Document:

Exhibit 10.26

 

MEMBERSHIP UNIT PURCHASE AGREEMENT

 

THIS MEMBERSHIP UNIT PURCHASE AGREEMENT (“Agreement”) is entered into by and between TWIN CITIES POWER, L.L.C., a Minnesota Limited Liability Company (the “SELLER” and/or “COMPANY”), and JOHN O.  HANSON (the “PURCHASER”) dated the 28th day of March 2012 and for accounting purposes this Agreement shall be determined to be effective January 31st, 2012. The PURCHASER and SELLER are jointly referred to as PARTIES (“PARTIES”).

 

1.              WHEREAS, the PURCHASER has loaned to the SELLER pursuant to Loan Agreements dated August 31st, 2006 as Amended and June 26th, 2008 as Amended totaling $4,000,000.00 with a principle balance due as of January 31st, 2012 of $2,745,000.00 plus interest due and payable through January 31st, 2012, the closing date as herein defined (the “HANSON LOANS”). The HANSON LOANS are represented by Exhibits A and B and are attached hereto and incorporated herein by this reference.

 

2.              WHEREAS, the PURCHASER has pledged the HANSON LOANS to the Bremer Bank National Association (“Bremer Bank”) to secure payment of, among other things, multiple loans made to, and guaranteed by the PURCHASER, (the “Bremer Loans”).

 

3.              WHEREAS, the SELLER has requested and the PURCHASER has agreed to convert the HANSON LOANS to equity in the SELLER through the purchase of Financial Rights in Membership Units of the SELLER,

 

4.              WHEREAS, SELLER shall sell, convey and issue, and PURCHASER has the rightto purchase the financial rights to four hundred ninety six (496) membership units of the SELLER (the “Purchased Units”) for the consideration and on the terms set forth in this Agreement. The Purchased Units are represented by Exhibit C, which is attached hereto and incorporated herein by this reference.

 

5.              WHEREAS, SELLER shall assign, and PURCHASER has agreed to accept the Financial Rights associated with the Purchased Units sold by SELLER effective as of January 31st, 2012 and the SELLER shall retain all Governance Rights in the Purchased Units, pursuant to the terms and conditions of this Agreement.

 

NOW, THEREFORE, in consideration of the covenants and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the SELLER and PURCHASER, intending to be legally bound, hereby agree as follows:

 

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1.                                       MEMBERSHIP UNIT PURCHASE

 

1.1 FINANCIAL RIGHTS UNIT PURCHASE

 

Subject to the terms and conditions of this Agreement, SELLER hereby agrees to sell, issue and convey the Financial Rights to the Purchased Units, and PURCHASER agrees to purchase the Financial Rights to the Purchased Units.

 

1.2 PURCHASE PRICE

 

The purchase price to be paid by PURCHASER to SELLER for the Purchased Units shall be two million seven hundred forty-five thousand no/100 Dollars ($2,745,000.00) (the “Purchase Price”). The Purchase Price shall be paid by the PURCHASER to the SELLER by converting the HANSON LOANS to equity in the COMPANY in payment for the Purchased Units.

 

(a)          The SELLER and PURCHASER shall execute and deliver all documents and instruments and take all such other actions as required by this Agreement.

 

1.3           FINANCIAL RIGHTS UNIT ISSUANCE

 

Effective upon payment to SELLER of the Purchase Price by cancellation of the HANSON LOANS by the SELLER and execution of the Agreement, SELLER shall contemporaneously convey to PURCHASER the Financial Rights to the Purchased Units by delivering a fully executed Certificate of Membership Units in the form attached hereto as Exhibit C The date set forth in the first paragraph of this Agreement shall be the “Closing Date” for purposes of this Agreement. Said issuance of the Purchased Units shall be promptly reflected in the required records of the COMPANY.

