1
EXHIBIT 10.13
BANK OF TENNESSEE
CHANGE OF CONTROL COMPENSATION AGREEMENT
THIS AGREEMENT, dated as of April 1, 1997, is made by and between
BANCTENN CORP., a one-bank holding company chartered under the laws of the State
of Tennessee (the "Company"), BANK OF TENNESSEE, a Tennessee banking corporation
having its principal place of business at 301 East Center Street, Kingsport,
Tennessee (herein "Bank"), and ROY L. HARMON, JR. (the "Executive").
RECITALS:
A. The Boards of Directors of the Company and Bank have
recommended and approved that the Company and Bank enter into
agreements providing for compensation under certain
circumstances after a "Change of Control" (as defined herein)
with key executives of the Company and Bank.
B. Executive is the President and Chief Operating Officer of Bank
and Vice President of the Company, and, as such, has been
designated by the Boards of Directors as a key employee.
C. Should Company or Bank become subject to any actual or
potential Change of Control (as defined herein), the Boards of
Directors of the Company and Bank believe it is imperative
that the Company and Bank and their respective Boards of
Directors be able to rely upon Executive to continue in his
position and that the Company and Bank be able to receive and
rely upon Executive's advice as to the best interests of the
Company and Bank without concern that the Executive might be
distracted by the personal uncertainties and risks created by
a Change of Control.
D. Should the Company or Bank become subject to any such
Potential Change of Control (as defined herein), in addition
to Executive's regular duties, Executive may be called upon to
assist in the assessment of such circumstances, advise
management and the Boards of Directors as to whether such
proposal would be in the best interests of the Company or Bank
and their respective constituents, and to take such other
actions
2
above and beyond Executive's regular duties as the Boards of
Directors might determine to be appropriate.
NOW, THEREFORE, to assure the Company and Bank of the continued
dedication and service of Executive and the availability of his advice and
counsel notwithstanding the possibility, threat or occurrence of a Potential
Change of Control or a Change of Control of the Company or Bank, and to induce
Executive to remain in the Bank's employ and for other good and valuable
consideration, the Company, Bank and Executive hereby contract and agree as
follows:
1. Definitions. As used herein the following terms shall be
defined as follow:
"Annual Earnings" shall mean the amounts earned by Executive
for personal services rendered to Bank and its affiliates, as reportable on
Treasury Department Form W-2, including overtime, bonuses and commissions but
excluding the following: (i) moving and education expenses, (ii) income earned
under Section 79 of the Code, as amended, and (iii) income imputed to Executive
from personal use of employer-owned automobiles and employer-paid club dues, and
(iv) income attributable to grants of and dividends on shares awarded (whether
as options, restricted stock or any other form) under the Company's 1992
Employee Stock Incentive Plan, the Company's 1996 Employee Stock Purchase Plan,
and any successor to such plans.
"Average Annual Earnings" shall mean the mathematical average
of Executive's Annual Earnings for the five (5) fiscal years preceding a
Qualifying Termination.
"Board" means the Board of Directors of the Company or the
Bank as the case may be.
"Change of Control" means, with respect to the Company or
the Bank, the happening of any of the following:
(i) The death of William B. Greene, Jr.; or
3
(ii) The permanent mental disability of William B. Greene,
Jr. such that it is determined by competent independent medical opinion that he
is incapable of managing his business affairs and exercising the judgment and
discretion reasonably required thereby; or
(iii) If any person or entity, including a "group" as
defined in Section 11(d)(3) of the Securities Exchange Act of 1934, (other than
(x) the Company or a wholly-owned subsidiary thereof, or (y) any employee
benefit plan of the Company or any of its subsidiaries or (z) William B. Greene,
Jr. and his Related Interests) becomes the beneficial owner of securities of the
Company or Bank having more than 50% of the combined voting power of the then
outstanding securities of the Company or Bank that may be cast for the election
of directors of the Company or Bank (other than as a result of an issuance of
securities by the Company or the Bank in the ordinary course of business); or
(iv) If, as the result of, or in connection with, any cash
tender or exchange offer, merger or other business combination, sale of assets
or contested election, or any combination of the foregoing transactions, less
than a majority of the combined voting power of the then outstanding securities
of the Company or Bank (or any successor corporation or entity) entitled to vote
generally in the election of the directors of the Company or Bank after such
transaction are held in the aggregate by the holders of the Company's or Bank's
securities entitled to vote generally in the election of directors of the
Company or Bank immediately prior to such transaction; or
(v) If, during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company or the Bank cease for any reason to constitute at least
a majority thereof, unless the election of each director of the Company or the
Bank first elected during such period was approved by a vote of at least
two-thirds (2/3) of the directors of the Company or the Bank, as the case may
be, then still in office who were directors of the Company or the Bank at the
beginning of any such period; or
4
(vi) If William B. Greene, Jr. and his Related Interests
cease to own at least twenty-five percent (25%) of the outstanding stock of the
Company (except as a result of the issuance of securities issued by the Company
in the ordinary course of business); provided, however, a Change of Control
shall not be deemed to have occurred so long as William B. Greene, Jr. and his
Related Interests remain, in the aggregate, the Company's largest stockholder.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and all regulations adopted pursuant thereto.
