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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-26556
KLAMATH FIRST BANCORP, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-1180440
- --------------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) I.D. Number)
540 Main Street, Klamath Falls, Oregon 97601
- --------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (541) 882-3444
- --------------------------------------------------- -------------------
Securities registered pursuant to
Section 12 (b) of the Act: None
- --------------------------------- -------------------
Securities registered pursuant to
Section 12 (g) of the Act: Common Stock, par value $.01 per share
- --------------------------------- --------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO .
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). YES X NO
As of July 31, 2003, there were issued 6,980,635 shares of the
Registrant's Common Stock. The Registrant's voting common stock is traded
over-the-counter and is listed on the Nasdaq National Market under the symbol
"KFBI."
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Part I. Financial Information
- ------- ----------------------
Item 1. Unaudited Financial Statements Page
-------
Condensed Consolidated Balance Sheets
(As of June 30, 2003 and September 30, 2002) 3
Condensed Consolidated Statements of Earnings
(For the three months and nine months ended June 30, 2003
and 2002) 4
Condensed Consolidated Statements of
Shareholders' Equity (For the year ended September 30, 2002
and for the nine months ended June 30, 2003) 5
Condensed Consolidated Statements of Cash Flows
(For the nine months ended June 30, 2003 and 2002) 6 - 7
Notes to Condensed Consolidated Financial Statements 8 - 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15 - 21
Item 3. Quantitative and Qualitative Disclosures about Market Risk 21 - 22
Item 4. Controls and Procedures 22
Part II. Other Information
- -------- -------------------
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
2
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2003 AND SEPTEMBER 30, 2002
(Unaudited)
June 30, 2003 September 30, 2002
ASSETS .................................................................. --------------- ------------------
Cash and due from banks ................................................. $ 36,114,808 $ 38,444,500
Interest bearing deposits with banks .................................... 7,836,815 5,762,373
Federal funds sold and securities purchased under agreements to resell .. 15,037,318 1,584,540
--------------- ---------------
Total cash and cash equivalents ...................................... 58,988,941 45,791,413
Investment securities available for sale, at fair value
(amortized cost: $138,551,669 and $119,940,845) ....................... 141,347,393 119,542,052
Mortgage backed and related securities available for sale, at fair
value (amortized cost: $584,903,979 and $640,304,722) ................. 591,057,674 650,796,164
Loans receivable, net ................................................... 555,286,779 607,464,660
Real estate owned and repossessed assets ................................ 538,517 758,663
Premises and equipment, net ............................................. 23,495,936 23,410,847
Stock in Federal Home Loan Bank of Seattle, at cost ..................... 14,151,600 13,510,400
Accrued interest receivable ............................................. 6,821,214 8,177,014
Deferred income taxes ................................................... 832,316 --
Bank-owned life insurance ............................................... 15,343,680 --
Core deposit intangible, net............................................. 14,689,794 17,426,074
Goodwill ................................................................ 22,872,915 22,872,915
Other assets ............................................................ 4,460,373 3,745,151
--------------- ---------------
Total assets ......................................................... $ 1,449,887,132 $ 1,513,495,353
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposit liabilities ................................................... $ 1,081,010,099 $ 1,142,005,997
Accrued interest on deposit liabilities ............................... 667,684 721,810
Advances from borrowers for taxes and insurance ....................... 2,404,532 5,105,955
Advances from Federal Home Loan Bank of Seattle ....................... 208,000,000 205,250,000
Short term borrowings ................................................. -- 1,700,000
Accrued interest on borrowings ........................................ 874,895 820,975
Pension liabilities ................................................... 801,201 842,272
Deferred income taxes ................................................. -- 1,466,556
Other liabilities ..................................................... 7,346,892 8,438,245
--------------- ---------------
Total liabilities ................................................... 1,301,105,303 1,366,351,810
--------------- ---------------
Mandatorily redeemable preferred securities issued by subsidiary ....... 27,304,957 27,205,507
--------------- ---------------
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 500,000 shares authorized; none issued -- --
Common stock, $.01 par value, 35,000,000 shares authorized,
June 30, 2003 - 6,980,635 issued, 6,633,655 outstanding
September 30, 2002 - 6,744,040 issued, 6,366,546 outstanding ......... 69,806 67,440
Additional paid-in capital ............................................ 33,831,688 30,282,059
Retained earnings-substantially restricted ............................ 86,183,123 87,265,334
Unearned shares issued to ESOP ........................................ (2,201,142) (2,935,130)
Unearned shares issued to MRDP ........................................ (829,352) (999,111)
Accumulated other comprehensive income, net of tax .................... 4,422,749 6,257,444
--------------- ---------------
Total shareholders' equity .......................................... 121,476,872 119,938,036
--------------- ---------------
Total liabilities and shareholders' equity .......................... $ 1,449,887,132 $ 1,513,495,353
=============== ===============
See notes to condensed consolidated financial statements.
3
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
-------------- ------------ ------------ ------------
INTEREST INCOME
Loans receivable ............................................. $ 10,438,010 $ 12,618,019 $ 33,151,836 $ 39,907,688
Mortgage backed and related securities ....................... 5,211,697 6,742,373 16,254,475 19,683,948
Investment securities ........................................ 1,599,654 2,024,664 4,643,795 6,272,989
Federal funds sold ........................................... 31,390 63,912 107,341 367,474
Interest bearing deposits .................................... 66,336 81,474 187,858 214,789
------------ ------------ ------------ ------------
Total interest income ........................................ 17,347,087 21,530,442 54,345,305 66,446,888
------------ ------------ ------------ ------------
INTEREST EXPENSE
Deposit liabilities .......................................... 4,144,909 6,794,895 14,393,344 23,552,181
FHLB advances ................................................ 2,655,945 2,382,310 7,933,167 7,175,680
Other ........................................................ 18,643 31,317 71,445 96,278
------------ ------------ ------------ ------------
Total interest expense ....................................... 6,819,497 9,208,522 22,397,956 30,824,139
------------ ------------ ------------ ------------
Net interest income .......................................... 10,527,590 12,321,920 31,947,349 35,622,749
Provision for loan losses .................................... -- -- -- 156,000
------------ ------------ ------------ ------------
Net interest income after provision for
loan losses .................................................. 10,527,590 12,321,920 31,947,349 35,466,749
------------ ------------ ------------ ------------
NON-INTEREST INCOME
Fees and service charges on deposit accounts ................. 1,622,549 1,261,713 4,724,932 3,589,813
Other fees and service charges ............................... 1,053,614 679,244 2,692,305 2,140,676
Gain on sale of investments .................................. 572,621 435,315 1,457,140 554,416
Gain on sale of real estate owned ............................ 20,171 13,400 36,892 25,852
Brokerage and annuity commissions ............................ 603,069 275,677 1,511,539 818,580
Gain on sale of mortgage loans ............................... 613,530 305,014 1,630,258 768,445
Income on bank-owned life insurance .......................... 206,208 -- 343,680 --
Other income ................................................. 160,887 84,097 573,361 359,590
------------ ------------ ------------ ------------
Total non-interest income .................................... 4,852,649 3,054,460 12,970,107 8,257,372
------------ ------------ ------------ ------------
NON-INTEREST EXPENSE
Compensation, employee benefits and related expense .......... 6,404,912 5,724,543 18,487,587 16,623,684
Occupancy expense ............................................ 1,344,722 1,214,810 3,920,814 3,576,596
Data processing expense ...................................... 397,229 382,571 1,090,336 1,162,289
Insurance premium expense .................................... 44,142 49,700 138,746 133,458
Loss on sale of investments .................................. 497,160 2,538 901,599 2,538
Impairment loss on investment securities ..................... 3,530,005 -- 3,530,005 --
Amortization of intangible assets ............................ 912,094 1,382,205 2,736,281 4,138,475
Mandatorily redeemable preferred securities expense .......... 394,907 418,500 1,229,348 964,989
Other expense ................................................ 3,884,016 3,228,903 10,791,188 10,327,467
------------ ------------ ------------ ------------
Total non-interest expense ................................... 17,409,187 12,403,770 42,825,904 36,929,496
------------ ------------ ------------ ------------
Earnings (loss) before income taxes .......................... (2,028,948) 2,972,610 2,091,552 6,794,625
Provision (benefit) for income tax ........................... (667,311) 1,044,375 605,868 2,374,176
------------ ------------ ------------ ------------
Net earnings (loss) .......................................... ($ 1,361,637) $ 1,928,235 $ 1,485,684 $ 4,420,449
============ ============ ============ ============
Earnings (loss) per common share - basic ..................... ($ 0.20) $ 0.30 $ 0.23 $ 0.69
Earnings (loss) per common share - fully diluted ............. ($ 0.20) $ 0.30 $ 0.22 $ 0.68
Weighted average common shares outstanding - basic ........... 6,645,230 6,398,027 6,508,796 6,418,168
Weighted average common shares outstanding - with dilution ... 6,795,457 6,500,451 6,641,995 6,467,611
See notes to condensed consolidated financial statements.
4
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 2002 AND THE NINE MONTHS ENDED JUNE 30, 2003
(Unaudited)
Unearned Unearned Accumulated
Common Common Additional shares shares other Total
stock stock paid-in Retained issued issued comprehensive shareholders'
shares amount capital earnings to ESOP to MRDP income(loss) equity
---------- -------- ----------- ----------- ----------- ----------- ----------- ------------
Balance at October 1, 2001.. 6,561,461 $ 70,607 $33,926,796 $83,816,307 ($3,913,510) ($1,298,859) $ 1,539,564 $114,140,905
Cash dividends .............. -- -- -- (3,339,749) -- -- -- (3,339,749)
Stock repurchased and
retired .................. (345,986) (3,460) (4,747,387) -- -- -- -- (4,750,847)
ESOP contribution ........... 97,865 -- 410,593 -- 978,380 -- -- 1,388,973
MRDP contribution ........... 23,847 -- 11,511 -- -- 299,748 -- 311,259
Exercise of stock options ... 29,359 293 369,295 -- -- -- -- 369,588
Tax benefit of stock options -- -- 311,251 -- -- -- -- 311,251
---------- -------- ---------- ---------- ------------ ----------- ---------- -----------
6,366,546 67,440 30,282,059 80,476,558 (2,935,130) (999,111) 1,539,564 108,431,380
Comprehensive income
Net earnings .............. 6,788,776 6,788,776
Other comprehensive income:
Unrealized gain on
securities, net of tax
and reclassification
adjustment ...... (1) 4,717,880 4,717,880
----------
Total comprehensive
income .................. 11,506,656
---------- -------- ---------- ---------- ------------ ----------- ---------- -----------
Balance at
September 30, 2002 ........ 6,366,546 67,440 30,282,059 87,265,334 (2,935,130) (999,111) 6,257,444 119,938,036
Cash dividends .............. -- -- -- (2,567,895) -- -- -- (2,567,895)
Stock repurchased and retired (11,659) (117) (189,022) -- -- -- -- (189,139)
ESOP contribution ........... -- -- 475,445 -- 733,988 -- -- 1,209,433
MRDP contribution ........... 30,514 -- 4,541 -- -- 169,759 -- 174,300
Exercise of stock options ... 248,254 2,483 3,258,665 -- -- -- -- 3,261,148
---------- -------- ---------- ---------- ------------ ----------- ---------- -----------
6,633,655 69,806 33,831,688 84,697,439 (2,201,142) (829,352) 6,257,444 121,825,883
Comprehensive loss
Net earnings .............. 1,485,684 1,485,684
Other comprehensive loss:
Unrealized loss on
securities, net of tax
and reclassification
adjustment ........(2) (1,834,695) (1,834,695)
-----------
Total comprehensive loss (349,011)
---------- -------- ---------- ---------- ------------ ----------- ----------- -------------
Balance at June 30, 2003 .... 6,633,655 $ 69,806 $33,831,688 $86,183,123 ($ 2,201,142) ($ 829,352) $ 4,422,749 $121,476,872
========== ======== =========== =========== ============ =========== =========== =============
(1) Net unrealized holding gain on securities of $5,095,497 (net of $3,123,389
tax expense) less reclassification adjustment for net gains included in net
earnings of $377,617 (net of $231,443 tax expense).
(2) Net unrealized holding gain on securities of $588,784 (net of $360,876 tax
expense) less reclassification adjustment for net gains included in net
earnings of $2,423,479 (net of $1,485,358 tax expense).
See notes to consolidated financial statements.
5
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2003 AND 2002
(Unaudited)
Nine Months Ended Nine Months Ended
June 30, June 30,
2003 2002
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ................................................ $ 1,485,684 $ 4,420,449
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization ............................... 4,387,813 5,758,925
Deferred income taxes ....................................... (1,174,382) --
Provision for loan losses ................................... -- 156,000
Compensation expense related to ESOP benefit ................ 1,209,433 1,017,319
Compensation expense related to MRDP Trust .................. 174,300 236,166
Net amortization of premiums paid on
investment and mortgage backed and related securities ..... 6,642,463 2,569,112
Decrease in deferred loan fees, net of amortization ......... (722,608) (424,509)
Net gain on sale of real estate owned and
premises and equipment .................................... (38,341) (25,081)
Net gain on sale of investment and mortgage
backed and related securities ............................. (555,542) (551,879)
Impairment loss on investment securities ................... 3,530,005 --
FHLB stock dividend ......................................... (641,200) (611,200)
CHANGES IN ASSETS AND LIABILITIES
Accrued interest receivable ................................. 1,355,800 513,033
Other assets ................................................ (1,065,943) 3,055,005
Accrued interest on deposit liabilities ..................... (54,126) (799,885)
Accrued interest on borrowings .............................. 53,920 (27,267)
Pension liabilities ......................................... (41,071) 97,947
Other liabilities ........................................... (901,791) 36,600
------------- -------------
Net cash provided by operating activities ....................... 13,644,414 15,420,735
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of investment securities
available for sale ........................................ 17,597,000 135,000
Principal repayments received on mortgage
backed and related securities held to maturity ........... -- 1,236,726
Principal repayments received on mortgage
backed and related securities available for sale ......... 246,526,265 75,803,542
Principal repayments received on loans ...................... 283,578,625 209,974,397
Loan originations ........................................... (305,666,953) (202,059,567)
Loans purchased ............................................. (3,875,225) (1,683,363)
Loans sold .................................................. 78,677,341 47,345,825
Purchase of investment securities available
for sale .................................................. (50,284,450) (19,389,464)
Purchase of mortgage backed and related
securities available for sale ............................. (413,414,054) (207,107,177)
Proceeds from sale of investment securities
available for sale ........................................ 10,228,950 31,437,125
Proceeds from sale of mortgage backed and related
securities available for sale ............................. 214,703,334 16,507,507
Proceeds from sale of real estate owned and
premises and equipment .................................... 445,180 653,574
Purchases of premises and equipment ......................... (1,729,580) (8,247,398)
Purchase of bank-owned life insurance ....................... (15,000,000) --
------------- -------------
Net cash provided by (used in) investing activities ............. 61,786,433 (55,393,273)
------------- -------------
Continued
6
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2003 AND 2002
(Unaudited)
(Continued)
Nine Months Ended Nine Months Ended
June 30, June 30,
2003 2002
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in deposit liabilities,
net of withdrawals ........................................ ($ 60,995,898) ($ 4,235,368)
Proceeds from FHLB advances ................................. 69,800,000 52,700,000
Repayments of FHLB advances ................................. (67,050,000) (62,700,000)
Proceeds from short term borrowings ......................... 3,300,000 200,000
Repayments of short term borrowings ......................... (5,000,000) (200,000)
Issuance of mandatorily redeemable preferred securities, net -- 12,618,674
Stock repurchase and retirement ............................. (189,139) (4,009,757)
Stock options exercised ..................................... 3,261,148 369,588
Advances from borrowers for taxes and insurance ............. (2,701,423) (2,615,141)
Dividends paid .............................................. (2,658,007) (2,730,317)
------------- -------------
Net cash used in financing activities ........................... (62,233,319) (10,602,321)
------------- -------------
Net increase (decrease) in cash and cash
equivalents ................................................... 13,197,528 (50,574,859)
Cash and cash equivalents at beginning
of period ..................................................... 45,791,413 118,388,566
------------- -------------
Cash and cash equivalents at end of period ...................... $ 58,988,941 $ 67,813,707
============= =============
SUPPLEMENTAL SCHEDULE OF INTEREST AND
INCOME
TAXES PAID
Interest paid ............................................... $ 22,398,162 $ 31,651,291
Income taxes paid ........................................... 1,775,000 1,455,000
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Net unrealized gain (loss) on securities
available for sale, net of tax ............................ ($ 1,834,695) $ 1,818,143
Dividends declared and accrued in other
liabilities ............................................... 907,483 891,430
See notes to condensed consolidated financial statements
7
KLAMATH FIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of Management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary for a fair presentation
of Klamath First Bancorp, Inc.'s (the "Company") financial condition as of June
30, 2003 and September 30, 2002, the results of operations for the three and
nine months ended June 30, 2003 and 2002 and cash flows for the nine months
ended June 30, 2003 and 2002. Certain information and note disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K. The results of operations for the three
and nine months ended June 30, 2003 are not necessarily indicative of the
results which may be expected for the entire fiscal year.
2. COMPREHENSIVE INCOME (LOSS)
For the three months ended June 30, 2003, the Company's total comprehensive
income was $1.3 million compared to $7.5 million for the three months ended June
30, 2002. Total comprehensive income for the three months ended June 30, 2003
was comprised of net loss of $1.4 million and other comprehensive income of $2.7
million, net of tax. Total comprehensive income for the three months ended June
30, 2002 was comprised of net earnings of $1.9 million and other comprehensive
income of $5.6 million, net of tax.
For the nine months ended June 30, 2003, the Company's total comprehensive loss
was $349,011 compared to total comprehensive income of $6.2 million for the nine
months ended June 30, 2002. Total comprehensive loss for the nine months ended
June 30, 2003 was comprised of net earnings of $1.5 million and other
comprehensive loss of $1.8 million, net of tax. Total comprehensive income for
the nine months ended June 30, 2002 was comprised of net earnings of $4.4
million and other comprehensive income of $1.8 million, net of tax.
The significant fluctuations noted in total comprehensive income (loss)
comparing the periods ended June 30, 2003 and 2002 resulted from changes in the
market value of investment and mortgage-backed securities available for sale and
the recognition of impairment losses on investment securities in June 2003 which
reduced net earnings.
3. INVESTMENTS - OTHER THAN TEMPORARY IMPAIRMENT
As part of the strategy to manage interest rate risk, the Company had purchased
floating rate preferred stock issued by the Federal National Mortgage
Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). As
prevailing interest rates have declined, the market value of these securities
has also decreased. In the quarter ended June 30, 2003, the Company recognized a
$3.5 million non-cash pre-tax charge to operations for these investments. The
Company accounts for these securities in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115. Under SFAS No. 115, if the decline in
fair market value below cost is determined to be other-than-temporary, the
unrealized loss must be realized as expense on the statement of earnings. Based
on a number of factors, including the magnitude of the decline in market value
and length of time the market value had been below cost, management concluded
that the decline in value was other-than-temporary. Accordingly, the
other-than-temporary impairment was recognized in the statement of earnings, in
the amount of $916,484 for FNMA preferred stock and $2.6 million for FHLMC
preferred stock. A corresponding reduction in unrealized losses, net of tax, in
shareholders' equity was recorded totaling $2.2 million.
8
4. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
Nine Months Ended Year Ended
June 30, September 30,
2003 2002
-------------- --------------
Balance, beginning of period $7,375,812 $7,950,680
Charge-offs (366,765) (747,092)
Recoveries 49,859 16,224
Additions -- 156,000
-------------- -------------
Balance, end of period $7,058,906 $7,375,812
============== =============
At June 30, 2003 and 2002, impaired loans totaled $506,844 and $59,000,
respectively. Specifically allocated loan loss reserves related to these loans
totaled zero for both periods. The average investment in impaired loans for the
three months and nine months ended June 30, 2003 was $506,844 and $520,941,
respectively. The average investment in impaired loans for the three months and
nine months ended June 30, 2002 was $59,000 and $19,667, respectively.
5. GOODWILL AND INTANGIBLE ASSETS
On October 1, 2002, the Company adopted SFAS No. 147, Acquisitions of Certain
Financial Institutions, which requires certain intangible assets to be accounted
for under the provisions of SFAS No. 141, Business Combinations, and SFAS No.
142, Goodwill and Other Intangible Assets, which statements were also adopted on
October 1, 2002. In accordance with these standards, goodwill and other
intangible assets with indefinite lives are no longer being amortized but
instead will be tested for impairment at least annually. Upon adoption of SFAS
No. 147, $22.9 million of intangible assets related to prior branch acquisitions
were reclassified to goodwill and amortization of these assets ceased. Expense
related to amortization of goodwill totaled $1.2 million for the nine months
ended June 30, 2002. A similar expense is not being recorded in fiscal year
2003. Core deposit intangibles will continue to be amortized based on the
estimated lives of the underlying deposits. The following table summarizes
selected information about intangible assets:
Gross Carrying Amount Accumulated Amortization
- ----------------------------------- ----------------------------------- -----------------------------------
Intangible assets June 30, 2003 September 30, 2002 June 30, 2003 September 30, 2002
carrying value
----------------------------------- -----------------------------------
Core deposit intangible ........... $ 28,376,467 $ 28,376,467 $ 13,686,673 $ 10,950,393
Mortgage servicing rights (included 1,820,823 1,820,823 1,081,056 604,424
in Other Assets)
------------- ------------------- ------------- -------------------
Total ............................. $ 30,197,290 $ 30,197,290 $ 14,767,729 $ 11,554,817
============= =================== ============= ===================
Amortization expense Amortization expense
Three months ended June 30, Nine months ended June 30,
----------------------------- -----------------------------
Intangible assets amortization 2003 2002 2003 2002
- ----------------------------------- ------------- ------------- ------------- -------------
Core deposit intangible ........... $ 912,094 $ 973,761 $ 2,736,281 $ 2,921,282
Mortgage servicing rights ......... 159,323 80,463 476,632 277,111
------------- ------------- ------------- -------------
Total ............................. $ 1,071,417 $ 1,054,224 $ 3,212,913 $ 3,198,393
============= ============= ============= =============
9
Estimated amortization expense for core deposit intangible and MSR:
For year ended 9/30/2004 $3,611,358
For year ended 9/30/2005 $3,306,403
For year ended 9/30/2006 $1,648,489
For year ended 9/30/2007 $1,527,914
For year ended 9/30/2008 $1,258,079
10
6. ADVANCES FROM FEDERAL HOME LOAN BANK
Borrowings at June 30, 2003 consisted of four short term advances totaling $26
million and 14 long term advances totaling $182 million from the Federal Home
Loan Bank of Seattle ("FHLB"). The Company has pledged mortgage-backed
securities and collateralized mortgage obligations issued by the U.S. Government
and agencies thereof as collateral for the borrowings.