 

2.                                       REPRESENTATIONS AND WARRANTIES OF SELLER

 

SELLER represents and warrants to PURCHASER as follows:

 

2.1           AUTHORITY; NO CONFLICT

 

(a)                    This Agreement constitutes the legal, valid, and binding obligation of SELLER, enforceable in accordance with its terms;

 

(b)                   SELLER has the full legal capacity, power and authority to enter into this Agreement and perform SELLER’ s obligations hereunder;

 

(c)                    Neither the execution and delivery of this Agreement nor the consummation or performance of SELLER’s obligations under this Agreement will conflict with, or result in a violation of any laws, regulations, ordinances, or any contract or agreement to which SELLER is a party or by which SELLER is bound; and

 

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(d)                   SELLER does not require the approval of third parties other than Bremer Bank to consummate and perform SELLER’s obligations under this Agreement.

 

(e)                    SELLER has received all necessary approvals of it members to consummate and perform SELLER’s obligations under this Agreement.

 

(f)                      SELLER represents that the purchase of units are securities under Article 8 of the Uniform Commercial Code and SELLER shall not opt out of Article 8 without the prior written consent of Bremer Bank.

 

2.2           NO ENCUMBRANCES

 

The Purchased Units which constitute the Financial Rights of 496 non-dilutable Membership Units of SELLER are, and shall be issued and conveyed to PURCHASER, free and clear of all encumbrances, liens, or claims of other parties of any kind.

 

2.3           LITIGATION, ADVERSE CLAIMS AND RELATED MATTERS

 

There is no current, pending, or to the best of SELLER’s knowledge, threatened litigation proceeding, or investigation relating to the Purchased Units nor is there any judgment, order or decree which would prevent, impede, or make illegal the consummation of the transactions contemplated in this Agreement.

 

2.4           LAWS AND REGULATIONS

 

To the best of SELLER’s knowledge, PURCHASER has complied, and is in compliance, with all applicable laws, statutes, orders, rules, regulations and requirements promulgated by governmental or other authorities relating to the PURCHASER’ s business.

 

2.5           NO REPRESENTATIONS

 

SELLER acknowledges that neither PURCHASER, nor any officer, director, representative or agent of the PURCHASER, has made any representation, warranty, or agreement with SELLER to induce SELLER to convey the Purchased Units as herein contemplated, except as specifically set forth in this Agreement. SELLER has determined that the Purchase Price herein specified represents fair consideration for the Purchased Units and has not relied on any representation by PURCHASER in that regard.

 

2.6           CONSULTATION

 

SELLER acknowledges that SELLER has had the opportunity to consult with and to obtain advice from such legal, tax, and other advisers as SELLER has deemed appropriate and that the Agreement to convey the Purchased Units to PURCHASER constitutes SELLER’s free and informed decision. The PURCHASER acknowledges and agrees that the PURCHASER is not represented by Larry S. Severson In House Counsel for the SELLER.

 

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2.7           INCOME, GAIN, LOSS OR DEDUCTION ALLOCATION

 

The SELLER agrees after January 31st, 2012, all allocations of income, gain, loss or deduction shall be made for the account of the PURCHASER with respect to the Financial Rights related to the Purchased Units.

 

2.8           DISTRIBUTIONS

 

SELLER shall pay guaranteed monthly prepaid distributions to PURCHASER (or for the benefit of PURCHASER, as indicated below) according to the following schedule:

 

(a)          $25,000 to Bremer Bank on or before February 1, 2012;

(b)         $25,000 to Bremer Bank on or before March 1, 2012;

(c)          $25,000 to Bremer Bank on or before April 1, 2012; and

(d)         Commencing on May 1, 2012 and continuing on the first day of each subsequent month, SELLER shall pay monthly prepaid distributions as follows: a) to PURCHASER a payment $5,000 per month and b) to Bremer Bank for the benefit of PURCHASER a payment of $40,000 per month.

 

(Collectively, such payments are referred to as “Prepaid Distributions”).  Seller shall pay monthly Prepaid Distributions until the Purchased Units are repurchased by SELLER.    Notwithstanding anything to the contrary in this Agreement, the payments due on February 1, 2012, March 1, 2012 and April 1, 2012 under this paragraph shall be deemed timely made if all such payments are paid on or before April 10, 2012.

