Pledgee’s agent and to hold the same in trust for Pledgee, and to deliver the same forthwith to Pledgee in the exact form received, with the endorsement of such Pledgor when necessary and/or appropriate undated assignments separate from certificate duly executed in blank, to be held by Pledgee, subject to the terms hereof, as additional Pledged Collateral.  Except as provided in subsection 5(a)(ii) below, in case any distribution of capital shall be made on or in respect of the Pledged Interests or any property shall be distributed upon or with respect to the Pledged Interests pursuant to the recapitalization or reclassification of the capital of the issuer thereof or pursuant to the reorganization thereof, the property so distributed shall be delivered to Pledgee to be held by it as additional Pledged Collateral.  Except as provided in subsection 5(a)(ii) below, all sums of money and property so paid or distributed in respect of the Pledged Interests which are received by a Pledgor shall, until paid or delivered to Pledgee, be held by such Pledgor in trust as additional Pledged Collateral.

 

Section 5.  Administration of Security.  The following provisions shall govern the administration of the Pledged Interests:

 

(a)           So long as no Event of Default has occurred and is continuing, each Pledgor shall be entitled (subject to the other provisions hereof, including, without limitation, Section 8 below):

 

	
  

	
(i)

	
to vote or consent with respect to its respective Pledged Interests in any manner permitted or not inconsistent with this Agreement, the Loan Agreement and the other “Loan Documents” referred to therein; provided, however, that without the Pledgee’s prior written consent, no vote shall be cast, and no consent shall be given or action taken, which would have the effect of impairing the position or interest of the Pledgee in respect of the Pledged Collateral or which would authorize, effect or consent to (unless and to the extent expressly permitted by the Loan Documents): (i) the dissolution or liquidation, in whole or in part, of an Pledgor; (ii) the consolidation or merger of a Pledgor with any other Person; (iii) any change in the authorized number of shares, the stated capital or the authorized share capital of a Pledgor or the issuance of any additional equity interests; (iv) the alteration of the voting rights with respect to the

 

  

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equity interests of a Pledgor; or (v) amend or otherwise modify the Operating Documents in any way which would materially adversely affect Purchaser’s rights or remedies under this Agreement (including, without limitation, any amendment or modification that would cause the Issuer to “opt in” to Article 8 of the UCC); and

 

	
  

	
(ii)

	
to receive and retain cash distributions in the ordinary course made in respect of the Pledged Interests, to the extent permitted to be paid pursuant to the Loan Agreement.

 

Each Pledgor hereby grants to Pledgee or its nominee, on behalf of Pledgee, an irrevocable proxy to exercise all voting and membership rights relating to the Pledged Interests in any instance, including, without limitation, to approve any merger involving any Subsidiary as a constituent company (“Voting and Membership Rights”), which proxy shall only be exercisable upon the occurrence and during the continuance of an Event of Default.  After the occurrence and during the continuance of an Event of Default, and upon the request of Pledgee, such Pledgor agrees to deliver to Pledgee, on behalf of Pledgee, such further evidence of such irrevocable proxy or such further irrevocable proxies to vote the Pledged Interests as Pledgee may request.

 

(b)           Upon the occurrence and during the continuance of an Event of Default, in the event that a Pledgor, as record and beneficial owner of the Pledged Interests, shall have received or shall have become entitled to receive, any cash dividends or other distributions in the ordinary course, such Pledgor, if requested, shall deliver to Pledgee, and Pledgee, shall be entitled to receive and retain, all such cash or other distributions as additional Pledged Collateral.

 

(c)           Subject to any sale or other disposition by Pledgee, of the Pledged Interests or other property pursuant to this Agreement, the Pledged Interests and any other Pledged Collateral shall be delivered to Pledgor upon payment in full of the Obligations (other than inchoate liabilities, but including, without limitation, Obligations arising under the European Loan Agreement) and at such time as Pledgee’s obligation to make Credit Extensions has terminated, Pledgee shall release its liens and security interests in the Collateral and all rights therein shall revert to Pledgor.

 

Section 6.  Rights of Pledgee.  Pledgee shall not be liable for failure to collect or realize upon the Obligations or any collateral security or guaranty therefor, or any part thereof, or for any delay in so doing, nor shall Pledgee be under any obligation to take any action whatsoever with regard thereto.  Any or all of the Pledged Interests held by Pledgee hereunder may, if an Event of Default has occurred and is continuing, in respect of which Pledgee has provided Pledgor with three (3) Business Days notice of its intention to exercise its rights hereunder, be registered in the name of Pledgee or its nominee and Pledgee or its nominee may thereafter without notice exercise all voting and membership rights at any meeting with respect to any issuer of Pledged Interests and exercise any and all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any of the Pledged Interests as if it were the absolute owner thereof, including, without limitation, the right to vote in favor of, and to exchange at its discretion any and all of the Pledged Interests upon, the merger, consolidation,

 

  

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reorganization, recapitalization or other readjustment with respect to any issuer of Pledged Interests or upon the exercise by Pledgor or Pledgee of any right, privilege or option pertaining to any of the Pledged Interests, and in connection therewith, to deposit and deliver any and all of the Pledged Interests with any committee, depository, transfer agent, registrar or other designated agency upon such terms and conditions as Pledgee may reasonably determine, all without liability except to account for property actually received by Pledgee, but Pledgee shall have no duty to exercise any of the aforesaid rights, privileges or options and shall not be responsible for any failure to do so or delay in so doing.

 

Section 7.  Remedies.  Upon the occurrence and during the continuance of an Event of Default, Pledgee, upon the notice specified below of time and place of public or private sale, but otherwise without demand of performance or other demand, advertisement or notice of any kind to or upon each Pledgor or any other Person (all and each of which demands, advertisements and/or notices are hereby expressly waived, except such notices as required by applicable law and cannot be waived), may forthwith collect, receive, appropriate and realize upon the Pledged Collateral, or any part thereof, and/or may forthwith sell, assign, give an option or options to purchase, contract to sell or otherwise dispose of (including the disposition by merger) and deliver said Pledged Collateral, or any part thereof, in one or more portions at public or private sale or sales or transactions, at any exchange, broker’s board or at any of Pledgee’s offices or elsewhere upon such terms and conditions as Pledgee may deem advisable and at such prices as it may deem best, for any combination of cash and/or securities or other property or on credit or for future delivery without assumption of any credit risk, with the right to Pledgee upon any such sale or sales, public or private, to purchase the whole or any part of said Pledged Collateral so sold, free of any right or equity of redemption in Pledgor, which right or equity is hereby expressly waived or released, unless, in each case otherwise required by applicable law.  Pledgee, shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization, sale or disposition, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the safekeeping of any and all of the Pledged Collateral or in any way relating to the rights of Pledgee hereunder, including reasonable attorneys’ fees and legal expenses, to the payment, in whole or in part, of the Liabilities in accordance with the Loan Agreement.  After so paying over such net proceeds and after the payment by Pledgee of any other amount required by any provision of law, including, without limitation, Section 9-608 of the UCC, Pledgee shall, account for the surplus, if any, to each Pledgor.  Each Pledgor shall not remain liable for any deficiency remaining unpaid after such application.  Each Pledgor agrees that Pledgee shall give not less than ten (10) Business Days notice of the time and place of any public sale or of the time after which a private sale or other intended disposition is to take place and that such notice is reasonable notification of such matters.  No notification need be given to Pledgor if Pledgor has signed after the occurrence and during the continuance of an Event of Default a statement renouncing or modifying any right to notification of sale or other intended disposition.  In addition to the rights and remedies granted to Pledgee in this Agreement and in any other instrument or agreement securing, evidencing or relating to any of the Liabilities, Pledgee shall have all the rights and remedies of a secured party under the UCC and under any other applicable law.

