Document:

Exhibit 4.2

 

TEXTRON INC.

 

OFFICERS’ CERTIFICATE
 Pursuant to Section 3.1 of the Indenture

 

Textron Inc., a Delaware corporation (“Textron”), hereby certifies, through its Vice President and Treasurer, Mary F. Lovejoy, and its Assistant Secretary, Ann T. Willaman, pursuant to Section 3.1 of the Indenture dated as of September 10, 1999, between Textron and The Bank of New York Mellon Trust Company, N.A. (successor trustee to The Bank of New York), as Trustee (the “Indenture”), as follows:

 

1.                                      Pursuant to authority delegated by Textron’s Board of Directors on December 5, 2016 to the Chief Executive Officer and Chief Financial Officer of Textron and the written action of Frank T. Connor, Executive Vice President and Chief Financial Officer of Textron, dated as of November 7, 2017, Textron has created a series of Floating or Adjustable Rate Securities of Textron, designated as the Floating Rate Notes due November 10, 2020 (the “Notes”), to be issued under the Indenture, and authorized the sale of up to $350,000,000 aggregate principal amount of the Notes.

 

2.                                      The terms of the Notes as authorized and determined by written action of Frank T. Connor, Executive Vice President and Chief Financial Officer of Textron, dated November 7, 2017, are as follows:

 

(1)                                 The title of the Notes shall be Floating Rate Notes due November 10, 2020 (CUSIP: 883203 BZ3).

 

(2)                                 The Notes shall be issued under the Indenture.

 

(3)                                 The principal of the Notes shall be payable on November 10, 2020 (the “Maturity Date”) in United States dollars.

 

(4)                                 The Floating or Adjustable Rate Provision pursuant to which the rate at which the Notes shall bear interest shall be a rate per annum equal to the greater of (a) three-month LIBOR (as defined herein) for the applicable Interest Reset Period (as defined herein) or the Initial Interest Period (as defined herein) plus 55 basis points and (b) 0.00%, as determined by the Calculation Agent (as defined herein) as of the applicable Interest Determination Date (as defined herein), payable quarterly in arrears on February 10, May 10, August 10 and November 10 of each year, commencing February 10, 2018 until the principal of the Notes is paid or made available for payment. The interest payable on the Notes shall be paid to the persons in whose name the Notes are registered at the close of business on February 1, May 1, August 1 and November 1 (whether or not a Business Day) next preceding such February 10, May 10, August 10 and November 10, respectively. Interest on the Notes shall accrue from November 10, 2017 (the “Issue Date”). Principal and interest shall be paid in United States dollars.  The interest rate on the Notes shall be reset on

 

 

each interest payment date (each such date, an “Interest Reset Date”), provided, that if notice of redemption has been mailed for the Notes, the interest rate thereon in effect on the date of such notice shall be the interest rate thereon through the Redemption Date (as defined herein). Interest on the Notes shall be computed on the basis of the actual number of days elapsed over a 360-day year. The amount of interest to be paid on the Notes for each Interest Reset Period or the Initial Interest Period shall be calculated by adding the Daily Interest Amounts (as defined herein) for each day in such Interest Reset Period or Initial Interest Period, as applicable.

 

Three-month LIBOR shall be determined by the Calculation Agent as of the applicable Interest Determination Date in accordance with the following provisions:

 

(a)         Three-month LIBOR is the rate for deposits in U.S. dollars for the three-month period that appears on the Designated LIBOR Page (as defined herein) at approximately 11:00 a.m., London time, on the applicable Interest Determination Date. If no rate appears on the Designated LIBOR Page, three-month LIBOR for such Interest Determination Date shall be determined in accordance with the provisions set forth in clause (b) below.

