Employment Agreement
Exhibit 10.1
This
Employment Agreement (this “Agreement”) is made among Vineyard National Bancorp
(“Company”), Vineyard Bank, National Association (“Bank”) and Xxxx X. Xxxxx
(“Executive”). In order to create an enforceable agreement for
employment of Executive, the parties agree as follows:
1. Employment
and
Duties. Executive shall be employed as the President and Chief
Executive Officer of both Bank and Company throughout the Term (as defined
below). Executive shall render executive and management services of the type
customarily provided by persons employed in similar capacities in the community
bank industry and shall have all other powers and duties prescribed by Bank’s
and Company’s respective governing instruments or Board of
Directors. Executive shall devote his reasonable best efforts and a
majority of his business time to the performance of his duties hereunder and
the
advancement of the business and affairs of Bank and
Company. Executive shall observe and comply with the policies and
rules of Bank and Company unless such compliance is inconsistent with the terms
of this Agreement.
2. Location
and
Facilities. Executive will operate from Bank’s and Company’s
principal administrative offices or such other sites as Bank’s or Company’s
Board of Directors may reasonably request. Bank and Company shall
provide working facilities and staff customary for Executive’s position and as
are necessary to perform Executive’s duties.
3. Term. Executive’s
employment shall initially be for a one-year term commencing on the Effective
Date (defined below) and shall renew for additional one-year periods thereafter
on each anniversary of the Effective Date unless at least thirty (30) days
prior
notice is provided by any party that it does not wish to
renew. Notwithstanding anything to the contrary in this Agreement,
any party may terminate Executive’s employment at any time in accordance with
this Agreement or applicable law. The period of such initial term and
any renewal period(s) through the date of termination of Executive’s employment
shall be referred to as the “Term.”
4. Base
Compensation. During the Term, Executive shall receive a base
salary at an annualized rate of Three Hundred Sixty Thousand dollars ($360,000),
less any deductions and withholding required by law and less any
Executive-authorized payroll deductions, payable in accordance with regular
payroll practices. Executive’s base annualized salary rate may be adjusted
upward annually without further modification of this Agreement upon approval
of
the Boards of Directors of both Bank and Company.
5. Benefit
Plans. During the Term, Executive shall be entitled to
participate in such welfare benefit, pension benefit, ESOP or other stock
compensation, and other benefit plans or programs maintained by Bank or Company
for which Executive is eligible in accordance with Bank or Company policy,
as
the case may be, and subject to the terms and conditions of such benefits,
plans
and programs. Nothing in this Agreement shall affect Bank’s or
Company’s right to change insurance carriers and to adopt, amend, terminate or
modify such benefits, plans and programs at any time.
6. Vacation
and Other
Leave. During the Term, Executive shall be entitled to
vacation, paid time off, sick leave and other paid or unpaid leave benefits
in
accordance with Bank and Company policies for senior executives or as otherwise
approved by the Boards of Directors of both Bank and Company.
7. Bonus
Compensation.
In addition to base salary, Executive shall be eligible during the Term
beginning in calendar year 2009 for an annual bonus at a target of eighty
percent (80%) of Executive’s annualized base salary rate (the “Annual
Bonus”). Executive must be employed on December 31 of a calendar year
to be eligible for an Annual Bonus for that calendar year, except as otherwise
provided in this Agreement. Whether to pay an Annual Bonus and the
amount of any Annual Bonus if paid shall be determined in the discretion of
Bank’s and Company’s respective Board of Directors (or any committee(s) thereof)
based on the attainment of reasonable performance-based criteria established
by
them so long as (a) Executive’s target Annual Bonus is eighty percent of his
annualized base salary rate, and (b) the criteria are established to and do
achieve qualified performance-based compensation status under Internal Revenue
Code section 162(m), 26 U.S.C. § 162(m). The performance-based
criteria may include, but are not limited to, management of Bank’s balance sheet
and product pricing, growth in financial products offered by Bank, adherence
to
internal controls, management of credit risk, internal and external audit
results, customer service quality, “back office” support quality, maintenance of
appropriate operating policies and procedures, efficient integration of acquired
companies, and capital management policies. The specific criteria for
each calendar year shall be set by agreement between Executive and both Bank’s
and Company’s Boards of Directors. A portion of any Annual Bonus
awarded will be in the form of stock option grants, as described in Section
8(b)
below. Any Annual Bonus awarded shall be paid (or granted in the case
of any stock options grants) no later than March 15 of the year following the
year for which it was awarded.
