EMPLOYMENT AGREEMENT TERRY A. PETERSON
XXXXX X. XXXXXXXX
THIS EMPLOYMENT AGREEMENT (“Agreement”) is dated as of the 19 day of June, 2008, by and
between WSB FINANCIAL GROUP, INC. and WESTSOUND BANK (hereinafter jointly referred to as
“Westsound”) and XXXXX X. XXXXXXXX (“Executive”) and is effective retroactively to April 15, 2008.
Westsound and Executive are sometimes collectively referred to herein as “the Parties.”
RECITALS
WHEREAS, Executive has been recruited to serve as the new President and Chief Executive
Officer of Westsound substantially under the terms of the Term Sheet dated March 2008; and
WHEREAS, the Parties now wish to enter into a definitive agreement setting forth the terms
and conditions of Executive’s employment with Westsound;
NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein,
and other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties agree as follows:
1. Term of Employment. Subject to earlier termination of Executive’s employment
pursuant to paragraphs 8 and 9, Westsound hereby employs Executive, and Executive hereby accepts
such employment, for the period commencing on April 15, 2008 (the “Effective Date”) and ending
April 30, 2011 (the “Term of Employment”); provided, however, that the Term of Employment shall
be automatically extended for an additional year on the first anniversary of the Effective Date
and on each anniversary of the Effective Date thereafter, unless written notice of non-extension
is provided by either party to the other party at least one hundred twenty (120) days prior to
the applicable succeeding anniversary date.
2. Duties. Executive is engaged as President and Chief Executive Officer of
Westsound Bank and WSB Financial Group, Inc., and is responsible for the overall operation and
conduct of Westsound’s business, in accordance with the laws of the State of Washington and the
federal government and pursuant to the general guidelines and directions as established from time
to time by the Board of Directors of Westsound (the “Board”). As long as Executive serves as
President and CEO of Westsound Bank and WSB Financial Group, Inc., he shall be nominated to serve
as a member of the Board of Directors of Westsound Bank and WSB Financial Group, Inc.
3. Exclusive Services and Best Efforts. Executive shall render services solely on
behalf of Westsound, and in no event shall he render services directly to a customer of Westsound
for the individual gain of Executive, without Westsound’s prior written consent. Executive shall
devote his full time, attention and energies, during regular business hours, to the business of
Westsound. Executive further agrees that he shall perform any and all duties to the
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best of his abilities. In addition to any other responsibilities which Westsound may from time to
time require him to perform, Executive shall:
(a) Use his diligent efforts to promote the business and further the goals of Westsound;
(b) Conduct his business so as to maintain and increase the goodwill and reputation of
Westsound and its business;
(c) Comply with all codes of ethics, personnel and other policies of Westsound, federal,
state and local laws and regulations, including but not limited to those related to banking and
securities, and the rules of the NASDAQ Stock Market (“NASDAQ”);
(d) Not render to others, during his employment with Westsound, services of any kind or
promote, participate or engage in any other business activity which would interfere with the
performance of his duties under this Agreement, including, without limitation, providing
consulting services or otherwise engaging in business with any person or entity which directly or
indirectly competes with Westsound, unless he first obtains Westsound’s prior written consent to
engage in such outside activities.
Anything herein to the contrary notwithstanding, nothing shall preclude the Executive from
(i) serving on the boards of directors of a reasonable number of other corporations or the boards
of a reasonable number of trade associations and/or charitable organizations (subject to the
reasonable approval of the Board), (ii) engaging in charitable activities and community affairs,
and (iii) managing Executive’s personal investments and affairs, provided that such activities do
not materially interfere with the proper performance of Executive’s duties and responsibilities
as an executive officer of Westsound.
4. Compensation. Westsound shall pay Executive, as compensation for his full-time
services during the Term of Employment, the following:
(a) Base Salary. Executive shall receive a base salary of $300,000 per annum (“Base
Salary”), partial years prorated, payable in substantially equal periodic payments, which shall
be made no less frequently than monthly during the period of the Executive’s employment
hereunder. Executive’s Base Salary shall be reviewed and set annually by the Compensation
Committee. Notwithstanding anything to the contrary in this paragraph 4(a), Executive’s Base
Salary shall be at least $300,000 per annum during the term of this Agreement.
