Exhibit 10.2
EMPLOYMENT AGREEMENT
This sets forth the terms of the Employment Agreement made effective as of
May 1, 2004 between (i) COMMUNITY BANK SYSTEM, INC., a Delaware corporation and
registered bank holding company, and COMMUNITY BANK, N.A., a national banking
association, both having offices located in Dewitt, New York (collectively, the
"Employer"), and (ii) STEVEN R. TOKACH, an individual currently residing at
Mountaintop, Pennsylvania ("Employee").
W I T N E S S E T H
IN CONSIDERATION of the promises and mutual agreements and covenants
contained herein, and other good and valuable consideration, the parties agree
as follows:
1. Employment.
(a) Term. Employer shall continue to employ Employee, and Employee
shall continue to serve, as Chief Credit Administrator of Employer for a
forty-three month term commencing on May 1, 2004 and ending on December 31, 2007
("Period of Employment"), subject to termination as provided in paragraph 3
hereof.
(b) Salary. During the period of May 1, 2004 through December 31,
2004, Employer shall pay Employee base salary at the annual rate in effect for
Employee on April 30, 2004 ("Base Salary"). Employee's Base Salary for calendar
years after 2004 shall be determined by the Board of Directors of Employer
("Board"), or an authorized committee of the Board, in accordance with
Employer's regular practice for reviewing and adjusting base salary
for executive employees. Employee's Base Salary is payable in accordance with
Employer's regular payroll practices for executive employees.
(c) Incentive Compensation. Employee shall be entitled to annual
incentive compensation opportunities pursuant to the terms of the "Management
Incentive Plan" (which term includes any successor plan or incentive
compensation arrangement) which has been approved by the Board to cover Employee
and other key personnel of Employer. Upon termination of Employee's employment
pursuant to subparagraph 3(a), 3(b), 3(c) or 6, Employee shall be entitled to a
pro rata portion (based on Employee's complete months of active employment in
the applicable year) of the annual incentive award that is payable with respect
to the year during which the termination occurs or, in the case of a termination
upon Employee's disability pursuant to subparagraph 3(c), the date the
Disability Period began.
(d) During the Period of Employment, Employee shall be entitled to
perform his services for Employer from an office in the Scranton, Pennsylvania
area.
2. Duties during the Period of Employment. Employee shall have full
responsibility, subject to the control of the Board and Employer's Chief
Operating Officer, for the supervision of all aspects of Employer's credit
analysis, loan work-out, and credit administration operations, and the discharge
of such other duties and responsibilities to Employer as may from time to time
be reasonably assigned to Employee by the Board or Employer's Chief Operating
Officer. Employee shall report to the Chief Operating Officer of Employer or the
Chief Operating Officer's designee. Employee shall devote Employee's best
efforts to the affairs of Employer, serve faithfully and to the best of
Employee's ability and devote all of Employee's working time and attention,
knowledge, experience, energy and skill to
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the business of Employer, except that Employee may affiliate with professional
associations, business and civic organizations.
3. Termination. Employee's employment by Employer shall be subject to
termination as follows:
(a) Expiration of the Term. This Agreement shall terminate
automatically at the expiration of the Period of Employment unless the parties
enter into a written agreement extending Employee's employment, except for the
continuing obligations of the parties as specified hereunder.
(b) Termination Upon Death. This Agreement shall terminate upon
Employee's death. In the event this Agreement is terminated as a result of
Employee's death, Employer shall continue payments of Employee's Base Salary for
a period of 90 days following Employee's death to the beneficiary designated by
Employee on the "Beneficiary Designation Form" attached to this Agreement as
Appendix A. Employee's beneficiary shall be free to dispose of any restricted
stock previously granted to Employee by Employer. Additionally, Employer shall
treat as immediately exercisable all unexpired stock options issued by Employer
and held by Employee that are not exercisable or that have not been exercised,
so as to permit the Beneficiary to purchase the balance of Community Bank
System, Inc. ("CBSI") Stock not yet purchased pursuant to said options until the
end of the full exercise period provided in the original grant of the option
right, determined without regard to Employee's death or termination of
employment.
