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Exhibit 10(a)
Consulting Agreement
THIS AGREEMENT is entered into in Chattanooga, Tennessee, as of
___________, __, 1997 by and between Cornerstone Bancshares, Inc., a Tennessee
corporation (the "Company") and DAVID E. YOUNG, a resident of the State of
Tennessee ("Consultant").
WHEREAS, the Company desires to procure certain consulting services
(the "Services") from Consultant, as more particularly set forth herein; and
WHEREAS, Consultant desires to provide such Services to the Company
on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, the Company and Consultant agree as follows:
1. ENGAGEMENT. The Company shall engage Consultant to render the
Services, and Consultant accepts such engagement with the Company, upon the
terms and conditions set forth in this Agreement for the period beginning on
_____________ __, 1997 and ending on _____________ __, 2002 (the "Consulting
Period").
2. POSITION AND DUTIES.
(a) During the term of this Agreement, Consultant shall render such
Services to the Company related to the management of Company's personnel and
operations and marketing of the Company as the Company's President (the
"President") may from time to time direct.
(b) Consultant shall provide such advice with respect to the business
of the Company as may reasonably be requested by the President of the Company.
None of the services required to be performed hereunder shall be performed
outside Chattanooga, Tennessee, it being the understanding of the parties that
the consultation and advice shall be provided exclusively over the telephone or
by written communication. Consultant shall perform his duties under this
agreement competently, taking into account his other commitments and business
activities. Provided, however, that in no event shall Consultant enter into any
other employment or consulting arrangements which would violate his obligations
under any non-competition provision of this or any other agreement between
Consultant and the Company.
(c) The Company will reimburse Consultant for any pre-approved
expenses incurred by Consultant in the performance of his duties hereunder.
3. COMPENSATION AND BENEFITS.
(a) Compensation. In consideration for the Services rendered by
Consultant to the Company, the Company shall pay to Consultant an amount equal
to Three Hundred Seventy Five Thousand Dollars ($375,000.00), payable in
substantially equal monthly installments, commencing on _____________ __,
199__.
(b) Consultant's Death. In the event that Consultant dies prior to the
expiration of the Consulting Period, the Company shall pay to Consultant's
estate all payments which would have been paid to Consultant had he survived to
the expiration of the Consulting Period. Consultant's estate may elect to
receive such payments in one lump sum.
(c) Consultant's Disability. Payment's due under this Section 3 shall
continue to be made to Consultant even though he may become disabled or
incompetent prior to the expiration of the Consulting Period.
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(d) Insurance. It is expressly understood that Consultant shall be
entitled to health insurance coverage under the Company's health insurance plan
paid for by the Company as contemplated in Paragraph 5 of the Change-in-Control
Protective Agreement dated November 8, 1996, by and between Consultant and The
Bank of East Ridge.
4. PUTS AND CALLS WITH RESPECT TO CONSULTANT'S STOCK;
PIGGY-BACK REGISTRATION RIGHTS.
(a) Subject to the terms and conditions of this Section 4, Consultant
shall have the right (the "Put Right") to require Company to redeem, and
Company shall redeem from Consultant, shares of Consultant's stock of Company
in accordance with the schedule and at the put prices set forth below:
Shares Subject to Put Right
Year (the "Put Shares") * Put Price **
---- --------------------------- ------------
1998 46,745 $12.55
1999 28,356 $14.00
2000 21,756 $16.00
* Subject to pro rata reduction in the event that Consultant
receives less than thirty percent (30%) of total
consideration payable to him in connection with the merger
(the "Merger") contemplated in that certain Agreement and
Plan of Merger dated as of March 18, 1997 by and among
Cornerstone Community Bank, East Ridge Bancshares, Inc., the
Bank of East Ridge and Consultant in the form of Company
stock.