(b) Bonus; Incentives. Executive shall receive an annual discretionary bonus or
cash incentives based on an incentive pay plan established from time to time by the Compensation
Committee with the approval of the Board of Directors (“Bonus”). In determining the amount of
the Bonus, if any, the Compensation Committee shall consider earnings, asset quality, factors
affecting shareholder value and such other factors as the Compensation Committee shall deem
appropriate. Any discretionary bonus shall be paid not later than 2 1/2
months after the year in which the Executive obtains a legally binding right to the bonus.
If the
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discretionary bonus cannot be paid by that date, then it shall be paid on the next following
April 15, or such other date during the year as permitted under Section 409A.
(c) Benefit Plans. During the Term of Employment, Executive shall be entitled to
participate in any and all employee benefit plans, including, but not be limited to the Westsound
Bank 401(k) Plan, the WSB Financial Group, Inc. 1999 Stock Option Plan, and employee welfare and
health benefit plans which may be established by Westsound from time to time for the benefit of
all executives of Westsound. Executive shall be required to comply with the conditions attendant
to coverage by such plans and shall comply with and be entitled to benefits only in accordance
with the terms and conditions of such plans as they may be amended from time to time.
(d) Vacations; Leave. The Executive shall be entitled to (i) an annual paid vacation
of not less than four (4) weeks (20 business days) per year and otherwise in accordance with the
policies established by the Board for executive officers, and (ii) voluntary leaves of absences,
with or without pay, from time to time at such times and upon such conditions as the Board may
determine.
5. Business Expenses. Westsound will pay or reimburse Executive for reasonable and
necessary business expenses incurred by Executive, which are directly related to the performance
of his duties of employment, including travel, professional memberships and professional
development, subject to documentation by Executive and approval of the Chairman of the Audit
Committee. Westsound will pay Executive’s dues to such clubs as the Board deems appropriate and
beneficial to Westsound.
6. Automobile. Executive shall provide his own automobile, and Westsound shall
provide him an automobile allowance of $600 per month for use of such automobile incident to his
duties as President and Chief Executive Officer of Westsound. The automobile allowance may be
increased from time to time as deemed appropriate by the Board.
7. Working Facilities. Executive shall be furnished with such working facilities as
are reasonably required by Executive to perform his duties as President and Chief Executive
Officer of Westsound, which working facilities shall include, but not be limited to, an office
and secretarial and staff support.
8. Separation From Service. Notwithstanding paragraph 1, this Agreement may be
terminated by Westsound upon written notice to Executive, and by Executive upon ninety (90) days
written notice to Westsound. If Executive resigns from Westsound, he will receive only his
compensation, benefits earned and expenses reimbursable through the date this Agreement is
terminated. If Executive’s employment is terminated by Westsound, he shall receive the
compensation provided hereafter.
(a) Termination Without Cause. If Executive is involuntarily separated from service
by Westsound, except for cause as provided in paragraph 8(b), subject to paragraphs 24 and 25,
Executive shall receive as a severance benefit a severance payment equal to six (6) months’ W-2
income before salary deferrals and excluding gains, if any, from exercise of stock
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options, which amount shall be increased by one (1) month’s W-2 income for each month of
employment after six (6) months up to a maximum of twelve (12) months. Such payment shall be
subject to applicable payroll withholding, and payable in a lump sum immediately following
termination, provided the timing of any such payment shall be made in compliance with Section
409A of the Internal Revenue Code of 1986, as amended (“Code”).
(b) Termination for Cause. The compensation payable upon separation from service, as
provided in paragraph 8(a), shall not be payable in the event that the Executive is involuntarily
separated from service for cause. Involuntary separation from service shall be determined to be
for cause only in the event: (i) Executive is convicted of a felony or crime involving moral
turpitude, or charged with a felony or crime involving moral turpitude if the Board, in its sole
discretion, determines that the adverse publicity/notoriety stemming from such charge will make it
difficult for Executive to perform his duties and/or Westsound to carry on its normal business
activities; (ii) Executive fails or refuses, after written request, to comply with any material
policies adopted by the Board; (iii) Executive is terminated for fraud, embezzlement, or willful
misconduct (including, but not limited to, violation of Westsound’s anti-discrimination and
harassment policies); or (iv) Executive is removed from office by the Board in order to comply
with a requirement, request or recommendation from the Supervisor of Banking for the State of
Washington or the Federal Deposit Insurance Corporation (“FDIC”).