 

Section 8.  No Disposition, etc.  Without the prior written consent of Pledgee, except as expressly permitted under the terms and conditions of the Loan Agreement, each Pledgor agrees that Pledgor will not sell, assign, transfer, exchange, or otherwise dispose of, or grant any option

 

  

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with respect to, the Pledged Interests or any other Pledged Collateral, nor will Pledgor create, incur or permit to exist any pledge, Lien, mortgage, hypothecation, security interest, charge, option or any other encumbrance with respect to any of the Pledged Interests, any other Pledged Collateral or any interest therein, or any proceeds thereof, except for the Lien and security interest provided for by this Agreement and the Liens listed of the definition of “Permitted Liens” (as defined in, and pursuant to, the Loan Agreement), to the extent applicable to the Pledged Interests.  Except as expressly permitted by the Loan Agreement, without the prior written consent of Pledgee (which consent shall not be unreasonably withheld so long as no Event of Default has occurred and is continuing or would result therefrom), each Pledgor agrees that it will not vote to enable, and will not otherwise permit, any issuer of Pledged Interests to (a) issue any equity interests or other securities of any nature in addition to or in exchange or substitution for the Pledged Interests or (b) dissolve, liquidate, retire any of its capital stock, reduce its capital or merge or consolidate with any other Person.

 

Section 9.  Sale of Pledged Interests.

 

(a)           Each Pledgor recognizes that Pledgee, may be unable to effect a public sale or disposition (including, without limitation, any disposition in connection with a merger of any issuer of Pledged Interests) of any or all the Pledged Collateral by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the “Act”), and applicable state securities laws, but may be compelled to resort to one or more private sales or dispositions thereof to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof.  Pledgor acknowledges and agrees that any such private sale or disposition may result in prices and other terms (including the terms of any securities or other property received in connection therewith) less favorable to the seller than if such sale or disposition were a public sale or disposition and, notwithstanding such circumstances, agrees that any such private sale or disposition shall be deemed to be reasonable and effected in a commercially reasonable manner.  Pledgee shall be under no obligation to delay a sale or disposition of any of the Pledged Collateral in order to permit Pledgor or any issuer of Pledged Interests to register such securities for public sale under the Act, or under applicable state securities laws, even if Pledgor or any issuer of Pledged Interests would agree to do so.

 

(b)           Each Pledgor further agrees to do or cause to be done all such other acts and things as may be reasonably necessary to make such sale or sales or dispositions of any portion or all of the Pledged Collateral valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales or dispositions, all at Pledgor’s expense.  Pledgor further agrees that a breach of any of the covenants contained in Sections 2, 4, 5(b), 8 or 9 hereof will cause irreparable injury to Pledgee, that Pledgee has no adequate remedy at law in respect of such breach and, as a consequence, agrees, without limiting the right of Pledgee to seek and obtain specific performance of other obligations of Pledgor contained in this Agreement, that each and every covenant referenced above shall be specifically enforceable against each Pledgor, and each Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred and is continuing.

 

  

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(c)           Each Pledgor further agrees to indemnify and hold harmless Pledgee, each of its respective successors and assigns, officers, directors, employees, agents and attorneys, and any Person in control of any thereof, from and against any loss, liability, damage and expense, including, without limitation, reasonable counsel fees (collectively called the “Indemnified Liabilities”), under federal and state securities laws or otherwise insofar as such loss, liability, damage or expense:

 

	
(i)

	
arises out of or is based upon any untrue statement of a material fact by such Pledgor or any of its Affiliates, officers, directors, employees, agents or attorneys, or any Person in control of any thereof, contained in any registration statement, prospectus or offering memorandum or in any preliminary prospectus or preliminary offering memorandum or in any amendment or supplement to any of the foregoing or in any other writing prepared by Pledgor or any of its Affiliates, officers, directors, employees, agents or attorneys or any Person in control of any thereof, in connection with the offer, sale or resale of all or any portion of the Pledged Collateral unless such untrue statement of material fact was provided by Pledgee specifically for inclusion therein; or

 

	
(ii)

	
arises out of or is based upon any omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading;

 

such indemnification to remain operative regardless of any investigation made by or on behalf of Pledgee or any successor thereof, or any Person in control of any thereof.  In connection with a public sale or other distribution, each Pledgor will provide customary indemnification to any underwriters, their respective successors and assigns, their respective officers and directors and each Person who controls any such underwriter (within the meaning of the Act).  If and to the extent that the foregoing undertakings in this Section 9(c) may be unenforceable for any reason, each Pledgor agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.  The obligations of each Pledgor under this Section 9(c) shall survive any termination of this Agreement.  Notwithstanding the foregoing, each Pledgor shall have no obligations hereunder with respect to Indemnified Liabilities to the extent such Indemnified Liabilities are caused by the gross negligence or willful misconduct of Pledgee as determined by a final non-appealable judgment by a court of competent jurisdiction.

 

(d)           Each Pledgor further agrees that it hereby waives any and all rights of subrogation, reimbursement, exoneration, contribution and similar rights it may have against any issuer of Pledged Interests, upon the sale or sales or dispositions of any portion or all of the Pledged Collateral by Pledgee.

 

Section 10.  Further Assurances.  Each Pledgor agrees that at any time and from time to time, upon the written request of Pledgee, each Pledgor will execute and deliver all assignments separate from certificate, financing statements and such further documents and do such further acts and things as Pledgee may reasonably request consistent with the provisions hereof in order to effect the purposes of this Agreement.

