PEOPLES BANKCORP, INC.
GRANTOR TRUST AGREEMENT
PREAMBLE. This Grantor Trust Agreement (the "Trust Agreement") is entered
into effective this 18th day of August, 1998, by and between Peoples Bankcorp,
Inc. (the "Company") and the undersigned non-employee directors (acting by
majority, the "Trustee").
WHEREAS, the Company has entered into, or has expressed an indication to
enter into, the following plans and arrangements (collectively, the
"Arrangements"): the 1999 Stock Option and Incentive Plan, the Management
Recognition Plan, and separate employment or guarantee agreements with its
executive officers; and
WHEREAS, the Company has incurred or expects to incur liability under the
terms of the Arrangements with respect to the benefits payable to the parties
thereto (the "Beneficiaries", which term shall also include any beneficiary of a
deceased party covered by an Arrangement); and
WHEREAS, it is the intention of the Company to establish this trust (the
"Trust") and to contribute assets to the Trust that shall be held therein,
subject to the claims of the Company's general creditors in the event of
Insolvency, as defined in Section 3(a) hereof, until paid to Beneficiaries in
such manner and at such times as specified in the Arrangements; and
WHEREAS, it is the intention of the parties hereto that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Arrangements as unfunded arrangements maintained for the purpose of providing
deferred compensation to a select group of management or highly compensated
individuals for purposes of Title I of the Employee Retirement Income Security
Act of 1974, as amended; and
WHEREAS, it is the intention of the Company to make contributions to the
Trust to provide itself with a source of funds to assist it in the meeting of
its liabilities under the Arrangements.
NOW, THEREFORE, the parties do hereby establish this Trust and agree that
the Trust shall be established and administered as set forth herein:
Section 1. Establishment of Trust
----------------------------------
(a) The Company hereby deposits, or will shortly hereafter deposit in
trust, the sum of $2,500 with the Trustee on or shortly after execution of this
Trust Agreement, which shall constitute the initial principal of the Trust to be
held, administered and dispersed by the Trustee as provided for in this Trust
Agreement.
(b) The Trust shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which the Company is
the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended (the "Code"), and
shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other funds of the Company and shall be used exclusively
as herein set forth. Beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any rights created
under the Arrangements and this Trust Agreement shall be unsecured contractual
rights of the Beneficiaries, as provided for in this Agreement. Any assets held
by the Trust will be subject to the claims of the Company's general creditors
under federal and state law in the event of Insolvency, as defined in
Section 3(a) herein.
1
(e) The Company, in its sole discretion, may at any time, or from time to
time, make additional contributions of cash or other assets to the Trustee to
augment the principal of the Trust to be held, administered, and dispersed by
the Trustee as provided for in this Trust Agreement. Neither the Trustee nor
any Beneficiary shall have any right to compel such additional contributions.
(f) Upon a Change in Control within the meaning of Section 13(e) hereof,
the Company shall, as soon as possible but in no event longer than ten business
days after the Change in Control, make an irrevocable contribution to this Trust
in an amount that is projected to provide the Trust with sufficient funds to pay
each Beneficiary the benefits to which he or she is entitled pursuant to the
Arrangements as in effect on the date of the Change in Control.
Section 2. Payments to Beneficiaries
-------------------------------------
(a) Within 60 days after the end of each calendar year beginning with
1998, the Company shall deliver to the Trustee a schedule (the "Payment
Schedule") which reflects the benefits payable with respect to each Beneficiary,
a formula or other instructions acceptable to the Trustee for determining the
benefits so payable, the form in which such benefits are to be paid (as provided
for or available under the Arrangements), and the date of commencement for
payment of such benefits. Except as otherwise provided herein, the Trustee shall
make payments to Beneficiaries in accordance with such Payment Schedule. The
Trustee shall make provisions for the reporting and withholding of any federal,
state or local taxes that may be required to be withheld with respect to the
payment of benefits pursuant to the terms of the Arrangements and shall pay
amounts withheld to the appropriate taxing authorities or determine that such
amounts have been reported, withheld, and paid by the Company.
