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EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement"), effective as of October 10,
1997, (the "Effective Date") by and between Merchants Bancshares, Inc., a Texas
corporation (the "Company"), and Xxxxxx X. Xxxxxxx (the "Executive"), evidences
that;
WHEREAS, the Executive is a senior executive of the Company and/or one
or more of the Company's direct or indirect subsidiaries (hereinafter
individually referred to as a "Subsidiary" and collectively as the
"Subsidiaries") and has made and/or is expected to make or continue to make
significant contributions to the profitability, growth and financial strength
of the Company and/or the Subsidiaries;
WHEREAS, the Company desires to assure itself and the Subsidiaries of
both present and future continuity of management in the event of a Change in
Control (as defined hereafter) and desires to establish certain minimum
compensation rights with respect to the key senior executives of the Company
and/or the Subsidiaries, including the Executive, applicable in the event of a
Change in Control;
WHEREAS, the Company wishes to ensure that the senior executives of
the Company and/or the Subsidiaries are not practically disabled from
discharging their duties upon a Change in Control;
WHEREAS, this Agreement is not intended to alter materially the
compensation and benefits which the Executive could reasonably expect to
receive from the Company and/or the Subsidiaries absent a Change in Control;
and
WHEREAS, the Executive is willing to render services to the Company
and/or the Subsidiaries on the terms and subject to the conditions set forth in
this Agreement;
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Operation of Agreement:
(a) Sections 1 and 7 through 20 of this Agreement shall
be effective and binding as of the Effective Date,
but, anything in this Agreement to the contrary
notwithstanding, Sections 2, 3, 4, 5 and 6 of this
Agreement shall not be effective and binding unless
and until there shall have occurred a Change in
Control. For purposes of this Agreement, a "Change
in Control" will be deemed to have occurred if at any
time during the Term (as hereinafter defined) any of
the following events shall occur:
(i) The Company is merged, consolidated or
reorganized into or with another corporation
or other legal entity, and as a result
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EMPLOYMENT AGREEMENT - PAGE 1
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of such merger, consolidation or
reorganization less than a majority of the
combined voting power of the then outstanding
securities of the Company or such corporation
or other legal entity immediately after such
transaction are held in the aggregate by the
holders of Voting Stock (as hereinafter
defined) of the Company immediately prior to
such transaction and/or such voting power is
not held by substantially all of such holders
in substantially the same proportions
relative to each other;
(ii) The Company sells (directly or indirectly)
all or substantially all of its assets
(including, without limitation, by means of
the sale of the capital stock or assets of
one or more Subsidiaries) to any other
corporation or other legal entity, of which
less than a majority of the combined voting
power of the then outstanding voting
securities (entitled to vote generally in the
election of directors or persons performing
similar functions on behalf of such other
corporation or legal entity) of such other
corporation or legal entity are held in the
aggregate by the holders of Voting Stock of
the Company immediately prior to such sale
and/or such voting power is not held by
substantially all of such holders in
substantially the same proportions relative
to each other;
(iii) Any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the
Securities Exchange Act of 1934, as amended
(the "Exchange Act") becomes (subsequent to
the Effective Date) the beneficial owner (as
the term "beneficial owner" is defined in
Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange
Act) of securities representing twenty
percent (20%) or more of the combined voting
power of the then-outstanding securities
entitled to vote generally in the election of
directors of the Company ("Voting Stock");
(iv) The Company files a report or proxy statement
with the Securities and Exchange Commission
pursuant to the Exchange Act disclosing in
response to Form 8-K, Schedule 14A or
Schedule 14C (or any successor schedule, form
or report or item therein) that a change in
control of the Company has occurred;
(v) If during any one (1) year period,
individuals who at the beginning of any such
period constitute the directors of the
Company cease for any reason to constitute at
least a majority thereof, unless the
election, or the nomination for
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EMPLOYMENT AGREEMENT - PAGE 2
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election by the Company's shareholders, of
each director of the Company first elected
during such period was approved by a vote of
at least two-thirds of (i) the directors of
the Company then still in office who were
directors of the Company at the beginning of
any such period or (ii) the directors of the
Company whose nomination and/or election was
approved by the directors referenced in
clause (i) immediately preceding; or
(vi) The shareholders of the Company approve a
plan contemplating the liquidation or
dissolution of the Company.
