EXHIBIT 10.7
XXXXX BANK
SALARY CONTINUATION AGREEMENT
THIS AGREEMENT is made effective this First day of October 1999, by and
between XXXXX BANK, a state bank located in Honesdale, Pennsylvania (the
"Company") and Xxxxx X. Xxxxxxxx (the "Executive").
INTRODUCTION
To encourage the Executive to remain an employee of the Company, the
Company is willing to provide salary continuation benefits to the Executive. The
Company will pay the benefits from its general assets.
AGREEMENT
The Executive and the Company agree as follows:
Article 1
Definitions
1.1 Definitions. Whenever used in this Agreement, the following words and
phrases shall have the meanings specified:
1.1.1 "Change of Control" shall mean any one of the following
events: (i) the acquisition of ownership, holding or power to vote more
than 25% of the Company's or the Corporation's voting stock, (ii) the
acquisition of the ability to control the election of a majority of the
Company's or the Corporation's directors, (iii) the acquisition of a
controlling influence over the management or policies of the Company or
the Corporation 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,
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individuals (the "Continuing Directors") who at the beginning of such
period constitute the Board of Directors of the Company or the Corporation
(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
Company by the Corporation 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.
1.1.2 "Code" means the Internal Revenue Code of 1986, as amended.
1.1.3 "Corporation" means Xxxxxxx Financial Corp.
1.1.4 "Disability" means the Executive shall be deemed totally and
permanently disabled if he becomes unable to perform a substantial portion
of his duties under this agreement and a physician selected by Bank
determines such inability will continue for a period of six (6) months or
more and is likely to be permanent and the Executive qualifies to receive
total disability benefits under Bank's disability insurance plan.
1.1.5 "Early Termination" means the Termination of Employment before
Normal Retirement Age for reasons other than death, Disability, Termination
for Cause or following a Change of Control.
1.1.6 "Early Termination Date" means the month, day and year in which
Early Termination occurs.
1.1.7 "Normal Retirement Age" means the Executive's 62nd birthday.
1.1.8 "Normal Retirement Date" means the later of the Normal
Retirement Age or Termination of Employment.
1.1.9 "Plan Year" means each twelve-month period commencing with the
effective date of this Agreement.
1.1.10 "Termination for Cause" See Section 5.2.
1.1.11 "Termination of Employment" means that the Executive ceases to
be employed by the Company for any reason whatsoever other than by reason
of a leave of absence which is approved by the Company. For purposes of
this Agreement, if there is a
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dispute over the employment status of the Executive or the date of the
Executive's Termination of Employment, the Company shall have the sole and
absolute right to decide the dispute.
Article 2
Lifetime Benefits
2.1 Normal Retirement Benefit. Upon Termination of Employment on or after
the Normal Retirement Age for reasons other than death, the Company shall pay to
the Executive the benefit described in this Section 2.1 in lieu of any other
benefit under this Agreement.
2.1.1 Amount of Benefit. The annual Normal Retirement Benefit under
this Section 2.1 is $61,000 (sixty-one thousand dollars). The Company may
increase the annual benefit under this Section 2.1 at the sole and absolute
discretion of the Company's Board of Directors. Any increase in the annual
benefit shall require the recalculation of all the amounts on Schedule A
attached hereto. The annual benefit amounts on Schedule A are calculated by
amortizing the annual normal retirement benefit using the interest method
of accounting, a 7.50% discount rate, monthly compounding and monthly
payments.
2.1.2 Payment of Benefit. The Company shall pay the annual benefit to
the Executive in 12 equal monthly installments payable on the first day of
each month commencing with the month following the Executive's Normal
Retirement Date and continuing for 179 additional months.
2.1.3 Benefit Increases. Commencing on the first anniversary of the
first benefit payment, and continuing on each subsequent anniversary, the
Company's Board of Directors, in its sole discretion, may increase the
benefit.
2.2 Early Termination Benefit. Upon Early Termination, the Company
shall pay to the Executive the benefit described in this Section 2.2 in
lieu of any other benefit under this Agreement.