"Normal Retirement Date" shall mean the date upon which
Executive reaches sixty-five (65) years of age.
"William B. Greene, Jr. and his Related Interests" shall mean
William B. Greene, Jr., Greene Investment Corp., any trust of which William B.
Greene, Jr. is a trustee, co-trustee, or beneficiary, and any partnership,
corporation, or limited liability company of which William B. Greene, Jr. is an
officer, director, stockholder, member, or equity owner.
"Potential Change of Control" means the happening of any of
the following:
(i) The approval by the stockholders of the Company or
the Bank of an agreement the consummation of which would result in a Change of
Control of the Company or the Bank; or
(ii) The acquisition of beneficial ownership, directly or
indirectly, by any entity, person or group (other than the Company or a
subsidiary or any Company employee benefit plan, or William B. Greene, Jr. and
his Related Interests) of securities of the Company representing twenty-five
percent (25%) or more of the combined voting power of the Company's outstanding
securities and the adoption by the Board of Directors of a resolution to the
effect that a Potential Change of Control of the Company has occurred; or
5
(iii) The execution of a definitive binding written
agreement by William B. Greene, Jr. and his Related Interests providing for the
sale to an independent third party not related to or affiliated with William B.
Greene, Jr. or the Company or its subsidiaries or a related employee benefit
plan, of such amount of stock as will, upon closing and consummation of such
agreement, cause William B. Greene, Jr. and his Related Interests, in the
aggregate, to no longer be the Company's largest stockholder.
2. Assured Period of Service. In the event a third person begins
a tender or exchange offer, circulates a proxy to stockholders, or takes other
steps to pursue a transaction the effect of which would be to constitute a
Change of Control, Executive agrees that he will not voluntarily leave Bank's
employ on less than three (3) months prior written notice to the Bank's Chairman
of the Board, and will render the services expected of his position, and until
such third person has abandoned or terminated his efforts to effect a Change of
Control or until a Change of Control has occurred.
3. Termination Following Change of Control. In the event
Executive's employment is terminated at any time within three (3) years
following a Change of Control under any circumstance constituting a "Qualifying
Termination," the Company and Bank shall provide or cause to be provided to
Executive the benefits and rights described in Section 4 hereof. As used herein,
a "Qualifying Termination" shall mean a termination of Executive's employment
with the Bank under any of the following circumstances:
(a) Termination by Company or Bank. Termination of
Executive's employment by the Company or the Bank for reasons other than "cause"
as such term is defined in Section (5)(a) hereof, but not including termination
by reason of Executive's death, permanent disability, or attainment of normal
retirement age; or
6
(b) Termination by Executive. Termination of employment
by Executive following the occurrence of any of the following events:
(i) The assignment of Executive to any duties or
responsibilities that are
inconsistent with his position, duties, responsibilities or status immediately
preceding such Change of Control, or a change in his reporting responsibilities
or titles in effect at such time resulting in a reduction of his
responsibilities or position;
(ii) The reduction of Executive's annual salary
(including any deferred portions thereof) or any level of benefits or
supplemental compensation;
(iii) The transfer of Executive to a location
requiring a change in his residence or a material increase in the amount of
travel normally required of Executive in connection with his employment; or
(iv) The good faith determination by Executive
that due to the Change of Control he is no longer able effectively to discharge
his duties and responsibilities.
