AGREEMENT
AGREEMENT, dated this 21st day of December, 1998, among First Defiance
Financial Corp. ("First Defiance") an Ohio-chartered corporation and savings and
loan holding company, First Federal Savings and Loan ("First Federal"), a
federally chartered savings bank, both of which are located in Defiance, Ohio,
and William J. Small (the "Executive"). First Defiance and First Federal are
referred to jointly herein as the "Companies."
W I T N E S S E T H:
WHEREAS, the Executive is presently Sr. Vice President of the Companies
and President and Chief Operating Officer of First Federal;
WHEREAS, the Companies desire to continue to retain the Executive's
services and to appoint the executive to be the Chairman of the Board and Chief
Executive Officer of each of the Companies and the President of First Defiance;
and
WHEREAS, the Companies desire to retain the Executive's services as the
Chairman of the Board and Chief Executive of each of the Companies and the
President of First Defiance;
WHEREAS, in order to induce the Executive to remain in the employ of
the Companies and in consideration of the Executive's agreeing to remain in the
employ of the Companies, the parties desire to specify the terms of such
employment;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Definitions. The following words and terms shall have the meanings
set forth below for the purposes of this Agreement:
(a) Annual Compensation. The Executive's "Annual Compensation" for
purposes of this Agreement shall be deemed to mean the average annual
Compensation paid to the Executive by the Companies during the five most recent
taxable years ending prior to the date of termination.
(b) Base Salary. "Base Salary" shall have the meaning set forth in
Section 3(a) hereof.
(c) Bonus. "Bonus" shall have the meaning set forth in Section 3(a)
hereof.
(d) Cause. "Cause" shall mean personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order or material breach of any provision of this Agreement.
For purposes of this paragraph, no act or failure to act on the Executive's part
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shall be considered "willful" unless 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 Companies.
(e) Change in Control of First Defiance. "Change in Control of First
Defiance shall mean a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended ("Exchange Act") or any
successor thereto, whether or not First Defiance is registered under Exchange
Act; provided that, without limitation, such a change in control shall be deemed
to have occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner"(as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
First Defiance representing 25% or more of the combined voting power of the then
outstanding securities of First Defiance; or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of First Defiance cease for any reason to constitute at
least a majority thereof unless the election, or the nomination for election by
stockholders, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period.
(f) Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(g) Compensation. "Compensation" shall have the meaning set forth in
Section 3(a) hereof.
(h) Date of Termination. "Date of Termination" shall mean (i) if the
Executive's employment is terminated by the Companies for any reason, the date
on which a Notice of Termination is given or such later date as may be specified
by the Companies in such Notice, or (ii) if the Executive's employment is
terminated by the Executive, the date of termination shall be a date not less
than 30 days from the date the Notice of Termination is delivered by the
Executive to the Companies, unless the Companies, in their sole discretion,
designate an earlier date.
(i) Disability. "Disability" shall mean any physical or mental
impairment which qualifies the Executive for disability benefits under the
applicable long-term disability plan maintained by the Companies or any
subsidiary or, if no such plan applies, which would qualify the Executive for
disability benefits under the Federal Social Security System.
