Document:

Unassociated Document

CHANGE-IN-CONTROL SEVERANCE AGREEMENT

THIS AGREEMENT, dated as of January 23, 2012, by and between SeaChange International, Inc., with its principal place of business at 50 Nagog Park, Acton, MA  01720 (the "Company"), and Michael Bornak (the "Executive").

WHEREAS, the Company considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel, and recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the distraction or departure of management personnel to the detriment of the Company and its stockholders; and

WHEREAS, the Board of Directors of the Company has determined that appropriate steps should be taken to reinforce and encourage the Executive's continued attention and dedication to the Executive's assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is presently known to be contemplated.

NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Section 1

DEFINITIONS

Except as may otherwise be specified or as the context may otherwise require, the following terms shall have the respective meanings set forth below whenever used herein:

"Annual Bonus" shall mean the annual bonus, if any, for which the Executive is eligible with respect to the fiscal year in which a Covered Termination occurs, with the amount payable pursuant to Section 2.2(a) in respect thereof to be determined as follows:  (i) the target bonus shall be pro rated for the period of time elapsed in the Company's fiscal year prior to the occurrence of the Covered Termination; and (ii) the actual bonus relative to such adjusted target bonus shall be determined based on the Company's actual performance to date in such fiscal year against the Company's applicable year to date performance targets.

"Base Salary" shall mean the annual base rate of regular compensation of the Executive immediately before a Covered Termination, or if greater, the highest annual such rate at any time during the 12-month period immediately preceding the Covered Termination.

"Board" shall mean the Board of Directors of the Company.

"Cause" shall mean (i) the Executive's engaging in willful and repeated gross negligence or gross misconduct, (ii) the Executive's breaching of a material fiduciary duty to the Employer, or (iii) the Executive's being convicted of a felony, in either case, to the demonstrable and material injury to the Employer. For purposes hereof, no act, or failure to act, on the Executive's part, shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that any act or omission was in the best interest of the Employer.

 

  

  

  

"Change in Control" shall mean the first to occur, after the date hereof, of any of the following:

(i)           the members of the Board at the beginning of any consecutive 12-calendar-month period (the “Incumbent Directors”) cease for any reason other than due to death to constitute at least a majority of the members of the Board; provided that any director whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the members of the Board then still in office who were members of the Board at the beginning of such 12-calendar-month period, shall be deemed to be an Incumbent Director;

(ii) any consolidation or merger of the Company where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Securities Exchange Act), directly or indirectly, shares of Stock representing in the aggregate 50% or more of the combined voting power of the securities of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any);

(iii) there shall occur (A) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportion as their ownership of the Company immediately prior to such sale or (B) the approval by stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company; or

(iv) Any corporation or other legal person, pursuant to a tender offer, exchange offer, purchase of stock (whether in a market transaction or otherwise) or other transaction or event acquires securities representing 40% or more of the combined voting power of the voting securities of the Company, or there is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the U.S. Securities Exchange Act, disclosing that any "person" (as such term is used in Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act) has become the "beneficial owner" (as such term is used in Rule 13d-3 under the Securities Exchange Act) of securities representing 40% or more of the combined voting power of the voting securities of the Company.

Notwithstanding the foregoing, none of the foregoing event(s) shall constitute a Change in Control unless such event(s) constitute a “change in the ownership or effective control” or a change “in the ownership of a substantial portion of the assets,” in each case within the meaning of Section 409A(a)(2)(A)(v) of the Code and any regulations and other guidance in effect from time-to-time thereunder including, without limitation, Notice 2005-1.

 

  

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Upon the occurrence of a Change in Control as provided above, no subsequent event or condition shall constitute a Change in Control for purposes of this Agreement, with the result that there can be no more than one Change in Control hereunder.

"Code" shall mean the Internal Revenue Code of 1986, as amended.

"Company" shall mean, subject to Section 4.1(a), SeaChange International, Inc., a Delaware corporation.

"Covered Termination" shall mean if, within the one-year period immediately following a Change in Control, the Executive (i) is terminated by the Employer without Cause (other than on account of death or Disability), or (ii) terminates the Executive's employment with the Employer for Good Reason. The Executive shall not be deemed to have terminated for purposes of this Agreement merely because he or she ceases to be employed by the Employer and becomes employed by a new employer involved in the Change in Control; provided that such new employer shall be bound by this Agreement as if it were the Employer hereunder with respect to the Executive. It is expressly understood that no Covered Termination shall be deemed to have occurred merely because, upon the occurrence of a Change in Control, the Executive ceases to be employed by the Employer and does not become employed by a successor to the Employer after the Change in Control if the successor makes an offer to employ the Executive on terms and conditions which, if imposed by the Employer, would not give the Executive a basis on which to terminate employment for Good Reason.

"Date of Termination" shall mean the date on which a Covered Termination occurs.

"Disability" shall mean the occurrence after a Change in Control of the incapacity of the Executive due to physical or mental illness, whereby the Executive shall have been absent from the full-time performance of the Executive's duties with the Employer for six consecutive months or, in any one year period, for an aggregate of six months.

"Employer" shall mean the Company (if and for so long as the Executive is employed thereby) and each Subsidiary which may now or hereafter employ the Executive or, where the context so requires, the Company and such Subsidiaries collectively. A subsidiary which ceases to be, directly or indirectly, through one or more intermediaries, controlling, controlled by or under common control with the Company prior to a Change in Control (other than in connection with and as an integral part of a series of transactions resulting in a Change in Control) shall, automatically and without any further action, cease to be (or be part of) the Employer for purposes hereof.

 

  

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"Good Reason" shall mean, without the express written consent of the Executive, the occurrence after a Change in Control of any of the following circumstances, unless such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof:

(i) the material reduction of the Executive's title, or the reduction of the Executive's authority, duties or responsibilities, or the assignment to the Executive of any duties inconsistent with Executive's position, authority, duties or responsibilities from those in effect immediately prior to the Change in Control;

(ii) a reduction in the Executive's Base Salary as in effect immediately before the Change in Control;

(iii) a material reduction in the Executive's aggregate compensation opportunity, comprised only of the Executive's (A) Base Salary, and (B) bonus opportunity (taking into account, without limitation, any target, minimum and maximum amounts payable and the attainability and otherwise the reasonableness of any performance hurdles, goals and other measures), if any;

(iv) the Company's requiring the Executive to be based at any office or location more than 75 miles from that location at which the Executive performed Executive's services immediately prior to the occurrence of a Change in Control, except for travel reasonably required in the performance of the Executive's responsibilities;

(v) the failure of the Company to obtain a reasonable agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 4.1(a);

(vi) the failure of the Company to pay the Executive any amounts due hereunder; or

(vii) any other material breach by the Company of this Agreement.

"Notice of Termination" shall mean a notice given by the Employer or Executive, as applicable, which shall indicate the date of termination and 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 the Executive's employment under the provisions so indicated.

"Person" shall have the meaning ascribed thereto by Section 3(a)(9) of the Securities Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof (except that such term shall not include (i) the Company or any of its Subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company, or (v) such Executive or any "group" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act) which includes the Executive).

 

  

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"Securities Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

"Stock" shall mean the common stock, $.01 par value, of the Company

"Subsidiary" shall mean any entity, directly or indirectly, through one or more intermediaries, controlled by the Company.