4. Rights and Benefits Upon Termination. In the event of the
termination of Executive's employment under any of the circumstances
constituting a Qualifying Termination as set forth in Section 3 hereof, the
Company and Bank and their successors shall provide or cause to be provided to
Executive the following rights and benefits:
(a) Termination Compensation. Executive shall be entitled
to receive a payment in cash in an amount equal to five (5) times Executive's
Average Annual Earnings. For purposes of this Agreement, Executive's Average
Annual Earnings shall be deemed the "Base Amount" as that term is defined in
Section 280G(b)(3)(A) of the Code, as amended. Such compensation, less any
applicable withholdings for federal income taxes and Social Security
contributions, shall be paid to Executive in a lump sum within ten (10) calendar
days after the effective date of the Qualifying Termination;
7
provided, however, Executive may, at his option, elect to receive such
compensation in as many as five (5) annual installments payable, without
interest, on each anniversary date of the Qualifying Termination.
If Executive shall die after the occurrence of a Qualifying
Termination but prior to
the time all payments due to Executive under this Section 4 or otherwise under
this Agreement have been made, then as soon as practicable after such death, but
in no event later than three (3) months thereafter, Company or Bank shall pay or
cause to be paid in a lump sum in cash all sums not distributed to Executive
prior to his death.
(b) Supplemental Executive Retirement Plan Benefits. Except to the
extent expressly prohibited by any applicable law or regulation, any and all
restrictions, vesting schedules and conditions or thresholds provided in any
supplemental Executive retirement plan, if any is in effect at Executive's
Qualifying Termination, shall immediately lapse and Executive shall be entitled
immediately to receive all benefits previously granted thereunder.
(c) Executive Incentive Plan Benefits. Any award under any
incentive plan for which Executive is eligible and which has not been paid to
Executive at the time of his Qualifying Termination shall be paid to him within
thirty (30) days of such termination. Such payment shall be accompanied by a
payment to Executive of an amount equal to one-twelfth (1/12th) of the award to
the Executive for the most recently ended plan year for each full month in the
current plan year prior to the month of Executive's Qualifying Termination.
(d) Insurance Benefits.
(i) Life Insurance. Upon a Qualifying Termination, the
Company and Bank shall transfer to Executive title to and ownership of such
split-dollar life insurance policies as may then be in effect insuring
Executive's life, including all cash values and other rights and benefits
thereunder.
8
(ii) Medical, Accident and Disability. Upon a Qualifying
Termination, Executive shall continue to be covered, until Executive's Normal
Retirement Age, by such medical insurance and accident and disability insurance
plans or any successor plan or program as the Company or Bank may then have in
effect for Executive's benefit, subject to the terms of such plans and subject
to Executive's continuing to make any payments required for employees in the
same class or category as Executive held prior to his termination. In the event
Executive is ineligible to continue to be covered under the terms of any such
benefit plan or program, or in the event Executive is eligible but the benefits
applicable to Executive under any such plan or program after termination are not
substantially equivalent to the benefits applicable to Executive immediately
prior to termination, then until Executive's Normal Retirement Date, Bank shall
provide such substantially equivalent benefits or other such additional benefits
as may be necessary to make the benefits applicable to Executive substantially
equivalent to those in effect prior to Executive's termination; provided,
however, that if during such period Executive should enter into the employment
of another company or firm which provides substantially similar benefit
coverage, Executive's participation in the comparable benefits provided by Bank
shall cease. For so long as Executive is eligible under this Agreement to
receive coverage under such insurance plans, Executive may purchase, at his
expense, extended coverage for his spouse and dependents according to the terms
of coverage under such plans as in effect from time to time. In the event
Executive dies after a Qualifying Termination and prior to attaining Normal
Retirement Age, Executive's spouse and dependents may continue to participate in
such plans, at their expense, until (i) the spouse reaches Normal Retirement Age
and (ii) Executive's dependents reach the age of majority or are otherwise not
eligible to participate.