(b) Notwithstanding the foregoing, after a Change in Control, the Trustee
shall promptly make payments from the Trust to each and every Beneficiary who
provides the Trustee with a notarized statement specifying the amount payable
and affirming that such amount has both become unconditionally payable pursuant
to one or more of the Arrangements and has not been, and is not being, paid
directly by the Company or its successors; provided that the Trustee shall
provide the Company with notice of such payments promptly, but only after, the
Trustee makes them.
(c) The entitlement of a Beneficiary to benefits under the Arrangements
shall be determined by the Company or such party as may be designated under the
Arrangements, and any claim for such benefits shall be considered and reviewed
under the procedures set forth in the Arrangements.
(d) The Company may make payment of benefits directly to Beneficiaries as
such benefits become due under the terms of the Arrangements. The Company shall
notify the Trustee of its decision to make such payment of benefits prior to the
time benefits are payable to Beneficiaries. In addition, if the principal of
the Trust, and any earnings thereon, are not sufficient to make payments of
benefits in accordance with the terms of the Arrangements, the Company shall
make the balance of each such payment as due. The Trustee shall notify the
Company when existing principal and earnings are insufficient under the Payment
Schedule.
Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary
--------------------------------------------------------------------------
When Company Is Insolvent
-------------------------
(a) The Trustee shall cease payment of benefits to Beneficiaries if the
Company is Insolvent. The Company shall be considered "Insolvent" for purposes
of this Trust Agreement if (i) the Company is unable to pay its debts when the
same become due, or (ii) the Company is determined to be Insolvent by its
primary banking regulator, or (iii) the Company is placed in receivership by its
primary banking regulator due to its Insolvency.
(b) At all times during the existence of this Trust, as provided in
Section l (d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Company under federal and state law as set
forth below.
(c) The Board of Directors and the Chief Executive Officer of the Company
shall have the duty to inform the Trustee in writing of the Company's
Insolvency. If a person claiming to be a creditor of the Company alleges in
writing to the Trustee that the Company has become Insolvent, the Trustee shall
determine whether the
2
Company is Insolvent and, pending such determination, the Trustee shall
discontinue payment of benefits to Beneficiaries.
(1) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person claiming to be a
creditor alleging that the Company is Insolvent, the Trustee shall have no duty
to inquire whether the Company is Insolvent. The Trustee may in all events rely
on such evidence concerning the Company's solvency as may be furnished to the
Trustee and that provides the Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(2) If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments to Beneficiaries, shall
liquidate the Trust's investment, if any, in common stock ("Common Stock") of
the Company, and shall hold the assets of the Trust for the benefit of the
Company's general creditors. Nothing in this Trust Agreement shall in any way
diminish any rights of Beneficiaries as general creditors of the Company with
respect to benefits due under the Arrangements or otherwise.
(3) The Trustee shall resume the payment of benefits to Beneficiaries
in accordance with Section 2 of this Trust Agreement only after the Trustee has
determined that the Company is not Insolvent or is no longer Insolvent.
(d) If the Trustee discontinues the payment of benefits from the Trust
pursuant to Section 3(a) hereof and subsequently resumes such payments, the
first payment following such discontinuance shall include the aggregate amount
of all payments due to Beneficiaries under the terms of the Arrangements for the
period of such discontinuance, provided that there are sufficient assets to make
such payments. The aggregate amount of any payments to Beneficiaries by the
Company, in lieu of the payments provided for hereunder during any such period
of discontinuance, shall be deducted from any payments made by the Trustee
hereunder.
Section 4. Payments to the Company
-----------------------------------
After the Trust has become irrevocable, the Company shall have no right or
power to direct the Trustee to return to the Company or to divert to others any
of the Trust assets before all payment of benefits have been made to
Beneficiaries pursuant to the terms of the Arrangements, except as provided for
in Section 3 hereof.