(j) Good Reason. "Good Reason" shall mean:
(i) without the Executive's express written consent:
(a) the assignment by the Companies to the Executive of any
duties which, in the Executive's good faith
determination, are materially inconsistent with the
Executive's positions, duties, responsibilities and
status with the Companies
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immediately prior to such assignment, or in the event of
a Change in Control, immediately prior to such a Change
in Control of First Defiance;
(b) in the Executive's good faith determination, a material
change in the Executive's reporting responsibilities,
titles or offices as an employee and as in effect
immediately prior to such change or, in the event of a
Change in Control, immediately prior to such a Change in
Control of First Defiance; or
(c) any removal of the Executive from or any failure to
re-elect the Executive to the offices of Chairman of the
Board and Chief Executive Officer of each of the
Companies and President of First Defiance, except in
connection with cause, Disability, Retirement, or the
Executives death;
(ii) Without the Executive's express written consent, a reduction
by the Companies in the Executive's Base Salary as the same
may be increased from time to time or fringe benefits;
(iii) The principal executive office of the Companies is relocated
outside of the Defiance, Ohio area or, without the
Executive's express written consent, the Companies require
the Executive to be based anywhere other than an area in
which the Companies' principal executive office is located,
except for required travel on business of the Companies to
an extent substantially consistent with the Executive's
present business travel obligations;
(iv) Without the Executive's express written consent, the
Companies fail to provide the Executive with the same fringe
benefits that were provided to the Executive immediately
prior to a Change in Control of First Defiance, or with a
package of fringe benefits (including paid vacations) that,
though one or more of such benefits may vary from those in
effect immediately prior to such Change in Control, is
substantially comparable in all material respects to such
fringe benefits taken as a whole;
(v) Any purported termination of the Executive's employment for
Cause, Disability or Retirement which is not effected
pursuant to a Notice of Termination satisfying the
requirements of paragraph (1) below; or
(vi) The failure by First Defiance to obtain the assumption of
and agreement to perform this Agreement by any successor as
contemplated in Section 9 hereof.
(k) IRS. IRS shall mean the Internal Revenue Service.
(l) Notice of Termination. "Notice of Termination" shall mean a dated
notice which (i) indicates the specific termination provision in this Agreement
relied upon, (ii) sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination
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of Executive's employment under the provision so indicated, (iii) specifies a
Date of Termination, and (iv) is given in the manner specified in Section 10
hereof.
(m) Retirement. "Retirement" shall mean voluntary termination by the
Employee in accordance with the Companies' retirement policies, including early
retirement, generally applicable to their salaried employees.
2. Term of Employment.
(a) The Companies hereby employ the Executive as Chairman of the Board
and Chief Executive Officer of each of the Companies and as President of First
Defiance and Executive hereby accepts said employment and agrees to render such
services to the Companies on the terms and conditions set forth in this
Agreement. The term of employment under this Agreement shall be a three-year
term, commencing on January 1, 1999. However, at a meeting of the Companies'
Board of Directors no more than 30 days prior to the first anniversary of the
date of this Agreement and each anniversary thereafter, the Boards of Directors
of the Companies shall consider and review (with appropriate corporate
documentation thereof, and after taking into account all relevant factors
including the Executive's performance hereunder and the merits of a three-year
agreement) a one-year extension of the term under this Agreement, and the term
shall continue to extend, unless either the Board of Directors does not approve
such extension and provides written notice to the Executive of such event or the
Executive gives written notice to the Companies of the Executive's election not
to extend the term, in each case, with such written notice to be given not less
than thirty (30) days prior to any such anniversary date. References herein to
the term of this Agreement shall refer both to the initial term and successive
terms.
(b) During the term of this Agreement, the Executive shall perform such
executive services for the Companies as may be consistent with his titles and
from time to time assigned to him by the Companies' Boards of Directors;
provided, however, that the Executive shall not be precluded from (i) vacations
and other leave time in accordance with section 3(c) below, (ii) reasonable
participation in community, civic, charitable, or similar organizations, (iii)
reasonable participation in industry-related activities, or (iv) pursuing
personal investments which do not interfere or conflict with the performance of
Executive's duties to the Companies.
3. Compensation and Benefits.
(a) The Companies shall compensate and pay Executive for his services
during the term of this Agreement at a minimum base annual salary of $180,000
("Base Salary"), which may be increased from time to time in such amounts as may
be determined by the Companies' Boards of Directors and may not be decreased
without the Executive's express written consent. In addition to his Base Salary,
the Executive shall be entitled to receive during the term of this Agreement a
bonus of up to 40% of the Executive's Base Salary based on targets set forth
from time to time in the Companies' Incentive bonus program (the "Bonus"). The
Executive's Base Salary and Bonus are referred to herein as his "Compensation."