Scheduled maturities of advances from the FHLB were as follows:
June 30, 2003 September 30, 2002
------------ ------------------ ----------------- -------------- -------------- ---------------
Range of Weighted Range of Weighted
interest average interest average
Amount rates interest rate Amount rates interest rate
------------ ------------------ ----------------- -------------- -------------- ---------------
Due within one year $ 26,000,000 1.61% - 2.14% 2.02% $31,250,000 1.91% - 2.20% 2.09%
After one but within
five years 24,000,000 2.22% - 3.58% 3.02% 16,000,000 2.48% - 3.58% 3.06%
After five but within
ten years 158,000,000 4.77% - 7.05% 5.86% 158,000,000 4.77% - 7.05% 5.86%
-------------- --------------
$208,000,000 $205,250,000
============== ==============
7. SHORT TERM BORROWINGS
During the quarter ended June 30, 2003, the Company paid off the $1.7 million
balance of short term borrowings which were outstanding at September 30, 2002.
The borrowings consisted of one line of credit at Key Bank that was fully
disbursed. This line carried interest based on one-month LIBOR plus 1.95% which
was 5.58% at September 30, 2002.
8. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company has various outstanding
commitments and contingencies that are not reflected in the accompanying
consolidated financial statements. In addition, the Company is a defendant in
certain claims and legal actions arising in the ordinary course of business. In
the opinion of management, after consultation with legal counsel, the ultimate
disposition of these matters is not expected to have a material adverse effect
on the consolidated financial condition of the Company.
9. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share ("EPS") is computed in accordance with SFAS No. 128,
"Earnings per Share." Shares held by the Company's Employee Stock Ownership Plan
("ESOP") that are committed for release are considered contingently issuable
shares and are included in the computation of basic EPS. Diluted EPS is computed
using the treasury stock method, giving effect to potential additional common
shares that were outstanding during the period. Potential dilutive common shares
include shares awarded but not released under the Company's Management
Recognition and Development Plan ("MRDP"), and stock options granted under the
Stock Option Plan. Following is a summary of the effect of dilutive securities
on weighted average number of shares (denominator) for the basic and diluted EPS
calculations. There are no resulting adjustments to net earnings or loss.
11
For the Three Months Ended
June 30, June 30,
2003 2002
------------- -------------
Weighted average common shares outstanding - basic .............. 6,645,230 6,398,027
------------- -------------
Effect of Dilutive Securities on Number of Shares:
Stock options ................................................... 149,059 94,584
MRDP shares ..................................................... 1,168 7,840
------------- -------------
Total Dilutive Securities ....................................... 150,227 102,424
------------- -------------
Weighted average common shares outstanding - with dilution ...... 6,795,457 6,500,451
============= =============
For the Nine Months Ended
June 30, June 30,
2003 2002
------------- -------------
Weighted average common shares outstanding - basic .............. 6,508,796 6,418,168
------------- -------------
Effect of Dilutive Securities on Number of Shares:
Stock options ................................................... 131,365 41,496
MRDP shares ..................................................... 1,834 7,947
------------- -------------
Total Dilutive Securities ....................................... 133,199 49,443
------------- -------------
Weighted average common shares outstanding-with dilution ........ 6,641,995 6,467,611
============= =============
12
10. REGULATORY CAPITAL
The following table illustrates the compliance by Klamath First Federal Savings
and Loan Association (the "Association") with currently applicable regulatory
capital requirements at June 30, 2003:
Categorized as "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
---------------------- ------------------------------ ------------------------------
Amount Ratio Amount Ratio Amount Ratio
As of June 30, 2003 ------------ ----- ------------ ----- ------------ -----
Total Capital: $103,287,781 13.0% $63,787,456 8.0% $79,734,320 10.0%
(To Risk Weighted Assets)
Tier I Capital: 96,328,367 12.3% N/A N/A 47,840,592 6.0%
(To Risk Weighted Assets)
Tier I Capital: 96,328,367 6.9% 55,895,617 4.0% 69,869,522 5.0%
(To Total Assets)
Tangible Capital: 96,328,367 6.9% 20,960,856 1.5% N/A N/A
(To Tangible Assets)
11. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation to provide alternative methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation. This statement is effective
for fiscal years ending after December 15, 2002. Management does not expect that
the provisions of SFAS No. 148 will impact the Company's results of operations
or financial condition.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, for certain
decisions made by the FASB and to incorporate clarifications of the definition
of a derivative. This statement is effective for contracts entered into or
modified after June 30, 2003. Management does not expect that the provisions of
SFAS No. 149 will impact the Company's results of operations or financial
condition.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability or an asset in some circumstances. This statement is effective
for the Company for the quarter ended September 30, 2003. The Company is
currently evaluating the impact that adoption of SFAS No. 150 may have on the
results of operations or financial condition.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." This interpretation requires a variable interest
entity to be consolidated by the primary beneficiary of that entity. The
consolidation requirements of this interpretation apply immediately to variable
interest entities created after January 31, 2003, and apply to existing entities
for the first fiscal year or interim period beginning after June 15, 2003.
Certain disclosure requirements apply in all financial statements issued after
January 31, 2003, regardless of when the variable interest entity was
established. The Company is currently evaluating the impact of the
interpretation on its financial statements and, except for the possible effects
related to the issuance of its trust preferred securities, and any related
regulatory effects, does not currently believe the interpretation will have a
material impact on the results of operations or financial condition of the
Company.
13
12. SUBSEQUENT EVENT
On July 15, 2003, the Company announced that it had entered into an Agreement
and Plan of Merger ("the Sterling Merger") with Sterling Financial Corporation,
Inc., a Washington corporation ("Sterling"). The Company will be merged with and
into Sterling, with Sterling being the surviving corporation in the merger. The
Company's wholly-owned subsidiary, Klamath First Federal Savings and Loan
Association, will be merged with and into Sterling's wholly-owned subsidiary,
Sterling Savings Bank, with Sterling Savings Bank being the surviving
institution.
Under the terms of the Sterling Merger, each share of Klamath First Bancorp,
Inc. common stock will be converted into 0.77 shares of Sterling common stock
subject to certain conditions. Based upon the closing price for Sterling on July
14, 2003 of $26.55 per share, the consideration is equivalent to $20.44 per
share of Klamath First Bancorp, Inc. common stock. The merger will be structured
as a tax-free reorganization and is expected to be completed in the first
calendar quarter of 2004.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Special Note Regarding Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other portions of this report contain certain "forward-looking
statements" concerning the future operations of Klamath First Bancorp, Inc.
Management desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 and is including this statement
for the express purpose of availing the Company of the protections of such safe
harbor with respect to all "forward-looking statements" contained in this
quarterly report. We have used "forward-looking statements" to describe future
plans and strategies, including our expectations of the Company's future
financial results. Management's ability to predict results or the effect of
future plans or strategies is inherently uncertain. Factors which could affect
actual results include interest rate trends, the general economic climate in the
Company's market area and the country as a whole which could affect the
collectibility of loan balances, the ability to increase non-interest income
through expansion of new lines of business, the ability of the Company to
control costs and expenses, competitive products and pricing, loan delinquency
rates, and changes in federal and state regulation. These factors should be
considered in evaluating the "forward-looking statements," and undue reliance
should not be placed on such statements.
Critical Accounting Policies and Estimates
The "Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as disclosures included elsewhere in this Form 10-Q, are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires management to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. On an ongoing basis, management evaluates
the estimates used, including the adequacy of the allowance for loan losses,
impairment of intangible assets, and contingencies and litigation. Estimates are
based upon historical experience, current economic conditions and other factors
that management considers reasonable under the circumstances. These estimates
result in judgments regarding the carrying values of assets and liabilities when
these values are not readily available from other sources as well as assessing
and identifying the accounting treatments of commitments and contingencies.
Actual results may differ from these estimates under different assumptions or
conditions. The following critical accounting policies involve the more
significant judgments and assumptions used in the preparation of the
consolidated financial statements.
The allowance for loan losses is established to absorb known and inherent losses
attributable to loans outstanding and related off-balance sheet commitments. The
adequacy of the allowance is monitored on an ongoing basis and is based on
management's evaluation of numerous factors. These factors include the quality
of the current loan portfolio, the trend in the loan portfolio's risk ratings,
current economic conditions, loan concentrations, loan growth rates, past-due
and non-performing trends, evaluation of specific loss estimates for all
significant problem loans, historical charge-off and recovery experience and
other pertinent information. Approximately 70 percent of the Company's loan
portfolio is secured by real estate, both residential and commercial properties,
and a significant depreciation in real estate values in Oregon would cause
management to increase the allowance for loan and lease losses.
Retained mortgage servicing rights are measured by allocating the carrying value
of the loans between the assets sold and the interest retained, based on the
relative fair value at the date of the sale. The fair market values are
determined using a discounted cash flow model. Mortgage servicing assets are
amortized over the expected life of the loan and are evaluated periodically for
impairment. The expected life of the loan can vary from management's estimates
due to prepayments by borrowers. Prepayments in excess of management's estimates
would negatively impact the recorded value of the mortgage servicing rights. The
value of the mortgage servicing rights is also dependent upon the discount rate
used in the model. Management reviews
15
this rate on an ongoing basis based on current market rates. A significant
increase in the discount rate would negatively impact the value of mortgage
servicing rights.
The extended period of low interest rates has resulted in prepayment of mortgage
loans, including those related to the mortgage servicing rights. The Company
monitors the value of the mortgage servicing rights and recognizes impairment,
when necessary, on a quarterly basis. While management expects that there may be
additional impairment of the value of mortgage servicing rights in the continued
low interest rate environment, the net balance of mortgage servicing rights at
June 30, 2003 was less than $1 million, limiting the amount of impairment which
can be experienced. As of June 30, 2003, the Company had recorded $332,306 of
impairment related to mortgage servicing rights.
At June 30, 2003 the Company had approximately $37.6 million in core deposit
intangibles and goodwill as a result of business combinations. Periodic analysis
of the fair value of recorded core deposit intangibles and goodwill for
impairment will involve a substantial amount of judgment, as will establishing
and monitoring estimated lives of other amortizable intangible assets. The
Company is party to various legal proceedings. These matters have a high degree
of uncertainty associated with them. There can be no assurance that the ultimate
outcome will not differ materially from our assessment of them. There can also
be no assurance that all matters that may be brought against us are known to us
at any point in time.
General
The Company, an Oregon corporation, is the unitary savings and loan holding
company for the Association. At June 30, 2003, the Company had total
consolidated assets of $1.45 billion and consolidated shareholders' equity of
$121.5 million. The Company is currently not engaged in any business activity
other than holding the stock of the Association. Accordingly, the information
set forth in this report, including financial statements and related data,
relates primarily to the Association.
The Association is a progressive, community-oriented savings and loan
association that focuses on customer service within its primary market area.
Accordingly, the Association is primarily engaged in attracting deposits from
the general public through its offices and using those and other available
sources of funds to originate permanent residential one- to four-family real
estate loans and loans on commercial real estate, multi-family residential
properties, and to consumers and small businesses within its market area. While
the Association has historically emphasized fixed rate mortgage lending, it has
been diversifying its loan portfolio by focusing on increasing the number of
originations of commercial real estate loans, multi-family residential loans,
residential construction loans, commercial and industrial loans, business loans
and non-mortgage consumer loans. A significant portion of these newer loan
products carry adjustable rates, higher yields, or shorter terms than the
traditional fixed rate mortgages. This lending strategy is designed to enhance
earnings, reduce interest rate risk, and provide a more complete range of
financial services to customers and the local communities served by the
Association. The acquisition of 13 branches from Washington Mutual Bank
("WAMU"), which was completed in September 2002, moved the Company strongly in
this direction.
On July 15, 2003, the Company announced that it had entered into an Agreement
and Plan of Merger ("the Sterling Merger") with Sterling Financial Corporation,
Inc., a Washington corporation ("Sterling"). The Company will be merged with and
into Sterling, with Sterling being the surviving corporation in the merger. The
Company's wholly-owned subsidiary, Klamath First Federal Savings and Loan
Association, will be merged with and into Sterling's wholly-owned subsidiary,
Sterling Savings Bank, with Sterling Savings Bank being the surviving
institution.
Under the terms of the Sterling Merger, each share of Klamath First Bancorp,
Inc. common stock will be converted into 0.77 shares of Sterling common stock
subject to certain conditions. Based upon the closing price for Sterling on July
14, 2003 of $26.55 per share, the consideration is equivalent to $20.44 per
share of Klamath First
16
Bancorp, Inc. common stock. The merger will be structured as a tax-free
reorganization and is expected to be completed in the first calendar quarter of
2004.
Net interest income, which is the difference between interest and dividend
income on interest-earning assets, primarily loans and investment securities,
and interest expense on interest-bearing deposits and borrowings, is the major
source of profit for the Company. Because the Company depends primarily on net
interest income for its earnings, the focus of the Company's management is to
create and implement strategies that will provide stable, positive spreads
between the yield on interest-earning assets and the cost of interest-bearing
liabilities. Such strategies include the Association's expansion of its consumer
and commercial loan products. To a lesser degree, the net earnings of the
Company rely on the level of its non-interest income. The Company is
aggressively pursuing strategies to improve its service charge and fee income,
and control its non-interest expense, which includes employee compensation and
benefits, occupancy and equipment expense, deposit insurance premiums and
miscellaneous other expenses.
The Association is regulated by the Office of Thrift Supervision ("OTS") and its
deposits are insured up to applicable limits under the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
The Association is a member of the Federal Home Loan Bank of Seattle, conducting
its business through 59 office facilities, with the main office located in
Klamath Falls, Oregon. The primary market areas of the Association are the state
of Oregon and adjoining areas of California and Washington.
Liquidity and Capital Resources
The Company generates cash through operating activities, primarily as a result
of net income. The adjustments to reconcile net income to net cash provided by
operations during the periods presented consisted primarily of net amortization
of premiums paid on investment and mortgage-backed securities, depreciation and
amortization, stock-based compensation expense, amortization of deferred loan
origination fees, net gain on the sale of investment and mortgage-backed
securities, increases or decreases in various escrow accounts and increases or
decreases in other assets and liabilities. The primary investing activity of the
Association is lending, which is funded with cash provided from operations and
financing activities, as well as proceeds from amortization and prepayments on
existing loans and mortgage backed and related securities. For additional
information about cash flows from operating, financing, and investing
activities, see the Condensed Consolidated Statements of Cash Flows.
OTS capital regulations require the Association to have: (i) tangible capital
equal to 1.5% of adjusted total assets, (ii) core capital equal to 4.0% of
adjusted total assets, and (iii) total risk-based capital equal to 8.0% of
risk-weighted assets. At June 30, 2003, the Association was in compliance with
all regulatory capital requirements effective as of such date, with tangible,
core and risk-based capital of 6.9%, 6.9% and 13.0%, respectively. See Note 10
of the Notes to Condensed Consolidated Financial Statements.
Changes in Financial Condition
At June 30, 2003, the consolidated assets of the Company totaled $1.45 billion,
consistent with $1.51 billion at September 30, 2002.
Net loans receivable decreased by $52.2 million to $555.3 million at June 30,
2003, from $607.5 million at September 30, 2002. The decrease is primarily the
result of prepayments of existing single family mortgage loans and sale of $78.7
million in single family mortgage loans originated during the nine months ended
June 30, 2003.
Investment securities increased $21.8 million, or 18.2% from $119.5 million at
September 30, 2002 to $141.3 million at June 30, 2003. This increase was the
combined result of purchase of $50.3 million in securities, sale of $10.2
million of investment securities available for sale and $17.6 million of
maturities. During the
17
current fiscal year, the Company has restructured the investment portfolio by
selling securities whose balances had paid down to the extent that they were no
longer highly liquid.
During the nine months ended June 30, 2003, the Company purchased $413.4 million
of mortgage-backed securities ("MBS"), primarily agency-backed collateralized
mortgage obligations ("CMO's") of short duration. In addition, $246.5 million
was received in principal repayments on MBS and $214.7 million of MBS were sold,
resulting in a decrease of $59.7 million for MBS from $650.8 million at
September 30, 2002 to $591.1 million at June 30, 2003.
In December 2002, the Company purchased $15.0 million in bank-owned life
insurance. This insurance is used to fund director benefits, supplemental
executive retirement benefits, and provide life insurance to key employees.
Income on bank-owned life insurance totaled $343,680 for the nine months ended
June 30, 2003, with a corresponding $303,625 of expense to fund the benefit
liability. Certain employment contracts were amended in connection with the
establishment of the supplemental executive retirement benefits. Structuring of
the supplemental benefits began in December 2002 and the agreements were
finalized during the quarter ended June 30, 2003.
Other assets increased by $715,222, or19.1%, from $3.7 million at September 30,
2002 to $4.5 million at June 30, 2003. The increase relates primarily to a $1.2
million receivable for investments sold in June and not settled until July 2003
and a $480,683 increase in investment in low income housing tax credits. These
increases were partially offset by a $628,199 decrease in mortgage servicing
rights, resulting from amortization and valuation adjustments.
Deposit liabilities decreased $61.0 million, or 5.3% from $1.14 billion at
September 30, 2002 to $1.08 billion at June 30, 2003. The decrease reflects the
Company's pricing strategy in light of its high liquidity and low loan to
deposit ratio.
Advances from borrowers for taxes and insurance decreased $2.7 million from $5.1
million at September 30, 2002 to $2.4 million at June 30, 2003. The decrease is
the result of using the reserves to pay the required real estate taxes due on
the Association's loans receivable portfolio in November. In addition, the
general decrease in the balance of mortgage loans for which taxes and insurance
are collected has resulted in a more modest increase in the balance over the
period since November than was noted in previous years.
The Company's total borrowings decreased by $1.1 million from September 30, 2002
to June 30, 2003 due to pay off of short term borrowings by the holding company
which were partially offset by additional long term borrowings by the
Association.
Total shareholders' equity increased $1.5 million, or 1.3%, from $119.9 million
at September 30, 2002 to $121.5 million at June 30, 2003. This increase was the
combined result of earnings of $1.5 million and $3.3 million in proceeds from
exercise of stock options, partially offset by a $1.8 million decrease in
unrealized gain on securities available for sale and payment of $2.6 million in
common stock dividends for the nine month period.
Results of Operations
Comparison of Nine Months Ended June 30, 2003 and 2002
General. Record low interest rates were evident in decreases in interest income,
interest expense, and net interest income for the nine months ended June 30,
2003 compared to the same period a year ago. Non-interest income improved
significantly over the prior year. Non-interest expense was significantly
increased due to the recording of investment losses related to
"other-than-temporary" impairment of preferred stock.
Interest Income. Interest income decreased by $12.1 million, showing the
combined effects of a $9.1 million decrease in average interest earning assets
and a 121 basis point decrease in yield from June 30, 2002 to June 30, 2003.
Interest income on loans receivable decreased $6.7 million, or 16.9%, from $39.9
million for the nine months ended June 30, 2002 to $33.2 million for the same
period of 2003. This
18
decrease was a result of the $77.9 million decrease in average loans receivable
due to prepayments from refinancing activity and sales of new loan production
combined with a 47 basis point decrease in average yield on loans for the nine
months ended June 30, 2003 compared to the same period ended June 30, 2002.
Interest rate spread (the difference between the rates earned on interest
earning assets and the rates paid on interest bearing liabilities) decreased
from 3.03% to 2.72% and interest rate margin (net interest income divided by
average interest earning assets) decreased from 3.47% to 3.09% comparing the
nine month periods.
Interest Expense. Total interest expense decreased $8.4 million, or 27.3%, for
the nine months ended June 30, 2003 compared to the same period in 2002. That
decrease was the combined result of a $9.2 million decrease in interest on
deposit liabilities and a $757,487 increase in interest expense on FHLB
advances. The average balance of deposit liabilities decreased $57.1 million and
the average rate paid on deposits decreased by 108 basis points from 3.07% for
the nine months ended June 30, 2002 to 1.99% for the same period ended June 30,
2003. The average balance of borrowings increased $39.3 million from $169.3
million for the nine months ended June 30, 2002 to $208.6 million for the same
period ended June 30, 2003. In addition, the rate paid on borrowings decreased
by 59 basis points from 5.69% for the nine months ended June 30, 2002 to 5.10%
for the same period in 2003.
Provision for Loan Losses. There was no provision for loan losses recorded for
the nine months ended June 30, 2003. During that period there were $366,765 of
charge offs and $49,859 of recoveries. This compares to a $156,000 provision
with $249,417 of charge offs and $42,406 of recoveries during the nine months
ended June 30, 2002. Based on analysis of the loan portfolio, it was determined
that the allowance for loan losses was adequate at June 30, 2003, without the
need for additional reserves, thus no provision for loan losses was recorded. In
accordance with contemporary regulatory guidance on the allowance for loan
losses, the Company is required to estimate reserves based on the current
inherent risk in the portfolio. Because payoffs have reduced the 1-4 family
mortgage portfolio and historical loan losses have been low, the allowance
indicated has not required additional provision.
At June 30, 2003, the allowance for loan losses was equal to 408% of total
non-performing assets compared to 718% at June 30, 2002. The decrease in the
coverage ratio was the combined result of an increase in real estate owned (thus
an increase in non-performing assets) and a lower total allowance. The ratio of
non-performing assets to total assets increased from 0.07% at June 30, 2002 to
0.12% at June 30, 2003. The increase primarily relates to an increase in real
estate owned, which is included in non-performing assets.
Non-Interest Income. Non-interest income continues to improve, increasing $4.7
million, or 57.1%, to $13.0 million for the nine months ended June 30, 2003 from
$8.3 million for the nine months ended June 30, 2002. Income from fees and
service charges on deposit accounts increased by $1.1 million, or 31.6%, from
$3.6 million for the nine months ended June 30, 2002 to $4.7 million for the
nine months ended June 30, 2003. While overall deposits have decreased, checking
accounts, money market and savings accounts, which generate fees and service
charges, have increased during fiscal 2003. These increases in account balances
coupled with increases in some fees and service charges have boosted income for
the year. Brokerage and annuity commissions also showed significant growth,
increasing by 84.7% from $818,580 for the nine months ended June 30, 2002 to
$1.5 million for the same period this year. This growth is a result of the
expanded presence of Klamath First Financial Services, making brokerage and
investment services available to customers in more of the Company's market
areas. With the high loan volume and subsequent sale of single family mortgage
loan production, gain on sale of mortgage loans has increased 112.2% from
$768,445 for the nine months ended June 30, 2002 to $1.6 million for the current
nine month period. A $1.5 million gain on sale of investments was recorded for
the nine months ended June 30, 2003 compared to $554,416 gain on sale recorded
in the prior year. Both gain on sale of securities and loss on sale, as noted
below, are part of the ongoing management of the Company's large investment
portfolio to reposition the portfolio for higher long term yields in the current
interest rate environment. We expect similar sales activity in the future as
part of the active management of investment assets.
19
Non-Interest Expense. The Company's continued efforts to control expenses can be
seen in the comparison of non-interest expense items year-to-date for the
periods ended June 30, 2003 and 2002. Most categories of expenses were
consistent from year to year and total non-interest expense, excluding the
impairment loss on investment securities, increased by a modest 6.4%.
