THIS
AGREEMENT (the “Agreement”) is made and entered into this 6th day of May, 2005
(the “Effective Date”), by and between the WASHINGTON BANKING COMPANY and
WHIDBEY ISLAND BANK (together, “the Employer”) with its principal office in Oak
Harbor, Washington, and XXXXXX XXXX (the “Executive”).
In
consideration of the mutual promises made in this Agreement, the parties agree as follows:
1.
Employment.
Employer
employs Executive and Executive accepts employment with Employer as its President and
Chief Executive Officer.
2.
Term.
The
term of this Agreement (the “Term”) shall commence on the Effective Date and
shall continue through May 6, 2008; provided, however, that on May 7, 2008 and each
succeeding May 7, the Term shall automatically be extended for one additional year unless,
not later than ninety (90) days prior to any such May 7, either party shall have given
written notice to the other that it does not wish to extend the Term. In the event the
Term is not extended, Executive shall have no rights to any of the severance payments or
benefits continuation except as described in Section 5(a).
3.
Duties.
Executive
will serve as Employer’s President and Chief Executive Officer. Executive shall
render such executive, management and administrative services and perform such tasks in
connection with the affairs and overall operation of the Employer as is customary for his
position, subject to the direction of Employer’s Board of Directors. Executive shall
devote necessary time, attention and effort to Employer’s business in order to
properly discharge his responsibilities under this Agreement. Executive is permitted to
engage in activities outside the scope of his duties, provided they do not conflict with
the interests of the Employer, and do not unreasonably infringe on his otherwise full-time
dedication to the Employer’s business.
4.
Compensation, Benefits, Reimbursement and Bonus.
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a.
In consideration for all services rendered by Executive during the term of this
Agreement, Employer shall pay Executive an annual base salary (before all
customary and proper payroll deductions) of $239,000.00, as adjusted
from time to time (“Base Salary”). The Board of Directors of the
Employer shall review Executive’s salary at the end of each year, in a
manner consistent with that used for all management employees of the Employer,
and in its sole discretion may adjust such salary commensurate with the
Executive’s performance under this Agreement.
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b. Under
the Employer’s Annual Incentive Plan, Executive shall be eligible to
receive an annual bonus based on performance as defined by the Board of
Directors, in accordance with the Employer’s incentive plan.
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c. Executive
shall be eligible for restricted stock and stock option grants under the
Employer’s Stock Option Plan. The timing and size of awards will be at the
discretion of the Board of Directors.
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d. Executive
may also participate in the Employer’s Deferred Compensation Plan.
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e. Throughout
the term of this Agreement, Employer shall provide Executive with a vehicle,
reasonable health insurance, disability and other employee benefits. Executive
shall participate in all employee benefit plans and programs of Employer
available to its executives and key management employees, subject to and on a
basis consistent with the terms, conditions, and overall administration of such
plans and programs. Employer shall reimburse Executive for his reasonable
expenses (including, without limitation, travel, entertainment, and similar
expenses) incurred in performing and promoting the business of Employer.
Executive shall present itemized accounts of any such expenses as required by
Company policy and the rules and regulations of the Internal Revenue Service
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5.
Termination of Agreement.
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a. Termination
Due to a Change of Control. If Employer is subjected to a
Change of Control (as defined in Section 5(g)(i)), and either Employer or
its assigns terminates Executive’s employment without Cause or Executive
terminates his employment for Good Reason within two (2) years of such Change
of Control, then Employer shall pay Executive upon the effective date of such
termination all Base Salary earned and all reimbursable expenses incurred under
this Agreement through such termination date.
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(i) In
addition, Employer shall pay Executive an amount equal to two (2) times
Executive’s highest Base Salary over the prior three (3) years, plus an
amount equal to two (2) times the annual bonus last paid hereunder or two (2)
times the average bonus paid over the prior three (3) years, whichever is
greater (“Severance Benefit”). Provided, also, that the payment and
benefits described in this Section 5(a) will only be paid conditioned upon
Executive signing an agreement, in a form acceptable to Employer, that releases
and holds Employer harmless from all known and unknown claims and liabilities
arising out of Executive’s employment with Employer or the performance of
this Agreement (“Release Agreement”). The Employer’s obligation
to pay the Severance Benefit under this section continues for up to two (2)
years after the Agreement terminates provided that the Change of Control (as
defined in Section 5(g)(i)) occurs during the Term of the Agreement, and the
Executive is terminated without Cause or terminates his employment for Good
Reason within two (2) years of such Change of Control. The provisions of this
paragraph will survive termination of the Agreement.
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(ii) Executive
shall also be entitled to Severance Benefit if Employer terminates Agreement
without Cause prior to a Change of Control if such termination occurs at any
time from and after ninety days prior to the public announcement by the
Employer or any other party of a transaction which will result in a Change of
Control; provided that the effective date of the Change of Control occurs
within eighteen (18) months of Executive’s termination.
