EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT executed as of this
29th day of December, 2008 (“Agreement”)
among ARROW FINANCIAL CORPORATION, a New York corporation with its
principal place of business at 250 Glen Street, Glens Falls, New
York 12801 ("Arrow"), its wholly-owned subsidiary, GLENS FALLS
NATIONAL BANK AND TRUST COMPANY, a national banking association
with its principal place of business at 250 Glen Street, Glens
Falls, New York 12801 (the "Bank"), and THOMAS L. HOY , 250
Glen Street, Glens Falls, NY 12801 (the "Executive"). The
effective date of this Agreement shall be January 1, 2009 .
Capitalized terms used herein shall have the meanings given such
terms in Paragraph 11 of this Agreement, or if not included
therein, the meanings currently ascribed to such terms.
Recitals
WHEREAS, Arrow and the Bank consider the
maintenance of a competent and experienced executive management
team to be essential to the long-term success of Arrow and the
Bank; and
WHEREAS, in this regard, Arrow and the
Bank have determined that it is in the best interests of each that
the Executive continue to serve as Chairman, President and Chief
Executive Officer of Arrow and the Bank , pursuant to a
written employment agreement; and
WHEREAS, Arrow and the Bank have agreed
with the Executive that the pre-existing employment agreement
between the Executive and each of them should be replaced by this
Agreement effective January 1, 2009.
NOW, THEREFORE, in furtherance of the
interests described above and in consideration of the respective
covenants and agreements herein contained, the parties hereto agree
as follows:
1.
Employment . Arrow and the Bank agree to employ
the Executive and the Executive agrees to continue to serve as
Chairman, President and Chief Executive Officer of Arrow and
the Bank during the term of this Agreement.
2.
Term .
(a)
Term . The term of this Agreement
(“Term”) shall commence on the date hereof and, unless
the Executive becomes a Retired Early Employee under Paragraph 6 of
this Agreement or such employment is earlier terminated as provided
in Paragraph 7 of this Agreement, shall terminate on December
31, 2011 , or such earlier date upon which the
Executive’s retirement (including early retirement if the
Executive so elects) becomes effective under any retirement plan of
Arrow or its Affiliates then in effect.
(b)
Annual Review . During the last quarter of 2009 , and
the last quarter of 2010 , and 2011 , if necessary,
the Arrow Board, or the Committee, will consider and vote
upon a proposal to extend to the Executive an offer to replace this
Agreement with a new employment agreement (the “Replacement
Agreement”) commencing not later than January 1 of the
ensuing year. The Replacement Agreement will be for a new
term of three (3) years, will provide for a base annual salary for
the Executive at commencement of the Replacement Agreement at least
equal to the base annual salary of the Executive as of December 31
of the year just completed (the “Preceding Year-End”),
will provide for other benefits having an aggregate value to the
Executive at least equal to the aggregate value of the other
benefits provided to the Executive as of the Preceding Year-End,
and will contain other terms and conditions relating to the
Executive’s position and duties, place of performance, rights
upon a Change of Control of Arrow or the Bank and rights in
connection with any early Termination of Employment of the
Executive that are, in each such instance, at least as favorable to
the Executive as the terms and conditions relating to such matters
under this Agreement and generally shall be as favorable to the
Executive as is this Agreement, as of the Preceding Year-End.
If the Arrow Board or the Committee shall vote to offer such
a Replacement Agreement to the Executive and the Executive shall
accept, this Agreement shall terminate as of the close of business
on December 31 of the year of such offer and acceptance and the
Replacement Agreement shall simultaneously take effect as of
January 1 of the ensuing year.
If the Arrow Board or the Committee shall
elect not to offer such a Replacement Agreement to the Executive or
the Executive, having been offered such a Replacement Agreement,
shall elect not to accept such Replacement Agreement, this
Agreement and the employment of the Executive hereunder shall
continue in full force and effect from the date of such election
until the termination of this Agreement in accordance with its
terms (such period to be referred to hereinafter as the
“Winding-Down Period”), and the rights and obligations
of each of the parties hereunder shall continue unchanged during
the Winding-Down Period except as may be specifically provided
otherwise in this Agreement.
3.
Position and Duties
. The Executive shall
continue to serve as Chairman, President and Chief Executive
Officer of Arrow and the Bank and shall have duties,
responsibilities, and authority as normally attend such positions
or as may reasonably be assigned to the Executive from time to time
by the Arrow Board or the Bank Board. The Executive shall devote
substantially all his working time and efforts to the business and
affairs of Arrow and the Bank, provided however, that the Executive
may, with the approval of the Arrow Board, serve as a director or
officer of any non-competing business or engage in any other
activity, including but not limited to, charitable or community
activity, to the extent that such does not inhibit the performance
of his duties hereunder.
4.