Section 2

BENEFITS

2.1           If a Change in Control occurs, then:

(a) (i) any and all outstanding unvested stock options and stock appreciation rights held by the Executive shall immediately prior to the Change in Control automatically vest and become immediately exercisable in accordance with their terms, and (ii) notwithstanding anything to the contrary contained in clause (i), upon a termination of employment (regardless of the party initiating the termination, for any reason or no reason), all stock options and stock appreciation rights held by the Executive shall be exercisable for the lesser of (A) the remainder of the generally applicable term of the stock options or stock appreciation rights, which is measured from the date of grant thereof, and (B) three years from the date of such termination; provided that nothing in this Section 2.1(a) shall reduce or otherwise adversely affect the rights under such stock options and stock appreciation rights that the Executive would have without regard to this Section 2.1(a); and

(b) any and all restricted stock and restricted stock rights then held by the Executive shall immediately prior to the Change in Control fully vest and become immediately transferable free of restrictions, other than restrictions imposed by applicable law.

2.2           If a Covered Termination occurs, then (subject to the provisions of Section 2.3(b)) the Executive shall be entitled hereunder to the following:

(a) the Company shall pay to the Executive an amount equal to the sum of (i) the Executive's Base Salary and (ii) the Executive's Annual Bonus;

(b) for a period of one year after such termination, the Employer shall arrange to make available to the Executive medical, dental, group life and disability benefits that are at least at a level (and cost to the Executive) that is substantially similar in the aggregate to the level of such benefits which was available to the Executive immediately prior to the Change in Control; provided that (i) the Employer shall be required to provide group life and disability benefits only to the extent it is able to do so on reasonable terms and at a reasonable cost, (ii) the Employer shall not be required to provide benefits under this Section 2.2(b) upon and after the Change in Control which are in excess of those provided to a significant number of executives of similar status who are employed by the Employer from time to time upon and after the Change in Control, and (iii) no type of benefit otherwise to be made available to the Executive pursuant to this Section 2.2(b) shall be required to be made available to the extent that such type of benefit is made available to the Executive by any subsequent employer of the Executive;

 

  

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(c) the Employer shall provide the Executive with outplacement service through a bona fide outplacement organization reasonably acceptable to the Executive that agrees to supply the Executive with outplacement counseling, a private office and administrative support including telephone service until the earlier of one year from the Date of Termination or until such time that Executive secures employment;

(d) the Company shall pay for the Executive to receive financial planning services for which the Company pays not more than $5,000; and

(e) the Company shall provide the Executive with a payment for any accrued but unused vacation.

2.3           (a) The payments provided for in Section 2.2 shall (except as otherwise expressly provided therein or as provided in Section 2.3(b) or Section 2.4(b), or as otherwise expressly provided hereunder) be made on the business day coinciding with or next following the 30th day following the Date of Termination (the “Payment Date”).

Notwithstanding any other provision of this Agreement, if the Executive is a “specified employee” as defined in Section 409A of the Code, any payment under this Agreement that would constitute deferred compensation for purposes of Section 409A of the Code that is payable on account of the Executive’s separation from service shall be made in accordance with Section 2.4(b) hereof.

(b) Notwithstanding any other provision of this Agreement to the contrary, no payment or benefit otherwise provided for under or by virtue of the foregoing provisions of this Agreement shall be paid or otherwise made available unless, on or before the Payment Date, the Executive has executed and not revoked a valid, binding and irrevocable general release of claims in favor of the Employer, in form and substance reasonably acceptable to the Employer. The failure by the Executive to timely deliver (and not revoke) a valid and binding release shall result in the forfeiture of all payments and benefits under this Agreement.

2.4  The Company and the Executive acknowledge and agree that the provisions for payments and benefits or reimbursements in Sections 2.2 and 3.1 of this Agreement (the “Deferred Compensation”) may constitute a “nonqualified deferred compensation plan” that is subject to Section 409A.  The Company and the Executive intend to administer the Deferred Compensation in a manner that at all times is either exempt from or complies in form and operation with the applicable limitations and standards of Section 409A.  Therefore, notwithstanding anything else contained herein, the following limitations are expressly imposed with respect to the Deferred Compensation.

(a) The Executive’s entitlement to receive or begin receiving payment of the Deferred Compensation is conditioned upon the Executive’s separation from service.  For this purpose, the Executive shall have separated from service if and only if his level of services to the Company and its affiliates decreases and is expected to remain at a level equal to twenty percent (20%) or less of the average level of services performed by the Executive during the immediately preceding 36-month period.

 

  

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(b) If the Executive is a “specified employee” as defined in Section 409A with respect to the Company upon his separation from service, then any payment required hereunder, to the extent such payment would constitute deferred compensation for purposes of Section 409A that is payable on account of the Executive’s separation from service, shall be deferred and shall not be paid to the Executive until the date that is the later of (1) the date such payment is due under the terms of this Agreement, or (2) 6 months and 1 day following the date of the Executive’s separation from service.

 

(c) It is intended that each installment, if any of the payments and benefits constituting Deferred Compensation shall be treated as a separate “payment” for purposes of Section 409A.  Neither the Company nor the Executive shall have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A.

 

(d) All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A.  All expenses or other reimbursements that are taxable income to the Executive shall in no event be paid later than the last day of the second taxable year following the taxable year in which the Executive separated from service. With regard to any provision herein for reimbursement of costs and expenses or in-kind benefits, except as permitted by Section 409A, the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, the amount of expenses eligible for reimbursement or in-kind benefits provided during any taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other taxable year, provided that the foregoing clause shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Internal Revenue Code solely because such expenses are subject to a limit related to the period the arrangement is in effect and such payments shall be made on or before the last day of the Executive’s taxable year following the taxable year in which the expense was incurred.

 

  

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Section 3

PARACHUTE TAX PROVISIONS

3.1            If all, or any portion, of the payments and benefits provided under this Agreement, if any, either alone or together with other payments and benefits which the Executive receives or is entitled to receive from the Company or its affiliates, (the “Total Payments”) would constitute an excess "parachute payment" within the meaning of Section 280G of the Code (whether or not under an existing plan, arrangement or other agreement) and would result in the imposition on the Executive of an excise tax under Section 4999 of the Code (the “Excise Tax”), then the Executive shall be paid or provided, as the case may be, the Total Payments unless the after-tax amount that would be retained by the Executive (after taking into account any and all applicable federal, state and local excise, income or other taxes payable by the Executive, including the Excise Tax) is less than the after-tax amount that would be retained by the Executive (after taking into account any and all applicable federal, state and local excise, income or other taxes payable by the Executive, including the Excise Tax) if the Executive were instead to be paid or provided, as the case may be, the maximum amount of the Total Payments that the Executive could receive without being subject to the Excise Tax (the “Reduced Payments”), in which case the Executive shall be entitled only to the Reduced Payments.

3.2           Except as may otherwise be agreed to by the Company and the Executive, the amount or amounts (if any) payable under this Section 3 shall be determined, at the sole cost of the Company, by the Company's independent auditors (who served in such capacity immediately prior to the Change in Control), whose determination or determinations shall be final and binding on all parties. The Executive hereby agrees to utilize such determination or determinations, as applicable, in filing all of the Executive's tax returns with respect to the excise tax imposed by Section 4999 of the Code. If such independent auditors refuse to make the required determinations, then such determinations shall be made by a comparable independent accounting firm of national reputation reasonably selected by the Company. Notwithstanding any other provision of this Agreement, the Executive hereby agrees to be bound by and comply with the provisions of this Section 3.2.

