EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Agreement is made this 7th day of June, 2002, by and between
Southern Michigan Bancorp, Inc., a Michigan corporation, (the "Corporation")
and, Xxxx X. Xxxxxx (the "Employee").
WHEREAS, the Board of Directors of the Corporation believes that the
future services of the Employee in the capacity of President and Chief Executive
Officer will be of great value to the Corporation;
WHEREAS, the Corporation operates a wholly owned commercial banking
subsidiary known as Southern Michigan Bank & Trust which is engaged in the
general business of banking, hereinafter the "Bank"; and
WHEREAS, the Employee is willing to serve in the employ of the
Corporation and the Bank on a full-time basis for the term of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the parties hereto have agreed and do hereby
mutually agree as follows:
1. Term -- Agreement to Serve
The Corporation hereby employs for itself, the Bank and or any
additional subsidiaries (hereinafter sometimes collectively referred to
as the "Corporation"), the services of Employee for a period commencing
as of the date first written above and terminating December 31, 2004
(the "Termination Date"), subject to the rights of earlier termination
hereinafter set forth, to perform the duties of President and Chief
Executive Officer for the Corporation and the Bank. The Employee hereby
accepts such employment in consideration of the compensation and the
other terms and conditions herein provided, and agrees to serve the
Corporation well and faithfully and to devote his best efforts to such
employment as long as it shall continue hereunder. During the period of
such employment, the Employee will devote all of his time and attention
-- reasonable vacations, periods of illness and the like excepted -- to
the affairs of the Corporation.
2. Base Salary and Fringe Benefits
Except as otherwise provided herein, as compensation for these services
hereunder, the Corporation will pay to Employee, in installments and on
dates in accordance with its normal payroll, during the period of his
employment hereunder, a base salary at the aggregate rate of one
hundred fifty thousand dollars ($150,000) per year, subject to the
right of the parties, by mutual agreement, to adjust such rate upward
in respect of any future calendar year or years after the date hereof,
(hereinafter referred to as "Base Pay").
In addition the Corporation shall:
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(a) Provide four (4) weeks paid vacation annually.
(b) Reimburse fees and expenses incurred in connection with
business of the Corporation or the Bank including fees for
attendance at banking related conventions and similar items
approved by the Board of Directors.
(c) Provide an executive automobile and pay for the insurance,
maintenance and gasoline utilized by Employee.
(d) Provide a membership to Coldwater Country Club, and such other
clubs as agreed to by the parties from time to time, and pay
for all dues, fees and assessments.
3. Bonus and Options
(a) Subject to the rules and regulations applicable thereto, the
Corporation shall provide for Employee's participation in any
option, incentive employee benefit plans or compensation
programs administered by the Corporation or the Bank or under
its direction, including any employee bonus plans as may
presently exist or are to be placed into effect after the date
hereof.
(b) Corporation shall negotiate in good faith an Incentive Bonus
Plan applicable to Employee and other key officers of the
Corporation, effective as of calendar year 2002.
4. Termination of Employment
The employment of the Employee under the terms of this Agreement shall
cease and terminate as follows:
(a) Expiration of Term
On the Termination Date; or,
(b) Death
On the date of his death; or,
(c) Termination by the Corporation with Cause
For Cause at any time by action of the Board. For purposes
hereof, the term "Cause" shall mean removal by order of a
regulatory agency having jurisdiction over the Corporation or
the Bank, or the Employee's willful and repeated failure to
perform his duties under this Employment Agreement, which
failure has not been cured within thirty (30) days after the
Corporation gives notice thereof to the Employee; it being
expressly understood that negligence or bad judgment shall not
constitute "Cause" so long as such act or omission shall be
without intent of
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personal profit and is reasonably believed by the Employee to
be in or not adverse to the best interests of the Corporation;
or,
(d) Disability
Upon receipt by the Employee of written notice from the
Corporation that, in its opinion, based on reliable medical
evidence, the Employee is unable by reason of permanent
physical or mental disability to continue the proper
performance of his duties hereunder. For purposes of this
Employment Agreement, the Employee's "permanent disability"
shall be deemed to have occurred after one hundred eighty
(180) consecutive days, during which one hundred eighty (180)
days the Employee, by reason of his physical or mental
disability or illness, shall have been unable to discharge his
duties under this Employment Agreement. The date of permanent
disability shall be such one hundred eightieth (180th) day. In
the event either the Corporation or the Employee, after
receipt of notice of the Employee's permanent disability from
the other, dispute that the Employee's permanent disability
shall have occurred, the Employee shall promptly submit to
physical examinations by three physicians in the Coldwater,
Michigan, area and, unless two of such physicians shall issue
their written statement to the effect that in their opinion,
based on their diagnosis, the Employee is capable of resuming
his employment and devoting his full time and energy to
discharging his duties within sixty (60) days after the date
of such statement, such permanent disability shall be deemed
to have occurred; or,
(e) Termination by the Corporation without Cause
At the election of the Corporation, at any time during the
term of this Agreement without cause.