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(iii) Payment
of the Severance Benefit under this section is subject to and conditioned on
compliance with subsection 5(b).
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b. Commitment
of Executive. In the event that any person extends
any proposal or offer which is intended or may result in a Change of Control,
Executive shall, at the Employer’s request, assist the Company in
evaluating such proposal or offer. Further, subject to the additional terms and
conditions of this Agreement, in order to receive the Severance Benefit,
Executive cannot resign from the Company during any period from the receipt of
a specific Change of Control proposal through the consummation or abandonment
of the transaction contemplated by such proposal.
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c. Termination
by Employer Without Cause or by Executive for Good Reason. If
Employer terminates Executive’s employment without Cause, or if Executive
terminates his employment for Good Reason, Employer shall pay Executive upon
the effective date of such termination all Base Salary earned and all
reimbursable expenses incurred under this Agreement through such termination
date. In addition, Employer shall pay Executive an amount equal to two (2)
times Executive’s highest Base Salary over the prior three (3) years, plus
an amount equal to two (2) times the annual bonus last paid hereunder or two
(2) times the average bonus paid over the prior three (3) years, whichever is
greater. Provided, however, that the payment and benefits described in this
section will only be made conditioned upon Executive signing a Release
Agreement.
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(i) Benefits
Continuation. In addition, the Executive shall be entitled to
health and dental insurance benefits for a period of eighteen (18) months
following the termination of this Agreement. These benefits will be provided at
Employer’s expense, but such period shall count towards the Employer’s
continuation of coverage obligation under Section 4980B of the Internal
Revenue Code (“COBRA”). The foregoing notwithstanding, in the event
that the Executive becomes eligible for comparable group insurance coverage in
connection with new employment, the coverage provided by the Company under this
Section shall terminate immediately.
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d. Termination
by Employer for Cause or by Executive Without Good Reason. If
Employer terminates Executive’s employment for Cause or if Executive
terminates his employment without Good Reason, Employer shall pay Executive
upon the effective date of such termination only such Base Salary earned and
expenses reimbursable under this Agreement incurred through such termination
date. In such case, Executive shall have no right to receive compensation or
other benefits for any period after termination under this Agreement.
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e. Termination
Due to Disability or Upon Death. If Employer terminates
Executive’s employment on account of any mental or physical Disability
that prevents Executive from discharging his duties under this Agreement,
Executive shall be entitled to all Base Salary earned and reimbursement
for expenses incurred under this Agreement through the termination date, plus a
pro rata portion of any annual bonus for the year of termination. Executive’s
employment under this Agreement shall be terminated upon the death of
Executive. In such case, the Employer shall be obligated to pay to the
surviving spouse of Executive, or if there is none, to the Executive’s
estate: (A) that portion of Executive’s Base Salary that would
otherwise have been paid to him for the month in which his death occurred, and
(B) any amounts due him pursuant to the Employer’s pension plan, any
supplemental deferred compensation plan, and any other death, insurance,
employee benefit plan or stock benefit plan provided to Executive by the
Employer.
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g. Termination
Definitions.
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(i) “Change
of Control.” For purposes of this Agreement, the term “Change
of Control” shall mean the occurrence of one or more of the following
events: (A) One person or entity acquiring or otherwise becoming the owner
of twenty-five percent or more of Employer’s outstanding common stock; (B) Replacement
of a majority of the incumbent directors of Washington Banking Company or
Whidbey Island Bank by directors whose elections have not been supported by a
majority of the Board of either company, as appropriate; (C) Dissolution
or sale of fifty percent or more in value of the assets, of either Washington
Banking Company or Whidbey Island Bank; or (D) A change “in the
ownership or effective control” or “in the ownership of a substantial
portion of the assets” of Employer, within the meaning of Section 280G
of the Internal Revenue Code. Notwithstanding the foregoing provisions of this
section, a Change of Control will not be deemed to have occurred solely because
of an internal corporate reorganization or similar transaction.
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(ii) “Cause.” For
purposes of this Agreement, termination for “Cause” shall include
termination because Executive: (A) materially breaches this Agreement; (B)
willfully breached or habitually neglected or breached the duties which he was
required to perform under the terms of this Agreement or the policies of the
Company; (C) commits act(s) of dishonesty, theft, embezzlement, fraud,
misrepresentation, or other act(s) of moral turpitude against Employer, its
subsidiaries or affiliates, its shareholders, or its employees or which
adversely impact the interest of Employer; (D) willfully and continually
failed to comply with any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease and desist order of a regulatory
agency having jurisdiction over Employer; (E) fails to follow the directions of
Employer’s Board of Directors, which failure is not corrected within
thirty (30) days after receipt by Executive of written notice outlining the
corrective action required; or (F) knowingly provides misleading or false
information to shareholders, the Board of Directors, auditors, accountants, or
regulatory authorities.
