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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made this 1st Day of
December, 1998, by and between Mercantile Bank Corporation, a Michigan
corporation (the "Company"), Mercantile Bank of West Michigan, a Michigan
banking corporation (the "Bank", and collectively with the Company, the
"Employers", and each an "Employer"), and Xxxxxxx X. Xxxxx (the "Employee").
RECITALS
A. The Employee has served as the President and Chief Operating
Officer of the Company and the Bank.
B. The Employers and the Employee expect that the Employee will
continue as the President and Chief Operating Officer of the Company and the
Bank and wish to describe the terms of such employment in this Agreement.
C The Employers believe that entering into this Agreement is in the
best interest of their respective shareholders.
D The Employee believes that entering into this Agreement is in his
best interest.
TERMS OF AGREEMENT
In consideration of the mutual covenants and obligations set forth in
this Agreement, to induce the Employee to remain in the employment of the
Employers, and for other good and valuable consideration, the Employers and the
Employee agree as follows:
1. Employment , Term, and Acceptance: The Company and the Bank each
agree to employ the Employee as its President and Chief Operating Officer for
the period from December 1, 1998 through December 31, 2001 (the "Employment
Period"), unless such employment is terminated earlier pursuant to Section 7 or
8 of this Agreement.
The Employee hereby accepts such employment.
2. Duties and Authority:
2.1 Promotion of Employers' Interest. While employed as the
President and Chief Operating Officer of the Company and the Bank, the Employee
shall devote his business time and attention to the business and affairs of the
Employers, and shall use his efforts and abilities to promote the interests of
the Employers.
2.2 Performance of Duties. The Employee shall perform such
services and duties necessary or appropriate for the management of the Employers
as are normally expected of persons appointed to president and chief operating
officer positions in the businesses in which the Employers are engaged.
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3. Cash Compensation. For all services to be performed by the Employee
under this Agreement (including services as an officer, employee, director, or
member of any board committee), the Bank shall pay the Employee an annual base
salary (prorated for any partial year) of (a) One Hundred Fifty Thousand Dollars
($150,000) for the period from December 1, 1998 through June 30, 1999, (b) One
Hundred Seventy Thousand Dollars ($170,000) for the period from July 1, 1999
through December 31, 1999 , and (c) for the periods from January 1, 2000 through
December 31, 2000, and January 1, 2001 through December 31, 2001, amounts not
less than One Hundred Seventy Thousand Dollars ($170,000) as are determined by
the Board of Directors of the Bank, such determination to be made for each
period prior to the beginning of such period ("Base Cash Compensation"); payable
in each case in accordance with the then prevailing payroll practices of the
Bank. To the extent that the date of any change in rate of compensation provided
for clause (a), (b) or (c) above does not coincide with the first day of a
payroll period of the Bank, such change in rate of compensation shall become
effective as of the first day of the payroll period that includes such date. As
a one time adjustment, the Bank shall also pay the Employee within twenty (20)
days after the execution of this Agreement a one time payment of $5,000, which
is an amount equal to the difference between the compensation paid to the
Employee for October and November of 1998, and the amount he would have been
paid if his annual base salary had been increased to One Hundred and Fifty
Thousand Dollars ($150,000) effective October 1, 1998. In addition to the Base
Cash Compensation and one time adjustment described above, the Employee will be
entitled to such bonuses and other discretionary compensation as may be awarded
to him from time to time by the Board of Directors of either of the Employers.
4. Participation in Employee Benefit Plans. In addition to the cash
compensation payable to the Employee under this Agreement, the Employee shall be
entitled to participate in such employee benefit plans, whether contributory or
non-contributory, such as group life and disability insurance plans, hospital,
surgical, vision and dental benefit plans or other bonus incentive, profit
sharing, stock option, retirement or other employee benefit plans of the
Employers as may now or hereafter exist to the extent that the Employee meets
the eligibility requirements of any such plans. All such group life and
disability insurance plans, and hospital, surgical, vision and dental benefit
plans are hereafter referred to as ("Life, Disability and Medical Plans"). It is
specifically agreed that the Employee shall be entitled to participate in the
incentive compensation plan described in Exhibit A to this Agreement.