Notwithstanding the foregoing provisions of
Subsection 1(a)(iii) or 1(a)(iv) hereof, a "Change in
Control" shall not be deemed to have occurred for
purposes of this Agreement solely because (i) the
Company, (ii) a corporation or other legal entity in
which the Company directly or indirectly beneficially
owns 100% of the voting securities of such entity,
(iii) any employee stock ownership plan or any other
employee benefit plan of the Company or any
wholly-owned subsidiary of the Company or (iv) any
person (as the term "person" is used in Section
13(d)(3) or Section 14(d)(2) of the Exchange Act) who
is the beneficial owner (as the term "beneficial
owner" is defined in Rule 13d-3 or any successor rule
or regulation promulgated under the Exchange Act) of
securities representing twenty percent (20%) or more
of the Voting Stock of the Company as of the
Effective Date, either files or becomes obligated to
file a report or a proxy statement under or in
response to Schedule 13D, Schedule 14D-1, Form 8-K,
Schedule 14A or Schedule 14C (or any successor
schedule, form or report or item therein) under the
Exchange Act, disclosing beneficial ownership by it
of shares of Voting Stock, whether in excess of
twenty percent (20%) or otherwise, or because the
Company reports that a change in control of the
Company has occurred by reason of such beneficial
ownership.
(b) Upon occurrence of a Change in Control at any time
during the Term, Sections 2, 3, 4, 5 and 6 of this
Agreement shall become immediately binding and
effective.
(c) The period during which this Agreement shall be in
effect (the "Term") shall commence as of the
Effective Date and shall expire as of the later of
(i) the close of business on October 9, 1999 or (ii)
the expiration of the Period of Employment (as
hereinafter defined); provided, however, that (A)
subject to Section 8 hereof, if, prior to a Change in
Control, the Executive ceases for any reason to be an
employee of the Company, thereupon the Term shall be
deemed to
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EMPLOYMENT AGREEMENT - PAGE 3
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have expired and this Agreement shall immediately
terminate and be of no further effect and (B)
commencing on December 31, 1997 and the last day of
each of the Company's fiscal years commencing
thereafter, the Term of this Agreement shall
automatically be extended for an additional year
unless, not later than the immediately preceding June
30, the Company or the Executive shall have given
notice that the Company or the Executive, as the case
may be, does not wish to have the Term of this
Agreement extended.
2. Employment; Period of Employment:
(a) Subject to the terms and conditions of this
Agreement, upon the occurrence of a Change in
Control, the Company shall continue the Executive in
its employ and shall cause the Subsidiaries of which
the Executive is an employee as of the date of a
Change in Control to continue the Executive in their
employ and the Executive shall remain in the employ
of the Company and the applicable Subsidiaries (the
"Applicable Subsidiaries") for the period set forth
in Subsection 2(b) hereof (the "Period of
Employment"), in the positions and with substantially
the same duties and responsibilities that the
Executive had immediately prior to the Change in
Control, or to which the Company and the Executive
may hereafter mutually agree in writing. Throughout
the Period of Employment, the Executive shall devote
substantially all of the Executive's time during
normal business hours (subject to vacations, sick
leave and other absences in accordance with the
policies of the Company and the Applicable
Subsidiaries as in effect for senior executives
immediately prior to the Change in Control) to the
business and affairs of the Company and the
Applicable Subsidiaries, but nothing in this
Agreement shall preclude the Executive from devoting
reasonable periods of time during normal business
hours to (i) serving as a director, trustee or member
of or participant in any organization or business so
long as such activity would not constitute
Competitive Activity (as hereinafter defined), (ii)
engaging in charitable and community activities, or
(iii) managing the Executive's personal investments
so long as such activity would not constitute
Competitive Activity. For purposes of this
Agreement, "Competitive Activity" is defined as
directly or indirectly engaging in a business that is
competitive with the business of the Company or any
Applicable Subsidiary. "Competitive Activity" shall
not include (i) the mere ownership of a de minimis
amount of securities in any enterprise and the
exercise of rights appurtenant thereto or (ii)
participation in management of any such enterprise or
business operation thereof other than in connection
with the competitive operation of such enterprise.
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EMPLOYMENT AGREEMENT - PAGE 4
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(b) The Period of Employment shall commence on the date
on which a Change in Control occurs and, subject only
to the provisions of Section 4 hereof, shall continue
until the earlier of (i) the expiration of the second
anniversary of the occurrence of the Change in
Control or (ii) the Executive's death; provided,
however, that commencing on each anniversary of the
Change of Control, the Period of Employment shall
automatically be extended for an additional one-year
period unless, not later than ninety (90) calendar
days prior to such anniversary date, the Company or
the Executive shall have given notice that the
Company or the Executive, as the case may be, does
not wish to have the Term extended.
