EXHIBIT 10.5
EMPLOYMENT AGREEMENT
AGREEMENT made this 29th day of October, 1997, by and between COMMUNITY
BANKS, INC., a Pennsylvania corporation, ("Community"), THE PEOPLES STATE BANK,
a Pennsylvania state chartered banking institution ("Peoples") and XXXXX X.
XXXXXXXXXXXX, an adult individual (hereinafter referred to as "Executive").
W I T N E S S E T H:
WHEREAS, Executive is currently employed by Peoples, as the President and
Chief Executive Officer of Peoples, pursuant to a certain Executive Employment
Agreement between Peoples and Executive, dated May 14, 1993; and
WHEREAS, Community and Peoples have entered into a certain Agreement and
Plan of Reorganization of even date (the "Merger Agreement") whereby Peoples
will be merged with and into PSB Interim Bank, a Pennsylvania state chartered
financial institution, as of the Effective Date of the Merger (as defined
therein) and PSB Interim Bank will, as of the Effective Date of the Merger,
change its name to The Peoples State Bank; and
WHEREAS, as of the Effective Date of the Merger, Peoples will be a wholly-
owned subsidiary of Community; and
WHEREAS, the Company wishes to employ Executive and Executive wishes to be
employed by Company, as the President and Chief Executive Officer of the
Company, upon the terms set forth below, as of the Effective Date of the Merger;
and
WHEREAS, for purposes of the Agreement, Community and Peoples are referred
to collectively as the "Company."
NOW, THEREFORE, in consideration of the agreements hereinafter contained,
and intending to be legally bound hereby, the parties agree as follows:
1. Duties as Executive. Company shall employ Executive and Executive
shall serve Community and Peoples as President and Chief Executive Officer of
Company and shall nominate and support for relection Executive as a member of
Company's Board of Directors and a non-voting member of the Executive Committee.
During his employment by Company, Executive shall serve Company under the
direction of, and in a manner satisfactory to, the Board of Directors of
Company, provided that any duties prescribed by the Board of Directors are
consistent with Executive's position as President and Chief Executive Officer of
Company, which shall be the usual and customary duties of a president and chief
executive officer of a bank holding company and a bank. He shall perform his
duties faithfully, diligently, and to the best of his ability and shall devote
his full time and best efforts to the affairs of Community and Peoples. He shall
report to the Chairman of the Board of Directors and the Board of Directors of
Company and shall have supervision and control over, and responsibility for, the
general management and operations of Company.
2. Compensation.
a. Annual Direct Salary. As compensation for services rendered to
Company under this Agreement, the Executive shall be entitled to receive from
Company an annual direct salary of One Hundred Ninety Thousand Dollars
($190,000.00) per year, as increased hereunder, (the "Annual Direct Salary"),
payable in substantially equal monthly installments (or such other more frequent
intervals as may be determined by the Board of Directors of Company as payroll
policy for senior executive officers) prorated for any partial employment
period. The Annual Direct Salary shall be reviewed by the Executive Committee of
Company on each anniversary of this Agreement and shall be increased at the
discretion of the Board of Directors upon the recommendation of the Executive
Committee. In no event shall the Annual Direct Salary be decreased.
b. Incentive Compensation. For a period of two (2) years
commencing with calendar year 1998, Executive shall be paid a bonus equal to the
greater of (i) $50,000.00 per year; or (ii) any bonus to which Executive would
be entitled as a participant of Company's existing executive bonus program. Such
bonus shall be paid within 30 days following the end of the calendar year to
which such bonus relates. Following such two-year period, Executive shall
participate in Company's existing executive bonus program.
3. Fringe Benefits, Vacation, Expenses, and Perquisites. It is agreed
that nothing paid to the Executive under any of the below-described benefit
plans or arrangements shall be deemed to be in lieu of compensation to the
Executive hereunder. Executive shall be entitled to:
a. Employee Benefits Plans. Executive shall be entitled to
participate in or receive benefits under all Company employment benefit plans,
including but not limited to any profit-sharing plan, pension plan, savings
plan, stock option plan, supplemental executive retirement plan, major medical,
hospitalization and health-and-accident plan or arrangement made available by
Company to its executives and key management employees, subject to and on a
basis consistent with terms, conditions and overall administration of such plans
and arrangements. With respect to Company's stock option plan, for each calendar
year during the term of this Agreement beginning with 1998, Company shall grant
to Executive options under its existing stock option plan for at least 6,000
shares of Company's stock. It is understood and agreed that any major medical,
hospitalization and health-and-accident plan shall cover the Executive, his wife
and children under standard coverage provisions. Executive shall also be
entitled to the following benefits, at minimum:
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i. Life Insurance: Company shall provide and maintain life
insurance for the Executive if he qualifies therefor on a standard underwriting
basis. Such life insurance shall at all times be maintained at an amount equal
to the sum of $100,000 and shall name as beneficiary such person(s) as the
Executive shall designate in writing. In the event of failure of the Executive
to designate a beneficiary of such policy, the estate of the Executive shall be
the beneficiary of such policy.
