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Exhibit 2
FORM OF SEVERANCE AGREEMENT
This AGREEMENT dated as of [ ], is made by and between
Litchfield Financial Corporation, a Massachusetts corporation ("Litchfield") and
[ ](the "Executive").
WHEREAS, Litchfield considers it essential to the best interests of
Litchfield and its current stockholders (hereinafter known as "Shareholders",
which term shall include Affiliates of the current stockholders to foster the
continuous employment of key management personnel; and
WHEREAS, Litchfield recognizes that, as is the case with many
corporations, the possibility of undertaking a Transaction (as defined in the
last Section hereof) with respect to Litchfield exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of Litchfield and the Shareholders; and
WHEREAS, Litchfield has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of Litchfield's management, including the Executive, to their assigned
duties with Litchfield, without distraction in the face of circumstances arising
from the possibility of a Transaction;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and for other valuable consideration, Litchfield and
the Executive hereby agree as follows:
1. DEFINED TERMS. The definitions of capitalized terms used in this
Agreement are provided in the last Section hereof.
2. TERM OF AGREEMENT. This Agreement shall commence on the date hereof
and shall continue in effect through December 31, 1999, provided that commencing
on January 1, 2000, and each January 1 thereafter, the term of this Agreement
shall automatically be extended for one additional year unless, not later than
October 31 of the previous year, either Litchfield or the Executive shall have
given notice to the other not to extend this Agreement. Notwithstanding the
foregoing, if a Transaction shall have occurred during the term of this
Agreement, this Agreement shall continue in effect for a period of one (1) year
beyond the date on which the closing for such Transaction occurred, provided,
however, that if a notice not to extend this Agreement was given before closing
of the Transaction, this Agreement shall not continue unless the Executive
consents in writing.
3. LITCHFIELD'S COVENANTS SUMMARIZED. In order to induce the Executive
to remain in the employ of Litchfield and in consideration of the Executive's
covenants set forth in Sections 4 hereof, Litchfield agrees, under the
conditions described herein, to pay the Executive the Severance Payments
described in Section 6 hereof and the other payments and benefits described in
Section 5 hereof in the event (i) that during the term of this Agreement
following a Transaction either (x) the employment of the Executive is terminated
by Litchfield for reasons other than Cause, death or disability, or (y) the
Executive terminates his employment by Litchfield for Good Reason, and (ii) the
Executive has fulfilled his covenants set forth in Section 4. No amount or
benefit shall be payable under this Agreement unless there shall have been a
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termination of the Executive's employment by Litchfield for reasons other than
Cause or the death or disability of the Executive or by the Executive for Good
Reason within one year following a Transaction. This Agreement shall not be
construed as creating an express or implied contract of employment, and except
as otherwise agreed in writing between the Executive and Litchfield, the
Executive shall not have any right to be retained in the employ of Litchfield.
No benefits shall be payable hereunder in the event of termination of
Executive's employment prior to a Potential Transaction.
4. EXECUTIVE'S COVENANTS. The Executive agrees that, subject to the
terms and conditions of this Agreement, in the event of a Potential Transaction
during the term of this Agreement, the Executive will in good faith use all
reasonable efforts, consistent with his duties and authority as an employee of
Litchfield to consummate a Transaction which has been approved by the Board of
Directors of Litchfield. Notwithstanding the foregoing, the Executive shall in
all events be entitled to terminate his employment with or without Good Reason,
and shall have no liability to Litchfield as a result of such termination.
5. COMPENSATION OTHER THAN SEVERANCE PAYMENTS.
5.1 PAYMENT OF SALARY UPON TERMINATION. If the Executive's
employment shall be terminated for any reason following a Transaction and during
the term of this Agreement, Litchfield shall pay the Executive's full salary to
the Executive through the Date of Termination at the rate in effect at the time
the Notice of Termination is given.
