EXHIBIT 10.16.1
FIXED TRUST UNDER AGREEMENT WITH DUDLEY H. DAVIS
This Trust Agreement is made this 20th day of December, 1995, by and
between THE MERCHANTS BANK (the "Bank") and THE MERCHANTS TRUST COMPANY (the
"Trustee").
Background
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1. The Bank has entered into an Agreement with Dudley H. Davis
("Davis") of even date herewith (the "Agreement") pursuant to which, among
other matters, the Bank and Davis have agreed that the Bank will pay to
Davis, in lieu of amounts otherwise due to Davis under a so-called Officers'
Salary Continuation Plan, the amounts specified and provided for in the
Agreement.
2. The Bank wishes to establish a trust (hereinafter called "Fixed
Trust") and to contribute to the Fixed Trust assets that shall be held
therein, subject to the claims of Bank's creditors in the event of the
Bank's Insolvency, as herein defined, until paid to Davis and his
beneficiaries in such manner and at such times as are specified and provided
for in the Agreement.
3. It is the intention of the parties that this trust shall
constitute an unfunded arrangement and shall not affect the status of the
Agreement as an unfunded plan maintained for the purpose of providing
deferred compensation for Davis for purposes of Title I of the Employee
Retirement Income Security Act of 1974.
4. It is the intention of the Bank to make contributions to the Fixed
Trust to provide itself with a source of funds and resources to assist it in
the meeting of its liabilities under the Agreement.
N O W , T H E R E F O R E ,
The parties do hereby establish the Fixed Trust and agree that the
Fixed Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment Of Fixed Trust.
(a) The Bank hereby deposits with the Trustee, in trust, $200,000,
which shall become the principal of the Fixed Trust to be held,
administered and disposed of by the Trustee as provided in this
Fixed Trust Agreement.
(b) The Fixed Trust hereby established shall be irrevocable.
(c) The Fixed Trust is intended to be a grantor trust, of which the
Bank is the grantor, within the meaning of subpart E, part 1,
subchapter J, chapter 1, subtitle A of the Internal Revenue Code
of 1986, as amended, and shall be construed accordingly.
(d) The principal of the Fixed Trust, and any earnings thereon shall
be held separate and apart from other funds of the Bank and
shall be used exclusively for the uses and purposes of the
Agreement and general creditors, as herein set forth. Davis and
his beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Fixed Trust.
Any rights created under the Agreement and this Fixed Trust
Agreement shall be mere unsecured contractual rights of Davis
and his beneficiaries against the Bank. Any assets held by the
Fixed Trust will be subject to the claims of Bank's general
creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein.
(e) The Bank, in its sole discretion, may at any time, or from time
to time, make additional deposits of cash or other property in
trust with the Trustee to augment the principal to be held,
administered and disposed of by the Trustee as provided in this
Fixed Trust Agreement. Neither the Trustee nor Davis nor any
Davis beneficiary shall have any right to compel such additional
deposits.
Section 2. Payments to Davis and His Beneficiaries.
(a) The Bank shall deliver to the Trustee instructions (the "Payment
Instructions") that indicate the amounts payable to Davis and
his beneficiaries under and in respect of the Agreement, or that
provide a formula or other instructions acceptable to the
Trustee for determining the amounts so payable, the form in
which such amount is to be paid (as provided for or available
under the Agreement), and the time of commencement for payment
of such amounts. Except as otherwise provided herein, the
Trustee shall make payments to Davis and his beneficiaries in
accordance with such Payment Instructions. The Trustee shall
make provision for the reporting and withholding of any federal,
state or local taxes that may be required to be withheld with
respect to the payment of benefits pursuant to the terms of the
Agreement and shall pay amounts withheld to the appropriate
taxing authorities or determine that such amounts have been
reported, withheld and paid by the Bank.
(b) The entitlement of Davis or his beneficiaries to benefits under
the Agreement shall be determined by the Bank or such party as
it shall designate under the Agreement, and any claim for such
benefits shall be considered and reviewed under the procedures
set out in the Agreement.