3. Compensation During Period of Employment:
(a) During the Period of Employment, the Company
covenants that the Executive shall receive from the
Company and/or the Applicable Subsidiaries (i) annual
base salary at a rate not less than the Executive's
annual fixed or base compensation from the Company
and the Applicable Subsidiaries (including, without
limitation, director's fees and advisory director's
fees) prior to the Change of Control or such higher
rate as may be determined from time to time by the
Board of Directors of the Company (the "Board") or
the Compensation Committee thereof (the "Committee")
(which base salary at such rate is herein referred to
as "Base Pay") and (ii) an annual amount equal to not
less than the highest aggregate annual bonus,
incentive or other payments of cash compensation paid
to the Executive by the Company and the Applicable
Subsidiaries in addition to the amounts referred to
in clause (i) above made or to be made in or with
respect to any calendar year during the three
calendar years immediately preceding the year in
which the Change in Control occurred pursuant to any
bonus, incentive, profit-sharing, performance,
discretionary pay or similar policy, plan, program or
arrangement of the Company and the Applicable
Subsidiaries ("Incentive Pay") which contemplates
cash payments other than Employee Benefits (as
hereinafter defined); provided, however, that nothing
herein shall preclude a change in the mix between
Base Pay and Incentive Pay so long as the aggregate
cash compensation received by the Executive in any
one (1) calendar year is not reduced in connection
therewith or as a result thereof and, provided
further, however, that in no event shall any increase
in the Executive's aggregate cash compensation or any
portion thereof in any way diminish any other
obligation of the Company under this Agreement. The
Executive's Base Pay shall be payable monthly. The
Executive's Incentive Pay shall be paid annually as
soon as reasonably practicable following
determination of the amount payable but in no event
later than the date which is ninety (90) days
following
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EMPLOYMENT AGREEMENT - PAGE 5
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the last day of the fiscal year during which such
Incentive Pay is deemed earned.
(b) For the Executive's service pursuant to Subsection
2(a) hereof, during the Period of Employment the
Executive shall, if and on the same basis as the
Executive participated therein immediately prior to
the Change in Control, be a full participant in, and
shall be entitled to the perquisites, benefits and
service credit for benefits as provided under any and
all employee retirement income and welfare benefit
policies, plans, programs or arrangements in which
senior executives of the Company and/or the
Applicable Subsidiaries participate generally,
including without limitation any stock option, stock
purchase, stock appreciation, savings, pension,
supplemental executive retirement or other retirement
income or welfare benefit, deferred compensation,
incentive compensation, group and/or executive life,
accident, health, dental, medical/hospital or other
insurance (whether funded by actual insurance or
self-insured by the Company or any Applicable
Subsidiary), disability, salary continuation, expense
reimbursement and other employee benefit policies,
plans, programs or arrangements that may exist
immediately prior to the Change in Control or any
equivalent successor policies, plans, programs or
arrangements that may be adopted thereafter by the
Company or any Applicable Subsidiary (collectively,
"Employee Benefits"); provided, however, that the
Executive's rights thereunder shall be governed by
the terms thereof and shall not be enlarged hereunder
or otherwise affected hereby. Subject to the proviso
in the immediately preceding sentence, if and to the
extent such perquisites, benefits or service credit
for benefits are not payable or provided under any
such policy, plan, program or arrangement as a result
of the amendment or termination thereof subsequent to
a Change in Control, then the Company shall itself
pay or provide such Employee Benefits. Nothing in
this Agreement shall preclude improvement or
enhancement of any such Employee Benefits, provided
that no such improvement shall in any way diminish
any other obligation of the Company under this
Agreement.
(c) The Company has determined that the amounts payable
pursuant to this Section 3 constitute reasonable
compensation. Accordingly, anything in this
Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or
distribution by the Company to the Executive (whether
paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise,
but determined without regard to any additional
payments required under Subsections 3(c), (d), (e)
and (f)) (a "Payment") is subject to the excise tax
imposed by Section 4999 of the Code, or any interest
or penalties are incurred by the Executive with
respect to such
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EMPLOYMENT AGREEMENT - PAGE 6
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excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Company
shall pay to the Executive an additional payment (a
"Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such
taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed
upon the Payments.
(d) Subject to the provisions of Subsection 3(e), all
determinations required to be made regarding whether
and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination
shall be made by the Company's public accounting firm
(the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the
Executive as soon as possible following a request
made by the Executive or the Company. In the event
that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting
the Change in Control, the Company shall appoint
another nationally recognized public accounting firm
to make the determinations required hereunder (which
accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment shall be paid by the
Company to the Executive within five (5) days of the
receipt of the Accounting Firm's determination. If
the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the
Executive with a written opinion that failure to
report the Excise Tax on the Executive's applicable
federal income tax return would not result in the
imposition of a negligence or similar penalty. Any
determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of
the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by
the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by
the Company should have been made ("Underpayment"),
consistent with the calculations required to be made
hereunder. In the event that the Company exhausts
its remedies pursuant to Subsection 3(e) and the
Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred and
any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
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(e) The Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company
of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten
(10) business days after the Executive is informed in
writing of such claim and shall apprise the Company
of the nature of such claim and the date on which
such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of
the 30-day period following the date on which the
Executive gives such notice to the Company (or such
shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to
the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such
claim,
(ii) take such action in connection with
contesting such claim as the Company shall
reasonably request in writing from time to
time, including, without limitation,
accepting legal representation with respect
to such claim by an attorney reasonably
selected by the Company,
(iii) cooperate with the Company in good faith to
effectively contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and
pay directly all costs and expenses (including
additional interest and penalties) incurred in
connection with such contest and shall indemnify and
hold the Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a
result of such representation and payment of costs
and expenses. Without limitation on the foregoing
provisions of this Subsection 3(e), the Company shall
control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo
any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed
and xxx for a refund or contest the claim in any
permissible manner, and the Executive agrees to
prosecute such contest to a determination before any
administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as
the Company shall determine; provided further, that
if the Company
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directs the Executive to pay such claim and xxx for a
refund, the Company shall advance the amount of such
payment to the Executive on an interest-free basis
and shall indemnify and hold the Executive harmless,
on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such
advance; and provided further, that any extension of
the statute of limitations relating to payment of
taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to
be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the
Internal Revenue Service or any other taxing
authority.