ii. Survivor Income. Company and Executive shall enter into
a certain Survivor Income Agreement, in substantially the form attached hereto
as Exhibit "A", whereby Executive shall participate in a survivor income
insurance program provided by Company to its executive officers.
iii. Disability Insurance: Company shall make available
disability insurance coverage for the Executive at Company's expense, provided
the Executive qualifies as a medically acceptable risk to the issuing company on
a standard underwriting basis, which shall provide that, in the event the
Executive is unable to perform his duties hereunder as a result of incapacity
due to physical or mental illness, he shall be entitled to receive not less than
an amount equal to seventy percent (70%) of his then Annual Direct Salary, until
he reaches the age of sixty-five (65) or dies, whichever occurs first. Company
shall continue to pay to the Executive his Annual Direct Salary during any
applicable "elimination (waiting) period," but not to exceed six (6) months.
b. Other Perquisites and Benefits. Executive shall be entitled to
receive other perquisites and fringe benefits as the Board of Directors of
Company deems appropriate, in its sole discretion.
c. Relocation. Company shall not, without the prior consent of
Executive transfer or relocate the office in which Executive performs the bulk
of his duties to any location which is further in actual driving mileage than
the driving mileage from Peoples' headquarters in East Berlin, Pennsylvania to
Millersburg, Pennsylvania. Company shall not require Executive to move from his
residence.
d. Company Car. Company recognizes Executive's need for an
automobile for business purposes and shall provide Executive with an automobile,
including all related maintenance, repairs, insurance and other costs. In lieu
of providing Executive with an automobile, Company may provide Executive with a
reasonable allowance on a monthly basis, which allowance shall cover Executive's
costs associated with an automobile, including without limitation, lease or
installment payments, maintenance, repairs, insurance and other costs.
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4. Reimbursement of Expenses. Company shall reimburse Executive within
thirty (30) days from billing date for necessary and properly documented travel
and business expenses, not otherwise reimbursed, incurred by Executive on behalf
of Company.
5. Term of Employment. Company employs the Executive and the Executive
accepts employment with Company for a period of five (5) years beginning on the
Effective Date of the Merger (as defined in the Merger Agreement) and ending on
the date which is five (5) years after the Effective Date of the Merger,
subject, however, to prior termination of this Agreement as set forth in
paragraph 6 below. Upon the expiration of the third year within said five-year
period, and upon the expiration of each additional year of employment (each such
period being referred to herein as "the Expiration Date"), this Agreement and
the period of Executive's employment hereunder will be automatically extended
for an additional year (resulting in successive three- year terms) unless, no
later than ninety (90) days prior to the Expiration Date, either the Board of
Directors of Company or Executive gives written notification to the other of his
or its intention not to renew the Agreement or Executive's employment. Notice of
intent not to renew that is properly given under this paragraph will have the
effect of causing the Agreement to terminate two (2) years after the Expiration
Date (unless terminated prior thereto in accordance with paragraph 6 below).
6. Termination.
a. Death. Executive's employment hereunder shall terminate upon
his death.
b. Disability. If the Executive becomes permanently disabled (as
certified by a licensed physician chosen by Company and the Executive or in the
event Company and the Executive cannot agree upon a physician, each shall
designate a licensed physician, and the licensed physicians so designated shall
appoint a third physician whose decision shall be binding upon the parties)
because of sickness, physical or mental disability, or any other reason, and is
unable to perform or complete his duties under this Agreement for a period of
ninety (90) consecutive days (or time equal to the elimination period under any
disability insurance program provided by Company to the Executive), Company
shall have the option to terminate this Agreement by giving written notice of
termination to the Executive. Such termination shall be without prejudice to any
right the Executive has under any disability insurance program maintained by
Company.