8. Stock
Option
Grants. Company shall grant the following stock options to
Executive as provided below and when legally permissible under one or more
plans
maintained by Company:
|
a.
|
Initial
Grant. As soon as possible after the Effective Date, the
parties anticipate closing of a proposed capital raise involving
renegotiation and settlement of various Bank debts, issuance of
convertible senior secured notes, and issuance of additional shares
of
Company common stock (the “Capital Raise”). Company shall grant
Executive an option to purchase shares of Company common stock with
an
aggregate option exercise price equal to One Hundred Eighty Thousand
dollars ($180,000), as promptly as practicable following close of
the
Capital Raise, with an option exercise price equal to the fair market
value of the Company’s common stock at the time of
grant. Executive recognizes that such grants will be made under
a new stock option plan to be adopted by the Company, which plan
is
subject to shareholder approval.
|
|
b.
|
Annual
Bonus Grants. Sixty percent (60%) of any Annual Bonus awarded
pursuant to Section 7 above will be paid in the form of options to
purchase shares of Company common stock with an aggregate option
exercise
price equal to sixty percent (60%) of such Annual Bonus, granted
as soon
as practicable following the date such Annual Bonus is
granted. The option exercise price shall be equal to the
shares’ fair market value at the time of
grant.
|
The
parties agree that any such options awarded shall be for a term of ten years
and
shall vest in installments of one-third per year over a period of three
years. The parties also agree that, to the maximum extent permitted
by law, each option will qualify as an “incentive stock option” within the
meaning of Internal Revenue Xxxx xxxxxxx 000, 00 X.X.X. §
000. Bank and Company shall take all steps necessary to ensure
compliance with Section 422. This Section 8 shall not prohibit any
other grants that Bank or Company may, in their discretion, make to Executive
during the Term.
9. Vesting
of Options Upon
Change of Control. The option agreements covering any Company
stock options granted to Executive pursuant to Section 8 shall provide that
all
options will vest immediately upon any Change of Control. "Change of
Control" shall mean either: (a) a consolidation or merger of Company with or
into any other corporation or other entity or other corporate reorganization,
in
which the holders of equity interests of Company immediately prior to such
consolidation, merger or reorganization own equity interests of the entity
surviving such merger, consolidation or reorganization representing less than
fifty percent (50%) of the combined voting power of the outstanding securities
of such entity immediately after such consolidation, merger or reorganization,
or (b) a sale of all or substantially all of the assets of Company to an
entity or person that is not an affiliate of Company. The option
agreements shall also provide for vesting of all options upon termination of
Executive’s employment without Cause (as defined below) or upon Executive’s
resignation from employment for Good Reason (as defined below). Upon
termination of Executive’s employment for any other reason, vesting of any stock
options shall immediately cease, and any unvested options shall immediately
be
forfeited.
10. Expenses. Bank
or Company shall reimburse Executive for reasonable out-of-pocket expenses
incurred by him during the Term in the discharge of his duties under this
Agreement in accordance with Bank and Company policy. All
reimbursable expenses shall be documented in reasonable detail and submitted
in
a format consistent with Bank’s or Company’s expense reporting
policies.
11. Automobile. During
the Term, Bank or Company shall pay Executive an automobile allowance of One
Thousand Two-Hundred Fifty dollars ($1,250) per month, less any deductions
and
withholding required by law. Executive shall be responsible for
insurance, maintenance, and any other costs associated with any automobile
operated by him, and he shall not be eligible for any further reimbursement
or
allowance for mileage, gasoline, or other automobile-related
expenses.
