Exhibit 10a
Execution Copy
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of the 13th day of March, 2003 (the
"Effective Date"), by and between CAPITOL BANCORP LTD., a Michigan corporation
(the "Company") and Xxxxxx X. Xxxx (the "Executive").
BACKGROUND
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its shareholders to employ the
Executive. The Company and the Executive established an employment relationship
pursuant to an Employment Agreement dated February 21, 1989, as amended (the
"Original Employment Agreement").
The Company and the Executive desire to enter into this Agreement to amend
and restate the terms and conditions of such employment relationship and the
Original Employment Agreement in their entirety.
This Agreement shall represent the entire understanding and agreement
between the parties with respect to the Executive's employment with the Company.
NOW, THEREFORE, in consideration of the foregoing and the terms and
conditions set forth herein, the parties agree as follows:
TERMS AND CONDITIONS
1. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive
in its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the
Employment Period. The "Employment Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Employment Period shall be automatically
extended so as to terminate three years from such Renewal Date, unless at least
60 days prior to the Renewal Date the Company shall give notice to the Executive
that the Employment Period shall not be so extended.
2. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the Employment Period, the Executive shall serve as
the President and Chief Executive Officer of the Company and shall
have such duties and responsibilities as are assigned to him by the
Board. The Company shall nominate the Executive as a director at the
relevant meeting of shareholders held for the election of directors
until such time as the Executive resigns, is terminated, or until the
Executive's death or Disability. The Company shall cause the Executive
to continue to be elected to the position of Chairman of the Board
during the Employment Period.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments,
so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) COMPENSATION.
(i) BASE SALARY. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal Nine Hundred Forty
Thousand Dollars ($940,000), which shall be paid in accordance with
the Company's normal payroll practices for senior executives as in
effect from time to time. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last
salary increase awarded to the Executive prior to the Effective Date
and thereafter at least annually. Any increase in Annual Base Salary
shall not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary shall not be
reduced after any such increase and the term "Annual Base Salary" as
utilized in this Agreement shall refer to Annual Base Salary as so
increased.
(ii) ANNUAL BONUS. In addition to Annual Base Salary, for each
fiscal year ending during the Employment Period, the Executive shall
be eligible for an annual cash bonus (the "Annual Bonus") in an amount
specified on Exhibit A attached hereto pursuant to the terms of the
Company's Management Incentive Plan, as amended ("MIP") (or any
predecessor or successor plan thereof), as determined by the
Compensation Committee of the Board, upon complete achievement of the
targets set forth on Exhibit A attached hereto. Each such Annual Bonus
shall be paid no later than the end of the third month of the fiscal
year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such
Annual Bonus. The amount of any Annual Bonus which exceeds the maximum
bonus payable pursuant to the MIP in any one fiscal year, if any,
shall be carried over (on a "first-in, first-out" basis) and added to
the Annual Bonus (if any) determined for any of the next
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three fiscal years, whether or not any one or more of such fiscal
years ends before or after the end of the Employment Period.
(iii) LONG-TERM INCENTIVE COMPENSATION. During the Employment
Period, the Executive shall be awarded stock options on the terms and
conditions set forth on Exhibit B attached hereto and otherwise in
accordance with the applicable stock plan. The Executive shall also be
entitled to receive a special long term incentive bonus in the amount
and on the date set forth on Exhibit B attached hereto and in such
amounts and on such future dates as determined by the Compensation
Committee of the Board.
(iv) WELFARE BENEFIT PLANS. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by
the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, employee life,
group life, accidental death and travel accident insurance plans and
programs) to the extent available generally to other peer executives
of the Company and its affiliated companies. As used in this
Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company.
(v) EXPENSES. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most
favorable plans, practices, policies and programs of the Company and
its affiliated companies to the extent applicable generally to other
peer executives of the Company and its affiliated companies.
(vi) FRINGE BENEFITS. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if
applicable, use of an automobile and payment of related expenses, in
accordance with the most favorable plans, practices, policies and
programs of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vii) OFFICE AND SUPPORT STAFF. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal
secretarial and other assistance, at least equal to the most favorable
of the foregoing provided to the Executive by the Company and its
affiliated companies at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive,
as provided generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
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(viii) VACATION. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most
favorable plans, practices, policies and programs of the Company and
its affiliated companies as in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies.
