Exhibit 10.3
EMPLOYMENT AGREEMENT
AGREEMENT by and
among Banknorth Group, Inc., a Maine corporation (the
“Company”), and Peter J. Verrill (the
“Executive”), dated as of the 25th day of August,
2004.
In
connection with the merger (the “Merger”) of Berlin
Merger Co., a Delaware corporation, a wholly owned subsidiary of
The Toronto-Dominion Bank, (“Berlin Mergerco”), with
and into Berlin Delaware Inc., a Delaware corporation
(“Berlin Delaware”), pursuant to the Agreement and Plan
of Merger, dated as of August 25, 2004, among the Company,
Berlin Delaware, The Toronto-Dominion Bank (“TD”), and
Berlin Mergerco (the “Merger Agreement”), the Company
wishes to secure the continued services of the
Executive.
NOW, THEREFORE, IT
IS HEREBY AGREED AS FOLLOWS:
1.
Effective Date . The “Effective Date” shall mean
the date on which the “Effective Time” (as defined in
the Merger Agreement) occurs. In the event that the Effective Time
shall not occur this Agreement shall be null and void ab
initio and of no further force and effect.
2.
Term . This Agreement shall commence on the Effective Date
and end on the fourth anniversary thereof, or, if earlier, the date
that the Executive’s employment hereunder terminates (the
“Term”).
3.
Position and Duties .
(a) During
the Term, the Executive shall serve as the Senior Executive Vice
President and Chief Operating Officer of the Company with such
duties and responsibilities as are customary to such positions. As
such, the Executive shall report directly to the Chief Executive
Officer of the Company.
(b) During
the Term, the Executive will devote his full business time and
reasonable best efforts to the performance of his duties hereunder
and will not engage in any other business, profession or occupation
for compensation or otherwise which would conflict or interfere
with the rendition of such services either directly or indirectly,
without the prior written consent of the Board; provided that
nothing herein shall preclude the Executive, subject to the prior
approval of the Board, from accepting appointment to or continue to
serve on any board of directors or trustees of any business
corporation or any charitable organization; provided in each case,
and in the aggregate, that such activities do not conflict or
interfere with the performance of the Executive’s duties
hereunder or conflict with Sections 12(a), 12(b) or 13.
Notwithstanding the foregoing, the Executive shall be permitted,
without the consent of the Board, to continue serve on any boards
of directors or as a trustee of any business corporation or any
charitable organization on which the Executive serves as of
immediately prior to the Effective Date and set forth on Exhibit
A.
4. Base
Salary . During the Term, the Company shall pay the Executive a
base salary at the annual rate not less than the annual rate in
effect immediately prior to the Effective Date, payable in regular
installments in accordance with the Company’s usual
payment
practices. The Executive shall be
entitled to such increases in the Executive’s base salary, if
any, as may be determined from time to time in the sole discretion
of the Board, provided that in no event may the Executive’s
annual base salary be decreased. The Executive’s annual base
salary, as in effect from time to time, is hereinafter referred to
as the “Base Salary.”
5.
Incentive Compensation . The Executive shall be included in
all plans providing incentive compensation to executives, including
but not limited to bonus, deferred compensation, annual or other
incentive compensation, supplemental pension, stock ownership,
stock option, stock appreciation, stock bonus and similar or
comparable plans as any such plans are extended by the Company from
time to time to senior corporate officers, key employees and other
employees of comparable status; provided that in no event shall the
Executive’s incentive compensation opportunities be less
favorable than the Executive’s incentive compensation
opportunities immediately prior to the Effective Date.
6.
Equity-Based Arrangements .
(a) As soon
as practicable after the Effective Date, the Company shall grant
the Executive the number of restricted stock units (the
“RSUs”) determined by dividing $3 million by the
per-share closing price of TD common stock on the New York Stock
Exchange (the “Closing Price”) on the Effective Date.