2.2.1 Amount of Benefit. The annual benefit under this Section 2.2 is
the Early Termination Annual Benefit set forth in Schedule A for the Plan
Year ending immediately prior to the Early Termination Date.
2.2.2 Payment of Benefit. The Company shall pay the annual benefit to
the Executive in 12 equal monthly installments payable on the first day of
each month commencing with the month following the Executive's Normal
Retirement Age and continuing for 179 additional months.
2.2.3 Benefit Increases. Benefit payments may be increased as provided
in Section 2.1.3.
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2.3 Disability Benefit. If the Executive terminates employment due to
Disability prior to Normal Retirement Age, the Company shall pay to the
Executive the benefit described in this Section 2.3 in lieu of any other
benefit under this Agreement.
2.3.1 Amount of Benefit. The annual benefit under this Section 2.3 is
the Disability Benefit amount set forth in Schedule A for the Plan Year
ending immediately prior to the date in which Termination of Employment
occurs.
2.3.2 Payment of Benefit. The Company shall pay the annual benefit to
the Executive in 12 equal monthly installments commencing within 90 days
after the date of the Executive's Termination of Employment and continuing
for 179 additional months.
2.3.3 Benefit Increases. Benefit payments may be increased as provided
in Section 2.1.3.
2.4 Change of Control Benefit. If the Executive is in the active
service of the Company at the time of a Change of Control, the Company
shall pay to the Executive the benefit described in this Section 2.4 in
lieu of any other benefit under this Agreement.
2.4.1 Amount of Benefit. The annual benefit under this Section 2.4 is
the Normal Retirement Benefit described in Section 2.1.1.
2.4.2 Payment of Benefit. The Company shall pay the annual benefit to
the Executive in 12 equal monthly installments payable on the first day of
each month commencing with the month following Normal Retirement Age and
continuing for 179 additional months.
2.4.3 Benefit Increases. Benefit payments may be increased as provided
in Section 2.1.3
2.4.4 Rabbi Trust. Within 10 days of a Change of Control, a rabbi
trust shall be established and shall at all times be funded with assets at
least equal to the present value of the unpaid balance of the Normal
Retirement Benefit. A discount rate no greater then the ten year Treasury
note shall be used in calculating present value.
2.4.5 Excise tax Reimbursement. The Company shall indemnify and hold
the Executive harmless from any and all loss, expense or liability that he
may ever incur under Code ss. 4999, or a successor, as the result of
benefits he collects pursuant to this Agreement.
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Article 3
Death Benefits
3.1 Death During Active Service. If the Executive dies while in the active
service of the Company, the Company shall pay to the Executive's beneficiary the
benefit described in this Section 3.1. This benefit shall be paid in lieu of the
Lifetime Benefits of Article 2.
3.1.1 Amount of Benefit. The annual benefit under this Section 3.1 is
the Normal Retirement Benefit described in Section 2.1.1.
3.1.2 Payment of Benefit. The Company shall pay the annual benefit to
the beneficiary in 12 equal monthly installments payable on the first day
of each month commencing with the month following the Executive's death and
continuing for 179 additional months.
3.2 Death During Benefit Period. If the Executive dies after the
benefit payments have commenced under this Agreement but before receiving
all such payments, the Company shall pay the remaining benefits to the
Executive's beneficiary at the same time and in the same amounts they would
have been paid to the Executive had the Executive survived.
3.3 Death Following Termination of Employment But Before Benefits
Commence. If the Executive is entitled to benefits under this Agreement,
but dies prior to receiving said benefits, the Company shall pay to the
Executive's beneficiary the same benefits, in the same manner, they would
have been paid to the Executive had the Executive survived; however, said
benefit payments will commence upon the Executive's death.