Section 4

MISCELLANEOUS

4.1            (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform under the terms of this Agreement in the same manner and to the same extent that the Company and its affiliates would be required to perform it if no such succession had taken place (provided that such a requirement to perform which arises by operation of law shall be deemed to satisfy the requirements for such an express assumption and agreement), and in such event the Company (as constituted prior to such succession) shall have no further obligation under or with respect to this Agreement. Failure of the Company to obtain such assumption and agreement with respect to the Executive prior to the effectiveness of any such succession shall be a breach of the terms of this Agreement with respect to the Executive and shall entitle the Executive to compensation from the Employer (as constituted prior to such succession) in the same amount and on the same terms as the Executive would be entitled to hereunder were the Executive's employment terminated for Good Reason following a Change in Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business or assets as aforesaid which assumes and agrees (or is otherwise required) to perform this Agreement. Nothing in this Section 4.1(a) shall be deemed to cause any event or condition which would otherwise constitute a Change in Control not to constitute a Change in Control.

 

  

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(b) Notwithstanding Section 4.1(a), the Company shall remain liable to the Executive upon a Covered Termination after a Change in Control if the Executive is not offered continuing employment by a successor to the Employer on a basis which would not constitute a termination for Good Reason.

(c) This Agreement, and the Executive's and the Company's rights and obligations hereunder, may not be assigned by the Executive or, except as provided in Section 4.1(a), the Company, respectively; any purported assignment by the Executive or the Company in violation hereof shall be null and void.

(d) The terms of this Agreement shall inure to the benefit of and be enforceable by the personal or legal representatives, executors, administrators, permitted successors, heirs, distributees, devisees and legatees of the Executive. If the Executive shall die while an amount would still be payable to the Executive hereunder if they had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee or, if there is no such designee, the Executive's estate.

4.2           Except as expressly provided in Section 2.2, the Executive shall not be required to mitigate damages or the amount of any payment or benefit provided for under this Agreement by seeking other employment or otherwise, nor will any payments or benefits hereunder be subject to offset in the event the Executive does mitigate.

4.3           The Employer shall pay all reasonable legal fees and expenses incurred in a legal proceeding by the Executive in seeking to obtain or enforce any right or benefit provided by this Agreement. Such payments are to be made within twenty days after the Executive's request for payment accompanied with such evidence of fees and expenses incurred as the Employer reasonably may require; provided that if the Executive institutes a proceeding and the judge or other decision-maker presiding over the proceeding affirmatively finds that the Executive has failed to prevail substantially, the Executive shall pay Executive's own costs and expenses (and, if applicable, return any amounts theretofore paid on the Executive's behalf under this Section 4.3).

4.4           For the purposes of this Agreement, notice and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when hand delivered or mailed by United States certified or registered express mail, return receipt requested, postage prepaid, if to the Executive, addressed to the Executive at his or her respective address on file with the Company; if to the Company, addressed to SeaChange International, Inc., 50 Nagog Park, Acton, MA  01720, and directed to the attention of its Chief Financial Officer; if to the Board, addressed to the Board of Directors, c/o 50 Nagog Park, Acton, MA  01720, and directed to the Company's Chief Financial Officer; or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.

 

  

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4.5           Unless otherwise determined by the Employer in an applicable plan or arrangement, no amounts payable hereunder upon a Covered Termination shall be deemed salary or compensation for the purpose of computing benefits under any employee benefit plan or other arrangement of the Employer for the benefit of its employees.

4.6           This Agreement is the exclusive arrangement with the Executive applicable to payments and benefits in connection with a change in control of the Company (whether or not a Change in Control), and supersedes any prior arrangements involving the Company or its predecessors or affiliates relating to changes in control (whether or not Changes in Control). This Agreement shall not limit any right of the Executive to receive any payments or benefits under an employee benefit or executive compensation plan of the Employer, initially adopted as of or after the date hereof, which are expressly contingent thereunder upon the occurrence of a change in control (including, but not limited to, the acceleration of any rights or benefits thereunder); provided that in no event shall the Executive be entitled to any payment or benefit under this Agreement which duplicates a payment or benefit received or receivable by the Executive under any severance or similar plan or policy of the Employer, and in any such case the Executive shall only be entitled to receive the greater of the two payments.

4.7           Any payments hereunder shall be made out of the general assets of the Employer. The Executive shall have the status of general unsecured creditor of the Employer, and this Agreement constitutes a mere promise by the Employer to make payments under this Agreement in the future as and to the extent provided herein.

4.8           Nothing in this Agreement shall confer on the Executive any right to continue in the employ of the Employer or interfere in any way (other than by virtue of requiring payments or benefits as may expressly be provided herein) with the right of the Employer to terminate the Executive's employment at any time.

4.9           The Employer shall be entitled to withhold from any payments or deemed payments any amount of tax withholding required by law.

4.10           Any controversy or claim arising out of or relating to this Agreement or the breach of this Agreement that is not resolved by the Employer and the Executive shall be submitted to arbitration in Boston, Massachusetts, in accordance with Massachusetts law and the procedures of the American Arbitration Association. The determination of the arbitrator(s) shall be conclusive and binding on the Employer and Executive and judgment may be entered on the arbitrator(s)' award in any court having jurisdiction.

 

  

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4.11           This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege nor any single or partial exercise of any such right, power or privilege, preclude any other or further exercise thereof or the exercise of any other such right, power or privilege.

4.12           The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect.

 

  

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4.13           The use of captions in this Agreement is for convenience. The captions are not intended to and do not provide substantive rights.

4.14           THIS AGREEMENT SHALL BE CONSTRUED, ADMINISTERED AND ENFORCED ACCORDING TO THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, EXCEPT TO THE EXTENT PREEMPTED BY FEDERAL LAW.

IN WITNESS WHEREOF, the parties hereto have signed their names, effective as of the date first above written.

 

	 	SEACHANGE INTERNATIONAL, INC. 

By:___________________________

Name:

Title:

EXECUTIVE:

______________________________

Name:  Michael Bornak

 

 

  

- 12 -AGREEMENT BY AND BETWEEN

Naugatuck Valley Savings and Loan

Naugatuck, CT

and

The Comptroller of the Currency

Naugatuck Valley Savings and Loan, Naugatuck, Connecticut (“Association”) and the Comptroller of the Currency of the United States of America (“Comptroller”) wish to protect the interests of the depositors, other customers, and the shareholder of the Association, and, toward that end, wish the Association to operate safely and soundly and in accordance with all applicable laws, rules and regulations.

The Comptroller, through his authorized representative, has examined the Association and his findings are contained in the Report of Examination (“ROE”) for the examination that commenced on August 1, 2011.  The Comptroller has found unsafe or unsound banking practices related to asset quality, management and credit risk, as well as violations of 12 C.F.R. Parts 162 and 1641.

In consideration of the above premises, it is agreed, between the Association, by and through its duly elected and acting Board of Directors (“Board”), and the Comptroller, through his authorized representative, that the Association shall operate at all times in compliance with the articles of this Agreement.

1 In order to facilitate the Office of the Comptroller of the Currency’s (OCC) enforcement and administration of former Office of Thrift Supervision (OTS) rules and to make appropriate changes to these rules to reflect OCC supervision of federal savings associations as of the transfer date, the OCC republished, with nomenclature and other technical changes, the OTS regulations formerly found in Chapter V of Title 12 of the Code of Federal Regulations.  The republished regulations are codified with the OCC’s regulations in Chapter I at parts 100 through 197 (“Republished Regulations”), effective on July 21, 2011.  The Republished Regulations supersede the OTS regulations in Chapter V for purposes of OCC supervision and regulation of federal savings associations.  OTS Integration Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act; Interim Final Rule, 76 Fed.Reg. 48,950 (Aug. 9, 2011).  References in this document are to the Republished Regulations at 12 C.F.R. Chapter I.

