EXHIBIT 10.3
CHANGE-IN-CONTROL SEVERANCE AGREEMENT
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THIS AGREEMENT entered into this day of , 1996 (the
"Effective Date"), by and between Xxxxxx X. Xxxxxx (the "Employee"), Xxxxx Bank
(the "Bank"), and Xxxxxxx Financial Corp. (the "Company").
WHEREAS, the Employee has heretofore been employed by the Bank and the
Company as an executive officer, and the Bank and the Company deem it to be in
their best interest to enter into this Agreement as additional incentive to the
Employee to continue as an executive employee of the Bank and the Company; and
WHEREAS, the parties desire by this writing to set forth their
understanding as to their respective rights and obligations in the event a
change of control occurs with respect to the Bank or the Company.
NOW, THEREFORE, the undersigned parties AGREE as follows:
1. Defined Terms
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When used anywhere in this Agreement, the following terms shall have
the meaning set forth herein.
(a) "Change in Control" shall mean any one of the following
events: (i) the acquisition of ownership, holding or power to vote more than 25%
of the Bank's or the Company's voting stock, (ii) the acquisition of the ability
to control the election of a majority of the Bank's or the Company's directors,
(iii) the acquisition of a controlling influence over the management or policies
of the Bank or the Company by any person or by persons acting as a "group"
(within the meaning of Section 13(d) of the Securities Exchange Act of 1934), or
(iv) during any period of two consecutive years, individuals (the "Continuing
Directors") who at the beginning of such period constitute the Board of
Directors of the Bank or the Company (the "Existing Board") cease for any reason
to constitute at least two-thirds thereof, provided that any individual whose
election or nomination for election as a member of the Existing Board was
approved by a vote of at least two-thirds of the Continuing Directors then in
office shall be considered a Continuing Director. Notwithstanding the foregoing,
in the case of (i), (ii) and (iii) hereof, ownership or control of the Bank by
the Company itself shall not constitute a Change in Control. For purposes of
this paragraph only, the term "person" refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and as interpreted through applicable rulings and
regulations in effect from time to time.
(c) "Code ss.280G Maximum" shall mean product of 2.99 and
his "base amount" as defined in Code ss.280G(b)(3).
(c) "Good Reason" shall mean any of the following events,
which has not been consented to in advance by the Employee in writing: (i) the
requirement that the Employee move his personal residence, or perform his
principal executive functions, more than thirty (30) miles from his primary
office as of the date of the Change in Control; (ii) a material reduction in the
Employee's base compensation as in effect on the date of the Change in Control
or as the same may be increased from time to time; (iii) the failure by the Bank
or the Company to continue to provide the Employee with compensation and
benefits provided for on the date of the Change in Control, as the same may be
increased from time to time, or with benefits substantially similar to those
provided to him under any of the employee benefit plans in which the Employee
now or hereafter becomes a participant, or the taking of any action by the Bank
or the Company which would directly or indirectly reduce any of such benefits or
deprive the Employee of any material fringe benefit enjoyed by him at the time
of the Change in Control; (iv) the assignment to the Employee of duties and
responsibilities materially different from those normally associated with his
position; (v) a failure to elect or reelect the Employee to the Board of
Directors of the Bank or the Company, if the Employee is serving on such Board
on the date of the Change in Control; (vi) a material diminution or reduction in
the Employee's responsibilities or authority (including reporting
responsibilities) in connection with his employment with the Bank or the
Company; or (vii) a material reduction in the secretarial or other
administrative support of the Employee.
(d) "Just Cause" shall mean, in the good faith determination
of the Bank's Board of Directors, the Employee's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of this
Agreement. The Employee shall have no right to receive compensation or other
benefits for any period after termination for Just Cause. No act, or failure to
act, on the Employee's part shall be considered "willful" unless he has acted,
or failed to act, with an absence of good faith and without a reasonable belief
that his action or failure to act was in the best interest of the Bank and the
Company.
(e) "Protected Period" shall mean the period that begins on
the date six months before a Change in Control and ends on the later of the
first annual anniversary of the Change in Control or the expiration date of this
Agreement.
2. Trigger Events
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The Employee shall be entitled to collect the severance benefits set
forth in Section 3 of this Agreement in the event that (i) the Employee
voluntarily terminates employment either for any reason within the 30-day period
beginning on the date of a Change in Control, (ii) the Employee voluntarily
terminates employment within 90 days of an event that both occurs during the
Protected Period and constitutes Good Reason, or (iii) the Bank or the Company
or their
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successor(s) in interest terminate the Employee's employment for any reason
other than Just Cause during the Protected Period.
3. Amount of Severance Benefit
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If the Employee becomes entitled to collect severance benefits pursuant
to Section 2 hereof, the Employee shall receive from the Bank or the Company,
which shall be jointly and severally liable to the Employee, a severance benefit
equal to the difference between the Code ss.280G Maximum and the sum of any
other "parachute payments" as defined under Code ss.280G(b)(2) that the Employee
receives on account of the Change in Control. Said sum shall be paid in one lump
sum within ten (10) days of the later of the date of the Change in Control and
the Employee's last day of employment with the Bank or the Company.
In the event that the Employee, the Bank, and the Company jointly agree
that the Employee has collected an amount exceeding the Code ss.280G Maximum,
the parties may jointly agree in writing that such excess shall be treated as a
loan ab initio which the Employee shall repay to the Bank, on terms and
conditions mutually agreeable to the parties, together with interest at the
applicable federal rate provided for in Section 7872(f)(2)(B) of the Code.