(f) Termination in Connection with a Change in Control.
i) A "Change in Control" shall result if, and shall be deemed to
have occurred on the date of, a transaction pursuant to which:
(a) Any person or group (as such terms are used in connection
with Sections 13(d) and 14(d) of the Exchange Act) becomes
the "beneficial owner" (as defined in Rule 13(d)(3) and
13(d)(5) under the Exchange Act), directly or indirectly,
of securities of the Corporation representing 50% or more
of the combined voting power of the Corporation's then
outstanding securities;
(b) A merger, consolidation, sale of assets, reorganization,
or proxy contest is consummated and, as a consequence of
which, members of the Board in office immediately prior to
such transaction or event constitute less than a majority
of the Board thereafter;
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(c) During any period of 24 consecutive months, individuals
who at the beginning of such period constitute the Board
(including for this purpose any new director whose
election or nomination for election by the Corporation's
stockholders was approved by a vote of at least one-half
of the directors then still in office who were directors
at the beginning of such period) cease for any reason to
constitute at least a majority of the Board; or
(d) A merger, consolidation or reorganization is consummated
with any other corporation pursuant to which the
shareholders of the Corporation immediately prior to the
merger, consolidation or reorganization do not immediately
thereafter directly or indirectly own more than fifty
percent (50%) of the combined voting power of the voting
securities entitled to vote in the election of directors
of the merged, consolidated or reorganized entity.
Notwithstanding the foregoing, no trust department or designated
fiduciary or other trustee of such trust department of the Corporation
or a subsidiary of the Corporation, or other similar fiduciary capacity
of the Corporation with direct voting control of the stock shall be
treated as a person or group within the meaning of subsection (i)(a)
hereof. Further, no profit-sharing, employee stock ownership, employee
stock purchase and savings, employee pension, or other employee benefit
plan of the Corporation or any of its subsidiaries, and no trustee of
any such plan in its capacity as such trustee, shall be treated as a
person or group within the meaning of subsection (i)(a) hereof.
ii) If during the term of this Agreement and after the date of a
Change in Control, Employee is discharged without Cause or
Employee resigns because he has: (1) been demoted, (2) had his
compensation reduced, (3) had his principal place of employment
transferred away from Branch County, Michigan or a county
contiguous thereto, or (4) had his job title, status or
responsibility materially reduced, then the Corporation shall make
the payments to Employee set forth in subsection (iv) of this
Section (f).
iii) If Employee is discharged by the Corporation other than for Cause
and there is a Change in Control within twelve (12) months
following the discharge, then the Corporation shall make the
payments to Employee set forth in subsection (iv) of this Section
(f).
iv) In the event of the termination of Employee's employment as
described in subSection (ii) or (iii) above, Employee shall be
entitled to receive: (1) a cash payment equal to 2.99 times his
Compensation (as defined below), or (2) upon Employee's election,
2.99 times his Compensation payable in equal monthly payments, in
cash, without interest. The lump sum cash payment or the first
monthly cash payment, as the case may be, shall be paid at the end
of the first month commencing after the Employee's termination of
employment in the case of a benefit entitlement under subsection
(ii) or (iii) above, and in the event of the election by Employee
to receive monthly payments, shall continue each consecutive month
thereafter until 36 payments have been made; provided that more
than 90 days before a Change in Control, Employee
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may elect to defer the commencement date of payments (whether lump
sum or monthly) by a period of three years, in which case interest
shall accrue on unpaid balances at 120% of the applicable federal
rate through the date of the payment of such lump sum, or
commencement of payments, as the case may be.
In the event Employee dies before collecting all amounts and
benefits due under this Section, any payments owing shall be paid
to the person or persons as stated in the last designation of
beneficiary concerning this Agreement signed by Employee and filed
with the Corporation, and if not, then to the personal
representative of the Employee.
The payments and benefits provided for in this Section 4(f) are in
lieu of compensation, benefits or amounts the Employee might
otherwise be entitled to under the Corporation's severance policy
or otherwise payable by the Corporation by reason of termination
of employment.