The RSUs shall vest on the third (3 rd ) anniversary of
the Effective Date, provided that, subject to the provisions of
Section 10, the Executive has remained continuously in the
employ of the Company from the Effective Date through such third (3
rd ) anniversary. The RSUs shall be paid by the Company
as soon as practicable, in an amount of cash equal to the aggregate
Closing Price of such shares on such third (3 rd )
anniversary, provided that the Executive may elect to defer such
cash amount in accordance with a deferred compensation plan
approved by the Compensation Committee of the Board (a
“Deferred Compensation Plan”). The cash amount payable
pursuant to this Section 6 shall be adjusted upward or
downward (but not by more than 20%) to reflect the performance of
the Company against an annual growth in operating earnings per
share target established each year by the Compensation Committee of
the Board, provided that such operating earnings per share target
(i) shall not increase by more than 10% annually and
(ii) shall exclude for all relevant years (x) costs
associated with the Merger, (y) costs, if any, related to the
expensing of stock options, and (z) extraordinary items.
Except as specifically provided in this Agreement (including,
without limitation, Section 6 and Section 10), the terms
of the RSUs shall be governed by the terms of a RSU agreement with
terms substantially similar to the terms applicable to grants of
restricted stock units under TD’s Performance Based
Restricted Share Unit Plan (Outside Canada), except that in no
event shall Sections 7.5, 7.6, 7.7 and 7.8 of the Performance
Based Restricted Share Unit Plan (Outside Canada) or provisions
similar thereto apply to the RSUs.
(b) Notwithstanding
the terms and conditions of any options to purchase common stock of
the Company that were granted prior to the date on which the Merger
Agreement was executed by the parties thereto (the
“pre-Merger Options”) (whether set forth in any option
plan or option agreement), the transactions contemplated by the
Merger Agreement shall be deemed not to constitute a change of
control under the applicable plan or agreement, and, as a
consequence, none of the pre-Merger Options shall vest and become
exercisable directly as a result of the transactions contemplated
by the Merger Agreement.
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7.
Initial Payment and Non-Competition and Retention Amount
.
(a)
Initial Payment . Within ten (10) business days after
the Effective Date, the Executive shall be paid any unpaid portion
of a pro-rata Long Term Incentive Award in an amount determined as
described in Section 5 of the Company’s Executive
Incentive Plan as in effect on the date on which the Merger
Agreement was executed by the parties thereto (the
“EIP”).
(b)
Non-Competition and Retention Amount . Subject to the
provisions of Section 10 and in consideration for the
Executive’s agreement to remain employed by the Company and
to abide by the provisions of Sections 12(b) and 13 hereof, within
ten (10) business days following the third (3 rd )
anniversary of the Effective Date, provided that, subject to the
provisions of Section 10, the Executive has continuously been
in the employ of the Company from the Effective Date through such
anniversary date, the Executive shall be paid, or be credited with,
as the case may be, the “Non-Competition and Retention
Amount,” which shall be determined as follows, provided that
the Executive may elect to defer the Non-Competition and Retention
Amount in accordance with a Deferred Compensation Plan:
(i) A
lump sum payment equal to $2,778,977;
(ii) For
purposes of determining the Executive’s benefit under the
SERP Agreement, an additional thirty-six (36) months of age
and of service shall be credited, determined as follows:
A.
The additional thirty-six (36) months of age and service shall
be applied for purposes of benefit accrual, vesting, eligibility
for early retirement, subsidized early retirement factors,
actuarial equivalence and any other purposes under the SERP
Agreement.
B.
Any provision under the SERP Agreement prohibiting the accrual of
any additional benefits after the Executive has been credited with
more than a stated number of years of service shall be
disregarded.
C.
For purposes of determining the amount of the Executive’s
benefit under the SERP Agreement, the reduction in respect of the
benefit paid under the Retirement Plan shall be based on the
Executive’s actual Retirement Plan benefit (that is, without
any additional deemed service).
D.
For purposes of determining the Early Retirement Benefit (as
defined in the SERP Agreement) and other forms of benefit under the
SERP Agreement, the reductions for early commencement of payment of
Early Retirement Benefits described in the second sentence of
Section 5.2 of the SERP Agreement shall not apply.
E.