4. Funding of Grantor Trust upon Change in Control
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Not later than ten business days after a Change in Control, the Bank
shall (i) establish a grantor trust (the "Trust") designed in accordance with
Revenue Procedure 92-64 and having a trustee independent of the Bank and the
Company, (ii) deposit in said Trust an amount equal to the Code ss.280G Maximum,
unless the Employee has previously provided a written release of any claims
under this Agreement, and (i) provide the trustee of the Trust with a written
direction to hold said amount and any investment return thereon in a segregated
account for the benefit of the Employee, and to follow the procedures set forth
in the next paragraph as to the payment of such amounts from the Trust. Upon the
earlier of the Trust's final payment of all amounts due under the following
paragraph or the date 15 months after the Change in Control, the trustee of the
Trust shall pay to the Bank the entire balance remaining in the segregated
account maintained for the benefit of the Employee. The Employee shall
thereafter have no further interest in the Trust.
During the 12-consecutive month period after a Change in Control, the
Employee may provide the trustee of the Trust with a written notice requesting
that the trustee pay to the Employee an amount designated in the notice as being
payable pursuant to this Agreement. Within three business days after receiving
said notice, the trustee of the Trust shall send a copy of the notice to the
Bank via overnight and registered mail return receipt requested. On the tenth
(10th) business day after mailing said notice to the Bank, the trustee of the
Trust shall pay the Employee the amount designated therein in immediately
available funds, unless prior thereto the Bank provides the trustee with a
written notice directing the trustee to withhold such payment. In the latter
event, the trustee shall submit the dispute to non-appealable binding
arbitration for a determination of the amount payable to the Employee pursuant
to this
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Agreement, and the costs of such arbitration shall be paid by the Bank. The
trustee shall choose the arbitrator to settle the dispute, and such arbitrator
shall be bound by the rules of the American Arbitration Association in making
his determination. The parties and the trustee shall be bound by the results of
the arbitration and, within 3 days of the determination by the arbitrator, the
trustee shall pay from the Trust the amounts required to be paid to the Employee
and/or the Bank, and in no event shall the trustee be liable to either party for
making the payments as determined by the arbitrator.
5. Term of the Agreement. This Agreement shall remain in effect for the
period commencing on the Effective Date and ending on the earlier of (i) the
date thirty-six months after the Effective Date, and (ii) the date on which the
Employee terminates employment with the Bank; provided that the Employee's
rights hereunder shall continue following the termination of this employment
with the Bank under any of the circumstances described in Section 2 hereof.
Additionally, on each annual anniversary date from the Effective Date, the term
of this Agreement shall be extended for an additional one-year period beyond the
then effective expiration date provided the Boards of Directors of the Bank and
the Company determine in duly adopted resolutions that the performance of the
Employee has met the requirements and standards of the respective Boards, and
that this Agreement shall be extended.
6. Termination or Suspension Under Federal Law.
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(a) Any payments made to the Employee pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder.
(b) If the Employee is removed and/or permanently prohibited
from participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) or (g)(1)), all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.
(c) If the Bank is in default (as defined in Section 3(x)(1)
of FDIA), all obligations of the Bank under this Agreement shall terminate as of
the date of default; however, this Paragraph shall not affect the vested rights
of the parties.
(d) If a notice served under Section 8(e)(3) or (g)(1) of
the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)) suspends and/or temporarily prohibits
the Employee from participating in the conduct of the Bank's affairs, the Bank's
obligations under this Agreement shall be suspended as of the date of such
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank shall (i) pay the Employee all or part of the
compensation withheld while its contract obligations were suspended, and (ii)
reinstate (in whole or in part) any of its obligations which were suspended.
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7. Expense Reimbursement.
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In the event that any dispute arises between the Employee and the Bank
or the Company as to the terms or interpretation of this Agreement, whether
instituted by formal legal proceedings or otherwise, including any action that
the Employee takes to enforce the terms of this Agreement or to defend against
any action taken by the Bank or the Company, the Employee shall be reimbursed
for all costs and expenses, including reasonable attorneys' fees, arising from
such dispute, proceedings or actions, provided that the Employee shall obtain a
final judgement in favor of the Employee in a court of competent jurisdiction or
in binding arbitration under the rules of the American Arbitration Association.
Such reimbursement shall be paid within ten (10) days of Employee's furnishing
to the Bank and the Company written evidence, which may be in the form, among
other things, of a cancelled check or receipt, of any costs or expenses incurred
by the Employee.
8. Successors and Assigns.
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(a) This Agreement shall inure to the benefit of and be
binding upon any corporate or other successor of the Bank or the Company which
shall acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Bank or
Company.
(b) Since the Bank and the Company are contracting for the
unique and personal skills of the Employee, the Employee shall be precluded from
assigning or delegating his rights or duties hereunder without first obtaining
the written consent of the Bank and the Company.
9. Joint and Several Liability
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The Company hereby agrees that to the extent permitted by law, it shall
be jointly and severally liable for both the payment of all amounts due under
this Agreement, and the taking of any actions required under this Agreement.
10. Amendments
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No amendments or additions to this Agreement shall be binding unless
made in writing and signed by all of the parties, except as herein otherwise
specifically provided.
11. Applicable Law
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Except to the extent preempted by Federal law, the laws of the State of
Pennsylvania shall govern this Agreement in all respects, whether as to its
validity, construction, capacity, performance or otherwise.
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12. Severability
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The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof.
13. Entire Agreement
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This Agreement, together with any understanding or modifications
thereof as agreed to in writing by the parties, shall constitute the entire
agreement between the parties hereto.
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