(c) Termination Upon Disability. Employer may terminate this
Agreement upon Employee's disability. For the purpose of this Agreement,
Employee's inability to perform Employee's duties hereunder by reason of
physical or mental illness or
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injury for a period of 26 successive weeks, or such longer waiting/elimination
period provided pursuant to Employer's group long-term disability policy (the
"Disability Period") shall constitute disability. The determination of
disability shall be made by a majority vote of a physician selected by Employer,
a physician selected by Employee and a third physician selected by the other two
physicians. During the Disability Period, Employee shall be entitled to 100% of
Employee's Base Salary otherwise payable during that period, reduced by any
other benefits to which Employee may be entitled for the Disability Period on
account of such disability (including, but not limited to, benefits provided
under any disability insurance policy or program, worker's compensation law, or
any other benefit program or arrangement). Thereafter, upon termination pursuant
to this disability provision, Employee shall be free to dispose of any
restricted stock granted to Employee. Additionally, Employer shall treat as
immediately exercisable all unexpired stock options issued by Employer and held
by Employee that are not exercisable or that have not been exercised, so as to
permit the Employee to purchase the balance of CBSI Stock not yet purchased
pursuant to said options until the end of the full exercise period provided in
the original grant of the option right, determined without regard to Employee's
disability or termination of employment.
(d) Termination for Cause. Employer may terminate Employee's
employment immediately for "cause" by written notice to Employee. For purposes
of this Agreement, a termination shall be for "cause" if the termination results
from any of the following events:
(i) Material breach of this Agreement;
(ii) Documented misconduct as an executive of Employer, or any
subsidiary or affiliate of Employer for which Employee is performing services
hereunder
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including, but not limited to, misappropriating any funds or property of any
such company, or attempting to obtain any personal profit (x) from any
transaction to which such company is a party or (y) from any transaction with
any third party in which Employee has an interest which is adverse to the
interest of any such company, unless, in either case, Employee shall have first
obtained the written consent of the Board;
(iii) Unreasonable neglect or refusal to perform the duties
assigned to Employee under or pursuant to this Agreement, unless cured within 60
days following Employee's receipt of written notice to Employee of such neglect
or refusal;
(iv) Conviction of a crime involving moral turpitude;
(v) Adjudication as a bankrupt, which adjudication has not
been contested in good faith, unless bankruptcy is caused directly by Employer's
unexcused failure to perform its obligations under this Agreement;
(vi) Documented and material failure to follow the reasonable,
written instructions of the Board or the Chief Operating Officer of Employer,
provided that the instructions do not require Employee to engage in unlawful
conduct; or
(vii) Any material and documented violation of the rules or
regulations of the Office of the Comptroller of the Currency or of any other
regulatory agency.
Notwithstanding any other term or provision of this Agreement to the
contrary, if Employee's employment is terminated for cause, Employee shall
forfeit all rights to payments and benefits otherwise provided pursuant to this
Agreement; provided, however, that Base Salary shall be paid through the date of
termination.
(e) Termination For Reasons Other Than Cause. In the event Employer
terminates Employee prior to December 31, 2007 for reasons other than cause,
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Employee shall be entitled to a severance benefit equal to the greater of (i)
the sum of the annual Base Salary in effect at the time of termination and the
most recent payment to Employee under the Management Incentive Plan, payable in
equal biweekly installments over the 12-month period following Employee's
termination, or (ii) amounts of Base Salary and expected Management Incentive
Plan payments that otherwise would have been payable through the balance of the
unexpired term of this Agreement, payable in biweekly installments over the
12-month period following Employee's termination. In addition, Employer shall:
(iii) permit Employee to dispose of any restricted stock granted to Employee;
and (iv) treat as immediately exercisable all unexpired stock options held by
Employee that are not exercisable or that have not been exercised, so as to
permit Employee to purchase the balance of CBSI Stock not yet purchased pursuant
to said options until the end of the full exercise period provided in the
original grant of the option right determined without regard to Employee's
termination of employment.