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c. Cause. Company may terminate this Agreement and the
Executive's employment hereunder for Cause at any time. For the purposes of this
Agreement, Company shall have "Cause" to terminate the Executive's employment
upon (1) the failure by the Executive to substantially perform his duties
hereunder, other than any such failure resulting from the Executive's incapacity
due to physical or mental illness (after Company's notice to Executive and
Executive's failure to cure same within thirty (30) days of such notice); (2)
the engaging by the Executive in willful misconduct materially injurious to
Company; (3) gross negligence, malfeasance, or dishonesty of the Executive in
the performance of his duties (after Company's notice to Executive and
Executive's failure to cure same within thirty (30) days of such notice); (4)
the commission by Executive of an act constituting a felony or the conviction of
Executive of a misdemeanor based on dishonesty; (5) the willful and material
breach by Executive of any of his other obligations under this Agreement (after
Company's notice to Executive and Executive's failure to cure same within thirty
(30) days of such notice); (6) the refusal or failure of Executive to carry out
reasonable directives of the Board (after Company's notice to Executive and
Executive's failure to cure same within thirty (30) days of such notice); (7)
receipt of a final written directive or order of any governmental body or entity
having jurisdiction over Company requiring termination or removal of the
Executive as Chief Executive Officer, President or Director of Company; (8)
repeated and consistent failure of Executive to be present and work during
normal business hours unless the absence is due to disability described in
Section 7(a) below (after Company's notice to Executive and Executive's failure
to cure same within thirty (30) days of such notice); or (9) insubordinate,
gross incompetence or misconduct in the performance of, or gross neglect of,
Executive's duties hereunder (after Company's notice to Executive and
Executive's failure to cure same within thirty (30) days of such notice).
d. Health and Good Reason. Executive may terminate his employment
hereunder (1) if his health should become impaired to an extent that it makes
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, or (2) for Good Reason. The term "Good Reason" shall
mean (i) any assignment to Executive, without his consent, of any duties other
than those contemplated by Section 1 hereof, or any reduction in Executive's
duties or responsibilities for Company; (ii) any removal of Executive from or
any failure to nominate and support for re-election Executive to any of the
positions indicated in Section 1 hereof, except in connection with termination
of Executive's employment for Cause; (iii) a reduction of Executive's Annual
Direct Salary; (iv) breach by Company of its obligations under Section 3 hereof
(after Executive's notice to Company and Company's failure to cure such breach
within thirty (30) days of such notice); (v) any other willful and material
breach by Company of this Agreement (after Executive's notice to Company and
Company's failure to cure such breach within thirty (30) days of such notice);
(vi) any Change of Control (as defined herein); or (vii) any violation by
Company of the provisions of Section 3(c) above (pertaining to relocation).
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e. Voluntary Termination by Executive. Executive may terminate
his employment with Company at anytime for a reason other than a reason of the
type described in Section 6(d) above on one hundred eighty (180) days prior
written notice to Company.
7. Payments Upon Termination.
a. Death, Disability or for Cause. If Executive's employment
shall be terminated because of death, disability or for Cause, or, in the event
Executive terminates his employment with Company pursuant to Section 6(e) above,
Company shall pay Executive his full Annual Direct Salary through the date of
termination at the rate in effect at the time of termination, and other amounts
owing to Executive at the date of termination and Company shall have no further
obligations to Executive under this Agreement. In the event Executive terminates
his employment hereunder pursuant to Section 6(d)(1) as a result of disability,
Executive shall be entitled to the benefits referenced in Section 3(a)(iii)
above.
b. Unilateral and Good Reason Termination. If Executive's
employment is terminated by Company (other than pursuant to Sections 6(a), (b)
or (c) hereof or as a result of nonrenewal of this Agreement), or if Executive
shall terminate his employment for Good Reason (except for a termination by
Executive due to a Change in Control as defined herein), then Company shall pay
Executive one hundred twenty percent (120%) of his full Annual Direct Salary
from the date of termination for the remaining term of this Agreement. Company
shall not be required to maintain employee benefit plans and programs to which
Executive was entitled prior to the date of termination. The parties acknowledge
that twenty percent (20%) of such Annual Direct Salary payment referenced above
represents the parties' best estimation of the value of such other benefits to
which Executive had been entitled prior to termination of his employment
pursuant to this Section. In the event that Executive were to terminate his
employment due to any Change in Control (as defined herein), Executive shall be
entitled (as his sole remedy) to a lump sum payment in an amount equal to his
full Annual Direct Salary then in effect for the remaining term of this
Agreement in cash within thirty (30) days from the date on which Executive
ceases to be employed by Company. The parties acknowledge and agree that a
termination by Executive for health reasons pursuant to Section 6(d)(1) above
shall not trigger the payments set forth in this Section 7(b).
c. Voluntary Termination by Executive. If Executive shall
terminate his employment with Company pursuant to Section 6(e) above, Company
shall pay Executive his full Annual Direct Salary through the date of
termination and other amounts owing to Executive at the date of termination and
Company shall have no further obligations to Executive under this Agreement.