 

(b)         With respect to an Interest Determination Date on which no rate appears on the Designated LIBOR Page as of approximately 11:00 a.m., London time, on such Interest Determination Date, the Calculation Agent shall request the principal London offices of each of four major reference banks in the London interbank market selected by Textron to provide the Calculation Agent with a quotation of the rate at which deposits of U.S. dollars having a three-month maturity, commencing on the second London Business Day (as defined herein) immediately following such Interest Determination Date, are offered by it to prime banks in the London interbank market as of approximately 11:00 a.m., London time, on such Interest Determination Date in a principal amount equal to an amount of not less than $1,000,000 that is representative for a single transaction in such market at such time. If at least two such quotations are provided, three-month LIBOR for such Interest Determination Date shall be the arithmetic mean of such quotations as calculated by the Calculation Agent. If fewer than two quotations are provided, three-month LIBOR for such Interest Determination Date shall be the arithmetic mean of the rates quoted as of approximately 11:00 a.m., New York City time, on such Interest Determination Date by three major banks selected by Textron for loans in U.S. dollars to leading European banks having a three-month maturity commencing on the second London Business Day immediately following such Interest Determination

 

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Date and in a principal amount equal to an amount of not less than $1,000,000 that is representative for a single transaction in such market at such time; provided, however, that if the banks selected as aforesaid by the Calculation Agent are not quoting such rates as mentioned in this sentence, three-month LIBOR for such Interest Determination Date shall be three-month LIBOR determined with respect to the immediately preceding Interest Determination Date.

 

Promptly upon calculation, the Calculation Agent shall inform Textron of the interest rate for the next Interest Reset Period. Upon request from any Holder of any of the Notes, the Calculation Agent shall provide the interest rate then in effect for such Notes for the current Interest Reset Period or Initial Interest Period, as applicable, and, if it has been determined, the interest rate to be in effect for the next Interest Reset Period.

 

All percentages resulting from any calculation of the interest rate on the Notes shall be rounded to the nearest one millionth of a percentage point with five ten millionths of a percentage point rounded upwards (e.g., 9.8765445% (or .098765445) would be rounded to 9.876545% (or .09876545)), and all dollar amounts used in or resulting from such calculation on the Notes shall be rounded to the nearest cent (with one-half cent being rounded upwards).

 

Notwithstanding the foregoing, (a) if any Interest Payment Date would otherwise be a day that is not a Business Day, then such Interest Payment Date shall be postponed to the following date that is a Business Day, except that interest payable on the Notes on any such Interest Payment Date (other than if such Interest Payment Date is the Maturity Date) shall accrue as a result of such postponement and (b) the interest rate on the Notes shall in no event be higher than the maximum rate permitted by New York law as the same may be modified by United States law of general application.

 

For all purposes hereof:

 

“Calculation Agent” means The Bank of New York Mellon Trust Company, N.A., in its capacity as calculation agent for the Notes under a Calculation Agency Agreement dated as of the Issue Date between Textron and The Bank of New York Mellon Trust Company, N.A.; provided, that Textron may change the calculation agent without prior notice to or consent of the Holders of the Notes.

 

“Daily Interest Amount” means the amount of interest for each day that the Notes are outstanding, and is calculated by dividing the interest rate in 

 

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effect for such day by 360 and multiplying the result by the principal amount of the Notes outstanding on such day.

 

“Designated LIBOR Page” means Bloomberg L.P. page “BBAM” on that service or any successor service for the purpose of displaying London interbank offered rates for U.S. dollar deposits of major banks.

 

“Initial Interest Period” means the period from and including the Issue Date to but excluding the first Interest Reset Date.

 

“Interest Reset Period” means the period from and including an Interest Reset Date to but excluding the immediately succeeding Interest Reset Date; provided that the final Interest Reset Period for the Notes shall be the period from and including the Interest Reset Date immediately preceding the Maturity Date of the Notes to but excluding the Maturity Date.

 

“Interest Determination Date” means the second London Business Day immediately preceding the Issue Date, in the case of the Initial Interest Period, or thereafter the second London Business Day immediately preceding the applicable Interest Reset Date.

 

“LIBOR” means the U.S. dollar London Interbank Offered Rate.

 

“London Business Day” means a day on which dealings in deposits in U.S. dollars are transacted in the London interbank market.

 

(5)                                 The Notes shall be issued in denominations of $2,000 and integral multiples of $1,000 in excess thereof in United States dollars.

 

(6)                                 Payment of the principal of and interest on the Notes shall be made at the corporate trust office of the Trustee in the Borough of Manhattan, The City of New York, New York, presently located at 101 Barclay St., New York, New York, 10286; provided that, at the option of Textron, payment of interest with respect to the Notes may be made by check mailed to the address of the person entitled thereto as such address shall appear in the register for the Notes.