 

Section 11.  Severability.  Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such

 

  

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prohibition or unenforceability, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

Section 12.  No Waiver; Cumulative Remedies.  Pledgee shall not by any act, delay, omission or otherwise be deemed to have waived any of its remedies hereunder, and no waiver by Pledgee shall be valid unless in writing and signed by Pledgee and then only to the extent therein set forth.  A waiver by Pledgee, of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Pledgee, would otherwise have on any further occasion.  No course of dealing between any Pledgor and Pledgee and no failure to exercise, nor any delay in exercising on the part of Pledgee of any right, power or privilege hereunder or under the Loan Documents shall impair such right or remedy or operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  The rights and remedies herein provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights or remedies provided by law.

 

Section 13.  Successors.  This Agreement and all obligations of each Pledgor hereunder shall be binding upon the successors and assigns of such Pledgor, and shall, together with the rights and remedies of Pledgee hereunder, inure to the benefit of Pledgee and its successors and assigns, except that such Pledgor shall not have any right to assign its obligations under this Agreement or any interest herein without the prior written consent of Pledgee.

 

Section 14.  Termination.  This Agreement and the Liens and security interests granted hereunder shall terminate upon indefeasible full and complete performance and satisfaction of the Liabilities (other than contingent indemnification obligations), and promptly upon the Commitment Termination Date, Pledgee shall surrender the certificates evidencing the Pledged Interests to each Pledgor.

 

Section 15.  Possession of Pledged Collateral.  Beyond the exercise of reasonable care to assure the safe custody of the Pledged Collateral in the physical possession of Pledgee pursuant hereto, neither Pledgee nor any nominee of Pledgee shall have any duty or liability to collect any sums due in respect thereof or to protect, preserve or exercise any rights pertaining thereto, and shall be relieved of all responsibility for the Pledged Collateral upon surrendering them to Pledgor.

 

Section 16.  Survival of Representations.  All representations and warranties of Pledgor contained in this Agreement shall survive the execution and delivery of this Agreement.

 

Section 17.  Taxes and Expenses.  Each Pledgor will upon demand pay to Pledgee all reasonable expenses, including the reasonable fees and expenses of counsel for Pledgee and of any experts and agents that Pledgee may incur in connection with:

 

(a)           the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Pledged Collateral;

 

(b)           the administration of this Agreement;

 

(c)           the exercise or enforcement of any of the rights of Pledgee hereunder; or

 

  

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(d)           the failure of a Pledgor to perform or observe any of the provisions hereof.

 

Section 18.  Pledgee Appointed Attorney-In-Fact.  Each Pledgor hereby irrevocably appoints Pledgee as such Pledgor’s attorney-in-fact, effective upon the occurrence and during the continuance of an Event of Default, subject to the notice provisions contained herein and in the Loan Documents with respect to certain actions, with full authority in the place and stead of Pledgor and in the name of Pledgor or otherwise, from time to time in Pledgee’s discretion, to take any action and to execute any instrument that Pledgee deems reasonably necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, endorse and collect all instruments made payable to Pledgor representing any dividend, interest payment or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same, when and to the extent permitted by this Agreement.

 

Section 19.  Notices.  All notices, approvals, requests, demands and other communications hereunder shall be made pursuant to, and in accordance with, and to the contact information provided in, Section 10 of the Loan Agreement or to such other address or addresses or facsimile number or numbers as any party hereto may most recently have designated in writing to the other party by such notice.  All such communications shall be deemed to have been given or made (i) if delivered in person, when delivered, (ii) if delivered by facsimile, on the date of transmission if transmitted on a Business Day before 5:00 p.m. Massachusetts time, otherwise on the next Business Day, (iii) if delivered by overnight courier, one (1) Business Day after delivery to the courier properly addressed and (iv) if mailed, three (3) Business Days after deposited in the United States mail, certified or registered.

 

Section 20.  GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.  EACH PLEDGOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK COUNTY, NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN SUCH PLEDGOR, THE PLEDGEE PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT THE PLEDGEE AND EACH PLEDGOR ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK COUNTY, NEW YORK AND, PROVIDED, FURTHER NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE PLEDGEE FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE PLEDGED INTERESTS OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF PLEDGEE.  EACH PLEDGOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH PLEDGOR HEREBY WAIVES ANY OBJECTION WHICH PLEDGOR MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER

 

  

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VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.  EACH PLEDGOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO PLEDGOR AT THE ADDRESS SET FORTH IN SECTION 19 OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF PLEDGOR’S ACTUAL RECEIPT THEREOF OR FIVE (5) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

 

Section 21.  WAIVER OF JURY TRIAL.

 

BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.  THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG PLEDGEE AND ANY PLEDGOR ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.

 

Section 22.  Changes in Writing.  No amendment, modification, termination or waiver of any provision of this Agreement or consent to any departure by any Pledgor thereof from, shall in any event be effective without the written agreement of Pledgee and such Pledgor, and then only to the extent specifically set forth in such writing.

 

Section 23.  Headings.  Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect.

 

Section 24.  Counterparts.  This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart.  This Agreement may be authenticated by manual signature, facsimile or, if approved in writing by the Pledgee, electronic means, all of which shall be equally valid.

 

Section 25.  Entire Agreement.  This Agreement embodies the entire agreement and understanding between each Pledgor and Pledgee with respect to the subject matter hereof and

 

  

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supersedes all prior oral and written agreements and understandings between each Pledgor and Pledgee relating to the subject matter hereof.

 

Section 26.  Intercreditor; Subordination.

 

(a)           Anything herein to the contrary notwithstanding, the liens and security interests securing the obligations evidenced by this Agreement, the exercise of any right or remedy with respect hereto, and certain of the rights of the Pledged Interests hereof are subject to the provisions of the Intercreditor Agreement.  In the event of any conflict between the terms of the Intercreditor Agreement and this Agreement, the terms of the Intercreditor Agreement shall govern and control.

 

[Remainder of Page Intentionally Left Blank; Signature Page Follows.]

 

 

 

 

 

 

 

 

  

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IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed and delivered as of the day and year first above written.

 

	  	  	  	
PLEDGORS:

 

GLOBAL TELECOM & TECHNOLOGY, INC.

 

 

	  	  	  	
By:

	/s/ Eric A. Swank
	  	  	  	
Name:

	
Eric A. Swank

	  	  	  	
Title:

	
Chief Financial Officer

 

	  	  	  	

GLOBAL TELECOM & TECHNOLOGY AMERICAS, INC.