5.2 PAYMENT OF BENEFITS UPON TERMINATION. If the Executive's
employment shall be terminated for any reason following a Transaction during the
term of this Agreement, Litchfield shall pay or make available to the Executive
any rights, compensation, and benefits which are vested in the Executive or
which the Executive has or is otherwise entitled to receive under any plan or
program of Litchfield, as such rights, compensation or benefits become due. Such
rights, compensation and benefits shall be determined under, and paid or made
available in accordance with, Litchfield's applicable insurance and other
compensation or benefit plans, programs and arrangements, and shall include all
amounts by which the Executive's contractual entitlement to salary and bonus in
any prior years exceeded the Executive's actual salary and bonus paid in such
years.
6. SEVERANCE PAYMENTS.
6.1 DETERMINATION OF SEVERANCE PAYMENTS. In addition to the payments
and benefits under Section 5, Litchfield shall pay the Executive the payments
described in this Section 6.1 (the "Severance Payments") upon the termination of
the Executive's employment, during the term of this Agreement, following a
Transaction in the event (i) the employment of the Executive is terminated by
Litchfield for reasons other than Cause, death or disability or the Executive
terminates his employment by Litchfield for Good Reason, and (ii) the Executive
has fulfilled his covenants set forth in Section 4. In lieu of any further
salary payments to the Executive for periods subsequent to the Date of
Termination and in lieu of any severance benefits otherwise payable to the
Executive under any then existing broad-based employee severance plan,
Litchfield shall pay to the Executive a lump-sum severance payment, in cash,
equal to the higher of (i) the Executive's total salary and bonus for the most
recently completed
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fiscal year, and (ii) the Executive's total annualized salary and bonus, based
on the partial fiscal year in which the Date of Termination occurs. In addition
to such lump-sum severance payment, the Executive shall (i) be entitled to
participate in the Company's medical insurance plan for a period of twelve
months following the Termination Date at the Company's expense, after which the
Executive will have COBRA rights as provided by law and (ii) for a period of
twelve months, be permitted to participate in any of the Company's other benefit
plans in which the Executive is participating as of the Termination Date
pursuant to Company policy.
6.2 GROSS-UP PAYMENT. In the event that the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any penalty or excise tax subsequently imposed by law applies to any payment or
benefit received or to be received by the Executive in connection with a
Transaction or the termination of the Executive's employment (whether pursuant
to the terms of this Agreement or any other plan, arrangement, or agreement with
Litchfield, any Person whose actions result in the Transaction or any Person
affiliated with Litchfield or such Person) (all such payments and benefits,
including the Severance Payments, being hereinafter called "Total Payments"), an
additional amount shall be paid by Litchfield to the Executive such that the
aggregate after-tax amount that he shall receive with respect to the Total
Payments, including this Section, shall have a present value equal to the
aggregate after-tax amount that he would have received and retained had such
excise or penalty tax (and any interest or penalties in respect thereof) not
applied to him. For this purpose, the Executive shall be assumed to be subject
to tax in each year relevant to the computation at the then maximum applicable
combined Federal and Massachusetts income tax rate, and the present value of
payments to him shall be made consistent with the principles of Section 280G of
the Code.
6.3 TIMING OF PAYMENTS. The payments provided for in Section 6.1
hereof shall be made not later than the tenth business day following the Date of
Termination. The payment provided for by Section 6.2 shall be paid not later
than the tenth business day following the date the gross-up amount is computed,
but in no event later than the date any excise tax is due and payable.
7. TERMINATION PROCEDURES.
7.1 NOTICE OF TERMINATION. After a Transaction and during the term
of this Agreement, any purported termination of the Executive's employment
(other than by reason of death) shall be communicated by written Notice of
Termination from one party hereto to the other party hereto in accordance will
Section 10 hereof. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances, if any, claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
7.2 DATE OF TERMINATION. "Date of Termination," with respect to any
purported termination of the Executive's employment after a Transaction and
during the term of this Agreement, shall mean the date specified in the Notice
of Termination (which, in the case of a termination by Litchfield, shall not be
less than thirty (30) days (except in the case of a termination for Cause) and,
in the case of a termination by the Executive, shall not be less than
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fifteen (15) days or more than sixty (60) days, respectively, from the date such
Notice of Termination is given).