Compensation, employee benefits and related expense showed an 11.2% increase due
to increases in number of employees and salary increases. Occupancy expense
increased 9.6% due to the increase in number of branch locations and additional
space leased for back office operations. The Company recorded $901,599 in loss
on sale of investments as part of the repositioning of the investment portfolio
as noted above. During June 2003, the Company also recognized a $3.5 million
loss related to reductions in market value on certain floating rate preferred
stocks that were considered to be "other-than-temporary". See further discussion
in Note 3 of the Notes to Condensed Consolidated Financial Statements.
Amortization of intangible assets decreased as adoption of SFAS No. 142 and SFAS
No. 147 required the Company to cease amortization of goodwill related to the
WAMU branch acquisition beginning October 1, 2002. Amortization of core deposit
intangibles arising from the branch acquisitions from Wells Fargo and WAMU will
continue to be recorded.
Income Taxes. The provision for income taxes decreased $1.8 million for the nine
months ended June 30, 2003 compared with the prior year. Income taxes decreased
due to the lower income level year-to-date. The effective tax rate was 29.0% for
the nine months ended June 30, 2003 compared to 34.9% for the same period of
2002. As part of the overall plan to reduce the effective tax rate and enhance
the level of investments qualifying under the Community Reinvestment Act, the
Company has increased investment in low income housing tax credits and
tax-exempt municipal securities. The decrease in effective tax rate is primarily
due to these activities and the effect of tax benefits related to employee stock
plans.
Comparison of Three Months Ended June 30, 2003 and 2002
General. As noted for the nine months ended June 30, 2003, declining interest
rates resulted in decreasing net interest income, interest income and interest
expense for the quarter ended June 30, 2003 compared to the same quarter a year
ago.
Interest Income. The Company recorded interest income of $17.3 million in the
third quarter ended June 30, 2003, a decrease of 19.4% from $21.5 million for
the same period last year. Average interest earning assets remained stable,
decreasing by $1.3 million, less than 0.1%. Yield decreased from 6.32% for the
quarter ended June 30, 2002 to 5.15% for the same period of 2003. Yields on
loans, MBS, investment securities, and cash balances decreased as rates declined
over the year. Also, funds generated from loan and MBS prepayments are being
reinvested at the lower prevailing rates, further reducing yields.
Interest Expense. Total interest expense decreased 25.9%, from $9.2 million for
the quarter ended June 30, 2002 to $6.8 million for the quarter ended June 30,
2003. Average deposits decreased by $69.9 million comparing the three months
ended June 30, 2002 to 2003, while the average interest paid on interest-bearing
deposits decreased 93 basis points from 2.68% for the three months ended June
30, 2002 to 1.75% for the same period ended June 30, 2003. The average balance
of borrowings increased $42.0 million, from $168.1 million for the three months
ended June 30, 2002 to $210.1 million for the same period ended June 30, 2003,
while the rate paid on borrowings decreased by 62 basis points, resulting in an
increase in interest on borrowings of $273,236 for the three months ended June
30, 2003 compared with the same period ended June 30, 2002.
Provision for Loan Losses. The provision for loan losses was zero and there were
$180,353 of charge offs, and $5,218 of recoveries during the three months ended
June 30, 2003 compared to a zero provision with $176,433 of charge offs and
$3,759 of recoveries during the three months ended June 30, 2002. Based on the
Company's analysis of the allowance for loan losses, the allowance is adequate
to cover anticipated losses in the loan portfolio and additional provision for
losses was not considered necessary. .
Non-Interest Income. Non-interest income continues to improve, increasing $1.8
million, or 58.9%, to $4.9
20
million for the three months ended June 30, 2003 from $3.1 million for the three
months ended June 30, 2002. Income from fees and service charges on deposit
accounts showed growth of 28.6% from $1.3 million for the quarter ended June 30,
2002 to $1.6 million for the current quarter. Other fees and service charges
increased by 55.1% from $679,244 for the quarter ended June 30, 2002 to $1.1
million for the same quarter this year. Brokerage and annuity commissions
increased by 118.8% to $603,069 and profit on sale of mortgage loans increased
101.2% to $613,530 comparing June 30, 2003 to the same period in 2002.
Non-Interest Expense. Non-interest expense increased $5.0 million, or 40.4%, to
$17.4 million for the three months ended June 30, 2003, from $12.4 million in
the comparable period in 2002. Compensation, employee benefits and related
expense showed an increase of 11.9% which reflects the addition of staff and
salary increases. New branch locations and additional back office space pushed
occupancy expense up by 10.7% compared to the same quarter a year ago. The
Company recorded $497,160 in loss on sale of investments as part of the
repositioning of the investment portfolio. As noted previously, the Company also
recognized a $3.5 million loss related to reductions in market value on certain
floating rate preferred stocks that were considered to be
"other-than-temporary". See further discussion in Note 3 of the Notes to
Condensed Consolidated Financial Statements. Amortization of intangibles
decreased as the adoption of SFAS No. 142 and SFAS No. 147 required the Company
to cease amortization of goodwill related to the WAMU branch acquisition
beginning October 1, 2002. Amortization of core deposit intangibles arising from
the branch acquisitions from Wells Fargo and WAMU will continue to be recorded.
Other expense increased by $655,113, or 20.3%, primarily due to increases in
telephone expense, license and maintenance fees and expenses related to sold
mortgage loans.
Income Taxes. The provision for income taxes decreased $1.7 million for the
quarter ended June 30, 2003 as the Company recorded a tax benefit of $667,311 in
connection with the loss for the quarter. The effective tax rate was 32.9% for
the quarter ended June 30, 2003 compared to 35.1% for the same period of 2002.
As part of the overall plan to reduce the effective tax rate and enhance the
level of investments qualifying under the Community Reinvestment Act, the
Company has increased investment in low income housing tax credits and
tax-exempt municipal securities. The decrease in effective tax rate is primarily
due to these activities and the effect of tax benefits related to employee stock
plans.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's financial performance is affected by the success of the fee
generating products it offers to its customers, the credit quality of its loans
and securities, and the extent to which its earnings are affected by changes in
interest rates. Credit risk is the risk that borrowers will become unable to
repay their debts as they become due. The Company relies on strict underwriting
standards, loan review, and an adequate allowance for loan losses to mitigate
its credit risk.
Interest rate risk is the risk of loss in principal value and risk of earning
less net interest income due to changes in interest rates. Put simply, savings
institutions solicit deposits and lend the funds they receive to borrowers. The
difference between the rate paid on deposits and the rate received on loans is
the interest rate spread. If the rates paid on deposits change, or reprice, with
the same timing and magnitude as the rates change on the loans, there is perfect
matching of interest rate changes and thus, no change in interest rate spread
and no interest rate risk. In actuality, interest rates on deposits and other
liabilities do not reprice at the same time and/or with the same magnitude as
those on loans, investments and other interest-earning assets. For example,
historically the Company primarily originated fixed-rate residential loans for
its portfolio. Because fixed-rate loans do not reprice until payoff and because
the majority of residential loans have terms of 15 to 30 years (with actual
expected lives of six years or less), the interest rate characteristics of the
loan portfolio do not exactly match the Company's liabilities, which consist of
deposits with maturities ranging up to ten years and borrowings which mature or
reprice in ten years or less. When interest rates change, this mismatch creates
changes in interest rate spread that influence net interest income and result in
interest rate risk.
21
Changes in interest rates also impact the fair value of the assets and
liabilities on the Company's balance sheet, expressed as changes in the net
portfolio value ("NPV"). NPV represents the market value of portfolio equity and
is equal to the market value of assets minus the market value of liabilities
plus or minus the estimated market value of off-balance sheet instruments. For
example, the market value of investment securities and loans is impacted by
changes in interest rates. Fixed-rate loans and investments held in the
Company's portfolio increase in market value if interest rates decline.
Conversely, the market value of fixed-rate portfolio assets decreases in an
increasing interest rate environment. It is generally assumed that assets with
adjustable rates are less subject to market value changes due to interest rate
fluctuations based on the premise that their rates will adjust with the market.
There has not been any material change in the market risk disclosures contained
in the Company's Annual Report on Form 10-K for the fiscal year ended September
30, 2002.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures: An evaluation of the
Company's disclosure controls and procedures (as defined in Section 13(a) -
15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the "Act")) was
carried out under the supervision and with the participation of the Company's
Chief Executive Officer, Chief Financial Officer and several other members of
the Company's senior management as of the end of the period covered by this
quarterly report. Based on such evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that, as of the end of such
period, the Company's disclosure controls and procedures are effective in
ensuring that the information required to be disclosed by the Company in the
reports it files or submits under the Act is (i) accumulated and communicated to
the Company's management (including the Chief Executive Officer and Chief
Financial Officer) in a timely manner, and (ii) recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms.
(b) Changes in Internal Control Over Financial Reporting: There have not been
any changes in the Company's internal control over financial reporting (as
defined in Section 13(a) - 15(f) and 15d-15(f) of the Act) during the quarter
ended June 30, 2003 that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various claims and legal actions arising
in the normal course of business. Management believes that these
proceedings will not result in a material loss to the Company.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 10(a) Employment agreement for Kermit Houser
Exhibit 10(b) First amendment to employment agreement for
Kermit Houser
Exhibit 10(c) Salary continuation agreement for Kermit
Houser
Exhibit 10(d) Employment agreement for sample executive
Including Marshall J. Alexander, Ben A. Gay, Frank X.
Hernandez, Craig M Moore, James E. Essany, Walter F.
Dodrill, Nina G. Drake, and Jeffrey D. Schlenker
Exhibit 10(e) First amendment to employment agreement for
sample executive
Including Marshall J. Alexander, Ben A. Gay, Frank X.
Hernandez, Craig M Moore, James E. Essany, Walter F.
Dodrill, Nina G. Drake, and Jeffrey D. Schlenker
Exhibit 10(f) Salary continuation agreement for sample
executive
Including Marshall J. Alexander, Ben A. Gay, Frank X.
Hernandez, Craig M Moore, James E. Essany, Walter F.
Dodrill, Nina G. Drake, and Jeffrey D. Schlenker
Exhibit 10(g) First amendment to salary continuation agreement
for sample executive
Including Frank X. Hernandez, Craig M Moore, James E.
Essany, Walter F. Dodrill, Nina G. Drake, and Jeffrey D.
Schlenker
Exhibit 10(h) Director fee continuation agreement for sample
director
Including Rodney N. Murray, Bernard Z. Agrons, Timothy A.
Bailey, James D. Bocchi, Donald N. Bauhofer, William C.
Dalton, Dianne E. Spires
Exhibit 31 Section 302 Certification
Exhibit 32 Section 906 Certification
b) During the quarter ended June 30, 2003, the Company filed the
following Current Reports on Form 8-K:
Form 8-K dated April 24, 2003 announcing the issuance of the
Company's press release for the second quarter ended March
31, 2003.
Form 8-K dated April 25, 2003 correcting an error in the
press release for the second quarter ended March 31, 2003.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KLAMATH FIRST BANCORP, INC.
Date: August 14, 2003 By: /s/ Kermit K. Houser
----------------------------------
Kermit K. Houser, President and
Chief Executive Officer
Date: August 14, 2003 By: /s/ Marshall Jay Alexander
---------------------------
Marshall Jay Alexander, Executive
Vice President and
Chief Financial Officer
24
Exhibit 10(a)
EMPLOYMENT AGREEMENT
Amended and Restated May 9, 2003
THIS AGREEMENT is made effective as of November 15, 2002, by and among
KLAMATH FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION ("Association"), Klamath
Falls, Oregon; KLAMATH FIRST BANCORP, INC. ("Company"), an Oregon corporation;
and KERMIT HOUSER ("Executive").
WHEREAS, Association and Company wish to assure for themselves the services
of Executive for the period provided in the Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Association and
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and upon the other terms and conditions hereinafter provided, the parties agree
as follows:
1. POSITION.
During the term of Executive's employment under this Agreement, Association
agrees to employ Executive and Executive agrees to serve as President and Chief
Executive Officer of Association and Company. During said term, Executive also
agrees to serve, if elected, without separate compensation, as an officer and/or
director of company and/or Association or any subsidiary or affiliate of Company
or Association.
2. DUTIES.
As President and Chief Executive Officer of Association and Company,
Executive shall have such powers and duties and appropriate to that office (a)
as may be provided by the articles and/or bylaws of Association and Company and
(b) as determined by the board of directors of Association and Company, or
either of them, respectively, from time to time. Executive shall at all times
discharge his duties in consultation with and under the supervision and
direction of the board of directors of Association and Company. Subject to the
provisions of the Agreement, Executive's duties may be changed from time to time
during the term of the Agreement, and Executive's place of work may be relocated
at the sole discretion of the board of directors of Association and Company, or
either of them.
3. TERM.
The term of Executive's employment under the Agreement shall commence as of
the date first written above and shall continue for a period of two years at
which time it will end, unless sooner termination in accordance with the terms
of this Agreement or extended as provided below. Beginning on the first
anniversary date of the Agreement, and continuing at each anniversary date
thereafter, the board of directors of Association and Company, or either of
them, may in their sole discretion extend Executive's employment under this
Agreement for an additional one-year period. Prior to the extension of
Executive's employment under this Agreement as provided in this Section, the
board of directors of Association and Company, or either of them, may in their
sole discretion conduct a performance evaluation of Executive for purposes of
determining whether to extend this Agreement. Executive may terminate this
Agreement at any time, after providing at least sixty (60) days' written notice
to the chair of the board of directors of Association and Company, or either of
them. In such event, Executive will remain subject to the post termination
provisions set forth in this Agreement.
4. OUTSIDE ACTIVITIES.
During the term of his employment under this Agreement, Executive shall
devote all his business time, attention, skill, and efforts to the faithful
performance of his duties under this Agreement. Executive shall obtain the
consent of the board of directors of Association and Company before he engages
in any other professional or business activities that may require an appreciable
portion of Executive's time or effort to the detriment of the Association's or
Company's business or that of their affiliates.
5. COMPENSATION AND FRINGE BENEFITS.
(a) As compensation for services under the Agreement, Association and
Company shall pay to Executive an annual salary of $200,000, less
legally required deductions and withholdings ("Basic Salary").
Executive's Base Salary shall be payable in accordance with the usual
payroll practices of Association and Company. During the term of
Executive's employment under this Agreement, Executive's Base Salary
shall be reviewed at least annually by the board of directors of
Association and Company and the board of directors of Association and
Company, or either of them, may in their sole discretion adjust
Executive's Base Salary from time to time.
(b) In addition to the Base Salary provided in Section 5(a), Executive
shall be eligible to receive an annual bonus payable within 30 days of
each anniversary date of this Agreement. Executive's entitlement to
and the specific amount of any such annual bonus shall be at the
discretion of the board of directors of Association and company (or
their duly convened committee), based upon and subject to Executive's
satisfactorily meeting certain goals and objectives mutually
established and agreed to in writing by the board of directors of
Association and Company and Executive.
(c) In addition to the compensation described above, to the extent
otherwise eligible, Executive shall be entitled to receive or
participate in, at not cost to Executive, all such other benefits,
including without limitation pension plans, employee stock option
plans, and health and welfare plans as may from time to time be made
available to other senior management employees of Association and
Company.
6. EXPENSES.
Association and Company shall reimburse Executive for all reasonable
and necessary expenses incurred by Executive in carrying out his duties
under this Agreement. Executive shall present to Association and company
from time to time an itemized account of such expenses in such form as may
be required by Association and Company, or either of them.
7. PAYMENTS TO EXECUTIVE UPON EVENT OF TERMINATION.
(a) For purposes of the Agreement, "Event of Termination" means any one or
more of the following: (i) termination of Association or Company of
Executive's employment under this Agreement for any reason other than
a Change in Control (as defined in Section 8), disability (as provided
in Section 9), or death (as provided in Section 10); or (ii)
termination by Executive of Executive's employment under this
Agreement in accordance with the provisions of this Section upon (A)
unless consented to the Executive, a material change in Executive's
title or job duties, which change would cause Executive's position to
become one of materially lesser responsibility from the position and
duties described in Sections 1 and 2, or the assignment to the
Executive of any duties or responsibilities substantially inconsistent
with the Executive's title or duties, or a relocation of Executive's
principal place of work by more than 35 miles from its location at the
effective date of the Agreement; (B) unless consented to by Executive,
any reduction in Executive's Base Salary; (C) the liquidation of the
dissolution of Association and Company; or (D) any material breach of
the Agreement by Association and Company. Upon the occurrence of any
event described in clauses (A), (B), (C), or (D) of clause (ii) above,
Executive shall have the right to elect to terminate his employment
under this Agreement upon not less than 60 days' prior written notice
to the board of directors of Association and Company, and each of
them, given within a reasonable period of time not to exceed four
calendar months after the event giving rise to said right to elect.
(b) Upon termination of employment following occurrence of an Event of
Termination other than for Cause or for Neglect (as described in
Sections 11 or 12 hereof), or upon failure to extend Executive's
employment for additional one-year period, Association and Company
shall pay to Executive a sum equal to (i) the amount of Executive's
Base Salary (at the then current rate) for the remainder of the term
of this Agreement following the Date of Termination (as described
below), and (ii) the value of any employer contributions that would
have been made by Association and Company on Executive's behalf over
the remaining term of Executive's employment under this Agreement to
any retirement plan sponsored by Association and Company as of the
Date of Termination (as defined below); provided, however, that if
Association or Company is not in compliance with its minimum capital
requirements of if such payment would cause Association's or Company's
capital to be reduced below its minimum capital requirements, such
payment shall not be made until such time as Association and Company
are in capital compliance. Additionally, Executive shall be entitled
to receive the stock option and grant described under Section 5(c) and
5(d). The payment described in this Section 7(b) shall be made in a
single lump sum within 30 days of the Date of Termination.
8. CHANGE OF CONTROL
(a) For purposes of the Agreement, a "Change in Control" of Company or
Association shall be deemed to occur if and when (a) an offeror other
than Company purchases shares of the common stock of Company or
Association pursuant to a tender or exchange offer for such shares,
(b) any person (as such term is used in Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934) is or becomes the beneficial
owner, directly or indirectly, of securities of Company or Association
representing 25% or more of the combined voting power of the Company's
then outstanding securities, (c) the membership of the board of
directors of Company or Association changes as the result of a
contested election, such that individuals who were directors at the
beginning of any twenty-four month period do not constitute a majority
of the board of directors at the end of such period, or (d)
shareholders of Company or Association approve a merger,
consolidation, sale or disposition of all or substantially all of
Company's or Association's assets, or a plan of partial or complete
liquidation.
(b) In the event of a Change in Control, in lieu of amounts payable
pursuant to Section 7(b), Executive shall be entitled to the payment
provided in Section 8(c) upon his subsequent involuntary termination
of employment at any time during the term of his employment under this
Agreement, unless such termination is because of Executive's death,
disability (as provided in Section 9), or for Cause (as defined in
Section 11).
(c) Upon a Change in Control followed by the involuntary termination of
Executive's employment as provided in Section 8(b), Association and
Company shall pay to Executive a sum equal to (i) 2.00 times
Executive's "base amount," within the meaning of Section 280G(b)(3) of
the Internal Revenue Code of 1986, as amended ("Code"); (ii) his stock
option and grant described under Section 5(c) and 5(d); and (iii) the
value of any employer contributions that would have been made by
Association and Company on Executive's behalf over the remaining term
of Executive's employment under this Agreement to any retirement plan
sponsored by Association and Company as of the Date of Termination.
Such payment shall be made in a single lump sum within 30 days of the
Date of Termination.
(d) IRS Section 280G Issues. If any portion of the amounts payable to the
Executive under this Agreement, either alone or together with other
payments which the Executive has the right to receive from the Company
or Association, constitute "excess parachute payments" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), that are subject to the excise tax imposed by
Section 4999 of the Code (or similar tax and/or assessment), Executive
shall be responsible for the payment of such excise tax and Company or
Association (and their successor) shall be responsible for any loss of
deductibility related thereto; provided, however, that Company or
Association and Executive shall cooperate with each other and use all
reasonable efforts to minimize to the fullest extent possible the
amount of excise tax imposed by Section 4999 of the Code. If, at a
later date, it is determined (pursuant to final regulations or
published rulings of the Internal Revenue Service, final judgment of a
court of competent jurisdiction, or otherwise) that the amount of
excise taxes payable by the Executive is greater than the amount
initially so determined, then the Executive shall pay an amount equal
to the sum of such additional excise taxes and any interest, fines and
penalties resulting from such underpayment. The determination of the
amount of any such excise taxes shall be made by the independent
accounting firm employed by the Company or Association immediately
prior to the change in control or such other independent accounting
firm or advisor as may be mutually agreeable to Company or Association
and Executive in the exercise of their reasonable good faith judgment.
9. TERMINATION UPON DISABILITY OF EXECUTIVE.
(a) If Executive shall become disabled as defined in Association's and
Company's then current disability plan (or, if no such plan is then in
effect, if Executive is permanently and totally disabled with the
meaning of Code Section 22(e(3)) and unable to perform the essential
functions of his position even with reasonable accommodation,
Association and Company, or either of them, may terminate Executive's
employment for disability. (b) Upon termination of Executive's
employment for disability, Association and Company will pay to
Executive, as disability pay, a bi-weekly payment equal to
three-quarters of Executive's bi-weekly rate of base Salary on the
Date of Termination. The disability payments shall commence on the
Date of Termination and will end on the earlier of (i) the date
Executive returns to employment with Association and Company; (ii)
Executive's employment by another employer; (iii) Executive attaining
age 65; (iv) Executive's death; or (v) the expiration of the term of
Executive's employment under this Agreement. The disability payments
shall also be reduced by the amount, if any, paid to Executive under
any plan of Association and Company providing disability benefits to
Executive.
10. TERMINATION UPON DEATH OF EXECUTIVE.
Upon the death of Executive during the term of his employment under
this Agreement, this Agreement shall terminate immediately and Executive's
Base Salary pursuant to Section 5(a) shall be prorated and payable until
the date of termination of this Agreement.
11. TERMINATION FOR CAUSE.
Association and Company, or either of them, may terminate Executive's
employment under this Agreement at any time for Cause. For purposes of this
Agreement, "Cause" means any fraud or dishonesty by Executive; the
Executive's willful misconduct, incompetence, or intentional failure to
perform stated duties; any failure by or refusal of Executive to comply
with any instructions or directives of the board of directors of
Association or Company, or either of them, any breach of fiduciary duty by
Executive; willful violation of any law or government regulation (other
than misdemeanor traffic violations or similar misdemeanor offenses) by
Executive; any other willful conduct by Executive which materially
adversely reflects or impacts on Association's or Company's reputation or
business; or any material breach of the Agreement by Executive. For
purposes of this Section, no act, or the failure to act, on Executive's
part shall be "willful" unless done, or omitted to be done, not in good
faith and without reasonable belief that the action or omission was in the
best interest of the Association or its affiliates. Notwithstanding the
foregoing, Executive shall not be deemed to have been terminated by Cause
unless and until there shall have been sent to Executive a copy of a
resolution duly adopted by the affirmative vote of not less than
three-fourths of the board of directors of Association and Company, or
either of them, (after reasonable notice to Executive and an opportunity
for Executive, together with counsel, to be heard before the board of
directors of Association and Company), finding that in the good faith
opinion of the board of directors of Association and Company, Executive
engaged in conduct justifying termination for Cause and describing
specifically the conduct. Executive shall not have the right to receive any
compensation or other benefits for any period after termination of his
employment for Cause. Any stock options granted to Executive under any
stock option plan that have vested shall remain the property of Executive,
but any unvested awards granted under any other stocks benefit plan of
Association, Company, or any subsidiary or affiliate thereof, shall become
null and void effective upon Executive's receipt of Notice of Termination
(as defined below) for Cause and shall not be exercisable by Executive at
any time subsequent to such termination for Cause.