 

2.9           REPURCHASE OF THE PURCHASED UNITS

 

The SELLER has a right to repurchase the Purchased Units from the PURCHASER at any time, subject to the consent of Bremer Bank as a secured party and not in any other capacity, by payment of $2,745,000.00 pursuant to a Loan Agreement between SELLER and PURCHASER with the same terms and conditions as in the original Loan Agreements dated August 31, 2006 and June 26, 2008 (the “New Loan Agreement”) to the PURCHASER.   In the event repurchase does not occur by December 31st, 2013, Timothy S. Krieger, pursuant to the Personal Guaranty, shall personally guarantee the payment of $2,745,000.00 and is required to repurchase the Purchased Units from the PURCHASER at any time the SELLER is in default pursuant to this Agreement and in any event prior to December 31, 2013 if the SELLER has not exercised its right to repurchase the Purchased Units.  A copy of the Personal Guaranty is marked as Exhibit “D” and is attached hereto and incorporated herein by this reference.

 

3.                                       REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

PURCHASER represents and warrants to the SELLER as follows:

 

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3.1           AUTHORITY; NO CONFLICT

 

(a)                                  This Agreement constitutes the legal, valid, and binding obligation of the PURCHASER, enforceable in accordance with its terms.

 

(b)                                 PURCHASER has the full legal capacity, power and authority to enter into this Agreement and perform PURCHASER obligations hereunder.

 

(c)                                  Neither the execution and delivery of this Agreement nor the consummation or performance of PURCHASER obligations under this Agreement will conflict with, or result in a violation of any laws, regulations, ordinances, or any contract or agreement to which PURCHASER is a party or by which PURCHASER is bound.

 

(d)                                 PURCHASER has received, or will have received, all necessary approvals, including Bremer Bank’s approval, or other third parties to consummate and perform PURCHASER obligations under this Agreement.

 

3.2           NO REPRESENTATIONS

 

PURCHASER acknowledges that the SELLER has made no representation, warranty, or agreement with PURCHASER to induce PURCHASER to purchase the Purchased Units as herein contemplated, except as specifically set forth in this Agreement. PURCHASER has determined that the Purchase Price represents fair consideration for the Purchased Units and has not relied on any representation by SELLER in that regard.

 

3.3           CONSULTATION

 

PURCHASER acknowledges that it has had the opportunity to consult with and to obtain advice from such legal, tax, and other advisers as PURCHASER has deemed appropriate and that his decision to purchase the Financial Rights of the Purchased Units constitutes his free and informed decision.

 

3.4           THE BREMER BANK PLEDGE AND PERSONAL GUARANTEE

 

(a)                         The HANSON LOANS principle balances represented by Exhibits A and B shall be converted to equity in Purchased Units of the SELLER and which Purchased Units are represented by Exhibit C. The Bremer Loans are secured by a pledge of the HANSON LOANS, which pledge shall now be of the Purchased Units to the Bremer Bank by PURCHASER in favor of Bremer Bank and may not be transferred, sold, pledged or otherwise encumbered without the prior written consent of Bremer Bank.

 

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4.                                       DEFAULT AND TERMINATION

 

4.1           DEFAULT

 

A party shall be in default under the terms of the Agreement in the event such party fails to perform or comply with any material term, condition, obligation or covenant contained herein and such default shall continue for a period of fifteen (15) days after written notice from the non-defaulting party.

 

4.2           REMEDIES

 

In the event of default, the non-defaulting party may elect to terminate this Agreement or to seek enforcement of the obligations of the defaulting party hereunder, damages and/or such other rights and remedies as are available at law or in equity. In addition, a party shall have the unilateral right to terminate this Agreement immediately in the event that the other party: (a) initiates any voluntary proceeding in bankruptcy; (b) is the subject of an involuntary proceeding in bankruptcy that is not dismissed within 60 days after initiation; (c) makes any general assignment for the benefit of its creditors; (d) makes any proposal to its creditors to take or attempt to take the benefit of any legislation relating to insolvency or bankruptcy; or (e) has a receiver, trustee, or liquidator appointed for all or a substantial portion of its property.