** The price is subject to increase or decrease, accordingly, in
the event the interest rate on the indebtedness of Consultant
contemplated by the letter from First Tennessee Bank dated
____________ is less than or greater than 8.75%.
(b) Subject to the terms and conditions of this Section 4, Company
shall have the right (the "Call Right") to require Consultant to sell, and
Consultant shall sell to Company, shares of Consultant's stock of Company in
accordance with the schedule and at the call prices set forth below:
Shares Subject to Call Right
Year (the "Call Shares") * Call Price **
---- ---------------------------- -------------
1998 46,745 $12.55
1999 28,356 $14.00
2000 21,756 $16.00
* Subject to pro rata reduction in the event that Consultant
receives less than thirty percent (30%) of total
consideration payable to him in the Merger in the form of
Company stock.
** The price is subject to increase or decrease, accordingly, in
the event the interest rate on the indebtedness of Consultant
contemplated by the letter from First Tennessee Bank dated
____________ is less than or greater than 8.75%.
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(c) Consultant may exercise his Put Rights as to all or any portion of
the Put Shares in any year by giving written notice to Company on or before
March 1 of each year as provided in Section 4 of this Agreement. Company may
exercise its Call Right as to all or any portion of the Call Shares as to which
Put Rights have not been previously exercised by Consultant by giving written
notice to Consultant on or before March 15 of each year. Company shall redeem
and make payment in cash to Consultant for shares as to which Put Rights or
Call Rights have been exercised within thirty (30) days of the date of notice
of exercise of such Put Rights or Call Rights, as the case may be. Upon
redemption of shares subject to Put Rights or Call Rights, Consultant shall
deliver to Company certificates representing such shares together with duly
executed stock powers with signatures guaranteed. Notwithstanding any provision
of this Section 4 to the contrary, nothing herein shall prohibit Consultant
from selling shares otherwise subject to Call Rights to third parties provided
that such sales are consummated prior to receipt by Consultant of a notice of
exercise of Call Rights. Put Rights and Call Rights shall not be cumulative in
successive years to the extent they are not exercised in any year.
(d) Notwithstanding anything herein to the contrary, Company may at
any time after March 1, 1998 redeem all of the Call Shares to which Put Rights
or Call Rights have not been previously exercised by Consultant by giving
written notice to Consultant on or before March 15 of the year in which Company
desires to exercise such redemption rights. In no event may the Company redeem
any such shares except between March 1 and March 15 of the year in which the
Company desires to exercise such redemption rights. In such event the call
price for all shares redeemed in any year shall be as set forth in the schedule
above for that year. For instance, the Company may call all of the Call Shares
to which Put Rights or Call Rights have not been previously exercised in 1998
at $12.55 by giving written notice as set forth above.
(e) (i) If at any time or from time to time, the Company shall
determine to register any of its common stock (the "Registrable Securities"),
either for its own account or the account of a security holder or holders, in a
registration statement covering the sale of Registrable Securities pursuant to
an underwritten public offering, the Company will: (1) promptly give Consultant
written notice thereof (which shall include a list of the jurisdictions in
which the Company intends to attempt to qualify such securities under the
applicable blue sky or other state securities laws); and (2) include in such
registration (and any related qualification under blue sky laws or other
compliance) and in any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made within thirty days
after receipt of such written notice from the Company, by Consultant, except as
set forth in Subsection 4(d)(ii) below.
(ii) The right of Consultant to registration pursuant to this
Subsection 4(d) shall be conditioned upon Consultant's participation in the
underwriting and the inclusion of Consultant's Registrable Securities in the
underwriting to the extent provided herein. All shareholders, including
Consultant, proposing to distribute their securities through such underwriting
shall (together with the Company and the other holders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this
Subsection 4(d), if the underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, and (1) if such
registration is the first registered offering of the sale of the Company's
securities to the general public, the underwriter may limit the number of
Registrable Securities to be included in the registration and underwriting, or
may exclude Registrable Securities entirely from such registration and
underwriting, or (2) if such registration is other than the first registered
offering of the sale of the Company's securities to the general public, the
underwriter may limit the number of Registrable Securities to be included in
the registration and underwriting; provided, however, that with respect to a
registration within the category described in Clause (2) of this sentence, the
underwriter may not limit the amount of Registrable Securities included in such
registration and underwriting to less than an amount equal to 20 percent of the
amount of all of the Company's securities included within such registration and
underwriting. The Company shall so advise all holders of Registrable Securities
which would otherwise be registered and underwritten pursuant hereto, and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all holders thereof in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities entitled to inclusion in such registration held by such holders at
the time of filing the registration statement.