(e) Ownership of Perquisites. The ownership of any automobile
which was assigned to Executive prior to his termination shall be transferred to
him, free of charge, within thirty
9
(30) days after his Qualifying Termination. The ownership of any club membership
which was assigned to Executive prior to his Qualifying Termination shall be
transferred to Executive free of charge, within thirty (30) days after
termination; provided, however, in the event any such club membership is not
transferrable by the Company or Bank directly to Executive, the Company or Bank
shall pay to Executive up to $25,000 or the actual cost of a replacement
membership incurred by Executive, whichever is less.
(f) No Duty to Mitigate. Executive's entitlement to benefits
under this Agreement shall not be governed by any duty to mitigate his damages
by seeking further employment nor offset by any compensation which he may
receive from future employment.
(g) Payment Obligations Absolute. Unless Section 5 is
applicable, the obligation of Company and Bank to pay or cause to be paid to
Executive the benefits and to make the arrangements provided in this Section 4
shall be absolute and unconditional upon the occurrence of a Qualifying
Termination and shall not be affected by any circumstances, including without
limitation, any setoff, counterclaim, recoupment, defense or other right which
Bank may have against Executive or anyone else. All amounts payable by or on
behalf of Bank under this Agreement shall, unless specifically stated otherwise
in this Agreement, shall be paid without notice or demand. Each and every
payment made hereunder by or on behalf of Bank shall be final and absolute, and
Bank and its subsidiaries and affiliates shall not for any reason, whatsoever,
seek to recover all or any part of such payment from Executive or from whomever
shall be entitled thereto.
(h) Tax Effect. Notwithstanding the provisions of Section 280G of
the code, it is the parties' intention that the "excess parachute" provisions of
Section 280G(b), in effect as of the date of this Agreement, and the resulting
excise tax provided for in Section 4999 of the Code, shall be inapplicable to
the payments to be made to Executive under this Agreement for the reasons that
(i) the
10
outstanding stock of the Company is not traded on an established securities
market, and (ii) this Agreement and the terms hereof were approved by a vote of
more than seventy-five percent (75%) of the Company's outstanding voting
securities at a duly called meeting of the Company's shareholders held on April
24, 1997, following proper notice thereof and delivery of a complete and
accurate proxy statement describing all material terms of this Agreement.
5. Conditions to Obligations of Company and Bank. Notwithstanding any
other provision of this Agreement, neither the Company nor the Bank shall have
any obligation to provide or cause to be provided to Executive the rights and
benefits described in Section 4 hereof if either of the following events shall
occur:
(a) Termination for Cause. If Bank shall terminate
Executive's employment for "cause." For purposes of this Agreement, termination
of employment for "cause" shall mean termination solely for conviction of a
felony; or
(b) Resignation as Director or Officer. If Executive
shall fail, promptly after termination and upon receiving a written request to
do so, to resign as a director and/or officer of Bank and each subsidiary and
affiliate of Bank of which he is then serving as a director and/or officer.
6. Confidentiality; Cooperation; Consultancy.
(a) Confidentiality. Executive agrees that at all times
following termination of his employment, he will not, without the prior written
consent of Bank, disclose to any person, firm or corporation any confidential
information of the Company, Bank or their subsidiaries and affiliates which is
now known to him or which hereafter and before termination may become known to
him as a result of his employment or association with the Company and Bank, and
which could be helpful to a competitor; provided, however, that the foregoing
shall not apply to confidential information that becomes publicly disseminated
by means other than breach of this Agreement.
11
(b) Cooperation. Executive agrees that at all times
following termination of his employment, he will furnish such information and
render such assistance and cooperation as may be reasonably requested in
connection with any litigation or legal proceedings concerning Bank or any of
its affiliates (other than legal proceedings concerning Executive's employment).
In connection with such cooperation, Bank will pay or reimburse Executive for
all reasonable expenses incurred in cooperating with such request.