Article 4
Beneficiaries
4.1 Beneficiary Designations. The Executive shall designate a beneficiary
by filing a written designation with the Company. The Executive may revoke or
modify the designation at any time by filing a new designation. However,
designations will only be effective if signed by the Executive and accepted by
the Company during the Executive's lifetime. The Executive's beneficiary
designation shall be deemed automatically revoked if the beneficiary predeceases
the Executive, or if the Executive names a spouse as beneficiary and the
marriage is subsequently dissolved. If the Executive dies without a valid
beneficiary designation, all payments shall be made to the Executive's estate.
4.2 Facility of Payment. If a benefit is payable to a minor, to a person
declared incapacitated, or to a person incapable of handling the disposition of
his or her property, the Company may pay such benefit to the guardian, legal
representative or person having the care or custody of such minor, incapacitated
person or incapable person. The Company may require proof of incapacity,
minority or guardianship as it may deem appropriate prior to distribution of
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the benefit. Such distribution shall completely discharge the Company from all
liability with respect to such benefit.
Article 5
General Limitations
5.1 Excess Parachute or Golden Parachute Payment. Notwithstanding any
provision of this Agreement to the contrary, the Company shall not pay any
benefit under this Agreement to the extent the benefit would be a
prohibited golden parachute payment pursuant to 12 C.F.R.ss.357.2 and for
which the appropriate federal banking agency has not given written consent
to pay pursuant to 12 C.F.R.ss.359.4.
5.2 Termination for Cause. Notwithstanding any provision of this
Agreement to the contrary, the Company shall not pay any benefit under this
Agreement, if the Company terminates the Executives employment for:
5.2.1 Gross negligence or gross neglect of duties;
5.2.2 Commission of a felony or of a gross misdemeanor involving
moral turpitude; or
5.2.3 Fraud, disloyalty, dishonesty or willful violation of any
law or significant Company policy committed in connection with the
Executive's employment and resulting in an adverse effect on the
Company.
5.2.4 Removal. Notwithstanding any provision of this Agreement to
the contrary, the Company shall not pay any benefit under this
Agreement if the Executive is subject to a final removal or
prohibition order issued by an appropriate federal banking agency
pursuant to Section 8(e) of the Federal Deposit Insurance Act.
5.3 Competition After Termination of Employment. No benefits shall be
payable if the Executive, without the prior written consent of the Company,
violates the following described restrictive covenants.
5.3.1 Non-compete Provision. The Executive shall not, for the
term of this Agreement and until all benefits have been distributed,
directly or indirectly, either as an individual or as a proprietor,
stockholder, partner, officer, director, employee, agent, consultant
or independent contractor of any individual, partnership, corporation
or other entity (excluding an ownership interest of one percent (1%)
or less in the stock of a publicly traded company):
(i) become employed by, participate in, or be connected in any
manner with the ownership, management, operation or control
of any bank, savings and loan or
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other similar financial institution if the Executive's
responsibilities will include providing banking or other
financial services; or (ii) participate in any way in hiring
or otherwise engaging, or assisting any other person or
entity in hiring or otherwise engaging, on a temporary,
part-time or permanent basis, any individual who was
employed by the Corporation or any of its subsidiaries
during the three (3) year period immediately prior to the
termination of the Executive's employment; or
(iii)assist, advise, or serve in any capacity, representative or
otherwise, any third party in any action against the
Corporation or any of its subsidiaries or transaction
involving the Corporation or any of its subsidiaries; or
(iv) sell, offer to sell, provide banking or other financial
services, assist any other person in selling or providing
banking or other financial services, or solicit or otherwise
compete for, either directly or indirectly, any orders,
contract, or accounts for services of a kind or nature like
or substantially similar to the services performed or
products sold by the Corporation or any of its subsidiaries
(the preceding hereinafter referred to as "Services"), to or
from any person or entity from whom the Executive or the
Corporation or any of its subsidiaries provided banking or
other financial services, sold, offered to sell or solicited
orders, contracts or accounts for Services during the three
(3) year period immediately prior to the termination of the
Executive's employment; or
(v) divulge, disclose, or communicate to others in any manner
whatsoever, any confidential information of the Corporation
or any of its subsidiaries, including, but not limited to,
the names and addresses of customers of the Corporation or
any of its subsidiaries, as they may have existed from time
to time or of any of the Corporation's or any of its
subsidiaries prospective customers, work performed or
services rendered for any customer, any method and/or
procedures relating to projects or other work developed for
the Corporation or any of its subsidiaries, earnings or
other information concerning the Corporation or any of its
subsidiaries. The restrictions contained in this
subparagraph (v) apply to all information regarding the
Corporation or any of its subsidiaries, regardless of the
source who provided or compiled such information.