The Benefit Computation Base (as defined in the SERP Agreement)
shall be determined as if it were being calculated at the end of
the thirty-six (36) month period of service credited to the
Executive under this paragraph (ii) and as if during such
thirty-six (36) additional month period the Executive’s
annualized compensation was the same as such compensation for
(I)
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the
calendar year during which the Executive’s employment is
terminated, or, (II) any calendar year before the Effective
Date occurred, whichever is greater. The parties hereto agree that
(i) any bonus amount that would normally be payable in 2005, but is
accelerated into 2004 shall be taken into account in determining
the Executive’s Benefit Computation Base under this paragraph
(E) as if it had been paid in 2005, (ii) no amounts payable
pursuant to Sections 7, 10 and 11 shall be taken into account
in determining the Executive’s benefits under the SERP
Agreement, and (iii) the SERP Agreement shall be amended
accordingly, if necessary.
F.
Any amendment to the Retirement Plan after the date hereof shall be
disregarded to the extent that the application of such amendment
would decrease the total amount of the benefits provided for in
this paragraph (ii).
G.
The Executive shall be entitled to a lump sum distribution of SERP
Agreement benefits in all events, and the Company shall not be
entitled to require payment over a longer period. If the Executive
elects a lump sum payment (i) the actuarial equivalent benefit
shall be determined in accordance with the provisions of the
Retirement Plan as in effect immediately prior to the Effective
Date, or as in effect on termination of the Executive’s
employment, whichever creates the greater benefit, and
(ii) the lump sum payment shall, unless deferred in advance by
the Executive pursuant to reasonable criteria consistent with the
requirements of the Code (as defined in Section 15), be made
within thirty (30) days following the termination of the
Executive’s employment.
H.
An example of the SERP calculation described by this Agreement will
be appended hereto as Exhibit B as soon as reasonably
practicable following the date hereof.
The
amounts in Section 7(b)(i) shall be increased, commencing on
the Effective Date, at an annual rate of four percent (4%), until
the date of payment thereof. As used in this Agreement, (i)
“SERP Agreement” means the Amended and Restated
Supplemental Retirement Agreement dated February 18, 2004
between the Executive and the Company, as in effect on the date the
Merger Agreement was executed by the parties thereto, and (ii)
“Retirement Plan” means the Company’s Retirement
Plan, as amended and in effect from time to time and any successor
plan.
8.
Employee Benefits . The Executive shall be allowed to
participate, on the same basis as applicable to other employees of
comparable status and position, in any and all plans, programs or
arrangements covering employee benefits or fringe benefits,
including but not limited to the following: group medical
insurance, hospitalization benefits, disability benefits, medical
benefits, dental benefits, pension benefits, profit sharing and
stock bonus plans, but excluding severance and any similar plans,
programs or arrangements and, in any event, such plans, programs or
arrangements shall be no less favorable, in the aggregate, than
those in effect as of immediately prior to the Effective
Date.
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9.
Business Expenses and Fringe Benefits .
(a)
Expenses . The Executive shall be reimbursed, at such
intervals and in accordance with such standard policies as may be
in effect on the Effective Date, for any and all monies advanced in
connection with the Executive’s employment for reasonable and
necessary expenses incurred by the Executive on behalf of the
Company, including travel expenses;
(b)
Fringe Benefits . During the Term, the Executive shall enjoy
the fringe benefits normally afforded to the Company’s
executive officers. Specifically, the Executive shall receive
annually not less than the amount of paid vacation and not fewer
than the number of paid holidays received annually immediately
prior to the Effective Date or available annually to other
employees of comparable status and position with the Company. Such
fringe benefits may vary from those in effect immediately prior to
the Effective Date, provided that such fringe benefits taken as a
whole are substantially comparable in all material respects to
those in effect immediately prior to such date.
10.