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If Consultant disapproves of the terms of any such underwriting, he may elect
to withdraw therefrom by written notice to the Company and the underwriter. Any
Registrable Securities excluded or withdrawn from such underwriting shall,
unless Consultant requests otherwise, be included in such registration but
shall not be transferred in a public distribution prior to ninety days after
the effective date of the registration statement relating thereto.
(iii) All expenses incurred in connection with any registration,
qualification or compliance pursuant to this Subsection 4(d), including without
limitation, all registration, filing, and qualification fees, printing
expenses, fees and disbursements of counsel for the Company, and expenses of
any special audits incidental to or required by such registration, shall be
borne by the Company; provided, however that the Company shall not be required
to pay fees of legal counsel of Consultant, or underwriters' fees, discounts,
or commissions relating to Registrable Securities of Consultant.
(iv) In the case of each registration, qualification, or
compliance effected by the Company pursuant to this Subsection 4(d), the
Company will keep Consultant advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof. At
its expense the Company will:
(1) Keep such registration, qualification or compliance
effective for a period of 180 days or until the holders of Registrable
Securities, including Consultant, participating therein, have completed the
distribution described in the registration statement relating thereto,
whichever first occurs; and
(2) Furnish such number of prospectuses and other documents
incident thereto as Consultant from time to time may reasonably request.
(v) (1) The Company will indemnify Consultant with respect to
such registration, qualification, or compliance effected pursuant to this
Subsection 4(d), and each underwriter, if any, and each person who controls any
underwriter of the Registrable Securities held by or issuable to Consultant
against all claims, losses, damages, and liabilities (or actions in respect
thereto) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document (including any related registration statement, notification or
the like) incident to any such registration, qualification, or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act of 1933, as amended (the "Securities Act")
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification, or compliance,
and will reimburse Consultant, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage or liability
arises out of or is based on any untrue statement or omission based upon
written information furnished to the Company by any instrument duly executed by
Consultant or any underwriter specifically for use therein.
(2) Consultant will, if Registrable Securities held by or
issuable to Consultant are included in the securities as to which such
registration, qualification, or compliance is being effected, indemnify the
Company, each of its directors and officers who sign such registration
statement, each underwriter, of the Company's securities covered by such a
registration statement, each person who controls the Company within the meaning
of the Securities Act, against all claims, losses, damages, and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular, or other document, or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse the Company, such directors, officers, persons, or underwriters for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability, or action,
in each case to the extent, but only to the extent, that such untrue statement
(or alleged untrue statement) or omission (or alleged omission) is made in such
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registration statement, prospectus, offering circular, or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Consultant for use therein.
(3) Each party entitled to indemnification under this
Subsection 4(d)(v) (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of any such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not be unreasonably withheld), and the Indemnified Party may participate in
such defense at such party's expense, and provided further that the failure of
any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Subsection 4(d). No
Indemnifying Party, in the defense of any such claim or litigation, except with
the consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation.
(vi) Consultant, as holder of Registrable Securities included in
any registration shall furnish to the Company such written information
regarding Consultant and the distribution proposed by Consultant and any other
holder of Registerable Securities as the Company may request in writing and as
shall be required in connection with any registration, qualification, or
compliance referred to in this Subsection 4(d).
