Document:

SETTLEMENT AGREEMENT

    
This SETTLEMENT AGREEMENT (this "Agreement") dated as of September
24, 2004 is by and among James A. Todd ("Mr. Todd") and AF Financial
Group, on its own behalf and on behalf of all of its affiliates, which
for purposes of this Agreement includes AF Bank, a federally chartered
savings bank, AF Insurance Services, Inc., AF Brokerage, Inc., AsheCo,
MHC, Alleghany, Ashe & Grayson, Inc. ("AAG, Inc") and any other person,
group, or company controlling, controlled by, or under common control with
AF Financial Group (collectively referred to in this Agreement as "AF Financial
Group and its affiliates" or "AF Financial Group or its affiliates", and
the term "affiliates" when mentioned in this Agreement along with AF Financial
Group shall refer broadly to all the affiliates specifically and generally
of AF Financial Group as referenced above).  Mr. Todd and AF Financial
Group and its affiliates are hereinafter referred to as the "parties."

    
Whereas, Mr. Todd formerly served as President and Chief Executive
Officer of AF Financial Group, a federally chartered thrift holding company,
and also formerly served in positions with the affiliates of AF Financial
Group, including its wholly owned subsidiary AF Bank,

    
Whereas, Mr. Todd continues to serve as a director of AF Financial
Group and some of its affiliates,

    
Whereas, the employment and compensation agreements AF Financial Group
and its affiliates have entered into with Mr. Todd in his capacities as
officer and director of AF Financial Group and its affiliates include the
following:

      
1)  Employment Agreement dated as of November 18, 2002 between Mr.
Todd and AF Financial Group,

      
2)  Employment Agreement dated as of November 18, 2002 between Mr.
Todd and AF Bank,

      
3)  Salary Continuation Fixed and Flexible Premium Life Insurance
Agreement dated as of April 15, 2002

            
between Mr.Todd and AF Financial Group,
        4) Retirement Payment Agreement
dated as of July 1, 1995 between Mr. Todd and the predecessor 

            of AF
Bank,

 

       Whereas, AF Financial Group
and its affiliates believe that all prior actions with respect to the termination
and removal of Mr. Todd have been proper and for sufficient cause; however,
Mr. Todd has threatened litigation and there is an ongoing dispute between
Mr. Todd, on the one hand, and AF Financial Group and its affiliates, on
the other, concerning the circumstances of termination of Mr. Todd's employment
and concerning his rights and interests under the agreements to which he
is a party,

     
Whereas, desiring to avoid the burdens and costs associated with litigation,
and the risks attendant to both sides in the litigation process, the parties
to this Agreement desire to set forth herein the terms of a negotiated
agreement resolving the dispute with Mr. Todd and to provide for an amicable
conclusion of the relationship between Mr. Todd and AF Financial Group
and its affiliates, effective immediately.

 

 

      
Now, Therefore, in consideration of these premises and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows.

       
1.   Resignation of Mr. Todd as Director.  Effective
immediately, Mr. Todd hereby resigns as Director of AF Financial Group
and its affiliates, including without limitation AsheCo, MHC and AAG, Inc. 
On behalf of itself and its affiliates, AF Financial Group and its affiliates
hereby accept Mr. Todd's resignations.

       
2.   Consent by Mr. Todd to prior corporate action. Mr.
Todd hereby consents to his prior removal as Chairman of the Board of AF
Financial Group, his prior removal as Chairman of the Board of AsheCo,
MHC, his prior removal as Chairman of the Board and Director of AF Bank,
his prior removal as Chairman of the Board, Director and Officer of AF
Insurance Services, Inc., his prior removal as Chairman of the Board, Director
and Officer of AF Brokerage, Inc., and his prior termination from employment
and other positions held by him with AF Financial Group and its affiliates.

       
3.  Non-Compete, Confidentiality and Non-Solicitation agreements.
The non-compete, confidentiality and non-solicitation provisions found
in Sections 12, 13 and 14 of the Employment Agreements between Mr. Todd
and AF Financial Group and AF Bank dated November 18, 2002, shall continue
in full force and effect, and Mr. Todd agrees that he is to abide by the
restrictions set forth therein with the following modifications.

      
(a) Non-compete:  The covenant not to compete provisions shall
be limited to a territorial restriction consisting of Alleghany, Ashe and
Watauga Counties, and shall continue only until 1 June 2005.  Mr.
Todd agrees that the remaining terms of Section 12 of the Employment Agreements
shall remain in full force and effect, except that all the terms beginning
with the words "provided, however" and continuing to the end of
Section 12 are not applicable.

     
(b)  Confidentiality: The confidentiality provisions shall
remain in full force and effect.

     
(c)  Non-Solicitation:  The nonsolicitation provisions
shall remain in full force and effect, except they shall continue only
until 1 June 2005.

     
(d)  General terms:  Mr. Todd agrees that the terms of
these restrictions are reasonable and that if he breaches any of these
terms, AF Financial Group and its affiliates shall be entitled to an injunction
against him, without bond, restraining such breach, plus an award of attorneys'
fees and costs against him relating to such proceeding.

 

 

                                                                                            
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4.  Settlement Payments to Mr. Todd and other terms.