The term "Compensation," as used in this section, shall mean the
average of the sum of Employee's base salary plus any cash bonuses
for the last three complete calendar years preceding Employee's
termination of employment. Compensation shall not include any
amount, other than base salary and cash bonuses, included in
Employee's taxable compensation for federal income tax purposes
and reported to Employee and the Internal Revenue Service ("IRS"),
such as the reporting of previously deferred compensation or gain
realized upon exercise of any non qualified stock options.
v) In the event the payments required under this Agreement, when
added together with any other amounts required to be included by
Employee under the provisions of the Internal Revenue Code of
1986, as amended, result in an "Excess Parachute Payment," as that
term is defined in Section 280G of the Code, then the amount of
the payments provided for in this agreement shall be reduced to
that amount which causes no excise tax to be imposed under Section
4999 (or any successor thereto) of the Code.
vi) Any subsequent employment by Employee shall not reduce the
obligation of the Corporation to make the full payments and
provide the full benefits specified herein and Employee shall have
no obligation to seek other employment or otherwise mitigate the
effect of his discharge from employment.
(g) Payments Upon Termination other than Change in Control.
Upon termination of employment of the Employee pursuant to
Section 4(b),(c) or (d) above, the Employee shall be entitled
to receive the amount of Base Pay and Benefits provided for in
Paragraphs 2 and 3 hereof through the date of his termination
of employment. In the event of the termination of employment
of Employee pursuant to Sections 4(a) or (e) above, the
Corporation shall pay to the Employee his Base Pay and other
benefits listed in Paragraphs 2 and 3 until the later of
December 31, 2004 or One (1) year after the Termination Date.
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5. Right to Other Benefits.
Except as otherwise specified herein, nothing in this Agreement shall
abridge, eliminate, or cause Employee to lose Employee's right or
entitlement to any other Corporation benefit to which Employee may be
entitled due to his status as an employee under any plan or policy of
Corporation on such terms and conditions as are required of any
employee under any plan or policy of Corporation. Further, nothing in
this Agreement shall create in Employee any greater rights or
entitlements, except as specified in this Agreement. The plans and
policies referred to in this Paragraph 5 include, but are not limited
to, life insurance plans, dental, disability or health insurance
benefits, severance policies, club memberships, and accrued vacation
pay.
6. Noncompetition and Nonsolicitation Agreement and Business Protection.
Notwithstanding anything to the contrary contained elsewhere in this
Agreement:
(a) Noncompetition Agreement and Nonsolicitation Agreement
(i) In view of Employee's importance to the success of the
Corporation, Employee and Corporation agree that the
Corporation would likely suffer significant harm from
Employee's competing with Corporation during Employee's term
of employment with Corporation and for some period of time
thereafter. Accordingly, Employee agrees that Employee shall
not engage in competitive activities while employed by
Corporation and during the Restricted Period. Employee shall
be deemed to engage in competitive activities if he shall,
without the prior written consent of the Corporation, (i) in
Branch County, Michigan, and counties contiguous thereto
(including the municipalities therein), render services
directly or indirectly, as an employee, officer, director,
consultant, advisor, partner or otherwise, for any
organization or enterprise which competes directly or
indirectly with the business of Corporation or any of its
affiliates in providing financial products or services
(including, without limitation, banking, insurance, or
securities products or services) to consumers and businesses,
or (ii) directly or indirectly acquires any financial or
beneficial interest in (except as provided in the next
sentence) any organization which conducts or is otherwise
engaged in a business or enterprise in Branch County,
Michigan, and counties contiguous thereto (including all
municipalities) which competes directly or indirectly with the
business of Corporation or any of its affiliates in providing
financial products or services (including, without limitation,
banking, insurance or securities products or services) to
consumers and businesses. Notwithstanding the preceding
sentence, Employee shall not be prohibited from owning less
that 1 percent of any publicly traded corporation, whether or
not such corporation is in competition with Corporation. For
purposes of this Paragraph 6 the term "Restricted Period"
shall equal One (1) year, commencing as of the date of
Employee's termination.