5. Out of Pocket Expenses. The Employee will be reimbursed by the Bank
or the Company, as the case may be, for all reasonable expenses incurred in
promoting their respective businesses; including expenses for entertainment,
travel and similar items upon the presentation by Employee, from time to time,
of an itemized account of such expenditures in a form and manner as determined
by the Board of Directors or the chief financial or accounting officer of the
Employer for whose account the expenditures are made.
6. Vacations. The Employee shall be entitled each year to four (4)
weeks paid vacation time. The Employee will not be entitled to additional
compensation for vacation time not
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utilized in any year nor will the Employee be permitted to carry over unused
vacation time to a succeeding year.
7. Termination of Employment Upon Disability or Death
7.1 Disability. In the event the Employee shall become mentally
or physically disabled during the Employment Period and unable to perform the
material duties of his employment for ninety (90) days or more because of
illness, accident, or any other cause ("Disability"), the Bank or the Company
may terminate the Employee's employment under this Agreement by giving him
written notice of such termination ("Disability Termination Notice"). In the
event of any such termination during the Employment Period, the Bank shall
continue to pay the employee his Base Cash Compensation, at the rate in effect
immediately prior to the giving of the Disability Termination Notice, through
the end of the Employment Period (through December 31, 2001). In addition, the
Employers shall cover the Employee under their disability plans, if any, in
effect from time to time under the terms and conditions that such coverage is
made available to other employees of the respective Employers, and the Employee
shall be entitled to any benefits payable to him under such disability plans.
While disabled, the Bank shall continue to provide the Employee and his
dependents with coverage under its Life, Disability and Medical Plans until the
Employee reaches the age of sixty-five (65) years old to the extent that it may
do so under the provisions of such plans, with the Employee's contribution to
the premiums under such plans being no more than the amounts he paid for such
premiums prior to his disability, adjusted from time to time for normal periodic
increases in such premiums applied in general to employees of the Bank.
7.2 Death. In the event of the death of the Employee, his
employment with the Employers shall terminate as of the date of his death.
Promptly following his death, the Bank shall pay to his legal representative a
death benefit of $250,000. In addition, any life insurance policies owned by the
Bank or the Company, and insuring the life of the Employee shall be payable to
the beneficiaries of such policies in accordance with the terms of such
policies.
7.3 Extent of Obligations. The provisions of Sections 7.1 and
7.2 apply only to Disability or death occurring during the Employment Period
while the Employee is employed by the Bank and the Company. Other than as set
forth in Section 7.1 or 7.2, neither of the Employers shall have any obligation
or liability to the Employee upon the employee's death or Disability except that
the Employee shall be entitled to all of his accrued rights under stock option,
retirement and other employee benefit plans of the Company and the Bank, and the
Bank shall promptly pay the Employee (or his personal representative) his Base
Cash Compensation due through the effective date of the termination of his
employment, the cash equivalent of any accrued vacation days not taken as of
such effective date (calculated based on the Employee's annual base salary
attributable to each vacation day), and any out-of -pocket expenses for which
the Employee is entitled to be reimbursed, and for which reimbursement has not
yet been made.
8. Termination of Employment for Cause, Without Cause, Good Reason,
or Without Good Reason.
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8.1 Termination by an Employer for Cause. Each of the
Employers shall have the right, at any time, to terminate the Employee's
employment for Cause (as defined herein), within 90 days of the Employer's
learning of such Cause. For purposes of this Agreement, the term "Cause" means
(a) an act or acts of dishonesty committed by the Employee and intended by the
Employee to result in the Employee's substantial personal enrichment at the
expense of the Company or the Bank, (b) continuing intentional gross neglect by
the Employee of his duties under Section 2 of this Agreement which cause or are
expected to cause material harm to the Company or the Bank, and which is not
remedied after receipt of notice from the applicable Employer, (c) the
Employee's conviction of a felony, or (d) the Employee's intentional breach of
his obligations under Section 10 or 11 which causes or may be expected to cause
material harm to the Company or the Bank. Any termination for Cause shall be
effective upon an Employer giving the Employee written notice that the
Employee's employment is terminated, and setting forth in reasonable detail the
basis for such termination, and that such termination is for Cause. Any such
notice shall terminate the Employee's employment with both Employers.
8.2 Termination by an Employer Without Cause. Each of the
Employers shall have the right at any time to terminate the Employee's
employment without Cause by giving the Employee written notice that the
Employee's employment is terminated, and setting forth in reasonable detail the
basis, if any, for such termination. Any such termination shall be effective
upon the giving of such notice by the Employer.
