Exhibit 10.3
FIRST FINANCIAL CORP.
FIRST BANK AND TRUST COMPANY
November 12, 2001
Xxxxxxx X. Xxxxxxxx, Xx.
00 Xxxxxxxx Xxxxx
Xxxxx Xxxxxxxxx, XX 00000
Washington Trust Bancorp, Inc.
00 Xxxxx Xxxxxx
Xxxxxxxx, XX 00000
Re: SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
Ladies and Gentlemen:
Reference is hereby made to (i) that certain Agreement and Plan of
Merger (the "MERGER AGREEMENT"), dated as of November 12, 2001, by and between
First Financial Corp., a Rhode Island corporation (the "COMPANY") and Washington
Trust Bancorp, Inc., a Rhode Island corporation (the "BUYER"), pursuant to which
the Buyer will acquire the Company and the Company's banking subsidiary, First
Bank and Trust Company, a Rhode Island commercial bank (the "BANK"), and (ii)
the Second Amended and Restated Employment Agreement, dated as of February 8,
1999, by and among the Company, the Bank and Xxxxxxx X. Xxxxxxxx, Xx. ("PJS"),
as Chairman, President and Chief Executive Officer of the Company and the Bank
(the "EMPLOYMENT AGREEMENT"). Capitalized terms used in this letter agreement
without definition shall have the meanings given to such terms in the Merger
Agreement or the Employment Agreement, as the case may be.
As you are aware, Section 9 of the Employment Agreement provides for
the payment of certain compensation and benefits to PJS upon a termination of
his employment following a Change of Control. In connection with the execution
and delivery of the Merger Agreement, the Company, the Bank, PJS and the Buyer
have agreed to the following terms regarding the employment of PJS with the
Company and the Bank:
1. TERMINATION OF EMPLOYMENT. The employment of PJS with the Company
and the Bank shall terminate on the later to occur of (a) March 1, 2002, if the
Closing occurs on or before February 28, 2002, and (b) the Closing Date. For
purposes of the Employment Agreement, the termination of PJS' employment with
the Company and
the Bank pursuant to this Section 1 shall be deemed to occur pursuant to Section
9 of the Employment Agreement.
2. SECTION 9 OF THE EMPLOYMENT AGREEMENT. Notwithstanding the terms of
Section 9 of the Employment Agreement to the contrary, upon the termination of
PJS' employment with the Company and the Bank in connection with the Merger,
assuming that (a) the payments referred to in Section 5.08 of the Merger
Agreement are made on or prior to December 31, 2001, and (b) the Buyer shall
have executed and delivered the Noncompetition Agreement on or prior to the
Effective Time, PJS shall no longer be entitled to any of the compensation or
benefits described in Section 9 of the Employment Agreement and in lieu of such
compensation and benefits, the Buyer shall provide or cause to be provided to
PJS, and PJS shall be entitled to receive, from and after the Effective Time,
each of the benefits described in EXHIBITS A AND B to this letter agreement
(other than those benefits already paid to PJS prior to the Effective Time);
PROVIDED, HOWEVER, that the aggregate present value of the non-cash benefits set
forth on EXHIBIT A shall be limited to $165,000.00 (subject to adjustment by
mutual agreement following the receipt of PJS's final 2001 W-2 in order to avoid
the imposition of an excise tax under Section 280G of the Code (as defined
below)) (the "MAXIMUM AMOUNT") and to the extent the aggregate present value of
such benefits exceeds the Maximum Amount, the benefits will be reduced or
adjusted in the manner requested by PJS. If either of (a) or (b) above does not
occur on or prior to the dates set forth above, this Section 2 shall be null and
void and PJS shall be entitled to receive the compensation and other benefits
provided under Section 9 of the Employment Agreement upon the termination of his
employment, subject to the terms thereof.
3. 280G OF THE CODE.