       
(a)  AF Financial Group shall cause AF Bank to pay to Mr. Todd a severance
settlement payment in cash in the amount of $209,000.00, less federal,
state and other tax withholdings required for the payment of wages, and
less the amounts necessary to satisfy and cancel loans to Mr. Todd and
his wife, as follows: (1) Home Equity Line of Credit, loan number 400032917,
in the principal amount of $15,298.27, plus any accrued but unpaid interest
through the date of satisfaction; and (2) Home Mortgage, loan number 400091428,
in the principal amount of $83,359.94, plus any accrued but unpaid interest
through the date of satisfaction.  The payment, after the required
deductions, shall be made in a single lump sum on the eighth day after
execution of this Agreement, when the Release given by Mr. Todd in section
6 of this Agreement shall have become effective (but no payment shall be
due to Mr. Todd under this Agreement if he revokes the Release). 
The foregoing amount is agreed upon by all parties.  It is further
agreed that upon the deductions for the Home Equity Line of Credit and
the Home Mortgage, as described above, the loans shall be marked satisfied
and the deeds of trust for such loans shall be canceled by AF Bank, and
the parties agree that no further credit shall be extended to Mr. Todd
or his wife by AF Bank or by AF Financial Group and its affiliates.

      
(b)  Except for the additional payment as described in paragraph (c)
below, the amount payable to Mr. Todd under paragraph (a) represents full
payment for and settlement of Mr. Todd's rights and interests for all claims
of any kind, including without limitation, claims under the Employment
Agreement dated as of November 18, 2002 between Mr. Todd and AF Financial
Group, the Employment Agreement dated as of November 18, 2002 between Mr.
Todd and AF Bank, and the Salary Continuation Fixed and Flexible Premium
Life Insurance Agreement dated as of April 15, 2002 between Mr. Todd and
AF Financial Group.  The parties acknowledge that the payments in
(a) and (c) are a reasonable resolution of the dispute between the parties.

       
(c)  AF Bank shall pay to Mr. Todd an additional settlement payment
in cash in the amount of $101,000.00, representing an agreed estimate of
the present value of what would otherwise be payable to Mr. Todd under
the Retirement Payment Agreement dated July 1, 1995 with the predecessor
of AF Bank, less federal, state and other tax withholdings required for
the payment of wages.  The payment, after the required deductions,
shall be made in a single lump sum on the eighth day after execution of
this Agreement, when the Release given by Mr. Todd in section 6 of this
Agreement shall have become effective (but no payment shall be due to Mr.
Todd under this Agreement if he revokes the Release).

       
(d)  The only rights of Mr. Todd under AF Financial Group's Employee
Stock Ownership Plan are the right to have issued to him a stock certificate,
which is in the process of being issued, for 2308 shares of stock in AF
Financial Group and a check in the amount of $5.40 for the remaining fractional
share interests he has under the Plan.  Otherwise, Mr. Todd agrees
that he has no other rights or claims of any kind whatsoever under the
Plan, now or in the future, and he agrees that the shares issued to him
under the AF Financial Group Employee Stock Ownership Plan as described
above shall be subject to the same limitations imposed on his other shareholdings
of AF Financial Group as described in Section 5 below.

 

                                                                                      
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(e)  Mr. Todd agrees that he has already received all sums due him
under AF Financial Group's or affiliates' 401(k) retirement plan and that
he has no rights or claims of any kind whatsoever under the 401(k) retirement
plan, now or in the future.

       
(f) The parties agree that Mr. Todd's rights, if any, under AF Bank's Recognition
and Retention Plan and the Stock Option Plan of AF Bank are canceled and
he has no rights or claims under either such plan, now or in the future.

       
(g) Notwithstanding any other provisions of this Agreement, all payments
and other consideration made or provided to Mr. Todd under this Agreement
shall be subject to all applicable federal, state, and local tax and other
withholding requirements.

       
(h) Mr. Todd warrants that his wife's only ownership of AF Financial Group
stock is her joint ownership with him of 5,000 shares of stock, which stock
is beneficially owned by him. Such stock, together with all stock owned
individually by Mr. Todd, is referred to for purposes of this Agreement
as "Mr. Todd's Stock" and is stock beneficially owned by Mr. Todd which
he warrants that he has the right to convey.  As described in more
detail below, Mr. Todd agrees that he will use his best efforts to sell
all of Mr. Todd's Stock in AF Financial Group within one (1) year and that,
in any event, he will sell all such stock not later than five (5) years
from the date of this Agreement and that neither he nor his wife will purchase,
either directly or indirectly, any stock of AF Financial Group or its affiliates
at any time in the future.

        
5.  Mr. Todd's agreement relating to his stock ownership in AF Financial
Group.  In order for Mr. Todd to end his entire involvement with
AF Financial Group and its affiliates, Mr. Todd will need to sell all of
Mr. Todd's Stock in AF Financial Group.  It is important to Mr. Todd
that he not be forced to sell Mr. Todd's Stock by an unreasonable deadline
in a way that could impact the price of the stock and it is important to
AF Financial Group that if Mr. Todd continues as a shareholder for any
period of time that there are no disputes or controversies with him because
of or arising out of his status as shareholder.  Accordingly, the
parties agree that Mr. Todd will use his best efforts to sell all of Mr.
Todd's Stock in AF Financial Group within one (1) year but no later than
five (5) years from the date of this Agreement and that the following additional
terms will be in place during the time that Mr. Todd and his wife remain
shareholders of AF Financial Group: (1) Mr. Todd will execute contemporaneously
with this Agreement a proxy in the form attached to this Agreement in which
he will irrevocably give his proxy to vote his shares during the entire
time that he remains a shareholder of AF Financial Group; (2) Mr. Todd
will not acquire any additional shares of stock of AF Financial Group beyond
those he owns at this time and beyond those that are issued to Mr. Todd
under AF Financial Group's Employee Stock Ownership Plan as described in
Section 4 above; (3) Mr. Todd will not attend or demand to attend any shareholder
meetings, Board meetings or other corporate meetings of AF Financial Group
or its affiliates; (4) Mr. Todd will not, in his capacity as a shareholder,
make any demands or claims of any kind, nor will he bring any legal action
of any kind, against AF Financial Group or its affiliates, or any of their
Board members, or any officers, agents or employees, for any matters arising
out of or relating to his stock ownership; (5) Mr. Todd agrees that all
prior requests made by him or his attorneys, as a shareholder, for access
to corporate records of AF Financial Group or its affiliates are hereby
withdrawn and Mr. Todd agrees not to make any other such requests for corporate
records in the future; (6) Mr. Todd will not