(c) Death or Disability. This Agreement will terminate immediately upon Executive’s
death. If Executive is unable to perform his duties and obligations under this Agreement as a
result of a Disability and cannot continue to perform his duties with reasonable accommodation,
the Board may terminate this Agreement. If termination occurs due to Executive’s death, his
estate will be entitled to receive the compensation, benefits earned, and expenses reimbursable
through the date this Agreement is terminated. If termination occurs due to Executive’s
Disability, he shall continue to receive his Base Salary until payments under Westsound’s
long-term disability insurance plan commence, or in the event Westsound has no long-term
disability insurance plan on the date of disability, Executive’s Base Salary shall continue for a
period of six (6) months.
9. Change of Control. Notwithstanding paragraph 1, if after a Change of Control, (i)
Executive is involuntarily separated from service, except for cause pursuant to paragraph 8(b),
or (ii) Executive voluntarily separates from service for Good Reason within twelve (12) months
after such Change of Control, subject to paragraphs 24 and 25, Executive shall receive an amount
equal to two (2) times his Base Salary plus Bonus before salary deferrals over the twelve (12)
month period prior to the Change of Control, reduced by any amount received under paragraph 8(a),
payable in a lump sum within 30 days of the Executive’s separation from service, subject to
applicable payroll withholding; provided, however, that if Executive is a Specified Employee as
of the date Executive’s employment terminated, then any amounts that are not considered
separation pay under Code Section 409A will be paid to Executive not sooner than the first day of
the seventh calendar month following the termination of Executive’s employment and not later than
the 30th day of such calendar month. No payment shall be made under this Section 9 of amounts
that would be considered deferred compensation under Code Section 409A unless the Executive’s
separation from service qualifies as such under Code Section 409A and
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the regulations thereunder, taking into account all rules and presumptions provided for
thereunder.
10. Certain Definitions.
“Change of Control” shall mean (i) a change in the ownership of Westsound; (ii) a change in
the effective control of Westsound; or (iii) a change in ownership of a substantial portion of
the assets of Westsound, within the meaning of the regulations promulgated by the Internal
Revenue Service under section 409A of the Code.
“Disability” shall mean (i) Executive is unable to engage in any substantial gainful
activity by reason of any medically determinable, physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period of not less than
twelve months, or (ii) he is, by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last for a continuous
period of not less than twelve months, receiving income replacement benefits for a period of not
less than three months under an accident and health plan covering employees of Westsound.
Further, Executive will be deemed disabled if determined to be totally disabled by the U.S.
Social Security Administration or in accordance with a disability insurance plan if the
definition of disability applied under such disability insurance plan complies with the
requirements of the foregoing clause (i) or clause (ii).
“Good Reason” means the occurrence of one or more of the following conditions arising
without the consent of Executive:
| (i) | A material diminution in his Base Salary. | ||
| (ii) | A material diminution in his authority, duties, or responsibilities, including, but not limited to the failure of the Boards of Directors of WSB Financial Group, Inc. or Westsound Bank not to elect him President and Chief Executive Officer. | ||
| (iii) | A material diminution in the authority, duties, or responsibilities of the supervisor to whom Executive is required to report, including a requirement that Executive report to a corporate officer or employee instead of reporting directly to the board of directors of Westsound. | ||
| (iv) | A material diminution in the budget over which Executive retains authority. | ||
| (v) | A material change in the geographic location at which Executive must perform the services. | ||
| (vi) | Any other action or inaction that constitutes a material breach by Westsound of this Agreement. |
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Notwithstanding the foregoing, Executive shall be required to provide notice to Westsound
of the existence of any of the foregoing conditions within a period not to exceed ninety (90)
days of the initial existence of the condition, upon the notice of which Westsound shall have a
period of thirty (30) days during which it may remedy the condition and not be required to pay
the amount.