 

(7)                                 The Notes shall be redeemable, at the option of Textron, in whole or in part on November 12, 2018 or at any time or from time to time thereafter (the “Redemption Date”), at a price equal to 100% of the aggregate principal amount of the Notes being redeemed, plus accrued and unpaid interest on such Notes up to, but not including, the Redemption Date (the “Redemption Price”).

 

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(8)                                 The notice of redemption of the Notes may summarize the method by which the Redemption Price will be determined rather than state the actual dollar amount.

 

(9)                                 Upon the occurrence of a Change of Control Triggering Event (as defined herein), unless Textron has exercised its right to redeem the Notes pursuant to paragraph (7) hereof, each Holder of the Notes will have the right to require Textron to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000 in excess thereof) of such Holder’s Notes as provided herein (the “Change of Control Offer”) at a purchase price equal to 101% of the aggregate principal amount of such Notes plus accrued and unpaid interest, if any, on such Notes to the date of purchase (the “Change of Control Payment”).

 

Within 30 days following any Change of Control Triggering Event, Textron shall send, by first class mail, a notice to each Holder of the Notes, with a written copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice shall state:

 

(i)                         a description of the transaction or transactions that constitute such Change of Control Triggering Event;

 

(ii)                      that the Change of Control Offer is being made pursuant to this paragraph (9) and that all Notes validly tendered will be accepted for payment;

 

(iii)                   the Change of Control Payment and the date of the making thereof (the “Change of Control Payment Date”), which shall be a Business Day that is no earlier than 30 days nor later than 60 days from the date such notice is mailed, other than as may be required by law;

 

(iv)                  that any Note not tendered will continue to accrue interest;

 

(v)                     that any Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on and after the Change of Control Payment Date unless Textron shall default in the Change of Control Payment and the only remaining right of the Holder thereof is to receive the Change of Control Payment upon surrender of such Note to the Paying Agent;

 

(vi)                  that Holders of Notes electing to have a portion of a Note purchased pursuant to a Change of Control Offer may only elect to have such Note purchased in a principal amount of $1,000 or integral multiples of $1,000 in excess thereof;

 

(vii)               that if a Holder of Notes elects to have its Notes purchased pursuant to the Change of Control Offer it will be required to 

 

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surrender such Notes, with the form entitled “Option of Holder to Elect Purchase” on the reverse of such Notes completed, or transfer by book-entry transfer, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day prior to the Change of Control Payment Date;

 

(viii)            that a Holder of Notes will be entitled to withdraw its election if Textron receives, not later than the third Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Notes such Holder delivered for purchase, and a statement that such Holder is withdrawing its election to have such Notes purchased; and

 

(ix)                  that if Notes are purchased only in part a new Note of the same type will be issued in a principal amount equal to the unpurchased portion of the Notes surrendered.

 

On the Change of Control Payment Date, Textron shall, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof properly tendered and (iii) deliver or cause to be delivered to the Trustee for cancellation the Notes properly accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by Textron. The Paying Agent shall promptly mail to each Holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee, upon receipt of an order from Textron, shall promptly authenticate and mail (or cause to be transferred by book entry) to such Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered by such Holder, if any, in denominations as set forth in the Indenture. Textron shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes as a result of a Change of Control Triggering Event. To the extent that the provisions of any securities laws or regulations conflict with this paragraph (9), Textron will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this paragraph (9) by virtue of such conflict.

 

For all purposes hereof:

 

“Below Investment Grade Rating Event “ means the ratings on the Notes are lowered by each of the Rating Agencies and the Notes are rated below

 

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an Investment Grade Rating by each of the Rating Agencies on any date from the date of the public notice of an arrangement that could result in a Change of Control until the end of the 60-day period following public notice of the occurrence of the Change of Control (which 60-day period shall be extended so long as the rating of the Notes is under publicly announced consideration for possible downgrade by any of the Rating Agencies); provided that a Below Investment Grade Rating Event otherwise arising by virtue of a particular reduction in rating shall not be deemed to have occurred in respect of a particular Change of Control (and thus shall not be deemed a Below Investment Grade Rating Event for purposes of the definition of Change of Control Triggering Event hereunder) if the Rating Agencies making the reduction in rating to which this definition would otherwise apply do not announce or publicly confirm or inform the Trustee or Textron in writing at the Trustee’s or Textron’s request that the reduction was the result, in whole or in part, of any event or circumstance comprised of or arising as a result of, or in respect of, the applicable Change of Control (whether or not the applicable Change of Control shall have occurred at the time of the Below Investment Grade Rating Event).