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8. Section 280G. Notwithstanding any other provisions of this
Agreement or any other agreement entered into by Executive and Company, except
any agreement which expressly modifies this Section 8 ("Other Agreement"), and
notwithstanding any formal or informal plan or other arrangement heretofore or
hereafter adopted by the Company for the direct or indirect provision of
compensation to Executive (including groups of participants or beneficiaries of
which Executive is a member), whether or not such compensation is deferred, is
in cash, or is in the form of a benefit to or for Executive (a "Benefit Plan"),
Executive shall not have any right to receive any payment or other benefit under
this Agreement, any Other Agreement, or any Benefit Plan if such payment or
benefit, taking into account all other payments or benefits to or for Executive
under this Agreement, all Other Agreements, and all Benefit Plans, would cause
any payment to Executive under this Agreement to be considered a "parachute
payment" within the meaning of Section 280G of the Internal Revenue Code as then
in effect (a "Parachute Payment"). In the event that the receipt of any such
payment or benefit under this Agreement, any Other Agreement, or any Benefit
Plan would cause Executive to be considered to have received a Parachute Payment
under this Agreement, then Executive shall have the right, in Executive's sole
discretion, to designate those payments or benefits under this Agreement, any
Other Agreements and/or any Benefit Plans, which should be reduced or eliminated
so as to avoid having the payment to Executive under this Agreement to be deemed
to be a Parachute Payment.
9. Definition of Change of Control. For purposes of this Agreement,
the term "Change of Control" shall mean:
a. An acquisition by any "person" or "group" (as those terms are
defined or used in Section 13(d) of the Exchange Act, as enacted and in force on
the date hereof) of "beneficial ownership" (within the meaning of Rule 13d-3
under the Exchange Act, as enacted and in force on the date hereof) of
securities of Company representing 24.99% or more of the combined voting power
of Company's securities then outstanding;
b. A merger, consolidation or other reorganization of Company,
except where the resulting entity is controlled, directly or indirectly, by
Company;
c. A merger, consolidation or other reorganization of Company,
except where shareholders of Company immediately prior to consummation of any
such transaction continue to hold as least a majority of the voting power of the
outstanding voting securities of the legal entity resulting from or existing
after any transaction and a majority of the members of the Board of Directors of
the legal entity resulting from or existing after a transaction are former
members of Company's Board of Directors;
d. A sale, exchange, transfer or other disposition of
substantially all of the assets of Company to another entity, except to an
entity controlled, directly or indirectly, by Company or a corporate division
involving Company;
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e. A contested proxy solicitation of Company's shareholders that
results in the contesting party obtaining the ability to cast twenty-five
percent (25%) or more of the votes entitled to be cast in an election of
directors of Company.
f. During any period of two (2) consecutive years during the term
of this Agreement and any renewal hereof, individuals who at the beginning of
such period constitute the Board of Directors of Company cease for any reason
(other than for health, disability or other medical incapacity or voluntary
retirement) to constitute at least a majority thereof.
10. Definition of Date of Change of Control. For purposes of this
Agreement, the date of Change of Control shall mean the earlier of:
a. the first day on which a "person" or "group" (as those terms
are defined or used in Section 13(d) of the Exchange Act, as enacted and in
force on the date hereof) acquire the "beneficial ownership" (within the meaning
of Rule 13d-3 under the Exchange Act, as enacted and in force on the date
hereof) of 24.99% or more of the combined voting power of Company's securities
then outstanding,
b. the date of the transfer of all or substantially all of
Company's assets,
c. the date on which a merger, consolidation or combination is
consummated, as applicable, or
d. the date on which a contesting party in a contested proxy
solicitation of Company's shareholders obtains the ability to cast twenty-five
percent (25%) or more of the votes entitled to be cast in an election of
directors of Company.
e. the date on which there is a change in the majority of the
members of the Board during any two (2) consecutive years during the term of
this Agreement and any renewal hereof, for reasons other than health, disability
or other medical incapacity or voluntary retirement.
11. Damages for Breach of Contract. In the event of a breach of this
Agreement by either the Company or Executive resulting in damages to either
party, that party may recover from the party breaching the Agreement any and all
damages that may be sustained.
12. No Assignment. The right of Executive or any other person to the
payment of deferred compensation or other benefits under this Agreement shall
not be assigned, transferred, pledged, or encumbered except by will or by the
laws of the dissent and distribution.
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13. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of Company, it successors and assigns and Executive and his heirs,
executors, administrators, and legal representatives.
14. Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the Commonwealth of Pennsylvania.