“Specified Employee” means an individual who, during the 12-month period ending on the
December 31 next preceding his separation from service, was a “key employee”, as such term is
defined in Section 416(i) of the Internal Revenue Code without regard to section 416(i)(5) of the
Internal Revenue Code, of Westsound, provided that stock of Westsound is publicly traded on an
established securities market or otherwise.
11. Stock Purchase Right; Option Grant. Subject to compliance with the rules of
NASDAQ and the SEC, for a period of one (1) year after the date of this Agreement WSB Financial
Group, Inc. agrees to sell to Executive up to $1,000,000 of the WSB Financial Group, Inc.’s $1.00
par value common stock at the closing market price as of the date of purchase. WSB Financial
Group, Inc. will also grant Executive an option to purchase 100,000 shares of WSB Financial
Group, Inc.’s common stock, exercisable at the closing market price on the date of grant, vesting
in 20% annual installments over a period of five years in accordance with the terms and
conditions of WSB Financial Group, Inc.’s 1999 Incentive Stock Option Plan and his stock option
agreement.
12. Federal Regulatory Provisions.
(a) If Executive is suspended and/or temporarily prohibited from participating in the
conduct of Westsound Bank’s affairs by a notice served under section 8(e)(3) or (g)(1) of Federal
Deposit Insurance Act (12 U.S.C. 1818 (e)(3) and (g)(1)) Westsound Bank’s obligations under this
Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, Westsound Bank may in its discretion (i) pay
Executive all or part of the compensation withheld while its obligations under this Agreement
were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were
suspended.
(b) If Executive is removed and/or permanently prohibited from participating in the conduct
of Westsound Bank’s affairs by an order issued under section 8 (e)(4) or (g)(1) of the U.S.C.
1818 (e)(4) or (g)(1)), all obligations of Westsound Bank under this Agreement shall terminate as
of the effective date of the order, but vested rights of the Parties shall not be affected.
(c) If Westsound Bank is in default (as defined in section 3(x)(1) of the Federal Deposit
Insurance Act), all obligations under this Agreement shall terminate as of the date of default,
but this paragraph (c) shall not affect any vested rights of the Parties.
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(d) All obligations under this Agreement shall be terminated, except to the extent
determined that continuation of this Agreement is necessary to the continued operation of
Westsound Bank:
(i) By the Director of the Federal Deposit Insurance Corporation (“Director”) or
his or her designee, at the time the Federal Deposit Insurance Corporation enters into
an agreement to provide assistance to or on behalf of Westsound under the authority
contained in 13(c) of the Federal Deposit Insurance Act; or
(ii) By the Director or his or her designee, at the time the Director or his or her
designee approves a supervisory merger to resolve problems related to operation of
Westsound or when Westsound is determined by the Director to be in an unsafe or unsound
condition.
13. Confidentiality. Executive acknowledges that he will have access to certain
proprietary and confidential information of Westsound and its clients. Executive will not, after
signing this Agreement, including during and after its Term, use for his own purposes or disclose
to any other person or entity any confidential information concerning Westsound or its business
operations or customers, unless; (i) Westsound consents to the use or disclosure of said
confidential information, (ii) the use or disclosure is consistent with Executive’s duties under
this Agreement, (iii) disclosure is required by law or court order, or (iv) such information is,
or comes within, the public domain without the fault of Executive.
14. Competition Restriction. During the Term of Employment and for the period for
which Executive receives compensation under paragraph 8(a), and for twenty-four (24) months after
termination of his employment, if Executive receives compensation under paragraph 9, he shall not
become or serve as an officer, director, founder or employee of any financial institution in
Kitsap, Jefferson, or Clallam Counties, unless Executive has first obtained the Board’s written
consent. In the event Executive breaches this condition, which breach is not corrected within
fifteen (15) days of notice to Executive of such breach, Executive shall forfeit all right to
receive all benefits or other payments remaining unpaid on the date of any such breach, and shall
refund any payments received pursuant to paragraph 8(a) or 9 hereof, and all unexercised stock
options which will be forfeited.
15. No Solicitation. During the Term of Employment and for the period for which
Executive receives compensation under paragraph 8(a), and for twenty-four (24) months after
termination of Executive’s employment, if Executive receives compensation under paragraph 9,
Executive will not, directly or indirectly, solicit or attempt to solicit; (i) any employees of
Westsound to leave their employment, or (ii) any customers of Westsound to remove their business
from Westsound to participate in any manner in a competing business (“Competing Business”).