12. TERMINATION FOR NEGLECT.
The Association and Company, or either of them may terminate Executive's
employment under this Agreement at any time for Neglect. For purposes of
this Agreement, "Neglect" means the failure of Executive to give due care
to stated duties or to comply with instructions or directives of the Board
of Directors of the Association or Company or either of them, but where
such failure is not determined to be willful or intentional as defined in
Section 11. Termination for Neglect includes termination as the result of
any continuing or repeated problems with Executive's job performance or
conduct after written notice specifying such problem with performance or
conduct, and where such continuing and repeated problems were not
determined to be willful or intentional, or where the conduct was not
deemed to have a material adverse impact on the Association or Company.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated by Neglect unless and until there shall have been sent to
Executive a copy of a resolution duly adopted by a majority of the Board of
Directors of the Association and Company, or either of them (excluding the
Executive in counting the majority if the Executive is then on the board of
directors, and after reasonable notice to Executive and an opportunity for
Executive to be heard before the board of directors), finding that in the
good faith opinion of the board of directors of the Association and
Company, or either of them, Executive engaged in conduct justifying
termination for Neglect and describing specifically the conduct. Executive
shall not have the right to receive any salary or bonus for any period
after termination of employment for Neglect. Executive shall retain any
vested benefits in defined benefit plans, defined contribution plans,
supplemental executive retirement plans, stock option plans, restricted
stock plans, or other such benefits, but shall forfeit any rights that have
not vested.
13. REQUIRED PROVISIONS.
(a) If Executive is suspended and/or temporarily prohibited from
participating in the conduct of Association's or Company's, or either
of their, affairs by a notice served under Section 8(e)(3) or (g)(1)
of the Federal Deposit Insurance Act ("FDIA"), Association's and
Company's obligations under this Agreement shall be suspended as of
the date of service, unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, Association and Company, or
either of them, may, in their discretion, (i) pay Executive all or
part of the compensation withheld while its contract obligations were
suspended and (ii) reinstate (in whole or in part) any of its
obligations that were suspended.
(b) If Executive is removed and/or permanently prohibited from
participating in the conduct of Association's or Company's, or either
of their, affairs by an order issued under Section 8(e)(4) or (g)(1)
of the FDIA, all obligations of Association and Company under this
Agreement shall terminate as of the effective date of the order, but
vested rights of the contracting parties shall not be affected.
(c) If Association or Company is in default (as defined in Section 3
(x)(1) of the FDIA), all obligations under this Agreement shall
terminate as of the date of default, but this paragraph shall not
affect any vested rights of the parties.
(d) All obligations under this Agreement shall be terminated (except to
the extent determined that continuation of the Agreement is necessary
for the continued operation of Association and Company, or either of
them): (i) by the Director of the Office of the Thrift Supervision
(the "Director") or his or her designee at the time the Federal
Deposit Insurance Corporation or the Resolution Trust Corporation
enters into an agreement to provide assistance to or on behalf of the
Association or Company under the authority contained in Section 13(c)
of the FDIA; or (ii) by the Director, or his or her designee at the
time the Director or such designee approves a supervisory merger to
resolve problems related to operation of Association or Company or
when Association and Company, or either of them, is determined by the
Director to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by
such action.
(e) Any payments made to Executive pursuant to the Agreement, or
otherwise, are subject to and conditioned upon compliance with Section
18(k) of the FDIA and any regulations promulgated thereunder.
14. NOTICE.
(a) Any purported termination of Executive's employment under this
Agreement (except by reason of Executive's death) by Association and
Company, or either of them, or by Executive shall be communicated by
Notice of Termination to the other party. For purposes of this
Agreement, "Notice of Termination" means a written notice which shall
state the specific termination provision in this Agreement relied upon
and the effective date of the termination of Executive's employment.
(b) For purposes of this Agreement, "Date of Termination" means the
effective date of the termination of Executive's employment specified
in the Notice of Termination.
15. NONCOMPETITION AND CONFIDENTIALITY.
(a) During the term of Executive's employment under this Agreement and for
a period of one year following an Event of Termination as defined in
Section 7(a) of this Agreement, Executive will not compete with
Association and/or Company in any city, town or county in which
Association and/or Company has an office or has filed an application
for regulatory approval to establish an office. Executive agrees that
during such period and within said cities, towns and counties,
Executive shall not work for, advise, consult, or otherwise serve
with, directly or indirectly, any entity whose business materially
competes with the depository, lending, or other business activities of
the Association and/or Company. The parties, recognizing that
irreparable injury will result to Association and/or Company in the
event of Executive's breach of this Section 14(a), agree that in the
event of any such breach or threatened breach by Executive,
Association and/or Company will be entitled, in addition to any other
remedies and damages available, to a temporary restraining order and a
preliminary and permanent injunction to restrain the violation or
threatened violation hereof by Executive and Executive's partners,
agents, employers, employees, and all persons acting for or with
Executive. Executive represents and admits that in the event of a
termination of his employment under this Agreement, Executives'
experience and capabilities are such that Executive can obtain
employment in a business engaged in other lines and/or of a different
nature that Association's and/or Company, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning
a livelihood. Nothing herein may be construed as prohibiting
Association and/or Company from pursuing any other remedies available
to Association and Company for such breach or threatened breach,
including recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of Association
and Company, or either of them, and affiliates of either, as it may
exist from time to time, is a valuable, special and unique asset of
the business of Association and Company. Executive will not, at any
time during or after the term of his employment under this Agreement,
use or disclose to any person or entity for any reason whatsoever any
knowledge of the past, present, planned, or considered business
activities of Association and Company, or either of them, or
affiliates of either. Notwithstanding the foregoing, Executive may
disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which were not derived from the business
plans and activities of Association or Company. This provision is in
addition to and not in lieu of any duties or obligations of Executive
under any applicable statute or common law. In the event of a breach
or threatened breach by Executive of the provisions of this Section,
Association and Company, or either of them, will be entitled to a
temporary restraining order and a preliminary and permanent injunction
restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business
activities of Association and Company, or either of them or affiliates
of either. Nothing herein will be construed as prohibiting Association
and Company, or either of them, from pursuing any other remedies
available to Association or Company for such breach or threatened
breach, including the recovery of damages from Executive.
16. EFFECT ON PRIOR AGREEMENTS.
This agreement contains the entire understanding between the parties
concerning the subject matter hereof and supersedes any prior
agreements (express or implied, oral or written) among Association,
Company, and Executive concerning the subject matter of this
Agreement.
17. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of any successor or assigns
of the Association or Company. In case of any termination in which a
successor would not by the foregoing sentence or operation of law be
bound by this Agreement, Company shall require such successor to
expressly and unconditionally assume this Agreement and perform
Company's obligations under this Agreement.
18. MODIFICATION AND WAIVER
(a) This Agreement may be modified or amended only by a written instrument
signed by the parties.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by a written instrument signed by
the part charged with such waiver or estoppel. No such written waiver
shall be deemed a continuing waiver unless specifically stated
therein, and each such waiver shall operate only as to the specific
term or condition waived and shall not constitute a waiver of such
term or condition for the future as to any act other than that
specifically waived.
19. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any
other provision of this Agreement or any part of such provision not
held so invalid, and each such other provision and part thereof shall
to the full extent consistent with law continue in full force and
effect.
20. HEADINGS FOR REFERENCE ONLY.
The heading of sections herein are included solely for convenience of
reference and shall not control the meaning or interpretation of any
of the provisions of this Agreement.
21. GOVERNING LAW.
This Agreement shall be governed by the laws of the state of Oregon.
22. ARBITRATION.
Any dispute or controversy arising out of or in any way related to
this Agreement or Executive's employment under this Agreement or the
termination of that employment, except a claim by Association and/or
Company of a breach or threatened breach by Executive of any of the
provisions of Section 14, shall be submitted to binding arbitration,
conducted in Portland, Oregon, in accordance with the then current
rules of the American Arbitration Association. Such arbitration shall
be the exclusive remedy for any such dispute or controversy, and
judgment may be entered on the arbitrator's award in any court having
jurisdiction.
23. ATTORNEY FEES.
If any action (including any arbitration) is brought to enforce or
interpret the terms of this Agreement or any part of it, the
prevailing party shall be entitled to recover from the other party its
reasonable attorney fees and costs incurred therein, including all
attorney fees and costs on appeal.
24. INDEMNIFICATION.
Association and Company, or either of them, shall provide Executive
(including his heirs, executors and administrators) with coverage
under a standard directors' and officers' liability insurance policy
at its expense, or in lieu thereof, shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted
under law against all expenses and liabilities reasonably incurred by
him in connection with or arising out of any action, suit, or
proceedings in which he may be involved by reason of his having been a
director or officer of Association or Company, or either of them
(whether or not he continues to be a director or officer at the time
of incurring such expenses or liabilities), such as expenses and
liabilities to include without limitation judgment, court costs, and
attorney fees and the cost of reasonable settlements.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by a duly authorized officer or director of the
Association and the Company, and Executive has signed this Agreement,
all on the 9th day of May, 2003.
KLAMATH FIRST BANCORP, INC. KLAMATH FIRST FEDERAL SAVINGS
AND LOAN ASSOCIATION
BY: /s/ Rodney N. Murray BY: /s/ Rodney N. Murray
Rodney N. Murray, Chairman Rodney N. Murray, Chairman
/s/ Nina G. Drake /s/ Kermit K. Houser
WITNESS: Kermit K. Houser
Exhibit 10(b)
FIRST AMENDMENT TO AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This FIRST AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this
"Agreement") is made and entered into on July 14, 2003, by and between Klamath
Federal Savings and Loan Association ("Association"), Klamath First Bancorp,
Inc., ("Company") and the undersigned executive officer of Association and
Company (the "Executive").
WHEREAS, Association, Company and Executive entered into an Amended and
Restated Employment Agreement dated May 9, 2003, (the "Employment Agreement");
WHEREAS, Company has entered into an Agreement and Plan of Merger dated as
of July 14, 2003, (the "Merger Agreement") with Sterling Financial Corporation
("Sterling") with respect to a proposed transaction (the "Transaction") whereby
Sterling will acquire all of the outstanding shares of Company common stock in a
stock merger;
WHEREAS, Association and Company desire to enter into this Agreement to
facilitate the Transaction; and
WHEREAS, the Executive desires to enter into this Agreement to facilitate
the Transaction so as to enable his change in control of benefits to be
triggered under the Employment Agreement and his Executive Salary Continuation
Agreement, and to enhance the value of shares of common stock of Company owned
by the Executive and the value of his stock options to acquire common stock of
Company.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed by the parties as follows:
1. Capitalized terms used herein, to the extent not defined otherwise, shall
have the meaning ascribed to them in the Employment Agreement.
2. Section 8(c) of the Employment Agreement is amended in full as follows:
"Upon the occurrence of a Change in Control arising from or related to the
Merger Agreement, Association shall pay the Executive as severance pay or
liquidated damages, or both (the "Base Severance Amount"), an amount equal
to $400,000. In the event that all conditions to closing under the Merger
Agreement have been satisfied during calendar year 2003, then Association
shall make payment of the Base Severance Amount plus the Additional
Severance Amount (as defined below) to the Executive on December 31, 2003.
In the event such closing conditions are not satisfied during calendar year
2003, then the payments contemplated herein shall be made within 10 days
after consummation of the merger contemplated by the Merger Agreement.
Notwithstanding the foregoing, if the Executive enters into a new written
employment agreement with Sterling or Sterling Savings Bank prior to
December 31, 2003 (but effective upon completion of the merger contemplated
by the Merger Agreement), then the Severance Amount and Additional
Severance Amount shall not be paid pursuant to the terms hereof and any
severance to be provided to the Executive, if any, shall be set forth in
such new written employment agreement. In addition, upon the occurrence of
a Change in Control arising from or related to the Merger Agreement,
Association shall pay the Executive as additional severance the amount of
$5,750 (the "Additional Severance Amount") in lieu of any obligation to pay
the Executive the value of employer contributions that would have been made
on the Executive's behalf over the remaining term of the agreement to any
tax-qualified retirement plan. The Additional Severance Amount shall be
paid at the time the Base Severance Amount is paid. Upon the Executive's
termination of service in connection with or following a Change in Control
arising from or relating to the Merger Agreement, Sterling Savings Bank, as
successor-in-interest to the Association, shall provide the Executive with
continued life, medical, dental and disability coverage as is then provided
by Sterling Savings Bank to its full-time employees, as the same may be
changed from time to time, during the 36 month period next following the
Executive's Date of Termination with the cost to be absorbed by the
Executive being equal to the lesser of (i) the employee cost of coverage
currently being borne by the Executive or (ii) the employee cost of
coverage borne by full-time employees of Sterling Savings Bank receiving
the same coverage; provided if the cost of coverage to be borne by the
Executive is determined under subpart (i), then such cost shall be subject
to pro rata adjustment based upon the pro rata adjustment in cost of
coverage that is borne by full-time employees of Sterling Savings Bank
receiving the same coverage after completion of the merger contemplated by
the Merger Agreement."
3. New Section 24 is added to the Employment Agreement as follows:
"24. Long Term Medical Care. The Executive shall not have a right to
participate in the long term medical care program to be implemented by
Association."
4. The Employment Agreement shall be further amended by adding thereto an
"Exhibit A to the Employment Agreement" in the form attached hereto as
Appendix I.
5. Except as specifically set forth herein, the Employment Agreement shall
continue in full force and effect. To the extent that any provision
contained in this Agreement is inconsistent with any of the provisions of
the Employment Agreement, including but not limited to, Section 8(b)
thereof, the provisions contained in this Agreement shall be controlling.
6. In the event the Merger Agreement is terminated, then this Agreement shall
have no further force or effect.
7. This Agreement may be executed in counterparts by the parties hereto, each
of which when so executed shall be deemed an original and all of which,
taken together, shall constitute one and the same agreement.
The parties have entered this Agreement on July 14, 2003.
KLAMATH FEDERAL SAVINGS AND LOAN ASSOCIATION
By: /s/ Craig M Moore
Craig M Moore SVP/Chief Auditor
By: /s/ Marshall J. Alexander
Marshall J. Alexander EVP/CFO
KLAMATH FIRST BANCORP, INC.
By: /s/ Craig M Moore
Craig M Moore SVP/Chief Auditor
EXECUTIVE:
By: /s/ Kermit K. Houser
Kermit K. Houser President/CEO
Exhibit 10(c)
EXECUTIVE SALARY CONTINUATION AGREEMENT
THIS AGREEMENT, entered into and effective this First day of January, 2003,
by and between Klamath First Federal Savings and Loan Association, a Federal
Savings and Loan Association (hereinafter referred to as the "Employer"), and
Kermit K. Houser, an Employee of the Employer (hereinafter referred to as the
"Employee"), who resides in the State of Oregon.
W I T N E S S E T H:
WHEREAS, the Employee is an employee of the Employer and, since January 1,
2003 has become eligible to participate in the Executive Salary Continuation
Plan represented by this Agreement (the "Plan");
WHEREAS, the Employer desires to establish a compensation benefits program
as a fringe benefit for certain officers of the Employer in order to attract and
retain individuals with extensive and valuable experience in the banking
industry;
WHEREAS, the Employee's experience and knowledge of the affairs of the
Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the Employer to
provide the Employee with certain benefits, on the terms and conditions set
forth herein, in order to reasonably induce the Employee to remain in the
Employer's employment and to compensate the Employee for valuable services
heretofore rendered to the Employer; and
WHEREAS, the Employee and the Employer wish to specify in writing the terms
and conditions upon which this additional compensatory incentive will be
provided to the Employee, or to the Employee's spouse or the Employee's
designated beneficiaries, as the case may be;
FURTHERMORE, it is the intent of the parties hereto that this Employee Plan
be considered an unfunded arrangement maintained primarily to provide
supplemental retirement benefits for the Employee, and be considered a
non-qualified benefit plan for purposes of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). The Employee is fully advised of the
Employer's financial status and the design and operation of this benefit plan;
and
NOW, THEREFORE, in consideration of services performed in the past and to
be performed in the future as well as of the mutual promises and covenants
herein contained it is agreed as follows:
I. EMPLOYMENT
Although this Agreement is intended to provide the Employee with an
additional incentive to remain in the employ of the Employer, this
Agreement shall not be deemed to constitute a contract of employment
between the Employee and the Employer nor shall any provision of this
Agreement restrict or expand the right of the Employer to terminate the
Employee's employment. This Agreement shall have no impact or effect upon
any separate written Employment Agreement which the Employee may have with
the Employer, it being the parties' intention and agreement that unless
this Agreement is specifically referenced in said Employment Agreement (or
any modification thereto), this Agreement (and the Employer's obligations
hereunder) shall stand separate and apart from, and shall have no effect
upon, or be affected by, the terms and provisions of said Employment
Agreement.
Except as otherwise set forth in this Agreement, the term "Employer" shall
mean Klamath First Federal Savings and Loan Association; provided, further,
that for purposes of this Agreement, the term "Employer" shall mean Klamath
First Bancorp, Inc. and its subsidiaries and affiliated entities, including
any parent holding company and its subsidiaries.
II. FRINGE BENEFITS
The salary continuation benefits provided by this Agreement are granted by
the Employer as a fringe benefit to the Employee and are not part of any
salary reduction plan or an arrangement deferring a bonus or a salary
increase. The Employee has no option to take any current payment or bonus
in lieu of these salary continuation benefits except as set forth
hereinafter.
III. retirement date and early retirement date
A. Retirement Date:
The term "Retirement" or "Retires" shall refer to the date which the
Employee attains sixty-five ("65") years of age and acknowledges in
writing to the Employer to be the last day the Employee will provide
any significant personal services, whether as an employee or
independent consultant or contractor, to the Employer.
B. Early Retirement Date:
The term "Early Retirement Date" shall mean the Retirement, as defined
above, of the Employee on, or after the Employee achieves fifty-five
(55) years of age, but has not yet reached sixty-five (65) years of
age.
IV. retirement benefit and early retirement benefit
A. Retirement Benefit:
If the Employee shall remain in the continuous employment of the
Employer until attaining age sixty-five (65), the Employee shall be
entitled to be paid the "Normal Retirement Benefit" specified in
Schedule A, payable in substantially equal monthly installments on the
first day of each month, beginning with the month following the month
in which the Employee Retires (or on such later date as may be
mutually agreed upon by the Employee and the Employer in advance of
said Retirement date) payable until the Employee's death. After
commencement of payments, the Normal Retirement Benefit will increase
by two percent (2%) per year.
B. Early Retirement Benefit:
The Employee shall have the right to retire on a date which
constitutes an Early Retirement Date as defined in Subparagraph III
(B) above. In the event the Employee elects to Retire on a date which
constitutes an Early Retirement Date, and said early retirement is not
pursuant to a Change in Control as defined in paragraph VI below, the
Employee shall be entitled to be paid the "Normal Retirement Benefit"
specified in Schedule A for the date the Retirement occurs, but
reduced by a factor of one-half of one percent (.5%) per month for
each month or portion thereof that the Early Retirement occurs prior
to the Retirement Date. The benefit shall be payable in substantially
equal monthly installments on the first day of each month, beginning
with the month following the month in which the Early Retirement Date
occurs (or on such later date as may be mutually agreed upon by the
Employee and the Employer in advance of such Early Retirement Date).
After commencement of payments, the Early Retirement benefit will
increase by two percent (2%) per year.
Example: If the Early Retirement Date occurs on the Employee's 63rd
birthday and if the Retirement Date in Section III.A. above is at age
65, the Normal Retirement Benefit specified in Schedule "A" as of the
Employee's 63rd birthday would be reduced by 12% [.5% x 24 months].
V. other termination of EMPLOYMENT and DISABILITY
A. Payments in the Event Employment Is Terminated Prior to Retirement:
The Employer reserves the right to terminate the Employee's
employment, with or without cause but subject to any written
employment agreement which may then exist, at any time prior to the
Employee's Retirement. In the event that the employment of the
Employee shall be terminated, other than by reason of death,
Disability or Retirement, prior to the Employee's attaining sixty-five
(65) years of age, then this Agreement shall terminate on the date of
such termination of employment; provided, however, that the Employee
shall be entitled to the following benefits as may be applicable
depending upon the circumstances surrounding the Employee's
termination:
(i) Termination for Other Than Disability, Change in Control or
Cause:
If the Employee's employment is terminated by the Employee or by the
Employer for any reason other than Disability, "Change in Control" or
"Termination for Cause," the Employee shall be entitled to be paid the
"Normal Retirement Benefit" specified in Schedule A as of the date of
termination, payable in substantially equal monthly installments on
the first day of each month, beginning with the month following the
month in which the Employee attains sixty-five (65) years of age (or
on such later date as may be mutually agreed upon by the Employee and
the Employer not less than fifteen (15) days prior to such
commencement date) payable until the Employee's death, and shall
increase by two percent (2%) per year. Alternatively, upon achieving
age fifty-five (55) but before achieving age sixty-five (65), the
Employee may choose to receive the Early Retirement Benefit with the
reductions from the "Normal Retirement Benefit" as of the date of
termination, and as described in Section IV.B. of this Agreement. The
benefit shall be payable in substantially equal monthly installments
on the first day of each month, beginning with the month following the
month in which the Early Retirement Date occurs (or on such later date
as may be mutually agreed upon by the Employee and the Employer not
less than fifteen (15) days prior to such commencement date) payable
to the Employee's death, and shall increase by two percent (2%) per
year.
(ii) Termination for Cause:
If the Employee suffers a "Termination for Cause", as defined
herein below, the Employee shall forfeit any and all rights and
benefits the Employee may have under the terms of this Agreement
and shall have no right to be paid any of the amounts which would
otherwise be due or paid to the Employee by the Employer pursuant
to the terms of this Agreement. The term "Termination for Cause"
shall have the definition provided in the Employee's Employment
Agreement, as amended from time to time with the Employer. If the
Employee has no Employment Agreement with the Employer,
"Termination for Cause" shall include termination because of the
Employee's personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, or willful violation of any
law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order. For purposes
of this Section, no act, or the failure to act, on Employee's
part shall be "willful" unless done, or omitted to be done, not
in good faith and without reasonable belief that the action or
omission was in the best interest of the Association or its
affiliates. Notwithstanding the foregoing, the Employee shall not
be deemed to have been terminated for Cause unless and until
there shall have been delivered to the Employee a copy of a
resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the
Board called and held for that purpose (after reasonable notice
to the Employee and an opportunity, together with counsel, to be
heard before the Board), finding that in the good faith opinion
of the Board, the Employee was guilty of conduct justifying
termination for Cause and specifying the reasons thereof.