  

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ARTICLE I

JURISDICTION

(1)      This Agreement shall be construed to be a “written agreement entered into with the agency” within the meaning of 12 U.S.C. § 1818(b)(1).

(2)      This Agreement shall be construed to be a “written agreement between such depository institution and such agency” within the meaning of 12 U.S.C. § 1818(e)(1) and 12 U.S.C. § 1818(i)(2).

(3)      This Agreement shall be construed to be a “formal written agreement” within the meaning of 12 C.F.R. § 163.555.  See 12 U.S.C. § 1831i.

(4)      This Agreement shall be construed to be a “written agreement” within the meaning of 12 U.S.C. § 1818(u)(1)(A).

(5)      This Agreement shall cause the Association to not be eligible for “expedited treatment” pursuant to 12 C.F.R. § 116.5, unless otherwise informed in writing by the Comptroller.

(6)      All reports or plans which the Association or Board has agreed to submit to the Assistant Deputy Comptroller pursuant to this Agreement shall be forwarded to:

Tara L. French, Assistant Deputy Comptroller

New York Metro Field Office

343 Thornall Street, Suite 610

Edison, NJ 08837

  

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ARTICLE II

COMPLIANCE COMMITTEE

(1)      Within thirty (30) days of the date of this Agreement, the Board shall appoint a Compliance Committee of at least three (3) directors, the majority of which shall not be an employee or controlling shareholder of the Association or any of its affiliates (as the term “affiliate” is defined in 12 U.S.C. § 371c(b)(1)), or a family member of any such person.  Upon appointment, the names of the members of the Compliance Committee and, in the event of a change of the membership, the name of any new member shall be submitted in writing to the Assistant Deputy Comptroller.  The Compliance Committee shall be responsible for monitoring and coordinating the Association's adherence to the provisions of this Agreement.

(2)      The Compliance Committee shall meet at least monthly.

(3)      Within sixty (60) days of the date of this Agreement and within ten (10) days of the end of each fiscal quarter thereafter, the Compliance Committee shall submit a written progress report to the Board setting forth in detail:

	
  

	
(a)

	
a description of the action needed to achieve full compliance with each Article of this Agreement;

	
  

	
(b)

	
actions taken to comply with each Article of this Agreement; and

	
  

	
(c)

	
the results and status of those actions.

(4)      The Board shall forward a copy of the Compliance Committee's report, with any additional comments by the Board, to the Assistant Deputy Comptroller within ten (10) days of receiving such report.

  

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ARTICLE III

ENSURE COMPETENT BOARD AND MANAGEMENT

(1)      The Board shall immediately ensure that it maintains an independent director with an appropriate level of financial expertise.  The term “independent” means a person who is not an officer or employee of the Association and who is not a director, officer or employee of its affiliates, who is not a director, officer or employee of the related interests (as the term “related interest” is defined in 12 C.F.R. § 215.2(n)) of any current director or senior executive officer and who is not a relative of any of these persons.

(2)      If the Board fails to maintain an independent director as required by paragraph (1), the Board shall immediately take action to add a new independent director with an appropriate level of financial expertise.  If the Board is unable to identify a qualified independent director within sixty (60) days of such vacancy, the Board shall document its efforts to locate such candidate and notify the Assistant Deputy Comptroller in writing.  Thereafter, the Board shall provide monthly reports to the Assistant Deputy Comptroller summarizing its continuing efforts to locate such candidate.

(3)      Within sixty (60) days, the Board shall review and assess the qualifications of each senior executive officer (as the term “senior executive officer” is defined in 12 C.F.R. § 163.555(4)), including the Chief Credit Officer, and ensure that the Association has competent management in place on a full-time basis in all senior executive officer positions to carry out the Board’s policies, ensure compliance with this Agreement, applicable laws, rules and regulations, and manage the day-to-day operations of the Association in a safe and sound manner.

  

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(4)      If the Board determines that a senior executive officer’s depth of skills needs improvement, the Board will within thirty (30) days of such determination develop and implement a written program, with specific time frames, to improve the officer’s supervision and management of the Association.  At a minimum the written program shall include:

	
  

	
(a)

	
an education program designed to ensure that the officer has skills and abilities necessary to supervise effectively;

	
  

	
(b)

	
a program to improve the effectiveness of the officer;

	
  

	
(c)

	
objectives by which the officer’s effectiveness will be measured; and

	
  

	
(d)

	
a performance appraisal program for evaluating performance according to the position’s description and responsibilities and for measuring performance against the Association’s goals and objectives.

Upon completion, a copy of the written program shall be submitted to the Assistant Deputy Comptroller.

(5)      Within sixty (60) days, the Board shall review and assess the qualifications of each director and ensure that the Association has a competent Board of Directors in place.

(6)      Prior to the appointment of any individual to a senior executive officer position or as a director, the Board shall submit to the Assistant Deputy Comptroller written notice containing the information that 12 U.S.C. § 1831i and 12 C.F.R. Part 163, Subpart H requires for proposed senior executive officers and proposed directors.  The Assistant Deputy Comptroller shall have the power to disapprove the appointment of the proposed senior executive officer or the proposed director.  However, the failure to exercise such veto power shall not constitute an approval or endorsement of the proposed executive officer.  Senior executive officers shall be vested with sufficient executive authority to fulfill the duties and responsibilities of the position and ensure the safe and sound operation of the Association.

  

5

  

ARTICLE IV

BUSINESS PLAN AND BUDGET

(1)      Within ninety (90) days, the Board shall prepare, implement, and thereafter ensure Association adherence to a written three-year business plan that shall include a projection of major balance sheet and income statement components, and shall provide for injections of equity capital, as necessary.  The business plan shall also include a detailed budget and plan for continued profit that specifically takes into account the Bank’s increased risk profile, credit risk management deficiencies, and the Board’s desire to curtail growth until the outstanding issues are resolved.  Procedures shall also be established to monitor the Association’s actual results against these projections and to provide for appropriate adjustments to the budget.  The plan shall set forth specific time frames for the accomplishment of these objectives.

(2)      A copy of the plan shall be submitted to the Assistant Deputy Comptroller for review and prior written determination of no supervisory objection.  Upon receiving a determination of no supervisory objection from the Assistant Deputy Comptroller, the Association shall implement and adhere to the plan.

(3)      The Association shall submit to the Assistant Deputy Comptroller for review and prior determination of no supervisory objection, with at least sixty (60) days advance, written notice, its intent to deviate significantly from the business plan.

  

6

  

	
  

	
(a)

	
For purposes of this Article, changes that may constitute a significant deviation from the business plan include, but are not limited to, any significant deviations from the Association’s business plan relating to: (i) marketing strategies, marketing partners, acquisition channels; (ii)  underwriting practices and standards, account management strategies and test programs; (iii) collection strategies, partners or operations; (iv) fee structure, pricing, or fee application methods; (v) accounting processes and practices; (vi) funding strategy; or (vii) any other changes in personnel, operations or external factors that may have a material impact on the Association’s operations or financial performance.

	
  

	
(b)

	
Prior to making any changes that significantly deviate from the Association’s business plan, the Board shall perform an evaluation of the adequacy of the Association’s organizational structure, staffing, management information systems, internal controls and written policies and procedures to identify, measure, monitor, and control the risks associated with the product or service.  The evaluation shall include an assessment of the impact of such change on the Association’s condition, including a profitability analysis.

(4)      The Board shall ensure that the Association has processes, personnel, and control systems to ensure implementation of and adherence to the plan developed pursuant to this Article.