(f) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Subsection 3(e),
the Executive becomes entitled to receive, and
receives, any refund with respect to such claim, the
Executive shall (subject to the Company's complying
with the requirements of Subsection 3(e)) promptly
pay to the Company the amount of such refund
(together with any interest paid or credited thereon
after taxes applicable thereto). If, after the
receipt by the Executive of any amount advanced by
the Company pursuant to Subsection 3(e), a
determination is made that the Executive shall not be
entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing
of its intent to contest such denial of refund prior
to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven
and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
(g) The Executive shall be entitled throughout the Term
and thereafter to indemnification by the Company in
respect of any actions or omissions as an employee,
officer or director of the Company (or any successor
pursuant to Section 10) or of any Subsidiary or
affiliate of the Company in the manner set forth in
that certain Indemnification Agreement, of even date,
by and between the Company and the Executive.
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4. Termination Following a Change in Control:
(a) In the event of the occurrence of a Change in
Control, this Agreement may be terminated by the
Company during the Period of Employment only upon the
occurrence of one or more of the following events:
(i) If the Executive is unable to perform the
essential functions of the Executive's job
(with or without reasonable accommodation)
because the Executive has become permanently
disabled within the meaning of, and actually
begins to receive disability benefits
pursuant to, a long-term disability plan
maintained by or on behalf of the Company or
any Applicable Subsidiary for senior
executives generally or, if applicable,
employees of the Company or any Applicable
Subsidiary immediately prior to the Change in
Control; or
(ii) For "Cause," which for purposes of this
Agreement shall mean that, prior to any
termination pursuant to Subsection 4(b)
hereof, the Executive shall have committed:
(A) an intentional act of fraud,
embezzlement or theft in connection
with the Executive's duties or in
the course of the Executive's
employment with the Company or any
Applicable Subsidiary;
(B) intentional wrongful damage to
property of the Company or any
Subsidiary;
(C) intentional wrongful disclosure of
secret processes or confidential
information of the Company or any
Subsidiary; or
(D) intentional wrongful engagement in
any Competitive Activity;
and any such act shall have been materially harmful to the
Company or any Subsidiary. For purposes of this Agreement, no
act, or failure to act, on the part of the Executive shall be
deemed "intentional" if it was due primarily to an error in
judgment or negligence, but shall be deemed "intentional" only
if done, or omitted to be done, by the Executive not in good
faith and without reasonable belief that the Executive's
action or omission was in the best interest of the Company and
the Subsidiaries or not opposed to the best interest of the
Company and the Subsidiaries. Notwithstanding the foregoing,
the Executive shall not be deemed to have been terminated for
"Cause" hereunder unless and until there shall have been
delivered to the
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Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the Board
then in office at a meeting of the Board called and held for
such purpose (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board), finding that, in the
good faith opinion of the Board, the Executive has committed
an act set forth above in this Subsection 4(a)(ii) and
specifying the particulars thereof in detail. Nothing herein
shall limit the right of the Executive or the Executive's
beneficiaries to contest the validity or propriety of any such
determination.