 

“Capital Stock” of any Person means any and all shares, interests, rights to purchase, warrants, options, participation or other equivalents of or interests in (however designated) equity of such Person, including any preferred stock and limited liability or partnership interests (whether general or limited), but excluding any debt securities convertible into such equity.

 

“Change of Control” means the occurrence of any of the following:

 

(a)  the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of Textron’s properties or assets and of Textron’s subsidiaries’ properties or assets taken as a whole to any Person or group of related “persons” (as that term is used in Section 13(d)(3) of the Exchange Act) (a “Group”) other than Textron or one of Textron’s subsidiaries;

 

(b)  the adoption of a plan relating to liquidation or dissolution of Textron;

 

(c)  the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any Person or Group becomes the beneficial owner, directly or indirectly, of more than 50% of the then outstanding number of shares of Textron’s Voting Stock; or

 

(d)  the first day on which a majority of the members of Textron’s

 

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Board of Directors are not Continuing Directors.

 

Notwithstanding the foregoing, a transaction will not be considered to be a Change of Control if (1) Textron becomes a direct or indirect wholly owned subsidiary of a holding company and (2) immediately following that transaction, (A) the direct or indirect holders of the Voting Stock of the holding company are substantially the same as the holders of Textron’s Voting Stock immediately prior to that transaction or (B) no Person or Group is the beneficial owner, directly or indirectly, of more than 50% of the Voting Stock of the holding company.

 

“Change of Control Triggering Event” means the occurrence of both a Change of Control and a Below Investment Grade Rating Event.

 

“Continuing Director” means, as of any date of determination, any member of Textron’s Board of Directors who (1) was a member of Textron’s Board of Directors on the date of the issuance of the Notes or (2) was nominated for election, elected or appointed to Textron’s Board of Directors with the approval of a majority of the Continuing Directors who were members of Textron’s Board of Directors at the time of such nomination, election or appointment (either by a specific vote or by approval of Textron’s proxy statement in which such member was named as a nominee for election as a director).

 

“Investment Grade Rating” means a rating equal to or higher than Baa3 (or the equivalent) by Moody’s and BBB- (or the equivalent) by S&P.

 

“Moody’s” means Moody’s Investors Service, Inc., and its successors.

 

“Person” means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, limited liability company, government or any agency or political subdivision thereof or any other entity, and includes a “person” as used in Section 13(d)(3) of the Exchange Act.

 

“Rating Agencies” means (1) each of Moody’s and S&P and (2) if either of Moody’s or S&P ceases to rate the Notes or fails to make a rating of the Notes of that publicly available for reasons outside of Textron’s control, a “nationally recognized statistical rating organization” within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act selected by Textron (as certified by a resolution of Textron’s Board of Directors) as a replacement agency for Moody’s or S&P, or both of them, as the case may be.

 

“S&P” means Standard & Poor’s Ratings Services LLC, a division of S&P Global Inc., and its successors.

 

“Voting Stock” of a Person means all classes of Capital Stock of such Person

 

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then outstanding and normally entitled to vote in the election of directors, managers or trustees, as applicable.

 

(10)                          The Notes shall not be subject to any optional or mandatory sinking fund.

 

(11)                          The Notes shall be issued only in registered form without coupons.

 

(12)                          The Notes shall be issuable in definitive form as prescribed by the Indenture.

 

(13)                          The Notes shall be represented by one or more Global Securities in the form attached as Exhibit A.

 

(14)                          Textron will not pay additional amounts on the Notes held by a Person who is not a United States Person in respect of any tax, assessment or governmental charge withheld or deducted.

 

(15)                          Without notice to or consent of any Holder of Notes, Textron may, from time to time and at any time, issue and sell additional Notes with the same applicable terms and conditions as set forth above (or the same applicable terms and conditions except for the payment of interest accruing prior to the issue date of the additional Notes or except for the first payment of interest following the issue date of the additional Notes).

