SALARY CONTINUATION AGREEMENT
Exhibit
10.3
THIS
SALARY CONTINUATION AGREEMENT
(“Agreement”) is made and entered into on the 19th
day of
October, 2005, to be effective as of October 19, 2005, by and between
FIRST
SECURITY BANK OF LEXINGTON, INC.,
a
Kentucky corporation, with its principal office and place of business located
at
000 Xxxx Xxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxx 00000 (the “Bank”), and XXXXX
X. XXXXXXXXX,
an
individual residing at 000 Xxxxx Xxx, Xxxxxxxx, Xxxxxxxx 00000 (the
“Employee”).
RECITALS
Employee
is employed by Bank in the position of Senior Vice President - Marketing and
Retail Banking of the Bank. To provide an element of stability, the Bank desires
to provide for the continuation of the Employee’s compensation and other
benefits of employment in the event of a change in control of the Bank coupled
with the Employee’s actual or constructive termination of employment. The Bank
and the Employee mutually desire to enter into this Agreement in order to set
forth the specific terms of the Employee’s severance arrangement in
consideration of the Employee’s continued employment and general release;
provided, however, nothing herein shall be construed as a contract of employment
for a specific term and the Employee remains employed by the Bank “at
will”.
NOW,
THEREFORE, for and in consideration of the premises and the mutual covenants,
agreements and undertakings of the parties hereinafter set forth, the Bank
and
the Employee do hereby agree
as
follows:
|
1.
|
Salary
Continuation.
If, within one (1) year after a Change in Control, as such term is
defined
in Section 3 of this Agreement, (i) Bank shall terminate Employee’s
employment with Bank without Good Cause, or (ii) Employee shall
voluntarily terminate such employment with Good Reason, the following
provisions shall apply:
|
|
a.
|
Bank
shall pay Employee an amount in a single lump sum equal to 1/12 of
the
Employee’s annualized base salary (at the rate most recently determined)
times twelve (12).
|
|
b.
|
The
amount described in paragraph 1.a. shall be paid no later than 30
days
following the Employee’s termination of
employment.
|
|
c.
|
Employee
shall receive any and all benefits accrued under each and every benefit
plan sponsored by Bank. Employee shall be fully vested in each and
every
retirement plan, including, but not limited to the Bank’s “401(k)” plan,
sponsored by Bank. Employee shall be entitled to receive pay for
each and
every day of vacation accrued in the preceding year and carried over
to
his year of termination of employment that is not used as of the
date of
his termination of employment.
|
|
d.
|
Employee
and his dependents shall continue to be covered by and participate
in all
health, dental, and life insurance plans or arrangements made available
by
Bank in which Employee or his dependents were participating immediately
prior
|
to
the
date of his termination as if he continued to be an employee of Bank for that
period of time following his termination of employment that shall end on the
first to occur of (i) the expiration of the twelve-month period following
the Employee’s termination of employment, or (ii) the date such coverage is
available for Employee and his dependents through a subsequent employer (the
“Period of Coverage”). Employee and his dependents shall participate in such
coverages on the same terms and conditions as active employees, including,
contributing the same amount to participate in such coverages as is contributed
by active employees. If
participation in any one or more of such plans and arrangements is not possible
under the terms thereof, Bank will provide substantially identical benefits
to
Employee and his dependents, provided, however, the Bank shall not be
responsible to pay for such coverage to the extent the cost of providing such
coverage shall exceed 120% of the Bank’s cost of providing like coverage to
active employees. For purposes of the preceding sentence, the 120% shall be
measured separately for each benefit provided outside the Bank’s plan.
Employee’s and his dependents’ rights to continuation of coverage under any
group health plan of the Bank pursuant to Section 4980B of the Internal Revenue
Code of 1986, as amended (“Code”) (“COBRA”) shall commence at the end of the
Period of Coverage, and Employee shall participate in COBRA coverage on the
same
terms and conditions as any other qualified beneficiary, including payment
of
the full cost. The maximum length of any dependent’s coverage shall be
determined by the qualifying event that immediately precedes the dependent’s
commencement of continuation coverage, and any subsequent qualifying
event.
|
e.
|
No
payments to or with respect to Employee under this Agreement during
the
twelve (12) months following the Employee’s termination of employment
shall be reduced by any amount Employee or his dependents, spouse
or
beneficiary may earn or receive from employment with another employer
or
from any other source.
|
|
2.
|
Term
of Agreement.