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(b) During the term of the Agreement, Executive shall be entitled to
participate in and receive the benefits of any pension or other retirement
benefit plan, deferred compensation, profit sharing, stock option, management
recognition, employee stock ownership, or other plans, benefits and privileges
given to employees and executives of the Companies, to the extent commensurate
with his then duties and responsibilities, as fixed by the Board of Directors of
the Companies including but not limited to the following: (i) the Companies
shall pay membership dues for the Executive for membership in the Rotary Club
and the Kettenring Country Club; and (ii) the Companies shall provide the use of
an automobile (the terms and conditions for the Executive's use and possession
of the automobile and the quality of the automobile provided for the Executive's
use shall be consistent with, or not less favorable than, the past practices of
the Companies). The Companies shall not make any changes in such plans, benefits
or privileges which would adversely affect Executive's rights or benefits
thereunder, unless such change occurs pursuant to a program applicable to all
executive officers of the Companies and does not result in a proportionately
greater adverse change in the rights of or benefits to Executive as compared
with any other executive officer of the Companies. Nothing paid to Executive
under any plan or arrangement presently in effect or made available in the
future shall be deemed to be in lieu of the salary payable to Executive pursuant
to Section 3(a) hereof.
(c) During the term of this Agreement, Executive shall be entitled to
paid annual vacation in accordance with the policies as established from time to
time by the Boards of Directors of the Companies, which shall in no event be
less than four weeks per annum. Executive shall not be entitled to receive any
additional compensation from the Companies for failure to take a vacation, nor
shall Executive be able to accumulate unused vacation time from one year to the
next, except to the extent authorized by the Boards of Directors of the
Companies.
4. Expenses. The Companies shall reimburse Executive or otherwise
provide for or pay for all reasonable expenses incurred by Executive in
furtherance or in connection with the business of the Companies, including, but
not by way of limitation, traveling expenses and all reasonable entertainment
expenses (whether incurred at the Executive's residence, while traveling or
otherwise), subject to such reasonable documentation and other limitations as
may be established by the Boards of Directors of the Companies. If such expenses
are paid in the first instance by Executive, the Companies shall reimburse the
Executive therefor.
5. Termination.
(a) The Companies shall have the right, at any time upon prior Notice
of Termination, to terminate the Executive's employment hereunder for any
reason, including without limitation termination for Cause, Disability or
Retirement.
(b) Executive shall have the right, upon prior Notice of Termination,
to terminate his employment hereunder for any reason.
(c) In the event that (i) Executive's employment is terminated by the
Companies for Cause, Disability or Retirement or in the event of the Executive's
death, or (ii) Executive terminates his employment hereunder other than for Good
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Reason, Executive shall have no right pursuant to this Agreement to compensation
or other benefits for any period after the applicable Date of Termination.
(d) In the event that Executive's employment is terminated by the
Companies for other than Cause, Disability, Retirement or the Executive's death
or such employment is terminated by the Executive (i) due to failure by the
Companies to comply with any material provision of this Agreement, which failure
has not been cured within twenty-five (25) days after a notice of non-compliance
has been given by Executive to the Companies, or (ii) for Good Reason, then the
Companies shall, subject to the provisions of Section 6 hereof, if applicable
(1) pay to the Executive, at the option of the Executive, in a
lump sum payment or in thirty-six (36) equal monthly
installments beginning with the first business day of the
month following the Date of Termination, an amount equal to
2.99 times the Annual Compensation.