B. Payment in the Event of Disability Prior to Retirement:
The Employee shall, in connection with acceptance of this Agreement,
elect below either the "Lump Sum Payment" or the "Annuity for Life"
option in the event the Employee becomes disabled at any time after
the Effective Date of this Agreement but prior to Retirement. The term
"Disability" or "Disabled" shall have the same meaning given such
terms in any policy of disability insurance maintained by the Employer
for the benefit of employees including the Employee. In the absence of
such a policy, which extends coverage to the Employee in the event of
disability, the terms shall mean bodily injury or disease (mental or
physical) which wholly and continuously prevents the performance of
the Employee's duties to the Employer for at least one hundred twenty
(120) days.
(i) Lump Sum Payment.
The Employee shall be entitled to be paid the lump sum
"Disability Benefit" specified in Schedule A, determined as of
the earlier of the date of disability or date the Employee
otherwise terminated service with the Employer other than for
Cause. The lump sum shall be payable 60 days from the date the
Employer has received a written request to commence benefits,
along with documentation showing that the Employee has become
disabled.
(ii) Annuity for Life.
The Employee shall be entitled to be paid an annuity for the
Employee's life. The Employer shall purchase such an annuity from
an insurance company with an A. M. Best or Moody's rating of no
less than AA and using the amount of "Disability Benefit"
specified in Schedule A, determined as of the earlier of the date
of disability or the date the Employee otherwise terminated
service with the Employer other than for Cause. The Employer
shall purchase the annuity within 60 days from the date the
Employer has received a written request to commence benefits,
along with documentation showing that the Employee has become
Disabled. Nevertheless, if the amount of the applicable
"Disability Benefit" specified in Schedule A is $50,000.00 or
less, the payment shall be as a lump sum to the Employee and not
the purchase of an annuity for life.
(iii)Employee Election of Disability Benefit.
I elect to receive the following Disability Benefit (Please sign
on applicable line):
______________________ Lump Sum Benefit.
__________X____________ Annuity for Life.
VI. CHANGE OF CONTROL
A. Definition of Change In Control:
A "Change in Control" of Klamath First Bancorp, Inc. (the "Company")
or Klamath First Federal Savings and Loan Association (the
"Association") shall be deemed to occur if and when (a) an offeror
other than the Company purchases shares of the common stock of the
Company or the Association pursuant to a tender or exchange offer for
such shares, (b) any person (as such term is used in Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934) is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
or the Association representing 25% or more of the combined voting
power of the Company's or the Association's then outstanding
securities, (c) the membership of the board of directors of the
Company or the Association changes as the result of a contested
election, such that individuals who were directors at the beginning of
any twenty-four month period (whether commencing before or after the
effective date of this Agreement) do not constitute a majority of the
Board at the end of such period, or (d) shareholders of the Company or
the Association approve a merger, consolidation, sale or disposition
of all or substantially all of the Company's or the Association's
assets, or a plan of partial or complete liquidation.
B. Termination by the Employer on Account of or After a Change in
Control:
In the event the Employee's employment with the Employer is terminated
by the Employer in connection with a Change in Control, the Employee
shall be immediately vested in the "Normal Retirement Benefit"
specified in Schedule A for the date the Employee achieves age
sixty-five (65). The Employee shall be entitled to be paid the "Change
in Control Benefit" specified in Schedule A, in substantially equal
monthly installments on the first day of each month, beginning no
sooner than the month following the month in which the Employee
attains age fifty-five (55), as requested in writing by the Employee
and delivered to the Employer or its successor thirty (30) days prior
to the commencement of installment payments; provided, however, that
in the event the Employee does not request a commencement date as
specified, such installments shall be paid on the first day of each
month, beginning with the month following the month in which the
Employee attains sixty-five (65) years of age. Upon the commencement
of payments, the installments shall be payable until the Employee's
death, and shall increase by two percent (2%) per year.
A termination shall be deemed to be in connection with a Change in
Control if, within two (2) years following the occurrence of a Change
in Control: (a) the Employee's employment with the Employer is
terminated by the Employer other than a Termination for Cause; or (b)
by reason of the Employer's actions any adverse change occurs in the
scope of the Employee's position, material responsibilities and
duties, salary, benefits or location of employment; or (c) the
Employer causes an event to occur which reasonably constitutes or
results in a demotion, loss of title, a significant diminution of
responsibilities or authority, or a constructive termination (by
forcing a resignation or otherwise) of the Employee's employment.
VII. benefit accounting
The Employer shall account for this benefit using the regulatory accounting
principles of the Employer's primary federal regulator. The Employer shall
establish an accrued liability retirement account for the Employee into
which appropriate reserves shall be accrued.
VIII. restrictions on funding
The Employer shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Employee Plan.
The Employee, her or his beneficiary (ies), or any successor in interest
shall be and remain simply a general creditor of the Employer in the same
manner as any other creditor having a general claim for matured and unpaid
compensation. The Employer reserves the absolute right, at its sole
discretion, to either fund the obligations undertaken by this Employee Plan
or to refrain from funding the same and to determine the extent, nature and
method of such funding. Should the Employer elect to fund this Employee
Plan, in whole or in part, through the purchase of life insurance, mutual
funds, disability policies or annuities, the Employer reserves the absolute
right, in its sole discretion, to terminate such funding at any time, in
whole or in part. At no time shall any Employee be deemed to have any lien,
right, title or interest in any specific funding investment or assets of
the Employer.
If the Employer elects to invest in a life insurance, disability or annuity
policy on the life of the Employee, then the Employee shall assist the
Employer by freely submitting to a physical exam and supplying such
additional information necessary to obtain such insurance or annuities.
Notwithstanding anything hereinabove to the contrary, the Employer and the
Employee acknowledge and agree that, in the event of a Change in Control
and at the written request of the Employee, the Employer shall establish,
not later than the effective date of the Change in Control, a Rabbi Trust
or multiple Rabbi Trusts (the "Trust" or "Trusts") upon such terms and
conditions as the Employer in its sole discretion deems appropriate and in
compliance with applicable provisions of the Internal Revenue Code of 1986,
as amended (the "Code") in order to permit the Employer to make
contributions and/or transfer assets to the Trust or Trusts to discharge
its obligations pursuant to this Agreement. The principal of the Trust or
Trusts and any earnings thereon shall be held separate and apart from other
funds of the Employer to be used exclusively for discharge of the
Employer's obligations pursuant to this Agreement and shall continue to be
subject to the claims of the Employer's general creditors until paid to the
Employee or its beneficiaries in such manner and at such times as specified
in this Agreement
IX. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
The Employee shall have no power or right to transfer, assign,
anticipate, hypothecate, mortgage, commute, modify or otherwise
encumber in advance any of the benefits payable hereunder nor shall
any of said benefits be subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by the Employee
nor be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise. In the event the Employee attempts
assignment, commutation, hypothecation, transfer or disposal of the
benefits hereunder, the Employer's liabilities shall forthwith cease
and terminate.
B. Binding Obligation of the Employer and any Successor in Interest:
The Employer shall not merge or consolidate into or with another
Employer or sell substantially all of its assets to another Employer,
firm or person until such Employer, firm or person expressly agree, in
writing, to assume and discharge the duties and obligations of the
Employer under this Employee Plan. This Employee Plan shall be binding
upon the parties hereto, their successors, beneficiaries, heirs and
personal representatives.
C. Amendment or Revocation:
It is agreed by and between the parties hereto that, during the
lifetime of the Employee, this Employee Plan may be amended or revoked
at any time or times, in whole or in part, by the mutual written
consent of the Employee and the Employer.
D. Gender:
Whenever in this Employee Plan words are used in the masculine or
neuter gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.
E. Effect on Other Employer Benefit Plans:
Nothing contained in this Employee Plan shall affect the right of the
Employee to participate in or be covered by any qualified or
non-qualified pension, profit-sharing, group, bonus or other
supplemental compensation or fringe benefit plan constituting a part
of the Employer's existing or future compensation structure.
F. Headings:
Headings and subheadings in this Employee Plan are inserted for
reference and convenience only and shall not be deemed a part of this
Employee Plan.
G. Applicable Law:
The laws of the State of Oregon shall govern the validity and
interpretation of this Agreement.
H. Partial Invalidity:
If any term, provision, covenant, or condition of this Employee Plan
is determined by an arbitrator or a court, as the case may be, to be
invalid, void, or unenforceable, such determination shall not render
any other term, provision, covenant, or condition invalid, void, or
unenforceable, and the Employee Plan shall remain in full force and
effect notwithstanding such partial invalidity.
I. Not a Contract of Employment:
This Agreement shall not be deemed to constitute a contract of
employment between the parties hereto, nor shall any provision hereof
restrict the right of the Employer to discharge the Employee, or
restrict the right of the Employee to terminate employment.
J. Notices:
Any notice required or permitted of either the Employee or the
Employer under this Agreement shall be deemed to have been duly given,
if by personal delivery, upon the date received by the party or its
authorized representative; if by facsimile, upon transmission to a
telephone number previously provided by the party to whom the
facsimile is transmitted as reflected in the records of the party
transmitting the facsimile and upon reasonable confirmation of such
transmission; and if by mail, on the third day after mailing via U.S.
first class mail, registered or certified, postage prepaid and return
receipt requested, and addressed to the party at the address given
below for the receipt of notices, or such changed address as may be
requested in writing by a party.
If to the Employer: Klamath First Bancorp, Inc.
540 Main Street
Klamath Falls, Oregon 97601-6047
Attention: Human Resources
If to the Employee: Kermit K. Houser
10131 Mourning Dove
Klamath Falls, OR 97601
K. Opportunity To Consult With Independent Advisors:
The Employee acknowledges that the Employee has been afforded the
opportunity to consult with independent advisors of his or her
choosing including, without limitation, accountants or tax advisors
and counsel regarding both the benefits granted to the Employee under
the terms of this Agreement and the (i) terms and conditions which may
affect the Employee's right to these benefits and (ii) personal tax
effects of such benefits including, without limitation, the effects of
any federal or state taxes, Section 280G of the Code, and any other
taxes, costs, expenses or liabilities whatsoever related to such
benefits, which in any of the foregoing instances the Employee
acknowledges and agrees shall be the sole responsibility of the
Employee notwithstanding any other term or provision of this
Agreement. The Employee further acknowledges and agrees that the
Employer shall have no liability whatsoever related to any such
personal tax effects or other personal costs, expenses, or liabilities
applicable to the Employee and further specifically waives any right
for the Employee and his or her heirs, beneficiaries, legal
representatives, agents, successors, and assigns to claim or assert
liability on the part of the Employer related to the matters described
above in this subparagraph. The Employee further acknowledges and
agrees that the Employee has read, understands and consents to all of
the terms and conditions of this Agreement, and that the Employee
enters into this Agreement with a full understanding of its terms and
conditions.
X. ADMINISTRATIVE AND CLAIMS PROVISION
A. Named Fiduciary and Plan Administrator:
The "Named Fiduciary and Plan Administrator" of this Employee Plan
shall be Klamath First Bancorp, Inc., until its resignation or removal
by the Board. As Named Fiduciary and Plan Administrator, the Employer
shall be responsible for the management, control and administration of
the Employee Plan. The Named Fiduciary may delegate to others certain
aspects of the management and operation responsibilities of the
Employee Plan including the employment of advisors and the delegation
of ministerial duties to qualified individuals.
B. Claims Procedure:
In the event a dispute arises over benefits under this Employee Plan
and benefits are not paid to the Employee and the claimant feels he is
entitled to receive such benefits, then a written claim must be made
to the Named Fiduciary and Plan Administrator named above within
forty-five (45) days from the date payments are refused. The Named
Fiduciary and Plan Administrator shall review the written claim and if
the claim is denied, in whole or in part, they shall provide in
writing within forty-five (45) days of receipt of such claim the
specific reasons for such denial, reference to the provisions of this
Employee Plan upon which the denial is based and any additional
material or information necessary to perfect the claim. Such written
notice shall further indicate the additional steps to be taken by
claimants if a further review of the claim denial is desired. A claim
shall be deemed denied if the Named Fiduciary and Plan Administrator
fail to take any action within the aforesaid forty-five-day period.
If claimants desire a second review they shall notify the Named
Fiduciary and Plan Administrator in writing within forty-five (45)
days of the first claim denial. Claimants may review this Employee
Plan or any documents relating thereto and submit any written issues
and comments it may feel appropriate. In their sole discretion, the
Named Fiduciary and Plan Administrator shall then review the second
claim and provide a written decision within forty-five (45) days of
receipt of such claim. This decision shall likewise state the specific
reasons for the decision and shall include reference to specific
provisions of the Plan Agreement upon which the decision is based.
C. Arbitration:
All claims, disputes and other matters in question arising out of or
relating to this Agreement or the breach or interpretation thereof,
other than those matters which are to be determined by the Employer in
its sole and absolute discretion, shall be resolved by binding
arbitration before a representative member, selected by the mutual
agreement of the parties, of the Judicial Arbitration and Mediation
Services, Inc. ("JAMS"). In the event JAMS is unable or unwilling to
conduct the arbitration provided for under the terms of this
Paragraph, or has discontinued its business, the parties agree that a
representative member, selected by the mutual agreement of the
parties, of the American Arbitration Association ("AAA"), shall
conduct the binding arbitration referred to in this Paragraph. Notice
of the demand for arbitration shall be filed in writing with the other
party to this Agreement and with JAMS (or AAA, if necessary). In no
event shall the demand for arbitration be made after the date when
institution of legal or equitable proceedings based on such claim,
dispute or other matter in question would be barred by the applicable
statute of limitations. The arbitration shall be subject to such rules
of procedure used or established by JAMS, or if there are none, the
rules of procedure used or established by AAA. Any award rendered by
JAMS or AAA shall be final and binding upon the parties, and as
applicable, their respective heirs, beneficiaries, legal
representatives, agents, successors and assigns, and may be entered in
any court having jurisdiction thereof. Any arbitration hereunder shall
be conducted in Klamath Falls, Oregon, unless otherwise agreed to by
the parties.
D. Attorneys Fees:
In the event of any arbitration or litigation concerning any
controversy, claim or dispute between the parties hereto, arising out
of or relating to this Agreement or the breach hereof, or the
interpretation hereof, the prevailing party shall be entitled to
recover from the non-prevailing party reasonable expenses, attorneys'
fees and costs incurred in connection therewith or in the enforcement
or collection of any judgment or award rendered therein. The
"prevailing party" means the party determined by the arbitrator(s) or
court, as the case may be, to have most nearly prevailed, even if such
party did not prevail in all matters, not necessarily the one in whose
favor a judgment is rendered.
XI. SECTION 280G BENEFITS ADJUSTMENT
If all or any portion of the amounts payable to the Employee under this
Agreement, either alone or together with other payments which the Employee
has the right to receive from the Employer, constitute "excess parachute
payments" within the meaning of Section 280G of the Code, that are subject
to the excise tax imposed by Section 4999 of the Code (or similar tax
and/or assessment), the Employer (and its successor) and the Employee each
agree to pay their share of any taxes that may be imposed as a result of
payments made pursuant to this Agreement; provided, however, that Employer
and Employee shall cooperate with each other and use all reasonable efforts
to minimize to the fullest extent possible the amount of excise tax imposed
by Section 4999 of the Code. If at a later date it is determined (pursuant
to final regulations or published rulings of the Internal Revenue Service,
final judgment of a court of competent jurisdiction, or otherwise) that the
amount of excise taxes payable by the Employee is greater than the amount
initially so determined, then the Employee shall pay an amount equal to the
sum of such additional excise taxes and any interest, fines and penalties
resulting from such underpayment. The determination of the amount of any
such excise taxes shall be made by the independent accounting firm employed
by the Employer immediately prior to the change in control or such other
independent accounting firm or advisor as may be mutually agreeable to
Employer and Executive in the exercise of their reasonable good faith
judgment.
In witness whereof, the parties hereto acknowledge that each has carefully
read this Agreement and executed the original thereof on the first day set forth
hereinabove, and that, upon execution, each has received a conforming copy.
Klamath First Federal Savings and Loan Association
/s/ Rodney N. Murray /s/ Nina G. Drake
Rodney Murray Witness
Chairman of the Board
/s/ Kermit K. Houser /s/ Nina G. Drake
Kermit K. Houser Witness
Exhibit 10(d)
EMPLOYMENT AGREEMENT
Amended and Restated May 19, 2003
FOR SAMPLE EXECUTIVE
The Employment Agreements are substantially the same for all Executives except
for the following:
Salary Severence
----------------- --------------
Marshall J. Alexander $138,000 2.00 times
Ben A.Gay $138,000 2.00 times
Frank X. Hernandez $108,000 1.50 times
Craig M Moore $117,000 1.50 times
James E. Essany $ 95,000 1.50 times
Walter F. Dodrill $119,000 1.50 times
Nina G. Drake $ 99,000 1.50 times
Jeffrey D. Schlenker $ 45,000 1.50 times
Exhibit 10(d)
EMPLOYMENT AGREEMENT
Amended and Restated May 19, 2003
THIS AGREEMENT is made effective as of October 1, 2002, by and between
KLAMATH FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION (the "Association"), Klamath
Falls, Oregon; KLAMATH FIRST BANCORP, INC. (the "Company"), an Oregon
corporation; and (the "Executive").
WHEREAS, the Association wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Association
on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
Senior Vice President of the Association. During said period, Executive also
agrees to serve, if elected, as an officer of the Company or any subsidiary or
affiliate of the Company or the Association.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter. Commencing on the first anniversary date, and
continuing at each anniversary date thereafter, the Board of Directors of the
Association (the "Board") or its Compensation Committee may extend the Agreement
for an additional year. Prior to the extension of the Agreement as provided
herein, the Board of Directors of the Association will review the Executive's
performance evaluation for purposes of determining whether to extend the
Agreement, and the results thereof shall be included in the minutes of the
Board's meeting.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Association; provided, however, that, with the
approval of the Board, as evidenced by a resolution of such Board, from time to
time, Executive may serve, or continue to serve, on the boards of directors of,
and hold any other offices or positions in, companies or organizations, which,
in such Board's judgment, will not present any conflict of interest with the
Association, or materially affect the performance of Executive's duties pursuant
to this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Sections 1 and 2. The
Association shall pay Executive as compensation a salary of {"Executive's
Salary} per year ("Base Salary") effective 11/1/2002. Such Base Salary shall be
payable in accordance with the customary payroll practices of the Association.
During the period of this Agreement, Executive's Base Salary shall be reviewed
at least annually; the first such review will be made no later than one year
from the date of this Agreement. Such review shall be conducted by the Board or
its Compensation Committee, and the Board may increase Executive's Base Salary.
In addition to the Base Salary provided in this Section 3(a), the Association
shall provide Executive at no cost to Executive with all such other benefits as
are provided uniformly to regular salaried employees of the Association.
(b) The Association will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Association will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would adversely affect Executive's rights or
benefits thereunder. However, changes in Association-sponsored group insurance
plan premiums, deductibles, co-payments and related coverage limits or
conditions are excluded from the prior sentence for any such change which is
consistently applied to or available to regular salaried Association employees.
Without limiting the generality of the foregoing provisions of this Subsection
(b), Executive will be entitled to participate in or receive benefits under any
employee benefit plans including, but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plan, medical coverage or any other employee benefit plan or
arrangement made available by the Association in the future to its senior
executives and key management employees, subject to, and on a basis consistent
with, the terms, conditions and overall administration of such plans and
arrangements. Executive will be entitled to incentive compensation and bonuses
as provided in any plan, or pursuant to any arrangement of the Association, in
which Executive is eligible to participate. Nothing paid to the Executive under
any such plan or arrangement will be deemed to be in lieu of other compensation
to which the Executive is entitled under this Agreement, except as provided
under Section 5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the Association shall pay or reimburse Executive for all reasonable
travel and other obligations under this Agreement and may provide such
additional compensation in such form and such amounts as the Board may from time
to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Association of Executive's full-time employment hereunder for
any reason other than a Change in Control, as defined in Section 5(a) hereof;
disability, as defined in Section 6(a) hereof; death; or retirement, as defined
in Section 7 hereof; (ii) Executive's resignation from the Association's employ,
upon (A) unless consented to by the Executive, a material change in Executive's
function, duties, or responsibilities, which change would cause Executive's
position to become one of lesser responsibility, importance, or scope from the
position and attributes thereof described in Sections 1 and 2, above, (any such
material change shall be deemed a continuing breach of this Agreement), (B) a
relocation of Executive's principal place of employment by more than 35 miles
from its location at the effective date of this Agreement, or a material
reduction in the benefits and perquisites to Executive from those being provided
as of the effective date of this Agreement, (C) the liquidation or dissolution
of the Association, or (D) any breach of this Agreement by the Association. Upon
the occurrence of any event described in clauses (A), (B), (C), or (D), above,
Executive shall have the right to elect to terminate his employment under this
Agreement by resignation upon not less than sixty (60) days prior written notice
given within a reasonable period of time not to exceed, except in case of a
continuing breach, four calendar months after the event giving rise to said
right to elect.
(b) Upon the occurrence of an Event of Termination other than for Cause of
for Neglect (as described in Sections 8 and 9 hereof), the Association shall pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to the Executive for the
remaining term of the Agreement, including Base Salary, bonuses, and any other
cash or deferred compensation paid or to be paid (including the value of
employer contributions that would have been made on the Executive's behalf over
the remaining term of the agreement to any tax-qualified retirement plan
sponsored by the Association as of the Date of Termination), to the Executive
for the term of the Agreement provided, however, that if the Association is not
in compliance with its minimum capital requirements or if such payments would
cause the Association's capital to be reduced below its minimum capital
requirements, such payments shall be deferred until such time as the Association
is in capital compliance. All payments made pursuant to this Section 4(b) shall
be paid in substantially equal monthly installments over the remaining term of
this Agreement following the Executive's termination; provided, however, that if
the remaining term of the Agreement is less than one (1) year (determined as of
the Executive's Date of Termination), such payments and benefits shall be paid
to the Executive in a lump sum within 30 days of the Date of Termination.