 

5.             SURVIVAL AND INDEMNIFICATION

 

5.1           SURVIVAL OF REPRESENTATIONS AND WARRANTIES

 

Each of the representations and warranties of the PARTIES contained in this Agreement shall survive the closing of the transactions contemplated hereby for a period of thirty-six (36) months, after which time no claim for an incorrect statement or representation, or for other breach of any warranty under this Agreement may be brought, and no litigation with respect thereto may be commenced.

 

5.2           INDEMNIFICATION BY SELLER

 

Subject to Section 5.1, SELLER covenants and agrees to indemnify, defend and hold PURCHASER, and its officers, directors, representatives and agents, harmless from, against and in respect to any and all losses, costs, expenses (including, without limitation, reasonable attorneys’ fees and disbursements of counsel) liabilities, damages, fines, penalties, charges, assessments, judgments, settlements, claims, causes of action and other obligations of any nature whatsoever that any of them may at any time, directly or indirectly, suffer, sustain, incur or become subject to, arising out of, based upon or resulting from or on account of each or all of the following:

 

(a)           The breach or falsity of any representation or warranty made by SELLER in this Agreement; or

 

(b)           The breach of any covenant or agreement made by SELLER in this Agreement, including the documents, instruments and agreements to be executed and/or delivered by SELLER pursuant hereto or thereto.

 

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5.3           INDEMNIFICATION BY PURCHASER

 

Subject to Section 5.1, PURCHASER covenants and agrees to indemnify, defend and hold SELLER harmless from, against and in respect of any and all losses, costs, expenses (including, without limitation, reasonable attorneys’ fees and disbursements of counsel) liabilities, damages, fines, penalties, charges, assessments, judgments, settlements, claims, causes of action and other obligations of any nature whatsoever that any of them may at any time, directly or indirectly, suffer, sustain, incur or become subject to, arising out of, based upon or resulting from or on account of each or all of the following:

 

(a)           The breach or falsity of any representation or warranty made by PURCHASER in this Agreement; or

 

(b)           The breach of any covenant or agreement made by PURCHASER in this Agreement, including the documents, instrument and agreements to be executed and/or delivered by PURCHASER pursuant hereto or thereto.

 

6.             GENERAL PROVISIONS

 

6.1           EXPENSES

 

Except as otherwise expressly provided in this Agreement, each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution and performance of this Agreement.

 

6.2           FURTHER ASSURANCES

 

The PARTIES agree (a) to execute and deliver to each other such other documents, and (b) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement.

 

6.3           ENTIRE AGREEMENT AND MODIFICATION

 

This Agreement constitutes the entire Agreement by and between the PARTIES, and supersedes any other verbal or written representations, promises, agreements or understandings between the PARTIES and their respective agents or representatives. No representations, warranties, undertakings, or promises, whether written or oral, expressed or implied, have been made by SELLER or PURCHASER, unless expressly stated in this Agreement or unless agreed upon in writing by the PARTIES hereto. This Agreement may be amended or modified only by a writing signed by the PARTIES.

 

6.4           TIME OF ESSENCE

 

Time is of the essence with respect to all obligations of SELLER and PURCHASER under this Agreement. If any date designated in this Agreement falls on a Saturday, Sunday or legal holiday, such date shall automatically be extended until the next following business day.

 

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6.5           CUMULATIVE RIGHTS AND WAIVER

 

The rights and remedies of the PARTIES to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege.