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(iii) “Disability.” For
purposes of this Agreement, “Disability” is defined as Executive’s
inability to perform the essential functions of the employment duties to the
Employer for a period of three (3) consecutive months. The Employer’s
Board of Directors, acting in good faith, shall make the final determination of
whether Executive is suffering under any Disability (as herein defined) and,
for purposes of making such determination, may require Executive to submit
himself to a physical examination by a physician mutually agreed upon by the
Executive and Employer’s Board of Directors at Employer’s expense.
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(iv) “Good
Reason.” For purposes of this Agreement, termination for
“Good Reason” shall mean termination by Executive as a result of any
material breach of this Agreement by Employer. Good Reason shall include, but
not be limited to: (A) a material reduction in Executive’s
compensation defined as a reduction equal to or greater than five percent (5%)
of Executive’s then annual base salary, which reduction is not of general
application to substantially all employees of the Employer, (B) a material
reduction in Executive’s duties, responsibilities, or reporting
relationship, but not merely a change in title, or (C) relocation of
Executive’s primary workplace from Oak Harbor to a location outside
Whatcom, Island, Snohomish, or Skagit counties.
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h. Payment
of Severance Benefit. Payment of any Severance
Benefit under this Section shall be paid in a lump sum or with Employer’s
regular salary payment schedule, as determined by Executive.
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6.
Parachute Payment Limitation.
Notwithstanding
anything in this Agreement to the contrary, if it is determined by legal counsel (or
other tax advisor to Executive) that the total of the Severance Benefit, together with
any other payments or benefits paid by the Employer to Executive, would constitute an
“excess parachute payment” within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended, and the net after-tax amount that Executive would
realize from such compensation, considering Executive’s federal and state income tax
brackets and the excise tax, would be greater if the compensation payable hereunder were
limited, then the compensation payable hereunder shall be limited in the manner
determined by such counsel or advisor, to maximize Executive’s net after-tax income.
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7.
Covenant Not To Compete.
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a. Executive
agrees that for the term of this Agreement and upon receipt of a Severance
Benefit and for a period of two (2) years thereafter (with the understanding
that the two (2) year period will be shortened to one (1) year upon the
completion of a transaction constituting a Change of Control, as defined in
Section 5(g)(i)), Executive will not, within any county in which Employer
has branch offices at the termination of the term of this Agreement, directly
or indirectly be employed by, own, manage, operate, join, or benefit in any way
from any business activity that is competitive with Employer’s business or
reasonably anticipated business of which Executive has knowledge. Employer and
Executive agree that the duration of the covenant may be shortened if the
Executive waives a mutually agreed-upon portion of the Severance Benefit. For
purposes of the foregoing, Executive will be deemed to be directly or
indirectly employed by, own, manage, operate, join, or benefit in any way with
such business if the business is carried on by: (a) a partnership in which
Executive is a general or limited partner; or (b) a corporation of which
Executive is a shareholder (other than a shareholder owning less than 5% of the
total outstanding shares of the corporation), officer, director, employee or
consultant.
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b. The
parties agree that if a trial judge with jurisdiction over a dispute related to
this Agreement should determine that the restrictive covenant set forth above
is unreasonably broad, the parties authorize such trial judge to narrow the
covenant so as to make it reasonable, given all relevant circumstances, and to
enforce such covenant. The provisions of this paragraph shall survive
termination of this Agreement.
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8.
Nondisclosure of Confidential Information.
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a. During
the term of Executive’s employment and thereafter, Executive agrees to
hold Employer’s Confidential Information in strict confidence, and not
disclose or use it at any time except as authorized by Employer and for
Employer’s benefit. If anyone tries to compel Executive to disclose any
Confidential Information, by subpoena or otherwise, Executive agrees
immediately to notify Employer so that Employer may take any actions it deems
necessary to protect its interests. Executive’s agreement to protect
Employer’s Confidential Information applies both during the term of this
Agreement and after employment ends, regardless of the reason it ends.
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b. “Confidential
Information” includes, without limitation, any information in whatever
form that Employer considers to be confidential, proprietary, information and
that is not publicly or generally available relating to Employer’s: trade
secrets (as defined by the Uniform Trade Secrets Act); know-how; concepts;
methods; research and development; product, content and technology development
plans; marketing plans; databases; inventions; research data and mechanisms;
software (including functional specifications, source code and object code);
procedures; engineering; purchasing; accounting; marketing; sales; customers;
advertisers; joint venture partners; suppliers; financial status; contracts or
employees. Confidential Information includes information developed by
Executive, alone or with others, or entrusted to Employer by its customers or
others.
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9.
Nonsolicitation.