5. RELATIONSHIP BETWEEN THE PARTIES. This Agreement shall not create
the relationship of principal and agent between the parties. Consultant shall
have no authority to make any commitment on behalf of the Company, and the
Company shall have no authority to make any commitment on behalf of Consultant.
Consultant represents and warrants that he shall not act as or represent
himself to be an agent for the Company, nor create or attempt to create any
obligation or liability on behalf of the Company. The Company warrants that it
shall not act as or represent itself to be an agent for Consultant, nor create
or attempt to create any obligation on behalf of Consultant.
6. INDEPENDENT CONTRACTOR STATUS. Consultant hereby acknowledges and
agrees that he is aware that he will not be treated as an employee of the
Company for any purposes with respect to the Services rendered under this
Agreement. Consultant agrees to comply with all tax laws applicable to his
status as an independent contractor of the Company. Consultant further
acknowledges and agrees that as an independent contractor, he will not be
entitled to participate in any of the employee benefit plans customarily
provided by the Company to its employees.
7. RESTRICTIVE COVENANTS. Consultant agrees to the following
restrictions upon his activities:
(a) Disclosure of Confidential Commercial Information. Consultant
agrees and acknowledges that he has acquired and will acquire information and
knowledge concerning the business operations of the Company, the identity of
vendors, and suppliers of the Company, the corporate structure of the Company,
the identity of and information concerning the Company's shareholders,
directors, officers and employees, the Company's methods of operation and doing
business, business practices related to the operation of the Company's
business, financial information, procedures, data, information concerning the
Company's customers, finances, plans for expansion, processes, methods,
formulae, apparatus, specifications, materials, discoveries, inventions or
patents including applications and rights in discoveries, which information is
"Confidential Commercial Information." Consultant shall not, at any time during
or after the termination of this Agreement divulge to any person, firm,
corporation or other entity any knowledge, information, or fact related to the
Confidential Commercial Information, which information Consultant shall hold in
trust in a fiduciary capacity for the sole benefit of the Company and its
successors and assigns. This provision does not preclude the confidential
disclosure by Consultant of Confidential Commercial Information to third
parties, such as financial institutions or trade creditors, or disclosures in
the ordinary course of business which is in the best interest of the Company or
its subsidiaries, nor does this provision apply to Confidential Commercial
Information that has become generally publicly available from the Company prior
to the time of disclosure by the Consultant.
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(b) Noncompete. During the term of this Agreement, and for a period of
two (2) years after the termination of this Agreement or any extension hereof,
Consultant will not:
(i) engage, directly or indirectly, individually or as a
principal, owner, officer, director, employee, independent contractor,
shareholder (other than a holder of fewer than five percent (5%) of
the outstanding shares of a publicly traded company), consultant,
partner, joint venturer, agent, equity owner, or in any other capacity
whatsoever, in any corporation, partnership, sole proprietorship,
joint venture, limited liability company, or other business
association or entity that engages in the provision of banking
services within fifty (50) miles of Chattanooga, Tennessee (a
"Competing Business")
(ii) perform for any Competing Business any duty Consultant
has performed for Company that involves Consultant's access to,
knowledge of, or application of Confidential Commercial Information;
it being understood that this subparagraph (ii) shall be in addition
to and not be construed as a limitation upon any other covenant in
this Agreement; or
(iii) induce, request, advise, attempt to influence, or
solicit, directly or indirectly, any individual or entity to purchase
services similar to those offered by the Company from any person or
business entity other than the Company within fifty (50) miles of
Chattanooga, Tennessee; it is understood that this subparagraph (iii)
shall be in addition to and not construed as a limitation upon any
other covenant herein.
(c) Reasonableness of Restrictions. Consultant acknowledges and agrees
that the geographic scope, prohibited activities and time duration of the
provisions of this PARAGRAPH 7 are reasonable, are no broader than necessary to
maintain the confidentiality of the Confidential Commercial Information and the
goodwill associated with Company's business and to protect the other business
interest of the Company. Consultant also acknowledges that the provisions of
this PARAGRAPH 7 are not oppressive and do not and will not impose any
unreasonable burden on Consultant.