 

6.6           NOTICES

 

Under this Agreement if any party is required to give notice to another party, such notice shall be deemed given if delivered by a recognized overnight delivery service, or mailed first class, postage prepaid, and addressed as follows (or as subsequently noticed to the other party):

 

If to PURCHASER:

John O. Hanson

1903 Grandview Avenue

Red Wing, Minnesota 55066

 

If to SELLER:

TWIN CITIES POWER, LLC

Attn: Tim Krieger, President/CEO

16233 Kenyon Avenue, Suite 210

Lakeville, Minnesota 55044

 

Notices delivered by overnight delivery shall be deemed received upon the date of deposit with the delivery service, if such date is a business day. Otherwise, the effective date for such notice shall be the first business day following deposit with the delivery service. Notices sent by mail shall be deemed received on the earlier of actual receipt or three business days after deposit in the U.S. mail as provided above.

 

6.7           APPLICABLE LAW

 

This Agreement shall be construed and enforced in any State or Federal court in Minnesota in accordance with the laws of the State of Minnesota, irrespective of the domiciles of the PARTIES, the state in which the Agreement was executed, or any other factors affecting choice of law. If any portion of this Agreement is unenforceable under Minnesota Law, the balance of the Agreement shall remain in full force and effect if enforcement of the remainder of the Agreement is reasonably practicable.

 

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6.8           BINDING EFFECT; ASSIGNMENT RESTRICTED

 

This Agreement shall be binding upon and inure to the benefit of the PARTIES hereto and their respective successors, permitted assigns, and representatives. Neither party shall assign, transfer or convey any interest in this Agreement or, nor agree to do so, without the prior written consent of the other party.

 

6.9           INTERPRETATION

 

The rule of strict construction against the drafting party shall not apply to this Agreement. SELLER and PURCHASER acknowledge that this Agreement is the product of all of both of their respective efforts, that it expresses their agreement, and that it should not be interpreted in favor of or against either party merely because of their efforts in preparing it. Therefore; the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. The invalidity of any or the provisions of this Agreement shall not affect or impair the validity or enforceability of the remainder or this Agreement.

 

6.10         COUNTERPARTS

 

This Agreement may be executed in counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument.

 

IN WITNESS WHEREOF, the PARTIES have executed and delivered this Agreement effective as of the date first written above.

 

	
PURCHASER:
    	
 
    	
SELLER:
    
	
 
    	
 
    	
TWIN   CITIES POWER, L.L.C.
    
	
 
    	
 
    	
 
    
	
/s/   John O. Hanson
    	
 
    	
/s/   Timothy S. Krieger
    
	
 
    	
 
    	
 
    
	
JOHN   O. HANSON
    	
 
    	
By:   
    	
TIMOTHY   S. KRIEGER
    
	
 
    	
 
    	
 
    	
Its:   President/CEO
    

 

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Dated: March 28th, 2012

 

Consent by Sole Member:

 

I, Timothy S. Krieger, the President/CEO of Twin Cities Power Holdings, LLC, a Minnesota Limited Liability Company, do consent and approve on behalf of Twin Cities Power Holdings, LLC to the sale of 496 Membership Units in Twin Cities Power, LLC (Financial Rights) only in accordance with the terms set forth in the aforesaid Membership Unit Purchase Agreement.

 

	
 
    	
 
    	
TWIN   CITIES POWER HOLDINGS, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
/s/   Timothy S. Krieger
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:   
    	
TIMOTHY   S. KRIEGER
    
	
 
    	
 
    	
 
    	
Its:   President/CEO
    

 

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  EXHIBIT 10.26    
    

 
 

  Citizens Bancshares Corporation
  Annual PEO and PFO Certification For Fiscal Years Other than the First Year    
    

        I, Cynthia N. Day, President/Chief Executive Officer and Samuel J. Cox, Executive Vice President/Chief Financial Officer, certify,
based on my knowledge, that: 

        (i)    The
entity serving as the compensation committee (the "Committee") of Citizens Bancshares Corporation (the "Company") has discussed, reviewed, and evaluated with senior
risk officer at least every six months during any part of the most recently completed fiscal year that was a TARP period, senior executive officer (SEO) compensation plans and employee compensation
plans and the risks these plans pose to the Company and each entity aggregated with the Company as the "TARP Recipient" as defined in the regulations and guidance established under section 111
of EESA (collectively referred to as the "TARP Recipient"); 