 

                                                                                      
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sell or convey any of Mr. Todd's Stock to a family member, meaning to
a spouse, parent, child, sibling, mother or father in law, sister or brother-in-law
or son or daughter-in-law; and (7) Mr. Todd agrees that he will take all
actions necessary to avoid any disputes and will not be the cause of any
disputes with or about AF Financial Group, its affiliates or directors,
concerning or arising out of his stock ownership in AF Financial Group. 
Mr. Todd agrees that this Section 5 is reasonable and shall be enforceable
against him, even though it involves a waiver of rights and unknown claims
he otherwise might have in the future concerning or arising out of his
stock ownership.  Mr. Todd also agrees that he will never seek a position
with AF Financial Group or its affiliates, as a Director, Principal, Officer
or employee.  If Mr. Todd violates any of these terms, he shall pay
all costs and expenses (including without limitation reasonable attorneys'
fees) incurred by AF Financial Group or its affiliates or directors for
enforcing the above terms and otherwise defending against any suit, claim,
charge, demand, or action.

      
6.  Release By Mr. Todd.  In exchange for the payments and
other consideration provided for in this Agreement, and other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, Mr. Todd hereby releases, remises, and forever discharges
AF Financial Group and its affiliates, including but not limited to, AF
Bank, AF Insurance Services, Inc., AF Brokerage, Inc., AsheCo, MHC, AAG,
Inc., and all of their respective predecessors, successors, assigns, and
directors personally and in their respective capacities, and any other
person or entity succeeding to any such person or entity, any and all past
or present employees and Executive Officers of AF Financial Group and its
affiliates, as well as their attorneys, trustees, custodians, agents, administrators
and consultants, of and from any and all claims, demands, rights, charges,
actions, interests, debts, obligations, liabilities, damages, costs, expenses,
and causes of action of whatever type or nature, whether legal or equitable,
whether in tort or in contract, whether known or unknown, that Mr. Todd
has or may have against any of them, either individually, jointly, severally,
or jointly and severally, of any kind whatsoever, including without limitation
those based upon any agreements, transactions, acts, or omissions that
have occurred at any time up to and including the date of this Agreement,
including without limitation any and all claims, demands, or causes of
action arising out of, either directly or indirectly, Mr. Todd's employment
or separation from employment with AF Financial Group and its affiliates,
including without limitation any rights or causes of action Mr. Todd may
have under any of the following statutes/laws -

       1)  Title VII of the Civil
Rights Act of 1964, as amended, 42 U.S.C. Section 2000e, et seq.,

      
2)  the Americans with Disabilities Act, 42 U.S.C. Section 12101 et
seq.,

      
3)  the Employee Retirement Income Security Act, 29 U.S.C. Section
301, et seq.,

      
4)  the Family and Medical Leave Act, 29 U.S.C. Section 2601 et
seq.,

      
5)  the Age Discrimination in Employment Act, 29 U.S.C. Section 621,
et
seq.,

      
6)  the Fair Labor Standards Act, 29 U.S.C. Section 201 et seq.,
and

      
7)  the Consolidated Omnibus Budget Reconciliation Act, 29 U.S.C.
Section 1161 et seq.,

 

including any claim for or right to attorneys' fees, costs and expenses
thereunder, or otherwise, and specifically including any claim for wages,
bonuses, expenses, medical insurance or medical benefits

 

 

5

or
other benefits or compensation of any kind whatsoever.  However, this
Release shall not apply to (a) any rights of Mr. Todd or obligations of
AF Financial Group and its affiliates under this Agreement; and (b) any
rights Mr. Todd may have in the future to indemnification for claims against
him that are covered under the director and officer insurance policies
of AF Financial Group or its affiliates as in effect from time to time,
it being expressly understood and agreed that this Release does apply to
and Mr. Todd does waive any claims or rights to be indemnified for any
costs, fees or expenses incurred by him in connection with the termination
of his employment and his removal from positions with AF Financial Group
and its affiliates as well as any other disputes and matters between him
and AF Financial Group or its affiliates leading to the execution of this
Agreement.  Mr. Todd shall not sue AF Financial Group or any of its
affiliates or directors or make, assert, or maintain any charge, claim,
demand, or action against AF Financial Group or any of its affiliates or
directors or any such other person or entity for any matter released by
the foregoing Release.  If Mr. Todd violates the preceding sentence
or the other terms of this Release, he shall pay all costs and expenses
(including without limitation reasonable attorneys' fees) incurred by AF
Financial Group and its affiliates or directors for enforcing this Release
and defending any suit, claim, charge, demand, or action.

     
Mr. Todd represents that as of the date of this Agreement he has not sustained
or developed any work-related injuries or illnesses during his employment
with AF Financial Group or its affiliates.  Mr. Todd further warrants,
represents, and covenants that he has withdrawn and will not refile his
claim for unemployment benefits with the Employment Security Commission
and that he has not assigned to any third party or filed with any agency
or court any other claim released by this Agreement.  Mr. Todd agrees
and acknowledges that AF Financial Group and its affiliates are relying
upon these warranties, representations, and covenants in entering into
this Agreement.

      
7.  Voluntary Execution; Consideration and Revocation Periods.  
Mr. Todd acknowledges that -

      
a)  he has entered into this Agreement voluntarily, knowingly, and
with the advice of independent legal counsel retained by him,

      
b)  he has carefully read and fully understands this Agreement, and

      
c)  he has specifically waived any rights under 29 U.S.C. Section
621 et seq. and all provisions of the Older Worker Benefit Protection
Act have been complied with, including that this Agreement has been explained
to him.