8. NO MITIGATION. If the Executive's employment by Litchfield is
terminated during the term of this Agreement, the Executive is not required to
seek other employment or to attempt in any way to reduce any amounts payable to
the Executive by Litchfield pursuant to Section 6 hereof. Further, the amount of
any payment or benefit provided for in Section 6 hereof shall not be reduced by
any compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to Litchfield, or otherwise.
9. SUCCESSORS; BINDING AGREEMENT.
9.1 SUCCESSORS OF LITCHFIELD. The provisions of this Agreement shall
be binding upon, and shall inure to the benefit of the successors and assigns of
Litchfield.
9.2 SUCCESSORS OF THE EXECUTIVE. This Agreement shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. If the Executive shall die while any amount would still
be payable to the Executive hereunder (other than amounts which, by their terms,
terminate upon the death of the Executive) if the Executive had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the executors, personal
representatives, or administrators of the Executive's estate.
10. NOTICES. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
actual receipt:
To Litchfield: To the Executive:
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Litchfield Financial Corporation ________________
430 Main Street ________________
Williamstown, MA 01267 ________________
Attn: _______________
11. MISCELLANEOUS. No provision of this Agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing and signed by the Executive and by Litchfield. Except as expressly
provided herein, no waiver by either party hereto at any time of any breach by
the 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. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this
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Agreement. The validity, interpretation, construction, and performance of this
Agreement shall be governed by the laws of the Commonwealth of Massachusetts,
and this Agreement shall be an instrument under seal. All references to sections
of the Code shall be deemed also to refer to any successor provisions to such
sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state, or local law and any
additional withholding to which the Executive has agreed. The obligations of
Litchfield and the Executive under Sections 6, 7, 8, and 14 hereof shall survive
the expiration of the term of this Agreement.
12. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
14. SETTLEMENT OF DISPUTES; ARBITRATION. All claims by the Executive
for benefits under this Agreement shall be in writing. Any denial by the
Litchfield of a claim for benefits under this Agreement shall be delivered to
the Executive in writing and shall set forth the specific reasons for the denial
and the specific provisions of this Agreement relied upon. Any further dispute
or controversy arising under or in connection with this Agreement shall be
settled exclusively by arbitration in Boston, Massachusetts, in accordance with
the rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction. The
Executive shall, however, be entitled to seek specific performance of the
Executive's right to be paid until the Date of Termination during the pendency
of any dispute or controversy arising under or in connection with this
Agreement.
15. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(A) "Affiliate" with respect to any Person shall mean one who
controls, is controlled by, or is under common control with,
such Person.
(B) "Cause" for termination by Litchfield of the Executive's
employment, after any Transaction, shall mean (i) the
willful and continued failure by the Executive to
substantially perform the Executive's duties with Litchfield
(other than any such failure resulting from the Executive's
incapacity due to physical or mental illness) after a
written demand for substantial performance is delivered to
the Executive by Litchfield, which demand identifies with
reasonable specificity the manner in which Litchfield
believes that the Executive has not substantially performed
the Executive's duties, or (ii) the willful engaging by the
Executive in misconduct which is materially and adversely
injurious to Litchfield or its parent company or any
subsidiaries or affiliates thereof, monetarily or otherwise,
or (iii) the conviction of the Executive of, or the plea by
the Executive of guilty or NOLO CONTENDERE to, a felony;
provided, however,
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that "Cause" shall not exist under clauses (i) and (ii)
unless Litchfield has complied with the following terms and
conditions:
(A) the Executive is provided with written notice of the
proposed termination;
(B) the Executive is given the opportunity to appear
with his counsel, and to present evidence and a
defense to the alleged acts or omissions
constituting "Cause", at a duly called and held
meeting of the Board of Directors of Litchfield, the
purpose of which shall be to determine whether
"Cause" exists under clause (i) or (ii) and the
Executive should be terminated; and
(C) if the Executive avails himself of the opportunity
set forth in clause (B), following such meeting not
less than two-thirds of the members of the Board of
Directors determine that "Cause" exists under clause
(i) or (ii) and the Executive should be terminated.