Notwithstanding anything to the contrary, all information
referred to herein shall not be disclosed unless and until
it becomes known to the general public from sources other
than the Executive.
5.3.2 Judicial Remedies. In the event of a breach or threatened
breach by the Executive of any provision of these restrictions, the
Executive recognizes the substantial and immediate harm that a breach
or threatened breach will impose upon the Corporation or any of its
subsidiaries, and further recognizes that in such event monetary
damages may be inadequate to fully protect the Corporation or any of
its subsidiaries. Accordingly, in the
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event of a breach or threatened breach of this Agreement, the
Executive consents to the Corporation's or any of its subsidiaries
entitlement to such ex parte, preliminary, interlocutory, temporary or
permanent injunctive, or any other equitable relief, protecting and
fully enforcing the Corporation' or any of its subsidiaries rights
hereunder and preventing the Executive from further breaching any of
his obligations set forth herein. The Executive expressly waives any
requirement, based on any statute, rule of procedure, or other source,
that the Corporation or any of its subsidiaries post a bond as a
condition of obtaining any of the above-described remedies. Nothing
herein shall be construed as prohibiting the Corporation or any of its
subsidiaries from pursuing any other remedies available to the
Corporation or any of its subsidiaries at law or in equity for such
breach or threatened breach, including the recovery of damages from
the Executive. The Executive expressly acknowledges and agrees that:
(i) the restrictions set forth in Section 5.3.1 are reasonable, in
terms of scope, duration, geographic area, and otherwise, (ii) the
protections afforded the Corporation or any of its subsidiaries in
Section 5.3.1 are necessary to protect its legitimate business
interest, (iii) the restrictions set forth in Section 5.3.1 will not
be materially adverse to the Executive's employment with the Company,
and (iv) his agreement to observe such restrictions forms a material
part of the consideration for this Agreement.
5.3.3 Overbreadth of Restrictive Covenant. It is the intention of
the parties that if any restrictive covenant in this Agreement is
determined by a court of competent jurisdiction to be overly broad,
then the court should enforce such restrictive covenant to the maximum
extent permitted under the law as to area, breadth and duration.
5.3.4 The non-compete provision detailed in Section 5.3.1 shall
not be enforceable following a Change of Control.
5.4 Suicide or Misstatement. No benefits shall be payable if the
Executive commits suicide within two years after the date of this
Agreement, or if the insurance company denies coverage for material
misstatements of fact made by the Executive on any application for life
insurance purchased by the Company, or any other reason; provided, however
that the Company shall evaluate the reason for the denial, and upon advice
of legal counsel and in its sole discretion, consider judicially
challenging any denial.
Article 6
Claims and Review Procedures
6.1 Claims Procedure. The Company shall notify any person or entity
that makes a claim against the Agreement (the "Claimant") in writing,
within ninety (90) days of Claimant's written application for benefits, of
his or her eligibility or noneligibility for benefits under the Agreement.
If the Company determines that the Claimant is not eligible for benefits or
full benefits, the notice shall set forth (1) the specific reasons for such
denial, (2) a specific
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reference to the provisions of the Agreement on which the denial is based,
(3) a description of any additional information or material necessary for
the Claimant to perfect his or her claim, and a description of why it is
needed, and (4) an explanation of the Agreement's claims review procedure
and other appropriate information as to the steps to be taken if the
Claimant wishes to have the claim reviewed. If the Company determines that
there are special circumstances requiring additional time to make a
decision, the Company shall notify the Claimant of the special
circumstances and the date by which a decision is expected to be made, and
may extend the time for up to an additional ninety-day period.