        (ii)   The
Committee has identified and limited during any part of the most recently completed fiscal year that was a TARP period any features of the SEO compensation plans
that could lead SEOs to take unnecessary and excessive risks that could threaten the value of the TARP Recipient and has identified any features of the employee compensation plans that pose risks to
the TARP Recipient and has limited those features to ensure that the TARP Recipient is not unnecessarily exposed to risks; 

        (iii)  The
Committee has reviewed, at least every six months during any part of the most recently completed fiscal year that was a TARP period, the terms of each employee
compensation plan and identified any features of the plan that could encourage the manipulation of reported earnings of the TARP Recipient to enhance the compensation of an employee, and has limited
any such features; 

        (iv)  The
Committee will certify to the reviews of the SEO compensation plans and employee compensation plans required under (i) and (iii) above; 

        (v)   The
Committee will provide a narrative description of how it limited during any part of the most recently completed fiscal year that was a TARP period the features in: 

        (A)  SEO
compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of the TARP Recipient; 

        (B)  Employee
compensation plans that unnecessarily expose the TARP Recipient to risks; and 

        (C)  Employee
compensation plans that could encourage the manipulation of reported earnings of the TARP Recipient to enhance the compensation of an employee; 

        (vi)  The
TARP Recipient has required that bonus payments, as defined in the regulations and guidance established under section 111 of EESA (bonus payments), to SEOs
and any of the next twenty most highly compensated employees be subject to a recovery or "clawback" provision during any part of the most recently completed fiscal year that was a TARP period if the
bonus payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria; 

        (vii) The
TARP Recipient has prohibited any golden parachute payment, as defined in the regulations and guidance established under section 111 of EESA, to an SEO or
any of the next five most highly compensated employees during any part of the most recently completed fiscal year that was a TARP period; 

        (viii)  Except
as discussed below, the TARP Recipient has limited bonus payments to its applicable employees in accordance with section 111 of EESA and the regulations
and guidance 

established
thereunder during any part of the most recently completed fiscal year that was a TARP period. 

        In
preparing its response to the ongoing off-site review by the Office of Financial Stability's Compliance Office, the TARP Recipient determined that annual premium payments,
each in the amount of $1,707.50, were made during the TARP period on a life insurance policy under which the TARP Recipient's most highly compensated employee had the right to designate the
beneficiary or beneficiaries of any death benefits payable under the policy. 

        The
insurance policy in question was an arrangement assumed from a predecessor entity in 1998. The insurance policy was a small standalone policy, which was not associated with any of
the TARP Recipient's other benefit plans. Therefore, it was inadvertently not administered or reviewed in the same manner as other benefit and compensation plans. The TARP Recipient has no other
policies of this nature. 

        The
TARP Recipient has not been able to identify any exemption from the restrictions on bonus payments that would apply to these annual premium payments. 

        While
sincerely regretting the error, the TARP Recipient does not propose to take any specific remedial action with respect to this mistake because of the sudden death of the TARP
Recipient's most highly compensated employee on February 27, 2012, after a very brief illness. Nevertheless, the TARP Recipient has completed a thorough review of all other arrangements and is
confident that no other bonus payments remain undisclosed that fail to comply with the bonus limitations under the IFR. In addition, the TARP Recipient is consulting with legal counsel to ensure that
payment arrangements that will be applied to the TARP Recipient's most highly compensated employee in 2013 and future years satisfy the IFR's bonus restrictions. 