(b) In the event of the occurrence of a Change in
Control, this Agreement may be terminated by the
Executive during the Period of Employment with the
right to benefits as provided in Section 5 hereof
upon the occurrence of one or more of the following
events:
(i) Any termination of the employment of the
Executive by the Company or any Applicable
Subsidiary for any reason other than for
Cause or as a result of the death of the
Executive or by reason of the Executive's
disability and the actual receipt of
disability benefits in accordance with
Subsection 4(a)(i) hereof; or
(ii) Termination by the Executive of the
Executive's employment by the Company or any
Applicable Subsidiary during the Period of
Employment upon the occurrence of any of the
following events:
(A) Failure to elect or reelect the
Executive to the office(s) of the
Company or any Applicable Subsidiary
which the Executive held immediately
prior to the Change in Control, or
failure to elect or reelect the
Executive as a director of the
Company or any Applicable Subsidiary
or the removal of the Executive as a
director of the Company or any
Applicable Subsidiary (or any
successor thereto), if the Executive
shall have been a director of the
Company or such Applicable
Subsidiary immediately prior to the
Change in Control;
(B) A significant adverse change in the
nature or scope of the authorities,
powers, functions, responsibilities
or duties attached to the
position(s) with the Company or any
Applicable Subsidiary which the
Executive held immediately prior to
the Change in Control, a reduction
in the aggregate of the Executive's
Base Pay and Incentive Pay received
from the Company and/or the
Applicable Subsidiaries, or the
termination of the
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Executive's rights to any Employee
Benefits to which the Executive was
entitled immediately prior to the
Change in Control or a reduction in
scope or value thereof without the
prior written consent of the
Executive, any of which is not
remedied within ten (10) calendar
days after receipt by the Company of
written notice from the Executive of
such change, reduction or
termination, as the case may be;
(C) A determination by the Executive
made in good faith that, following
the Change in Control, as a result
of a change in circumstances
significantly affecting the
Executive's position(s) held with
the Company and/or the Applicable
Subsidiaries, including, without
limitation, a change in the scope of
the business or other activities for
which the Executive was responsible
immediately prior to the Change in
Control, that the Executive has been
rendered substantially unable to
carry out, has been substantially
hindered in the performance of, or
has suffered a substantial reduction
in any of the authorities, powers,
functions, responsibilities or
duties attached to the position(s)
held with the Company and/or the
Applicable Subsidiaries by the
Executive immediately prior to the
Change in Control, which situation
is not remedied within ten (10)
calendar days after written notice
to the Company from the Executive of
such determination;
(D) The liquidation, dissolution,
merger, consolidation or
reorganization of the Company or any
Applicable Subsidiary or transfer of
all or a significant portion of its
business and/or assets, unless the
successor (by liquidation, merger,
consolidation, reorganization or
otherwise) to which all or a
significant portion of its business
and/or assets have been transferred
(directly or by operation of law)
shall have assumed all duties and
obligations of the Company under
this Agreement pursuant to Section
10 hereof;
(E) The Company or any Applicable
Subsidiary shall require that the
principal place of work of the
Executive be changed to any location
which is in excess of twenty-five
(25) miles from the location thereof
immediately prior to the Change of
Control or to travel away from the
Executive's office in the course of
discharging the Executive's
responsibilities or duties
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hereunder significantly more (in
terms of either consecutive days or
aggregate days in any calendar year)
than was required of the Executive
prior to the Change of Control
without, in either case, the
Executive's prior consent; or
(F) Any material breach of this
Agreement by the Company or any
successor thereto.
(c) A termination by the Company pursuant to Subsection
4(a) hereof or by the Executive pursuant to
Subsection 4(b) hereof shall not affect any rights
which the Executive may have pursuant to any
agreement, policy, plan, program or arrangement of
the Company providing Employee Benefits, which rights
shall be governed by the terms thereof. If this
Agreement or the employment of the Executive is
terminated under circumstances in which the Executive
is not entitled to any payments under Sections 3 or 5
hereof, the Executive shall have no further
obligation or liability to the Company hereunder with
respect to the Executive's prior or any future
employment by the Company or any Subsidiary.
5. Severance Compensation:
(a) If, following the occurrence of a Change in Control,
the Company or any Subsidiary shall terminate the
Executive's employment during the Period of
Employment other than pursuant to Subsection 4(a)
hereof, or if the Executive shall terminate the
Executive's employment pursuant to Subsection 4(b)
hereof, the Company shall pay to the Executive the
amount specified in Subsection 5(a)(i) hereof within
five (5) business days after the date (the
"Termination Date") that the Executive's employment
is terminated (the effective date of which shall be
the date of termination, or such other date that may
be specified by the Executive if the termination is
pursuant to Subsection 4(b) hereof):
(i) In lieu of any further payments to the
Executive for periods subsequent to the
Termination Date, but without affecting the
rights of the Executive referred to in
Subsection 5(b) hereof, a lump sum payment
(the "Severance Payment") in an amount equal
to the present value (using a discount rate
required to be utilized for purposes of
computations under Section 280G of the Code
or any successor provision thereto, or if no
such rate is so required to be used, a rate
equal to the then-applicable interest rate
prescribed by the Pension Benefit Guaranty
Corporation for benefit valuations in
connection with non-multiemployer pension
plan terminations
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EMPLOYMENT AGREEMENT - PAGE 13
14
assuming the immediate commencement of
benefit payments (the "Discount Rate")) of
the sum of (A) the aggregate Base Pay (at the
highest rate in effect during the Term prior
to the Termination Date) for each remaining
year or fraction of the Period of Employment
which the Executive would have received had
such termination not occurred, plus (B) the
aggregate Incentive Pay (based upon the
greatest amount of Incentive Pay paid or
payable to the Executive for any year during
the Term but prior to the year in which the
Termination Date occurs), which the Executive
would have received pursuant to this
Agreement during the remainder of the Period
of Employment had the Executive's employment
continued for the remainder of the Period of
Employment.