12. Additional
Reimbursements. Bank or Company shall also reimburse Executive
for the following expenses incurred by him during the Term:
|
a.
|
Country
club membership, at full equity membership level, and monthly dues
(including minimum mandatory periodic expenditures) up to One Thousand
dollars ($1,000) per month; provided,
that
(i)
Executive’s country club membership fees shall not be reimbursed hereunder
unless at least 75% of the amounts paid for membership (other than
monthly
dues) are fully refundable to Executive by such country club upon
the
termination of Executive’s membership at such country club, with Executive
having provided reasonably satisfactory evidence to Bank and Company
of
the refundable nature of such country club membership fees, (ii)
reimbursement for country club membership (other than monthly dues)
shall
not exceed One Hundred Thousand dollars ($100,000), and (iii) upon
the
termination of Executive’s membership with any country club for which
Executive has received reimbursement hereunder or the termination
of
Executive’s employment with Bank and Company, Executive shall promptly
remit to Bank and Company all amounts refunded to him (or in the
case of a
termination of employment, the amount that would be refundable to
him at
the time of such termination if he terminates the country club membership
then) by any country club for membership
fees;
|
|
b.
|
Reasonable
health club membership dues and, if necessary, initiation
fees;
|
|
c.
|
Reasonable
costs charged by a professional mover for moving Executive’s and his
family’s tangible personal property (such as household furniture and
personal effects) from their current residence to their new residence
provided, that, Executive shall obtain at least two (2) estimates
from
professional movers;
|
|
d.
|
Once
weekly round-trip airfare between Southern California and Northern
California during the first ninety (90) days of the Term;
and
|
|
e.
|
Reasonable
expenses for a hotel or other accommodation for up to the first ninety
(90) days during the Term while
relocating.
|
13. Indemnification. Executive
has entered into the standard form of director and officer indemnification
agreement entered into by directors and officers of Bank and
Company. Executive shall retain all rights he may have under
California Labor Code § 2802.
14. Failure
to Place
Executive. Notwithstanding anything to the contrary in this
Agreement, Bank and Company shall have the option, from the Effective Date
through the effective date of the Capital Raise, not to place Executive as
President and Chief Executive Office of Bank and Company, respectively, if
the
Capital Raise is unsuccessful. In such case, Executive shall receive
a lump-sum payment for services provided to date in the amount of One Hundred
Eighty Thousand dollars ($180,000), less any amount already paid pursuant to
this Agreement. Such payment, if made, shall be in lieu of any other
payments pursuant to this Agreement. Subject to applicable regulatory
approval, an amount equal to the $180,000 payment, less any amounts already
paid
pursuant to this Agreement, shall be deposited with a qualified escrow agent
at
Bank’s and Company’s expense no later than three (3) business days after the
Effective Date. If the Capital Raise is unsuccessful, this Agreement
(except for Section 17) shall terminate and the $180,000, less any amount
already paid as described above, shall be paid to Executive as described above,
less any deductions and withholding required by law. If the Capital
Raise is successful, the $180,000 shall revert to and be released to Bank and
Company, Executive shall act as Bank’s President and Chief Executive Officer,
and this Agreement shall continue under its express terms.