This Agreement shall terminate upon the later to occur of (i) the
second anniversary of the effective date of the Agreement, or
(ii) the first anniversary of a Change in
Control.
|
|
3.
|
Change
in Control Provisions.
|
|
a.
|
Except
for 3.e.(ii)(B), “Company” shall mean, with respect to a particular
transaction, one of the following: (i) the Bank; (ii) any
entity
that owns more than fifty percent (50%) of the total fair market
value and
total voting power of the Bank (“Majority
Shareholder”);
or (iii) any entity in a chain of entities in which each entity
is a
Majority Shareholder of the next entity in the chain, with one entity
in
the chain ultimately being a Majority Shareholder of the Bank. For
purposes of 3.e.(ii)(B), the Company shall mean, of the entities
listed in
the immediately preceding sentence, only that entity that has no
corporate
Majority Shareholder.
|
2
|
b.
|
For
purposes of this Section 3, “Person” shall mean (i) any person, or
(ii) a group of more than one person where the surrounding
circumstances demonstrate that the persons are acting as a group.
Without
limiting the generality of the foregoing, persons shall be considered
to
be acting as a group if they are owners of an entity that enters
into a
merger, consolidation, purchase or acquisition of stock, or similar
business transaction with the
Company.
|
|
c.
|
For
the purposes of this Section 3, “Gross Fair Market Value” shall mean the
value of an asset (or assets) determined without regard to any liabilities
associated with the asset (or
assets).
|
|
d.
|
For
purposes of this Agreement, “Change in Control” shall be interpreted and
applied in accordance with Code section 409A and any and all guidance
issued, now or hereafter, with respect thereto by the United States
Department of the Treasury. To the extent that the definition of
Change in
Control in this Agreement is more liberal than the definition set
forth in
any regulations proposed or finalized under Code section 409A or
guidance
in such after the date of this Agreement, such regulation or guidance
shall control.
|
|
e.
|
For
purposes of this Agreement, a “Change in Control” shall occur when:
|
|
(i)
|
There
is a change in ownership in the Company. A “change in ownership” shall
occur when a Person acquires ownership of more than fifty percent
(50%) of
the fair market value or voting power of the Company, provided:
(A) the fifty percent (50%) ownership calculation takes into
consideration stock previously held by the Person; (B) if
a Person
already owns more than fifty percent (50%) of the fair market value
or
voting power of the Company, the Person’s acquisition of more stock shall
not trigger a change in ownership; and (C) a change in ownership
shall not occur if there is no stock in the Company outstanding after
the
transaction that results in the transfer of stock; or
|
|
(ii)
|
There
is a change in the effective control of the Company. A “change in
effective control” shall occur when, within a twelve month period:
(A) a Person who does not already own thirty-five percent
(35%) of
the Company acquires thirty-five percent (35%) or more of the total
voting
power of the Company; or (B) the majority of the Company’s directors
are replaced, but only if the replacement is hostile—that is, the change
in the majority is not endorsed by a majority of the corporate directors
in place immediately prior to the replacement; or
|
|
(iii)
|
There
is a transfer of a substantial portion of corporate assets. A “transfer of
a substantial portion of corporate assets” occurs when a Person acquires,
within a twelve-month period, Company assets having a Gross Fair
Market
Value equal to forty percent (40%) or more of the total Gross Fair
Market
Value of Company assets owned prior to such acquisition(s); provided,
however, a transfer of a substantial portion of corporate
assets
|
3
does
not
occur if the Company transfers ownership of assets to (A) a Person who
is a
shareholder of the Company immediately prior to the asset transfer in exchange
for or with respect to the shareholder’s stock; (B) an entity of which
Company owns, directly or indirectly, fifty percent (50%) or more of the total
value or voting power; (C) a Person who owns fifty percent (50%) or
more of
the total value or voting power of the Company; or (D) an entity of
which
fifty percent (50%) or more of the total value or voting power is owned,
directly or indirectly, by a Person who owns 50% or more of the total value
or
voting power of the Company. For purposes of this Section 3.e.(iii), except
as
otherwise provided, a Person’s status is determined immediately after the
transfer of the assets.
|
4.
|
Definition
of Good Cause.