8.3 Termination by Employee for Good Reason. The Employee
shall have the right at any time to terminate his employment under this
Agreement for Good Reason (as defined herein) within ninety (90) days of
learning of such Good Reason. For purposes of this Agreement, the term "Good
Reason" means (a) any assignment to the Employee of any title or duties that are
materially inconsistent with the Employee's present positions, titles, duties,
or responsibilities, other than an insubstantial or inadvertent action which is
remedied by the applicable Employer promptly after receipt of written notice
from the Employee, or which is approved of by the Employee in writing; (b) any
failure by an Employer to comply in a material respect with any provision of
Section 3, 4, 5, or 6, other than a insubstantial or inadvertent failure which
is remedied by the applicable Employer promptly after receipt of written notice
from the Employee. Any termination for Good Reason shall be effective upon the
Employee giving the Employers written notice that the Employee is terminating
his employment, and setting forth in reasonable detail the basis for such
termination, and that such termination is for Good Reason. Any such termination
shall be effective upon the giving of such notice by the Employee; and any such
notice shall terminate his employment with both Employers.
8.4 Termination by Employee Without Good Reason. The Employee
shall have the right at any time to terminate the Employee's employment with
both Employers without Good Reason by giving the Employers written notice that
the Employee is terminating his employment. Any such termination shall apply to
the Employee's employment with both Employers and be effective ninety (90) days
after the giving of such notice by the Employee.
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8.5 Obligation of Employers upon Termination without Cause or
Employee's Termination with Good Reason. In the event that during the Employment
Period, an Employer terminates the Employee's employment without Cause under
Section 8.2, or the Employee terminates his employment for Good Reason under
Section 8.3; or the Employee's employment is terminated for any other reason
except (i) for Cause under Section 8.1, (ii) without Good Reason under Section
8.4, or (iii) for Disability or death pursuant to Section 7; the Bank shall pay
and provide (and to the extent the insurance referred to in Section 8.5(d) is
owned by the Company, the Company shall provide) to the Employee the following:
(a) to the extent not previously paid, the Employee's Base
Cash Compensation due through the effective date of the termination of
employment, the cash equivalent of any accrued vacation days not taken as of
such effective date (calculated based on the Employee's annual base salary
attributable to each vacation day), and any out-of -pocket expenses for which
the Employee is entitled to be reimbursed, and for which reimbursement has not
yet been made; payable within ten (10) days of such effective date, plus
(b) an amount equal to the greater of (i) the Base Cash
Compensation payable to the Employee for the remainder of the Employment Period
(i.e. through December 31, 2001), or (ii) $425,000; in either case, payable in
eighteen (18) substantially equal monthly installments commencing within thirty
(30) days after the effective date of the termination of employment; plus
(c) coverage for the Employee and his dependents under the
Bank's Life, Disability, and Medical Plans for the eighteen (18) month period
commencing on the effective date of the termination of employment to the extent
that the Bank may do so under the provisions of such plans, and to the extent
that it is not permitted to do so shall pay the Employee an amount that will
permit him to obtain and pay for substantially equivalent coverage; plus
(d) any life insurance policies owned by the Bank or the
Company insuring the life of the Employee, to the extent that they may be
practically assigned or transferred to the Employee; plus
(e) $10,000 for out-placement, interim office, and related
expenses.
In addition, the Employee shall be entitled to all of his accrued rights under
stock option, retirement, and other employee benefit plans of the Company and
the Bank,
8.6 Obligation of Employers upon Termination for Cause or by
Employee without Good Reason. In the event that during the Employment Period, an
Employer terminates the Employee's employment for Cause as provided for in
Section 8.1, or the Employee terminates his employment without Good Reason as
permitted in Section 8.4; the Bank shall pay and provide to the Employee, to the
extent not previously paid, the Employee's Base Cash Compensation due through
the effective date of the termination of employment, plus the cash equivalent of
any
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accrued vacation days not taken as of such effective date (calculated based
on the Employee's annual base salary attributable to each vacation day), within
ten (10) days of such effective date. In addition, the Employee shall be
entitled to all of his accrued rights under stock option (except with respect to
stock option plans, in the event of termination for Cause), retirement, and
other employee benefit plans of the Company and the Bank,
8.7 No Other Obligations of Employers upon Termination. Upon
termination of the Employee's employment, the Employers shall have no
obligations to the Employee except as set forth in this Agreement, or accrued
rights under stock option, retirement, or other employee benefit plans of either
Employer.