(c) Upon the occurrence of an Event of Termination other than for Cause or
for Neglect (as described in Sections 8 and 9 hereof), the Association will
cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Association for
Executive prior to his termination. Such coverage shall cease upon the
expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall have
occurred a Change in Control of the Company or the Association. For purposes of
this Agreement, a "Change in Control" of the Company or the Association shall be
deemed to occur if and when (a) an offeror other than the Company purchases
shares of the common stock of the Company or the Association pursuant to a
tender or exchange offer for such shares, (b) any person (as such term is used
in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company or the Association representing 25% or more of the combined voting power
of the Company's then outstanding securities, (c) the membership of the board of
directors of the Company or the Association changes as the result of a contested
election, such that individuals who were directors at the beginning of any
twenty-four month period (whether commencing before or after the effective date
of this Agreement) do not constitute a majority of the Board at the end of such
period, or (d) shareholders of the Company or the Association approve a merger,
consolidation, sale or disposition of all or substantially all of the Company's
or the Association's assets, or a plan of partial or complete liquidation.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board of the Association or the Company
has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), (d) and (e) of this Section
5 upon his subsequent involuntary termination of employment at any time during
the term of this Agreement (or voluntary termination following a Change of
Control following any demotion, loss of title, office or significant authority,
reduction in his annual compensation or benefits, or relocation of his principal
place of employment by more than 35 miles from its location immediately prior to
the Change in Control), unless such termination is because of his death,
retirement as provided in Section 7, termination for Cause, or termination for
Disability.
(c) Upon the occurrence of a Change in Control followed by the Executive's
termination of employment, the Association shall pay Executive, or in the event
of his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, as severance pay or liquidated damages, or both, a sum equal to
________ times the Executive's "base amount," within the meaning of Section
280G(b)(3) of the Internal Revenue Code of 1986 ("Code"), as amended. Such
payment shall be made in a lump sum paid within ten (10) days of the Executive's
Date of Termination.
(d) Upon the occurrence of a Change in Control followed by the Executive's
termination of employment, the Association will cause to be continued life,
medical, dental and disability coverage substantially identical to the coverage
maintained by the Association for Executive prior to his severance. In addition,
Executive shall be entitled to receive the value of employer contributions that
would have been made on the Executive's behalf over the remaining term of the
agreement to any tax-qualified retirement plan sponsored by the Association as
of the Date of Termination. Such coverage and payments shall cease upon the
expiration of thirty-six (36) months.
(e) Upon the occurrence of a Change in Control, the Executive shall be
entitled to receive benefits due him under, or contributed by the Company or the
Association on his behalf, pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Association or the Company on the Executive's behalf to the
extent that such benefits are not otherwise paid to the Executive upon a Change
in Control.
(f) IRS Section 280G Issues. If any portion of the amounts payable to the
Executive under this Agreement, either alone or together with other payments
which the Executive has the right to receive from the Company or Association,
constitute "excess parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), that are subject to the
excise tax imposed by Section 4999 of the Code (or similar tax and/or
assessment), Executive shall be responsible for the payment of such excise tax
and Company or Association (and their successor) shall be responsible for any
loss of deductibility related thereto; provided, however, that Company or
Association and Executive shall cooperate with each other and use all reasonable
efforts to minimize to the fullest extent possible the amount of excise tax
imposed by Section 4999 of the Code. If, at a later date, it is determined
(pursuant to final regulations or published rulings of the Internal Revenue
Service, final judgment of a court of competent jurisdiction, or otherwise) that
the amount of excise taxes payable by the Executive is greater than the amount
initially so determined, then the Executive shall pay an amount equal to the sum
of such additional excise taxes and any interest, fines and penalties resulting
from such underpayment. The determination of the amount of any such excise taxes
shall be made by the independent accounting firm employed by the Company or
Association immediately prior to the change in control or such other independent
accounting firm or advisor as may be mutually agreeable to Company or
Association and Executive in the exercise of their reasonable good faith
judgment.
6. TERMINATION FOR DISABILITY.
(a) If the Executive shall become disabled as defined in the Association's
then current disability plan (or, if no such plan is then in effect, if the
Executive is permanently and totally disabled within the meaning of Section
22(e)(3) of the Code as determined by a physician designated by the Board), the
Association may terminate Executive's employment for "Disability."
(b) Upon the Executive's termination of employment for Disability, the
Association will pay Executive, as disability pay, a semi-monthly payment equal
to three-quarters (3/4) of Executive's semi-monthly rate of Base Salary on the
effective date of such termination. These disability payments shall commence on
the effective date of Executive's termination and will end on the earlier of (i)
the date Executive returns to the full-time employment of the Association in the
same capacity as he was employed prior to his termination for Disability and
pursuant to an employment agreement between Executive and the Association; (ii)
Executive's full-time employment by another employer; (iii) Executive attaining
the age of 65; or (iv) Executive's death; or (v) the expiration of the term of
this Agreement. The disability pay shall be reduced by the amount, if any, paid
to the Executive under any plan of the Association providing disability benefits
to the Executive.
(c) The Association will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
Association for Executive prior to his termination for Disability. This coverage
and payments shall cease upon the earlier of (i) the date Executive returns to
the full-time employment of the Association, in the same capacity as he was
employed prior to his termination for Disability and pursuant to an employment
agreement between Executive and the Association; (ii) Executive's full-time
employment by another employer; (iii) Executive's attaining the age of 65; or
(iv) the Executive's death; or (v) the expiration of the term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to Executive during any period during which
Executive is incapable of performing his duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE.
Termination by the Association of Executive based on "Retirement" shall
mean retirement at age 65 or in accordance with any retirement arrangement
established with Executive's consent with respect to him. Upon termination of
Executive upon Retirement, Executive shall be entitled to all benefits under any
retirement plan of the Association or the Company and other plans to which
Executive is a party. Upon the death of the Executive during the term of this
Agreement, the Association shall pay to Executive's estate the compensation due
to the Executive through the last day of the calendar month in which his death
occurred.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of the Executive's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit, willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. In addition, "Termination for Cause" shall include
termination because of the Executive's intentional failure to perform stated
duties, such as the refusal of the Executive to comply with the Association's or
the Company's instructions, policies or rules or other willful conduct of the
Executive which materially adversely reflects on the Association's or the
Company 's reputation or operation. For purposes of this Section, no act, or the
failure to act, on Executive's part shall be "willful" unless done, or omitted
to be done, not in good faith and without reasonable belief that the action or
omission was in the best interest of the Association or its affiliates.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
termination for Cause and specifying the reasons thereof. The Executive shall
not have the right to receive compensation or other benefits for any period
after termination for Cause. Any stock options granted to Executive under any
stock option plan or any unvested awards granted under any other stock benefit
plan of the Association, the Company, or any subsidiary or affiliate thereof,
shall become null and void effective upon Executive's receipt of Notice of
Termination for Cause pursuant to Section 9 hereof, and shall not be exercisable
by Executive at any time subsequent to such Termination for Cause.
9. TERMINATION FOR NEGLECT.
The Association and Company, or either of them may terminate Executive's
employment under this Agreement at any time for Neglect. For purposes of this
Agreement, "Neglect" means the failure of Executive to give due care to stated
duties or to comply with instructions or directives of the Board of Directors of
the Association or Company or either of them, but where such failure is not
determined to be willful or intentional as defined in Section 8. Termination for
Neglect includes termination as the result of any continuing or repeated
problems with Executive's job performance or conduct after written notice
specifying such problem with performance or conduct, and where such continuing
and repeated problems were not determined to be willful or intentional, or where
the conduct was not deemed to have a material adverse impact on the Association
or Company. Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated by Neglect unless and until there shall have been sent to
Executive a copy of a resolution duly adopted by a majority of the Board of
Directors of the Association and Company, or either of them (excluding the
Executive in counting the majority if the Executive is then on the board of
directors, and after reasonable notice to Executive and an opportunity for
Executive to be heard before the board of directors), finding that in the good
faith opinion of the board of directors of the Association and Company, or
either of them, Executive engaged in conduct justifying termination for Neglect
and describing specifically the conduct. Executive shall not have the right to
receive any salary or bonus for any period after termination of employment for
Neglect. Executive shall retain any vested benefits in defined benefit plans,
defined contribution plans, supplemental executive retirement plans, stock
option plans, restricted stock plans, or other such benefits, but shall forfeit
any rights that have not vested.
10. REQUIRED PROVISIONS.
(a) The Association may terminate Executive's employment at any time, but
any termination by the Association, other than as described in Section 8 or
Section 9 of this Agreement, shall not prejudice Executive's right to
compensation or other benefits under this Agreement. Executive shall not have
the right to receive compensation or other benefits for any period after
Termination for Cause as defined in Section 8 herein.
(b) If Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(3) and (g)(1)), the Association's obligations under the
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may, in its discretion, (i) pay Executive all or part of the
compensation withheld while its contract obligations were suspended and (ii)
reinstate (in whole or in part) any of its obligations that were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)),
all obligations of the Association under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties shall
not be affected.
(d) If the Association is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement shall be terminated (except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the Association): (i) by the Director of the Office of
Thrift Supervision (the "Director") or his or her designee at the time the
Federal Deposit Insurance Corporation or the Resolution Trust Corporation enters
into an agreement to provide assistance to or on behalf of the Association under
the authority contained in Section 13(c) of the FDIA or (ii) by the Director, or
his or her designee at the time the Director or such designee approves a
supervisory merger to resolve problems related to operation of the Association
or when the Association is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
11. NOTICE.
(a) Any purported termination by the Association or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal there from having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Association will continue
to pay Executive his full compensation in effect when the notice giving rise to
the dispute was given (including, but not limited to, Base Salary) and continue
him as a participant in all compensation, benefit and insurance plans in which
he was participating when the notice of dispute was given, until the dispute is
finally resolved in accordance with this Agreement. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.
12. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder pursuant to an
Event of Termination as provided in Section 4 hereof, Executive agrees not to
compete with the Association and/or the Company for a period of one (1) year
following such termination in any city, town or county in which the Association
and/or the Company has an office or has filed an application for regulatory
approval to establish an office, determined as of the effective date of such
termination. Executive agrees that during such period and within said cities,
towns and counties, Executive shall not work for or advise, consult or otherwise
serve with, directly or indirectly, any entity whose business materially
competes with the depository, lending or other business activities of the
Association and/or the Company. The parties hereto, recognizing that irreparable
injury will result to the Association and/or the Company, its business and
property in the event of Executive's breach of this Subsection 11(a) agree that
in the event of any such breach by Executive, the Association and/or the Company
will be entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive's partners,
agents, servants, employers, employees and all persons acting for or with
Executive. Executive represents and admits that in the event of the termination
of his employment pursuant to Section 8 hereof, Executive's experience and
capabilities are such that Executive can obtain employment in a business engaged
in other lines and/or of a different nature than the Association and/or the
Company, and that the enforcement of a remedy by way of injunction will not
prevent Executive from earning a livelihood. Nothing herein will be construed as
prohibiting the Association and/or the Company from pursuing any other remedies
available to the Association and/or the Company for such breach or threatened
breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Association and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Association. Executive will not, during
or after the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the Association or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever. Notwithstanding the foregoing, Executive may
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Association. In the event of a breach or threatened
breach by the Executive of the provisions of this Section, the Association will
be entitled to an injunction restraining Executive from disclosing, in whole or
in part, the knowledge of the past, present, planned or considered business
activities of the Association or affiliates thereof, or from rendering any
services to any person, firm, corporation, other entity to whom such knowledge,
in whole or in part, has been disclosed or is threatened to be disclosed.
Nothing herein will be construed as prohibiting the Association from pursuing
any other remedies available to the Association for such breach or threatened
breach, including the recovery of damages from Executive.
13. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Association. The Company, however,
guarantees all payments and the provision of all amounts and benefits due
hereunder to Executive and, if such payments are not timely paid or provided by
the Association, such amounts and benefits shall be paid or provided by the
Company.
14. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Association or any
predecessor of the Association and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
15. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect. (b) This Agreement shall be binding upon, and inure to
the benefit of, Executive, the Association, the Company and their respective
successors and assigns.
16. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
17. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
18. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
19. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Oregon, unless
otherwise specified herein; provided, however, that in the event of a conflict
between the terms of this Agreement and any applicable federal or state law or
regulation, the provisions of such law or regulation shall prevail.
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within one
hundred (100) miles from the location of the Association, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
21. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Association, if successful pursuant to a legal judgment,
arbitration or settlement.
22. INDEMNIFICATION.
The Association shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred by
him in connection with or arising out of any action, suite or proceeding in
which he may be involved by reason of his having been a director or officer of
the Association (whether or not he continues to be a directors or officer at the
time of incurring such expenses or liabilities), such expenses and liabilities
to include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements.
23. SUCCESSOR TO THE ASSOCIATION OR THE COMPANY.
The Association and the Company shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise, to
all or substantially all the business or assets of the Association or the
Company, expressly and unconditionally to assume and agree to perform the
Association's or the Company's obligations under this Agreement, in the same
manner and to the same extent that the Association or the Company would be
required to perform if no such succession or assignment had taken place.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by a duly authorized officer or director of the Association and the
Company, and Executive has signed this Agreement, all on the 19th day of May,
2003.
KLAMATH FIRST BANCORP, INC. KLAMATH FIRST FEDERAL SAVINGS
AND LOAN ASSOCIATION
BY: BY:
Kermit K. Houser, President & CEO Kermit K. Houser President & CEO
WITNESS: (the "Executive")
Exhibit 10(e)
FIRST AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT
FOR SAMPLE EXECUTIVE
The First Amendments to the Amended and Restated Employment Agreements are
substantially the same for all Executives except for the following:
Long
Severance Additional Term Care Additional
Pay Severance Estimate Compensation
----------- ---------- ---------- ------------
Marshall J. Alexander $276,000 $5,750 $67,000 --
Ben A.Gay 276,000 5,750 54,500 --
Frank X. Hernandez 162,000 5,750 50,000 --
Craig M Moore 125,000 5,750 33,000 $8,333 per
month to Dec.2003
James E. Essany 142,500 5,750 -- --
Walter F. Dodrill 148,500 5,750 54,000 --
Nina G. Drake 148,500 5,750 54,000 --
Jeffrey D. Schlenker 67,500 5,750 34,000 --
Exhibit 10(e)
FIRST AMENDMENT TO AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This FIRST AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this
"Agreement") is made and entered into on July 14, 2003, by and between Klamath
Federal Savings and Loan Association ("Association"), Klamath First Bancorp,
Inc., ("Company") and the undersigned executive officer of Association and
Company (the "Executive").
WHEREAS, Association, Company and Executive entered into an Amended and
Restated Employment Agreement dated May 19, 2003, (the "Employment Agreement");
WHEREAS, Company has entered into an Agreement and Plan of Merger dated as
of July 14, 2003, (the "Merger Agreement") with Sterling Financial Corporation
("Sterling") with respect to a proposed transaction (the "Transaction") whereby
Sterling will acquire all of the outstanding shares of Company common stock in a
stock merger;
WHEREAS, Association and Company desire to enter into this Agreement to
facilitate the Transaction; and
WHEREAS, the Executive desires to enter into this Agreement to facilitate
the Transaction so as to enable his change in control of benefits to be
triggered under the Employment Agreement and his Executive Salary Continuation
Agreement, and to enhance the value of shares of common stock of Company owned
by the Executive and the value of his stock options to acquire common stock of
Company.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed by the parties as follows:
1. Capitalized terms used herein, to the extent not defined otherwise, shall
have the meaning ascribed to them in the Employment Agreement.
2. Section 5(c) of the Employment Agreement is amended in full as follows:
"Upon the occurrence of a Change in Control arising from or related to the
Merger Agreement, Association shall pay the Executive as severance pay or
liquidated damages, or both (the "Base Severance Amount"), an amount equal
to $_______. In the event that all conditions to closing under the Merger
Agreement have been satisfied during calendar year 2003, then Association
shall make payment of the Base Severance Amount plus the Additional
Severance Amount (as defined in Section 5(d) below) to the Executive on
December 31, 2003. In the event such closing conditions are not satisfied
during calendar year 2003, then the payments contemplated herein shall be
made within 10 days after consummation of the merger contemplated by the
Merger Agreement. Notwithstanding the foregoing, if the Executive enters
into a new written employment agreement with Sterling or Sterling Savings
Bank prior to December 31, 2003 (but effective upon completion of the
merger contemplated by the Merger Agreement), then the Severance Amount and
Additional Severance Amount shall not be paid pursuant to the terms hereof
and any severance to be provided to the Executive, if any, shall be set
forth in such new written employment agreement."
Section 5(d) of the Employment Agreement is amended in full as follows:
"Upon the occurrence of a Change in Control arising from or related to the
Merger Agreement, Association shall pay the Executive as additional
severance the amount of $5,750 (the "Additional Severance Amount") in lieu
of any obligation to pay the Executive the value of employer contributions
that would have been made on the Executive's behalf over the remaining term
of the agreement to any tax-qualified retirement plan. The Additional
Severance Amount shall be paid at the time the Base Severance Amount is
paid pursuant to Section 5(c) above. Upon the Executive's termination of
service in connection with or following a Change in Control arising from or
relating to the Merger Agreement, Sterling Savings Bank, as
successor-in-interest to the Association, shall provide the Executive with
continued life, medical, dental and disability coverage as is then provided
by Sterling Savings Bank to its full-time employees, as the same may be
changed from time to time, during the 36 month period next following the
Executive's Date of Termination with the cost to be absorbed by the
Executive being equal to the lesser of (i) the employee cost of coverage
currently being borne by the Executive or (ii) the employee cost of
coverage borne by full-time employees of Sterling Savings Bank receiving
the same coverage; provided if the cost of coverage to be borne by the
Executive is determined under subpart (i), then such cost shall be subject
to pro rata adjustment based upon the pro rata adjustment in cost of
coverage that is borne by full-time employees of Sterling Savings Bank
receiving the same coverage after completion of the merger contemplated by
the Merger Agreement."
3. New Section 24 is added to the Employment Agreement as follows:
"24. Long Term Medical Care. The Executive shall have a right to
participate in the long term medical care program to be implemented by
Association if the Executive meets the eligibility requirements of the
insurer. If the Executive meets the eligibility requirements of the insurer
and becomes a participant in the long term medical care program, then in
that event, his Base Severance Amount shall be reduced by the single
premium cost paid by Association for such long term medical care on behalf
of the Executive (which is estimated to be $_______) and the Executive
shall have no obligation to reimburse Association for any premium cost
relating to such program after the Executive's termination of employment."
4. The Employment Agreement shall be further amended by adding thereto an
"Exhibit A to the Employment Agreement" in the form attached hereto as
Appendix I.
5. Except as specifically set forth herein, the Employment Agreement shall
continue in full force and effect. To the extent that any provision
contained in this Agreement is inconsistent with any of the provisions of
the Employment Agreement, including but not limited to, Section 5(b)
thereof, the provisions contained in this Agreement shall be controlling.
6. In the event the Merger Agreement is terminated, then this Agreement shall
have no further force or effect.
7. This Agreement may be executed in counterparts by the parties hereto, each
of which when so executed shall be deemed an original and all of which,
taken together, shall constitute one and the same agreement.
The parties have entered this Agreement on July 14, 2003.
KLAMATH FEDERAL SAVINGS AND LOAN ASSOCIATION
By:
Kermit K. Houser
President/CEO
KLAMATH FIRST BANCORP, INC.
By:
Craig M Moore
SVP/Chief Auditor
EXECUTIVE:
By:
(the "Executive")
Exhibit 10(f)
EXECUTIVE SALARY CONTINUATION AGREEMENT
FOR SAMPLE EXECUTIVE
The Executive Salary Continuation Agreements are substantially the same for all
Executives except for the following:
Annuity Lump
For Life Sum
----------- ----------
Marshall J. Alexander YES --
Ben A.Gay -- YES
Frank X. Hernandez YES --
Craig M Moore YES --
James E. Essany -- YES
Walter F. Dodrill YES --
Nina G. Drake YES --
Jeffrey D. Schlenker -- YES
Exhibit 10(f)
EXECUTIVE SALARY CONTINUATION AGREEMENT
THIS AGREEMENT, entered into and effective this First day of January, 2003,
by and between Klamath First Federal Savings and Loan Association, a Federal
Savings and Loan Association (hereinafter referred to as the "Employer"), and
(the "Employee"), an Employee of the Employer (hereinafter referred to as the
"Employee"), who resides in the State of Oregon.
W I T N E S S E T H:
WHEREAS, the Employee is an employee of the Employer and, since January 1,
2003 has become eligible to participate in the Executive Salary Continuation
Plan represented by this Agreement (the "Plan");
WHEREAS, the Employer desires to establish a compensation benefits program
as a fringe benefit for certain officers of the Employer in order to attract and
retain individuals with extensive and valuable experience in the banking
industry;
WHEREAS, the Employee's experience and knowledge of the affairs of the
Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the Employer to
provide the Employee with certain benefits, on the terms and conditions set
forth herein, in order to reasonably induce the Employee to remain in the
Employer's employment and to compensate the Employee for valuable services
heretofore rendered to the Employer; and
WHEREAS, the Employee and the Employer wish to specify in writing the terms
and conditions upon which this additional compensatory incentive will be
provided to the Employee, or to the Employee's spouse or the Employee's
designated beneficiaries, as the case may be;
FURTHERMORE, it is the intent of the parties hereto that this Employee Plan
be considered an unfunded arrangement maintained primarily to provide
supplemental retirement benefits for the Employee, and be considered a
non-qualified benefit plan for purposes of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). The Employee is fully advised of the
Employer's financial status and the design and operation of this benefit plan;
and
NOW, THEREFORE, in consideration of services performed in the past and to
be performed in the future as well as of the mutual promises and covenants
herein contained it is agreed as follows:
I. EMPLOYMENT
Although this Agreement is intended to provide the Employee with an
additional incentive to remain in the employ of the Employer, this
Agreement shall not be deemed to constitute a contract of employment
between the Employee and the Employer nor shall any provision of this
Agreement restrict or expand the right of the Employer to terminate
the Employee's employment. This Agreement shall have no impact or
effect upon any separate written Employment Agreement which the
Employee may have with the Employer, it being the parties' intention
and agreement that unless this Agreement is specifically referenced in
said Employment Agreement (or any modification thereto), this
Agreement (and the Employer's obligations hereunder) shall stand
separate and apart from, and shall have no effect upon, or be affected
by, the terms and provisions of said Employment Agreement.
Except as otherwise set forth in this Agreement, the term "Employer"
shall mean Klamath First Federal Savings and Loan Association;
provided, further, that for purposes of this Agreement, the term
"Employer" shall mean Klamath First Bancorp, Inc. and its subsidiaries
and affiliated entities, including any parent holding company and its
subsidiaries.
II. FRINGE BENEFITS
The salary continuation benefits provided by this Agreement are
granted by the Employer as a fringe benefit to the Employee and are
not part of any salary reduction plan or an arrangement deferring a
bonus or a salary increase. The Employee has no option to take any
current payment or bonus in lieu of these salary continuation benefits
except as set forth hereinafter.
III. retirement date and early retirement date
A. Retirement Date:
The term "Retirement" or "Retires" shall refer to the date which the
Employee attains sixty-two ("62") years of age and acknowledges in
writing to the Employer to be the last day the Employee will provide
any significant personal services, whether as an employee or
independent consultant or contractor, to the Employer.