“Good Cause” shall mean:
|
|
a.
|
Employee’s
conviction of any felony whatsoever or any other criminal violation
involving dishonesty, fraud, or breach or
trust;
|
|
b.
|
Employee’s
willful engagement in any misconduct in the performance of his duty
that
materially injures Bank;
|
|
c.
|
Employee’s
performance of any act which, if known to the customers or clients
of Bank
would materially and adversely impact on the business of Bank;
|
|
d.
|
Employee’s
willful and substantial nonperformance of assigned duties; provided
that
such nonperformance has continued more than five (5) calendar days
after
Bank has given written notice of such nonperformance and of its intention
to terminate Employee’s employment because of such nonperformance;
|
|
e.
|
Employee’s
failure or refusal to follow the lawful instructions of the President
and
Chief Executive Officer of the Bank, if such failure or refusal continues
for five (5) calendar days after the Bank delivers to Employee a
written
notice stating the instructions which Employee has failed or refused
to
follow;
|
|
f.
|
Inability
of the Bank to secure a bond covering Employee or a directive to
the Bank
by any governmental regulatory agency to terminate Employee’s employment
or remove Employee from his current
position.
|
|
5.
|
Definition
of Good Reason.
“Good Reason” shall exist if, without Employee’s express written
consent:
|
|
a.
|
Bank
shall assign to Employee duties of a nonexecutive nature or for which
Employee is not reasonably equipped by his skills and
experience;
|
|
b.
|
Bank
shall reduce the salary of Employee, or materially reduce the amount
of
paid vacation to which he is entitled, or his fringe benefits and
perquisites;
|
4
|
c.
|
Bank
shall require Employee to relocate his principal business office
or his
principal place of residence outside the Lexington, Kentucky Metropolitan
Statistical Area (the “Area”) or assign Employee duties that would
reasonably require such relocation;
|
|
d.
|
Bank
shall require Employee, or assign duties to Employee which would
reasonably require him, to spend more than fifteen (15) normal working
days away from the Area during any consecutive twelve-month period;
|
|
e.
|
Bank
shall fail to provide office facilities, secretarial services, and
other
administrative services to Employee which are substantially equivalent
to
the facilities and services provided to Employee immediately prior
to the
Change in Control; or
|
|
f.
|
Bank
shall terminate bonus and benefit plans or arrangements, or reduce
or
limit Employee’s participation therein relative to the level of
participation of other executives of similar rank, to such an extent
as to
materially reduce the aggregate value of Employee’s bonus compensation and
benefits below their aggregate value as of the date immediately prior
to
the Change in Control.
|
|
6.
|
Employee’s
Release.
|
|
a.
|
In
consideration of the payments made herein, and not until all such
payments
are made, the sufficiency of which consideration is hereby acknowledged,
Employee hereby releases and forever discharges the Bank, and its
directors, affiliates, officers, agents and employees, from any and
all
causes of action or claims of any type that Employee might have from
the
beginning of the world through the date of Employee’s execution of this
Agreement, arising or which could have arisen out of Employee’s employment
relationship with the Bank, including but not limited to causes of
action
or claims of any type arising under the Age Discrimination In Employment
Act of 1967, 29 USC §626 et seq. (“ADEA”), Title VII of the Civil Rights
Act of 1964, 42 USC §2000e et seq. (“Title VII”), the Civil Rights Act of
1866, 42 USC §1981, the National Labor Relations Act, 29 USC §151 et seq.,
the Fair Labor Standards Act, 29 USC §201 et seq., the Americans With
Disabilities Act, 42 USC §12101 et seq. (“ADA”), the Employee Retirement
Income Security Act of 1974, 29 USC §1001 et seq., the Kentucky Human
Rights Act, and any other Federal, state or local statute, law, ordinance,
regulation or order that may give rise to any cause of action including,
but not limited to, claims of age or sex discrimination or breach
of
contract and claims for back pay, earned or accrued vacation pay,
bonus,
earned commissions, damages and any other relief or remedy at law
or at
equity. Employee further covenants and agrees never to institute
directly
or indirectly or to participate in (unless otherwise required by
law) any
action or proceeding of any kind against the Bank, its directors,
affiliates, officers, agents and employees, based on or related to
his
employment relationship with the Bank, including, but not limited
to, an
action asserting that the Bank discriminated against him on the basis
of
age or sex or an action asserting breach of contract, it being understood
that there is no intent
|
5
herein
to
interfere with the Equal Employment Opportunity Commission’s right to enforce
Title VII, the ADA, or the ADEA.