 

 

	  	  	  	
By:

	/s/ Eric A. Swank
	  	  	  	
Name:

	
Eric A. Swank

	  	  	  	
Title:

	
Chief Financial Officer

 

  

  

  

 

	  	  	  	
PLEDGEE:

 

SILICON VALLEY BANK

 

 

 

	  	  	  	
By:

	/s/ Christopher Leary
	  	  	  	
Name:

	
Christopher Leary

	  	  	  	
Title:

	
Relationship Manager

 

 

  

  

  

ACKNOWLEDGMENT

 

The undersigned each hereby (a) acknowledge receipt of a copy of the foregoing Pledge Agreement, (b) waive any rights or requirement at any time hereafter to receive a copy of such Pledge Agreement in connection with the registration of any Pledged Interests or any other Pledged Collateral (as such terms are defined therein) in the name of Pledgee or its nominee or the exercise of voting rights by Pledgee, and (c) agree promptly to note on its books and records the transfer of the security interest in the equity interests of the undersigned as provided in such Pledge Agreement, including the following legend:

 

PURSUANT TO THAT CERTAIN PLEDGE AGREEMENT DATED AS OF JUNE 29, 2011 (AS FROM TIME TO TIME AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED), GLOBAL TELECOM & TECHNOLOGY, INC. HAS, UNDER THE CIRCUMSTANCES SPECIFIED IN SUCH PLEDGE AGREEMENT, EMPOWERED SILICON VALLEY BANK, TO VOTE THE INTERESTS REPRESENTED BY THIS CERTIFICATE PURSUANT TO SUCH PLEDGE AGREEMENT.

 

 

 

 

 

 

 

 

 

 

Pledge Agreement  

  

  

Dated: June 29, 2011

 

	  	  	  	

GLOBAL TELECOM & TECHNOLOGY AMERICAS, INC.

 

 

	  	  	  	
By:

	/s/ Eric A. Swank
	  	  	  	
Name:

	
Eric A. Swank

	  	  	  	
Title:

	
Chief Financial Officer

 

	  	  	  	

GTT-EMEA, LTD.

 

 

	  	  	  	
By:

	/s/ Richard D. Calder
	  	  	  	
Name:

	
Richard D. Calder Jr.

	  	  	  	
Title:

	
Director

 

 

  Pledge Agreement

  

  

ACKNOWLEDGMENT

 

The undersigned each hereby (a) acknowledge receipt of a copy of the foregoing Pledge Agreement, (b) waive any rights or requirement at any time hereafter to receive a copy of such Pledge Agreement in connection with the registration of any Pledged Interests or any other Pledged Collateral (as such terms are defined therein) in the name of Pledgee or its nominee or the exercise of voting rights by Pledgee, and (c) agree promptly to note on its books and records the transfer of the security interest in the equity interests of the undersigned as provided in such Pledge Agreement, including the following legend:

 

PURSUANT TO THAT CERTAIN PLEDGE AGREEMENT DATED AS OF JUNE 29, 2011 (AS FROM TIME TO TIME AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED), GLOBAL TELECOM & TECHNOLOGY AMERICAS, INC. HAS, UNDER THE CIRCUMSTANCES SPECIFIED IN SUCH PLEDGE AGREEMENT, EMPOWERED SILICON VALLEY BANK, TO VOTE THE INTERESTS REPRESENTED BY THIS CERTIFICATE PURSUANT TO SUCH PLEDGE AGREEMENT.

 

 

 

 

  

  

  

Dated: June 29, 2011

	  	  	  	

WBS CONNECT, LLC

 

 

	  	  	  	
By:

	/s/ Eric A. Swank
	  	  	  	
Name:

	
Eric A. Swank

	  	  	  	
Title:

	
CFO of Managing Member

 

	  	  	  	

GTT GLOBAL TELECOM GOVERNMENT SERVICES, LLC

 

 

	  	  	  	
By:

	/s/ Eric A. Swank
	  	  	  	
Name:

	
Eric A. Swank

	  	  	  	
Title:

	
CFO of Sole Member

 

	  	  	  	

TEK CHANNEL CONSULTING, LLC

 

 

	  	  	  	
By:

	/s/ Eric A. Swank
	  	  	  	
Name:

	
Eric A. Swank

	  	  	  	
Title:

	
CFO of Managing Member

 

 

 

 

Pledge Agreement  

  

  

 

 

	  	  	  	

PACKETEXCHANGE, INC.

 

 

	  	  	  	
By:

	/s/ Eric A. Swank
	  	  	  	
Name:

	Eric A. Swank
	  	  	  	
Title:

	
Director

 

	  	  	  	

PACKETEXCHANGE (USA), INC.

 

 

	  	  	  	
By:

	/s/ Eric A. Swank
	  	  	  	
Name:

	Eric A. Swank
	  	  	  	
Title:

	Director

 

 

  

  

  

Exhibit A

to Pledge Agreement

 

PLEDGOR:

 

	
Issuer

	
Certificate

No.

	
Date Issued

	
Percentage of

Class Interests

	  	  	  	  
	  	  	  	  

PLEDGOR:

 

	
Issuer

	
Certificate

No.

	
Date Issued

	
Percentage of

Class Interests

	  	  	  	  

PLEDGOR:

 

	
Issuer

	
Certificate

No.

	
Date Issued

	
Percentage of

Class Interestsform8kexh_070611.htm

EMPLOYMENT AGREEMENT

 

This Agreement (“Agreement”) is made effective as of the 1st day of July, 2011  (the “Effective Date”), by and among KAISER FEDERAL BANK (the “Bank”), a federally chartered stock savings bank, with its principal administrative office at 1359 N. Grand Ave., Covina, California 91724 and DUSTIN LUTON (“Executive”).  Any reference to the “Company” herein shall mean KAISER FEDERAL FINANCIAL GROUP, INC., the holding company of the Bank.  The Company is a party to this Agreement for the sole purpose of guaranteeing the payments required hereunder, except as otherwise provided herein.

 

WHEREAS, Executive and the Bank were parties to an employment agreement dated November 19, 2010 (“Original Agreement”); and

 

WHEREAS, Executive was appointed President and Chief Executive Officer of the Bank, effective July 1, 2011; and

 

WHEREAS, in connection with Executive’s promotion to President and Chief Executive Officer of the Bank, the parties hereto desire to enter into this Agreement, which shall supersede and replace the Original Agreement.

 

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

 

	
1.  

	
POSITION AND RESPONSIBILITIES

 

During the period of Executive’s employment hereunder, Executive agrees to serve as President and Chief Executive Officer of the Bank.  As President and Chief Executive Officer, the Executive shall report to the Board of Directors of the Bank (the “Board”) and be responsible for the operation of the Bank and for meeting growth and profitability goals through the proper management of the financial, human, and physical resources of the Bank.  Furthermore, Executive shall provide leadership, stewardship and strategic vision to the Bank.  During said period, Executive has agreed to serve as President and Chief Executive Officer of the Company, and also agrees to serve, if elected, as an officer and director of any subsidiary or affiliate of the Bank or the Company.