                                                                                        
6

 

 

Mr.
Todd acknowledges that he has been advised in writing to consult with his
attorney regarding whether he wishes to execute this Agreement.  
Mr. Todd further acknowledges that he has been given a period of 21 days
to consider this Agreement and that he hereby voluntarily and knowingly
waives the 21-day period without fraud, misrepresentation, threat, or duress. 
Mr. Todd understands that he may revoke the Release under section 6 of
this Agreement within seven days from the date on which he signs this Agreement
by giving written notice of such revocation to AF Financial Group within
the seven-day revocation period, delivered by hand to Mr. Jan R. Caddell,
Vice Chairman, AF Financial Group, 21 East Ashe Street, West Jefferson,
North Carolina 28694-0026.   The Release by Mr. Todd in section
6 of this Agreement shall not be effective until seven days have elapsed
after execution of this Agreement by Mr. Todd, but unless revoked within
that seven-day period shall automatically become effective.  
If Mr. Todd revokes the Release within that seven-day period, this Agreement
shall be null and void and of no further force or effect, except that Mr.
Todd's termination of employment and cessation of service as a director
and officer shall be effective regardless of such revocation, and each
party shall have only those benefits and rights to which the party would
have been entitled had this Agreement not been entered into.

 

      8.  Release by AF Financial
Group and Affiliates.  For itself and its affiliates, AF Financial
Group, hereby releases, remises, and forever discharges Mr. Todd and his
successors, assigns, agents, and representatives, personally, and in his
respective capacities, and any other person or entity succeeding to any
such person or entity, from any and all claims, demands, rights, charges,
actions, interests, debts, obligations, liabilities, damages, costs, expenses,
and causes of action of whatever type or nature, whether legal or equitable,
whether in tort or in contract, whether known or unknown, AF Financial
Group, or its affiliates or directors have or may have against any of them,
either individually, jointly, or severally, or jointly and severally, based
upon any agreements, transactions, acts, or omissions that have occurred
at any time up to and including the date of this Agreement.  However,
this Release shall not apply to (a) any rights of AF Financial Group, or
its affiliates or the obligations of Mr. Todd under this Agreement, including
the loan obligations to AF Bank which are being satisfied out of the settlement
proceeds from this Agreement; (b) Mr. Todd's continuing non-compete, confidentiality
and non-solicitation obligations found in the Employment Agreements between
Mr. Todd and AF Financial Group and AF Bank, as modified by Section 3 of
this Agreement; and (c) any claims for indemnification or contribution
that AF Financial Group or its affiliates have or may have against Mr.
Todd arising out of claims asserted or filed by a third party in the future
(even if based on prior acts or omissions) against AF Financial Group or
its affiliates, under circumstances where AF Financial Group or its affiliates
either do not have insurance coverage for such claims or the coverage does
not allow them to release the right of indemnification or contribution
in order for the insurance coverage to continue to be available. 
AF Financial Group, and its affiliates covenant not to sue Mr. Todd or
make, assert, or maintain any charge, claim, demand, or action, against
Mr. Todd for any matter released.  If AF Financial Group, or any of
its affiliates violates the preceding sentence or the terms of this Release,
AF Financial Group or its affiliates shall pay all costs and expenses (including
without limitation reasonable attorneys' fees) incurred by Mr. Todd for
enforcing this Release and defending any suit, claim, charge, demand, or
action.

 

 

                                                                                            
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9.  D&O Insurance.  For seven years, beginning on the
date of this Agreement, if and to the extent coverage of former officers
and directors is included under AF Financial Group's or affiliates' directors
and officers liability insurance policy in effect from time to time, AF
Financial Group shall continue or cause to be continued coverage for Mr.
Todd under such policy against any claims arising out of his activities
as a director and officer of AF Financial Group or affiliates.  However,
this covenant on AF Financial Group's part shall not limit AF Financial
Group's right to modify its directors and officers insurance coverage from
time to time, so long as such changes apply to its officers and directors
generally.  Except for the obligations in this paragraph with respect
to insurance coverage, AF Financial Group or its affiliates shall have
no other obligations to Mr. Todd to indemnify him for any of his activities
as a director or officer.

    
10.  Other Covenants.

    
(a)  The parties agree that upon execution of this Agreement, an SEC
Form 8-K in the form attached will be filed along with a copy of this Agreement.

    
(b)  Mr. Todd agrees that he will not be involved in any way with
any efforts, either directly or indirectly, to acquire, take over, merge
with or effect a change in control concerning AF Financial Group or its
affiliates, nor will he assist, aid, or abet anyone, or take any action
individually, which is designed to replace all or any directors of AF Financial
Group or its affiliates.

    
(c)  Within thirty (30) days from the date of this Agreement, Mr.
Todd and his wife will close all bank accounts with AF Financial Group
and its affiliates, and Mr. Todd agrees that he and his wife will not open
any bank accounts with AF Financial Group and its affiliates in the future.

    
(d)  Mr. Todd agrees to refrain from any publication, oral or written,
of a defamatory, disparaging, or otherwise derogatory nature pertaining
to any of the directors of AF Financial Group, AF Financial Group, or its
affiliates or all past or present employees and Executive Officers of AF
Financial Group and its affiliates.