B. Early Retirement Date:
The term "Early Retirement Date" shall mean the Retirement, as
defined above, of the Employee on, or after the Employee achieves
fifty-five (55) years of age, but has not yet reached sixty-two
(62) years of age.
IV. retirement benefit and early retirement benefit
A. Retirement Benefit:
If the Employee shall remain in the continuous employment of the
Employer until attaining age sixty-two (62), the Employee shall
be entitled to be paid the "Normal Retirement Benefit" specified
in Schedule A, payable in substantially equal monthly
installments on the first day of each month, beginning with the
month following the month in which the Employee Retires (or on
such later date as may be mutually agreed upon by the Employee
and the Employer in advance of said Retirement date) payable
until the Employee's death. After commencement of payments, the
Normal Retirement Benefit will increase by two percent (2%) per
year.
B. Early Retirement Benefit:
The Employee shall have the right to retire on a date which
constitutes an Early Retirement Date as defined in Subparagraph
III (B) above. In the event the Employee elects to Retire on a
date which constitutes an Early Retirement Date, and said early
retirement is not pursuant to a Change in Control as defined in
paragraph VI below, the Employee shall be entitled to be paid the
"Normal Retirement Benefit" specified in Schedule A for the date
the Retirement occurs, but reduced by a factor of one-half of one
percent (.5%) per month for each month or portion thereof that
the Early Retirement occurs prior to the Retirement Date. The
benefit shall be payable in substantially equal monthly
installments on the first day of each month, beginning with the
month following the month in which the Early Retirement Date
occurs (or on such later date as may be mutually agreed upon by
the Employee and the Employer in advance of such Early Retirement
Date). After commencement of payments, the Early Retirement
benefit will increase by two percent (2%) per year.
Example: If the Early Retirement Date occurs on the Employee's
60th birthday and if the Retirement Date in Section III.A. above
is at age 62, the Normal Retirement Benefit specified in Schedule
"A" as of the Employee's 60th birthday would be reduced by 12%
[.5% x 24 months].
V. other termination of EMPLOYMENT and DISABILITY
A. Payments in the Event Employment Is Terminated Prior to
Retirement:
The Employer reserves the right to terminate the Employee's
employment, with or without cause but subject to any written
employment agreement which may then exist, at any time prior to
the Employee's Retirement. In the event that the employment of
the Employee shall be terminated, other than by reason of death,
Disability or Retirement, prior to the Employee's attaining
sixty-two (62) years of age, then this Agreement shall terminate
on the date of such termination of employment; provided, however,
that the Employee shall be entitled to the following benefits as
may be applicable depending upon the circumstances surrounding
the Employee's termination:
(i) Termination for Other Than Disability, Change in Control
or Cause:
If the Employee's employment is terminated by the Employee or by
the Employer for any reason other than Disability, "Change in
Control" or "Termination for Cause," the Employee shall be
entitled to be paid the "Normal Retirement Benefit" specified in
Schedule A as of the date of termination, payable in
substantially equal monthly installments on the first day of each
month, beginning with the month following the month in which the
Employee attains sixty-two (62) years of age (or on such later
date as may be mutually agreed upon by the Employee and the
Employer not less than fifteen (15) days prior to such
commencement date) payable until the Employee's death, and shall
increase by two percent (2%) per year. Alternatively, upon
achieving age fifty-five (55) but before achieving age sixty-two
(62), the Employee may choose to receive the Early Retirement
Benefit with the reductions from the "Normal Retirement Benefit"
as of the date of termination, and as described in Section IV.B.
of this Agreement. The benefit shall be payable in substantially
equal monthly installments on the first day of each month,
beginning with the month following the month in which the Early
Retirement Date occurs (or on such later date as may be mutually
agreed upon by the Employee and the Employer not less than
fifteen (15) days prior to such commencement date) payable to the
Employee's death, and shall increase by two percent (2%) per
year.
(ii) Termination for Cause:
If the Employee suffers a "Termination for Cause", as defined
herein below, the Employee shall forfeit any and all rights and
benefits the Employee may have under the terms of this Agreement
and shall have no right to be paid any of the amounts which would
otherwise be due or paid to the Employee by the Employer pursuant
to the terms of this Agreement. The term "Termination for Cause"
shall have the definition provided in the Employee's Employment
Agreement, as amended from time to time with the Employer. If the
Employee has no Employment Agreement with the Employer,
"Termination for Cause" shall include termination because of the
Employee's personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, or willful violation of any
law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order. For purposes
of this Section, no act, or the failure to act, on Employee's
part shall be "willful" unless done, or omitted to be done, not
in good faith and without reasonable belief that the action or
omission was in the best interest of the Association or its
affiliates. Notwithstanding the foregoing, the Employee shall not
be deemed to have been terminated for Cause unless and until
there shall have been delivered to the Employee a copy of a
resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the
Board called and held for that purpose (after reasonable notice
to the Employee and an opportunity, together with counsel, to be
heard before the Board), finding that in the good faith opinion
of the Board, the Employee was guilty of conduct justifying
termination for Cause and specifying the reasons thereof.
B. Payment in the Event of Disability Prior to Retirement:
The Employee shall, in connection with acceptance of this
Agreement, elect below either the "Lump Sum Payment" or the
"Annuity for Life" option in the event the Employee becomes
disabled at any time after the Effective Date of this Agreement
but prior to Retirement. The term "Disability" or "Disabled"
shall have the same meaning given such terms in any policy of
disability insurance maintained by the Employer for the benefit
of employees including the Employee. In the absence of such a
policy, which extends coverage to the Employee in the event of
disability, the terms shall mean bodily injury or disease (mental
or physical) which wholly and continuously prevents the
performance of the Employee's duties to the Employer for at least
one hundred twenty (120) days.
(i) Lump Sum Payment.
The Employee shall be entitled to be paid the lump sum
"Disability Benefit" specified in Schedule A, determined as
of the earlier of the date of disability or date the
Employee otherwise terminated service with the Employer
other than for Cause. The lump sum shall be payable 60 days
from the date the Employer has received a written request to
commence benefits, along with documentation showing that the
Employee has become disabled.
(ii) Annuity for Life.
The Employee shall be entitled to be paid an annuity for the
Employee's life. The Employer shall purchase such an annuity
from an insurance company with an A. M. Best or Moody's
rating of no less than AA and using the amount of
"Disability Benefit" specified in Schedule A, determined as
of the earlier of the date of disability or the date the
Employee otherwise terminated service with the Employer
other than for Cause. The Employer shall purchase the
annuity within 60 days from the date the Employer has
received a written request to commence benefits, along with
documentation showing that the Employee has become Disabled.
Nevertheless, if the amount of the applicable "Disability
Benefit" specified in Schedule A is $50,000.00 or less, the
payment shall be as a lump sum to the Employee and not the
purchase of an annuity for life.
(iii) Employee Election of Disability Benefit.
I elect to receive the following Disability Benefit (Please
sign on applicable line):
______________________ Lump Sum Benefit.
______________________ Annuity for Life.
VI. CHANGE OF CONTROL
A. Definition of Change In Control:
A "Change in Control" of Klamath First Bancorp, Inc. (the
"Company") or Klamath First Federal Savings and Loan
Association (the "Association") shall be deemed to occur if
and when (a) an offeror other than the Company purchases
shares of the common stock of the Company or the Association
pursuant to a tender or exchange offer for such shares, (b)
any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) is or
becomes the beneficial owner, directly or indirectly, of
securities of the Company or the Association representing
25% or more of the combined voting power of the Company's or
the Association's then outstanding securities, (c) the
membership of the board of directors of the Company or the
Association changes as the result of a contested election,
such that individuals who were directors at the beginning of
any twenty-four month period (whether commencing before or
after the effective date of this Agreement) do not
constitute a majority of the Board at the end of such
period, or (d) shareholders of the Company or the
Association approve a merger, consolidation, sale or
disposition of all or substantially all of the Company's or
the Association's assets, or a plan of partial or complete
liquidation.
B. Termination by the Employer on Account of or After a Change in
Control:
In the event the Employee's employment with the Employer is
terminated by the Employer in connection with a Change in
Control, the Employee shall be immediately vested in the
"Normal Retirement Benefit" specified in Schedule A for the
date the Employee achieves age sixty-two (62). The Employee
shall be entitled to be paid the "Change in Control Benefit"
specified in Schedule A, in substantially equal monthly
installments on the first day of each month, beginning no
sooner than the month following the month in which the
Employee attains age fifty-five (55), as requested in
writing by the Employee and delivered to the Employer or its
successor thirty (30) days prior to the commencement of
installment payments; provided, however, that in the event
the Employee does not request a commencement date as
specified, such installments shall be paid on the first day
of each month, beginning with the month following the month
in which the Employee attains sixty-two (62) years of age.
Upon the commencement of payments, the installments shall be
payable until the Employee's death, and shall increase by
two percent (2%) per year.
A termination shall be deemed to be in connection with a
Change in Control if, within two (2) years following the
occurrence of a Change in Control: (a) the Employee's
employment with the Employer is terminated by the Employer
other than a Termination for Cause; or (b) by reason of the
Employer's actions any adverse change occurs in the scope of
the Employee's position, material responsibilities and
duties, salary, benefits or location of employment; or (c)
the Employer causes an event to occur which reasonably
constitutes or results in a demotion, loss of title, a
significant diminution of responsibilities or authority, or
a constructive termination (by forcing a resignation or
otherwise) of the Employee's employment.
VII. benefit accounting
The Employer shall account for this benefit using the
regulatory accounting principles of the Employer's primary
federal regulator. The Employer shall establish an accrued
liability retirement account for the Employee into which
appropriate reserves shall be accrued.
VIII. restrictions on funding
The Employer shall have no obligation to set aside, earmark
or entrust any fund or money with which to pay its
obligations under this Employee Plan. The Employee, her or
his beneficiary (ies), or any successor in interest shall be
and remain simply a general creditor of the Employer in the
same manner as any other creditor having a general claim for
matured and unpaid compensation. The Employer reserves the
absolute right, at its sole discretion, to either fund the
obligations undertaken by this Employee Plan or to refrain
from funding the same and to determine the extent, nature
and method of such funding. Should the Employer elect to
fund this Employee Plan, in whole or in part, through the
purchase of life insurance, mutual funds, disability
policies or annuities, the Employer reserves the absolute
right, in its sole discretion, to terminate such funding at
any time, in whole or in part. At no time shall any Employee
be deemed to have any lien, right, title or interest in any
specific funding investment or assets of the Employer.
If the Employer elects to invest in a life insurance,
disability or annuity policy on the life of the Employee,
then the Employee shall assist the Employer by freely
submitting to a physical exam and supplying such additional
information necessary to obtain such insurance or annuities.
Notwithstanding anything hereinabove to the contrary, the
Employer and the Employee acknowledge and agree that, in the
event of a Change in Control and at the written request of
the Employee, the Employer shall establish, not later than
the effective date of the Change in Control, a Rabbi Trust
or multiple Rabbi Trusts (the "Trust" or "Trusts") upon such
terms and conditions as the Employer in its sole discretion
deems appropriate and in compliance with applicable
provisions of the Internal Revenue Code of 1986, as amended
(the "Code") in order to permit the Employer to make
contributions and/or transfer assets to the Trust or Trusts
to discharge its obligations pursuant to this Agreement. The
principal of the Trust or Trusts and any earnings thereon
shall be held separate and apart from other funds of the
Employer to be used exclusively for discharge of the
Employer's obligations pursuant to this Agreement and shall
continue to be subject to the claims of the Employer's
general creditors until paid to the Employee or its
beneficiaries in such manner and at such times as specified
in this Agreement
IX. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
The Employee shall have no power or right to transfer,
assign, anticipate, hypothecate, mortgage, commute, modify
or otherwise encumber in advance any of the benefits payable
hereunder nor shall any of said benefits be subject to
seizure for the payment of any debts, judgments, alimony or
separate maintenance owed by the Employee nor be
transferable by operation of law in the event of bankruptcy,
insolvency or otherwise. In the event the Employee attempts
assignment, commutation, hypothecation, transfer or disposal
of the benefits hereunder, the Employer's liabilities shall
forthwith cease and terminate.
B. Binding Obligation of the Employer and any Successor in
Interest:
The Employer shall not merge or consolidate into or with
another Employer or sell substantially all of its assets to
another Employer, firm or person until such Employer, firm
or person expressly agree, in writing, to assume and
discharge the duties and obligations of the Employer under
this Employee Plan. This Employee Plan shall be binding upon
the parties hereto, their successors, beneficiaries, heirs
and personal representatives.
C. Amendment or Revocation:
It is agreed by and between the parties hereto that, during
the lifetime of the Employee, this Employee Plan may be
amended or revoked at any time or times, in whole or in
part, by the mutual written consent of the Employee and the
Employer.
D. Gender:
Whenever in this Employee Plan words are used in the
masculine or neuter gender, they shall be read and construed
as in the masculine, feminine or neuter gender, whenever
they should so apply.
E. Effect on Other Employer Benefit Plans:
Nothing contained in this Employee Plan shall affect the
right of the Employee to participate in or be covered by any
qualified or non-qualified pension, profit-sharing, group,
bonus or other supplemental compensation or fringe benefit
plan constituting a part of the Employer's existing or
future compensation structure.
F. Headings:
Headings and subheadings in this Employee Plan are inserted
for reference and convenience only and shall not be deemed a
part of this Employee Plan.
G. Applicable Law:
The laws of the State of Oregon shall govern the validity
and interpretation of this Agreement.
H. Partial Invalidity:
If any term, provision, covenant, or condition of this
Employee Plan is determined by an arbitrator or a court, as
the case may be, to be invalid, void, or unenforceable, such
determination shall not render any other term, provision,
covenant, or condition invalid, void, or unenforceable, and
the Employee Plan shall remain in full force and effect
notwithstanding such partial invalidity.
I. Not a Contract of Employment:
This Agreement shall not be deemed to constitute a contract
of employment between the parties hereto, nor shall any
provision hereof restrict the right of the Employer to
discharge the Employee, or restrict the right of the
Employee to terminate employment.
J. Notices:
Any notice required or permitted of either the Employee or
the Employer under this Agreement shall be deemed to have
been duly given, if by personal delivery, upon the date
received by the party or its authorized representative; if
by facsimile, upon transmission to a telephone number
previously provided by the party to whom the facsimile is
transmitted as reflected in the records of the party
transmitting the facsimile and upon reasonable confirmation
of such transmission; and if by mail, on the third day after
mailing via U.S. first class mail, registered or certified,
postage prepaid and return receipt requested, and addressed
to the party at the address given below for the receipt of
notices, or such changed address as may be requested in
writing by a party.
If to the Employer: Klamath First Bancorp, Inc.
540 Main Street
Klamath Falls, Oregon 97601-6047
Attention: Human Resources
If to the Employee: (the "Employee")
(the "Employee's" Address)
K. Opportunity To Consult With Independent Advisors:
The Employee acknowledges that the Employee has been
afforded the opportunity to consult with independent
advisors of his or her choosing including, without
limitation, accountants or tax advisors and counsel
regarding both the benefits granted to the Employee under
the terms of this Agreement and the (i) terms and conditions
which may affect the Employee's right to these benefits and
(ii) personal tax effects of such benefits including,
without limitation, the effects of any federal or state
taxes, Section 280G of the Code, and any other taxes, costs,
expenses or liabilities whatsoever related to such benefits,
which in any of the foregoing instances the Employee
acknowledges and agrees shall be the sole responsibility of
the Employee notwithstanding any other term or provision of
this Agreement. The Employee further acknowledges and agrees
that the Employer shall have no liability whatsoever related
to any such personal tax effects or other personal costs,
expenses, or liabilities applicable to the Employee and
further specifically waives any right for the Employee and
his or her heirs, beneficiaries, legal representatives,
agents, successors, and assigns to claim or assert liability
on the part of the Employer related to the matters described
above in this subparagraph. The Employee further
acknowledges and agrees that the Employee has read,
understands and consents to all of the terms and conditions
of this Agreement, and that the Employee enters into this
Agreement with a full understanding of its terms and
conditions.
X. ADMINISTRATIVE AND CLAIMS PROVISION
A. Named Fiduciary and Plan Administrator:
The "Named Fiduciary and Plan Administrator" of this
Employee Plan shall be Klamath First Bancorp, Inc., until
its resignation or removal by the Board. As Named Fiduciary
and Plan Administrator, the Employer shall be responsible
for the management, control and administration of the
Employee Plan. The Named Fiduciary may delegate to others
certain aspects of the management and operation
responsibilities of the Employee Plan including the
employment of advisors and the delegation of ministerial
duties to qualified individuals.
B. Claims Procedure:
In the event a dispute arises over benefits under this
Employee Plan and benefits are not paid to the Employee and
the claimant feels he is entitled to receive such benefits,
then a written claim must be made to the Named Fiduciary and
Plan Administrator named above within forty-five (45) days
from the date payments are refused. The Named Fiduciary and
Plan Administrator shall review the written claim and if the
claim is denied, in whole or in part, they shall provide in
writing within forty-five (45) days of receipt of such claim
the specific reasons for such denial, reference to the
provisions of this Employee Plan upon which the denial is
based and any additional material or information necessary
to perfect the claim. Such written notice shall further
indicate the additional steps to be taken by claimants if a
further review of the claim denial is desired. A claim shall
be deemed denied if the Named Fiduciary and Plan
Administrator fail to take any action within the aforesaid
forty-five-day period.
If claimants desire a second review they shall notify the
Named Fiduciary and Plan Administrator in writing within
forty-five (45) days of the first claim denial. Claimants
may review this Employee Plan or any documents relating
thereto and submit any written issues and comments it may
feel appropriate. In their sole discretion, the Named
Fiduciary and Plan Administrator shall then review the
second claim and provide a written decision within
forty-five (45) days of receipt of such claim. This decision
shall likewise state the specific reasons for the decision
and shall include reference to specific provisions of the
Plan Agreement upon which the decision is based.
C. Arbitration:
All claims, disputes and other matters in question arising
out of or relating to this Agreement or the breach or
interpretation thereof, other than those matters which are
to be determined by the Employer in its sole and absolute
discretion, shall be resolved by binding arbitration before
a representative member, selected by the mutual agreement of
the parties, of the Judicial Arbitration and Mediation
Services, Inc. ("JAMS"). In the event JAMS is unable or
unwilling to conduct the arbitration provided for under the
terms of this Paragraph, or has discontinued its business,
the parties agree that a representative member, selected by
the mutual agreement of the parties, of the American
Arbitration Association ("AAA"), shall conduct the binding
arbitration referred to in this Paragraph. Notice of the
demand for arbitration shall be filed in writing with the
other party to this Agreement and with JAMS (or AAA, if
necessary). In no event shall the demand for arbitration be
made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in
question would be barred by the applicable statute of
limitations. The arbitration shall be subject to such rules
of procedure used or established by JAMS, or if there are
none, the rules of procedure used or established by AAA. Any
award rendered by JAMS or AAA shall be final and binding
upon the parties, and as applicable, their respective heirs,
beneficiaries, legal representatives, agents, successors and
assigns, and may be entered in any court having jurisdiction
thereof. Any arbitration hereunder shall be conducted in
Klamath Falls, Oregon, unless otherwise agreed to by the
parties.
D. Attorneys Fees:
In the event of any arbitration or litigation concerning any
controversy, claim or dispute between the parties hereto,
arising out of or relating to this Agreement or the breach
hereof, or the interpretation hereof, the prevailing party
shall be entitled to recover from the non-prevailing party
reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of
any judgment or award rendered therein. The "prevailing
party" means the party determined by the arbitrator(s) or
court, as the case may be, to have most nearly prevailed,
even if such party did not prevail in all matters, not
necessarily the one in whose favor a judgment is rendered.
XI. SECTION 280G BENEFITS ADJUSTMENT
If all or any portion of the amounts payable to the Employee
under this Agreement, either alone or together with other
payments which the Employee has the right to receive from
the Employer, constitute "excess parachute payments" within
the meaning of Section 280G of the Code, that are subject to
the excise tax imposed by Section 4999 of the Code (or
similar tax and/or assessment), the Employer (and its
successor) and the Employee each agree to pay their share of
any taxes that may be imposed as a result of payments made
pursuant to this Agreement; provided, however, that Employer
and Employee shall cooperate with each other and use all
reasonable efforts to minimize to the fullest extent
possible the amount of excise tax imposed by Section 4999 of
the Code. If at a later date it is determined (pursuant to
final regulations or published rulings of the Internal
Revenue Service, final judgment of a court of competent
jurisdiction, or otherwise) that the amount of excise taxes
payable by the Employee is greater than the amount initially
so determined, then the Employee shall pay an amount equal
to the sum of such additional excise taxes and any interest,
fines and penalties resulting from such underpayment. The
determination of the amount of any such excise taxes shall
be made by the independent accounting firm employed by the
Employer immediately prior to the change in control or such
other independent accounting firm or advisor as may be
mutually agreeable to Employer and Executive in the exercise
of their reasonable good faith judgment.
In witness whereof, the parties hereto acknowledge that each has carefully
read this Agreement and executed the original thereof on the first day set forth
hereinabove, and that, upon execution, each has received a conforming copy.
Klamath First Federal Savings and Loan Association
/s/ /s/
Kermit K. Houser Witness
President and CEO
/s/ /s/
(the "Employee") Witness
Exhibit 10(g)
FIRST AMENDMENT TO
EXECUTIVE SALARY CONTINUATION AGREEMENT
FOR SAMPLE EXECUTIVE
The First Amendments to the Executive Salary Continuation Agreements are
substantially the same for all Executives except for the following:
December 31, 2003
Amount
-----------------
Frank X. Hernandez $548,847
Craig M Moore 606,309
James E. Essany 525,293
Walter F. Dodrill 582,214
Nina G. Drake 473,327
Jeffrey D. Schlenker 511,577
Exhibit 10(g)
FIRST AMENDMENT TO executive salary continuation AGREEMENT
This FIRST AMENDMENT TO EXECUTIVE SALARY CONTINUATION AGREEMENT (this
"Agreement") is made and entered into on July 14, 2003, by and between Klamath
Federal Savings and Loan Association ("Employer") and the undersigned executive
officer of Employer ("Employee").
WHEREAS, Employer and Employee entered into an Executive Salary
Continuation Agreement (the "SCA") effective January 1, 2003;
WHEREAS, Klamath First Bancorp, Inc. ("Company"), the parent company of
Employer, has entered into an Agreement and Plan of Merger dated as of July 14,
2003, (the "Merger Agreement") with Sterling Financial Corporation ("Sterling")
with respect to a proposed transaction (the "Transaction") whereby Sterling will
acquire all of the outstanding shares of Company common stock in a stock merger;
WHEREAS, Employer desire to enter into this Agreement to facilitate the
Transaction; and
WHEREAS, Employee desires to enter into this Agreement to facilitate the
Transaction so as to enable Employee (a) to receive a cash-out of his benefits
under the SCA as provided herein, (b) to receive change in control benefits
under his employment agreement and (c) to enhance the value of shares of common
stock of Company owned by Employee and the value of his stock options to acquire
common stock of Company.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed by the parties as follows:
1. Notwithstanding anything contained in the SCA to the contrary, Employer
shall have the right to pay Employee at any time from the date hereof
through December 31, 2003 the amount of $__________ less all tax
withholding obligations with respect thereto (the "Cash-Out Amount") in
full and complete satisfaction of all obligations of Employer under the SCA
and all rights of Employee under the SCA. Upon Employer making payment of
the Cash-Out Amount to Employee as provided herein, the SCA shall terminate
and shall have no further force or effect.