Termination of Employment . Any termination by the Company
or the Executive of the Executive’s employment shall be
communicated by written Notice of Termination, which shall indicate
the specific termination provision relied upon in this Agreement
and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive’s employment under the provision so indicated, to
the Executive if such notice is delivered by the Company, and to
the Company if such notice is delivered by the Executive. Any
payments made under this Section 10, other than due to death,
shall be contingent on the Executive’s prior execution and
non-revocation of a mutual release substantially in the form
attached hereto as Exhibit C; provided, however, that if the
Company refuses to execute such mutual release, the
Executive’s obligation to execute and not revoke the release
as a precondition to receiving severance benefits shall
terminate.
(a)
Termination for Disability . If the Executive’s
employment is terminated on account of the Executive’s
Disability (as defined in Section 15), the Executive shall
receive (i) any Accrued Benefits (as defined in Section 15),
(ii) a lump sum cash payment payable within ten
(10) business days of the date of termination equal to the
product of (x) the average annual bonus paid to the Executive
under the annual bonus plan of the Company for the last three
(3) full fiscal years of the Company ending prior to the date
of termination 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 three hundred and
sixty-five (365) (the “Prorated Bonus”), and
(iii) any unpaid Non-Competition and Retention Amount, and
shall remain eligible for all benefits as provided pursuant to the
terms of any long-term disability programs of the Company in effect
at the time of such termination. In addition, (A) the
pre-Merger Options shall become immediately vested and exercisable
(to the extent not previously vested and exercisable) and shall
remain exercisable for the period provided under the applicable
option agreement, and (B) if such termination occurs prior to
the third anniversary of the Effective Date, RSUs shall vest (or to
the extent such termination occurs prior to the grant of such RSUs,
the RSUs shall be granted and vest) but shall be paid out, subject
to the Executive’s continued compliance with
Sections 12(a), 12(b) and 13, on the third (3 rd )
anniversary of the Effective Date, and the payout shall be
determined without regard to the performance conditions.
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(b)
Termination due to the Executive’s Death or Retirement
. If the Executive’s employment is terminated on account of
the Executive’s death or resignation by the Executive at or
after age 65, other than a resignation for Good Reason (as defined
in Section 15), (“Retirement”), the Executive, (or
the Executive’s estate or designated beneficiary (or
beneficiaries), as applicable), shall receive the Executive’s
Accrued Benefits, the Prorated Bonus and any unpaid Non-Competition
and Retention Amount. In addition, (i) the pre-Merger Options
shall become immediately vested and exercisable (to the extent not
previously vested and exercisable) and shall remain exercisable for
the period provided under the applicable option agreement, and
(ii) if such termination occurs prior to the third anniversary
of the Effective Date, RSUs shall vest (or to the extent such
termination occurs prior to the grant of such RSUs, the RSUs shall
be granted and vest) but shall be paid out, subject to the
Executive’s continued compliance with Sections 12(a),
12(b) and 13, on the third (3 rd ) anniversary of the
Effective Date, and the payout shall be determined without regard
to the performance conditions.
(c)
Voluntary Termination or Termination for Cause . If
(i) the Executive shall terminate employment with the Company
other than for Good Reason (as defined in Section 15) or
Retirement, or (ii) the Executive’s employment is
terminated for Cause, the Executive shall receive from the Company
only the Accrued Benefits. In addition, if the Executive shall
resign other than for Good Reason after the third anniversary of
the Effective Date, the Executive will be entitled to the Medical
Benefits (as defined below).