Section 5. Investment Authority
--------------------------------
(a) The Trustee shall have the sole discretion as to the investment of
Trust assets, provided that the Trustee (i) shall invest Trust assets in a
manner reasonably anticipated to provide the Trust with assets sufficient to
fund the Company's obligations under the Arrangements, and (ii) shall follow any
investment directions provided by the Company prior to a Change in Control.
(b) All rights associated with assets of the Trust shall be exercised by
the Trustee or the person designated by the Trustee, and shall in no event be
exercisable by or through Beneficiaries, except that voting rights with respect
to any Common Stock held by the Trust will be exercised by the Trustee only
"FOR" proposals endorsed by the Company's Board of Directors. The Company shall
have the right in its sole discretion, to substitute assets of equal fair market
value for any assets held by the Trust. This right is exercisable by the
Company in a non-fiduciary capacity without consent of any person in a fiduciary
capacity.
(c) Subject to applicable federal and state securities laws, if for any
reason the Trustee determines that it is appropriate to sell shares of Common
Stock, the Trustee shall first offer to sell such shares to the following
purchasers, in order of priority: first, the Company; second, any benefit plan
maintained by the Company or Ogdensburg Federal Savings & Loan Association (the
"Association"); third, current Directors of the Company or the Association;
fourth, current officers of the Association or the Company; and fifth, members
of the general public (through sales on the open market).
3
Section 6. Disposition of Income
---------------------------------
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be reinvested.
Section 7. Accounting by Trustee
---------------------------------
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements of all transactions, including such specific records as
shall be agreed upon in writing between the Company and the Trustee. Within 60
days following the close of each calendar year, and within 20 days after the
removal or resignation of the Trustee, the Trustee shall deliver to the Company
a written account of its administration of the Trust during such year or during
the period from the close of the last preceding year to the date of such removal
or resignation, reflecting all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable recorded separately), and
reflecting all cash, securities and other property held in the Trust at the end
of such year or as of the date of such removal or resignation, as applicable.
Section 8. Responsibility of Trustee
-------------------------------------
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like objectives, provided, however, that
the Trustee shall incur no liability to any person for any action taken pursuant
to a direction, request or approval given by the Company which is contemplated
by, and in conformity with, the terms of the Arrangements or this Trust
Agreement and is given in writing by the Company. In the event of a dispute
between the Company and a party, the Trustee may apply to a court of competent
jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify the Trustee against
Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments, except in those cases where the Trustee shall have been found by
a court of competent jurisdiction to have acted with gross negligence or willful
misconduct. If the Company does not pay such costs, expenses and liabilities in
a reasonably timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel with respect to any of its
duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
the Trustee shall have no power to name a beneficiary of the policy other than
the Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor the Trustee, or to loan to any person
the proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
may accord the Trust the authority to engage in a business and to receive the
gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Code.
4
Section 9. Compensation and Expenses of Trustee
------------------------------------------------
The Company shall pay all administrative expenses and the Trustee's fees
and expenses relating to the Arrangements and this Trust. If not so paid, the
fees and expenses shall be paid from the Trust.
Section 10. Resignation and Removal of Trustee
-----------------------------------------------
The Trustee may resign at any time by written notice to the Company, which
resignation shall be effective 30 days after the Company receives such notice
(unless the Company and the Trustee agree otherwise). The Trustee may be
removed by the Company on 30 days notice or upon shorter notice accepted by the
Trustee, but only if at least 80% of the Beneficiaries (including Beneficiaries
in pay status) consent in writing to such removal.
If the Trustee resigns or is removed, a successor shall be appointed, in
accordance with Section 11 hereof, by the effective date of resignation or
removal under this section. If no such appointment has been made, the Trustee
may apply to a court of competent jurisdiction for appointment of a successor or
for instructions. All expenses of the Trustee in connection with the proceeding
shall be allowed as administrative expenses of the Trust. Upon resignation or
removal of the Trustee and appointment of a Successor Trustee, all assets shall
subsequently be transferred to the Successor Trustee. The transfer shall be
completed within 60 days after receipt of notice of resignation, removal or
transfer, unless the Company extends the time for such transfer.