    
(e)  Mr. Todd agrees to cooperate with AF Financial Group and its
affiliates in the defense of any claims, demands, allegations, or other
assertion of legal rights made against AF Financial Group or its affiliates
or their directors, officers or employees, by a third party that relate
to events occurring before execution of this Agreement and of which Mr.
Todd has or may have knowledge.  This agreement to cooperate includes
a good faith duty to provide documents and access to information in a timely
manner without compulsory legal process and to otherwise provide communication
access as to matters which might be at issue in any such legal proceedings. 
Except as may be required by law, and except for communications by legal
counsel representing the interests of Mr. Todd in connection with any such
matter, Mr. Todd agrees that he will not provide any written statements
or documents to any third party, including any representative thereof or
legal counsel therefore, engaged in legal proceedings against AF Financial
Group or its affiliates or their directors, officers or employees, or to
any third party actually known by him to be planning to file such legal
proceedings, other than as required by a valid subpoena, court order, administrative
order, or other legal process requiring the giving of such statements or
documents, and, further, that within

 

                                                                                 
8

three
(3) calendar days after his receipt of any such legal process will provide
AF Financial Group notice thereof by completing delivery of a copy of such
legal process to its attorney, Jimmy D. Reeves, Vannoy & Reeves, PLLC,
Post Office Box 67, West Jefferson, North Carolina 28694, telephone number
(336) 246-7172, or fax number (336) 246-5966.  The sole remedy for
any breach of this provision shall be relief from similar obligations under
Section 10(f) below.

    
(f)  AF Financial Group, and its affiliates likewise agree to cooperate
with Mr. Todd in the defense of any claims, demands, allegations, or other
assertion of legal rights made against Mr. Todd by a third party that relate
to events occurring before execution of this Agreement and of which AF
Financial Group, or its affiliates have or may have knowledge.  This
agreement to cooperate includes a good faith duty to provide documents
and access to company-controlled information to Mr. Todd in a timely manner
without compulsory legal process and to otherwise provide communication
access to employees as to matters which might be at issue in any such legal
proceedings.  Except as may be required by law, and except for communications
by legal counsel representing the interests of AF Financial Group or its
affiliates in connection with such matter, AF Financial Group and its affiliates
agree that they will not provide any written statements or documents to
any third party, including any representative thereof or legal counsel
therefore, engaged in legal proceedings against Mr. Todd, or to any third
party actually known by AF Financial Group to be planning to file such
legal proceedings, other than as required by a valid subpoena, court order,
administrative order, or other legal process requiring the giving of such
statements or documents and, further, that within three (3) calendar days
after receipt of any such legal process will provide Mr. Todd notice thereof
by completing delivery of a copy of such legal process to his attorney,
Frank Hirsch, Hunton & Williams, Raleigh, North Carolina, telephone
number (919) 899-3148, or fax number (919) 833-6352.  However, the
terms of this paragraph shall not apply to any claims, demands, allegations
or assertions of legal rights made against Mr. Todd by any employee or
former employee of AF Financial Group or its affiliates that relates in
any way to the circumstances of Mr. Todd's termination by AF Financial
Group and its affiliates. The sole remedy for any breach of this provision
shall be relief from similar obligations under Section 10(e) above.

    
11.  No Admissions.  The purpose of this Agreement is to
settle disputed claims between the parties, avoid the burdens and costs
associated with litigation and limit the risks to both sides attendant
to the litigation process.  Accordingly, nothing herein shall constitute
an admission of any kind that AF Financial Group or its affiliates has
at any time, including the present, engaged in any unlawful acts against
or toward Mr. Todd or treated him unfairly or improperly in any way.

    
12.  Successors and Assigns.  This Agreement is binding upon
the parties hereto and upon their heirs, administrators, representatives,
executors, successors, and assigns.

    
13.  Notices.  Except for the requirements for the revocation
notice, if any, under Section 7 above, all notices and other communications
under this Agreement shall be in writing and shall be deemed given when
delivered personally, mailed by certified mail (return receipt requested),
or by express delivery service to the following addresses or to such other
address as either party may designate by like notice.  Unless otherwise
changed by notice, notice shall be properly addressed to

                                                                                          
9

AF
Financial Group, c/o Jimmy D. Reeves, Vannoy & Reeves, PLLC, Post Office
Box 67, West Jefferson, North Carolina 28694, and notice shall be properly
addressed to Mr. Todd at 849 Clyde Houck Road, Todd, North Carolina 
28684.

     
14.  Non-Waiver.  No failure by either party to insist upon
strict compliance with any term of this Agreement, to exercise any option,
to enforce any right, or to seek any remedy upon any default of the other
party shall affect or constitute a waiver of the other party's right to
insist upon such strict compliance, exercise that option, enforce that
right, or seek that remedy for that default or any prior, contemporaneous,
or subsequent default.  No custom or practice of the parties at variance
with any provision of this Agreement shall affect or constitute a waiver
of either party's right to demand strict compliance with all provisions
of this Agreement.

    
15.  Entire Agreement.  This Agreement contains the entire
agreement among Mr. Todd, AF Financial Group, and its affiliates concerning
the subject matter hereof, superseding all prior or contemporaneous oral
or written agreements, understandings, statements, representations, and
promises by or among the parties.  Mr. Todd shall continue to have
non-compete, confidentiality and non-solicitation obligations under the
Employment Agreement dated as of November 18, 2002 between Mr. Todd and
AF Financial Group and the Employment Agreement dated as of November 18,
2002 between Mr. Todd and AF Bank, as modified by Section 3 of this Agreement,
and otherwise, it is agreed that Mr. Todd shall have no rights or claims
of any kind under these Employment Agreements, now or in the future. 
Based on the payments to be made to Mr. Todd under this Agreement, it is
agreed that the Salary Continuation Fixed and Flexible Premium Life Insurance
Agreement dated as of April 15, 2002 between Mr. Todd and AF Financial
Group, and the Retirement Payment Agreement dated as of July 1, 1995 between
Mr. Todd and the predecessor of AF Bank, are void and of no further force
or effect, and that there are no other agreements of any kind under which
Mr. Todd has or will have any claims against AF Financial Group and its
affiliates, now or in the future.  Mr. Todd acknowledges and agrees
that any payments made under this Agreement are in full settlement and
discharge of any and all rights or claims Mr. Todd or his estate may have
against AF Financial Group and its affiliates of any kind whatsoever, including
without limitation those arising out of Mr. Todd's employment with AF Financial
Group and affiliates or the termination thereof and that Mr. Todd is entitled
to no payments or benefits from AF Financial Group or its affiliates not
specifically referenced in this Agreement.