(c) The Bank may make payment of benefits directly to Davis and his
beneficiaries as they become due under the terms of the
Agreement. The Bank shall notify the Trustee of its decision to
make payment of benefits directly prior to the time amounts are
payable to Davis or such beneficiaries. In addition, if the
principal of the Fixed Trust, and any earnings thereon, are not
sufficient to make payments of benefits in accordance with the
terms of the Agreement, the Bank shall make the balance of each
such payment as it falls due. The Trustee shall notify the Bank
where principal and earnings are not sufficient.
Section 3. Trustee Responsibility Regarding Payments When The Bank Is
Insolvent.
(a) The Trustee shall cease payment of benefits to Davis and his
beneficiaries if the Bank is Insolvent. The Bank shall be
considered "Insolvent" for purposes of this Fixed Trust
Agreement if: (i) the Bank is unable to pay its debts as they
become due; (ii) the Bank is subject to a pending proceeding as
a debtor under the United States Bankruptcy Code; or (iii) the
Bank is determined to be insolvent by the federal and/or state
regulatory agencies having authority over the Bank and its
operations.
(b) At all times during the continuance of this Fixed Trust, as
provided in Section 1(d) hereof, the principal and income of the
Fixed Trust shall be subject to claims of general creditors of
the Bank under federal and state law as set forth below.
(i) The Board of Directors and the Chief Executive Officer of
the Bank shall have the duty to inform the Trustee in
writing of Bank's Insolvency. If a person claiming to be
a creditor of the Bank alleges in writing to the Trustee
that the Bank has become Insolvent, the Trustee shall
determine whether the Bank is Insolvent and, pending such
determination, the Trustee shall discontinue payment of
benefits to Davis or his beneficiaries.
(ii) Unless the Trustee has actual knowledge of Bank's
Insolvency, or has received notice from the Bank or a
person claiming to be a creditor alleging that the Bank is
Insolvent, the Trustee shall have no duty to inquire
whether the Bank is Insolvent. The Trustee may in all
events rely on such evidence concerning Bank's solvency as
may be furnished to the Trustee and that provides the
Trustee with a reasonable basis for making a determination
concerning Bank's solvency.
(iii) If at any time the Trustee has determined that the Bank
is Insolvent, the Trustee shall discontinue payments to
Davis or his beneficiaries and shall hold the assets of
the Fixed Trust for the benefit of Bank's general
creditors. Nothing in this Fixed Trust Agreement shall in
any way diminish any rights of Davis or his beneficiaries
to pursue their rights as general creditors of the Bank
with respect to benefits due under the Agreement or
otherwise.
(iv) The Trustee shall resume the payment of benefits to Davis
or his beneficiaries in accordance with Section 2 of this
Fixed Trust Agreement only after the Trustee has
determined that the Bank is not Insolvent (or is no longer
Insolvent).
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Fixed Trust
pursuant to Section 3(b) hereof and subsequently resumes such
payments, the first payment following such discontinuance shall
include the aggregate amount of all payments due to Davis and
his beneficiaries under the terms of the Agreement for the
period of such discontinuance, less the aggregate amount of any
payments made to Davis or his beneficiaries by the Bank in lieu
of the payments provided for hereunder during any such period of
discontinuance.
Section 4. Payments to the Bank. Except as provided in Section 3
hereof or on account of the Bank's direct payments pursuant to Section 2(c),
the Bank shall have no right or power to direct the Trustee to return to the
Bank or to divert to others any of the Fixed Trust assets before all payment
of benefits have been made to Davis and his beneficiaries pursuant to the
terms of the Agreement.