Notwithstanding the foregoing, if Employer terminates Employee prior to
December 31, 2007 for reasons other than cause and under circumstances that
entitle Employee to payments and benefits under paragraph 6 of this Agreement
(regarding "Change of Control"), then amounts payable under clauses (i) or (ii)
of this paragraph 3(e) shall be reduced by payments made and benefits provided
to Employee under paragraphs 6(a)(i) and (ii).
(f) Employer shall have the right of first refusal to purchase from
Employee, or from Employee's beneficiary or estate, shares of CBSI stock (but
not outstanding options) acquired pursuant to the exercise of stock options
after the date of Employee's termination of employment for any reason, in the
event Employee, or Employee's beneficiary or estate, elects to dispose or
transfer such acquired shares. Any purchase made pursuant to this
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subparagraph shall be made at a price per share equal to the closing price per
share of CBSI Stock (on the principal public market on which CBSI Stock is
traded; currently the New York Stock Exchange) on the trading day that
immediately precedes the date of purchase. The right of first refusal described
in this subparagraph shall expire ten years from the date of Employee's
termination of employment.
4. Fringe Benefits.
(a) Benefit Plans. During the Period of Employment, Employee shall
be eligible to participate in any employee pension benefit plans (as that term
is defined under Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended), Employer-paid group life insurance plans, medical plans,
dental plans, long-term disability plans, business travel insurance programs and
other fringe benefit programs maintained by Employer for the benefit of its
executive employees. Participation in any of Employer's benefit plans and
programs shall be based on, and subject to satisfaction of, the eligibility
requirements and other conditions of such plans and programs. Employer may
require Employee to submit to an annual physical, to be performed by a physician
of his own choosing. Employee shall be reimbursed for related expenses not
covered by Employer's health insurance plan, or any other plan in which Employee
is enrolled. Employee shall not be eligible to participate in Employer's
Severance Pay Plan maintained for other employees not covered by employment
agreements.
(b) Expenses. Upon submission to Employer of vouchers or other
required documentation, Employee shall be reimbursed for Employee's actual
out-of-pocket travel and other expenses reasonably incurred and paid by Employee
in connection with Employee's duties hereunder. Reimbursable expenses must be
submitted to the Compensation Committee of the Board for review on a quarterly
basis.
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(c) Other Benefits. During the Period of Employment, Employee also
shall be entitled to receive the following benefits:
(i) Paid vacation of four weeks during each calendar year
(with no carry over of unused vacation to a subsequent year) and any holidays
that may be provided to all employees of Employer in accordance with Employer's
holiday policy;
(ii) Reasonable sick leave;
(iii) Employer paid membership for Employee at a country club
in the Scranton, Pennsylvania area, subject to the approval of the Chief
Operating Officer of Employer. Although it is contemplated that the membership
shall be utilized for marketing and promotion of Employer's business interest,
in the event that any part of this membership shall be treated as taxable
compensation to Employee, Employer shall reimburse Employee for any federal,
state or local income tax owed by Employee, including such taxes owed as a
result of any reimbursement under this subparagraph (iii), in connection with
such membership; and
(iv) The use of an Employer-owned or Employer-leased
automobile of Employee's choice, the selection and replacement of which shall be
subject to the approval of the Compensation Committee of the Board.
5. Stock Options. Employer shall cause the Compensation Committee of the
Board to review whether Employee should be granted options to purchase shares of
common stock of CBSI. Such review may be conducted pursuant to the terms of the
Community Bank System, Inc. 1994 Long-Term Incentive Compensation Program, a
successor plan, or independently, as the Personnel Committee shall determine.
Reviews shall be conducted no less frequently than annually.
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6. Change of Control.