Executive
agrees that upon receipt of a Severance Benefit and for a period of two (2) years
thereafter, Executive shall not directly or indirectly solicit or entice any of the
following to cease, terminate or reduce any relationship with Employer or to divert any
business from Employer: (a) any person who was an employee of Employer during the
one- (1) year period immediately preceding the termination of Executive’s
employment; (b) any customer or client of Employer; or (c) any prospective
customer or client of Employer from whom Executive actively solicited business within the
last six (6) months of Executive’s employment.
10.
Non-Disparagement.
Executive
will not, during the Term or after the termination or expiration of this Agreement or
Executive’s employment, make disparaging statements, in any form, about Employer or
its officers, directors, agents, employees, products or services.
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11.
Mutual Agreement to Arbitrate.
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a.
In the event of a dispute or claim between Executive and Employer related to
Employee’s employment or termination of employment, all such disputes or
claims will be resolved exclusively by confidential arbitration in accordance
with the Employment Arbitration Rules of JAMS (formerly Judicial Arbitration
& Mediation Services). This means that the parties agree to waive their
rights to have such disputes or claims decided in court by a jury. Instead,
such disputes or claims will be resolved by an impartial JAMS arbitrator whose
decision will be final.
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b.
The only disputes or claims that are not subject to arbitration are any claims by
Executive for workers’ compensation or unemployment benefits, and any
claim by Executive for benefits under an employee benefit plan that provides
its own arbitration procedure. Also, Executive and Employer may seek injunctive
relief in court in appropriate circumstances.
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c.
The arbitration procedure will afford Executive and Employer the full range of
statutory remedies. Employer will pay all costs that are unique to arbitration,
except that the party who initiates arbitration will pay the filing fee charged
by JAMS. Executive and Employer shall be entitled to discovery sufficient to
adequately arbitrate their claims, including access to essential documents and
witnesses, as determined by the arbitrator and subject to limited judicial
review. In order for any judicial review of the arbitrator’s decision to
be successfully accomplished, the arbitrator will issue a written decision that
will decide all issues submitted and will reveal the essential findings and
conclusions on which the award is based.
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12.
Miscellaneous.
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a.
Notwithstanding any other provision in this Agreement, the Employer shall make no payment of
any Severance Benefit provided for herein to the extent that such payment would
be prohibited by the provisions of Part 359 of the regulations of the Federal
Deposit Insurance Corporation as the same may be amended from time to time, and
if such payment is so prohibited, the Employer shall use its best efforts to
secure the consent of the FDIC or other applicable banking agencies to make
such payments in the highest amount permissible, up to the amount provided for
in this Agreement.
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b.
This Agreement contains the entire agreement between the parties with respect to
Executive’s employment with Employer, and is subject to modification or
amendment only upon agreement in writing signed by both parties.
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c.
This Agreement shall bind and inure to the benefit of the heirs, legal
representatives, successors and assigns of the parties, except that
Employer’s rights and obligations may not be assigned without consent of
Executive, and such consent shall not be unreasonably withheld.
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d.
If any provision of this Agreement is invalid or otherwise unenforceable, all
other provisions shall remain unaffected and shall be enforceable to the
fullest extent permitted by law.
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e.
In the event of any claim or dispute arising out of this Agreement, the party that
substantially prevails shall be entitled to reimbursement of all expenses
incurred in connection with such claim or dispute, including, without
limitation, attorneys’ fees and other professional fees. This paragraph
shall apply to expenses incurred with or without suit, and in any judicial,
arbitration or administrative proceedings, including all appeals therefrom.
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f.
Any notice required to be given under this Agreement to either party shall be given
by personal service or by depositing a copy of such notice in the United States
registered or certified mail, postage prepaid, addressed to the following
address, or such other address as addressee shall designate in writing:
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| Employer: |
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Xxxxxx X. Xxxxxxxx |
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Chairman of the Joint Compensation Committee of |
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Washington Banking Company and |
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Whidbey Island Bank |
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000 XX Xxxxxxxx Xxxxx |
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X.X. Xxx 0000 |
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Xxx Xxxxxx XX 00000 |
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| Executive: | | |
Xxxxxx Xxxx | | |
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0000 Xxxxx Xxxxxxxx Xxxx |
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Xxx Xxxxxx XX 00000 |
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g.
This Agreement shall be governed by and construed in accordance with the laws of the
State of Washington. |
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| EMPLOYER: |
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WASHINGTON BANKING COMPANY and |
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WHIDBEY ISLAND BANK |
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By: /s/ Xxxxxx X. Xxxxxxxx |
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Xxxxxx X. Xxxxxxxx |
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Chairman of the Joint Compensation Committee of |
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Washington Banking Company and Whidbey Island Bank |
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| EXECUTIVE: | | |
By: /s/ Xxxxxx X. Cannn | | |
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Xxxxxx X. Xxxx |
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