Section 5. Investment Authority. The Trustee shall invest the entire
amount deposited with it pursuant to Section 1(a) initially in shares of
Merchants Bancshares, Inc. stock. Following such initial investment, the
Trustee may invest in securities (including stock or rights to acquire
stock) or obligations issued by the Bank or its affiliates and may dispose
of the amount of the initial investment in Merchants Bancshares, Inc. stock
and take such other actions with respect to the Fixed Trust assets as
directed by the Bank, or, in the absence of such direction, as the Trustee,
in its sole discretion, determines to be appropriate. All rights associated
with assets of the Fixed Trust shall be exercised by the Trustee or the
person designated by the Trustee, and shall in no event be exercisable by,
or rest with, Davis, except that voting rights with respect to Fixed Trust
assets will be exercised by the Bank. The Bank shall have the right at any
time, and from time to time in its sole discretion, to substitute assets of
equal fair market value for any asset held by the Fixed Trust. This right
is exercisable by the Bank in a nonfiduciary capacity without the approval
or consent of any person in a fiduciary capacity.
Section 6. Disposition of Income. During the term of this Fixed
Trust, all income received by the Fixed Trust, net of expenses and taxes,
shall be accumulated and reinvested.
Section 7. Accounting by the Trustee. The Trustee shall keep
accurate and detailed records of all investments, receipts, disbursements,
and all other transactions required to be made, including such specific
records as shall be agreed upon in writing between the Bank and the Trustee.
Within sixty (60) days following the close of each calendar year and within
sixty (60) days after the removal or resignation of the Trustee, the Trustee
shall deliver to the Bank a written account of its administration of the
Fixed Trust during such year or during the period from the close of the last
preceding year to the date of such removal or resignation, setting forth all
investments, receipts, disbursements and other transactions effected by it,
including a description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales (accrued interest
paid or receivable being shown separately), and showing all cash, securities
and other property held in the Fixed Trust at the end of such year or as of
the date of such removal or resignation, as the case may be.
Section 8. Responsibility of the Trustee.
(a) The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent
person acting in like capacity and familiar with such matters
would use in the conduct of an enterprise of a like character
and with like aims, provided, however, that the Trustee shall
incur no liability to any person for any action taken pursuant
to a direction, request or approval given by the Bank which is
contemplated by, and in conformity with, the terms of the Plan
or this Fixed Trust and is given in writing by the Bank. In the
event of a dispute between the Bank and a party, the Trustee may
apply to a court of competent jurisdiction to resolve the
dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Fixed Trust, the Bank agrees to indemnify
the Trustee against Trustee's costs, expenses and liabilities
(including, without limitation, attorneys' fees and expenses)
relating thereto and to be primarily liable for such payments.
If the Bank does not pay such costs, expenses and liabilities in
a reasonably timely manner, the Trustee may obtain payment from
the Fixed Trust.
(c) The Trustee may consult with legal counsel (who may also be
counsel for the Bank generally) with respect to any of its
duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist
it in performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred
on Trustees by applicable law, unless expressly provided
otherwise herein, provided, however, that if an insurance policy
is held as an asset of the Fixed Trust, the Trustee shall have
no power to name a beneficiary of the policy other than the
Fixed Trust, to assign the policy (as distinct from conversion
of the policy to a different form) other than to a successor
Trustee, or to loan to any person the proceeds of any borrowing
against such policy.
(f) However, notwithstanding the provisions of Section 8(e) above,
the Trustee may loan to the Bank the proceeds of any borrowing
against an insurance policy held as an asset of the Fixed Trust.
(g) Notwithstanding any powers granted to the Trustee pursuant to
this Fixed Trust Agreement or to applicable law, the Trustee
shall not have any power that could give this Fixed Trust the
objective of carrying on a business and dividing the gains
therefrom, within the meaning of section 301.7701-2 of the
Procedure and Administrative Regulations promulgated pursuant to
the Internal Revenue Code.
Section 9. Compensation and Expenses of the Trustee. The Bank shall
pay all administrative and Trustee's fees and expenses. If not so paid, the
fees and expenses shall be paid from the Fixed Trust.
Section 10. Resignation and Removal of the Trustee.
(a) The Trustee may resign at any time by written notice to the Bank,
which shall be effective thirty (30) days after receipt of such
notice unless the Bank and the Trustee agree otherwise.