        (ix)  The
TARP Recipient and its employees have complied with the excessive or luxury expenditures policy, as defined in the regulations and guidance established under
section 111 of EESA, during any part of the most recently completed fiscal year that was a TARP period; and any expenses that, pursuant to the policy, required approval of the board of
directors, a committee of the board of directors, an SEO, or an executive officer with a similar level of responsibility, were properly approved; 

        (x)   The
TARP Recipient will permit a non-binding shareholder resolution in compliance with any applicable Federal securities rules and regulations on the
disclosures provided under the Federal securities laws related to SEO compensation paid or accrued during any part of the most recently completed fiscal year that was a TARP period; 

        (xi)  The
TARP Recipient will disclose the amount, nature, and justification for the offering, during any part of the most recently completed fiscal year that was a TARP
period, of any perquisites, as defined in the regulations and guidance established under section 111 of EESA, whose total value exceeds $25,000 for any employee who is subject to the bonus
payment limitations identified in paragraph (viii); 

        (xii) The
TARP Recipient will disclose whether the TARP Recipient, the board of directors of the Company, or the Committee has engaged during any part of the most recently
completed fiscal year that was a TARP period a compensation consultant; and the services the compensation consultant or any affiliate of the compensation consultant provided during this period; 

        (xiii)  Except
as discussed below, the TARP Recipient has prohibited the payment of any gross-ups, as defined in the regulations and guidance established under
section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during any part of the most recently completed fiscal year that was a TARP period. 

        The
TARP Recipient, also in preparing its response to the off-site review, determined that it grossed-up a nominal Christmas gift for the SEOs, excluding the most
highly compensated, and the next twenty most highly compensated employees, during 2009, the first year of receipt of TARP proceeds, and the subsequent year, 2010. This matter occurred when the TARP
Recipient's 

subsidiary
bank granted a token cash appreciation gift in the amount of $200 and $100 for 2009 and 2010, respectively, to bank employees during the Holiday season, including one year when the
employees were not given an annual salary increase due to the weak economic business environment. The TARP Recipient was aware that gross-ups are prohibited under the IFR, and the TARP
compliance requirements have been clearly communicated concerning the prohibition of gross-ups for SEOs and the next twenty most highly compensated employees. However, the TARP Recipient
only now has identified the fact that during the payroll processing of the transactions, the SEOs and the next twenty most highly compensated employees were mistakenly not
excluded from the gross-ups that were afforded other employees. The total gross up for all SEOs and the next twenty most highly compensated employees totaled $343.16 and $258.61,
respectively, for 2009 and 2010. The TARP Recipient plans to correct the non-compliance by requiring all SEOs and the next twenty most highly compensated employees to repay the
gross-up amount. 

        The
TARP Recipient is confident that no other bonus payments or gross ups remain undisclosed that fails to comply with the bonus or gross up limitations under the IFR and has also
addressed the effectiveness of the review process in the payroll function to ensure that this will not occur again. 

        The
TARP Recipient formally reported the inadvertent non-compliance with TARP Compensation Standards to the United States Department of the Treasury on March 13, 2012. 

        The
TARP Recipient wishes to emphasize that the Executive Committee of its Board of Directors fully understands the seriousness of complying with the TARP Compensation Standards and both
the Committee and responsible TARP Recipient personnel will redouble their efforts to comply with all TARP Compensation Standards. 

        (xiv) The
TARP Recipient has substantially complied with all other requirements related to employee compensation that are provided in the agreement between the TARP
Recipient and Treasury, including any amendments; 

        (xv) The
TARP Recipient has submitted to Treasury a complete and accurate list of the SEOs and the twenty next most highly compensated employees for the current fiscal year,
with the non-SEOs ranked in descending order of level of annual compensation, and with the name, title, and employer of each SEO and most highly compensated employee identified; and 

        (xvi) I
understand that a knowing and willful false or fraudulent statement made in connection with this certification may be punished by fine, imprisonment, or both. (See,
for example 18 U.S.C. 1001.) 

 

			
	Date: March 30, 2012	 	/s/ CYNTHIA N. DAY

  Cynthia N. Day
 President/Chief Executive Officer
	
 Date: March 30, 2012	
 	
/s/ SAMUEL J. COX

  Samuel J. Cox
 Executive Vice President/

Chief Financial Officer

 

 

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EXHIBIT 10.26

Citizens Bancshares Corporation Annual PEO and PFO Certification For Fiscal Years Other than the First Year

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