 

(16)                          The Trustee shall be the registrar and transfer agent for the Notes and the paying agent of Textron for the payment of the principal of and interest on the Notes; the Trustee shall authenticate the Notes in accordance with the Company Order relating thereto; and the register for the Notes shall be kept, and notices and demands to or upon Textron in respect of the Notes and the Indenture may be served, at the corporate trust office of the Trustee in the Borough of Manhattan, The City of New York, New York.

 

Textron agrees (i) upon written request of the Trustee to provide the Trustee with such reasonable information as it has in its possession to enable the Trustee to determine whether any payments pursuant to the Indenture are subject to the withholding requirements described in Section 1471(b) of the US Internal Revenue Code of 1986 (the “Code”) or otherwise imposed pursuant to Sections 1471 through 1474 of the Code and any regulations, or agreements thereunder or official interpretations thereof (“Applicable Law”), and (ii) that the Trustee shall be entitled to make any withholding or deduction from payments under the Indenture to the extent necessary to comply with Applicable Law, for which the Trustee shall not have any liability.

 

Terms capitalized herein and not otherwise defined shall have the meanings assigned to them in the Indenture.

 

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IN WITNESS WHEREOF, Textron Inc., through the undersigned officers, signed this certificate and affixed the corporate seal of Textron Inc.

 

Dated:  November 10, 2017

 

	
 
    	
TEXTRON   INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Mary F. Lovejoy
    
	
 
    	
Name:
    	
Mary   F. Lovejoy
    
	
 
    	
Title:
    	
Vice   President and Treasurer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   Ann T. Willaman
    
	
 
    	
Name:
    	
Ann   T. Willaman
    
	
 
    	
Title:
    	
Assistant   SecretaryEXHIBIT 10.14

CHANGE OF CONTROL AGREEMENT

CHANGE OF CONTROL AGREEMENT

THIS AGREEMENT is entered into as of the 22nd day of June, 2016 (the "Effective Date") by and between Sound Financial Bancorp, Inc. ("SFBC"), a Maryland corporation, Sound Community Bank (the "Bank"), a Washington state-chartered commercial bank, and Christina Gehrke (the "Executive").

WITNESSETH:

WHEREAS, SFBC owns 100% of the outstanding stock of the Bank;

WHEREAS, Executive is the, Chief Administrative Officer the Bank, and as such is a key executive officer whose continued dedication, availability, advice and counsel to SFBC and the Bank is deemed important to the Boards of Directors of SFBC and the Bank and to their respective stockholders;

WHEREAS, SFBC and the Bank wish to retain the services of Executive free from any distractions or conflicts that could arise as a result of a change of control of SFBC or the Bank.

NOW, THEREFORE, to assure SFBC and the Bank of Executive's continued dedication free of any distractions resulting from a Change of Control, and for other good and valuable consideration, the receipt and adequacy which each party hereby acknowledges, SFBC, the Bank and Executive hereby agree as follows:

1.            TERM OF AGREEMENT: This Agreement shall remain in effect until cancelled by either party hereto, upon not less than 12 months prior written notice to the other party.

2.            AT-WILL EMPLOYMENT:  Executive's employment is at-will, which means that the Bank may terminate Executive's employment at any time, with or without advance notice, and with or without Cause (as defined herein). Similarly, Executive may resign his employment at any time, with or without advance notice, and with or without reason.  Executive shall not be entitled to any compensation following Executive's last day of employment with the Bank, except as expressly provided for by this Agreement and/or applicable law.

3.            CHANGE OF CONTROL:  In the event there is an Involuntary Termination (as defined herein) of the Executive's employment by the Bank, concurrently with or within twelve (12) months following a Change of Control (as defined herein), then SFBC shall:

		(a)	
Pay to the Executive a lump sum cash amount, upon the later of the date of such Change of Control or the effective date of the Executive's termination of employment with the Bank, equal to two times the Executive's then current annual base salary; and

		(b)	
Maintain and provide for a period ending at the earlier of (i) eighteen (18) months after the effective date of the Executive's termination ("Executive's Termination Date") or (ii) the date of the Executive's full time employment by another employer that provides substantially similar benefits, at no premium cost to the Executive, the same group health benefits and other group insurance and group retirement benefits as the Executive would have received if the Executive had continued to be employed by the Bank, to the extent that the Bank can do so under the terms of applicable plans as are maintained by the Bank for the benefit of its executive officers from time to time; and