6.2 Review Procedure. If the Claimant is determined by the Company not
to be eligible for benefits, or if the Claimant believes that he or she is
entitled to greater or different benefits, the Claimant shall have the
opportunity to have such claim reviewed by the Company by filing a petition
for review with the Company within sixty (60) days after receipt of the
notice issued by the Company. Said petition shall state the specific
reasons which the Claimant believes entitle him or her to benefits or to
greater or different benefits. Within sixty (60) days after receipt by the
Company of the petition, the Company shall afford the Claimant (and
counsel, if any) an opportunity to present his or her position to the
Company orally or in writing, and the Claimant (or counsel) shall have the
right to review the pertinent documents. The Company shall notify the
Claimant of its decision in writing within the sixty-day period, stating
specifically the basis of its decision, written in a manner calculated to
be understood by the Claimant and the specific provisions of the Agreement
on which the decision is based. If, because of the need for a hearing, the
sixty-day period is not sufficient, the decision may be deferred for up to
another sixty-day period at the election of the Company, but notice of this
deferral shall be given to the Claimant.
Article 7
Amendments and Termination
This Agreement may be amended or terminated only by a written
agreement signed by the Company and the Executive.
Article 8
Miscellaneous
8.1 Binding Effect. This Agreement shall bind the Executive and the
Company, and their beneficiaries, survivors, executors, successors,
administrators and transferees.
8.2 No Guarantee of Employment. This Agreement is not an employment
policy or contract. It does not give the Executive the right to remain an
employee of the Company, nor does it interfere with the Company's right to
discharge the Executive. It also does not require the Executive to remain
an employee nor interfere with the Executive's right to terminate
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employment at any time.
8.3 Non-Transferability. Benefits under this Agreement cannot be sold,
transferred, assigned, pledged, attached or encumbered in any manner.
8.4 Tax Withholding. The Company shall withhold any taxes that are
required to be withheld from the benefits provided under this Agreement.
8.5 Applicable Law. The Agreement and all rights hereunder shall be
governed by the laws of the Commonwealth of Pennsylvania, except to the
extent preempted by the laws of the United States of America.
8.6 Unfunded Arrangement. The Executive and beneficiary are general
unsecured creditors of the Company for the payment of benefits under this
Agreement. The benefits represent the mere promise by the Company to pay
such benefits. The rights to benefits are not subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
attachment, or garnishment by creditors. Any insurance on the Executive's
life is a general asset of the Company to which the Executive and
beneficiary have no preferred or secured claim.
8.7 Recovery of Estate Taxes. If the Executive's gross estate for
federal estate tax purposes includes any amount determined by reference to
and on account of this Agreement, and if the beneficiary is other than the
Executive's estate, then the Executive's estate shall be entitled to
recover from the beneficiary receiving such benefit under the terms of the
Agreement, an amount by which the total estate tax due by the Executive's
estate, exceeds the total estate tax which would have been payable if the
value of such benefit had not been included in the Executive's gross
estate. If there is more than one person receiving such benefit, the right
of recovery shall be against each such person. In the event the beneficiary
has a liability hereunder, the beneficiary may petition the Company for a
lump sum payment in an amount not to exceed the beneficiary's liability
hereunder.
8.8 Entire Agreement. This Agreement constitutes the entire agreement
between the Company and the Executive as to the subject matter hereof. No
rights are granted to the Executive by virtue of this Agreement other than
those specifically set forth herein.
8.9 Administration. The Company shall have powers which are necessary
to administer this Agreement, including but not limited to:
8.9.1 Interpreting the provisions of the Agreement;
8.9.2 Establishing and revising the method of accounting for the
Agreement;
8.9.3 Maintaining a record of benefit payments; and 8.9.4
Establishing rules and prescribing any forms necessary or desirable to
administer the Agreement.
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