(a) Each of the parties does not intend or expect that the
arrangements described in (i) Section 5.08 of the Merger Agreement,
(ii) the Noncompetition Agreement, (iii) this letter agreement, and
(iv) any other payment or benefit to which PJS shall be entitled, will
result in any "excess parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "CODE"). The
parties hereto further acknowledge that EXHIBIT B to this letter
agreement sets forth the only compensation, payments or distributions
to or for the benefit of PJS, which PJS is or may be entitled to
receive following the date hereof (whether or not such payments are in
connection with the Merger) by the Company, the Bank, the Buyer or any
affiliate of Buyer in connection with his employment with the Company
and the Bank prior to the Closing Date or the termination thereof. The
Company has provided Buyer with true and correct copies of Forms W-2
relating to PJS's compensation for each of the years ended December 31,
1997 through 2000 and represent that, to its knowledge, Box 1 on the
Form W-2 relating to PJS's compensation for the year ending December
31, 2001 will be $443,088.53 (excluding the payment of the Special
Bonus contemplated in Section 5.08 of the Merger
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Agreement). PJS agrees to deliver a certificate (the "CLOSING
CERTIFICATE") to Buyer dated the date of the closing date of the
Merger, in which PJS will certify that he has not received, is not
entitled to receive and has not entered into any agreement, arrangement
or understanding pursuant to which he may be entitled to receive, any
compensation, payment or distribution from the Company, the Bank, the
Buyer or any affiliate of Buyer in connection with his employment with
the Company and the Bank prior to the Closing Date or the termination
thereof, other than as specified on EXHIBIT B, it being understood that
EXHIBIT B shall not include any compensation or benefits to which PJS
shall be entitled as a director of the Company, the Bank, Buyer and the
Buyer Bank from and after the Closing Date ("DIRECTOR COMPENSATION").
Buyer acknowledges and agrees that PJS will have no liability to the
Buyer, the Company, the Bank or any affiliate of any of the foregoing
in connection with the execution and delivery of the Closing
Certificate; PROVIDED, HOWEVER, that the foregoing notwithstanding, no
party hereto shall be relieved of any liability as a result of such
party's gross negligence or willful misconduct.
(b) Subject to Section 3(c) hereof, in the event that it shall
be determined by the Internal Revenue Service that any compensation,
payment or distribution by the Seller, Bank, Buyer of any affiliate of
the Buyer to or for the benefit of PJS (including, without limitation,
entitlements subject to a contingency), whether paid or payable or
distributed or distributable pursuant to the terms of this letter
agreement or otherwise (the "SEVERANCE PAYMENTS"), would be subject to
the excise tax imposed by Section 4999 of the Code, or any interest or
penalties are incurred by PJS with respect to such excise tax (such
excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "EXCISE TAX"), then PJS
shall be entitled to receive an additional payment from the Company (or
its successor) (a "GROSS-UP PAYMENT") such that the net amount retained
by PJS, after deduction of any Excise Tax on the Severance Payments and
Excise Tax (and federal, state and local income taxes and employment
taxes) upon the payment provided by this subsection (applying maximum
marginal rates of tax), but not after the deduction of any other taxes
or amounts, shall be equal to the Severance Payments. (The Gross-Up
Payment is not intended to compensate PJS for any income taxes payable
with respect to the Severance Payments.)
(c) Notwithstanding anything in this letter agreement to the
contrary, if it is determined that PJS has received or is entitled to
receive (including, without limitation, entitlements subject to a
contingency) any compensation, payments or distributions from Seller,
Bank, Buyer or any affiliate of Buyer other than as specified on
EXHIBIT B (including, without limitation, compensation, payments or
distributions which may be
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contemplated on EXHIBIT B but which are effected other than as
specified on EXHIBIT B) and other than Director Compensation, Buyer
shall so notify PJS and PJS shall be entitled to notify Buyer within
ten days that he elects to forego the receipt of such compensation,
payment or distribution, in which case, the remaining provisions of
this Section 3(c) shall not be applicable. If PJS does not deliver any
such notice to Buyer within such time frame, PJS shall be deemed to
have elected to forego the receipt of such compensation, payment or
distribution, in which case, the remaining provisions of this Section
3(c) shall not be applicable. If PJS notifies Buyer that he does not
elect to forego the receipt of such compensation, payment or
distribution, then Section 3(b) hereof shall be void and of no force
and effect and the compensation, payments and distributions paid,
payable, distributed or distributable to PJS pursuant to EXHIBIT B or
otherwise shall be reduced (but not below zero) to the extent necessary
so that the maximum amount of compensation, payments and distributions
to which PJS is or may be entitled shall not exceed the Threshold
Amount (as defined below). To the extent that there is more than one
method of reducing the payments to bring them within the Threshold
Amount, PJS shall determine which method shall be followed; provided
that if PJS fails to make such determination within 10 days after the
Buyer has sent PJS written notice of the need for such reduction, the
Buyer may determine the amount of such reduction in its sole
discretion. For the purposes of this Section 3(c), "THRESHOLD AMOUNT"
shall mean three times PJS's "base amount" within the meaning of
Section 280G(b)(3) of the Code and the regulations promulgated
thereunder less one dollar ($1.00).