“Competing Business” means any financial institution or trust company that competes with or will
compete with Westsound in Kitsap, Jefferson, or Clallam Counties, or any start-up or other
financial institution or trust company in Kitsap, Jefferson, or Clallam Counties.
16. Return of Bank Property. If and when Executive ceases, for any reason, to be
employed by Westsound, Executive must return to Westsound all keys, pass cards, identification
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cards and any other property of Westsound. At the same time, Executive also must return to
Westsound all originals and copies (whether in hard copy, electronic or other form) of any
documents, drawings, notes, memoranda, designs, devices, diskettes, tapes, manuals, and
specifications which constitute proprietary information or material of Westsound. The obligations
in this paragraph include the return of documents and other materials which may be in Executive’s
desk at work, in Executive’s car or place of residence, or in any other location under
Executive’s control.
17. Enforcement of Confidentiality and Non-Competition Covenants. Westsound and
Executive stipulate that, in light of all of the facts and circumstances of the relationship
between them, the covenants referred to in paragraphs 13, 14, 15, and 16 above, including, without
limitation, their scope, duration and geographic extent, are fair and reasonably necessary
for the protection of Westsound’s confidential information, goodwill and other protectable
interests. If a court of competent jurisdiction should decline to enforce any of those covenants and
agreements, Executive and Westsound request the court to reform these provisions to restrict Executive’s
use of confidential information and Executive’s ability to compete with Westsound, to the
maximum extent, in time, scope of activities, and geography, as the court finds enforceable.
Executive acknowledges that Westsound will suffer immediate and irreparable harm that will
not be compensable by damages alone, if Executive repudiates or breaches any of the provisions in
paragraphs 13, 14, 15, and 16 above or threatens or attempts to do so. For this reason, under
these circumstances, Westsound, in addition to and without limitation of any other rights,
remedies or damages available to it at law or in equity, will be entitled to obtain temporary,
preliminary and permanent injunctions in order to prevent or restrain the breach, and Westsound
will not be required to post a bond as a condition for the granting of this relief.
18. Adequate Consideration. Executive specifically acknowledges the receipt of
adequate consideration for the covenants contained in paragraphs 13, 14, 15, and 16 above and
that Westsound is entitled to require him to comply with these paragraphs. These paragraphs will
survive termination of this Agreement. Executive represents that if his employment is terminated,
whether voluntarily or involuntarily, he has the experience and capabilities sufficient to enable
him to obtain employment in areas which do not violate this Agreement and that Westsound’s
enforcement of a remedy by way of injunction will not prevent Executive from earning a
livelihood.
19. No Employee Contract Rights. Nothing contained in this Agreement shall be
construed to abrogate, limit or affect the powers, rights and privileges of the Board to remove
Executive as President or Chief Executive Officer of Westsound, with or without cause.
20. Regulatory Agencies. The Parties fully acknowledge and recognize that Westsound
and Executive (insofar as he conducts Westsound’s business) are regulated and governed by the
Division of Banks for the State of Washington and the FDIC. In the event the Division of Banks,
the FDIC or any other governmental agency with authority to regulate Westsound objects to, and
requires modification of, any of the terms of this Agreement, the Parties agree that they shall
abide by and modify the terms of this Agreement to comply with any and all requirements of that
governmental agency.
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21. Dispute Resolution. The Parties agree to attempt to resolve all disputes arising
out of this Agreement by mediation. Any party desiring mediation may begin the process by giving
the other party a written request to mediate, describing the issues involved and inviting the
other party to join with the calling party to name a mutually agreeable mediator and a timeframe
for the mediation meeting. The Parties and mediator may adopt any procedural format that seems
appropriate for the particular dispute. The contents of all discussions during the mediation
shall be confidential and non-discoverable in subsequent arbitration or litigation, if any. If
the Parties can, through the mediation process, resolve the dispute(s), the agreement reached by
the Parties shall be reduced to writing, signed by the Parties, and the dispute shall be at an
end.