(a) If Employee's employment with Employer (as an employee) shall
cease for any reason, including Employee's voluntary termination for "good
reason" (as defined in paragraph 6(e) below), but not including Employee's
termination for "cause" (as described in paragraph 3(d)) or Employee's voluntary
termination without "good reason," within 2 years following a "Change of
Control" that occurs during the Period of Employment, Employer shall:
(i) Retain the services of Employee, on an independent
contractor basis, as a consultant to Employer for a period of no less than 36
months at an annual consulting fee rate equal to Employee's Base Salary in
effect at the time of Employee's termination, plus an amount equal to the
Management Incentive Plan payment made to Employee in the year previous to the
Change of Control;
(ii) Provide Employee with fringe benefits, or the cash
equivalent of such benefits (equal to Employer's cost for such benefits),
identical to those described in paragraph 4(a) for the period during which
Employee is retained as a consultant pursuant to (i) above. To the extent the
benefits provided to Employee in this paragraph 6(a)(ii) are deemed taxable
benefits, Employer shall reimburse Employee for taxes owed by Employee on the
benefits and tax reimbursement;
(iii) Treat as immediately exercisable all unexpired stock
options issued by Employer and held by Employee that are not otherwise
exercisable or that have not been exercised (so as to permit Employee to
purchase the balance of CBSI Stock not yet purchased pursuant to said options
until the end of the full exercise period provided in the original grant of the
option right, determined without regard to Employee's termination of
employment); and
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(iv) Permit Employee to dispose of any restricted stock
granted to Employee.
(b) Subject to Employer's right to make the single lump sum payment
described in paragraph 6(c) below, if any portion of the amounts paid to, or
value received by, Employee following a Change of Control (whether paid or
received pursuant to this paragraph 6 or otherwise) constitutes an "excess
parachute payment" within the meaning of Internal Revenue Code Section 280G,
then the parties shall negotiate over the restructuring of payment dates and/or
methods (but not payment amounts) to minimize or eliminate the application of
Internal Revenue Code Section 280G. If an agreement between Employer and
Employee to restructure payments cannot be reached within 60 days of the date
the first payment is due under this paragraph 6, then payments shall be made
without restructuring. Subject to paragraph 6(c), Employee shall be responsible
for all taxes and penalties payable by Employee as a result of Employee's
receipt of an "excess parachute payment."
(c) Notwithstanding the foregoing of this paragraph 6, the Board may
elect, in its sole discretion, to pay all benefits due Employee pursuant to this
paragraph 6 in a single lump sum payment following a Change of Control and
Employee's termination of employment with Employer. In the event a single lump
sum payment is made pursuant to the foregoing sentence, the amount of the
payment shall be increased to the extent necessary to hold Employee harmless
from any marginal income and employment tax liability created by the single lump
sum payment (i.e., the income and employment tax liability that exceeds the
income and employment tax liability that would have been incurred by Employee if
payments were made in the manner and during the periods otherwise described in
this paragraph 6).
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(d) For purposes of this paragraph 6, a "Change of Control" shall be
deemed to have occurred if:
(i) any "person," including a "group" as determined in
accordance with the Section 13(d)(3) of the Securities Exchange Act of 1934
("Exchange Act"), is or becomes the beneficial owner, directly or indirectly, of
securities of Employer representing 30% or more of the combined voting power of
Employer's then outstanding securities;
(ii) as a result of, or in connection with, any tender offer
or exchange offer, merger or other business combination (a "Transaction"), the
persons who were directors of Employer before the Transaction shall cease to
constitute a majority of the Board or the board of directors of any successor to
Employer;
(iii) Employer is merged or consolidated with another
corporation and as a result of the merger or consolidation less than 70% of the
outstanding voting securities of the surviving or resulting corporation shall
then be owned in the aggregate by the former stockholders of Employer, other
than (A) affiliates within the meaning of the Exchange Act, or (B) any party to
the merger or consolidation;
(iv) a tender offer or exchange offer is made and consummated
for the ownership of securities of Employer representing 30% or more of the
combined voting power of Employer's then outstanding voting securities; or
(v) Employer transfers substantially all of its assets to
another corporation which is not controlled by Employer.
(e) For purposes of this paragraph 6, "good reason" shall mean
action taken by Employer that results in:
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(i) An involuntary and material adverse change in Employee's
title, duties, responsibilities, or total remuneration; or
(ii) An involuntary and material relocation of the office from
which Employee is expected to perform his duties; or
(iii) An involuntary and material adverse change in the
general working conditions (including travel requirements and clerical support)
applicable to Employee.