(d) The determination of the Excise Tax, the Gross-Up Amount
and the Threshold Amount under this Section 3 shall initially be made
by KPMG LLP, which shall provide detailed supporting calculations both
to the Buyer and PJS upon the determination of any such amounts. PJS
shall have ten days from the date of delivery to provide notice to
Buyer that he disputes such calculations, in which case, Buyer and PJS
shall cooperate in good faith to resolve such dispute as soon as
possible thereafter and, in any event, within ten days after PJS
notifies the Buyer of the disputed items. If, after such ten day
period, no agreement of the parties is reached, such dispute shall be
resolved by a nationally recognized accounting firm (other than KPMG
LLP, Xxxxxx Xxxxxxxx LLP or any other accounting firm that provides
services to the Buyer) selected by the Buyer and reasonably acceptable
to PJS (the "Accounting Firm"). The parties shall use their best
efforts to cause the Accounting Firm to resolve such dispute within ten
days after the parties engage such Accounting Firm and, in connection
therewith, shall provide the Accounting Firm with all documentation
reasonably necessary for the Accounting Firm to resolve such dispute
within such time period. Any determination by the Accounting Firm shall
be binding upon
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the Buyer and PJS. The costs and expenses of the Accounting Firm shall
be borne by Buyer.
This letter agreement shall terminate and the terms hereof shall be of
no force and effect if the Merger Agreement shall be terminated and, following
such termination, Buyer shall have no liability or obligation for any payments,
compensation or distributions contemplated hereunder.
Except as expressly set forth herein, all terms and conditions of the
Employment Agreement shall remain in full force and effect.
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Please indicate your acceptance of and agreement with the terms and
conditions set forth herein by signing where appropriate below.
Very truly yours,
First Financial Corp.
By: /s/ Xxxxxx X. Mega
-----------------------------------------
Name: Xxxxxx X. Mega
Title: Chairman, Corporate Committee
FIRST BANK AND TRUST COMPANY
By: /s/ Xxxxxx X. Mega
-----------------------------------------
Name: Xxxxxx X. Mega
Title: Chairman, Corporate Committee
AGREED AND ACCEPTED:
WASHINGTON TRUST BANCORP, INC.
By: /s/ Xxxx X. Xxxxxx
---------------------------
Name: Xxxx X. Xxxxxx
Title: Chairman and CEO
/s/ Xxxxxxx X. Xxxxxxxx, Xx.
------------------------------
Xxxxxxx X. Xxxxxxxx, Xx.
AMENDMENT TO XX. XXXXXXXX'X EMPLOYMENT AGREEMENT
EXHIBIT A
o Buyer to transfer to PJS the automobile currently used by him at no cost
(and pay any transfer taxes incurred in connection therewith).
o PJS to participate in Buyer's family health plan on the same terms as
Buyer's Chairman until and including age 65 in accordance with Schedule 1
attached.
o The Company has prepaid the premiums through November 2002 for that certain
life insurance policy currently owned by PJS (Phoenix Mutual Life Insurance
Company, policy number 1994169).
EXHIBIT B
o PJS will continue to be employed in his current position with the Company
and the Bank through the date specified in Section 1 of this Letter
Agreement.
o PJS shall continue to receive his base salary at its current rate up to the
date of termination of his employment, provided that PJS may receive a 5%
increase in his base salary effective January 1, 2002.
o PJS shall continue to receive the existing non-cash benefits that he
currently receives, consistent with past practice, up to the date of the
termination of his employment.
o PJS shall receive his regular annual bonus for his performance during 2001
in an amount equal to $150,000, which bonus must be paid prior to December
31, 2001 and may not be contingent on the Merger or any other event.
o PJS shall receive a one-time payment separate from his regular annual bonus
in an amount equal to $2,100,000, which payment must be paid prior to
December 31, 2001 and may not be contingent on the Merger or any other
event.
o PJS shall receive the $840,000 payment from Buyer that is contemplated in
the Noncompetition Agreement to be entered into by and between Buyer and
PJS concurrently with the consummation of the Merger as consideration for
PJS's agreement to take, or refrain from taking certain actions
contemplated therein.
o PJS shall receive the non-cash benefits set forth on Exhibit A to this
letter agreement subject to the provisions of Section 2 hereof.
o Following the termination of his employment, PJS shall receive the payments
to which he is entitled pursuant to the terms and provisions of the
Company's Financial Institutions Retirement Fund Defined Pension Plan (as
in effect on the Closing Date).
o Following the termination of his employment, PJS shall receive the payments
to which he is entitled pursuant to the terms and provisions of the
Company's Amended Supplemental Executive Retirement Plan dated November 13,
2000, as amended by that certain amendment dated as of the date hereof and
without any further amendment thereto. Following the termination of his
employment, and as provided in the Merger Agreement, PJS shall receive the
payments to which he is entitled pursuant to the terms and provisions of
the Company's Financial Institutions Thrift Plan (as in effect on the date
hereof).