    
No alterations, additions, or other changes to this Agreement shall be
made or be binding unless made in writing and signed by all parties.

    
16.  Governing Law.  To the extent permitted by federal law,
this Agreement shall be governed by and construed in accordance with the
laws of the State of North Carolina, without regard to principles of conflicts
of law.  The parties hereby agree that any court action shall be brought
in the Ashe County Superior Court or, if jurisdiction is appropriate, in
the United States District Court for the Western District of North Carolina. 
With respect to any such court action, the parties hereby consent and submit
to the personal jurisdiction and venue of the state court, and if jurisdiction
is appropriate, the federal court.

 

                                                                                              
10

   
17.  Captions and Counterparts.  Caption headings and subheadings
herein are included solely for convenience of reference and shall not affect
the meaning or interpretation of any provision of this Agreement. 
This Agreement may be executed in multiple counterparts, each of which
shall be deemed to be an original, but all of which taken together shall
constitute one and the same Agreement.

    
In Witness Whereof, this Settlement Agreement has been executed by
Mr. James A. Todd and by AF Financial Group, with authority duly given,
this 24th day of September, 2004.

James
A. Todd                                                                           
AF Financial Group

/s/
JAMES A. TODD                                                                   
By:  /s/ JIMMY D. REEVES

Executed
on September 24, 2004                                                 
Its:  Chairman of the Board

                                                                                                    
Executed on September 24, 2004

 

 

The
following documents are attached hereto as Appendix A

  
1)   Irrevocable Proxy and Power of Attorney of James A. Todd

  
2)   SEC Form 8 K

 

 

 

 

 

 

 
IRREVOCABLE PROXY AND POWER OF ATTORNEY

         
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned stockholder of
AF Financial Group, a federally chartered stock holding company (the "Corporation"),
do hereby irrevocably appoint the Proxy Committee of the Corporation my
true and lawful attorney and proxy, with full power of substitution and
revocation, for me and in my name, place and stead, to vote for me, as
my proxy, on any action presented to the stockholders of the Corporation,
whether pursuant to a meeting, adjournment, written consent or otherwise,
according to the number of votes I may then be entitled to cast, hereby
granting my said attorney and proxy full power and authority to act for
me and in my name, place and stead and to vote upon those matters concerning
shares and interest in the Corporation, all as fully as I might or could
if personally present.  I hereby ratify and confirm all that my said
attorney and proxy may do with respect to any such action presented to
the stockholders of the Corporation in my name, place and stead. 
This appointment is coupled with an interest, to wit: a certain Settlement
Agreement entered into on the 24th day of September, 2004, and
is irrevocable by me or any other person.

         IN WITNESS WHEREOF,
I have hereunto set my hand and seal this 24th day of September, 2004.

                                                                                                 
/s/ JAMES A. TODD         (SEAL)

                                                                                               
James A. Todd

 

 

                                                                                 
SEC Form 8-K

                                                                             
[Intentionally omitted]Exhibit 4c

                            SECOND AMENDING AGREEMENT
                        (Syndicated Term Credit Facility)

THIS AGREEMENT is made as of September 21, 2004

BETWEEN:

                    POTASH CORPORATION OF SASKATCHEWAN INC., a corporation
                    subsisting under the laws of Canada (hereinafter referred to
                    as the "Borrower"),

                                                              OF THE FIRST PART,

                                     - and -

                    THE FINANCIAL INSTITUTIONS SET FORTH ON SCHEDULE A HERETO
                    AND ON THE SIGNATURE PAGES HEREOF UNDER THE HEADING
                    "LENDERS:" (hereinafter referred to collectively as the
                    "Lenders" and individually as a "Lender"),

                                                             OF THE SECOND PART,

                                     - and -

                  THE BANK OF NOVA SCOTIA, a Canadian chartered bank, as agent
                  of the Lenders (hereinafter referred to as the "Agent"),

                                                              OF THE THIRD PART.

                  WHEREAS the parties hereto have agreed to amend and supplement
certain provisions of the Credit Agreement as hereinafter set forth;

                  NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration
of the covenants and agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby conclusively
acknowledged by each of the parties hereto, the parties hereto covenant and
agree as follows:

1.       Interpretation

1.1. In this Agreement and the recitals hereto, unless something in the subject
matter or context is inconsistent therewith:

"Agreement" means this agreement, as amended, modified, supplemented or restated
from time to time.

"Credit Agreement" means the term credit agreement made as of September 25, 2001
between the Borrower, the Lenders listed in Schedule A thereto and such other
financial institutions as become party thereto, as lenders, and the Agent, as
amended by an amending agreement made as of September 23, 2003.

1.2. Capitalized terms used herein without express definition shall have the
same meanings herein as are ascribed thereto in the Credit Agreement.

1.3. The division of this Agreement into Sections and the insertion of headings
are for convenience of reference only and shall not affect the construction or
interpretation of this Agreement. The terms "this Agreement", "hereof",
"hereunder" and similar expressions refer to this Agreement and not to any
particular Section or other portion hereof and include any agreements
supplemental hereto.

1.4. This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the federal laws of Canada applicable
therein.

2. Amendments and Supplements

2.1. Extension of Conversion Date. The Conversion Date is hereby extended to
September 20, 2005 pursuant to Section 1.13 of the Credit Agreement with respect
to each Lender.