		(c)	
In the event that the continued participation of the Executive in any group insurance plan as provided in Section 3(b) would trigger the payment of an excise tax under Section 4980D of the Code, or during the period set forth in Section 3(b) any such group insurance plan is discontinued, then SFBC and the Bank shall at their election either (i) arrange to provide the Executive with alternative benefits substantially similar to those which the Executive was entitled to receive under such group insurance plans immediately prior to the Executive's Termination Date, provided that the alternative benefits do not trigger the payment of an excise tax under Section 4980D of the Code, or (ii) pay to the Executive within 20 business days following the Executive's Termination Date (or within 20 business days following the discontinuation of the benefits if later) a lump sum cash amount equal to the projected cost to SFBC and the Bank of providing continued coverage to the Executive, with the projected cost to be based on the costs being incurred immediately prior to the Executive's Termination Date (or the discontinuation of the benefits if later), as increased by 10% each year; and

		(d)	
(i) Any insurance premiums payable by the Bank or any successor pursuant to Sections 3(b) or 3(c) shall be payable at such times and in such amounts as if the Executive was still an employee of SFBC and the Bank, subject to any increases in such amounts imposed by the insurance company or COBRA, with the Bank paying any employee portion of the premiums that the Executive would have been required to pay if she was still an employee of the Bank, and (ii) the amount of insurance premiums required to be paid by the Bank in any taxable year shall not affect the amount of insurance premiums required to be paid the Bank in any other taxable year.

		(e)	
Notwithstanding any other provision contained in this Agreement, if either (i) the  time period for making any cash payment under Section 3(c) commences in one calendar year and ends in the succeeding calendar year or (ii) in the event any payment under this Section 3 is made contingent upon the execution of a general release and the time period that the Executive has to consider the terms of such general release (including any revocation period under such release) commences in one calendar year and ends in the succeeding calendar year, then the payment shall not be paid until the succeeding calendar year. 

4.            LIMITATION OF BENEFITS: It is the intention of the parties that no payment be made or benefit provided to the Executive that would constitute an "excess parachute payment" within the meaning of Section 280G of the Code (as defined herein), and any regulations thereunder, thereby resulting in a loss of an income tax deduction by SFBC or the imposition of an excise tax on the Executive under Section 4999 of the Code. If the independent accountants serving as auditors for SFBC immediately prior to the date of a Change of Control determine that some or all of the payments or benefits scheduled under this Agreement, when combined with any other payments or benefits provided to the Executive on a Change of Control by SFBC, the Bank and any affiliate of SFBC or the Bank required to be aggregated with SFBC or the Bank under Section 280G of the Code, would constitute nondeductible excess parachute payments by SFBC under Section 280G of the Code, then the payments or benefits scheduled under this Agreement will be reduced to one dollar less than the maximum amount which may be paid or provided without causing any such payments or benefits scheduled under this Agreement or otherwise provided on a Change of Control to be nondeductible. The determination made as to the reduction of benefits or payments required hereunder by the independent accountants shall be binding on the parties.   If the payments and benefits under Section 3 are required to be reduced, the cash severance shall be reduced first, followed by a reduction in the fringe benefits.

5.            LITIGATION -OBLIGATIONS - SUCCESSORS:

		(a)	
If litigation shall be brought or arbitration commenced to challenge, enforce or interpret any provision of this Agreement, and such litigation or arbitration does not end with judgment in favor of SFBC, SFBC hereby agrees to indemnify the Executive for his reasonable attorney's fees and disbursements incurred in such litigation or arbitration.

		(b)	
SFBC's obligation to pay the Executive the compensation and benefits and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which SFBC may have against him or anyone else. All amounts payable by SFBC hereunder shall be paid without notice or demand.  The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise.

		(c)	
SFBC will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of SFBC, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in its entirety. Failure of SFBC to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to the compensation described in Section 3.  As used in this Agreement, "SFBC" shall mean Sound Financial Bancorp, Inc. and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 5 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.

6.            NOTICES: For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

	
If to the Executive:

 

 

 

If to SFBC:

	
 

 

 

Sound Financial Bancorp, Inc.

