Employment Agreement between Bancorp 34, Inc. and James T. Crotty

This Employment Agreement (the “Agreement”) is entered into as of the 30^th day of July, 2020, and made effective as of July 20, 2020 (the “Effective Date”), by and between Bancorp 34, Inc. (the “Company”) and James T. Crotty (“Executive”).  Any reference to the “Bank” shall mean Bank 34, the wholly-owned subsidiary of the Company.

WHEREAS, the Company wishes to assure itself of the continued services of Executive for the period provided in this Agreement; and

WHEREAS, in order to induce Executive to accept employment with the Company and to provide further incentive for Executive to achieve the financial and performance objectives of the Company, the parties desire to enter into this Agreement; and

WHEREAS, the Company desires to set forth the rights and responsibilities of Executive and the compensation payable to Executive, as modified from time to time.

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:

During the term of this Agreement, Executive agrees to serve initially as the Co-President and Chief Executive Officer of the Company, and agrees to serve subsequently as the President and Chief Executive Officer of the Company (the “Executive Position”) and will perform the duties and will have all powers associated with such position as set forth in any job description provided to Executive by the Company, and as may be set forth in the bylaws of the Company.  During the period provided in this Agreement, Executive also agrees to serve, if elected, as an officer of any subsidiary or affiliate of the Company and in such capacity carry out such duties and responsibilities reasonably appropriate to that office.

(a) The term of this Agreement and the period of Executive’s employment hereunder shall begin as of the Effective Date and shall, initially, continue through the second anniversary of the Effective Date.  Commencing on January 1, 2021 (the “Renewal Date”) and continuing on each January 1st thereafter (each a “Renewal Date”), this Agreement shall renew for an additional year such that the remaining term shall be twenty-four (24) months, provided, however, that in order for this Agreement to renew, the disinterested members of the Board of Directors of the Company (the “Board”) must take the following actions within the time frames set forth below prior to each Renewal Date:  (i) at least sixty (60) days prior to the Renewal Date, conduct a comprehensive performance evaluation and review of Executive for purposes of determining whether to extend this Agreement; and (ii) affirmatively approve the renewal or non-renewal of this Agreement, which such decision shall be included in the minutes of the Board’s meeting.  If the decision of such disinterested members of the Board is not to renew this Agreement, then the Board shall provide Executive with a written notice of non-renewal (“Non-Renewal Notice”) at least thirty (30) days and not more than sixty (60) days prior to any Renewal Date, such that this Agreement shall terminate at the end of twenty-four (24) months following such Renewal Date.  The failure of the disinterested members of the Board to take the actions set forth herein before any Renewal Date will result in the automatic non-renewal of this Agreement, even if the Board fails to affirmatively issue the Non-Renewal Notice to Executive.  If the Board fails to inform Executive of its determination regarding the renewal or non-renewal of this Agreement, the Executive may request, in writing, the results of the Board’s action (or non-action) and the Board shall, within thirty (30) days of the receipt of such request, provide a written response to Executive.  Reference herein to the term of this Agreement shall refer to both such initial term and such extended terms.

(b) Notwithstanding the foregoing, in the event that the Company or the Bank has entered into an agreement to effect a transaction which would be considered a Change in Control as defined under Section 5 hereof while the Executive is employed pursuant to this Agreement, then the term of this Agreement shall automatically be extended for twenty-four (24) months following the date on which the Change in Control occurs.

(c) During the period of his employment hereunder, except for periods of absence occasioned by illness, reasonable vacation periods, and reasonable leaves of absence, Executive will devote all of his business time, attention, skill and efforts to the faithful performance of his duties under this Agreement, including activities and duties related to the Executive Position.  Notwithstanding the preceding sentence, subject to the approval of the Board, Executive may serve as a member of the board of directors of business, community and charitable organizations, provided that in each case such service shall not materially interfere with the performance of his duties under this Agreement, adversely affect the reputation of the Company or any other affiliates of the Company, or present any conflict of interest.

(d) Nothing in this Agreement shall mandate or prohibit a continuation of Executive’s employment following the expiration of the term of this Agreement.

(a) Base Salary.  In consideration of Executive’s performance of the responsibilities and duties set forth in this Agreement, the Company will provide Executive the compensation specified in this Agreement.  The Company will pay Executive a salary of $260,000.00 per year (“Base Salary”).  Such Base Salary will be payable in accordance with the customary payroll practices of the Company.  During the term of this Agreement, the Board may consider increasing, but not decreasing (other than a decrease which is applicable to all senior officers of the Company and in a percentage not in excess of the percentage decrease for other senior officers), Executive’s Base Salary as the Board deems appropriate.  Any change in Base Salary will become the “Base Salary” for purposes of this Agreement.

(b) Retention Bonus.  Executive shall be entitled to a retention bonus of $200,000.00 payable ratably over a five-year period, on each annual anniversary of the Executive’s employment date.  The net after-tax value of these funds is expected to be used to purchase Company common stock, unless the value of Executive’s then investment in Company common stock, excluding Company provided equity benefits, exceeds the cumulative retention bonus paid through such anniversary date.