2.2. Extension Fee Payable in Respect Extension of Conversion Date. The Borrower
hereby agrees to pay to the Agent, for each Lender, an extension fee in United
States dollars in an amount equal to 0.05% of the Individual Commitment of each
Lender.

2.3. Amendments to Applicable Margin. Section 1.01 of the Credit Agreement is
hereby amended by deleting the existing definition of "Applicable Margin" in its
entirety and substituting the following therefor:

          "Applicable Margin" means, at any time, the applicable rate per annum
          set forth in the table below for the applicable S & P rating and the
          applicable Utilization Rate:

         -------------------------------- --------------------------------------
           S & P's Corporate Credit or                 Utilization Rate
            Unsecured Debt Rating of
                    Borrower
         -------------------------------- -------------------- -----------------
                                                 < 1/2              >  1/2
                                                                    _
         -------------------------------- -------------------- -----------------
         A- or above                      0.375% per annum     0.50% annum
         -------------------------------- -------------------- -----------------
         BBB+                             0.475% per annum     0.60% per annum
         -------------------------------- -------------------- -----------------
         BBB                              0.625% per annum     0.75% per annum
         -------------------------------- -------------------- -----------------
         BBB-                             0.875% per annum     1.00% per annum
         -------------------------------- -------------------- -----------------
         BB+ or below or unrated          1.25% per annum      1.50% per annum
         -------------------------------- -------------------- -----------------

2.4. Definition of Cash Equivalents. Section 1.01 of the Credit Agreement is
hereby amended by adding the following new definition immediately after the
definition of "Capital":

          "Cash Equivalents" means (a) securities issued, guaranteed or insured
          by the government of any country or any political subdivision thereof;
          (b) deposits or certificates of deposit issued or guaranteed by a bank
          or trust company; or (c) debt securities or commercial paper issued or
          guaranteed by a body corporate.

2.5. Definition of Defeased Loan Transaction. Section 1.01 of the Credit
Agreement is hereby amended by adding the following new definition immediately
after the definition of "Default":

          "Defeased Loan Transaction" means a transaction where loans are made
          to a given Company ("X") and X or another Company either:

          (a)  pledges to the holder of such loans cash or Cash Equivalents in
               an amount not less than 90% of the aggregate principal amount of
               such loans, as collateral security for the repayment thereof; or

          (b)  deposits with the holder of such loans cash or Cash Equivalents
               in an amount not less than 90% of the aggregate principal amount
               of such loans, which deposits are required to be maintained with
               such holder while such loans remain outstanding.

2.6. Definition of Permitted Liens. The existing definition of "Permitted Liens"
contained in Section 1.01 of the Credit Agreement is hereby amended by deleting
the word "and" at the end of paragraph (t) thereof, deleting the period at the
end of paragraph (u) thereof and replacing same with a semi-colon followed by
the word "and" and by adding thereto the following as a new paragraph (v):

          "(v) Liens against cash or Cash Equivalents, provided that such cash
          or Cash Equivalents have been provided as collateral security for the
          obligations of one or more of the Companies under a Defeased Loan
          Transaction (including, for certainty, the obligations of a Company
          under a guarantee provided in connection therewith).".

3.       Representations and Warranties

         The Borrower hereby represents and warrants as follows to each Lender
and the Agent and acknowledges and confirms that each Lender and the Agent is
relying upon such representations and warranties:

          (a)  Capacity, Power and Authority

               (i)  It is duly incorporated and is validly subsisting under the
                    laws of its jurisdiction of incorporation and has all the
                    requisite corporate capacity, power and authority to carry
                    on its business as presently conducted and to own its
                    property; and

               (ii) It has the requisite corporate capacity, power and authority
                    to execute and deliver this Agreement.

          (b)  Authorization; Enforceability

               It has taken or caused to be taken all necessary action to
               authorize, and has duly executed and delivered, this Agreement,
               and this Agreement is a legal, valid and binding obligation of it
               enforceable against it in accordance with its terms, subject to
               applicable bankruptcy, reorganization, winding up, insolvency,
               moratorium or other laws of general application affecting the
               enforcement of creditors' rights generally and to the equitable
               and statutory powers of the courts having jurisdiction with
               respect thereto.

          (c)  Compliance with Other Instruments

               The execution, delivery and performance by the Borrower of this
               Agreement and the consummation of the transactions contemplated
               herein do not conflict with, result in any breach or violation
               of, or constitute a default under the terms, conditions or
               provisions of its articles, by-laws or other constating documents
               or any unanimous shareholder agreement relating to, the Borrower
               or of any law, regulation, judgment, decree or order binding on
               or applicable to the Borrower or to which its property is subject
               or of any material agreement, lease, licence, permit or other
               instrument to which the Borrower or any of its Subsidiaries is a
               party or is otherwise bound or by which any of them benefits or
               to which any of their property is subject and do not require the
               consent or approval of any Official Body or any other party.

         The representations and warranties set out in this Agreement shall
survive the execution and delivery of this Agreement and the making of each
Accommodation, notwithstanding any investigations or examinations which may be
made by or on behalf of the Agent, the Lenders or Lenders' counsel. Such
representations and warranties shall survive until the Credit Agreement has been
terminated.

4.       Conditions Precedent

         The amendments and supplements to the Credit Agreement contained herein
shall be effective upon, and shall be subject to, the satisfaction of the
following conditions precedent:

          (a)  the Borrower shall have paid to the Agent, for each Lender, the
               extension fees required to be paid pursuant to Section 2.2
               hereof; and

          (b)  the Guarantor shall have executed and delivered to the Agent on
               behalf of the Lenders a confirmation with respect to its
               Guarantee in the form attached hereto.

The foregoing conditions precedent are inserted for the sole benefit of the
Lenders and the Agent and may be waived in writing by the Lenders, in whole or
in part (with or without terms and conditions).