2005 5th Avenue, Suite 200

Seattle, Washington 98121

or at such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

7.            MODIFICATION - WAIVERS - APPLICABLE LAW: No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by the Executive and on behalf of SFBC by such officer as may be specifically designated by the Board of Directors of SFBC. No waiver by either party hereto at any time of any breach by the other party hereto of, or in compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Washington.

8.            INVALIDITY - ENFORCEABILITY: The invalidity or unenforceability of any provisions 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. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions of this Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

9.            SUCCESSOR RIGHTS: This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his executor or, if there is no such executor, to his estate.

10.            HEADINGS: Descriptive headings contained in this Agreement are for convenience only and shall not control or affect the meaning or construction of any provision in this Agreement.

11.            MEDIATION - ARBITRATION:

		(a)	
In the event any dispute between the parties arises under this Agreement and the parties are unable to settle the dispute between themselves, the parties shall on the written request of either party attempt to resolve the dispute through a formal mediation within 90 days of the request.  If parties cannot agree on a mediator and the place of mediation, then the mediation shall be administered by the American Arbitration Association in Seattle Washington.  There shall be no pre-mediation discovery unless mutually agreed upon by the parties.

		(b)	
In the event a dispute is not resolved via mediation as described above, the dispute shall, on the written demand of either party, be resolved by binding arbitration in accordance with the rules of the American Arbitration Association then in effect, except that any dispute relating to the enforcement of any of the provisions of Section 12 by SFBC and/or the Bank shall not be subject to binding arbitration.  Judgment may be entered on the arbitrator's award in any court having jurisdiction.

12.            FUTURE CONDUCT AND OBLIGATIONS:

		(a)	
The Executive, for himself or herself and for his or her family (i.e., parents, siblings and children), heirs, dependents, assigns, agents, executors, administrators, trustees and legal representatives agrees that he will not (and will use his best efforts to cause such affiliates to not) at any time engage in any form of conduct, or make any statements or representations, that disparage or otherwise impair the reputation, goodwill, or commercial interests of SFBC, any affiliates or any of their agents, officers, directors, employees and/or stockholders.

		(b)	
The Executive agrees to reasonably assist and cooperate with SFBC or the Bank (and their outside counsel) in connection with the defense or prosecution of any claim that may be made or threatened against or by SFBC or any affiliate, or in connection with any ongoing or future investigation or dispute or claim of any kind involving SFBC or any affiliate, including any proceeding before any arbitral, administrative, judicial, legislative, or other body or agency, including preparing for and testifying in any proceeding to the extent such claims, investigations or proceedings relate to services performed by the Executive, pertinent knowledge possessed by the Executive, or any act or omission by the Executive. The Executive's agreement under this Section 12(b) is limited such that any assistance and cooperation shall not unreasonably interfere with the Executive's subsequent employment. SFBC and/or the Bank will reimburse the Executive for the reasonable out-of-pocket expenses incurred as a result of such cooperation.

		(c)	
Until the one-year anniversary of the Executive's Involuntary Termination, the Executive shall not, directly or indirectly, without the written consent of SFBC (i) initiate contact with or solicit any employee or customer of SFBC or any affiliate; (ii) hire or otherwise engage any such employee or former employee; (iii) induce or otherwise counsel, advise or encourage any such employee to leave the employment of SFBC or an affiliate; or (iv) induce any supplier, licensor, licensee, business relation, representative or agent of SFBC to terminate or modify its relationship with SFBC or any affiliate, or in any way interfere with the relationship between SFBC or any affiliate and such other party.

		(d)	
The Executive acknowledges that the future conduct and obligation provisions of this Section 12 will not prevent Executive from obtaining other gainful employment or cause Executive any undue hardship and are reasonable and necessary in order to protect the legitimate interests of SFBC and its affiliates.

13.            COMPLIANCE WITH SECTION 409A OF THE CODE: Notwithstanding anything herein to the contrary, any payments to be made in accordance with this Agreement shall not be made prior to the date that is 185 calendar days from the date of termination of employment of the Executive if it is determined by SFBC in good faith that such payments are subject to the limitations set forth in Section 409A of the Code and regulations promulgated thereunder, and payments made in advance of such date would result in the requirement that Executive pay additional interest and taxes in accordance with Section 409A(a)(1)(B) of the Code.