ARTICLE V

CAPITAL PLAN

(1)      Within ninety (90) days, the Board shall forward to the Assistant Deputy Comptroller for review a revised, written Capital Plan for the Association, consistent with the Association's Business Plan as required by Article IV, covering at least a three-year period. At the next Board meeting following receipt of the Assistant Deputy Comptroller’s written determination of no supervisory objection, the Board shall adopt and the Association (subject to Board review and ongoing monitoring) shall implement and thereafter ensure adherence to the Capital Plan. The Capital Plan shall include:

  

7

  

	
  

	
(a)

	
projections for growth and capital requirements, based upon a detailed analysis of the Association's assets, liabilities, earnings, fixed assets, and off-balance sheet activities;

	
  

	
(b)

	
projections of the sources and timing of additional capital to meet the Association's future needs, as set forth in the Business Plan;

	
  

	
(c)

	
identification of the primary sources from which the Association will maintain an appropriate capital structure to meet the Association's future needs, as set forth in the Business Plan; and

	
  

	
(d)

	
contingency plans that identify alternative methods to strengthen capital, should the primary source(s) under paragraph (c) of this Article not be available.

(2)      Prior to adoption by the Board, a copy of the Capital Plan shall be submitted to the Assistant Deputy Comptroller for a prior written determination of no supervisory objection. Upon receiving a written determination of no supervisory objection from the Assistant Deputy Comptroller, the Board shall adopt and the Association shall immediately implement and adhere to the Capital Plan. The Board shall review and update the Association's Capital Plan at least annually and more frequently if necessary or if requested by the Assistant Deputy Comptroller. Revisions to the Association’s Capital Plan shall be submitted to the Assistant Deputy Comptroller for a prior written determination of no supervisory objection.

  

8

  

ARTICLE VI

ENTERPRISE RISK MANAGEMENT

(1)      Within sixty (60) days, the Board shall develop, implement, and thereafter ensure Association adherence to a written risk management program to include, at a minimum, the following:

	
  

	
(a)

	
identification of existing credit, interest rate, liquidity, operational, compliance, strategic, reputation, and price risks, and a written analysis of those risks;

	
  

	
(b)

	
action plans and time frames to reduce risks where exposure is high, particularly with regard to credit risk, which impacts directly on liquidity, compliance, strategic, and reputation risks, as more fully discussed in the ROE;

	
  

	
(c)

	
policies, procedures or standards which limit the degree of risk the Board is willing to incur, consistent with the strategic plan and the Association’s financial condition.  This includes analyzing and limiting the risks associated with any new lines of business which the Board undertakes.  The procedures shall ensure that strategic direction and risk tolerances are effectively communicated and followed throughout the Association and shall describe the actions to be taken where noncompliance with risk policies is identified;

	
  

	
(d)

	
systems to measure and control risks within the Association.  Measurement systems shall provide timely and accurate risk reports by customer, by department or division, and Association-wide as appropriate.  Particular emphasis should be placed on enhanced credit risk management measurement systems; and

  

9

  

 

	
  

	
(e)

	
procedures to ensure that Association employees have the necessary skills to supervise effectively the current and the new business risks within the Association, and procedures to describe the actions to be taken to address deficiencies in staff levels and skills.

(2)      The Board shall ensure that the Association has processes, personnel, and control systems to ensure implementation of and adherence to the program developed pursuant to this Article.

ARTICLE VII

INTERNAL AUDIT

(1)      Within sixty (60) days, the Board shall review and revise its independent internal audit program to ensure it is sufficient to:

	
  

	
(a)

	
detect irregularities and weak practices in the Association's operations;

	
  

	
(b)

	
determine the Association's level of compliance with all applicable laws, rules and regulations;

	
  

	
(c)

	
assess and report the effectiveness of policies, procedures, controls, and management oversight relating to accounting and financial reporting;

	
  

	
(d)

	
evaluate the Association's adherence to established policies and procedures, with particular emphasis directed to the Association's adherence to its loan policies concerning credit risk management and problem loan identification and classification;

	
  

	
(e)

	
adequately cover all areas;

  

10

  

 

	
  

	
(f)

	
determine conclusions and ratings on the quality of the areas audited; and

	
  

	
(g)

	
establish an annual audit plan using a risk-based approach sufficient to achieve these objectives.

(2)      As part of this audit program, the Board or its Audit Committee shall evaluate the audit reports of any party providing services to the Association, and shall assess the impact on the Association of any audit deficiencies cited in such reports.

(3)      The Board shall ensure that the audit function is supported by an adequately staffed department or outside firm, with respect to both the experience level and number of the individuals employed.

(4)      The Board, through its Audit Committee, shall ensure that immediate actions are undertaken to remedy deficiencies cited in audit reports, and maintain a written record describing the deficiency, the projected corrective action, and the status of the corrective action.

(5)      The audit staff shall evaluate in writing the effectiveness of the corrective action and recommend additional corrective actions, as necessary.

(6)      Upon adoption, a copy of the revised internal audit program shall be submitted to the Assistant Deputy Comptroller.

ARTICLE VIII

LOAN PORTFOLIO MANAGEMENT

(1)      Within sixty (60) days, Board shall establish credit risk management practices that ensure effective credit administration, portfolio management and monitoring, and risk mitigation.   In doing so, the Board shall adopt and the Association (subject to Board review and ongoing monitoring) shall implement and thereafter ensure adherence to a written credit policy to improve the Association's loan portfolio management. The credit policy shall include (but not be limited to):

  

11

  

	
  

	
(a)

	
revision and/or development of the Association’s procedures to ensure accuracy of risk ratings and proper and timely problem loan identification, including non-accrual loans;

	
  

	
(b)

	
procedures that require ongoing monitoring of borrower ability to repay the loan through receipt and documented review of current borrower, principal and guarantor financial information;

	
  

	
(c)

	
procedures and controls to periodically verify the existence and lien position of collateral;

	
  

	
(d)

	
procedures that ensure the utilization of interest reserves is consistent with established controls and clearly defined parameters for projected costs.

	
  

	
(e)

	
credit risk rating definitions consistent with applicable regulatory guidance;

	
  

	
(f)

	
procedures for early problem loan identification, to ensure that credits are accurately risk rated at least monthly;

	
  

	
(g)

	
written reports, regularly submitted to the Board, identifying the aggregate loans and leases not in conformance with the Association’s lending and leasing policies, and exceptions to the Association’s lending and leasing policies;

	
  

	
(h)

	
a system to effectively monitor previously charged-off assets and their recovery potential; and

  

12

  

	
  

	
(i)

	
a requirement to identify, track and report real estate loans that exceed the supervisory loan-to-value limits.

(2)      The Board shall ensure that Association personnel performing credit analyses are adequately trained in cash flow analysis, particularly analysis using information from tax returns, and that processes are in place to ensure that additional training is provided as needed.

(3)      The Board shall ensure that management adequately staffs the Credit Department with personnel who possess the appropriate expertise relative to the Association’s risk profile.

(4)      Within sixty (60) days the Board shall adopt, implement and ensure Association adherence to a written portfolio stress testing policy that considers changes in interest rates and appropriate economic factors.

(5)      A written report of the stress test results shall be provided to the Board by Association management at least quarterly.