15. Severability. If any provision of this Agreement shall be found by
any court of competent jurisdiction to be unenforceable, the parties hereby
waive such provision to the extent that it is found to be unenforceable. Such
provision may be modified by such court so that it becomes enforceable, and, as
modified, will be enforced as any other provision hereof, all other provisions
continuing in full force and effect.
16. Indemnification. Company shall indemnify Executive, to the fullest
extent permitted by Pennsylvania law, with respect to any threatened, pending or
completed action, suit or proceeding brought against him by reason of the fact
that he is or was a director, officer, employee or agent of Company or is or was
serving at the request of Company as a director, officer, employee or agent of
another person or entity. To the fullest extent permitted by Pennsylvania law,
Company shall in advance of final disposition pay any and all expenses
(including, without limitation, attorney's fees) incurred by Executive in
connection with any threatened, pending or completed action, suit or proceeding
with respect to which Executive may be entitled to indemnification hereunder;
provided, however, that Executive agrees to reimburse Company all such monies
advanced if the presiding court finds that he breached or failed to perform his
duties as a director of officer, as the case may be, of Company and that the
breach or failure constituted self-dealing, willful misconduct or recklessness.
Executive's right to indemnification provided herein is not exclusive of any
other rights of indemnification to which Executive may be entitled under any
bylaw, agreement, vote of shareholders or otherwise, and shall continue beyond
the term of this Agreement. Company shall use its best efforts to obtain
insurance coverage for Executive under an insurance policy covering officers and
directors of Company against lawsuits, arbitrations or other proceedings;
however, nothing herein shall be construed to require Company to obtain such
insurance, if the Board of Directors of Company determines that such coverage
cannot be obtained at a commercially reasonable price.
17. Noncompetition. Executive shall not, while employed by Company
and, only if Executive terminates his employment with Company pursuant to
Section 6(e), for a period of one (1) year after such termination, Compete (as
hereinafter defined). The term "Compete" shall mean employment by, or direct or
indirect participation in (as an owner, shareholder, director, general or
limited partner, officer, manager, consultant or agent, or otherwise), any
business, firm, corporation, partnership or other entity or person which is
engaged in commercial banking within any county in which Community's
subsidiaries have offices or branches prior to termination of Executive's
employment. In the event Executive terminates his employment with Company
pursuant to Section 6(e) above, Executive agrees, for a period of one (1) year
following such termination (i) not to solicit any Company employees or officers
to leave Company to accept employment by Executive or his new employer; and (ii)
not to solicit or encourage any Company customers to cease doing business with
the Company and/or to transfer any or all of their business relationships to any
institution which Executive may found or to Executive's new employer.
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18. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to Executive: Xxxxx X. Xxxxxxxxxxxx
000 Xxxxxxxxx Xxxx
Xxxx, XX 00000
If to Company: Community Banks, Inc.
000 Xxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxx
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
19. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
20. Amendment. This Agreement may be amended or canceled only by
mutual agreement of the parties in writing. So long as Executive lives, no
person other than the parties hereto shall have any rights under or interest in
this Agreement or the subject matter hereof.
21. Attorney's Fees and Costs. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorney's fees, costs, and necessary
disbursements in addition to any other relief that may be proper.
22. Entire Agreement. As of the Effective Date of the Merger, this
Agreement and a certain Salary Continuation Agreement between Executive and
Peoples shall constitute the entire agreement between the parties and no prior
promises, agreements or warranties, verbal or written, shall be of any force
unless embodied herein. No modification of this Agreement shall be of any force
or effect unless reduced to writing and signed by both parties. As of the
Effective Date of the Merger, the existing Executive Employment Agreement
between Peoples and Executive shall be terminated, with no further rights or
obligations thereunder due to or from either party. This Agreement shall
supersede that certain Executive Employment Agreement between Peoples and
Executive, dated May 14, 1993.
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IN WITNESS WHEREOF, Company has caused this Agreement to be executed by its
duly authorized officers and Executive has hereunto set his hand and seal as of
the date first above written.
ATTEST: COMMUNITY BANKS, INC.
/S/ Xxxxxxxx X. Xxxx By:/S/ Xxxxxx X. Xxxxxx
-------------------- --------------------
THE PEOPLES STATE BANK
/S/ Xxxxxx X. Xxxx By:/S/ Xxxxxxx X. Xxxxxx
------------------ ---------------------
WITNESS: EXECUTIVE:
/S/ Xxxxxx X. Xxxx /S/ Xxxxx X. Xxxxxxxxxxxx
------------------ -------------------------
Xxxxx X. Xxxxxxxxxxxx
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