Section 11. Appointment of Successor
-------------------------------------
If the Trustee resigns or is removed in accordance with Section 10 hereof,
the Company may appoint any other party as a successor to replace the Trustee
upon such resignation or removal. The appointment shall be effective when
accepted in writing by the new trustee, who shall have all of the rights and
powers of the former trustee, including ownership rights in the Trust assets.
The former trustee shall execute any instrument necessary or reasonably
requested by the Company or the Successor Trustee to evidence the transfer.
Notwithstanding the foregoing, if the Trustee resigns or is removed following a
Change in Control, the Trustee that has resigned or is being removed shall
appoint as its successor a third party financial institution that has trust
powers, is independent of and unrelated to the entity that has acquired or
otherwise obtained control of the Company, and is agreed to in writing by at
least 80% of the Beneficiaries.
A Successor Trustee need not examine the records and acts of any prior
trustee and may retain or dispose of existing Trust assets, subject to Sections
7 and 8 hereof. The Successor Trustee shall not be responsible for, and the
Company shall indemnify and defend the Successor Trustee from, any claim or
liability resulting from any action or inaction of any prior trustee or from any
other past event, or any condition existing at the time it becomes Successor
Trustee.
Section 12. Amendment or Termination
-------------------------------------
(a) This Trust Agreement may be amended by a written instrument executed
by the Trustee and the Company, provided that no such amendment shall either
------
conflict with the terms of the Arrangements, or make the Trust revocable.
--
(b) Notwithstanding subsection (a) hereof, the provisions of this Trust
Agreement and the trust created thereby may not be amended or terminated after
the date a Change in Control occurs, without the written consent of at least 80%
of the number of Beneficiaries.
(c) The Trust shall not terminate until the date on which no Beneficiary
is entitled to benefits pursuant to the terms hereof or of the Arrangements.
Upon termination of the Trust, the Trustee shall return any assets remaining in
the Trust to the Company.
5
(d) The Company may terminate this Trust prior to the payment of all
benefits under the Arrangements upon written approval of the Beneficiaries
entitled to payment of such benefits.
Section 13. Miscellaneous
--------------------------
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Beneficiaries under this Trust Agreement may not
be anticipated, assigned (either at law or in equity), alienated, pledged,
encumbered or subjected to attachment, garnishment, levy, execution or other
legal or equitable process, except pursuant to the terms of the Arrangements and
this Trust Agreement.
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of the State of West Virginia, except to the extent preempted by
federal law.
(d) The Trustee agrees to be bound by the terms of the Arrangements, as in
effect from time to time.
(e) "Change in Control" is defined in the Company's 1999 Stock Option and
Incentive Plan (the "Plan"), and shall be defined in the same manner for
purposes of this Trust. Any amendment to the Plan that modifies its definition
of a "Change in Control" shall be deemed to apply with equal force, effect, and
timing to the definition of Change in Control for purposes of this Trust, except
that a modification that may adversely affect a Beneficiary shall be ineffectual
as to the Beneficiary unless he or she consents in writing to be bound by the
modification.
Section 14. Effective Date.
---------------------------
The effective date of this Trust Agreement shall be the date referenced in
the Preamble.
6
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has caused
this Trust Agreement to be executed, and its corporate seal affixed, and the
Trustees have executed this Trust Agreement, on the date referenced in the
Preamble.
PEOPLES BANKCORP, INC.
Witnessed by:
__________________________________ By ___________________________________
Its Chairman of the Board
TRUSTEES
Witnessed by:
__________________________________ ______________________________________
Witnessed by:
__________________________________ ______________________________________
Witnessed by:
__________________________________ ______________________________________
Witnessed by:
__________________________________ ______________________________________
7