By way of example, and not limitation, the following changes, if
involuntary, would constitute "good reason" for purposes of this Agreement: (A)
reducing or eliminating Employee's authority and responsibility to implement the
duties of Chief Credit Administrator as described in paragraph 2; or (B)
requiring Employee to perform his services for Employer at an office located
outside of Lackawanna County, Pennsylvania.
7. Withholding. Employer shall deduct and withhold from compensation and
benefits provided under this Agreement all necessary income and employment taxes
and any other similar sums required by law to be withheld.
8. Covenants.
(a) Confidentiality. Employee shall not, without the prior written
consent of Employer, publicly disclose or use in any way, either during his
employment by Employer or thereafter, except as required in the course of his
employment by Employer, any confidential business or technical information or
trade secret acquired in the course of Employee's employment by Employer.
Employee acknowledges and agrees that it would be difficult to fully compensate
Employer for damages resulting from such disclosure or use and, accordingly,
that Employer shall be entitled to temporary preliminary injunctions and
permanent injunctions to enforce this provision. This provision with respect to
injunctive relief shall not,
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however, diminish Employer's right to claim and recover damages. Employee
covenants to use his best efforts to prevent the publication or disclosure of
any trade secret or any confidential information concerning the business or
finances of Employer or Employer's affiliates, or any of its or their dealings,
transactions or affairs which may come to Employee's knowledge in the pursuance
of his duties or employment.
(b) No Competition. Employee's employment is subject to the
condition that during the term of his employment hereunder and for the period
specified in paragraph 8(c) below, Employee shall not, directly or indirectly,
own, manage, operate, control or participate in the ownership, management,
operation or control of, or be connected as an officer, employee, partner,
director, individual proprietor, lender, consultant or otherwise with, or have
any financial interest in, or aid or assist anyone else in the conduct of, any
entity or business (a "Competitive Operation") which competes in the banking
industry or with any other business conducted by Employer or by any group,
affiliate, division or subsidiary of Employer, in the states of New York and
Pennsylvania. Employee shall keep Employer fully advised as to any activity,
interest, or investment Employee may have in any way related to the banking
industry. It is understood and agreed that, for the purposes of the foregoing
provisions of this paragraph, (i) no business shall be deemed to be a business
conducted by Employer or any group, division, affiliate or subsidiary of
Employer unless 5% or more of Employer's consolidated gross sales or operating
revenues is derived from, or 5% or more of Employer's consolidated assets are
devoted to, such business; (ii) no business conducted by any entity by which
Employee is employed or in which he is interested or with which he is connected
or associated shall be deemed competitive with any business conducted by
Employer or any group, division or subsidiary of Employer unless it is one from
which 2% or more of its consolidated gross sales or
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operating revenues is derived, or to which 2% or more of its consolidated assets
are devoted; and (iii) no business which is conducted by Employer at the Date of
Termination and which subsequently is sold by Employer shall, after such sale,
be deemed to be a Competitive Operation within the meaning of this paragraph.
Ownership of not more than 5% of the voting stock of any publicly held
corporation shall not constitute a violation of this paragraph.
(c) Non-Competition Period. The "non-competition period" shall begin
on the date the first payment is made pursuant to the terms of this Agreement
and shall end on the date the final payment is made pursuant to the terms of
this Agreement; provided, however, that the non-competition period shall end on
the date Employee's employment ends in the event of Employee's termination for
good reason (as defined in paragraph 6(e)), or Employee's termination without
cause (as defined in paragraph 3(d)), within two years following a Change of
Control that occurs during the Period of Employment.
(d) Certain Affiliates of Employer. It is understood that Employee
may have access to technical knowledge, trade secrets and customer lists of
affiliates of Employer or companies which Employer's parent may acquire in the
future and may serve as a member of the board of directors or as an officer or
employee of an affiliate of Employer. Employee covenants that he shall not,
during the term of his employment by Employer or for the period specified in
8(c) above, in any way, directly or indirectly, own, manage, operate, control or
participate in the ownership, management, operation or control of, or be
connected as an officer, employee, partner, director, individual proprietor,
lender, consultant or otherwise aid or assist anyone else in any business or
operation which competes with or engages in the business of such an affiliate.