|
b.
|
The
Agreement is a full, complete and final settlement by Employee of
any and
all claims, actions, causes of action, damages or costs against the
Bank
resulting from or pertaining to Employee’s employment the
Bank.
|
|
c.
|
The
Agreement shall supersede and replace any and all prior written or
oral
agreements previously entered into between the Employee and the Bank
and
such prior agreements shall be null and void and of no
consequence.
|
|
d.
|
Employee
shall have up to twenty one (21) days from the date the Agreement
is
presented to Employee to sign the Agreement. If Employee signs the
Agreement, Employee shall have seven (7) days from the date Employee
signs
the Agreement to revoke the Agreement. Employee shall not be entitled
to
any benefits contained herein until the seven (7) day revocation
period
has expired. This Agreement was presented to Employee on September
28,
2005.
|
|
e.
|
Except
to the extent required to be disclosed by state or federal securities
law,
the Agreement and all its terms and provisions are strictly confidential
and shall not be divulged or disclosed in any way to any person other
than
Employee’s spouse and legal counsel if Employee so desires, and Employee
will protect the confidentiality of the Agreement in all regards.
Should
Employee choose to divulge the terms and conditions of the Agreement
to
Employee’s spouse or legal counsel, Employee shall ensure that they will
be similarly bound to protect its confidentiality and that a breach
of
this paragraph by Employee’s spouse or legal counsel shall be considered a
breach of this paragraph by
Employee.
|
|
f.
|
Employee
and the Bank have executed the Agreement voluntarily, with full knowledge
of its significance. Both parties have had full opportunity to consult
their respective legal counsel, as well as other persons of their
choosing, before executing the Agreement. Employee acknowledges that
he
has carefully read the entire Agreement, that a copy of the Agreement
was
available to him prior to execution, that he knows and understands
the
provisions of the Agreement, and that he has signed the Agreement
as his
own free act and deed.
|
|
7.
|
Nondisclosure
of Confidential Information.
Employee shall not at any time or in any manner, directly or indirectly,
use or disclose to any party any confidential information or proprietary
data of Bank, or any of its affiliates, learned or obtained by Employee
while an employee of Bank, except (i) as required by judicial
or
administrative
process; (ii) after the confidential information has become
generally
available to the public through no breach of this Agreement by Employee;
or (iii) with the prior written consent of Bank. In the event
Employee violates this Section 7, and such violation is detrimental
to the
Bank, Bank shall be entitled to pursue all remedies at law or in
equity in
any action or proceeding to enforce this Section 7. For purposes
of this
Agreement, “confidential information” means material information of Bank,
or its affiliates, disclosed to or known by Employee as a consequence
of
Employee’s employment with Bank and not
generally
|
6
known
in
the financial services industry, that directly relates to Bank’s business and
that is detrimental to the Bank. Employee has carefully read and considered
the
provisions of this Section 7, and, having done so, agrees that the restriction
set forth in this Section 7 is fair and reasonable and reasonably required
for
the protection of Bank’s interests.
|
8.
|
Compliance
with FDIC Regulations.
It is the intention of the parties that none of the payments to which
Employee is entitled under this Agreement will constitute a “golden
parachute payment” within the meaning of 12 USC Section 1828(k)(3) or
implementing regulations of the FDIC, the payment of which is prohibited.