(6)      On a quarterly basis management will provide the Board with written reports including, at a minimum, the following information:

	
  

	
(a)

	
the identification, type, rating, and amount of problem loans and leases;

	
  

	
(b)

	
the identification and amount of delinquent loans and leases;

	
  

	
(c)

	
credit and collateral documentation exceptions;

	
  

	
(d)

	
the identification and status of credit related violations of law, rule or regulation;

	
  

	
(e)

	
the identity of the loan officer who originated each loan reported in accordance with subparagraphs (a) through (d) of this Article and Paragraph;

  

13

  

	
  

	
(f)

	
an analysis of concentrations of credit, significant economic factors, and general conditions and their impact on the credit quality of the Association’s loan and lease portfolios;

	
  

	
(g)

	
the identification and amount of loans and leases to executive officers, directors, principal shareholders (and their related interests) of the Association; and

	
  

	
(h)

	
the identification of loans and leases not in conformance with the Association's lending and leasing policies, and exceptions to the Association’s lending and leasing policies.

(7)      The Board shall ensure that the Association has processes, personnel, and control systems to ensure implementation of and adherence to the program and systems developed pursuant to this Article.

ARTICLE IX

LENDING POLICY

(1)      Within sixty (60) days, the Board shall review and revise the Association's written loan policy.  In revising this policy, the Board shall refer to 12 C.F.R. § 160.93 (Lending Limitations).  This policy shall incorporate, but not necessarily be limited to, the following:

	
  

	
(a)

	
a description of acceptable types of loans;

	
  

	
(b)

	
a provision that current and satisfactory credit information will be obtained on each borrower;

	
  

	
(c)

	
maturity scheduling related to the anticipated source of repayment, the purpose of the loan, and the useful life of the collateral;

  

14

  

	
  

	
(d)

	
maximum ratio of loan value to appraised value or acquisition costs of collateral securing the loan;

	
  

	
(e)

	
collection procedures, to include follow-up efforts, that are systematically and progressively stronger;

	
  

	
(f)

	
a pricing policy that takes into consideration costs, general overhead, and probable loan losses, while providing for a reasonable margin of profit;

	
  

	
(g)

	
a definition of the Association's trade area;

	
  

	
(h)

	
guidelines and limitations for loans originating outside of the Association's trade area;

	
  

	
(i)

	
a limitation on aggregate outstanding loans in relation to other balance sheet accounts;

	
  

	
(j)

	
distribution of loans by category;

	
  

	
(k)

	
guidelines for loans to insiders, including a statement that such loans will not be granted on terms more favorable than those offered to similar outside borrowers;

	
  

	
(l)

	
guidelines and limitations on concentrations of credit;

	
  

	
(m)

	
a limitation on the type and size of loans that may be made by loan officers without prior approval by the Board or a committee established by the Board for this purpose;

	
  

	
(n)

	
measures to correct the deficiencies in the Association's lending procedures noted in any ROE;

  

15

  

	
  

	
(o)

	
guidelines designed to improve Board oversight of the loan approval process, specifically with regard to credits exhibiting significant risk.  At a minimum, the policy shall:

	
  

	
(i)

	
establish dollar limits on extensions of credit to any one borrower, above which the prior approval of the Board, or a committee thereof, would be required;

	
  

	
(ii)

	
establish dollar limits on aggregate extensions of credit to any one borrower, above which any new extensions of credit to that borrower, regardless of amount, would require the prior approval of the Board, or a committee thereof; and

	
  

	
(iii)

	
require that all credits which deviate from the Association’s normal course of business, including all credits which deviate from the Association’s written strategic plan, receive the prior approval of the Board, or a committee thereof.

	
  

	
(p)

	
guidelines consistent with The Federal Financial Institutions Examination Council’s (FFIEC) Policy Statement on Prudent Commercial Real Estate Loan Workouts (October 30, 2009), setting forth the criteria under which renewals of extensions of credit may be approved.  At a minimum the policy shall:

	
  

	
(i)

	
ensure that renewals are not made for the sole purpose of reducing the volume of loan delinquencies; and

	
  

	
(ii)

	
provide guidelines and limitations on the capitalization of interest;

  

16

  

	
  

	
(q)

	
charge-off guidelines, by type of loan or other asset, including Other Real Estate Owned, addressing the circumstances under which a charge-off would be appropriate and ensuring the recognition of losses within the quarter of discovery;

	
  

	
(r)

	
guidelines for periodic review of the Association's adherence to the revised lending policy.

(2)      Upon adoption, the policy shall be implemented, the Board shall thereafter ensure Association adherence to the policy, and a copy of the policy shall be forwarded to the Assistant Deputy Comptroller for review.

(3)      The Board shall ensure that the Association has processes, personnel, and control systems to ensure implementation of and adherence to the policy developed pursuant to this Article.

ARTICLE X

LOAN REVIEW

(1)      Within sixty (60) days, the Association shall adopt a formal loan review policy that provides comprehensive detail regarding the necessary qualifications of loan review personnel, establishes reporting criteria including the frequency and scope of reviews, and ensures the loan review function incorporates the following:

(2)      Within sixty (60) days, the Board shall establish an effective, independent and on-going loan review system to review, at least quarterly, the Association's loan and lease portfolios to assure the timely identification and categorization of problem credits.  The system shall provide for a written report to be filed with the Board after each review and shall use a loan and lease grading system consistent with the guidelines set forth in OTS CEO Memo 140, OTS Examination Handbook Section 260, and the Interagency Policy Statement on the Allowance for Loan and Lease Losses (December 2006).  Such reports shall include, at a minimum, conclusions regarding:

  

17

  

	
  

	
(a)

	
the overall quality of the loan and lease portfolios;

	
  

	
(b)

	
the identification, type, rating, and amount of problem loans and leases;

	
  

	
(c)

	
the identification and amount of delinquent loans and leases;

	
  

	
(d)

	
credit and collateral documentation exceptions;

	
  

	
(e)

	
the identification and status of credit related violations of law, rule or regulation;

	
  

	
(f)

	
the identity of the loan officer who originated each loan reported in accordance with subparagraphs (b) through (e) of the Article;

	
  

	
(g)

	
concentrations of credit;

	
  

	
(h)

	
loans and leases to executive officers, directors, principal shareholders (and their related interests) of the Association; and

	
  

	
(i)

	
loans and leases not in conformance with the Association's lending and leasing policies, and exceptions to the Association’s lending and leasing policies.

	
  

	
(j)

	
the accrual status of loans under review;

	
  

	
(k)

	
the adequacy of impairment analyses.

	
  

	
(l)

	
system for monitoring compliance with the Association's lending policies and laws, rules, and regulations pertaining to the Association's lending function; and

  

18

  

(3)      A written description of the program called for in this Article shall be forwarded to the Assistant Deputy Comptroller upon implementation.

(4)      The Board shall evaluate the internal loan and lease review report(s) and shall ensure that immediate, adequate, and continuing remedial action, if appropriate, is taken upon all findings noted in the report(s).

(5)      A copy of the reports submitted to the Board, as well as documentation of the action taken by the Association to collect or strengthen assets identified as problem credits, shall be preserved in the Association.

(6)      The Board shall ensure that the Association has processes, personnel, and control systems to ensure implementation of and adherence to the program developed pursuant to this Article.

ARTICLE XI

APPRAISALS OR EVALUATIONS OF REAL PROPERTY

(1)      Within sixty (60) days, the Board shall ensure the implementation of policies and controls to ensure full compliance with 12 C.F.R. Part 164. The policies and controls shall include, but not be limited to:

	
  

	
(a)

	
compliance with the December 10, 2010 Interagency Appraisal and Evaluation Guidelines ;

	
  

	
(b)

	
a requirement that provides for appraisal reviews to be conducted by a qualified person who is independent of the loan approval process.