If the result of the mediation is a recognition that the dispute cannot be successfully
mediated, or if either party believes mediation would be unproductive, then either party may seek
to resolve the dispute in accordance with the procedures established by Judicial Arbitration and
Mediation Services, Inc.
The award rendered by the arbitrator (whether through Judicial Arbitration and Mediation
Services, Inc. or otherwise) shall be final, and judgment may be entered upon it in accordance
with applicable law in any court having jurisdiction thereof.
The arbitrator shall allocate the costs charged by Judicial Arbitration and Mediation
Services, Inc., or other arbitrator as the case may be. It is agreed that the arbitrator shall
award to the prevailing or substantially prevailing party all fees incurred by such party with
regard to such arbitration, including reasonable legal and accounting fees. If the arbitrator
determines that there is no prevailing or substantially prevailing party, the legal and
accounting fees shall be borne by Westsound.
22. Governing Law. All proceedings will be held at a place designated by the
arbitrator in Kitsap County, Washington. The arbitrator, in rendering a decision as to any
state law claims, will apply Washington law.
23. Exception to Arbitration. Notwithstanding the above, if Executive violates
paragraphs 13, 14, 15, and 16 above, Westsound will have the right to initiate the court proceedings
described in paragraph 17 above, in lieu of an arbitration proceeding. Westsound may
initiate these proceedings wherever appropriate within Washington state, but Executive will consent
to venue and jurisdiction in Kitsap County, Washington.
24. Section 280G of the Code. If any severance benefit paid to Executive
constitutes an “excess parachute payment” under section 280G of the Code, said severance benefit
or pay shall be reduced by the amount of the tax deduction disallowed to Employer as result of
such excess parachute payment.
25. Execution of Release. Any payment to Executive under paragraph 8 and/or 9
hereof shall be conditioned upon receipt by Westsound of an executed release of all claims
against Westsound, in substantially the form as attached hereto as Exhibit A.
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26. Notice. Any notice to be delivered under this Agreement shall be given in
writing and delivered personally or by certified mail, postage prepaid, addressed to Westsound or
to Executive at their last known address.
27. Independent Legal Counsel. Executive acknowledges that he has had the
opportunity to review and consult with his own personal legal counsel regarding this Agreement.
28. Non-Waiver. No delay or failure by either party to exercise any right under this
Agreement, and no partial single exercise of that right, shall constitute a waiver of that or any
other right.
29. Severability. If any provision of this Agreement shall be held by a court of
competent jurisdiction to be invalid or unenforceable, the remaining provisions shall continue to
be fully effective.
30. Entire Agreement. This Agreement represents the entire agreement of the Parties.
This Agreement supersedes any prior oral or written agreement between the Parties on the subject
matter hereof. This Agreement may be superseded by another written agreement entered into between
Executive and Westsound on mutually agreeable terms, provided such agreement expressly by its
terms supersedes this Agreement. The offer by Westsound to enter into any such agreement, or the
entering into such agreement, shall not be considered to have terminated this Agreement,
triggering the payment of benefits under paragraph 8 hereof.
31. Binding Effect. It is agreed that all covenants, terms and conditions of this
Agreement shall extend, apply to and firmly bind the heirs, executors, administrators, assigns
and successors in interest of the respective parties hereto as fully as the respective parties
themselves are bound. It is specifically understood that in the event of Executive’s death prior
to the full payment of any benefit to which he is entitled under this Agreement, such payment(s)
shall be made to his spouse and/or heirs as the case may be.
32. Compliance with Section 409A of the Code. Where required, the provisions of this
Agreement are intended to comply with the requirements of Section 409A of the Code.
Notwithstanding any other provision of this Agreement, this Agreement shall be interpreted and
administered in accordance with the requirements of section 409A of the Code.
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IN WITNESS WHEREOF, the Parties have signed this Agreement on the 19 day of
June, 2008.
| WESTSOUND BANK | ||||||||
By:
|
/s/ Xxxxxx X. Xxx
|
/s/ Xxxxx X. Xxxxxxxx
|
||||||
| Title: Chairman of the Board | ||||||||
| WSB FINANCIAL GROUP, INC, | ||||||||
By: |
/s/ Xxxxxx X. Xxx | |||||||
| Xxxxxx X. Xxx | ||||||||
| Title: Chairman of the Board | ||||||||
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