Any payments made by Bank or any holding company of Bank to or for
the
benefit of Employee pursuant to this Agreement, or otherwise, are
subject
to and conditioned upon their compliance with 12 USC Section 1828(k)
and
any regulations promulgated thereunder.
|
|
9.
|
Springing
Rabbi Trust.
Notwithstanding anything in this Agreement (or the Trust Agreement)
to the
contrary, upon a Change in Control, if Employee is a “key employee” (as
defined in Code section 416(i)) and the Employee’s termination of
employment is not involuntary, so that his payout (as described in
Section
1.a. of this Agreement) is delayed as described in Section 18.e.
of this
Agreement, the Bank shall (i) establish a trust (if not already
established) as described in subsection b. below, and (ii) maintain
in the Trust an amount of money which is at all times at least equal
to
its obligations under this Agreement to Employee (as well as any
other key
employee with a similar agreement), by making sufficient contributions
to
the Trust, immediately upon such Change in Control in an amount equal
to
the Bank’s total liabilities to such Employee and all other key
employees.
|
The
obligation of the Bank to provide benefits pursuant to this Agreement shall
be
the sole unsecured promise of the Bank with respect to this Agreement.
Notwithstanding the foregoing, prior to any Change in Control, the Bank may
establish a trust, pursuant to a Trust Agreement, for the purpose of setting
aside funds to provide for the payment of benefits under this Agreement.
However, the assets of the Trust shall at all time remain subject to the claims
of the general creditors of the Bank, and the Employee shall not have any claim
or right with respect to the assets held in the Trust, except to the extent
that
the Employee is a general creditor of the Bank.
For
purposes of this Section 9, the following words and phrases shall have the
following meanings:
|
a.
|
Trust:
The revocable grantor/rabbi trust established by the Bank for purposes
of
making payments under certain of the Bank’s nonqualified plans of deferred
compensation. The Bank shall have the discretion to determine whether
or
not a Trust shall be established in connection with any agreement
or
nonqualified plan, including this Agreement; provided, however, in
the
event of a Change in Control, such discretion shall be removed from
the
Bank, and a Trust shall be established (if not already in existence)
and
fully funded in accordance with this Section
9.
|
7
|
b.
|
Trust
Agreement:
An agreement entered into between the Trustee and the Bank providing
for
trust services in connection with a grantor trust that may be established
in connection with this Agreement. As of the effective date of this
Agreement, the Trust Agreement is First Security Bancorp, Inc. Key
Employee Trust, and as may be amended from time to time.
|
|
c.
|
Trustee:
That corporate entity having trust powers that is appointed by the
Bank
prior to a Change in Control to perform trust services in connection
with
the Agreement, whose responsibilities shall be governed by the Agreement
and by the Trust Agreement.
|
|
10.
|
Out-of-Pocket
Expenses.
Bank shall pay to Employee all out-of-pocket expenses, including
attorneys’ fees, incurred by Employee in connection with the successful
enforcement by Employee of this
Agreement.
|
|
11.
|
Survival.
This Agreement is not assignable; however, it shall be binding upon
and
shall inure to the benefits of the parties hereto and their respective
personal representatives, heirs, successors and
assigns.
|
|
12.
|
No
Employment Contract.
Nothing
herein shall be construed as a contract of employment for a specific
term
and the Employee remains employed by the Bank “at
will”.
|
|
13.
|
Applicable
Law.
This Agreement is entered into in, and shall be governed by and construed
in accordance with the laws of, the Commonwealth of
Kentucky.
|
|
14.
|
Severability.
If any clause, phrase, provision or portion of this Agreement or
the
application thereof to any person or circumstance shall be invalid
or
unenforceable under any applicable law, such event shall not affect
or
render invalid or unenforceable the remainder of this Agreement and
shall
not affect the application of any clause, provision, or portion hereof
to
other person or circumstances.
|
|
15.
|
Headings.