	
  

	
(c)

	
a requirement that appraisal reviews appropriately document the conclusion reached to support the appraiser’s valuation;

  

19

  

	
  

	
(d)

	
appropriate guidance establishing appraisal standards for evaluating impaired and collateral dependent loans.

(2)      Within sixty (60) days, the Board shall engage the services of an independent, professionally certified, or licensed appraiser(s) to provide:

	
  

	
(a)

	
a written or updated appraisal, in accordance with 12 C.F.R. Part 164, for each parcel of real property that represents primary collateral behind any extension of credit where:

	
  

	
(i)

	
the loan was criticized in the ROE or by the Association's internal loan review, and the most recent independent appraisal is more than twelve (12) months old; or

	
  

	
(ii)

	
accrued interest or loan fees have been or will be added to the outstanding principal balance, and the most recent independent appraisal is more than twelve (12) months old;

	
  

	
(b)

	
a written appraisal on each parcel of Other Real Estate Owned where it is needed to bring the Association into conformity with the provisions of 12 C.F.R. Part 164.

(3)      The Board shall specifically instruct the appraiser(s) to comply with the requirements of 12 C.F.R. Part 164.  The details surrounding any and all other instructions given to the appraiser(s) by the Association, whether written or oral, shall be provided to the Assistant Deputy Comptroller for review prior to the appraiser(s) undertaking the actual appraisals.

(4)      All such appraisals shall be completed within sixty (60) days, and certification by the Board attesting to the completion of the appraisals shall be forwarded to the Assistant Deputy Comptroller within seventy-five (75) days.

  

20

  

(5)      The Board shall ensure that the Association has processes, personnel, and control systems to ensure implementation of this Article and the policies developed pursuant to it.

ARTICLE XII

COMMERCIAL REAL ESTATE CONCENTRATION RISK MANAGEMENT

(1)      Within ninety (90) days, the Board shall adopt, implement, and thereafter ensure Association adherence to a written commercial real estate (CRE) concentration risk management program consistent with the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), and the OCC joint guidance and the OTS guidance on Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices (December 2006). The program shall include, but not necessarily be limited to, the following:

	
  

	
(a)

	
ongoing risk assessments to identify potential CRE concentrations in the portfolio, including exposures to similar or interrelated groups or borrowers;

	
  

	
(b)

	
Board and management oversight of CRE concentrations, to include:

	
  

	
(i)

	
policy guidelines and an overall CRE lending strategy, including actions required when the Association approaches the limits of its CRE guidelines;

	
  

	
(ii)

	
procedures and controls to effectively adhere to and monitor compliance with the Association's lending policies and strategies;

	
  

	
(iii)

	
regular review of information and reports that identify, analyze, and quantify the nature and level of risk presented by CRE concentrations; and

  

21

  

	
  

	
(iv)

	
periodic review and approval of CRE risk exposure limits;

	
  

	
(c)

	
portfolio management, to include internal lending guidelines and concentration limits that control the Association's overall risk exposure to CRE, and a contingency plan to reduce or mitigate concentrations in the event of adverse market conditions;

	
  

	
(d)

	
management information systems, to provide sufficient timely information to management to identify, measure, monitor, and manage CRE concentration risk;

	
  

	
(e)

	
periodic market analysis, to provide management and the Board with information to assess whether the CRE lending strategy and policies continue to be appropriate in light of changes in CRE market conditions;

	
  

	
(f)

	
credit underwriting standards for CRE, to include:

	
  

	
(i)

	
maximum loan amount by type of property;

	
  

	
(ii)

	
loan terms;

	
  

	
(iii)

	
pricing structures;

	
  

	
(iv)

	
collateral valuation;

	
  

	
(v)

	
loan-to-value limits by property type;

	
  

	
(vi)

	
requirements for feasibility studies and sensitivity analysis or stress testing;

	
  

	
(vii)

	
minimum requirements for initial investment and maintenance of hard equity by the borrower; and

	
  

	
(viii)

	
minimum standards for borrower net worth, property cash flow, and debt service coverage for the property;

  

22

  

	
  

	
(g)

	
portfolio stress testing and sensitivity analysis of CRE concentrations;

	
  

	
(h)

	
credit risk review of CRE, to include an effective, accurate, and timely risk-rating system; and

	
  

	
(i)

	
an action plan approved by the Board to reduce the risk of any concentration deemed imprudent in the above analysis.

(2)      The Board shall forward a copy of any analysis performed on existing or potential CRE concentrations to the Assistant Deputy Comptroller.

(3)      The Board shall ensure that the Association has processes, personnel, and control systems to ensure implementation of and adherence to the program developed pursuant to this Article.

ARTICLE XIII

OVERDRAFT PROTECTION PROGRAM

(1)      Within sixty (60) days, the Board shall adopt, implement, and thereafter ensure Association adherence to a Checking Overdraft Policy reflecting the aggregate limits detailed in the Office of Thrift Supervision Guidance on Overdraft Protection Programs, 70 FR 8428 (February 18, 2005).   The Policy shall include, at a minimum:

	
  

	
(a)

	
conditions and circumstances under which overdrafts are allowable, including standards, dollar threshold limits for overdraft approvals and specific overdraft lending authority limits;

	
  

	
(b)

	
charges that will be levied against depositors using overdrafts;

	
  

	
(c)

	
controls to ensure that employee overdrafts are treated consistent with account agreements;

  

23

  

	
  

	
(d)

	
a prohibition on the use of overdrafts by Association borrowers to finance their business activities; and

	
  

	
(e)

	
clear guidelines governing the charge-off of past-due overdrafts.

(2)      Upon adoption, the Association shall forward a copy of this overdraft policy to the Assistant Deputy Comptroller.

(3)      The Board shall ensure that the Association has processes, personnel and control systems to ensure implementation of and adherence to the policy developed pursuant to this Article.

ARTICLE XIV

ALLOWANCE FOR LOAN AND LEASE LOSSES

(1)      The Board shall review the adequacy of the Association's Allowance for Loan and Lease Losses (“Allowance”) and shall establish a program for the maintenance of an adequate Allowance. This review and program shall be designed in light of the comments on maintaining a proper Allowance found in the Interagency Policy Statement on the Allowance for Loan and Lease Losses (December 2006), and shall focus particular attention on the following factors:

	
  

	
(a)

	
results of the Association's internal loan review;

	
  

	
(b)

	
results of the Association's external loan review;

	
  

	
(c)

	
an estimate of inherent loss exposure on each significant credit;

	
  

	
(d)

	
an estimate of inherent loss exposure on each credit in excess of one  hundred and fifty thousand dollars ($150,000);

	
  

	
(e)

	
loan loss experience;

	
  

	
(f)

	
trends of delinquent and nonaccrual loans;

	
  

	
(g)

	
concentrations of credit in the Association;

  

24

  

	
  

	
(h)

	
present and prospective economic conditions; and

	
  

	
(i)

	
appropriate treatment of classified loans pursuant to the Interagency Policy Statement on the Allowance for Loan and Lease Losses (December 2006), ASC 450-20 (FAS 5), and ASC 310-10 (FAS 114).

(2)      The program shall provide for a review of the Allowance by the Board at least once each calendar quarter. Any deficiency in the Allowance shall be remedied in the quarter it is discovered, prior to the filing of the Thrift Financial Report or Consolidated Report of Condition and Income, by additional provisions from earnings. Written documentation shall be maintained indicating the factors considered and conclusions reached by the Board in determining the adequacy of the Allowance.

(3)      The Board shall ensure that the Association has processes, personnel, and control systems to ensure implementation of and adherence to the program developed pursuant to this Article.