(ii) The determination of whether any amount
payable under Subsection 5(a)(i) is subject
to the Excise Tax shall be governed by
Subsections 3(c), (d), (e) and (f) of this
Agreement. The costs of obtaining such
determination shall be borne by the Company.
Without limiting the generality of the
foregoing, upon the Executive's termination
of employment under the circumstances
described in this Section 5, the Company
shall (upon request of the Executive) pay
over to the Executive all vested benefits to
which the Executive is entitled under and in
accordance with the terms of the employee
savings, stock ownership, supplemental
executive retirement and similar plans of the
Company and the Applicable Subsidiaries in
the event such payments are not otherwise
made in accordance with the terms of such
plans.
(iii) For the remainder of the Period of
Employment, the Company shall arrange to
provide the Executive with Employee Benefits
substantially similar to those which the
Executive was receiving or entitled to
receive immediately prior to the Termination
Date (and if and to the extent that such
benefits shall not or cannot be paid or
provided under any policy, plan, program or
arrangement of the Company and the
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EMPLOYMENT AGREEMENT - PAGE 14
15
Applicable Subsidiaries solely due to the
fact that the Executive is no longer an
officer or employee of the Company and/or the
Applicable Subsidiaries, then the Company
shall itself pay to the Executive and/or the
Executive's dependents and beneficiaries,
such Employee Benefits). Without limiting
the generality of the foregoing, the
remainder of the Period of Employment shall
be considered service with the Company and
the Applicable Subsidiaries for the purpose
of service credits under the retirement
income, supplemental executive retirement and
other benefit plans of the Company and the
Applicable Subsidiaries applicable to the
Executive and/or the Executive's dependents
and beneficiaries immediately prior to the
Termination Date. Without otherwise limiting
the purposes or effect of Section 6 hereof,
Employee Benefits payable to the Executive
pursuant to this Subsection 5(a)(iii) by
reason of any "welfare benefit plan" of the
Company and the Applicable Subsidiaries (as
the term "welfare benefit plan" is defined in
Section 3(1) of the Employee Retirement
Income Security Act of 1974, as amended)
shall be reduced to the extent comparable
welfare benefits are actually received by the
Executive from another employer during such
period following the Executive's Termination
Date until the expiration of the Period of
Employment.
(b) Upon written notice given by the Executive to the
Company prior to the receipt of any payment pursuant
to Subsection 5(a) hereof, the Executive, at the
Executive's sole option, without reduction to reflect
the present value of such amounts as aforesaid, may
elect to have all or any of the Severance Payment
payable pursuant to Subsection 5(a)(i) hereof paid to
the Executive on a quarterly or monthly basis during
the remainder of the Period of Employment.
(c) There shall be no right of set-off or counterclaim in
respect of any claim, debt or obligation against any
payment to or benefit (including Employee Benefits)
of the Executive provided for in this Agreement.
(d) Without limiting the rights of the Executive at law
or in equity, if the Company fails to make any
payment required to be made hereunder on a timely
basis, the Company shall pay interest on the amount
thereof at an annualized rate of interest equal to
the then-applicable Discount Rate or, if lesser, the
highest rate allowed by applicable usury laws.
6. No Mitigation Obligation: The Company hereby acknowledges
that it will be difficult, and may be impossible, for the Executive to find
reasonably comparable employment following the Termination Date. Accordingly,
the parties hereto expressly agree that the payment of the severance
compensation by the Company to the Executive in accordance with the terms of
this Agreement will be liquidated damages, and that the Executive shall not be
required to mitigate the amount of any payment provided for in this Agreement
by seeking other employment or otherwise, nor shall any profits, income,
earnings or other benefits from any source whatsoever create any mitigation,
offset, reduction or any other obligation on the part of the Executive
hereunder or otherwise, except as expressly provided in Subsection 5(a)(iii)
hereof.
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EMPLOYMENT AGREEMENT - PAGE 15
16
7. Legal Fees and Expenses:
(a) It is the intent of the Company that the Executive
not be required to incur the expenses associated with
the enforcement of the Executive's rights under this
Agreement by litigation or other legal action because
the cost and expense thereof would substantially
detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should
appear to the Executive that the Company has failed
to comply with any of its obligations under this
Agreement or in the event that the Company or any
other person takes any action to declare this
Agreement void or unenforceable, or institutes any
litigation designed to deny, or to recover from, the
Executive the benefits intended to be provided to the
Executive hereunder, the Company irrevocably
authorizes the Executive from time to time to retain
counsel of the Executive's choice, at the expense of
the Company as hereafter provided, to represent the
Executive in connection with the litigation or
defense of any litigation or other legal action,
whether by or against the Company or any director,
officer, shareholder or other person affiliated with
the Company, in any jurisdiction. Notwithstanding
any existing or prior attorney-client relationship
between the Company and such counsel, the Company
irrevocably consents to the Executive's entering into
an attorney-client relationship with such counsel
(other than Winstead Xxxxxxxx & Xxxxxx P.C.), and in
that connection the Company and the Executive agree
that a confidential relationship shall exist between
the Executive and such counsel. The Company shall
pay or cause to be paid and shall be solely
responsible for any and all attorneys' and related
fees and expenses incurred by the Executive as a
result of the Company's failure to perform this
Agreement or any provision thereof or as a result of
the Company or any person contesting the validity or
enforceability of this Agreement or any provision
thereof as aforesaid.