2. Upon payment of the Cash-Out Amount to Employee by Employer as provided in
paragraph 1 above, Employee does hereby release and forever discharge
Employer, its affiliates, and their respective assigns, directors,
officers, employees and agents from any and all claims, demands, causes of
action and rights that Employee has or might have under the SCA of any kind
or character whatsoever, whether known or unknown.
3. In the event the Merger Agreement is terminated, then this Agreement shall
have no further force or effect.
4. This Agreement may be executed in counterparts by the parties hereto, each
of which when so executed shall be deemed an original and both of which,
taken together, shall constitute one and the same agreement.
The parties have executed this Agreement on the day and year first above
written.
KLAMATH FEDERAL SAVINGS AND LOAN ASSOCIATION
By: /s/ Kermit K. Houser
Kermit K. Houser
President/CEO
EMPLOYEE:
By:
("Employee")
Exhibit 10(h)
DIRECTOR FEE CONTINUATION AGREEMENT
THIS AGREEMENT, made and entered into this First Day of January, 2003, by
and between Klamath First Bancorp, Inc., a thrift holding company (hereinafter
referred to as the "Bank"), and "Director", a member of the Board of
Directors of the Bank (hereinafter referred to as the "Director").
WITNESSETH:
WHEREAS, it is the consensus of the Board of Directors (hereinafter
referred to as the "Board") that the Director's services to the Bank in the past
have been of exceptional merit and have constituted an invaluable contribution
to the general welfare of the Bank and in bringing it to its present status of
operating efficiency, and its present position in its field of activity;
WHEREAS, the Director's experience, knowledge of the affairs of the Bank,
reputation, and contacts in the industry are so valuable that assurance of the
Director's continued services is essential for the future growth and profits of
the Bank and it is in the best interests of the Bank to arrange terms of
continued service for the Director so as to reasonably assure the Director's
remaining in the Bank's service during the Director's lifetime or until the age
of retirement;
WHEREAS, it is the desire of the Bank that the Director's services be
retained as herein provided;
WHEREAS, the Director is willing to continue to serve the Bank provided the
Bank agrees to pay the Director or the Director's surviving spouse, certain
benefits in accordance with the terms and conditions hereinafter set forth;
ACCORDINGLY, it is the desire of the Bank and the Director to enter into
this Agreement under which the Bank will agree to make certain payments to the
Director at retirement or the Director's surviving spouse in the event of the
Director's death pursuant to this Agreement;
FURTHERMORE, it is the intent of the parties hereto that this Director Plan
be considered an unfunded arrangement maintained primarily to provide
supplemental retirement benefits for the Director, and to be considered a
non-qualified benefit plan for purposes of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). The Director is fully advised of the
Bank's financial status and has had substantial input in the design and
operation of this benefit plan; and
NOW, THEREFORE, in consideration of services performed in the past and to
be performed in the future as well as of the mutual promises and covenants
herein contained it is agreed as follows:
I. SERVICE
The Director will continue to serve the Bank in such capacity and with such
duties and responsibilities as may be assigned, and with such compensation
as may be determined from time to time by the Board of Directors of the
Bank.
II. FRINGE BENEFITS
The fee continuation benefits provided by this Agreement are granted by the
Bank as a fringe benefit to the Director and are not part of any fee
reduction plan or an arrangement deferring a bonus or a fee increase. The
Director has no option to take any current payment or bonus in lieu of
these fee continuation benefits except as set forth hereinafter.
III. retirement date AND NORMAL RETIREMENT AGE
A. Retirement Date: If the Director continuously serves the Bank, the
Director shall be eligible to retire from active service with the Bank
upon the attainment of age fifty-five (55) and receive the benefits
described below, unless by action of the Board of Directors this
period of active service shall be shortened or extended.
B. Normal Retirement Age: Normal Retirement Age shall mean the date on
which the Director Retires from service as a member of the Board of
Directors after attaining age sixty-eight (68).
C. Normal Retirement Age Following a Change in Control: The term "Normal
Retirement Age Following a Change in Control" shall mean the date on
which the Director Retires from service as a member of the Board of
Directors after attaining age sixty-five (65).
D. Early Retirement Date: The term "Early Retirement Date" shall mean the
Retirement of the Director from active service with the Bank at the
beginning of any month after the Director achieves age 55, but before
attaining age sixty-eight (68), [sixty-five (65) following a Change in
Control].
IV. DIRECTOR BENEFITS - normal retirement age
A. Director Emeritus Benefits: Upon the attainment of age sixty-five
(65), the Director shall be entitled to serve the Bank as a Director
Emeritus in accordance with the procedures and policies established by
the Board of Directors of the Bank applicable to service as a Director
Emeritus. If the Director elects to serve as a Director Emeritus, the
Director shall be paid two thousand eight hundred thirty four dollars
($2,834) per month for a period of thirty-six (36) months, commencing
with the Retirement Date and continuing until the earlier of the third
anniversary thereof, or the death of the Director. Monthly payments
will be increased by two percent at the end of each calendar year. If
the Director declines or is unable to serve as Director Emeritus, the
Director shall forfeit any entitlement to the Director Emeritus
Benefits.
B. Director Retirement Benefits: After the expiration of the thirty-six
(36) month period described above in Paragraph IV A., the Bank shall
pay to the Director Retirement Benefit Payments equal to three
thousand seven dollars per month ($3,007) until the death of the
Director. Monthly payments shall increase by two percent at the end of
each calendar year.
V. DIRECTOR BENEFITS - EARLY RETIREMENT AGE
The Director shall have the right to retire on a date which constitutes an
Early Retirement Date as defined previously in Subparagraph III. D. In the
event the Director elects Early Retirement, the Director shall be entitled
to be paid Director Retirement Benefits equal to the "Early Retirement
Benefit" applicable for the calendar year in which the Director retires as
specified in Schedule "A". The benefit shall be payable in substantially
equal monthly installments on the first day of each month, beginning with
the month following the month the Director Retires (or on such later date
as may be mutually agreed upon by the Director and the Bank in advance of
such Early Retirement), payable until the Director's death.
VI. DIRECTOR DEATH BENEFITS - NORMAL RETIREMENT AGE
In the event the Director Retires on or after the Normal Retirement Age and
dies before receiving a total of thirty-six (36) monthly Director Emeritus
Benefits and twenty-four (24) monthly Director Retirement Benefits, the
Bank shall continue such monthly payments until the full number of sixty
(60) monthly payments have been made, or until the death of the Director's
surviving spouse, whichever occurs earlier. Said payments due hereunder
shall begin the first day of the month following the decease of the
Director.
VII. DIRECTOR DEATH BENEFITS - EARLY RETIREMENT AGE
In the event the Director Retires on a date that constitutes Early
Retirement and dies before receiving a total of sixty (60) monthly Director
Retirement Benefits, the Bank shall continue such monthly payments until
the full number of sixty (60) monthly payments have been made, or until the
death of the Director's surviving spouse, whichever occurs earlier. Said
payments due hereunder shall begin the first day of the month following the
decease of the Director.
VIII. benefit accounting
The Bank shall account for this benefit using the regulatory accounting
principles of the Bank's primary federal regulator. The Bank shall
establish an accrued liability retirement account for the Director into
which appropriate reserves shall be accrued.
IX. vesting
Director's interest in the benefits that are the subject of this Agreement
shall be subject to a vesting schedule described in Schedule A.
X. other termination of SERVICE
A. Voluntary Resignation or failure to be re-elected: In the event that
the service of the Director shall terminate by the Director's
voluntary action, or by the Director's failure to be re-elected to the
Board without cause, prior to the Retirement Date described in III. A.
above, then this Agreement shall terminate upon the date of such
termination of service and the Bank shall pay to the Director a
monthly amount equal to one-twelfth (1/12) times the "Director
Retirement Benefit" as described in Schedule A and earned as of the
date of termination. Such benefits shall be payable commencing on the
first of the month after the Director reaches age 68 and continue
until the death of the Director. Monthly payments shall increase by
two percent at the end of each calendar year.
In the event the Director's death should occur after such severance
but prior to the completion of the monthly payments provided for in
this Paragraph IX, the Bank shall continue such monthly payments until
a total of sixty (60) monthly payments have been made, or until the
death of the Director's surviving spouse, whichever occurs earlier.
Said payments due hereunder shall begin the first day of the month
following the decease of the Director.
B. Removal for Cause: "Removal for Cause" shall include the removal of
the Director because of the Director's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, willful violation of any law, rule, or regulation
(other than traffic violations or similar offenses) or final
cease-and-desist order. Notwithstanding the foregoing, Director shall
not be deemed to have been removed for Cause unless and until there
shall have been delivered to the Director a copy of a resolution duly
adopted by the affirmative vote of not less than three-fourths of the
remaining members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Director and an
opportunity, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, the Director was
guilty of conduct justifying removal for Cause and specifying the
reasons thereof. The Director shall not have the right to receive
compensation or other benefits for any period after the removal for
Cause. All rights under this Agreement shall be forfeited, whether or
not vested. Any stock options granted to the Director under any stock
option plan or any unvested awards granted under any other stock
benefit plan of the Bank, or any subsidiary or affiliate thereof,
shall become null and void effective upon Director's receipt of Notice
of Removal for Cause pursuant to paragraph IX(ii) hereof, and shall
not be exercisable by the Director at any time subsequent to such
Removal for Cause.
C. Payments in the Event of Disability Prior to Retirement. In the event
the Director becomes Disabled at any time after the Effective Date of
this Agreement but prior to Retirement, the Director shall be entitled
to be paid as a lump sum the "Disability Benefit" specified in
Schedule "A" as of the date of the disability. The lump sum shall be
payable 60 days from the date the Employer has received a written
request to commence benefits, along with documentation showing that
the Employee has become Disabled. Once the lump sum payment has been
made, this Agreement is terminated, and the Bank has no further
obligation to the Director or the Director's surviving spouse under
this plan.
The term "Disability" or "Disabled" shall have the same meaning given
such terms in any policy of disability insurance maintained by the
Employer for the benefit of its employees including the Director. In
the absence of such a policy which extends coverage to the Director in
the event of disability, the terms shall mean bodily injury or disease
(mental or physical) which wholly and continuously prevents the
performance of the Employee's duties to the Employer for at least one
hundred twenty (120) days.
XI. CHANGE OF CONTROL
A "Change in Control" of the Bank or of Klamath First Federal Savings
and Loan Association (the "Association") shall be deemed to occur if
and when (a) an offer or other than the Bank purchases shares of the
common stock of the Bank or the Association pursuant to a tender or
exchange offer for such shares, (b) any person (as such term is used
in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934)
is or becomes the beneficial owner, directly or indirectly, of
securities of the Bank or the Association representing 25% or more of
the combined voting power of the Bank's then outstanding securities,
(c) the membership of the board of directors of the Bank or the
Association changes as the result of a contested election, such that
individuals who were directors at the beginning of any twenty-four
month period (whether commencing before or after the effective date of
this Agreement) do not constitute a majority of the Board at the end
of such period, or (d) shareholders of the Bank or the Association
approve a merger, consolidation, sale or disposition of all or
substantially all of the Bank's or the Association's assets, or a plan
of partial or complete liquidation. For the purposes of this
Agreement, transfers made on account of deaths or gifts, transfers
between family members or transfers to a qualified retirement plan
maintained by the Bank or the Association, shall not be considered in
determining whether there has been a change in control.
Upon a Change of Control, if the Director subsequently suffers a
Termination of Service (voluntary or involuntary), except for cause,
then the Director shall be paid Director Retirement Benefits of two
thousand eight hundred thirty four ($2,834) per month, commencing with
the Retirement Date specified in paragraph III. C. above and
continuing until the death of the Director. Alternatively, the
Director may elect to receive the "Early Retirement Benefit: After
Change in Control" as specified in the Schedule A, as of the date
selected for early retirement. However, if the Director dies before
sixty monthly payments have been made, the Bank shall continue such
monthly payments until a total of sixty (60) monthly payments have
been made, or until the death of the Director's surviving spouse,
whichever occurs earlier. Monthly payments will be increased by two
percent at the end of each calendar year. Director Emeritus Benefits
provided for in paragraph VI above shall not be paid if the Director
receives benefits pursuant to termination following a Change in
Control.
XII. restrictions on funding
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Director
Plan. The Directors or their surviving spouse shall be and remain
simply a general creditor of the Bank in the same manner as any other
creditor having a general claim for matured and unpaid compensation.
The Bank reserves the absolute right, at its sole discretion, to
either fund the obligations undertaken by this Director Plan or to
refrain from funding the same and to determine the extent, nature and
method of such funding. Should the Bank elect to fund this Director
Plan, in whole or in part, through the purchase of life insurance,
mutual funds, disability policies or annuities, the Bank reserves the
absolute right, in its sole discretion, to terminate such funding at
any time, in whole or in part. At no time shall any Director be deemed
to have any lien or right, title or interest in or to any specific
funding investment or assets of the Bank.
XIII. MISCELLANEOUS
A. Status as an Unsecured General Creditor: Notwithstanding anything
contained herein to the contrary: (i) neither the Director, nor
the Director's spouse shall have any legal or equitable rights,
interests, or claims in or to any specific property or assets of
the Bank as a result of this Agreement; (ii) none of the Bank's
assets shall be held in or under any trust for the benefit of the
Director or the Director's spouse or held in any way as security
for the fulfillment of the obligations of the Bank under this
Agreement; (iii) all of the Bank's assets shall be and remain the
general unpledged and unrestricted assets of the Bank; (iv) the
Bank's obligation under this Agreement shall be that of an
unfunded and unsecured promise by the Bank to pay money in the
future; and (v) the Director and the Director's spouse shall be
unsecured general creditors with respect to any benefits which
may be payable under the terms of this Agreement.
Notwithstanding the above, the Director and the Bank acknowledge
and agree that, in the event of a Change in Control and at the
written request of the Director, the Bank shall establish, not
later than the effective date of the Change in Control, a Rabbi
Trust or multiple Rabbi Trusts (the "Trust" or "Trusts") upon
such terms and conditions as the Bank in its sole discretion
deems appropriate and in compliance with applicable provisions of
the Code in order to permit the Bank to make contributions and/or
transfer assets to the Trust or Trusts to discharge its
obligations pursuant to this Agreement. The principal of the
Trust or Trusts and any earnings thereon shall be held separate
and apart from other funds of the Bank to be used exclusively for
discharge of the Bank's obligations pursuant to this Agreement
and shall continue to be subject to the claims of the Bank's
general creditors until paid to the Director or his beneficiaries
in such manner and at such times as specified in this Agreement.
B. Binding Obligation of the Bank and any Successor in Interest: The
Bank shall not merge or consolidate into or with another bank or
sell substantially all of its assets to another bank, firm or
person until such bank, firm or person expressly agree, in
writing, to assume and discharge the duties and obligations of
the Bank under this Director Plan. This Director Plan shall be
binding upon the parties hereto, their successors, beneficiaries,
heirs and personal representatives.
C. Amendment or Revocation: It is agreed by and between the parties
hereto that, during the lifetime of the Director, this Director
Plan may be amended or revoked at any time or times, in whole or
in part, by the mutual written consent of the Director and the
Bank.
D. Gender: Whenever in this Director Plan words are used in the
masculine or neuter gender, they shall be read and construed as
in the masculine, feminine or neuter gender, whenever they should
so apply.
E. Effect on Other Bank Benefit Plans: Nothing contained in this
Director Plan shall affect the right of the Director to
participate in or be covered by any qualified or non-qualified
pension, profit-sharing, group, bonus or other supplemental
compensation or fringe benefit plan constituting a part of the
Bank's existing or future compensation structure. However, in
connection with the establishment of this Director Plan, the
Director is waiving any rights under the Klamath First Federal
Savings and Loan Association Director Emeritus Plan dated August
20, 1996, which waiver is further documented in Schedule B.
F. Headings: Headings and subheadings in this Director Plan are
inserted for reference and convenience only and shall not be
deemed a part of this Director Plan.
G. Applicable Law: The validity and interpretation of this Agreement
shall be governed by the laws of the State of Oregon.
H. 12 U.S.C. Sec. 1828(k): Any payments made to the Director
pursuant to this Director Plan, or otherwise, are subject to and
conditioned upon their compliance with 12 U.S.C. Sec. 1828(k) or
any regulations promulgated thereunder.
I. Partial Invalidity: If any term, provision, covenant, or
condition of this Director Plan is determined by an arbitrator or
a court, as the case may be, to be invalid, void, or
unenforceable, such determination shall not render any other
term, provision, covenant, or condition invalid, void, or
unenforceable, and the Director Plan shall remain in full force
and effect notwithstanding such partial invalidity.
J. Continuation as Director: Neither this Agreement nor the payments
of any benefits hereunder shall be construed as giving to the
Director any right to be retained as a member of the Board of
Directors of the Bank.
XIV. ERISA PROVISION
A. Named Fiduciary and Plan Administrator: The "Named Fiduciary and
Plan Administrator" of this Director Plan shall be Klamath First
Bancorp, Inc., until its resignation or removal by the Board. As
Named Fiduciary and Plan Administrator, the Bank shall be
responsible for the management, control and administration of the
Director Plan. The Named Fiduciary may delegate to others certain
aspects of the management and operation responsibilities of the
Director Plan including the employment of advisors and the
delegation of ministerial duties to qualified individuals.
B. Claims Procedure and Arbitration: In the event a dispute arises
over benefits under this Director Plan and benefits are not paid
to the Director (or to the Director's surviving spouse in the
case of the Director's death) and such claimants feel they are
entitled to receive such benefits, then a written claim must be
made to the Named Fiduciary and Plan Administrator named above
within sixty (60) days from the date payments are refused. The
Named Fiduciary and Plan Administrator shall review the written
claim and if the claim is denied, in whole or in part, it shall
provide in writing within sixty (60) days of receipt of such
claim its specific reasons for such denial, reference to the
provisions of this Director Plan upon which the denial is based
and any additional material or information necessary to perfect
the claim. Such written notice shall further indicate the
additional steps to be taken by claimants if a further review of
the claim denial is desired. A claim shall be deemed denied if
the Named Fiduciary and Plan Administrator fail to take any
action within the aforesaid sixty-day period. If claimants desire
a second review they shall notify the Named Fiduciary and Plan
Administrator in writing within sixty (60) days of the first
claim denial. Claimants may review this Director Plan or any
documents relating thereto and submit any written issues and
comments it may feel appropriate. In their sole discretion, the
Named Fiduciary and Plan Administrator shall then review the
second claim and provide a written decision within sixty (60)
days of receipt of such claim. This decision shall likewise state
the specific reasons for the decision and shall include reference
to specific provisions of the Plan Agreement upon which the
decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Director Plan or the meaning and
effect of the terms and conditions thereof, then claimants may
submit the dispute to an arbitrator for final arbitration. The
arbitrator shall be selected by mutual agreement of the Bank and
the claimants. The arbitrator shall operate under any generally
recognized set of arbitration rules. The parties hereto agree
that they and their heirs, personal representatives, successors
and assigns shall be bound by the decision of such arbitrator
with respect to any controversy properly submitted to it for
determination.
Where a dispute arises as to the Bank's discharge of the Director
"for cause," such dispute shall likewise be submitted to
arbitration as above described and the parties hereto agree to be
bound by the decision thereunder.
In witness whereof, the parties hereto acknowledge that each has
carefully read this Agreement and executed the original thereof on the
first day set forth hereinabove, and that, upon execution, each has
received a conforming copy.
KLAMATH FIRST BANCORP, INC.
Klamath Falls, Oregon
/s/ By: /s/
Witness Rodney N. Murray, Chairman of Board
/s/ /s/
Witness "Director"
SCHEDULE B
WAIVER OF PRIOR PLAN BENEFITS
In consideration for the benefits made available to the Director by
this Agreement, the Director and agrees as follows:
(a) The Director is party to that certain Agreement made with the
Bank entitled the Klamath First Federal Savings and Loan Association
Director Emeritus Plan dated August 20, 1996 (the "Prior Plan
Agreement");
(b) This Agreement and the benefits hereunder are provided as a
substitute for the Prior Plan Agreement and the benefits provided
thereunder;
(c) The Prior Plan Agreement and the benefits thereunder are
hereby terminated effective as of the date of this Agreement;
(d) The Director hereby waives and relinquishes for himself or
herself, and his or her heirs, beneficiaries, legal representatives,
agents, successors and assigns, any and all right, entitlement and
interest that the Director has or may have pursuant to the Prior Plan
Agreement and the benefits thereunder;
(e) The Director accepts the Director Benefits afforded by this
Agreement in full and complete substitution for the benefits otherwise
provided by the Prior Plan Agreement; and the Director acknowledges he
(i) has had an opportunity to consult with advisors of the Director's
own choice in determining to enter into this Agreement and this
Waiver, (ii) understands that the effect of this Waiver is to
terminate, waive and relinquish forever all rights, entitlements and
interests that the Director has or may have under the Prior Plan
Agreement and the benefits thereunder as a condition to receiving the
benefits under this Agreement; and (iii) the Director is entering into
this Agreement and this Waiver voluntarily and with full appreciation
of the effect of doing so.
Dated: 5/21/03 /s/
"Director"
I consent to and agree to be bound by the foregoing Waiver:
/s/ /s/
Director's Spouse Witness
Exhibit 31.1
Certification
I, Kermit K. Houser, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Klamath First
Bancorp, Inc.
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 14, 2003
/s/ Kermit K. Houser
_________________________________
President and Chief Executive Officer
Exhibit 31.2
Certification
I, Marshall J. Alexander, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Klamath First
Bancorp, Inc.
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 14, 2003
/s/ Marshall J. Alexander
_________________________________
Executive Vice President and
Chief Financial Officer
Exhibit 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
OF KLAMATH FIRST BANCORP, INC.
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Klamath First Bancorp, Inc. (the
"Company") on Form 10-Q for the period ended June 30, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
1. the report fully complies with the requirements of Sections 13(a)
and 15(d) of the Securities Exchange Act of 1934, as amended, and
2. the information contained in the report fairly presents, in all
material respects, the company's financial condition and results
of operations.
_/s/ Kermit K. Houser_________________ _/s/ Marshall J. Alexander_______
Kermit K. Houser Marshall J. Alexander
Chief Executive Officer Chief Financial Officer
Dated: August 14, 2003
A signed original of this written statement required by Section 906 has been
provided to Klamath First Bancorp, Inc. and will be retained by Klamath First
Bancorp, Inc. and furnished to the Securities and Exchange Commission or its
staff upon request.