ARTICLE XV

BANK SECRECY ACT / ANTI-MONEY LAUNDERING RISK ASSESSMENT / OFAC

(1)      Within sixty (60) days, the Board shall ensure implementation of a BSA/AML Risk Assessment Process to assist in identifying the Association’s BSA/AML risk profile. The risk assessment shall be in writing and provide a comprehensive ongoing analysis of the BSA/AML risk. The BSA risk assessment process shall:

	
  

	
(a)

	
identify the specific risk categories (i.e., products, services, customers; entities, transactions, and geographic locations) unique to the Association, and

  

25

  

	
  

	
(b)

	
conduct a detailed analysis of the data obtained during the risk identification phase and consider, as appropriate, the following factors relating to customer accounts:

	
  

	
(i)

	
the purpose of the account;

	
  

	
(ii)

	
actual or anticipated activity in the account;

	
  

	
(iii)

	
the nature of the customer’s business;

	
  

	
(iv)

	
the customer’s location; and

	
  

	
(v)

	
types of products and services used by the customer; and

	
  

	
(c)

	
include a thorough analysis of the volume of international wire activity and the risk posed to the Association.

(2)      The Board shall ensure that the BSA Risk Assessment is shared and communicated across the Association, Board of Directors, management, and appropriate staff. The Board shall also ensure a procedure is implemented to reassess the Association’s BSA Risk Assessment periodically, but no less than once every twelve (12) months.

(3)      The Board shall ensure that the Association develops a risk-based program to screen non-customer senders and non-customer beneficiaries of wire transfers to comply with Office of Foreign Asset Control (“OFAC”)-related regulations and safe and sound banking practices.

  

26

  

ARTICLE XVI

DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS

Effective immediately, the Association shall not declare or pay dividends or make any other capital distributions, as that term is defined in 12 C.F.R. § 163.141, without receiving the prior written approval of the Assistant Deputy Comptroller in accordance with applicable regulations and regulatory guidance.  The Association’s written request for approval shall be submitted to the Assistant Deputy Comptroller at least thirty (30) days prior to the anticipated date of the proposed declaration, dividend payment, or distribution of capital.

ARTICLE XVII

EMPLOYMENT CONTRACTS AND COMPENSATION ARRANGEMENTS

Effective immediately, the Association shall not enter into, renew, extend or revise any contractual arrangement relating to compensation or benefits for any Senior Executive Officer, as defined at 12 C.F.R. § 163.555, or director of the Association, unless it first provides the Assistant Deputy Comptroller with not less than thirty (30) days prior written notice of the proposed transaction.  The notice to the Assistant Deputy Comptroller shall include a copy of the proposed employment contract or compensation arrangement or a detailed, written description of the compensation arrangement to be offered to such officer or director, including all benefits and perquisites.  The Board shall ensure that any contract, agreement or arrangement submitted to the Assistant Deputy Comptroller fully complies with the requirements of 12 C.F.R. Part 359, 12 C.F.R. §§ 163.39 and 163.161(b), 12 C.F.R. Part 170 – Appendix A, and the Interagency Guidance on Sound Incentive Compensation Policies contained in the OTS Chief Executive Officer Memorandum No. 354.

  

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ARTICLE XVIII

CLOSING

(1)      Although the Board has agreed to submit certain programs and reports to the Assistant Deputy Comptroller for review or prior written determination of no supervisory objection, the Board has the ultimate responsibility for proper and sound management of the Association.

(2)      It is expressly and clearly understood that if, at any time, the Comptroller deems it appropriate in fulfilling the responsibilities placed upon him/her by the several laws of the United States of America to undertake any action affecting the Association, nothing in this Agreement shall in any way inhibit, estop, bar, or otherwise prevent the Comptroller from so doing.

(3)      Any time limitations imposed by this Agreement shall begin to run from the effective date of this Agreement.  Such time requirements may be extended in writing by the Assistant Deputy Comptroller for good cause upon written application by the Board.

(4)      The provisions of this Agreement shall be effective upon execution by the parties hereto and its provisions shall continue in full force and effect unless or until such provisions are amended in writing by mutual consent of the parties to the Agreement or excepted, waived, or terminated in writing by the Comptroller.

(5)      In each instance in this Agreement in which the Board is required to ensure adherence to, and undertake to perform certain obligations of the Association, it is intended to mean that the Board shall:

	
  

	
(a)

	
authorize and adopt such actions on behalf of the Association as may be necessary for the Association to perform its obligations and undertakings under the terms of this Agreement;

  

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(b)

	
require the timely reporting by Association management of such actions directed by the Board to be taken under the terms of this Agreement;

	
  

	
(c)

	
follow-up on any non-compliance with such actions in a timely and appropriate manner; and

	
  

	
(d)

	
require corrective action be taken in a timely manner of any non-compliance with such actions.

(6)      This Agreement is intended to be, and shall be construed to be, a supervisory “written agreement entered into with the agency” as contemplated by 12 U.S.C. § 1818(b)(1), and expressly does not form, and may not be construed to form, a contract binding on the Comptroller or the United States.  Notwithstanding the absence of mutuality of obligation, or of consideration, or of a contract, the Comptroller may enforce any of the commitments or obligations herein undertaken by the Association under his supervisory powers, including 12 U.S.C. § 1818(b)(1), and not as a matter of contract law.  The Association expressly acknowledges that neither the Association nor the Comptroller has any intention to enter into a contract.  The Association also expressly acknowledges that no officer or employee of the Office of the Comptroller of the Currency has statutory or other authority to bind the United States, the U.S. Treasury Department, the Comptroller, or any other federal banking regulatory agency or entity, or any officer or employee of any of those entities to a contract affecting the Comptroller’s exercise of his supervisory responsibilities.  The terms of this Agreement, including this paragraph, are not subject to amendment or modification by any extraneous expression, prior agreements or prior arrangements between the parties, whether oral or written.

 

  

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IN TESTIMONY WHEREOF, the undersigned, authorized by the Comptroller, has hereunto set her hand on behalf of the Comptroller.

 

	
/s/ Tara L. French

	  	
January 17, 2012

	
Tara L. French

	  	
Date

	
Assistant Deputy Comptroller

	  	  
	
New York Metro Field Office

	  	  

IN TESTIMONY WHEREOF, the undersigned, as the duly elected and acting Board of Directors of the Association, have hereunto set their hands on behalf of the Association.

	
/s/ Carlos S. Batista

	  	
January 17, 2012

	
Carlos S. Batista

	  	
Date

	  	  	  
	
/s/ Frederick A. Dlugokecki

	  	
January 17, 2012

	
Frederick A. Dlugokecki

	  	
Date

	  	  	  
	
/s/ Richard M. Famiglietti

	  	
January 17, 2012

	
Richard M. Famiglietti

	  	
Date

	  	  	  
	
/s/ Kevin A. Kennedy

	  	
January 17, 2012

	
Kevin A. Kennedy

	  	
Date

	  	  	  
	
/s/ James A. Mengacci

	  	
January 17, 2012

	
James A. Mengacci

	  	
Date

	  	  	  
	
/s/ John C. Roman

	  	
January 17, 2012

	
John C. Roman

	  	
Date

	  	  	  
	
/s/ Camilo P. Vieira

	  	
January 17, 2012

	
Camilo P. Vieira

	  	
Date

	  	  	  
	
/s/ Jane H. Walsh

	  	
January 17, 2012

	
Jane H. Walsh

	  	
Date

  

30

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00198-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00198-of-00352.parquet"}]]