 

	
2.  

	
TERMS AND DUTIES

 

(a) The term of this Agreement and the period of Executive’s employment hereunder shall begin as of the date first above written and shall continue for twenty-four (24) full calendar months thereafter.  Commencing on the Effective Date and continuing on each anniversary date thereafter (the “Anniversary Date”), this Agreement shall renew for an additional year such that the remaining term shall be twenty-four (24) months, provided, however, that in order for the Agreement to renew, the disinterested members of the Board must take the following actions prior to each non-renewal notice period (as described in the next sentence): (i) at least sixty (60) days prior to the Anniversary Date, conduct a comprehensive performance evaluation and review of Executive for purposes of determining whether to extend the Agreement; and (ii) affirmatively approve the renewal or non-renewal of the Agreement, which decision shall be included in the minutes of the Board’s meeting.  If the decision of such disinterested members of the Board is not to renew the Agreement, then the Board shall provide the Executive with a written notice of non-renewal (“Non-Renewal Notice”) at least thirty (30) days and not more than sixty (60) days prior to any Anniversary Date, such that this Agreement shall terminate at the end of twelve (12) months following such Anniversary Date.  Notwithstanding the foregoing, in the event that at any time prior to the Anniversary Date the Company or the Bank has entered into an agreement to effect a transaction which would be considered a Change in Control as defined under Section 6(a)(iii) hereof, then the term of this Agreement shall be extended and shall terminate twenty-four (24) months following the date on which the Change in Control occurs.

 

  

  

  

(b) During the period of his employment hereunder, except for periods of absence occasioned by illness, reasonable vacation periods, and reasonable leaves of absence, Executive shall faithfully perform his duties hereunder including activities and services related to the organization, operation and management of the Bank.

 

	
3.  

	
COMPENSATION AND REIMBURSEMENT

 

(a) The compensation specified under this Agreement shall constitute the salary and benefits paid for the duties described in Section 2(b).  The Bank shall pay Executive as compensation a salary of not less than $325,000 per year (“Base Salary”).  Such Base Salary shall be payable in accordance with the customary payroll practices of the Bank.  During the period of this Agreement, Executive’s Base Salary shall be reviewed at least annually.  Such review shall be conducted by a committee designated by the Board (the “Committee”), and the Board may increase, but not decrease, Executive’s Base Salary (any increase in Base Salary shall become the “Base Salary” for purposes of this Agreement).  In addition to the Base Salary provided in this Section 3(a), the Bank shall provide Executive at no cost to Executive with all such other benefits as are provided uniformly to permanent full-time employees of the Bank.

 

(b) The Bank will provide Executive with employee benefit plans, arrangements and perquisites substantially equivalent to those in which Executive was participating or otherwise deriving benefit from immediately prior to the beginning of the term of this Agreement, and the Bank will not, without Executive’s prior written consent, make any changes in such plans, arrangements or perquisites which would adversely affect Executive’s rights or benefits thereunder, except for amendments that are generally applicable to all employees.  Without limiting the generality of the foregoing provisions of this Section 3(b), Executive will be entitled to participate in or receive benefits under any employee benefit plans including but not limited to, retirement plans, supplemental retirement plans, pension plans, profit-sharing plans, health-and-accident plans, medical coverage or any other employee benefit plan or arrangement made available by the Bank in the future to its senior executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements.  Executive will be entitled to incentive compensation and bonuses as provided in any plan of the Bank in which Executive is eligible to participate (and he shall be entitled to a pro rata distribution under any incentive compensation or bonus plan as to any year in which a termination of employment occurs, other than Termination for Cause).  Nothing paid to Executive under any such plan or arrangement will be deemed to be in lieu of other compensation to which Executive is entitled under this Agreement.

 

  

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(c) In addition to the Base Salary provided for by Section 3(a), the Bank shall pay or reimburse Executive for all reasonable travel and other reasonable expenses incurred by Executive in performing her obligations under this Agreement and may provide such additional compensation in such form and such amounts as the Board may from time to time determine.  All reimbursements pursuant to this Section 3(c) shall be paid promptly by the Bank and in any event no later than March 15 of the year immediately following the calendar year in which the expense was incurred.   

 

	
4.  

	
OUTSIDE ACTIVITIES

 

Executive may serve as a member of the board of directors of business, community and charitable organizations subject to the approval of the Board, provided that in each case such service shall not materially interfere with the performance of his duties under this Agreement or present any conflict of interest.  Such service to and participation in outside organizations shall be presumed for these purposes to be for the benefit of the Bank, and the Bank shall reimburse Executive his reasonable expenses associated therewith.  Such reimbursement shall be paid promptly by the Bank and in any event no later than March 15 of the year immediately following the calendar year in which the expense was incurred.

 

	
5.  

	
WORKING FACILITIES AND EXPENSES

 

Executive’s principal place of employment shall be at the Bank’s principal executive offices.  The Bank shall provide Executive, at his principal place of employment, with a private office, stenographic services and other support services and facilities suitable to his position with the Bank and necessary or appropriate in connection with the performance of his duties under this Agreement.  The Bank shall reimburse Executive for his ordinary and necessary business expenses incurred in connection with the performance of his duties under this Agreement, including, without limitation, fees for memberships in such clubs and organizations that Executive and the Board mutually agree are necessary and appropriate to further the business of the Bank, and travel and reasonable entertainment expenses.  Reimbursement of such expenses shall be made upon presentation to the Bank of an itemized account of the expenses in such form as the Bank may reasonably require.  Such reimbursement shall be paid promptly by the Bank and in any event no later than March 15 of the year immediately following the calendar year in which the expense was incurred.

 

	
6.  

	
PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION

 

(a) The provisions of this Section 6 shall apply upon the occurrence of an Event of Termination (as herein defined) during Executive’s term of employment under this Agreement.  As used in this Agreement, an “Event of Termination” shall mean and include any one or more of the following:

 

(i) the involuntary termination by the Bank of Executive’s full-time employment hereunder for any reason other than (A) Retirement, death or Disability, as defined in Section 7 below, or (B) Termination for Cause as defined in Section 8 hereof.