5.       Confirmation of Credit Agreement and other Loan Documents

         The Credit Agreement and the other Loan Documents to which the Borrower
is a party and all covenants, terms and provisions thereof, except as expressly
amended and supplemented by this Agreement, shall be and continue to be in full
force and effect and the Credit Agreement as amended and supplemented by this
Agreement and each of the other Loan Documents to which the Borrower is a party
is hereby ratified and confirmed and shall from and after the date hereof
continue in full force and effect as herein amended and supplemented, with such
amendments and supplements being effective from and as of the date hereof upon
satisfaction of the conditions precedent set forth in Section 4 hereof.

6.       Further Assurances

         The parties hereto shall from time to time do all such further acts and
things and execute and deliver all such documents as are required in order to
effect the full intent of and fully perform and carry out the terms of this
Agreement.

7.       Enurement

         This Agreement shall enure to the benefit of and shall be binding upon
the parties hereto and their respective successors and permitted assigns.

8.       Counterparts

         This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which taken together shall be
deemed to constitute one and the same instrument, and it shall not be necessary
in making proof of this Agreement to produce or account for more than one such
counterpart. Such executed counterparts may be delivered by facsimile
transmission and, when so delivered, shall constitute a binding agreement of the
parties hereto.

         IN WITNESS WHEREOF the parties hereto have executed this Agreement.

                                   POTASH CORPORATION OF SASKATCHEWAN INC.

                                   By:        /s/ Wayne R. Brownlee
                                              ----------------------------------
                                              Name: Wayne R. Brownlee
                                              Title: Senior VP, Treasurer & CFO

                                   By:        /s/ Denis Sirois
                                              ----------------------------------
                                              Name: Denis Sirois
                                              Title: VP & Corporate Controller

                                   LENDERS:

                                   THE BANK OF NOVA SCOTIA

                                   By:        /s/ Jeff Cebryk
                                              ----------------------------------
                                              Name: Jeff Cebryk
                                              Title: Director

                                              ----------------------------------
                                   By:        Name:
                                              Title:

                                   ROYAL BANK OF CANADA

                                   By:        /s/ Allan Fordyce
                                              ----------------------------------
                                              Name: Allan Fordyce
                                              Title: Authorized Signatory

                                   By:
                                              ----------------------------------
                                              Name:
                                              Title:

                                   CREDIT SUISSE FIRST BOSTON, TORONTO BRANCH

                                   By:        /s/ Alain Daoust
                                              ----------------------------------
                                              Name: Alain Daoust
                                              Title: Director

                                   By:        /s/ Bruce F. Wetherly
                                              ----------------------------------
                                              Name: Bruce F. Wetherly
                                              Title: Controllers Department

                                   BANK OF AMERICA, N.A., CANADA BRANCH

                                   By:        /s/ Nelson Lam
                                              ----------------------------------
                                              Name: Nelson Lam
                                              Title: Vice President

                                              ----------------------------------
                                   By:        Name:
                                              Title:

                                   COMERICA BANK, CANADA BRANCH

                                   By:        /s/ David Wright
                                              ----------------------------------
                                              Name: David Wright
                                              Title: Vice President

                                              ----------------------------------
                                   By:        Name:
                                              Title:

                                   EXPORT DEVELOPMENT CANADA

                                   By:        /s/ Paul Hemsing
                                              ----------------------------------
                                              Name: Paul Hemsing
                                              Title: Financial Services Manager

                                              /s/ James McIntyre
                                              ----------------------------------
                                   By:        Name: James McIntyre
                                              Title: Sr. Financial Services
                                                     Manager

                                   BANK OF MONTREAL

                                   By:        /s/ R Wright
                                              ----------------------------------
                                              Name:
                                              Title: Vice-President

                                              ----------------------------------
                                   By:        Name:
                                              Title:

                                   BANK OF TOKYO-MITSUBISHI (CANADA)

                                   By:        /s/ Davis J. Stewart
                                              ----------------------------------
                                              Name: Davis J. Stewart
                                              Title: Vice President

                                              ----------------------------------
                                   By:        Name:
                                              Title:

                                   BNP PARIBAS (CANADA)

                                   By:        /s/ Michael Gosselin
                                              ----------------------------------
                                              Name: Michael Gosselin
                                              Title: Managing Director

                                              /s/ Jean-Philippe Cadot
                                              ----------------------------------
                                   By:        Name: Jean-Philippe Cadot
                                              Title: Vice President

                                   HSBC BANK CANADA

                                   By:        /s/ Dave Eyolfson
                                              ----------------------------------
                                              Name: Dave Eyolfson
                                              Title: Manager Commercial Banking

                                              /s/ Nigel Richardson
                                              ----------------------------------
                                   By:        Name:  Nigel Richardson
                                              Title: Head of Corporate &
                                                     Institutional Banking
                                                     Western Region

                                   RABOBANK NEDERLAND, CANADIAN BRANCH

                                   By:        /s/ Andrew (Illegible)
                                              ----------------------------------
                                              Name: Andrew (Illegible)
                                              Title: Executive Director

                                              /s/ David L. Streeter
                                              ----------------------------------
                                   By:        Name: David L. Streeter
                                              Title: Vice President

                                   SOCIETE GENERALE (CANADA)

                                   By:        /s/ C. Hansen
                                              ----------------------------------
                                              Name: C. Hansen
                                              Title: Director

                                              /s/ D. Baldoni
                                              ----------------------------------
                                   By:        Name: D. Baldoni
                                              Title: Director

                                   AGENT:

                                   THE BANK OF NOVA SCOTIA, in its capacity
                                   as Agent

                                   By:        /s/ Jeff Cebryk
                                              ----------------------------------
                                              Name: Jeff Cebryk
                                              Title: Director

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