The headings in this Agreement are inserted for reference and convenience
only, are not to be considered in the construction of the provisions
hereof, and shall not in any way limit the scope or modify the substance
or context of any section hereof.
|
|
16.
|
Amendment.
No modification, amendment or alteration of the terms of this Agreement
shall be binding or effective unless the same be in writing, dated
subsequent to the date hereof, and duly executed by or on behalf
of both
of the parties to this Agreement.
|
|
17.
|
Notices.
Any notice required or permitted to be given by any provision of
this
Agreement shall be in writing and shall be delivered personally or
sent by
registered or certified mail to the Employee or to the Chairman of
the
Board of the Bank, as the case may be, to the address of the Employee
or
of the Bank, as the case may be, at the address set forth in the
introductory paragraph of this Agreement, or to such other address
as
either party hereto may from time to time specify to the other party
by
written notice given as herein provided. Any such notice shall be
deemed
to be delivered, given and received for all purposes as of the date
so delivered,
if delivered personally, or as of
the
|
8
date
on
which the name was properly deposited in a regularly maintained receptacle
for
deposit of United States Mail, postage and charges prepaid, if sent by
registered or certified mail.
|
18.
|
Intent
to Comply with American Jobs Creation Act.
To the extent that this Agreement is considered a deferred compensation
plan, as contemplated by Code section 409A, this Section 18 shall
apply.
To the extent necessary, and to the extent payments made hereunder
are not
“separation pay” that is exempt from coverage under Code section 409A, it
is intended that this Agreement shall comply with Code section 409A
and
all provisions contained herein shall be read and construed to so
comply.
|
|
a.
|
All
deferrals of compensation with respect to Employee’s service performed
after December 31, 2004, and as described in this Agreement, shall
be
governed by the terms of this Agreement.
|
|
b.
|
To
the extent so required, any deferral election made by Employee or
deemed
to be made by Employee, with respect to compensation payable on services
performed in a calendar year shall be made before the end of the
preceding
calendar year; provided, that in the case of performance based
compensation, the deferral election may be made not later than 6
months
before the end of the performance period. Employee shall be considered
to
have made all deferral elections under this Agreement in accordance
with
the preceding sentence, and shall not be permitted nor deemed to
be
permitted to modify any deferral election.
|
|
c.
|
Bank
will not accept transfers under this Agreement from any other nonqualified
deferred compensation plan in which Employee might participate.
|
|
d.
|
No
rabbi trust that might be used to pay amounts due under this Agreement,
nor the assets held by such trust, shall be located outside the United
States. In addition, no such trust shall provide for the assets thereof
to
become restricted to the provision of benefits under the Agreement,
or
distributed to Employee, as a result of a change in the financial
health
or condition of the Bank. Nothing herein shall be construed to require
the
Bank or entitle Employee to have amounts due him under this Agreement
paid
from a rabbi trust.
|
|
e.
|
In
the event that Employee is considered to be a key employee (as defined
in
§416(i) of the Code without regard to paragraph (5) thereof), distribution
to Employee may not be made earlier than the date which is 6 months
after
Employee’s termination of employment. The preceding sentence shall not
apply (i) to the extent that none of the stock of the Bank
is
publicly traded on an established securities market or otherwise,
or
(ii) the payments made under this Agreement are paid as the
result of
an involuntary termination of employment, provided that all such
payments
are paid no later than the December 31 of the second calendar year
following the year of such Employee’s
termination.
|
9
|
f.
|
The
timing of any distributions pursuant to Employee’s deferral election, if
any, shall not be accelerated. Notwithstanding anything contained
in this
Section 18, Employee shall not be permitted to alter the payment
of his
severance pay.
|
IN
WITNESS WHEREOF,
the
parties hereto have executed this Agreement on the date, month and year first
above written.
/s/ Xxxxx X.
Xxxxxxxxx
XXXXX
X.
XXXXXXXXX
BANK:
BY:
/s/ R. Xxxxxxx Xxxxxxxxxx
TITLE:
President & Chief Executive Officer
ATTEST:
BY:
/s/ Xxxxxxx X.
Xxxx
TITLE:
/s/ Credit
Officer
30377886.3
10