15. Termination
and Termination
Pay. Executive’s employment under this Agreement may be
terminated at any time in the following circumstances:
|
a.
|
Executive’s
employment shall terminate immediately upon Executive’s death or
Disability, in which event Executive or his estate shall be entitled
to
receive only the following: (i) any unpaid base salary and
automobile allowance due as of the termination date; (ii) any amounts
or
benefits owing to Executive under the then-applicable benefit plans
or
policies; (iii) any accrued but unused vacation, paid time off, and
sick
leave as of the termination date pursuant to Bank and Company policy;
and
(iv) any unreimbursed business expenses due in accordance with Section
10
(collectively, the “Accrued Benefits”). Subject to the parties’
rights and obligations under the Americans with Disabilities Act
and the
California Fair Employment and Housing Act, “Disability” means the
inability to perform material duties with or without reasonable
accommodation by reason of illness, physical or mental disability
or other
similar incapacity, which inability shall continue for at least ninety
(90) consecutive days or more than one-hundred twenty (120) days
in any
12-month period.
|
|
b.
|
Executive’s
employment may be terminated for “Cause” at any time without advance
notice if Executive (i) is convicted of any felony or any crime involving
moral turpitude, dishonesty, or fraud, (ii) commits any illegal or
dishonest act that results in termination of coverage for Executive
under
Bank’s or Company’s Blanket Bond or similar security devices, as
distinguished from termination of coverage as to Bank or Company
as a
whole, (iii) is finally removed or suspended from office by the
Comptroller of the Currency or other regulatory agency having valid
jurisdiction, (iv) breaches any material obligation in this Agreement
or
any other agreement between him and Company and/or Bank, (v) commits
any
act of fraud, willful misconduct, breach of fiduciary duty, embezzlement,
or dishonesty that materially injures Bank and/or Company or materially
damages Bank’s and/or Company’s reputation(s), (vi) is the personal target
of a cease and desist order or willfully violates a cease and desist
order, or (vii) fails to correct a material failure to perform, failure
to
follow a lawful directive of Company’s or Bank’s respective Board of
Directors, or habitual neglect of duty after written notice from
Bank’s or
Company’s Board of Directors specifying the failure(s) and providing a
reasonable opportunity of up to thirty (30) days to cure the
failure(s). If terminated for Cause, Executive shall receive
only the Accrued Benefits.
|
|
c.
|
Executive’s
employment may be terminated without cause upon thirty (30) days’ notice
to Executive. If terminated without cause, Executive shall be
entitled to receive the Accrued Benefits. In addition,
Executive shall receive a “Severance Payment” equal to (i) two (2) times
Executive’s then-current annual base salary, plus (ii) a Pro-Rata
Bonus. A “Pro-Rata Bonus” means: (x) if Executive is
terminated during the first six months of the calendar year, a cash
payment equal to 50% of the target Annual Bonus for the then-current
calendar year, and (y) if Executive is terminated during the second
six
months of the calendar year, a cash payment equal to the target Annual
Bonus for the then-current calendar year multiplied by a fraction
whose
numerator is the number of full months he was employed during the
calendar
year of termination and whose denominator is 12. The Severance
Payment shall be less any deductions and withholding required by
law.
|
|
d.
|
Executive
may resign employment under this Agreement for Good
Reason. “Good Reason” shall exist if, without Executive’s
express written consent, Company or Bank breaches any of their respective
material obligations under this Agreement. Without limitation,
such a material breach shall be deemed to occur upon any of the
following:
|
|
i.
|
Material
reduction by Bank and Company in Executive’s responsibilities or
authority, or a requirement that Executive report to any person or
group
other than the Chairmen, the Boards of Directors of Bank and/or Company,
or any committee(s) thereof;
|
|
ii.
|
Assignment
to Executive by Bank’s and Company’s Boards of Directors of duties
materially inconsistent with the duties identified in Section 1 above;
or
|
|
iii.
|
Material
reduction in base salary rate contrary to the terms of this Agreement
or,
following a Change in Control, a material reduction in salary below
the
amount to which Executive was entitled prior to the Change in
Control.
|
None
of
the foregoing shall constitute Good Reason unless and until Executive provides
written notice to Bank and Company identifying the asserted grounds for Good
Reason and such asserted grounds for Good Reason is not cured within thirty
(30)
days of Bank’s and Company’s receipt of notice from Executive. If
Executive resigns for Good Reason, he shall be entitled to receive the Accrued
Benefits. In addition, Executive shall receive the Severance Payment
provided in Section 15(c) above.