(c) Regular Bonuses.  Based upon achievement of the goals and objectives agreed to in the performance development planning process with the Board, Executive may be eligible for a performance or other bonuses, in accordance with any plan established for senior officer of the Company or solely for Executive.  Any bonus plan in which Executive shall be entitled to participate, and the formula for determining such bonus, shall be approved by the Board from year to year.

(d) Company Stock Options.  Upon the successful completion of 90 days of employment, Executive shall receive a grant of 25,000 Company stock options, which will vest in equal annual installments over a five-year period on each annual anniversary of the grant date, provided Executive remains in employment of the Bank on such date and subject to such other terms and conditions as may be set forth in a stock option award agreement among the Company and Executive.

(e) Benefit Plans.  Executive will be entitled to participate in all employee benefit plans, arrangements and perquisites offered to employees and officers of the Company.  Without limiting the generality of the foregoing provisions of this Section 3(e), Executive also will be entitled to participate in any employee benefit plans including but not limited to retirement plans, pension plans, profit-sharing plans, health-and-accident plans, or any other employee benefit plan or arrangement made available by the Company in the future to management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements.  In addition, Executive will be entitled to participate in a non-qualified deferred compensation plan which will allow the Executive to defer up to 100% of his Base Salary per year, subject to applicable tax withholding.  Executive will also receive a $600.00 automobile allowance per month of employment and a $100.00 monthly cell phone allowance.

(f) Vacation and Paid Time Off.  Executive will be entitled to paid vacation time each year during the term of this Agreement measured on a calendar year basis, in accordance with the Company’s customary practices, as well as sick leave, holidays and other paid absences in accordance with the Company’s policies and procedures for officers.  Executive will be entitled to 25 days of paid time off annually.

(g) Expense Reimbursements.  The Company will reimburse Executive for all reasonable travel, entertainment and other reasonable expenses incurred by Executive during the course of performing his obligations under this Agreement, including, without limitation, fees for memberships in such organizations as Executive and the Board mutually agree are necessary and appropriate in connection with the performance of his duties under this Agreement, upon substantiation of such expenses in accordance with applicable policies and procedures of the Company.  All reimbursements pursuant to this Section 3(g) shall be paid promptly by the Company and in any event no later than thirty (30) days following the date on which the expense reimbursement was requested, provided however, that any such expense is reimbursed no later than the last day of the calendar year immediately following the year in which the expense is incurred.

(h) To the extent not specifically set forth in this Section 3, any compensation payable or provided under this Section 3 shall be paid or provided no later than two and one-half (2.5) months after the calendar year in which such compensation is no longer subject to a substantial risk of forfeiture within the meaning of Treasury Regulation Section 1.409A-1(d).

Subject to Section 5 of this Agreement which governs the occurrence of a Change in Control, Executive’s employment under this Agreement may be terminated in the following circumstances:

(a) Death.  Executive’s employment under this Agreement will terminate upon his death during the term of this Agreement, in which event Executive’s estate or beneficiary shall be paid Executive’s Base Salary at the rate in effect at the time of Executive’s death for a period of one (1) year following Executive’s death (payable in accordance with the regular payroll practices of the Company).

(b) Disability.  Termination of Executive’s employment based on “Disability” shall mean termination because of any permanent and totally physical or mental impairment that restricts Executive from performing all the essential functions of normal employment.  In the event of Executive’s termination due to Disability, Executive will be entitled to disability benefits, if any, provided under a long term disability plan sponsored by the Company, if applicable.

(c) Termination for Cause.  The Board may immediately terminate his employment at any time for “Cause.”  Executive shall have no right to receive compensation or other benefits for any period after termination for Cause, except for already vested benefits.  Termination for “Cause” shall mean termination because of, in the good faith determination of the Board, Executive’s:

(d) Voluntary Termination by Executive.  In addition to his other rights to terminate his employment under this Agreement, Executive may voluntarily terminate employment during the term of this Agreement (other than “With Good Reason” as defined below) upon at least thirty (30) days prior written notice to the Board.  Upon Executive’s voluntary termination, Executive will receive only his earned but unpaid compensation and vested rights and benefits as of the date of his termination.

(e) Termination Without Cause or With Good Reason.

(a) Change in Control Defined.  For purposes of this Agreement, the term “Change in Control” shall mean the occurrence of any of the following events:

(b) Change in Control Benefits.  Upon the occurrence of Executive’s termination Without Cause or With Good Reason on or after the effective time of a Change in Control, the Company (or any successor) shall pay Executive, or in the event of Executive’s subsequent death, Executive’s beneficiary or estate, as severance pay, an amount equal to three (3) times the sum of (i) his highest rate of Base Salary, and (ii) the highest annual bonus paid to, or earned by, Executive during the current calendar year of Executive’s date of termination or either of the two (2) calendar years immediately preceding Executive’s date of termination.  Such payment shall be made in a lump sum within ten (10) days following Executive’s date of termination.  Notwithstanding the foregoing, the payment provided in this Section 5(b) shall be payable to Executive in lieu of any payment that is payable under Section 4(e).