For purposes of clauses (i) and (ii) of this
definition, no act, or failure to act, on the
Executive's part shall be deemed "willful" unless
done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the
Executive's act, or failure to act, was in the best
interest of Litchfield.
(C) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(D) "Date of Termination" shall have the meaning stated in
Section 7.2 hereof.
(E) "Litchfield" shall mean Litchfield Financial Corporation and
any successor to its business and/or assets. Payments or
benefits from Litchfield shall include those from any of its
stockholders.
(F) "Good Reason" shall mean termination by the Executive of his
employment following a Transaction for any one or more of
the following reasons: (i) the responsibility and authority
of the Executive shall be materially altered following the
Transaction; (ii) the compensation of the Executive (taking
into account base salary, bonus and benefits) shall be
diminished following the Transaction; or (iii) following a
Transaction Litchfield shall require the Executive to
relocate to a location more than 25 miles distant.
(G) "Notice of Termination" shall have the meaning stated in
Section 7.1 hereof.
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(H) "Person" shall mean an individual, partnership, corporation,
trust or other business entity; however, a Person shall not
include current stockholders and/or directors of Litchfield
or any company owned, directly or indirectly, by any
shareholder.
(I) "Potential Transaction" shall be deemed to have occurred if
the conditions set forth in any one of the following
paragraphs shall have been satisfied:
(i) Litchfield enters into an agreement, the consummation
of which would result in the occurrence of a
Transaction; or
(ii) Litchfield or any Person (with the approval of
Litchfield) publicly announces an intention to take or
to consider taking actions which, if consummated, would
constitute a Transaction.
(J) "Severance Payments" shall mean those payments described in
Section 6.1 hereof.
(K) "Total Payments" shall mean those payments described in
Section 6.2 hereof.
(L) A "Transaction" shall be deemed to have occurred upon (i) a
sale, conveyance, lease or other transfer of all or
substantially all of the assets of Litchfield, (ii) a
consolidation or merger of Litchfield with or into another
corporation in which Litchfield is not the surviving or
resulting corporation or after which more than 50% of the
issued and outstanding shares of voting capital stock of the
surviving or resulting corporation is thereafter owned of
record or beneficially by any single Person or Group of
affiliated Persons, (iii) a sale or transfer in a single
transaction of shares of the voting capital stock of
Litchfield, which results in more than 50% of the issued and
outstanding shares of the voting capital stock of Litchfield
being thereafter owned of record or beneficially by any
single Person or Group of affiliated Persons, (iv) any other
transaction or series of transactions involving the
issuance, sale or transfer of shares of the capital stock of
Litchfield, which results in more than fifty percent (50%)
of the issued and outstanding shares of the voting capital
stock of Litchfield being thereafter owned of record or
beneficially by any single Person or Group of affiliated
Persons, or (v) a majority of the Board of Directors of
Litchfield ceasing to consist of individuals (A) who are
currently members of the Board or (B) for whose nomination
for such membership a majority of such current members voted
in favor.
(M) "Group of affiliated Persons" shall mean a group of two (2)
or more Persons (i) in which one (1) or more of such Persons
controls, is controlled by, or is under common control with,
another of such Persons, or (ii)
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which is associated by agreement for the purpose of
controlling Litchfield or any successor corporation thereof.
Executed as of the date first above written.
LITCHFIELD FINANCIAL CORPORATION
By:
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Name:
Title:
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(Executive)
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