(d) Severability; Invalid Provisions and Requests for Reformation.
Each of the covenants contained in this PARAGRAPH 7 shall be deemed a separate
covenant, each being enforceable irrespective of the enforceability (with or
without reformation) of the other covenants contained in PARAGRAPH 7 hereof. If
any provision of this Agreement (including without limitation any provision
relating to the activities covered by, or time period or geographic scope of,
the covenants provided for in this PARAGRAPH 7) is held to be illegal, invalid,
or unenforceable under present or future laws effective during the term hereof;
such provision shall be fully severable; this Agreement shall be construed and
enforced as if such illegal, invalid, or unenforceable provision have never
comprised apart hereof; and the remaining provisions shall remain in full force
and effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by severance herefrom. Furthermore, in lieu of such illegal,
invalid, or unenforceable provision there shall be added automatically, as a
part of this Agreement, a provision as similar as possible to the invalid
provision, and such provision shall be legal, valid, and enforceable, and the
parties hereby request the court or any arbitrator to whom disputes relating to
this Agreement are submitted to reform any otherwise unenforceable covenants
contained in PARAGRAPH 7 hereof in accordance with the proceeding provisions.
8. INJUNCTION AND DAMAGES. Consultant acknowledges and agrees that a
material breach by him of the covenants contained in PARAGRAPH 7 hereof will
result in harm and continuing damage to the Company, its successors or assigns,
for which there is no adequate remedy at law and, in the event of a material
breach of such covenants by the Consultant, the Company shall be entitled to
injunctive relief as well as other and further relief, including damages, as
may be proper, without the necessity of showing actual damage. If a judicial
determination is made that any of the provisions of PARAGRAPH 7 constitute an
unreasonable and unenforceable restriction against Consultant, the parties
agree that the court making such determination shall have the authority to
reform the terms of PARAGRAPH 7 to the extent necessary to make the
restrictions contained in those paragraphs reasonable and enforceable.
Consultant acknowledges that a material breach of such covenants will result in
substantial detriment and damage to the Company for which the
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Consultant agrees that the Company shall be entitled to have and recover any
and all actual damages, expenses, and cost resulting from said breach.
9. NOTICE. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Consultant: Copy to:
David E. Young Kathryn R. Edge
6756 Hickory Brook Road Miller & Martin
Chattanooga, Tennessee 37421 Suite 2325, SunTrust Financial Center
424 Church Street
Nashville, Tennessee 37219
If to the Company: Copy to:
Timothy L. Hobbs, President Colman B. Hoffman
5319 Highway 153 Baker Donelson Bearman & Caldwell
Chattanooga, Tennessee 37343 2200 Riverview Tower, 900 S. Gay St.
Knoxville, Tennessee 37902
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Party notice in the manner herein set forth.
10. FORCE MAJEURE. Neither party shall be liable for any delays or
failures in performance due to the circumstances beyond its control.
11. AMENDMENT AND WAIVER. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Consultant, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
12. CAPTIONS. Captions appearing in this Agreement are for convenience
only and shall not be deemed to explain, limit or amplify the provisions
hereof.
13. CHOICE OF LAW AND JURISDICTION. In consideration for Consultant's
engagement by the Company, Consultant hereby agrees to submit to the personal
jurisdiction of the State and Federal Courts for the State of Tennessee in the
United States of America for any and all proceedings, claims or controversies
which arise as a result of this Agreement. Also in consideration for
Consultant's engagement by the Company, Consultant hereby agrees that the
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substantive, employment, contract, and procedural law of the State of Tennessee
will govern any and all proceedings, claims or controversies arising as a
result of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
By:
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Title:
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DAVID E. YOUNG