 

  

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(ii) Executive’s voluntary resignation from the Bank’s employ for “Good Reason.”  Good Reason shall mean:

 

(A)           a material diminution in Executive’s base compensation;

(B)           a material diminution in Executive’s authority duties or responsibilities;

(C)           a requirement that Executive must report to a corporate officer or employee instead of reporting directly to the Board;

(D)           a material diminution in the budget over which Executive retains authority;

(E)           a change in the geographic location at which Executive must perform his duties that is more than fifty (50) miles from the location of Executive’s principal workplace on the date of this Agreement; or

(F)           any other action or inaction that constitutes a material breach by the Bank of this Agreement.

Upon the occurrence of any event described above that constitutes Good Reason, Executive shall have the right to elect to terminate his employment under this Agreement by resignation within ninety (90) days following an event constituting Good Reason, provided, however that the Bank shall have at least thirty (30) days to cure such condition.  Notwithstanding the preceding sentence, in the event of a continuing breach of this Agreement by the Bank, Executive, after giving due notice within the prescribed time frame of an initial event specified above, shall not waive any of his rights solely under this Agreement and this Section 6 by virtue of the fact that Executive has submitted his resignation but has remained in the employment of the Bank and is engaged in good faith discussions to resolve any occurrence of an event constituting Good Reason.

 

  

4

  

(iii)  (A) Executive’s involuntary termination by the Bank (other than Termination for Cause) on the effective date of, or at any time following, a Change in Control, or (B) Executive’s resignation from employment with the Bank or the Company (or any successor thereto) following a Change in Control for Good Reason.  For these purposes, a Change in Control of the Bank or the Company shall mean a change in control of a nature that: (i) would be required to be reported in response to Item 5.01 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); or (ii) results in a Change in Control of the Bank or the Company within the meaning of the Home Owners’ Loan Act, as amended, and applicable rules and regulations promulgated thereunder (collectively, the “HOLA”) as in effect at the time of the Change in Control; or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (a) any “person” (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of Company’s outstanding securities, except for any securities purchased by the Bank’s employee stock ownership plan or trust; or (b) individuals who constitute the Board on the date hereof (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (b), considered as though he or she were a member of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Bank or the Company or similar transaction in which the Bank or Company is not the surviving institution occurs or is effected; or (d) a proxy statement soliciting proxies from stockholders of the Company, by someone other than the current management of the Company is distributed, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to the plan are exchanged for or converted into cash or property or securities not issued by the Company; or (e) a tender offer is made for 25% or more of the voting securities of the Company and the shareholders owning beneficially or of record 25% or more of the outstanding securities of the Company have tendered or offered to sell their shares pursuant to such tender offer and such tendered shares have been accepted by the tender offeror.

 

  

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(b) Upon the occurrence of an Event of Termination , other than an Event of Termination under Section 6(a)(iii) following a Change in Control, within thirty (30) days after the Date of Termination, as defined in Section 9(b), the Bank shall pay Executive, or, in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be, as severance pay or liquidated damages, or both, a sum equal to (i) the Executive’s earned but unpaid Base Salary and benefits, plus (ii) one (1) times the Executive’s annualized Base Salary.  In addition, the Bank will cause to be continued, at the Bank’s expense, life insurance coverage and non-taxable medical and dental insurance coverage, if any, substantially identical to the coverage maintained by the Bank for Executive prior to his termination, provided, however, such medical coverage shall cease upon the earlier of (i)  twelve (12) months from the Date of Termination or (ii) the date Executive becomes eligible for Medicare coverage, provided further, that if Executive is covered by family coverage or coverage for herself and a spouse, then the Executive’s family or spouse shall continue to be covered for the remainder of the twelve (12) month period or, in the case of the spouse, until the spouse becomes eligible for Medicare coverage or obtains healthcare coverage elsewhere, whichever period is less.  Notwithstanding anything herein to the contrary, if as the result of any change in, or interpretation of, the laws applicable to the continued welfare benefits hereunder, such benefits are deemed illegal or subject to penalties, then the Bank shall, to the extent permitted under such laws, pay to the Executive a cash lump sum payment reasonably estimated to be equal to the amount of welfare benefits (or the remainder of such amount) that the Executive is no longer permitted to receive in-kind.  Such lump sum payment shall be required to be made no later than two and one-half months following the Executive’s Date of Termination, or if later, within two and one-half months following a determination that such payment would be illegal or subject to penalties.

 

(c) Upon the occurrence of an Event of Termination under Section 6(a)(iii) following a Change in Control, within thirty (30) days after the Date of Termination, as defined in Section 9(b), the Bank shall pay Executive, or, in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be, as severance pay or liquidated damages, or both, a sum equal to (i) the Executive’s earned but unpaid Base Salary and benefits, plus (ii) two (2) times the sum of (A) Executive’s annualized Base Salary and (B) the highest rate of bonus awarded to Executive during the two (2) years immediately prior to the year in which the Executive’s Date of Termination occurs.  In addition, the Bank will cause to be continued, at the Bank’s expense, life insurance coverage and non-taxable medical and dental insurance coverage, if any, substantially identical to the coverage maintained by the Bank for Executive prior to his termination, provided, however, such medical coverage shall cease upon the earlier of (i)  twenty-four (24) months from the Date of Termination or (ii) the date Executive becomes eligible for Medicare coverage, provided further, that if Executive is covered by family coverage or coverage for herself and a spouse, then the Executive’s family or spouse shall continue to be covered for the remainder of the twenty-four (24) month period or, in the case of the spouse, until the spouse becomes eligible for Medicare coverage or obtains healthcare coverage elsewhere, whichever period is less.  Notwithstanding anything herein to the contrary, if as the result of any change in, or interpretation of, the laws applicable to the continued welfare benefits hereunder, such benefits are deemed illegal or subject to penalties, then the Bank shall, to the extent permitted under such laws, pay to the Executive a cash lump sum payment reasonably estimated to be equal to the amount of welfare benefits (or the remainder of such amount) that the Executive is no longer permitted to receive in-kind.  Such lump sum payment shall be required to be made no later than two and one-half months following the Executive’s Date of Termination, or if later, within two and one-half months following a determination that such payment would be illegal or subject to penalties.

 

  

6

  

(d) Within thirty (30) days of Executive’s Date of Termination in connection with an Event of Termination, the Bank shall pay Executive a lump sum equal to the present value of the Bank’s contributions that would have been made on his behalf under each of the Bank’s 401(k) Plan and Employee Stock Ownership Plan (and any other tax-qualified defined contribution plan maintained by the Bank in which Executive participates) as if Executive had continued working for the Bank for a twelve (12) month period (or a twenty-four (24) month period in the event of such termination following a Change in Control) following his Date of Termination earning his actual final rate of Base Salary as of the Date of Termination and as if Executive had made the maximum amount of employee contributions permitted, if any, under such plan or plans.  Such present values are to be determined using a discount rate equal to the short-term Internal Revenue Service’s “applicable federal rate” for the month before the date of the Date of Termination, compounded annually.