9 Severance Payments on Termination after the Employment Period. If
at any time after the Employment Period, (a) the Employee's employment with the
Bank is terminated by the Bank without Cause, or (b) the Employee's annual base
salary from the Bank is reduced without his consent and without Cause, and in
the case of either (a) or (b) the Employee, within ninety (90) days thereafter,
terminates his employment with the Bank; then unless the termination of
employment or reduction in annual base salary resulted from the death or
Disability of the Employee, the Bank shall pay and provide (and to the extent
the insurance referred to in Section 8.5(d) is owned by the Company, the Company
shall provide) to the Employee the following: (a) the amounts, coverage,
benefits and life insurance provided for in Section 8.5 (a), (c), (d) and (e),
plus (b) $425,000, payable in eighteen (18) substantially equal monthly
installments commencing within thirty (30) days after the effective date of the
termination of employment. In addition, the Employee shall be entitled to all of
his accrued rights under stock option (except with respect to stock option
plans, in the event of termination for Cause), retirement, and other employee
benefit plans of the Company and the Bank,
10. Confidential Information. Employee agrees that he will not at any
time (whether during his employment or at any time thereafter) disclose to any
person, corporation, firm, partnership or other entity, except as required by
law, any secret or confidential information concerning the business, clients or
affairs of the Company or the Bank, or any of their affiliates, for any reason
or purpose whatsoever other than in furtherance of the Employee's work for the
Company or the Bank, nor shall the Employee make use of any of such secret or
confidential information in any manner adverse to the Company or the Bank.
11. Noncompetition Covenant. For a period of eighteen (18) months
following the termination of Employee's employment with the Employers, Employee
will not be employed by or act as a director or officer of any business
involving or engaged in the business of banking within a 50-mile radius of the
City of Grand Rapids, Michigan, where such business engages in soliciting,
directly or indirectly, customers of the Bank.
12. Remedies under Section 10 and 11. The Employee acknowledges and
agrees that his obligations under Sections 10 and 11 are of a special and unique
nature and that a failure to
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perform any such obligation or a violation of any such obligation would cause
irreparable harm to the Employers, the amount of which cannot be accurately
compensated for in damages by an action at law. In the event of a breach by the
Employee of any of the provisions of Section 10 or 11, the Company and the Bank
shall be entitled to an injunction restraining the Employee from such breach.
Nothing in this Section shall be construed as prohibiting the Company or the
Bank from pursuing any other remedies available for any breach of this
Agreement.
13. Deduction of Taxes. Each Employer may deduct from any amounts
required to be paid to the Employee under this Agreement any amounts required to
be withheld by the Employer pursuant to federal, state, or local law relating to
taxes or related payroll deductions.
14. Objection to Termination and Legal Fees. The termination of the
Employee's employment pursuant to this Agreement shall not preclude any Employer
or the Employee from objecting to the basis asserted by the terminating party
for such termination. The Employers agree to pay all reasonable legal fees and
expenses incurred by the Employee in enforcing his rights under this Agreement,
except with respect to claims made by the Employee that are rejected by a court
(or any arbitrator sitting by agreement of the parties) to which such claims are
presented; provided that the Employers' obligation to pay legal fees and
expenses under this Section shall not exceed $10,000 in aggregate amount.
15. Adjustment between the Company and the Bank. The Company and the
Bank acknowledge that although the Employee is generally paid solely by the
Bank, he also performs some services for the Company, and the Company pays the
Bank periodically an amount necessary to reimburse the Bank for amounts paid to
the Employee by the Bank for services actually rendered to the Company.
16. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if personally delivered or sent
by registered or certified United States mail or by a nationally recognized
overnight courier service, to his residence or the last address he has provided
in writing to the Employers, in the case of the Employee, or to its principal
office in the case of an Employer. For purposes of this Agreement, notices shall
be deemed given when received at the address or office specified in the
preceding sentence.