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(ii) While employed by Corporation and for a period of One (1) year
following Employee's termination of employment with
Corporation, Employee agrees that Employee shall not, in any
manner directly (i) solicit by mail, by telephone, by personal
meeting, or by any other means, any customer or prospective
customer of Corporation to whom Employee provided services, or
for whom Employee transacted business, or whose identity
become known to Employee in connection with Employee's
services to Corporation (including employment with or services
to any predecessor or successor entities), to transact
business with a person or an entity other than the Corporation
or its affiliates or reduce or refrain from doing any business
with the Corporation or its affiliates or (ii) interfere with
or damage (or attempt to interfere with or damage) any
relationship between Corporation or its affiliates and any
such customer or prospective customer. The term "solicit" as
used in this Agreement means any communication of any kind
whatsoever, inviting, encouraging or requesting any person to
take or refrain from taking any action with respect to the
business of Corporation and its subsidiaries.
(iii) While employed by Corporation and for a period of One (1) year
following Employee's termination of employment with
Corporation, Employee agrees that Employee shall not, in any
manner directly solicit any person who is an employee of
Corporation or any of its affiliates to apply for or accept
employment or a business opportunity with any other person or
entity.
(iv) The parties agree that nothing herein shall be construed to
limit or negate the common law of torts or trade secrets where
it provides broader protection than that provided herein.
(v) Notwithstanding the foregoing, this Section 6(a) shall not
apply in the event of termination pursuant to Section 4(f).
(b). Confidential Information
Employee has obtained and may obtain confidential information
concerning the businesses, operations, financial affairs,
organizational and personnel matters, policies, procedures and other
non-public matters of Corporation and its affiliates, and those of
third-parties that is not generally disclosed to persons not employed
by Corporation or its subsidiaries. Such information (referred to
herein as the "Confidential Information") may have been or may be
provided in written form or orally. Employee shall not disclose to any
other person the Confidential Information at any time during his
employment with Corporation or after the termination of his employment,
provided that Employee may disclose such Confidential Information only
to a person who is then a director, officer, employee, partner,
attorney or agent of Corporation who, in Employee's reasonable good
faith judgment, has a need to know the Confidential Information.
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(c) Remedies
(i) Employee acknowledges that a violation on Employee's part of
this Paragraph 6 would cause immeasurable and irreparable
damage to Corporation. Accordingly, Employee agrees that
notwithstanding Paragraph 13 hereof, Corporation shall be
entitled to injunctive relief in any court of competent
jurisdiction for any actual or threatened violation of any of
the provisions of this Paragraph 6, in addition to any other
remedies it may have.
(ii) In addition to Corporation's right to seek injunctive relief
as set forth in subsection (i) above of this Section 6(c) in
the event that Employee shall violate the terms and conditions
of this Paragraph 6, Corporation may: (i) make a general claim
for damages and (ii) terminate any payments or benefits
payable by Corporation, if applicable, to Employee.
7. Inventions, Discoveries and Improvements
The Employee hereby agrees to assign and transfer to the Corporation,
its successors and assigns, his entire right, title and interest in and
to any and all inventions, discoveries, trade secrets and improvements
thereto which he may discover or develop, either solely or jointly with
others, during his employment hereunder and for a period of one year
after termination of such employment, which would relate in any way to
the business of the Corporation or any parent, subsidiary or affiliate
of the Corporation, together with all rights to letters patent,
copyrights or trademarks which may be granted with respect thereto.
Immediately upon making or developing any invention, discovery, trade
secret or improvement thereto, Employee shall notify the Corporation
thereof and shall execute and deliver to the Corporation, without
further compensation, such documents as may be necessary to assign and
transfer to the Corporation his entire right, title and interest in and
to such invention, discovery, trade secret or improvement thereto, and
to prepare or prosecute applications for letters patent with respect to
the same in the name of the Corporation.
8. Confidential Information
Employee shall not at any time, in any manner, while employed by the
Corporation or thereafter, either directly or indirectly, except in the
course of carrying out the Corporation's business or as previously
authorized in writing on behalf of the Corporation, disclose or
communicate to any person, firm, or corporation, any information of any
kind concerning any matters affecting or relating to the Corporation's
business or any of its data, figures, projections, estimates, customer
lists, tax records, personnel histories, and accounting procedures of
the Corporation, without regard to whether any or all of such
information would otherwise be deemed confidential or material.
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9 Non-Assignability
(a) Neither party to this Agreement shall have the right to assign
this Agreement or any rights or obligations hereunder provided
that nothing herein shall prevent the Employee from
designating one or more members of his family or a trust or
trusts for the members of his family as a beneficiary or
beneficiaries entitled to receive payments hereunder as
heretofore specified.