Place of Performance In
connection with the Executive's
employment hereunder, the Executive shall be based at the principal
executive offices of the Bank, except for required travel on
business. The Executive shall not be required to change his
residence from the area in which he now resides. The Bank
shall furnish the Executive with office space, administrative
assistance, and such other facilities and services as shall be
suitable to the Executive's position and adequate for the
performance of his duties hereunder.
5.
Compensation .
(a)
Salary . Upon commencement of this Agreement, the base
annual salary of the Executive should be $388,500.00,
payable by the Bank in equal bi-weekly installments or at such
other intervals as shall constitute the regular payroll practice of
the Bank. In addition, the Executive shall receive from the
Bank or Arrow such annual bonus, if any, as may be determined by
the Arrow Board or the Committee. Such bonus will be paid not
later than the March 15 following the calendar year in which the
bonus was earned. The Executive's base annual salary may be
increased from time to time in accordance with the normal business
practices of Arrow and the Bank as determined by the Arrow Board or
the Committee, and, if so increased, such base annual salary shall
not thereafter during the Executive's employment under this
Agreement be decreased and the obligation of the Bank hereunder to
pay the Executive's base annual salary shall thereafter relate to
such increased base annual salary. Compensation of the
Executive by base annual salary payments shall not prevent the
Executive from participating in any other compensation or benefit
plan of Arrow or the Bank in which he is entitled to participate
and participation in any such other compensation or benefit plan
shall not in any way limit or reduce the obligation of the Bank to
pay the Executive's base annual salary hereunder.
(b)
Other Benefits . In addition to the compensation provided for
in subparagraph (a) above, the Executive shall be entitled during
the Term (i) to participate in any and all employee benefit
programs or stock purchase programs of Arrow or the Bank now or
hereafter in effect and open to participation by qualifying
employees of Arrow or the Bank generally, including but not limited
to the retirement plan, supplemental retirement plan, employee
stock purchase plan and employee stock ownership plan of Arrow or
the Bank, and (ii) to enjoy certain personal benefits provided by
Arrow or the Bank, including but not limited to:
(i)
life insurance on the life of the
Executive, at no cost to the Executive, under a group plan
maintained by Arrow;
(ii)
life insurance on the life of
the Executive, at no cost to the Executive, in the form of a
$500,000 Extra Ordinary Life Insurance Policy;
(iii)
disability insurance
for the Executive, at no cost to the Executive, under a group plan
maintained by Arrow;
(iv)
comprehensive medical
and dental insurance under a group plan provided by Arrow, with the
Executive to pay only those amounts required to be paid thereunder
by covered employees generally under the cost-sharing arrangements
in effect from time to time under such plan;
(v)
reimbursement in full of all
business, travel and entertainment expenses incurred by the
Executive in performing his duties hereunder; and
(vi)
fully paid vacation
during each calendar year in accordance with the vacation policies
of Arrow in effect from time to time.
Arrow shall not make any material changes
in any of the personal benefits itemized above adversely affecting
the Executive unless such change occurs pursuant to a program
applicable to all executive officers of Arrow and the adverse
effect on the Executive is not proportionately greater than the
adverse effect of the change on any other executive officer of
Arrow previously enjoying such benefit.
Premiums for the above-described
insurance programs will be payable in accordance with the
Bank’s regular monthly premium payments applicable to such
insurance programs. Reimbursement of expenses shall be paid
not later than the last day of the calendar year following the
calendar year in which the expenses were incurred.
6.
Change of Control
.
(a)
Retired Early Employee
. If a Change of Control occurs
during the Term, either the Executive, on the one hand, or Arrow or
the Bank, on the other, may elect by written notice, given to the
other party or parties, at any time within twelve (12) months after
such Change of Control, to effect the Executive’s
“Termination of Employment as a Retired Early
Employee”, whereupon the Executive will become a "Retired
Early Employee," in which event the Executive will be entitled to
receive such payments (in addition to any other payments then
receivable by him) as are provided hereafter in this Paragraph 6.
Any such Termination of Employment shall become effective on
the first day of the second calendar month commencing after
delivery of the notice or on such earlier date as the Executive in
his sole discretion may specify.