 

(e) Notwithstanding anything to the contrary herein, Executive’s voluntary resignation for any reason other than for Good Reason shall not entitle Executive to any payments under Section 6 of this Agreement.

 

	
7.  

	
TERMINATION UPON RETIREMENT, DISABILITY OR DEATH

 

(a)  Retirement.  For purposes of this Agreement, termination by the Bank of Executive’s employment based on “Retirement” shall mean termination of Executive’s employment by the Board upon Executive’s attainment of age 65, or such later date as determined by the Board.  Upon termination of Executive’s employment because of Retirement, Executive shall be entitled to all benefits under any retirement plan of the Bank and other plans to which Executive is a party, but Executive shall not be entitled to the termination benefits specified in Section 6.

 

(b)  Disability.  In the event Executive is unable to perform his duties under this Agreement on a full-time basis for a period of six (6) consecutive months by reason of “Disability” within the meaning of Code Section 409A, the Bank may terminate this Agreement, provided that the Bank shall continue to be obligated to pay Executive his Base Salary at the rate in effect at the Date of Termination for the remaining term of the Agreement, or one year, whichever is the longer period of time, and provided further that any amounts actually paid to Executive pursuant to any disability insurance or other similar such program which the Bank has provided or may provide on behalf of its employees or pursuant to any workman’s or Social Security disability program shall reduce the Base Salary to be paid to Executive pursuant to this paragraph.

 

(c)  Death.  In the event of Executive’s death during the term of the Agreement, his estate, legal representatives or named beneficiaries (as directed by Executive in writing) shall be paid Executive’s Base Salary at the rate in effect at the time Executive’s death for a period of one (1) year from the date of Executive’s death, and the Bank will continue to provide non-taxable medical and dental and other benefits normally provided for an Executive’s family for one (1) year after Executive’s death.

 

  

7

  

 

	
8.  

	
TERMINATION FOR CAUSE

 

The term “Termination for Cause” shall mean termination because of Executive’s personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than minor traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement.  In determining incompetence, the acts or omissions shall be measured against standards generally prevailing in the savings institutions industry.  Executive shall not have the right to receive Base Salary or other compensation for any period after Termination for Cause.  Any stock options or other incentives granted to Executive under any plan of the Bank, the Company or any subsidiary or affiliate thereof (whether vested or unvested), shall become null and void effective upon Executive’s receipt of Notice of Termination for Cause pursuant to Section 9 hereof.

 

	
9.  

	
NOTICE

 

(a) Any purported termination by the Bank or by Executive shall be communicated by Notice of Termination to the other party hereto.  For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated.

 

(b) “Date of Termination” shall mean (A) if Executive’s employment is terminated for Disability, thirty (30) days after a Notice of Termination is given (provided that he shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period), and (B) if his employment is terminated for any other reason, the date specified in the Notice of Termination.

 

(c) If the party receiving a Notice of Termination desires to dispute or contest the basis or reasons for termination, the party receiving the Notice of Termination must notify the other party within thirty (30) days after receiving the Notice of Termination that such a dispute exists, and shall pursue the resolution of such dispute in good faith and with reasonable diligence pursuant to Section 20 of this Agreement.  During the pendency of any such dispute, neither the Company nor the Bank shall be obligated to pay Executive Base Salary or other compensation beyond the Date of Termination.  Any amounts paid to Executive upon resolution of such dispute under this Section shall be offset against or reduce any other amounts due under this Agreement.

 

	
10.  

	
POST-TERMINATION OBLIGATIONS

 

(a) All payments and benefits to Executive under this Agreement shall be subject to Executive’s compliance with paragraph (b) of this Section and Section 11 during the term of this Agreement and for one (1) full year after the expiration or termination hereof.

 

  

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(b) Executive shall, upon reasonable notice, furnish such information and assistance to the Bank as may reasonably be required by the Bank in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party.

 

	
11.  

	
NON-COMPETITION AND NON-SOLICITATION

 

(a) Non-Compete/Non-Solicitation.  Upon any termination of Executive’s employment hereunder, other than a termination, (whether voluntary or involuntary) in connection with a Change in Control, as a result of which the Bank is paying Executive benefits under Section 6 of this Agreement, Executive agrees not to compete with the Bank and/or the Company for a period of one (1) year following such termination within twenty-five (25) miles of any existing branch of the Bank or any subsidiary of the Company or within twenty-five (25) miles of any office for which the Bank, the Company or a Bank subsidiary of the Company has filed an application for regulatory approval to establish an office, determined as of the effective date of such termination, except as agreed to pursuant to a resolution duly adopted by the Board.  Executive agrees that during such period and within said area, cities, towns and counties, Executive shall not work for or advise, consult or otherwise serve with, directly or indirectly, any entity whose business materially competes with the depository, lending or other business activities of the Bank and/or the Company. The parties hereto, recognizing that irreparable injury will result to the Bank and/or the Company, its business and property in the event of Executive’s breach of this Subsection 11(a) agree that in the event of any such breach by Executive, the Bank and/or the Company will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by Executive, Executive’s partners, agents, servants, employers, employees and all persons acting for or with Executive.  Executive represents and admits that Executive’s experience and capabilities are such that Executive can obtain employment in a business engaged in other lines and/or of a different nature than the Bank and/or the Company, and that the enforcement of a remedy by way of injunction will not prevent Executive from earning a livelihood.  Nothing herein will be construed as prohibiting the Bank and/or the Company from pursuing any other remedies available to the Bank and/or the Company for such breach or threatened breach, including the recovery of damages from Executive.

 

In addition, upon any termination of Executive’s employment hereunder, other than a termination (whether voluntary or involuntary) in connection with a Change Control, as a result of which the Bank is paying Executive benefits under Section 6 of this Agreement, Executive agrees not to solicit, provide any information, advice or recommendation or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any customer of the Bank or its affiliates to terminate an existing business or commercial relationship with the Bank.

 

  

9

  

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

 

	
12.  

	
SOURCE OF PAYMENTS

 

All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Bank.  The Company, however, guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from the Bank are not timely paid or provided by the Bank, such amounts and benefits shall be paid or provided by the Company.

 

	
13.  