17. Waiver of Breach. No waiver by either party of any breach or
non-performance of any provision or obligation of this Agreement shall be deemed
to be a waiver of any preceding or succeeding breach of the same or any other
provision of this Agreement.
18. Assignment. The rights and obligations of each Employer under this
Agreement shall inure to the benefit of and shall be binding upon them and their
respective successors and assigns. As used in this Agreement, the term
"successor" shall include any person, firm, corporation, or other business
entity which at any time whether by merger, purchase or otherwise acquires all
or substantially all of the assets or business of an Employer.
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19. Entire Agreement. This instrument contains the entire Agreement of
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements or understandings between the parties hereto relating to the
subject matter hereof. This Agreement may not be changed orally but only by an
agreement in writing signed by the Employee and the Employers.
20. Severability. If a court of competent jurisdiction determines that
any one or more of the provisions of this Agreement is invalid, illegal or
unenforceable in any respect, such determination shall not affect the validity,
legality or enforceability of any other provision of this Agreement.
21. Governing Law. This Agreement and the legal relations between the
parties shall be subject to and governed by the internal laws (and not the law
of conflicts) of the State of Michigan.
The parties have executed this Agreement as of the day and year first
above written.
MERCANTILE BANK CORPORATION
By: /s/ Xxxxxx X. Xxxxxxx, Xx.
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Name: Xxxxxx X. Xxxxxxx, Xx.
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Its: Chairman
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MERCANTILE BANK OF WEST MICHIGAN
By: /s/ Xxxxxx X. Xxxxxxx, Xx.
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Name: Xxxxxx X. Xxxxxxx, Xx.
---------------------------------
Its: Chairman
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EMPLOYEE
/s/ Xxxxxxx X. Xxxxx
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Xxxxxxx X. Xxxxx
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EXHIBIT A
TO: MERCANTILE BANK CORPORATION/MERCANTILE BANK OF WEST
MICHIGAN BOARDS OF DIRECTORS
FROM: XXXXXX X. XXXXXXX, XX.
SUBJECT: PROPOSED 1998 BONUS PLAN
DATE: FEBRUARY 17, 1998
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The 1998 Bonus Plan is designed to reflect the fact that the directors and
management of Mercantile Bank of West Michigan and Mercantile Bank Corporation
believe that the company's shareholders are willing to share financially in
operating results that are superior to those forecast by the company and
approved by the Board of Directors. Consequently, the following bonus plan is
proposed for 1998. It should be noted that the non-lender portion of the plan
will probably not be utilized, because payout under the plan requires positive
earnings results.
PROPOSED 1998 EMPLOYEE BONUS PLAN
Lenders receive $500/$MM in increase in outstandings from computation
period to computation period.
Lenders also receive 5% of fees generated.
Increases in outstandings do not include any Reg. O loans.
Total payout is reduced by 3% of chargeoffs in the lender's portfolio.
Payout is on a quarterly basis and is contingent on the resolution of all
major collateral and file exceptions.
EXAMPLE:
Outstandings: 20,000,000
Fees: 25,000
$500/$MM: 10,000
5% of fees: 1,250
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Payout 11,250 (No charge-off's reported)
Non-lenders receive $0.33 for every $1.00 over budgeted net operating
income.
Maximum payouts are calculated as a percentage of salary as follows:
Chairman, President, Senior Vice President(s): 25.0% of salary
Vice Presidents 20.0% of salary
Assistant Vice Presidents 10.0% of salary
Officers 7.5% of salary
Non-officer employees: 5.0% of salary
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PROPOSED 1998 BONUS PLAN PAGE 2
The following example illustrates the payout percentages and monetary
awards a non-lender bonus plan participant would receive from a $40,000
bonus pool based on salary level at time of award:
SALARY MAX. BONUS MAX. BONUS % OF BONUS $ BONUS FROM $ BONUS AS
% $ $ POOL $40,000 POOL % OF SALARY
150,000 25.0% 37,500 73.9% 29,557 19.7$
55,000 20.0% 11,000 21.7% 8,670 15.8%
30,000 7.5% 2,250 4.4% 1,773 5.9%
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50,750 100.0% 40,000
Payouts under both the lender and non-lender bonus plans are contingent
upon the recipient's employment status at the time of award. If an employee
terminates his or her association with Mercantile Bank of West Michigan,
any accrued but unpaid bonus award is cancelled.