(b)
Cash Payments . Subject to Paragraph 8, in the event of the
Executive’s Termination of Employment as a Retired Early
Employee, the Bank shall, commencing on the date of Termination of
Employment and continuing throughout the Pay-out Period, make equal
monthly payments to the Executive (which shall not be deemed base
annual salary payments) in an amount such that the present value of
all such payments, determined as of the date of Termination of
Employment, equals two hundred ninety-nine percent (299%) of the
Base Amount. Subject to Paragraph 8, if at any time during
the Pay-Out Period the Arrow Board in its sole discretion shall
determine, upon application of the Retired Early Employee supported
by substantial evidence, that the Retired Early Employee has
experienced an unforeseeable emergency, as defined in Code Section
409A and the regulations thereunder, the Bank shall make available
to the Retired Early Employee, in one (1) lump sum, an amount up to
the amount needed to relieve such unforeseeable emergency
(including taxes reasonably anticipated as a result of such lump
sum payment) but not greater than the present value of all monthly
payments remaining to be paid to him in the Pay-Out Period,
calculated as of the date of such determination by the Arrow Board,
for the purpose of relieving such unforeseeable emergency to the
extent the same has not been or may not be relieved by (xi)
reimbursement or compensation by insurance or otherwise, (xii)
liquidation of the Retired Early Employee's assets (to the extent
such liquidation would not itself cause severe financial hardship),
or (xiii) distributions from other benefit plans. If (a) the
lump sum amount thus made available is less than (b) the present
value of all such remaining monthly payments, the Bank shall
continue to pay to the Retired Early Employee monthly payments for
the duration of the Pay-Out Period, but from such date forward such
monthly payments will be in a reduced amount such that the present
value of all such reduced payments, calculated as of the date of
such determination, will equal the difference between (b) and (a),
above. The Retired Early Employee may elect to waive any or
all payments due him under this subparagraph.
(c)
Death of Retired Early
Employee . If the
Executive dies before receiving all monthly payments payable to him
as a Retired Early Employee under Paragraph 6(b) above, the Bank
shall pay to the Executive’s spouse, or if the Executive
leaves no spouse, to the estate of the Executive, one (1) lump sum
payment in an amount equal to the present value of all such
remaining unpaid monthly payments, determined as of the date of
death of the Executive. Such amount shall be paid within
thirty (30) days of the Executive’s death, provided that the
spouse may not designate the calendar year of payment.
(d)
Indemnification of
Executive . In the event
a Change of Control occurs, Arrow and the Bank shall indemnify the
Executive for all legal fees and expenses subsequently incurred by
the Executive in seeking to obtain or enforce any right or benefit
provided under this Agreement, not limited to the rights and
benefits provided under this Paragraph 6 and whether or not the
Executive has become a Retired Early Employee hereunder, provided,
however, that such right to indemnification will not apply if and
to the extent that a court of competent jurisdiction shall
determine that any such fees and expenses have been incurred as a
result of the Executive's bad faith. Indemnification payments
payable hereunder by Arrow or the Bank shall be made not later than
thirty (30) days after a request for payment has been received from
the Executive with such evidence of indemnifiable fees and expenses
as Arrow or the Bank may reasonably request, provided, however,
that such indemnification and reimbursement payments shall not be
made later than the last day of the calendar year following the
calendar year in which the expenses were incurred.
(e)
No Offset . Amounts payable to the Executive as a Retired
Early Employee under this Paragraph 6 shall not be subject to any
offset or reduction for (i) any amounts owed or claimed to be owed
by the Executive to Arrow or the Bank or their Affiliates or (ii)
any amounts of compensation or income received or generated by the
Executive as a result of any other employment or self-employment of
the Executive during the Pay-out Period. The Executive shall be
under no obligation to seek other employment or gainful pursuit
during the Pay-out Period as a result of this Agreement, and shall
be prohibited from accepting certain other forms of employment and
from engaging in certain other types of business during the Pay-out
Period (as well as during certain other post-termination of
employment periods) as and to the extent specified in Paragraph 9
of this Agreement.
(f)
Allocation . If the Executive should elect to become a Retired
Early Employee under this Paragraph 6 and as a result of such
election should become entitled to receive certain cash payments
during the Pay-out Period as set forth above, Arrow shall
determine, as soon as practicable following its receipt from the
Executive of written notice of such election, the amount, if any,
of such future cash payments that may properly be allocated to the
Executive’s future performance of his obligations not to
compete with, solicit customers or employees from, or disparage
Arrow or its Affiliates under Paragraph 9 of this Agreement, with
such allocation to be expressed as a single dollar amount equal to
the present value, determined as of the date of Termination of
Employment, of the amounts of the required future payments thus
allocated. When thus determined, the dollar amount of this
allocation shall be communicated by Arrow to the
Executive.
(g)
Excess Parachute Payment
.
(i)
Anything in this Agreement to the
contrary notwithstanding, to the extent that any Company provided
payment, distribution or benefit in favor of the Executive
(within the meaning of Section 280G of the Code and the
regulations thereunder), whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise
(the "Change of Control Termination Total Payments"), is or will be
subject to the excise tax imposed under Section 4999 of the Code
(the "Excise Tax"), then the Change of Control Termination Total
Payments shall be reduced (but not below zero) to the extent that,
and only to the extent, that such reduction in the Change of
Control Termination Total Payments would result in the Executive
not being subject to the Excise Tax. Unless the Executive
shall have given prior written notice specifying a different order
to the Company to effectuate the foregoing, the Company shall
reduce or eliminate the Change of Control Termination Total
Payments, by first reducing or eliminating the portion of the
Change of Control Termination Total Payments which are payable in
cash and then by reducing or eliminating non-cash payments, in each
case in reverse order beginning with payments or benefits which are
t