(c) OTHER AGREEMENTS. Notwithstanding the provisions of this
Agreement, the Company and the Executive acknowledge and agree to
the following:
(i) Section 4(c) of the Original Employment Agreement shall apply
to the share exchanges set forth on Exhibit C attached hereto;
(ii) that certain Securities Repurchase Agreement between the
Company and the Executive (the "Securities Repurchase Agreement")
shall continue in full force and effect;
(iii) the Executive shall prepay the outstanding principal
balance of that certain promissory note in the original principal
amount of $1,819,151 (the "Note") to the Company on or before April
30, 2003, the Company acknowledges that such prepayment of the Note
will be made five (5) years before the Note's due date; and
(iv) as soon as practicable after the Effective Date, the Company
shall enter into an indemnification agreement with the Executive which
is intended to maximize the indemnification coverage for the benefit
of the Executive.
3. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 9(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
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(b) CAUSE. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliated companies (other than any such failure resulting from
incapacity due to physical or mental illness), after a written demand
for substantial performance is delivered to the Executive by the Board
which specifically identifies the manner in which the Board believes
that the Executive has not substantially performed the Executive's
duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the part
of the Executive, shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without
reasonable belief that the Executive's action or omission was in the
best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
based upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good
faith and in the best interests of the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless
and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board (excluding the
vote of the Executive) at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and
the Executive is given an opportunity, together with counsel, to be
heard before the Board), finding that, in the good faith opinion of
the Board, the Executive is guilty of the conduct described in clauses
(i) or (ii) above, and specifying the particulars thereof in detail.
(c) GOOD REASON. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent in
any material respect with the Executive's position, authority, duties
or responsibilities as contemplated by Section 2(a) of this Agreement,
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) failure by the Company to comply with any of the provisions
of Section 2(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
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(iii) the Company's requiring the Executive to reside at any
specific location, it being understood that the Executive maintains
multiple residences and offices, or the Company's requiring the
Executive to travel on Company business to a greater extent than
required immediately prior to the Effective Date or in the event of a
Change of Control (as such term is defined in Exhibit D attached
hereto), the Company's requiring the Executive to travel in a manner
inconsistent with current practice in effect immediately preceding the
Change of Control date;
(iv) failure by the Company to comply with and satisfy Section
8(c) of this Agreement; or
(v) upon a Change of Control.
Within one hundred eighty (180) days after the Executive has actual
knowledge of the occurrence of an event or circumstances which would
give him reason to believe constitute Good Reason, the Executive must
give sixty (60) days prior written notice of his intent to terminate
his employment for Good Reason, which notice shall set forth the event
or circumstances believed to constitute Good Reason. Upon receipt of
such notice, the Company shall have sixty (60) days to cure its
conduct, to the extent such cure is possible. This notice period shall
not be required after a Change of Control nor serve to limit the
Executive's right to terminate for Good Reason at any time during the
remaining term of this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 9(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which sets forth (i) the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, in reasonable detail, the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii) if the Date of
Termination (as defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than thirty (30)
days after the giving of such notice). The failure by either party to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive the right of either party from
asserting such fact or circumstance in enforcing its rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
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4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON; OTHER THAN FOR CAUSE OR DISABILITY PRIOR TO A CHANGE
OF CONTROL. If, during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or the Executive shall
terminate employment for Good Reason prior to a Change of Control:
(i) the Company shall pay to the Executive, in a lump sum in cash
within 90 days after the Date of Termination, the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid, (2)
the product of (x) the higher of (I) the most recent Annual Bonus
(which shall not include the long-term incentive bonus
contemplated by Section 2(b)(iii)) and (II) the Annual Bonus paid
or payable, including any bonus or portion thereof which has been
earned but deferred (and annualized for any fiscal year
consisting of less than twelve full months or during which the
Executive was employed for less than twelve full months), for the
most recently completed fiscal year during the Employment Period,
if any (such higher amount being referred to as the "Highest
Annual Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365, and (3) any
compensation previously deferred by the Executive (together with
any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2), and (3)
shall be hereinafter referred to as the "Accrued Obligations");
and
B. the amount equal to the product of (1) three times the
sum of (x) the Executive's Annual Base Salary and (y) the Highest
Annual Bonus;
(ii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall
continue welfare benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided to them
in accordance with the plans, programs, practices and policies
described in Section 2(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies
and their families, provided, however, that if the Executive becomes
reemployed with another employer and is eligible to receive medical or
other welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be secondary
to
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those provided under such other plan during such applicable period of
eligibility. For purposes of determining eligibility (but not the time
of commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until three
years after the Date of Termination and to have retired on the last
day of such period; and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies
(such other amounts and benefits shall be hereinafter referred to as
the "Other Benefits").
(b) DEATH. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for (x) payment of Accrued Obligations, (y) the
timely payment or provision of Other Benefits and (z) the Company's obligations
under the Securities Repurchase Agreement. Accrued Obligations shall be paid to
the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 4(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any.
(c) DISABILITY. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 4(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
of those generally provided by the Company and its affiliated companies to
disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any.
(d) CAUSE, ETC.; OTHER THAN FOR GOOD REASON. If the Executive's
employment during the Employment Period shall be terminated for Cause or if the
Executive voluntarily terminates employment during the Employment Period,
excluding a termination for Good Reason, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the Date of Termination, (y) the
amount of any compensation previously deferred by the Executive, and (z) Other
Benefits, in each case to the extent theretofore unpaid. In such case, the
amounts contemplated by (x) and (y) shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination.
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(e) GOOD REASON; OTHER THAN FOR CAUSE OR DISABILITY WITHIN TWO YEARS
AFTER A CHANGE OF CONTROL. If, during the Employment Period, the Company shall
terminate the Executive's employment other than for Cause or Disability or the
Executive shall terminate employment for Good Reason within two (2) years after
a Change of Control:
(i) the Company shall pay to the Executive, in a lump sum in cash
within 30 days after the Date of Termination, the aggregate of the
following amounts:
A. the Accrued Obligations;
B. the amount equal to the product of (1) three times the
sum of (x) the Executive's Annual Base Salary, (y) the Highest
Annual Bonus, and (z) the aggregate amount of the employer
contributions made with respect to the most recently completed
plan year before the Date of Termination to the Executive's
account(s) in any qualified defined contribution plan sponsored
by the Company or any of its affiliated companies in which the
Executive participated and any related non-qualified plans; and
C. an amount equal to the excess of (a) the actuarial
equivalent of the benefit under the Company's qualified defined
benefit retirement plan (the "Retirement Plan") (utilizing
actuarial assumptions no less favorable to the Executive than
those in effect under the Company's Retirement Plan immediately
prior to the Effective Date), and any non-qualified excess or
supplemental defined benefit retirement plan in which the
Executive participates (together, the "SERP") which the Executive
would receive if the Executive's employment continued for three
years after the Date of Termination assuming for this purpose
that (x) all accrued benefits are fully vested, (y) the Executive
is three years older and (z) the Executive is credited with three
more years of service, and, assuming that the Executive's
compensation in each of the three years is that required by
Section 2(b)(i) and Section 2(b)(ii), over (b) the actuarial
equivalent of the Executive's actual benefit (paid or payable),
if any, under the Retirement Plan and the SERP as of the Date of
Termination;
(ii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall
continue welfare benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided to them
in accordance with the plans, programs, practices and policies
described in Section 2(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect
to other peer executives of the
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Company and its affiliated companies and their families, provided,
however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare
benefits described herein shall be secondary to those provided under
such other plan during such applicable period of eligibility. For
purposes of determining eligibility (but not the time of commencement
of benefits) of the Executive for retiree benefits pursuant to such
plans, practices, programs and policies, the Executive shall be
considered to have remained employed until three years after the Date
of Termination and to have retired on the last day of such period;
(iii) for all purposes of the vesting and exercisability of
equity-based awards under the Company's stock incentive plans and the
award agreements thereunder, the Executive shall be deemed to be on a
leave of absence from the Company for three years after the Date of
Termination and the Executive's termination of employment from the
Company shall be deemed to occur on the third anniversary of the Date
of Termination; and
(iv) the Company shall pay and/or provide to the Executive the
Other Benefits to the extent theretofore unpaid.
(v) The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder
shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have
against the Executive or others. In no event shall the Executive be
obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company
agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee
of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement),
plus, in each case, interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
5. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's future participation in any plan, program, policy or
practice provided by the Company or any of its affiliated companies and for
which the Executive may qualify. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
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6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary not withstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 6) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 6(a), if it shall be determined that the Executive is
entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the
greatest amount (the "Reduced Amount") that could be paid to the Executive such
that the receipt of Payments would not give rise to any Excise Tax, then no
Gross-Up Payment shall be made to the Executive and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 6(c), all determinations
required to be made under this Section 6, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by BDO Xxxxxxx
LLP or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 6(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
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(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim; provided, however, that the Company shall bear
and pay directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis, for
any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 6(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and xxx for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and xxx for a refund, the
Company shall advance the amount of such payment to the Executive, on
an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be
12
limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 6(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 6(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 6(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
7. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 7 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
8. SUCCESSORS.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
13
9. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Michigan, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: One Business & Trade Center
000 Xxxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
If to the Company: Capitol Bancorp Ltd.
One Business & Trade Center
000 Xxxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 3(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) This Agreement, and all agreements, documents, instruments,
schedules, exhibits or certificates prepared in connection herewith, represent
the entire understanding and agreement between the parties with respect to the
subject matter hereof, supersede all prior agreements or negotiations between
such parties, including the Original Employment Agreement, and may be amended,
supplemented or changed only by an agreement in writing which makes specific
reference to this Agreement or the agreement or document delivered
14
pursuant hereto, as the case may be, and which is signed by the party against
whom enforcement of any such amendment, supplement or modification is sought.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
31st day of March, 2003.
/s/ Xxxxxx X. Xxxx
----------------------------------------
Xxxxxx X. Xxxx
CAPITOL BANCORP LTD.,
a Michigan corporation
By: /s/ Xxx X. Xxxxxxxxxxx
------------------------------------
Its: Chief Financial Officer
AND
/s/ Xxxxx X'Xxxxx
----------------------------------------
Xxxxx X'Xxxxx, Secretary of the Board of
Directors of Capitol Bancorp Ltd.
15
EXHIBIT A
ANNUAL BONUS PERFORMANCE GOALS
Executive: Xxxxxx X. Xxxx.
Company: Capitol Bancorp Ltd.
Plan: Capitol Bancorp Ltd. Management Incentive Plan.
Target Annual Bonus: 2% of Net Income of Capitol Bancorp Ltd. for the
immediately preceding fiscal year upon complete
achievement of the performance goals set forth below.
Performance Goals: The Annual Bonus contemplated in this Exhibit A shall be
subject to the Company's complete achievement of the
following performance goals:
1. Growth of the Company's Earnings Per Share ("EPS")
equal to or greater than 10% for the immediately preceding
fiscal year, PROVIDED, HOWEVER, in determining the EPS
growth rate new affiliated institutions shall not be
included in the EPS computation for the first twelve (12)
months of their operation nor shall special charges
associated with the acquisition of a bank, a holding
company or a controlling interest in a bank or a holding
company be included in the EPS computation; and
2. Growth of the Company's total assets, as reflected on
the Company's year-end audited financial statements, equal
to or greater than 10% for the immediately preceding
fiscal year.
Net Income: Means, with reference to any period, the net income (or
loss) of the Company and its subsidiaries for such period
(taken as a cumulative whole), as determined in accordance
with generally accepted accounting principles and reported
on the year-end audited financial statements of the
Company.
A-1
EXHIBIT B
LONG-TERM INCENTIVE BONUS
I. STOCK OPTIONS:
Executive: Xxxxxx X. Xxxx.
Company: Capitol Bancorp Ltd.
Plan: Capitol Bancorp Ltd. 2003 Stock Plan or any other stock
option plan adopted by the Company in which the Executive
may participate.
Target Award: An option to purchase 30,000 shares of the Company's
common stock at an exercise price equal to the fair market
value of the Company's common stock on the date of such
grant for (i) each new bank or holding company formed or
opened by the Company or any of its affiliated companies
during the term of this Agreement, and (ii) each bank,
holding company or controlling interest in a bank or
holding company acquired by the Company or any of its
affiliated companies and banks by purchase transaction
during the term of this Agreement.
II. CASH:
Executive: Xxxxxx X. Xxxx.
Company: Capitol Bancorp Ltd.
Target Annual Bonus: Two times (2X) the Executive's Annual Base Salary paid to
the Executive during the 5th year of this Agreement.
Performance Goals: The Long-Term Cash Bonus contemplated in this Exhibit B
shall be subject to the Company's complete achievement of
the following performance goals:
1. Average Growth of the Company's Earnings Per Share
("EPS") equal to or greater than 15% for the Initial
Measuring Period, PROVIDED, HOWEVER, in determining the
EPS growth rate newly affiliated institutions which become
operative during the Initial Measuring Period shall not be
included in the EPS computation for the first twelve (12)
months of their respective operation nor shall special
charges associated with the acquisition of a bank, a
holding company or a controlling interest in a bank or
B-1
a holding company during the Initial Measuring Period be
included in the EPS computation; and
2. Average Growth of the Company's total assets, as
reflected on the Company's year-end audited financial
statements for fiscal year ending December 31, 2007, equal
to or greater than 15% for the Initial Measuring Period.
Initial Measuring
Period: The five year period beginning on January 1, 2003 and
ending on December 31, 2007.
Date Paid: No later than March 31, 2008, unless the Executive shall
elect to defer the receipt or a portion of such bonus.
B-2
EXHIBIT C
SHARE EXCHANGES THAT REMAIN SUBJECT TO SECTION 4(C)
OF THE ORIGINAL EMPLOYMENT AGREEMENT
1. Desert Community Bank
2. Red Rock Community Bank
3. Black Mountain Community Bank
4. Goshen Community Bank
5. Elkhart Community Bank
6. Arrowhead Community Bank
7. Yuma Community Bank
8. Sunrise Bank of Albuquerque
C-1
EXHIBIT D
CHANGE OF CONTROL
For the purpose of this Agreement, a "Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, (iv) any
acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 2 or (v) any
acquisition of shares of the Company's stock owned by the Executive; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock
D-1
of the corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such corporation
except to the extent that such ownership existed prior to the Business
Combination, and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
D-2
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT is made effective as of the 22nd day of April, 2003, by and
between Xxxxxx X. Xxxx (the "Executive") and CAPITOL BANCORP LTD., a Michigan
corporation (the "Company").
BACKGROUND
On March 31, 2003, the Company and the Executive entered into an Employment
Agreement dated effective March 13, 2003 (the "Employment Agreement"). The
Company and the Executive now wish to amend the Employment Agreement as provided
herein.
NOW, THEREFORE, in consideration of the foregoing and the terms and
conditions set forth below, the parties agree as follows:
TERMS AND CONDITIONS
1. AMENDMENT TO SECTION 2(C). Section 2(c) of the Employment Agreement is
hereby deleted in its entirety and amended to read as follows:
"(c) OTHER AGREEMENTS. Notwithstanding the provisions of this
Agreement, the Company and the Executive acknowledge and agree to the
following:
(i) Section 4(c) of the Original Employment Agreement shall apply
to the share exchanges set forth on Exhibit C attached hereto;
(ii) that certain Securities Repurchase Agreement between the
Company and the Executive (the "Securities Repurchase Agreement") shall
continue in full force and effect;
(iii) the Executive shall prepay the outstanding principal
balance of that certain promissory note in the original principal amount of
$1,819,151 (the "Note") to the Company on or before April 30, 2003, the
Company acknowledges that such prepayment of the Note will be made five (5)
years before the Note's due date;
(iv) as soon as practicable after the Effective Date, the Company
shall enter into an indemnification agreement with the Executive which is
intended to maximize the indemnification coverage for the benefit of the
Executive;
(v) on or before May 9, 2003, the Company shall grant to the
Executive an award of 214,169 restricted shares of the Company's common
stock (the "Restricted Stock"). The Restricted Stock shall be subject to
such vesting and forfeiture conditions that are satisfactory to the
Company; and
1
(vi) on or before April 30, 2003, the Executive shall exercise
outstanding options to purchase shares of the Company's common stock
currently held by the Executive which are exercisable for not less than
598,000 shares of the Company's common stock and have an average remaining
exercise period of at least three (3) years."
2. AMENDMENT TO EXHIBIT B. Exhibit B of the Employment Agreement is hereby
deleted in its entirety and amended to read as Exhibit B attached hereto.
3. CONSTRUCTION. Unless otherwise defined herein, capitalized terms shall
have the meanings set forth in the Employment Agreement. The terms of this
Amendment amend and modify the Employment Agreement as if fully set forth in the
Employment Agreement. If there is any conflict between the terms, conditions and
obligations of this Amendment and the Employment Agreement, this Amendment's
terms, conditions and obligations shall control. All other provisions of the
Employment Agreement not specifically modified by this Amendment are preserved.
IN WITNESS WHEREOF, this Amendment has been made effective as of the date
first set forth above.
THE EXECUTIVE: /s/ Xxxxxx X. Xxxx
----------------------------------------
Xxxxxx X. Xxxx
THE CORPORATION: CAPITOL BANCORP LTD.,
a Michigan corporation
By: /s/ Xxx X. Xxxxxxxxxxx
------------------------------------
Its: Chief Financial Officer
AND
/s/ Xxxxx X'Xxxxx
----------------------------------------
Xxxxx X'Xxxxx, Secretary of the Board of
Directors of Capitol Bancorp Ltd.
2
EXHIBIT B
LONG-TERM INCENTIVE BONUS
I. STOCK OPTIONS/RESTRICTED STOCK /CASH:
Executive: Xxxxxx X. Xxxx.
Company: Capitol Bancorp Ltd.
Plan: Capitol Bancorp Ltd. 2003 Stock Plan, Capitol Bancorp Ltd.
2003 Management Incentive Plan or any other plan adopted
by the Company in which the Executive may participate.
Target Bonus &
Performance Goals: During the term of this Agreement, the Company shall
grant, issue or deliver to the Executive one of the
following: (A) an option to purchase 30,000 shares of the
Company's common stock at an exercise price equal to the
fair market value of the Company's common stock on the
date of such grant, (B) a restricted stock grant equal to
the value of the option referred to in (A) utilizing the
Black-Scholes model, or (C) cash in an amount equal to the
value of the option referred to in (A) utilizing the
Black-Scholes model, for each (i) new bank or holding
company formed or opened for business by the Company or
any of its affiliated companies or (ii) holding company or
separate bank directly acquired (including the acquisition
of a controlling interest therein) by the Company or any
of its affiliated companies or banks by purchase
transaction. The Company shall have the sole discretion to
elect the method of payment set forth in (A), (B) and (C)
above.
II. CASH:
Executive: Xxxxxx X. Xxxx.
Company: Capitol Bancorp Ltd.
Plan: Capitol Bancorp Ltd. 2003 Management Incentive Plan,
Capitol Bancorp Ltd. 2003 Stock Plan or any other plan
adopted by the Company in which the Executive may
participate.
Target Bonus: Two times (2X) the Executive's Annual Base Salary paid to
the Executive during the 5th year of this Agreement.
B-1
Performance Goals: The Long-Term Cash Bonus contemplated in this Exhibit B
shall be subject to the Company's complete achievement of
the following performance goals:
1. Average Growth of the Company's Earnings Per Share
("EPS") equal to or greater than 15% for the Initial
Measuring Period, PROVIDED, HOWEVER, in determining the
EPS growth rate newly affiliated institutions which become
operative during the Initial Measuring Period shall not be
included in the EPS computation for the first twelve (12)
months of their respective operation nor shall special
charges associated with the acquisition of a bank, a
holding company or a controlling interest in a bank or a
holding company during the Initial Measuring Period be
included in the EPS computation; and
2. Average Growth of the Company's total assets, as
reflected on the Company's year-end audited financial
statements for fiscal year ending December 31, 2007, equal
to or greater than 15% for the Initial Measuring Period.
Initial Measuring
Period: The five year period beginning on January 1, 2003 and
ending on December 31, 2007.
Date Paid: No later than March 31, 2008, unless the Executive shall
elect to defer the receipt or a portion of such bonus.
B-2