(c) Termination within Six Months Prior to Change in Control.  In the event of Executive’s termination of employment under Section 4(e) within six (6) months prior to a Change in Control, Executive shall be entitled to the difference, if any, between the benefit received under Section 4(e) and the benefit available to Executive under this Section 5 upon the effective date of the Change in Control.  Such benefit shall be payable in a cash lump sum payment to the former Executive within ten (10) days following the effective date of the Change in Control.

All payments provided in this Agreement shall be timely paid by check or direct deposit from the general funds of the Company (or any successor of the Company).  Notwithstanding any provision in this Agreement to the contrary, there will be no duplication of benefits between this Agreement and any employment agreement to which the Executive may be subject with the Bank.  To the extent payments and benefits, as provided for under this Agreement, are paid or received by Executive under an employment agreement in effect between Executive and the Bank, the payments and benefits paid by the Bank will be subtracted from any amount or benefit due simultaneously to Executive under similar provisions of this Agreement.

This Agreement contains the entire understanding between the parties hereto and supersedes any prior employment agreement between the Company or any predecessor of the Company and Executive, except that this Agreement shall not affect or operate to reduce the re-location assistance offered under the Offer Letter dated June 3, 2020 between the Bank and the Executive or any benefit or compensation inuring to Executive under another plan, program or agreement (other than an employment agreement) between the Company and the Executive.

(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) 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 Company, expressly and unconditionally to assume and agree to perform the Company’s obligations under this Agreement, in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place.

 

(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 be 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.

11.
 REQUIRED PROVISIONS.

Notwithstanding anything herein contained to the contrary, the following provisions shall apply:

(a) The Board may terminate Executive’s employment at any time, but any termination by the Company’s Board other than termination for Cause shall not prejudice Executive’s right to compensation or other benefits under this Agreement.  Executive shall have no right to receive compensation or other benefits for any period after Executive’s termination for Cause.

(b) Notwithstanding anything else in this Agreement to the contrary (with the exception of Section 4(c)(i)), Executive’s employment shall not be deemed to have been terminated unless and until Executive has a Separation from Service within the meaning of Code Section 409A.  For purposes of this Agreement, a “Separation from Service” shall have occurred if the Company and Executive reasonably anticipate that either no further services will be performed by Executive after the date of termination (whether as an employee or as an independent contractor) or the level of further services performed is less than fifty (50) percent of the average level of bona fide services in the thirty-six (36) months immediately preceding the termination.  For all purposes hereunder, the definition of Separation from Service shall be interpreted consistent with Treasury Regulation Section 1.409A-1(h)(ii).   Notwithstanding the foregoing, this Section 11(b) is not applicable in the event of the Executive’s termination for Cause.

(c) Notwithstanding the foregoing, if Executive is a “specified employee” (i.e., a “key employee” of a publicly traded company within the meaning of Section 409A of the Code and the final regulations issued thereunder) and any payment under this Agreement is triggered due to Executive’s Separation from Service (other than due to Disability or death), then solely to the extent necessary to avoid penalties under Section 409A of the Code, no payment shall be made during the first six (6) months following Executive’s Separation from Service.  Rather, any payment which would otherwise be paid to Executive during such period shall be accumulated and paid to Executive in a lump sum on the first day of the seventh month following such Separation from Service.  All subsequent payments shall be paid in the manner specified in this Agreement.

12.   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.

13.
 GOVERNING LAW. 

This Agreement shall be governed by the laws of State of Arizona, but only to the extent not superseded by federal law.

14.
 ARBITRATION. 

Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by binding arbitration, as an alternative to civil litigation and without any trial by jury to resolve such claims, conducted by a single arbitrator mutually acceptable to the Company and Executive, sitting in a location selected by the Company within fifty (50) miles from the Bank’s office located in Scottsdale, Arizona, in accordance with the rules of the American Arbitration Association’s National Rules for the Resolution of Employment Disputes then in effect.  Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

To the extent that such payment(s) may be made without triggering penalty under Code Section 409A, all reasonable legal fees paid or incurred by Executive pursuant to any dispute relating to this Agreement shall be paid or reimbursed by the Company, provided that the dispute is resolved in Executive’s favor, and such reimbursement shall occur no later than sixty (60) days after the end of the year in which the dispute is settled or resolved in Executive’s favor.

The Company shall provide Executive (including his heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy at its expense, and shall indemnify Executive (and his heirs, executors and administrators) for the term of the Agreement and for a period of six (6) years thereafter to the fullest extent permitted under applicable law against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Company or the Bank or any subsidiary or affiliate of the Company or the Bank (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys’ fees and the cost of reasonable settlements (such settlements must be approved by the Board or the board of directors of the Bank, as appropriate); provided, however, neither the Company nor Bank shall be required to indemnify or reimburse Executive for legal expenses or liabilities incurred in connection with an action, suit or proceeding arising from any illegal or fraudulent act committed by Executive.

17.
 NOTICE.

For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below: