EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), between PACIFIC
FINANCIAL CORPORATION, a Washington business corporation (the "Company") and
XXXXXX X. XXXX ("Executive"), is dated as of June 9, 1999 and will be
effective upon the Effective Date of the Merger (the "Effective Date").
RECITALS
A. The Company is a Washington business corporation and the parent holding
company of the Bank of the Pacific, a Washington banking corporation
(the "Bank"). The Bank is engaged in the business of commercial banking
in Pacific County, Washington.
B. The Company intends to merge with Harbor Bancorp, Inc., Aberdeen,
Washington ("Harbor") with the Bank remaining as a wholly-owned
subsidiary of the resulting corporation (the "Merger") under the terms
of the Agreement and Plan of Merger dated as of June 9, 1999 (the
"Merger Agreement") between the Company and Harbor.
C. The Executive has considerable experience, expertise and training in
management related to banking and services offered by the Company and
the Bank. The Company desires and intends to employ the Executive
pursuant to the terms and conditions set forth in this Agreement.
D. Both the Company and the Executive have read and understand the terms
and provisions set forth in this Agreement, and have been afforded a
reasonable opportunity to review this Agreement with their respective
legal counsel.
AGREEMENT
The parties agree as follows:
1. EMPLOYMENT. The Company will employ the Executive for the Term, and the
Executive accepts employment with the Company on the terms and
conditions set forth in this Agreement. The Executive's title will be
"President."
2. EFFECTIVE DATE AND TERM.
(a) EFFECTIVE DATE. This Agreement is effective as of the
Effective Date.
(b) TERM. Subject to Section 5, the term of this Agreement
("Term") is three years, beginning on the Effective Date.
3. DUTIES. The Executive will serve as President of the Company and
President and Chief Executive of the Bank. The Executive will faithfully and
diligently perform the duties assigned to the Executive from time to time by
the Company's Board of Directors and its Chief Executive Officer. The
Executive will use his best efforts to perform his duties and will devote all
his
1
working time and attention to these duties. These duties will include,
without limitation, the following:
(a) COMPANY PERFORMANCE. The Executive will be responsible for all
aspects of the Company's performance, including, without
limitation, directing that daily operational and managerial
matters are performed in a manner consistent with the
Company's policies. These duties will also include assisting
the Chief Executive Officer with formulating and implementing
the Company's expansion strategies and performing all other
tasks in connection with the Company's management and affairs
that are normal and customary to the Executive's position.
(b) MODIFICATION OF DUTIES. The Executive will perform such other
duties as may be appropriate to his office and as may be
prescribed from time to time by the Company's Board of
Directors and its Chief Executive Officer. New duties and
responsibilities prescribed to the Executive will be
consistent with the Executive's position as the Company's
President, and may not include immoral or unlawful acts.
4. COMPENSATION.
(a) SALARY. Initially, the Executive will receive a salary of
$________ per year, to be paid in accordance with the
Company's regular payroll schedule. The Executive's salary
will be subject to annual review and adjustment as set forth
in Section 4(f).
(b) INCENTIVE COMPENSATION. A disinterested majority of the
Company's Board of Directors will develop an
incentive-driven formula that will determine the amount of
bonus, if any, to be paid by the Company to the Executive
for each year during the Term. In making this
determination, the Company's Board of Directors will
consider factors such as the Executive's performance of his
duties and the safety, soundness, and profitability of the
Company and the Bank. The Executive's bonus, if any, will
reflect the Executive's contribution to the performance of
the Company during the year. The Executive will also be
entitled to participate in stock bonus or stock option
plans generally available to senior executives of the
Company and the Bank.
(c) STANDARD EXECUTIVE BENEFITS. The Company will provide to
the Executive no less than the standard benefits provided
to senior Company and Bank executives in accordance with
the Company's benefit plans and policies, including but not
limited to health insurance, disability insurance and
coverage equal to the Executive's current salary at the
time of any disability, and four (4) weeks of paid vacation
per year accrued in accordance with the Company's benefits
plans and policies. In the event that the Company-provided
health insurance does not cover the cost of an annual
physical examination for the Executive, the Company will
pay the cost of such examination. The Executive will also
be entitled to participate in retirement plans, including
401(K) and deferred compensation
2
plans, and including any supplements or additions to such
plans, which are generally available to senior executives
of the Company and the Bank.
(d) AUTOMOBILE. The Company will provide the Executive with the
use of an automobile, of a model typically appropriate for the
performance of the services by a similarly situated executive.
(e) EXPENSES. The Company will reimburse the Executive for all
reasonable expenses that the Executive may incur in the
performance of his duties, including but not limited to
expenses for travel, lodging, meals, entertainment, annual
banking conventions and monthly country club dues.
(f) ANNUAL REVIEW AND ADJUSTMENT. The Executive's compensation, as
set forth in this Section 4, will be subject to annual review
and adjustment by a disinterested majority of the Company's
Board of Directors. In no case, however, will the Executive's
salary, vacation, car allowance and expense reimbursement for
director's fees be less than the amounts set forth in this
Section 4.
5. TERMINATION.
(a) NOTICE OF TERMINATION. The Company's Board of Directors and
the Executive may unilaterally terminate this Agreement for
any reason by providing the other party with 30 days' prior
written notice of the termination, delivered in person or by
certified U.S. mail to the Company's main office address or to
the Executive's last known address as reflected in the
Company's personnel records. Notice shall be effective upon
either personal delivery or three days following mailing by
certified U.S. mail.
(b) TERMINATION BY COMPANY FOR CAUSE OR BY EXECUTIVE WITHOUT GOOD
REASON. If, before the end of the Term, the Company terminates
this Agreement for Cause or the Executive terminates this
Agreement without Good Reason, the Company will pay the
Executive the salary earned and expenses reimbursable under
this Agreement incurred through the date of the Executive's
termination. The Executive will have no right to receive
compensation or other benefits for any period after
termination under this Section 5(b).
(c) OTHER TERMINATION. If, before the end of the Term, the
Company terminates this Agreement without Cause, or the
Executive terminates this Agreement for Good Reason, as
defined below, the Company will pay the Executive three (3)
times the highest amount of W-2 compensation received by
the Executive during the three most recent calendar years
ending on or prior to the effective date of termination
less statutory payroll deductions and payable in accordance
with the Company's ordinary payroll policies and
procedures, and as of such date, all forfeiture provisions
regarding restricted stock awards and all vesting
requirements regarding stock options shall lapse or be
considered completed. In no case will compensation be less
than that stated in Section 4(a).
3
(d) DEATH OR DISABILITY. This Agreement will terminate
immediately (1) upon the Executive's death or (2) if the
Executive is unable to perform his duties and obligations
under this Agreement for a period of 60 days as a result of
a physical or mental disability that substantially limits
one or more of his major life activities arising at any
time during the Term, unless the Executive could continue,
with reasonable accommodation, to perform his duties and
making such accommodations would not require the Company to
expend any funds. If termination occurs under this Section
5(d), the Executive or his estate will be entitled to
receive only the compensation and benefits earned and
expenses reimbursable through the date this Agreement is
terminated, and as of such date, all forfeiture provisions
regarding restricted stock awards and all vesting
requirements regarding stock options shall lapse or be
considered completed.
(e) TERMINATION RELATED TO A CHANGE IN CONTROL.
(1) TERMINATION BY COMPANY. If the Company or the
Bank, or their successors in interest by merger,
or their transferees in the event of a purchase
and assumption transaction, and for reasons other
than the Executive's death, disability, or Cause,
(1) terminates this Agreement within two (2) years
following a Change in Control (as defined below)
or (2) terminates this Agreement before a Change
in Control and a Change in Control occurs within
nine months after the termination, the Company
will pay the Executive the payments as set forth
in Section 5(e)(3).
(2) TERMINATION BY THE EXECUTIVE. If a Change in Control
occurs, then the Executive may for any reason
terminate this Agreement within two year following
the Change in Control. The Executive must deliver
notice of his termination in accordance with the
notice provisions set forth in Section 5(a). The
Company will pay the Executive the payment described
in Section 5(e)(3) following the effectiveness of
notice delivered under this Section 5(e)(2).
(3) PAYMENTS. If Section 5(e)(1) or (2) is triggered
as described in those Sections, the Company will
pay the Executive three (3) times the highest
amount of W-2 compensation received by the
Executive during any of the three most recent
calendar years ending on or prior to the effective
date of termination less statutory payroll
deductions and payable in accordance with the
Company's ordinary payroll policies and
procedures, and as of such date, all forfeiture
provisions regarding restricted stock awards and
all vesting requirements regarding stock options
shall lapse or be considered completed. In no case
will compensation be less than stated in Section
4(a).
(f) LIMITATIONS ON PAYMENTS RELATED TO CHANGE IN CONTROL. The
following apply notwithstanding any other provision of this
Agreement:
4
(1) The payment described in Section 5(e)(3) will be
less than the amount that would cause it to be a
"parachute payment" within the meaning of Section
280G(b)(2)(A) of the Internal Revenue Code; and
(2) The Executive's right to receive the payment
described in Section 5(e)(3) terminates (i)
immediately, if before the Change in Control
transaction closes, the Executive terminates his
employment without Good Reason or the Company
terminates the Executive's employment for Cause, or
(ii) two years after a Change in Control occurs.
(g) DEFINITION OF "CHANGE IN CONTROL." "Change in Control" means a
change "in the ownership or effective control" or "in the
ownership of a substantial portion of the assets" of the
Company or the Bank, within the meaning of Section 280G of the
Internal Revenue Code. An initial public offering by the
Company will not, however, be deemed to be a change in Control
under this Agreement.
(h) RETURN OF COMPANY PROPERTY. If and when the Executive ceases,
for any reason, to be employed by the Company, the Executive
must as soon as possible return to the Company, all property
of the Company and the Bank.
6. DEFINITION OF "CAUSE". Cause means any one or more of the following:
(a) The Executive's material breach of any provision of this
Agreement, and his failure to cure such breach within ten (10)
days after written notice from the Company to the Executive
specifying in reasonable detail the alleged breach;
(b) The Executive's gross negligence in the performance of his
duties, and his failure to cure such gross negligence within
ten (10) days after written notice from the Company to the
Executive specifying in reasonable detail the alleged
violation;
(c) The Executive's conviction of a felony; or
(d) The Executive's gross misconduct in the course and scope of
his employment with the Company.
7. DEFINITION OF "GOOD REASON". "Good Reason" means any one or more of
the following:
(a) The Company's material breach of any provision of this
Agreement, and its failure to cure such breach within ten (10)
days after written notice from the Executive to the Chairman
of the Company's Board of Directors specifying in reasonable
detail the alleged breach;
(b) The assignment to the Executive without his express written
consent of duties substantially inconsistent with and/or in
diminution of the positions, duties, responsibilities and
status contemplated by paragraph 3 of this Agreement;
5
(c) A relocation or transfer of the Executive's principal place of
employment that would require the Executive to commute on a
regular basis more than 50 miles each way from his current
business office at the Company on the date of this Agreement
(excluding travel between the current main offices of the
Company and Harbor), unless the Executive consents to the
relocation or transfer; or
(d) The failure of Executive to succeed Xxxxxx Xxxxxxx as the
Chief Executive Officer of the Company by May 20, 2001, UNLESS
the provisions of Section 4 (b) of this Agreement are
triggered.
8. CONFIDENTIALITY. The Executive, and any person acquiring confidential
information from the Executive, will not, after signing this Agreement.
including during and after its Term, disclose to any other person or
entity any confidential information concerning the Company, the Bank or
their business operations or customers, or use for his (their) own
purposes or permit or assist in the use of such confidential
information unless (1) the Company or the Bank consents to the use or
disclosures of their respective information, (2) the use or disclosure
is consistent with the Executive's duties under this Agreement, or (3)
disclosure is required by law or court order.
9. NONCOMPETITION.
(a) PARTICIPATION IN A COMPETING BUSINESS. During the Term and
for two (2) years after the Executive's employment with the
Company ends (regardless of whether the Executive's
employment ends at the end of the Term or at some other
point after the end of the Term), the Executive will not
become involved with a Competing Business or serve,
directly or indirectly, a Competing Business in any manner,
including, without limitation, as a shareholder, member,
partner, director, officer, manager, investor, organizer,
"founder,' employee, consultant, or agent; PROVIDED
HOWEVER, that the Executive may acquire and passively own
an interest not exceeding five percent (5%) of the total
equity interest in any company (whether or not such company
is a Competing Business).
(b) NO SOLICITATION. During the Term and for two (2) years
after the Executive's employment with the Company ends
(regardless of whether the Executive's employment ends at
the end of the Term or at some other point after the end of
the Term), the Executive will not solicit or attempt to
solicit (1) any employees of the Company, the Bank, or
their subsidiaries or affiliates to leave employment or (2)
any customers of the Company, or any of its subsidiaries or
affiliates, to remove their business from the Company, or
any of its subsidiaries or affiliates, or to participate in
any manner in a Competing Business. Solicitation prohibited
under this Section includes solicitation by any means,
including, without limitation, meetings, letters or other
mailings, electronic communications of any kind, and
Internet communications.
(c) EMPLOYMENT OUTSIDE PACIFIC AND GRAYS HARBOR COUNTIES.
Following any termination of Executive's employment,
nothing in this Agreement prevents the
6
Executive from accepting employment outside Pacific and
Grays Harbor Counties from a Competing Business, as long as
the Executive will not (1) act as an employee or
representative or agent of the Competing Business within
Pacific or Grays Harbor Counties or (2) have any
responsibilities for the Competing Business' operations
within Pacific or Grays Harbor Counties.
(d) COMPETING BUSINESS. "Competing Business" means any company
that competes with or will compete with the Company or the
Bank in Pacific or Grays Harbor Counties. The term "Competing
Business" includes, without limitation, any existing or newly
formed financial institution or trust company.
10. ENFORCEMENT.
(a) The Company and the Executive stipulate that, in light of
all of the facts and circumstances of the relationship
between the Executive and the Company, the agreements
referred to in Sections 8 and 9 (including without
limitation their scope, duration and geographic extent) are
fair and reasonably necessary for the protection of the
Company's and the Bank's confidential information, goodwill
and other protectable interests. If a court of competent
jurisdiction should decline to enforce any of those
covenants and agreements, the Executive and the Company
request the Court to reform these provisions to restrict
the Executive's use of confidential information and the
Executive's ability to compete with the Company to the
maximum extent, in time, scope of activities, and
geography, the court finds enforceable.
(b) The Executive acknowledges that the Company will suffer
immediate and irreparable harm that will not be compensable
by damages alone, if the Executive repudiates or breaches
any of the provisions of Sections 8 and 9 or threatens or
attempts to do so. For this reason, under these
circumstances, the Company, in addition to and without
limitation of any other rights, remedies or damages
available to it at law or in equity, will be entitled to
obtain temporary, preliminary, and permanent injunctions in
order to prevent or restrain the breach, and the Company
will not be required to post a bond as a condition of the
granting of this relief.
11. ADEQUATE CONSIDERATION. The Executive specifically acknowledges the
receipt of adequate consideration for the covenants contained in
Sections 8 and 9 and that the Company is entitled to require him to
comply with these Sections. These Sections will survive termination of
this Agreement. The Executive represents that if his employment is
terminated, whether voluntarily or involuntarily, the Executive has
experience and capabilities sufficient to enable the Executive to
obtain employment in areas which do not violate this Agreement and that
the Company's enforcement of a remedy by way of injunction will not
prevent the Executive from earning a livelihood.
12. ARBITRATION.
7
(a) ARBITRATION. The parties may submit any dispute,
controversy or claim arising out of or in connection with,
or relating to, this Agreement or any breach or alleged
breach of this Agreement, to arbitration under the American
Arbitration Association's rules then in effect (or under
any other form of arbitration mutually acceptable to the
parties) upon either party's written request delivered
within sixty (60) days of the date of the dispute,
controversy or claim arises. A single arbitrator agreed
upon by the parties will conduct the arbitration. If the
parties cannot agree on a single arbitrator, each party
must select one arbitrator and those two arbitrators will
select a third arbitrator. This third arbitrator will hear
the dispute. The arbitrator's decision is final (except as
otherwise specifically provided by law) and binds the
parties, and either party may request any court having
jurisdiction to enter a judgment and to enforce the
arbitrator's decision. The arbitrator will provide the
parties with a written decision naming the substantially
prevailing party in the action. This prevailing party is
entitled to reimbursement from the other party for its
costs and expenses, including reasonable attorneys' fees.
(b) GOVERNING LAW. All proceedings will be held at a place
designated by the arbitrator in Grays Harbor County,
Washington. The arbitrator, in rendering a decision as to any
state law claims, will apply Washington law.
(c) Exception to Arbitration. Notwithstanding the above, if the
Executive violates Section 8 or 9, the Company will have the
fight to initiate the court proceedings described in Section
10(b), in lieu of an arbitration proceeding under this Section
12.
13. MISCELLANEOUS PROVISIONS.
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding between the parties concerning its subject
matter and supersedes all prior agreements. Accordingly, the
Executive specifically waives the terms of and all of his
rights under all employment, change-in-control and salary
continuation agreements, whether written or oral, he has
previously entered into with the Company, the Bank, or any of
their subsidiaries or affiliates.
(b) BINDING EFFECT. This Agreement will bind and inure to the
benefit of the Company's and the Executive's heirs, legal
representatives, successors and assigns.
(c) LITIGATION EXPENSES. If either party successfully seeks to
enforce any provision of this Agreement or to collect any
amount claimed to be due under it, this party will be entitled
to reimbursement from the other party for any and all of its
out-of-pocket expenses and costs including, without
limitation, reasonable attorneys' fees and costs incurred in
connection with the enforcement of collection.
8
(d) WAIVER. Any waiver by a party of its rights under this
Agreement must be written and signed by the party waiving its
rights. A party's waiver of the other party's breach of any
provision of this Agreement will not operate as a waiver of
any other breach by the breaching party.
(e) COUNSEL REVIEW. The Executive acknowledges that he has had the
opportunity to consult with independent counsel with respect
to the negotiations, preparation, and execution of this
Agreement.
(f) ASSIGNMENT. The services to be rendered by the Executive under
this Agreement are unique and personal. Accordingly, the
Executive may not assign any of his rights or duties under
this Agreement.
(g) AMENDMENT. This Agreement may be modified only through a
written instrument signed by both parties.
(h) SEVERABILITY. The provisions of this Agreement are severable.
The invalidity of any provision will not affect the validity
of other provisions of this Agreement.
(i) GOVERNING LAW AND VENUE. This Agreement will be governed and
construed in accordance with Washington law, except to the
extent that certain matters may be governed by federal law.
Except as otherwise provided in Section 12(c), the parties
must bring any legal proceeding arising out of this Agreement
in Grays Harbor County, Washington, and the parties will
submit to jurisdiction in that county.
(j) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but
all of which taken together will constitute one and the same
document.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
9
Signed as of June 9, 1999:
PACIFIC FINANCIAL CORPORATION XXXXXX X. XXXX, individually
--------------------------------- ---------------------------------
By: Xxxxxx X. Xxxx, President
Its:
10