(b) To ensure the benefits intended to be provided to the
Executive under Subsection 7(a) hereof, the Company
has established an irrevocable standby Letter of
Credit in favor of the Executive and each other
person who is named an Executive under similar
agreements, drawn on Texas Commerce Bank (the "Letter
of Credit") which provides for a credit amount of
$250,000 being made available to the Executive
against presentation at any time and from time to
time of the Executive's clean sight drafts,
accompanied by statements of the Executive's counsel
for fees and expenses, in an aggregate amount not to
exceed $250,000, unless a larger amount is previously
authorized by two of the Chairman, President or Vice
President of the Company, provided that no such
person may act in two separate capacities or
authorize a larger amount for himself.
XXXXXX X. XXXXXXX
EMPLOYMENT AGREEMENT - PAGE 16
17
8. Employment Rights: Nothing expressed or implied in this
Agreement shall create any right or duty on the part of the Company or any
Applicable Subsidiary (on the one hand) or the Executive (on the other hand) to
have the Executive remain in the employment of the Company or any Applicable
Subsidiary prior to any Change in Control; provided, however, that any
termination of employment of the Executive or removal of the Executive as an
Officer or director of the Company or any Applicable Subsidiary following the
commencement of any discussion with a third person that ultimately results in a
Change in Control shall be deemed to be a termination or removal of the
Executive after a Change in Control for purposes of this Agreement.
9. Withholding of Taxes: The Company may withhold from any
amounts payable under this Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or government regulation or ruling.
10. Successors and Binding Agreement:
(a) The Company shall require any successor (whether
direct or indirect, by purchase, merger,
consolidation, reorganization, operation of law or
otherwise) to all or substantially all of the
business and/or assets of the Company, to expressly
assume and agree to perform this Agreement in the
same manner and to the same extent the Company would
be required to perform if no such succession had
taken place. This Agreement shall be binding upon
and inure to the benefit of the Company and any
successor to the Company, including without
limitation any persons acquiring directly or
indirectly all or substantially all of the business
and/or assets of the Company whether by purchase,
merger, consolidation, reorganization, operation of
law or otherwise (and such successor shall thereafter
be deemed the "Company" for the purposes of this
Agreement). This Agreement shall not otherwise be
assignable, transferable or delegable by the Company.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal
representatives, executors, administrators,
successors, heirs, distributees and/or legatees.
(c) This Agreement is personal in nature and neither of
the parties hereto shall, without the consent of the
other, assign, transfer or delegate this Agreement or
any rights or obligations hereunder except as
expressly provided in Subsection 10(a) hereof.
Without limiting the generality of the foregoing, the
Executive's right to receive payments hereunder shall
not be assignable, transferable or delegable, whether
by pledge, creation of a security interest or
otherwise, other than by a transfer by the
Executive's will or by the laws of descent and
distribution and, in the event of any attempted
XXXXXX X. XXXXXXX
EMPLOYMENT AGREEMENT - PAGE 17
18
assignment or transfer contrary to this Subsection
10(c), the Company shall have no liability to pay any
amount so attempted to be assigned, transferred or
delegated.
(d) The Company and the Executive recognize that each
Party will have no adequate remedy at law for breach
by the other of any of the agreements contained
herein and, in the event of any such breach, the
Company and the Executive hereby agree and consent
that the other shall be entitled to a decree of
specific performance, mandamus or other appropriate
remedy to enforce performance of this Agreement.
11. Applicable Law. THIS AGREEMENT WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (EXCLUSIVE OF
CONFLICTS OF LAW PRINCIPLES) AND THE LAWS OF THE UNITED STATES OF AMERICA AND
WILL, TO THE MAXIMUM EXTENT PRACTICABLE, BE DEEMED TO CALL FOR PERFORMANCE IN
XXXXXX COUNTY, TEXAS. COURTS WITHIN THE STATE OF TEXAS WILL HAVE JURISDICTION
OVER ANY AND ALL DISPUTES BETWEEN THE PARTIES HERETO, WHETHER IN LAW OR EQUITY,
ARISING OUT OF OR RELATING TO THIS AGREEMENT. THE PARTIES CONSENT TO AND AGREE
TO SUBMIT TO THE JURISDICTION OF SUCH COURTS. VENUE IN ANY SUCH DISPUTE,
WHETHER IN FEDERAL OR STATE COURT, WILL BE LAID IN XXXXXX COUNTY, TEXAS. EACH
OF THE PARTIES HEREBY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUCH DISPUTE, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY CLAIM THAT (I) SUCH PARTY
IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, (II) SUCH PARTY
AND SUCH PARTY'S PROPERTY IS IMMUNE FROM ANY LEGAL PROCESS ISSUED BY SUCH
COURTS OR (III) ANY LITIGATION COMMENCED IN SUCH COURTS IS BROUGHT IN AN
INCONVENIENT FORUM.