(2) maintain and provide for a period ending at the earlier of
(i) the expiration of the remaining term of employment
pursuant hereto prior to the Notice of Termination or (ii)
the date of the Executive's full-time employment by another
employer (provided that the Executive is entitled under the
terms of such employment to benefits substantially similar
to those described in this subparagraph (2)), at no cost to
the Executive, the Executive's continued participation in
all group insurance, life insurance, health and accident,
disability and other employee benefit plans, programs and
arrangements in which the Executive was entitled to
participate immediately prior to the Date of Termination
(other than retirement plans or stock compensation plans of
the Companies), provided that in the event that the
Executive's participation in any plan, program or
arrangement as provided in this subparagraph (2) is barred,
or during such period any such plan, program or arrangement
is discontinued or the benefits thereunder are materially
reduced, the Companies shall arrange to provide the
Executive with benefits substantially similar to those which
the Executive was entitled to receive under such plans,
programs and arrangements immediately prior to the Date of
Termination.
6. Limitation of Benefits under Certain Circumstances. If the payments
and benefits pursuant to Section 5 hereof, either alone or together with other
payments and benefits which Executive has the right to receive from the
Companies, would constitute a "parachute payment" under Section 280G of the
Code, the payments and benefits pursuant to Section 5 hereof shall be reduced,
in the manner determined by the Executive, by the amount, if any, which is the
minimum necessary to result in no portion of the payments and benefits under
Section 5 being non-deductible to either of the Companies pursuant to Section
280G of the Code and subject to the excise tax imposed under Section 4999 of the
Code. The determination of any reduction in the payments and benefits to be made
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pursuant to Section 5 shall be based upon the opinion of independent tax counsel
selected by the Companies' independent public accountants and paid by the
Companies. Such counsel shall be reasonably acceptable to the Companies and
Executive; shall promptly prepare the foregoing opinion, but in no event later
than thirty (30) days from the Date of Termination; and may use such actuaries
as such counsel deems necessary or advisable for the purpose. In the event that
the Companies and/or the Executive do not agree with the opinion of such
counsel, (i) the Companies shall pay to the Executive the maximum amount of
payments and benefits pursuant to Section 5, as selected by the Executive, which
such opinion indicates that there is a high probability do not result in any of
such payments and benefits being non-deductible to the Companies and subject to
the imposition of the excise tax imposed under Section 4999 of the Code and (ii)
the Companies may request, and Executive shall have the right to demand that the
Companies request, a ruling from the IRS as to whether the disputed payments and
benefits pursuant to Section 5 hereof have such consequences. Any such request
for a ruling from the IRS shall be promptly prepared and filed by the Companies,
but in no event later than thirty (30) days from the date of the opinion of
counsel referred to above, and shall be subject to the Executive's approval
prior to filing, which shall not be unreasonably withheld. The Companies and
Executive agree to be bound by any ruling received from the IRS and to make
appropriate payments to each other to reflect any such rulings, together with
interest at the applicable federal rate provided for in Section 7872(f)(2) of
the Code. Nothing contained herein shall result in a reduction of any payments
or benefits to which the Executive may be entitled upon termination of
employment under any circumstances other than as specified in this Section 6, or
a reduction in the payments and benefits specified in Section 5 below zero.
7. Mitigation; Exclusivity of Benefits.
(a) The Executive shall not be required to mitigate the amount of any
benefits hereunder by seeking other employment or otherwise, nor shall the
amount of any such benefits be reduced by any compensation earned by the
Executive as a result of employment by another employer after the Date of
Termination or otherwise.
(b) The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to the Executive upon a
termination of employment with the Companies pursuant to employee benefit plans
of the Companies or otherwise.
8. Withholding. All payments required to be made by the Companies
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Companies may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
9.Assignability. The Companies may assign this Agreement and their
rights hereunder in whole, but not in part, to any corporation, bank or other
entity with or into which either of the Companies may hereafter merge or
consolidate or to which either of the Companies may transfer all or
substantially all of their respective assets, if in any such case said
corporation, bank or other entity shall by operation of law or expressly in
writing assume all obligations of the Companies hereunder as fully as if it had
been originally made a party hereto, but may not otherwise assign this Agreement
or its rights hereunder. The Executive may not assign or transfer this Agreement
or any rights or obligations hereunder.