	
NO EFFECT ON EMPLOYEE BENEFITS PLANS OR PROGRAMS

 

The Board may terminate Executive’s employment at any time, but, any termination of Executive’s employment, other than Termination for Cause shall have no effect on or prejudice the vested rights of Executive under the Company’s or the Bank’s qualified or non-qualified retirement, pension, savings, thrift, profit-sharing or stock bonus plans, group life, health (including hospitalization, medical and major medical), dental, accident and long term disability insurance plans or other employee benefit plans or programs, or compensation plans or programs in which Executive was a participant.  Executive shall not have the right to receive any Base Salary or other compensation for any period after Termination for Cause as defined in Section 8, except as otherwise required by applicable law.

 

  

10

  

	
14.  

	
REQUIRED REGULATORY PROVISIONS

 

(a) If Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Section 8(e)(3) (12 U.S.C. §1818(e)(3)) or 8(g)(1) (12 U.S.C. §1818(g)(1)) of the Federal Deposit Insurance Act (“FDIA”), as amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the Bank’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 Bank may in its discretion (i) pay Executive all or part of the Base Salary or other compensation withheld while its contract obligations were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

 

(b) If Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) (12 U.S.C. §1818(e)(4)) or 8(g)(1) (12 U.S.C. §1818(g)(1)) of the FDIA, all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

 

(c) If the Bank is in default as defined in Section 3(x)(1) (12 U.S.C. §1813(x)(1)) of the FDIA, 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.

 

(d) All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank, (i) by the Director of the Office of Thrift Supervision (“OTS”)  or a designee, at the time the Federal Deposit Insurance Corporation (“FDIC”) enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) (12 U.S.C. §1823(c)) of the FDIA; or (ii) by the Director of OTS or a designee at the time the Director of OTS or a designee approves a supervisory merger to resolve problems related to operations of the Bank or when the Bank is determined by the Director of OTS or a designee 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.

 

(e) Notwithstanding anything herein contained to the contrary, any payments to Executive by the Company, whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the FDIA, 12 U.S.C. § 1828(k), and the regulations promulgated thereunder in 12 C.F.R. Part 359, Golden Parachute and Indemnification Payments.

 

(f) Notwithstanding anything herein to the contrary, payments to or for the benefit of Executive hereunder shall not exceed three times Executive’s annual average compensation for the five most recent taxable years, within the meaning of Section 310 of the Office of Thrift Supervision Examination Handbook.

 

  

11

  

(g) Notwithstanding anything else in this Agreement to the contrary, Executive’s employment shall not be deemed to have been terminated unless and until Executive has a Separation from Service within the meaning of Code Section 409A.  For purposes of this Agreement, a “Separation from Service” shall have occurred if the Bank and Executive reasonably anticipate that either no further services will be performed by Executive after the Date of Termination (whether as an employee or as an independent contractor) or the level of further services performed is less than 50% of the average level of bona fide services in the thirty-six (36) months immediately preceding the termination.  For all purposes hereunder, the definition of Separation from Service shall be interpreted consistent with Treasury Regulation Section 1.409A-1(h)(ii).

 

(h) Notwithstanding the foregoing, in the event the Executive is a Specified Employee (as defined herein), then, solely, to the extent required to avoid penalties under Code Section 409A, the Executive’s payments shall be delayed until the first day of the seventh month following the Executive’s Separation from Service.  A “Specified Employee” shall be interpreted to comply with Code Section 409A and shall mean a key employee within the meaning of Code Section 416(i) (without regard to paragraph 5 thereof), but an individual shall be a “Specified Employee” only if the Bank or Company is or becomes a publicly traded company.

 

	
15.  

	
NO ATTACHMENT

 

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

 

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

 

	
16.  

	
ENTIRE AGREEMENT; MODIFICATION AND WAIVER

 

(a) This instrument contains the entire agreement of the parties relating to the subject matter hereof, and supercedes in its entirety any and all prior agreements, understandings or representations relating to the subject matter hereof, except that the parties acknowledge that this Agreement shall not affect any of the rights and obligations of the parties  under any agreement or plan entered into with or by the Bank or the Company pursuant to which the Executive may receive Base Salary or other compensation except as set forth in Section 12 hereof.  No modifications of this Agreement shall be valid unless made in writing and signed by the parties hereto.

 

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

 

  

12

  

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

 

	
17.  

	
SEVERABILITY

 

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

 

	
18.  

	
HEADINGS FOR REFERENCE ONLY

 

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

 

	
19.  

	
GOVERNING LAW

 

This Agreement shall be governed by the laws of the State of California but only to the extent not superseded by federal law.

 

	
20.  

	
ARBITRATION

 

Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators, one of whom shall be selected by the Bank, one of whom shall be selected by Executive and the third of whom shall be selected by the other two arbitrators.  The panel shall sit in a location within fifty (50) miles from the location of the Bank, in accordance with the rules of the Judicial Mediation and Arbitration Systems (JAMS) then in effect.  Judgment may be entered on the arbitrators award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid Base Salary and other compensation until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.

 

	
21.  

	
PAYMENT OF LEGAL FEES

 

All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Bank, provided that the dispute or interpretation has been settled by Executive and the Bank or resolved in Executive’s favor and provided that such payment or reimbursement shall be made not later than two and one-half (2 1⁄2) months after the end of the taxable year in which such fees were incurred.

 

  

13

  

 

	
22.  

	
INDEMNIFICATION

 

The Bank shall provide Executive (including his heirs, executors and administrators) with coverage under a standard directors and officers liability insurance policy at its expense.  Subject to 12 C.F.R. §545.121, the Bank or the Company, shall indemnify Executive (and his heirs, executors and administrators) to the fullest extent permitted under federal law against all expenses and liabilities reasonably incurred by herein connection with or arising out of any action, suit or proceeding in which he may be involved by reason of having been a director or officer of the Bank or the Company (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys fees and the cost of reasonable settlements (such settlements must be approved by the Board of Directors of the Bank or the Company).  If such action, suit or proceeding is brought against Executive in his capacity as an officer or director of the Bank, however, such indemnification shall not extend to matters as to which Executive is finally adjudged to be liable for willful misconduct in the performance of his duties.

 

	
23.  

	
SUCCESSORS AND ASSIGNS

 

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

 

[Signature Page Follows]

 

  

14

  

SIGNATURES

IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement to be executed and their seals to be affixed hereunto by their duly authorized officers, and Executive has signed this Agreement, as of the day and date first above written.

 

 

	  	
KAISER FEDERAL BANK

	  	  
	  	  
	  	
By: /s/ James L. Breeden                                                                          

	  	  
	  	  
	  	
KAISER FEDERAL FINANCIAL GROUP, INC.

	  	  
	  	  
	  	
By: /s/ James L. Breeden                                                                          

	  	  
	  	  
	  	
EXECUTIVE

	  	  
	  	  
	  	
/s/ Dustin Luton                                                                          

	  	
Dustin Luton

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