(b) Except as provided above, no title to any payments which shall
become due and payable to the Employee, his personal
representative or designated beneficiary under the provisions
hereof, shall be vested in him or any of them until the actual
payment thereof is made to such person by the Corporation in
accordance with the provisions of this Agreement. Neither he
nor any of them shall have the right or power to transfer,
assign, anticipate or encumber any interest in any such
payment, prior to the actual receipt thereof from the
Corporation. Neither this Agreement, the Corporation nor any
person's rights hereunder shall be liable for the debt,
contract or engagement of any of them. None of them shall be
permitted to appoint any agent or attorney-in-fact and except
as provided herein, to collect or receive his share of such
payments or any part thereof unless permission to do so shall
be specifically granted by the Corporation in writing. The
Corporation, in the absence of such written permission, shall
not in any manner recognize such appointment, transfer,
assignment or encumbrance.
(c) If the Employee or any personal representative or any
designated beneficiary attempts to transfer, assign or
encumber his interest in such payments, or any part thereof,
prior to the payment or distribution thereof to him or her;
or, if any transfer or seizure thereof is attempted to be made
or brought through the operation of any bankruptcy or
insolvency law, the right of the person taking such action or
concerned therein or affected thereby, and who would, but for
this provision, be entitled to receive such payments, or any
part thereof, shall forthwith and ipso facto terminate, all
rights bestowed on any such person being hereby, on the
happening of any such event, expressly revoked; and the
Corporation shall thereafter, in its absolute discretion, at
such time or times as it deems proper, cause such part of such
person's theretofore existing share of such payments to be
paid to such person or persons, including the Employee, of any
parent, spouse or child of said person, as the Corporation, in
its uncontrolled discretion, shall deem advisable; and the
remainder of such payments, if any, may be distributed by the
Corporation to the person or person who would have been
entitled to receive the same if such person had died
immediately prior to said attempted transfer, assignment or
encumbrance, or attempted transfer or seizure by operation of
law.
10. Binding Effect
This Agreement shall be binding upon and inure to the benefit of any
successor of the Corporation, and any such successor shall be deemed
substituted for the Corporation
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under the terms of this Agreement. 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 the Corporation.
11. Entire Agreement
This Agreement contains the entire agreement of the parties hereto
concerning the subject matter hereof, and cancels any and all other
oral or written agreements or understandings between the parties with
respect to the subject matter hereof, provided, however, that the
provisions of the Second Addendum, other than paragraph 4 thereof,
shall remain in full force and effect. The Agreement may not be changed
orally, but only by agreement in writing signed by both parties.
12. Authorization for Acts of Corporation
Any act, request, approval, consent or opinion of the Corporation
hereunder shall be authorized, given or expressed by resolution of its
Board of Directors.
13. Arbitration.
Subject to the Corporation's right to seek injunctive relief under
subsection 6(c)(i) of this Agreement, the parties hereto agree to
arbitrate any issue, misunderstanding, disagreement or dispute in
connection with the terms in effect in this Agreement in accordance
with the Rules of the American Arbitration Association, before one
arbitrator mutually agreeable to the parties. If either party
determines that the parties have been unable to agree upon one
arbitrator, then such party may appoint one arbitrator and require the
other party to appoint a second arbitrator. Whereupon, the two
appointed arbitrators shall appoint a third neutral arbitrator. If the
arbitrators selected by the parties are unable or fail to agree upon
the third arbitrator, the American Arbitration Association shall select
the third arbitrator. Failure by a party to either (i) accept as
mutually agreeable, or (ii) appoint an arbitrator, within 30 days of
receipt of notice of the appointment of an arbitrator by the other
party, shall be deemed as acceptance of arbitration by such single
arbitrator. The arbitration shall occur in Coldwater, Michigan, or such
other place as mutually agreed upon. The prevailing party shall be
entitled to recover any and all costs associated with any arbitration
proceeding (and any subsequent proceeding to enforce rights thereunder)
including the recovery of reasonable attorneys fees. Judgement on the
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof.
14. Governing Law
This Agreement is executed and delivered in the State of Michigan and
is intended to be interpreted, construed and enforced in accordance
with the laws of such State.
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IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by the Chairman of its Board of Directors, and the
Employee has signed this Agreement, all as of the date and year first above
written.
Southern Michigan Bancorp, Inc.
By: /s/Xxxxx Xxxxxxxx
-----------------------------------
Xxxxx Xxxxxxxx,
Chairman, Board of Directors
/s/ Xxxx X. Xxxxxx
-----------------------------------
Xxxx X. Xxxxxx, Employee
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