12. Notices. All notices, demands, requests or other
communications that may be or are required to be given, served or sent by
either party to the other party pursuant to this Agreement will be in writing
and will be mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by hand delivery, telegram or
facsimile transmission addressed as follows:
(a) If to the Company: Merchants Bancshares, Inc.
0000 Xxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Facsimile No.: (000) 000-0000
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EMPLOYMENT AGREEMENT - PAGE 18
19
with a copy (which will
not constitute notice) to: Xxxxxxxx Xxxxxxxx & Xxxxxx P.C.
5400 Renaissance Tower
0000 Xxx Xxxxxx
Xxxxxx, Xxxxx 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxxx, Xx., Esq.
(b) If to the Executive: Xxxxxx X. Xxxxxxx
0000 Xxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Facsimile No.: (000) 000-0000
Either party may designate by written notice a new address to which any notice,
demand, request or communication may thereafter be given, served or sent. Each
notice, demand, request or communication that is mailed, delivered or
transmitted in the manner described above will be deemed sufficiently given,
served, sent and received for all purposes at such time as it is delivered to
the addressee with the return receipt, the delivery receipt, the affidavit of
messenger or (with respect to a facsimile transmission) the answer back being
deemed conclusive evidence of such delivery or at such time as delivery is
refused by the addressee upon presentation.
13. Gender. Words of any gender used in this Agreement will be
held and construed to include any other gender, and words in the singular
number will be held to include the plural, unless the context otherwise
requires.
14. Amendment. This Agreement may not be amended or supplemented
except pursuant to a written instrument signed by the party against whom such
amendment or supplement is to be enforced. Nothing contained in this Agreement
will be deemed to create any agency, joint venture, partnership or similar
relationship between the parties to this Agreement. Nothing contained in this
Agreement will be deemed to authorize either party to this Agreement to bind or
obligate the other party.
15. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be deemed to be an original and all of which
will be deemed to be a single agreement. This Agreement will be considered
fully executed when all parties have executed an identical counterpart,
notwithstanding that all signatures may not appear on the same counterpart.
16. Severability. If any of the provisions of this Agreement are
determined to be invalid or unenforceable, such invalidity or unenforceability
will not invalidate or render unenforceable the remainder of this Agreement,
but rather the entire Agreement will be construed as if not containing the
particular invalid or unenforceable provision or provisions, and the rights and
obligations of the parties will be construed and enforced accordingly. The
parties acknowledge that if any provision of this Agreement is determined to be
invalid or unenforceable, it is their desire and intention that such
XXXXXX X. XXXXXXX
EMPLOYMENT AGREEMENT - PAGE 19
20
provision be reformed and construed in such manner that it will, to the maximum
extent practicable, be deemed to be valid and enforceable.
17. Third Parties. Except as expressly set forth or referred to
in this Agreement, nothing in this Agreement is intended or will be construed
to confer upon or give to any party other than the parties to this Agreement
and their successors and permitted assigns, if any, any rights or remedies
under or by reason of this Agreement.
18. Waiver. No failure or delay in exercising any right hereunder
will operate as a waiver thereof, nor will any single or partial exercise
thereof preclude any other or further exercise or the exercise of any other
right.
19. Prior Agreement. This Agreement is voluntarily entered into
and upon the occurrence of a Change in Control will supersede and take the
place of any prior change in control, severance or employment agreements
between the parties hereto. The parties hereto expressly agree and hereby
declare that any and all prior change in control, severance or employment
agreements between the parties are terminated and of no force or effect.
20. Indemnity. UNDER CERTAIN CIRCUMSTANCES, THIS AGREEMENT IMPOSES
INDEMNIFICATION OBLIGATIONS ON THE PARTIES HERETO.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
XXXXXX X. XXXXXXX
EMPLOYMENT AGREEMENT - PAGE 20
21
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
COMPANY:
MERCHANTS BANCSHARES, INC.
By:
-----------------------------
Name: X. X. Xxxxxx, III
Title: President
EXECUTIVE:
----------------------------------
Xxxxxx X. Xxxxxxx
XXXXXX X. XXXXXXX
EMPLOYMENT AGREEMENT - PAGE 21