14.            DEFINITIONS:

		(a)	
Cause shall mean the Executive's personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. No act or failure to act by the Executive shall be considered willful unless the Executive acted or failed to act with an absence of good faith and without a reasonable belief that his or action or failure to act was in the best interest of SFBC and/or the Bank.  "Cause" shall not exist unless and until there shall have been delivered to the Executive a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board), stating that in the good faith opinion of the Board the Executive has engaged in conduct described in the preceding sentence and specifying the particulars thereof in detail.  The opportunity of the Executive to be heard before the Board shall not affect the right of the Executive to mediation and arbitration as set forth in Section 11 of this Agreement.

		(b)	
Change of Control shall mean the occurrence of any of the following events: (i) any "person" or "group" (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 ("Exchange Act")), other than SFBC, any subsidiary of SFBC or their employee benefit plans, directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3, under the Exchange Act) of securities of SFBC with respect to which 30% or more of the total number of votes that may be cast for the election of SFBC's Board of Directors; (ii) as a result of, or in connection with, any cash tender offer, merger or other business combination, sale of assets or contested election(s), or combination of the foregoing, the individuals who were members of SFBC's Board of Directors on the Effective Date (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the Effective Date 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 SFBC's stockholders was approved by the nominating committee serving under an Incumbent Board, shall be considered a member of the Incumbent Board; (iii) a tender offer or exchange offer for 30% or more of the total outstanding shares of common stock of SFBC is completed (other than such an offer by the SFBC); or (iv) the stockholders of SFBC approve an agreement providing either for a transaction in which SFBC will cease to be an independent publicly owned corporation or for a sale or other disposition of all or substantially all the assets of SFBC, and the transaction is thereafter consummated.  The Change of Control date is the date on which an event described in (i), (ii), (iii) or (iv) occurs, with the date in clause (iv) being the date the transaction is consummated.

		(c)	
Code shall mean the Internal Revenue Code of 1986, as amended.

		(d)	
Involuntary Termination shall mean either (i) SFBC's and/or the Bank's termination of the Executive's employment without the Executive's express written consent, or (ii) termination of the Executive's employment by the Executive by reason of a material diminution of or interference with the Executive's duties, responsibilities and benefits, including  any of the following actions, unless consented to in writing by the Executive: (1) a change in the principal workplace of the Executive to a location outside of a 35 mile radius from the Bank's headquarters office as of the date hereof, (2) a material demotion of the Executive; (3) a material reduction in the number or seniority of other Bank personnel reporting to the Executive or a material reduction in the frequency with which, or in the nature of the matters with respect to which, such personnel are to report to the Executive, other than as part of a Bank- wide reduction in staff; (4) a material adverse change in the Executive's salary, perquisites, benefits, contingent benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Bank; or (5) a material permanent increase in the required hours of work or the workload of the Executive; provided, however, that prior to any termination of employment by Executive pursuant to clauses (1) through (5) of this Section 14(d) the Executive must first provide written notice to the Bank within ninety (90) days of the initial existence of the condition, describing the existence of such condition, and the Bank shall thereafter have the right to remedy the condition within thirty (30) days of the date the Bank received the written notice from the Executive.  If the Bank remedies the condition within such thirty (30) day cure period, then no Involuntary Termination shall be deemed to occur with respect to such condition.  If the Bank does not remedy the condition within such thirty (30) day cure period, then the Executive may deliver a notice of Involuntary Termination at any time within sixty (60) days following the expiration of such cure period. The term "Involuntary Termination" does not include termination for Cause or termination of employment due to retirement, death, disability or suspension or temporary or permanent prohibition from participation in the conduct of the Bank's affairs under Section 8 of the Federal Deposit Insurance Act ("FDIA").

IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date referred to above.

EXECUTIVE

ATTEST: /s/ Laura Lee Stewart                                                                                                /s/ Christina Gehrke

Christina Gehrke

SOUND FINANCIAL BANCORP, INC.

ATTEST: /s/ Christine Jones                                                                                                              By: /s/ Laura Lee Stewart

       Laura Lee Stewart

         President and CEO

SOUND COMMUNITY BANK

ATTEST: /s/ Christine Jones                                                                                                              By: /s/ Laura Lee Stewart

       Laura Lee Stewart

         President and CEO

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