|
e.
|
During
the one (1) year period following a Change in Control, Executive
may
voluntarily terminate employment under this Agreement. Such
voluntary termination by him shall constitute resignation for Good
Reason
and shall entitle Executive to receive the Accrued Benefits and the
Severance Payment provided in Section 15(c)
above.
|
|
f.
|
Executive
may resign employment under this Agreement without Good Reason upon
thirty
(30) days’ notice to either Bank or Company. Upon resignation
without Good Reason, Executive shall be entitled to receive only
the
Accrued Benefits.
|
|
g.
|
Except
as expressly set forth in this Agreement or as provided by applicable
law,
Executive shall be due no other payments or benefits from Company
or Bank
upon termination of employment.
|
16. Gross-Up
Payments. If any amounts payable to Executive are “excess
parachute payments” under Internal Revenue Code section 280G, 26 U.S.C. § 280G,
and are subject to excise tax under Internal Revenue Code section 4999, 26
U.S.C. § 4999 (or any similar tax or assessment), then Executive shall receive
from Company an additional payment to offset the excise tax liability (“Gross-Up
Payment”). The parties intend that Executive will receive an amount
sufficient to place Executive in the same after-tax position that Executive
would have occupied if no amounts payable were excess parachute
payments. The Gross-Up Payment shall be made (net of all applicable
withholding taxes, including the taxes required to be withheld under Section
4999 or any similar law or regulation) no later than fourteen (14) days prior
to
the last date Executive may pay the excise taxes without additional penalty
or
interest.
17. Confidentiality. Executive
will have access to confidential, proprietary and trade secret information
(collectively, “Confidential Information”) during the course of employment under
this Agreement. Confidential Information includes any non-public
information belonging to Bank or Company and the subject of reasonable efforts
to maintain its confidentiality, such as operating methods, business methods,
discoveries, processes, patents, business plans, financial or budget
information, research plans and results, regulatory compliance plans, proposals
(including without limitation the identities of any persons or entities
submitting proposals), projects, the terms of any transaction, and information
regarding past, present, and future customers or employees. Confidential
Information can exist in any form, including oral or written statements,
information remembered, information stored electronically, and information
embodied in objects or processes. Executive shall hold all
Confidential Information as confidential. Furthermore, Executive
shall not during the Term or thereafter, without prior written permission from
the Boards of Directors of both Bank and Company or as necessary in the
performance of his duties during the Term, publish, disclose, or transfer to
anyone outside of Company or Bank, or use in any other business, any
Confidential Information.
18. Unfair
Competition and
Non-Solicitation of Employees. Executive agrees that,
following termination of or resignation from his employment for any reason,
Executive shall not engage in unfair competition against Bank or
Company. Executive shall not, during the two (2) year period
following the termination of or
resignation from his employment for any reason, solicit, persuade, or
induce any individual who is employed by Bank or Company to: (a)
terminate or refrain from continuing such employment, or (b) become an employee
or consultant of any individual or entity other than Bank or
Company.
19. Notice. Notices
under this Agreement shall be in writing and shall be personally delivered,
sent
via United States Mail or transmitted by facsimile. Such notices
shall be deemed received by a party (a) upon the date of personal delivery
to
Executive or to Bank’s or Company’s main administrative office, (b) three (3)
business days after placement, postage-prepaid, in the United States Mail,
or
(c) one (1) business day after transmission by facsimile. Any party
may designate or change its address and facsimile number for notice under this
Agreement so long as the designation or change is transmitted in writing to
and
received in advance by all parties.
20. Controlling
Law. This Agreement shall be governed by the laws of the
United States and, to the extent not preempted by such laws, the laws of the
State of California.
21. Reduction
or Delay of
Compensation or Benefit/Section 409A.
a.