(b) The Trustee may be removed by the Bank on thirty (30) days'
notice or upon shorter notice accepted by the Trustee.
(c) If the Trustee resigns or is removed within five (5) years of a
Change of Control, as defined in Section 13(d), the Trustee
shall select a successor trustee in accordance with the
provisions of Section 11(b) hereof prior to the effective date
of Trustee's resignation or removal.
(d) Upon resignation or removal of the Trustee and appointment of a
successor trustee, all assets shall subsequently be transferred
to the successor trustee. The transfer shall be completed
within thirty (30) days after receipt of notice of resignation,
removal or transfer, unless the Bank extends the time limit.
(e) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the
effective date of resignation or removal under Section 10(a) or
10(b). If no such appointment has been made, the Trustee may
apply to a court of competent jurisdiction for appointment of a
successor or for instructions. All expenses of the Trustee in
connection with the proceeding shall be allowed as
administrative expenses of the Fixed Trust.
Section 11. Appointment of Successor.
(a) Except as provided in Section 11(b), if the Trustee resigns or is
removed in accordance with Section 10(a) or 10(b) hereof, the
Bank may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee
powers under state law, as a successor to replace the Trustee
upon resignation or removal. The appointment shall be effective
when accepted in writing by the new trustee, who shall have all
of the rights and powers of the former Trustee, including
ownership rights in the Fixed Trust assets. The former Trustee
shall execute any instrument necessary or reasonably requested
by the Bank or the successor trustee to evidence the transfer.
(b) If the Trustee resigns or is removed pursuant to the provisions
of Section 10(c) hereof and is to select a successor trustee,
the Trustee may appoint any third party such as a bank trust
department or other party that may be granted corporate trustee
powers under state law. The appointment of a successor trustee
shall be effective when accepted in writing by the new trustee.
The new trustee shall have all the rights and powers of the
former Trustee, including ownership rights in Fixed Trust
assets. The former Trustee shall execute any instrument
necessary or reasonably requested by the successor trustee to
evidence the transfer.
(c) The successor trustee need not examine the records and acts of
any prior Trustee and may retain or dispose of existing Fixed
Trust assets, subject to Sections 7 and 8 hereof. The successor
trustee shall not be responsible for and the Bank shall
indemnify and defend the successor trustee from any claim or
liability resulting from any action or inaction of any prior
trustee or from any other past event, or any condition existing
at the time it becomes successor trustee.
Section 12. Amendment or Termination.
(a) Notwithstanding Section 1(b) hereof, the Trustee and the Bank,
acting jointly or solely, shall have the power to amend the
Fixed Trust in any manner required for the sole purpose of
insuring that the Fixed Trust qualifies and continues to qualify
as a "rabbi trust" for purposes of Revenue Procedure 92-64, any
successor provisions thereto or any other similar or successor
provisions of the Internal Revenue Code of 1986, as amended.
(b) The Fixed Trust shall not terminate until the date on which Davis
and his beneficiaries are no longer entitled to payments
pursuant to the terms of the Agreement. Upon termination of the
Fixed Trust any assets remaining in the Fixed Trust shall be
returned to the Bank.
Section 13. Miscellaneous.
(a) Any provision of this Fixed Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibition,
without invalidating the remaining provisions hereof.
(b) Benefits payable to Davis and his beneficiaries under this Fixed
Trust Agreement may not be anticipated, assigned (either at law
or in equity), alienated, pledged, encumbered or subjected to
attachment, garnishment, levy, execution or other legal or
equitable process.
(c) This Fixed Trust Agreement shall be governed by and construed in
accordance with the laws of Vermont.
(d) For purposes of this Fixed Trust, Change of Control shall have
the meaning specified in the Agreement.
Section 14. Effective Date. The effective date of this Fixed Trust
Agreement shall be December 20, 1995.
THE MERCHANTS BANK THE MERCHANTS TRUST COMPANY
By: /s/ Joseph L. Boutin By: /s/ Rebecca P. Arnold
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Duly Authorized Duly Authorized