(d)
Termination by the Company Without Cause or by the Executive for
Good Reason . If the Executive’s employment with the
Company is terminated by the Company other than for Cause, or by
the Executive for Good Reason, then:
(i) the
Executive shall receive from the Company the Accrued Benefits, the
Prorated Bonus and any unpaid Non-Competition and Retention Amount,
which shall be paid within ten (10) business days after the
date of termination of the Executive’s employment;
and
(ii) (A) the
pre-Merger Options shall become immediately vested and exercisable
(to the extent not previously vested and exercisable) and shall
remain exercisable for the period provided under the applicable
option agreement, (B) if such termination takes place
following a Change of Control (as defined in Section 15) that
occurs after the Effective Date, any other grants of equity-based
compensation awards from TD or the Company shall become immediately
vested and exercisable (to the extent not previously vested and
exercisable) and, if applicable, shall remain exercisable for the
period provided under the applicable award agreement, and
(C) if such termination occurs prior to the third anniversary
of the Effective Date, RSUs shall vest (or to the extent such
termination occurs prior to the grant of such RSUs, the RSUs shall
be granted and vest) but shall be paid out, subject to the
Executive’s continued compliance with Sections 12(a),
12(b) and 13, on the third (3 rd ) anniversary of the
Effective Date, and further the payout shall be determined without
regard to the performance conditions; and
(iii) the
“Severance Amount” shall be paid to the Executive in a
lump sum within 10 business days after the termination of the
Executive’s employment. For this purpose, the Severance
Amount shall be the product of (I) the lesser of
(A) three or (B) the number of years and portions thereof
remaining from the date of termination to the fourth (4
th )
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anniversary of the Effective
Date, but not less than 1.5; provided that, if such
termination occurs after a Change of Control, not less than two and
(II) the sum of (A) the Base Salary, (B) the average
annual bonus paid (including any amounts deferred or paid in
equity) to the Executive under the annual bonus plan of the Company
for the last three full fiscal years of the Company ending prior to
the date of termination, or such shorter number of years that the
Executive has been employed by the Company and eligible to receive
a full year bonus, and (C) (1) the total aggregate value of
all contributions, other than elective contributions by the
Executive and employer matching contributions relating thereto, and
forfeitures allocated to the Executive’s account under the
401(k) Plan for the plan year ending immediately prior to the
Effective Date, or, if different, the plan year immediately prior
to the termination of the Executive’s employment, whichever
year would produce the greater aggregate value, and (2) the
matching contributions under the 401(k) Plan (or its successor)
which would have been credited under such plan on the
Executive’s behalf, if the Executive had contributed the
maximum salary deferral contribution allowable under Section 402(g)
of the Code, for the calendar year in which the Executive’s
employment with the Company was terminated. As used in this
Agreement, “401(k) Plan” means the Company’s
401(k) Plan dated January 1, 2001, as amended from time to
time, or any successor plan; and
(iv) the
Executive shall continue to be covered at the expense of the
Company by the same or equivalent hospital, medical, dental,
accident, disability and life insurance coverage as in effect for
the Executive immediately prior to termination of the
Executive’s employment, until the earlier of
(A) thirty-six (36) months following termination of
employment, or (B) the date the Executive has commenced new
employment and has thereby become eligible for comparable benefits;
provided that, with respect to any of the coverages described
above, if such coverage is provided through an insurance policy
with an insurance company unaffiliated with the Company and if
under the terms of the applicable policy, it is not possible to
provide continued coverage (or if continued coverage under such
policy would increase the Company’s cost allocable to the
Executive by more than one hundred percent (100%)), then the
Company shall pay the Executive a lump sum cash amount, no later
than thirty (30) days following termination of employment an
amount equal to twice the aggregate allocable cost of such coverage
as applicable immediately prior to termination of employment, such
payment to be made without any discount for present value (the
“Medical Benefits”).
(e)
Termination of Employment following the end of the Term . In
the event that the Executive ceases to be employed by the Company
for any reason at or following the end of the Term (other than by
reason of a termination of the Executive’s employment by the
Company for Cause), the Executive shall be entitled to the Medical
Benefits.
11.
Certain Supplemental Payments by the Company .
(a) In the
event it is determined that part or all of the compensation and
benefits to be paid to the Executive, whether or not payable
hereunder, (i) constitute “parachute payments” under
Section 280G of the Code (the “Payments”), and
(ii) exceed one hundred and five percent (105%) of three (3)
times the Executive’s Base Amount, the Company, on or before
the date for payment of such excise tax, shall pay to or on behalf
of the Executive, in lump sum, an amount (the “Gross-Up
Amount”) such that, after payment of all federal, state and
local income tax and any additional excise tax under
Section 4999 of the Code in respect of the Gross-Up Amount
payment, the Executive will be fully reimbursed for the amount of
such excise tax. If
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the Payments equal three
(3) times the Executive’s Base Amount or exceed three
(3) times the Executive’s Base Amount, but by an
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