If payment of any compensation or benefit provided under this Agreement violates
applicable law, the compensation or benefit shall be reduced to the maximum
amount allowed by law and the parties shall if permitted by law meet and confer
in good faith to establish lawful replacement compensation or benefits. If
applicable law requires that any compensation or benefit provided under this
Agreement be delayed, then the compensation or benefit shall be delayed as
required by law until payment is lawful.
b.
With respect to payments under this Agreement, for purposes of Section 409A
of
the Internal Revenue Code of 1986, as amended (“Section 409A”), each severance
payment (if there is more than one payment) will be considered one of a series
of separate payments.
c.
Executive will be deemed to have terminated employment for purposes of
determining the timing of any payments that are classified as deferred
compensation only upon a “separation from service” within the meaning of Section
409A.
d.
If at the time of Executive’s separation from service, (i) Executive is a
specified employee (within the meaning of Section 409A and using the
identification methodology selected by Bank or Company from time to time),
and
(ii) the Board of Directors (or committee thereof) of Bank or Company makes
a
good faith determination that an amount payable hereunder constitutes deferred
compensation (within the meaning of Section 409A) the payment of which is
required to be delayed pursuant to the six-month delay rule set forth in Section
409A in order to avoid taxes or penalties under Section 409A, then Bank or
Company will not pay such amount on the otherwise scheduled payment date but
will instead pay it in a lump sum on the first business day after such six-month
period, together with interest for the period of delay, compounded annually,
equal to the prime rate (as published in the Wall Street Journal) in effect
as
of the dates the payment should otherwise have been provided.
e.
Any amount that Executive is entitled to be reimbursed under this Agreement
will
be reimbursed to Executive as promptly as practical and in any event not later
than the last day of the calendar year after the calendar year in which the
expenses are incurred, and the amount of the expenses eligible for reimbursement
during any calendar year will not affect the amount of expenses eligible for
reimbursement in any other calendar year.
f.
To the extent Executive would be subject to the additional 20% tax imposed
on
certain deferred compensation arrangements pursuant to Section 409A as a
result of any provision of this Agreement, such provision shall be deemed
amended to the minimum extent necessary to avoid application of such tax and
the
parties shall promptly execute any amendment reasonably necessary to implement
this Section 21(f) Executive, Bank and Company agree to
cooperate to make such amendments to the terms of this Agreement as may be
necessary to avoid the imposition of penalties and additional taxes under
Section 409A to the extent possible; provided however, that Bank and
Company both agree that any such amendment shall provide Executive with
economically equivalent payments and benefits, and Executive agrees that any
such amendment will not materially increase the cost to, or liability of, Bank
or Company with respect to any payments.
22. Construction. This
Agreement shall be deemed mutually drafted and shall not be strictly construed
in favor of any party.
23. Severability. Any
invalid provision of this Agreement shall be deemed severed and shall not affect
the continued operation of the Agreement’s remaining provisions.
24. Entire
Agreement. This document contains the entire agreement of the
parties. It supersedes any other agreements, whether oral or in
writing, between the parties with respect to the employment of Executive as
President and Chief Executive Officer of Bank and Company, except for any
indemnification agreements of the type referenced in Section 13
above. This Agreement may be modified only by express written
agreement signed by Executive and authorized representatives of Bank and
Company.
25. Effective
Date. The “Effective Date” of this Agreement shall be
September 12, 2008.
26. Counterparts. This
Agreement may be executed in one or more counterparts, all of which together
shall constitute one and the same instrument.
[SIGNATURE
PAGE FOLLOWS]
Dated:
September 12,
2008
Vineyard National Bancorp
___/s/__Douglas
Kratz______________________
Name,
Title:__Douglas Xxxxx,,
Chairman_________
Dated:
September 12,
2008
Vineyard Bank, National Association
__/s/__James
LeSieur_______________________
Name,
Title:_James XxXxxxx, Chief Executive
Officer_
Dated: September 12,
2008
__/s/
Xxxxx X.
Terry_________________________
Xxxx
X. Xxxxx