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(e) Termination of Payments. Upon Employee's receipt of written
notice to Employee of the breach by Employee of any covenant under this
paragraph 8, Employer may withhold, offset and/or recover from Employee
immediately any and all amounts payable to Employee under this Agreement in
addition to any and all other remedies available to Employer under the law or in
equity.
9. Notices. Any notice which may be given hereunder shall be sufficient if
in writing and mailed by certified mail, return receipt requested, to Employee
at his residence and to Employer at 5790 Widewaters Parkway, Dewitt, New York
13214, or at such other addresses as either Employee or Employer may, by similar
notice, designate.
10. Rules, Regulations and Policies. Employee shall abide by and comply
with all of the rules, regulations, and policies of Employer, including without
limitation Employer's policy of strict adherence to, and compliance with, any
and all requirements of the banking, securities, and antitrust laws and
regulations.
11. No Prior Restrictions. Employee affirms and represents that Employee
is under no obligations to any former employer or other third party which is in
any way inconsistent with, or which imposes any restriction upon, the employment
of Employee by Employer, or Employee's undertakings under this Agreement.
12. Return of Employer's Property. After Employee has received notice of
termination or at the end of the term hereof, whichever first occurs, Employee
shall promptly return to Employer all documents and other property in his
possession belonging to Employer.
13. Construction and Severability. The invalidity of any one or more
provisions of this Agreement or any part thereof, all of which are inserted
conditionally upon their being valid in law, shall not affect the validity of
any other provisions to this Agreement;
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and in the event that one or more provisions contained herein shall be invalid,
as determined by a court of competent jurisdiction, the court shall have
authority to modify such provision in a manner that most closely reflects the
intent of the parties and is valid.
14. Governing Law. This Agreement was executed and delivered in New York
and shall be construed and governed in accordance with the laws of the State of
New York.
15. Assignability and Successors. This Agreement may not be assigned by
Employee or Employer, except that this Agreement shall be binding upon and shall
inure to the benefit of the successor of Employer through merger or corporate
reorganization.
16. Miscellaneous. This Agreement constitutes the entire understanding and
agreement between the parties with respect to the subject matter hereof and
shall supersede all prior understandings and agreements, including the
Employment Agreement between the parties that is scheduled to expire effective
May 11, 2004. This Agreement cannot be amended, modified, or supplemented in any
respect, except by a subsequent written agreement entered into by the parties
hereto. The services to be performed by Employee are special and unique; it is
agreed that any breach of this Agreement by Employee shall entitle Employer (or
any successor or assigns of Employer), in addition to any other legal remedies
available to it, to apply to any court of competent jurisdiction to enjoin such
breach. The provisions of paragraphs 6 and 8 hereof shall survive the
termination of this Agreement.
17. Counterparts. This Agreement may be executed in counterparts (each of
which need not be executed by each of the parties), which together shall
constitute one and the same instrument.
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The foregoing is established by the following signatures of the parties.
COMMUNITY BANK SYSTEM, INC.
By:
------------------------------
Its:
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COMMUNITY BANK, N.A.
By:
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Its:
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STEVEN R. TOKACH
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APPENDIX A
BENEFICIARY DESIGNATION FORM
Pursuant to the Employment Agreement between (i) Community Bank System,
Inc. and Community Bank, N.A., and (ii) Steven R. Tokach, dated as of May 1,
2004 ("Agreement"), I, Steven R. Tokach, hereby designate
___________________________, my ____________________________, as the beneficiary
of amounts payable upon my death in accordance with paragraph 3(b) of the
Agreement. My beneficiary's current address is _________________________,
________, Pennsylvania.
My contingent beneficiary is __________________, my __________________.
My contingent beneficiary's address is ________________________________.
Dated: _____________
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Steven R. Tokach
- -----------------------------
Witness
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