(c) Consultation. Executive agrees that for a period of
two (2) years following termination of his employment, he will make himself
available to the Company, Bank and their subsidiaries, affiliates and successors
for consultation with senior officers of the Company, Bank and their
subsidiaries, affiliates, and successors, as the case may be; provided, however,
Executive shall not be required to perform consulting services (i) for more than
five (5) days in any month and (ii) for more than thirty (30) hours in any
month. It is expressly agreed that Executive's consulting services will be
required at such time and at such places as will result in the least
inconvenience to Executive taking into consideration Executive's other business
commitments during such period. It is further agreed that Executive's consulting
services shall be rendered by personal consultation at Executive's principal
residence or office, wherever maintained, or by correspondence through mail,
telephone, facsimile transmission, or other similar modes of communication
during regular business hours or at such other times as are deemed by Executive
to be most convenient. In the event Executive should enter into the full-time
employment with another company or firm, Executive shall not be required to
consult at times or on matters which would conflict with his responsibilities
with respect to such new employment. The Company and Bank shall pay Executive
reasonable compensation, together with reimbursement of all reasonable expenses,
for such consulting services.
12
7. Term of Agreement. This Agreement shall commence as of the
date hereof and shall terminate on March 31, 2002; provided, however, this
Agreement shall automatically renew for successive one (1) year periods unless
Company or Bank notifies Executive in writing at least 180 days prior to the
expiration date that Company and Bank does not desire to renew the Agreement for
an additional term; and provided further, however, that such notice to terminate
this Agreement shall not be given and if given shall have no effect (i) within
three (3) years after a Change of Control or (ii) during any period of time when
Company or Bank has reason to believe that any third person has taken steps
toward a Potential Change of Control.
8. Expenses. The Company and Bank shall pay or reimburse
Executive for all costs and expenses including, without limitation, court costs
and attorneys' fees, incurred by Executive as a result of any claim, action or
proceeding by Executive against Bank arising out of or challenging the validity
or enforceability of this Agreement or any provision hereof.
9. No Prejudice Toward Rights of Indemnification. Nothing
contained in this Agreement shall be construed to limit, diminish, waive or
otherwise prejudice any statutory, common law, contractual or corporate bylaw
rights of indemnification which Executive may now or hereafter hold with respect
to his position as a director and/or officer of the Bank, the Company, and their
respective subsidiaries and affiliates.
10. Construction of Agreement. Nothing in this Agreement shall be
construed to amend any provision of any plan or policy of Bank other than as
specifically stated herein. This Agreement is not an employment contract between
Bank and Executive and nothing set forth herein shall be deemed to create an
employment contract between Executive and Bank. Executive acknowledges that the
rights of the Company and Bank to change or reduce, at any time and from time to
time, his compensation, title, responsibilities, business location, and all
other aspects of the employment
13
relationship or to discharge him with or without cause shall remain wholly
unaffected by the provisions of this Agreement; it being the parties' mutual
intention and agreement that this Agreement is intended to have legal effect
solely at such time as there occurs a Change of Control. No waiver by either
party to this Agreement at any time of any breach by the other party or
non-compliance with any condition or provision of this Agreement to be performed
by the other party shall be deemed a waiver of any such provision or condition.
This Agreement sets forth the entire agreement of the parties with respect to
the subject matter hereof and all prior agreements or representations, express
or implied, regarding such subject matter shall be deemed merged herein.
11. Successors. The obligations and duties of the Company and the
Bank shall be binding upon their respective successors. Whenever the term
"Company" or "Bank" is used herein, it shall be deemed to include their
respective successors, whether by merger, assignment, operation of law, or
otherwise. The performance of such obligations and duties shall inure to the
benefit of Executive and Executive's heirs and assigns to the extent such
obligations and duties remain enforceable after Executive's death.
12. Amendments. This Agreement shall be amended only pursuant to
written instrument signed by each party hereto.
13. Applicable Law. This Agreement is made as a Tennessee contract
and shall be construed and applied according to the laws of the State of
Tennessee.
14. Jurisdiction. Jurisdiction with respect to any issue or
dispute arising hereunder shall be exclusively with the Chancery and Circuit
Courts for Sullivan County, Tennessee.
14
IN WITNESS WHEREOF, the undersigned have executed this Agreement
effective as of the date first written hereinabove.
BANCTENN CORP.
By: /s/ Colon A. Terrell, Jr.
-----------------------------------------
Colon A. Terrell, Jr.
President and Chief
Executive Officer
BANK OF TENNESSEE
By: /s/ Colon A. Terrell, Jr.
-----------------------------------------
Colon A. Terrell, Jr.
Chairman of the Board and
Chief Executive Officer
/s/ Roy L. Harmon, Jr.
--------------------------------------------
ROY L. HARMON, JR.