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10. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective address set forth below:
To First Defiance: First Federal Savings and Loan
601 Clinton Street
Defiance, Ohio 43512
To First Federal: First Federal Savings and Loan
601 Clinton Street
Defiance, Ohio 43512
To the Executive: William J. Small
301 W. First Street
Defiance, Ohio 43512
11. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer or officers as may be
specifically designated by the Boards of Directors of the Companies to sign on
their behalf. No waiver by any party hereto at any time of any breach by any
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
12. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the State of Ohio.
13. Nature of Obligations. Nothing contained herein shall create or
require the Companies to create a trust of any kind to fund any benefits which
may be payable hereunder, and to the extent that the Executive acquires a right
to receive benefits from the Companies hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Companies.
14. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
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17. Regulatory Actions. The following provisions shall be applicable to
the parties to the extent that they are required to be included in the
employment agreements between a savings association and its employees pursuant
to Section 563.39 (b) of the Regulations Applicable to All Savings Associations,
12 C.F.R. 563.39(b), or any successor thereto, and shall be controlling in the
event of a conflict with any other provision of this Agreement, including
without limitation Section 5 hereof.
(a) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Companies' affairs pursuant to
notice served under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit
Insurance Act ("FDIA")(12 U.S.C. 1818 (e)(3) and 1818(g)(1)), the Companies'
obligations under this Agreement shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Companies may, in their discretion: (i) pay Executive all or part
of the compensation withheld while its obligations under this Agreement were
suspended, and (ii) reinstate (in whole or in part) any of its obligations which
were suspended.
(b) If Executive is removed from office and/or permanently prohibited
from participating in the conduct of the Companies' affairs by an order issued
under Section 8(e)(4) or Section 8(g)(1) of the FDIA (12 U.S.C. 1818(e)(4) and
(g)(1)), all obligations of the Companies under this Agreement shall terminate
as of the effective date of the order, but vested rights of Executive and the
Companies as of the date of termination shall not be affected.
(c) If the Companies are in default, as defined in Section 3(x)(1) of
the FDIA (12 U.S.C. 1813(x)(1)), all obligations under this Agreement shall
terminate as of the date of default, but vested rights of Executive and the
Companies as of the date of termination shall not be affected.
(d) All obligations under this Agreement shall be terminated pursuant
to 12 C.F.R. 563.39(b)(5) (except to the extent that it is determined that
continuation of the Agreement for the continued operation of the Companies is
necessary): (i) by the Director of the Office of Thrift Supervision ("OTS"), or
his/her designee, at the time the Federal Deposit Insurance Corporation ("FDIC")
or Resolution Trust Corporation enters into an agreement to provide assistance
to or on behalf of First Federal under the authority contained in Section 13 (c)
of the FDIA (12 U.S.C. 1823(c)); or (ii) by the Director of the OTS, or his/her
designee, at the time the Director or his/her designee approves a supervisory
merger to resolve problems related to operation of the Companies or when the
Companies are determined by the Director of the OTS to be in an unsafe or
unsound condition, but vested rights of Executive and the Companies as of the
date of termination shall not be affected.
18. Regulatory Prohibition. Notwithstanding any other provision of this
Agreement to the contrary, any payment made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. Section 1828(K) and any regulations promulgated thereunder.
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IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
Attest: FIRST DEFIANCE FINANCIAL CORP.
By:
- ----------------------------- ----------------------------------
John W. Boesling, Secretary Don C. Van Brackel, Chairman of
the Board of Directors
Attest: FIRST FEDERAL SAVINGS & LOAN
By:
- ----------------------------- ----------------------------------
John W. Boesling, Secretary Don C. Van Brackel, Chairman of
the Board of Directors
Witness:
- ----------------------------- ---------------------------------
William J. Small
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