Exhibit 10.18
 

 
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
FOR EDWARD J. MERRITT

This Supplemental Executive Retirement Agreement (the “Agreement”) is entered
into effective as of the Merger Effective Time (as defined below) by and between
East Boston Savings Bank, a corporation organized and existing under the laws of
the Commonwealth of Massachusetts (the “Bank” or “Employer”) and Edward J.
Merritt (the “Executive”).

WITNESSETH

WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of July 20, 2009
(the “Merger Agreement”), between the Bank, Meridian Interstate Bancorp, Inc., a
Massachusetts corporation (the “Company”), Meridian Financial Services,
Incorporated, a Massachusetts mutual holding company and Mt. Washington
Cooperative Bank, a Massachusetts cooperative bank (“MWCB”), MWCB shall, as of
the Merger Effective Time (as defined in the Merger Agreement), merge with and
into the Bank, with the Bank being the surviving entity (the “Merger”);

WHEREAS, the Executive is currently a party to an amended and restated executive
salary continuation agreement entered into between MWCB and the Executive as of
January 24, 2006 (the “MWCB SERP”) and the Executive agrees to waive any amounts
and benefits under the MWCB SERP in consideration for entering into this
Agreement;

WHEREAS, in order to induce the Executive to enter the employ of the Bank, the
parties desire to enter into this Agreement, effective as of the Merger
Effective Time; and

WHEREAS, to induce the Executive to continue in the Bank’s employ to age
sixty-five (65), the Bank proposes to supplement the benefits payable to the
Executive under the Bank’s 401(k) plan and employee stock ownership plan.

NOW, THEREFORE, in consideration of the premises and the mutual promises of the
parties hereto, the parties agree as follows:

PURPOSE

The purpose of this Agreement is to provide the Executive with supplemental
retirement benefits in order to provide him with a reasonable level of
retirement income which will assist him in maintaining an appropriate standard
of living in retirement.  An integral part of the Agreement is to encourage and
induce the Executive to remain as a full-time executive officer of the Bank
until he attains the retirement age of sixty-five (65) and to recognize his
service to the Bank.  The parties intend that this Agreement shall at all times
be characterized as a “top hat” plan of deferred compensation maintained for the
Executive who is a highly compensated employee, as described under Sections
201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act
of 1974 (the “ERISA”), and the Agreement shall at all times satisfy Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”), and as enacted
under the American Jobs Creation Act of 2004.  The provisions of the Agreement
shall

 
 

--------------------------------------------------------------------------------

 

be construed to effectuate such intentions.  The Agreement shall be unfunded for
tax purposes and for purposes of Title I of ERISA.

1.           Establishment of Accumulation Account.  An Accumulation Account
shall be maintained on the books of the Employer for the Executive with respect
to this Agreement.  The Accumulation Account shall be utilized solely as a
device for the measurement and determination of the benefits, if any, payable to
the Executive pursuant to this Agreement.  The Executive will be one-hundred
percent (100%) vested in the Accumulation Account at all times.  The amount of
the Accumulation Account as of the Merger Effective Time shall equal the amount
accrued under the MWCB SERP for GAAP purposes as of the Merger Effective Time
(the “GAAP Accrual”).

2.           Annual Credits to Accumulation Account.  Commencing as of the
Merger Effective Time and ending on the date of termination of the Executive’s
employment, the Board of Directors of the Bank shall credit the Executive’s
Accumulation Account with an amount equal to $50,000 (which is the amount equal
to the product of (i) 1/15, times (ii) $750,000) for each full calendar year of
Executive’s employment, and for each partial calendar year of Executive’s
employment, a pro rated amount determined by dividing the number of days during
such year prior to termination of Executive’s employment by 365, and multiplying
such quotient by $50,000. The Accumulation Account shall be credited as of each
December 31st, and in the event the Executive terminates employment prior to
December 31st, his pro rated amount for the year of termination of service will
be credited to his Accumulation Account within thirty days after termination of
his employment.  The Executive may not make any contributions under this
Agreement.

 
3.
Maximum Amount Credited to Accumulation Account.  All amounts credited to the
Accumulation Account shall not exceed the GAAP Accrual plus $750,000.  No
further additions to the Accumulation Account will be made when, and if, a total
of $750,000 has been credited to the Accumulation Account after the Merger
Effective Time, excluding the GAAP Accrual.

 
4.
Payment upon Separation from Service.

(a)  Upon a Separation from Service prior to the attainment of age sixty (60),
the Accumulation Account shall be paid to the Executive in one hundred and
twenty (120) equal monthly installments with interest equal to the one-year
Treasury bill as of the date of the Separation of Service, with the first
payment commencing on the first day of the month following the lapse of six
months after such Separation from Service.  In the event of the Executive’s
death after such Separation from Service but prior to the completion of the one
hundred and twenty (120) installment payments described above, an amount equal
to the aggregate remaining unpaid installments shall be paid to the Executive’s
beneficiary (or estate, if there is no beneficiary) in a single lump sum payment
on the first day of the month following the occurrence of his death.

(b)  Upon a Separation from Service on or after the attainment of age sixty
(60), the Accumulation Account shall be paid in the form of a single-life
annuity (subject to Section 18),

 
2

--------------------------------------------------------------------------------

 

with such payments to be made in equal monthly installments (1/12th of the
annual annuity benefit) until the death of the Executive, with the first payment
commencing on the first day of the month following the lapse of six months after
such Separation from Service.  The value of such single-life annuity shall be
the actuarial equivalent of the Accumulation Account calculated in a manner that
is no less favorable to the Executive (or his beneficiary) than would be
determined using the interest rates, mortality tables and other assumptions
expressed in Section 417(e) of the Code.

(c)  For purposes hereof, Separation from Service shall mean a termination of
the Executive’s services (whether as an employee or as an independent
contractor) to the Company and the Bank for any reason other than Disability or
death.  Whether a Separation from Service has occurred shall be determined in
accordance with the requirements of Section 409A of the Code based on whether
the facts and circumstances indicate that the Company, the Bank and the
Executive reasonably anticipated that no further services would be performed
after a certain date or that the level of bona fide services the Executive would
perform after such date (whether as an employee or as an independent contractor)
would permanently decrease to no more than twenty percent (20%) of the average
level of bona fide services performed (whether as an employee or an independent
contractor) over the immediately preceding thirty-six (36) month period.

 
5.
Payment upon Disability; Death.

(a)  Upon the Disability of the Executive, which causes a Separation from
Service, the Accumulation Account shall be paid in the form of a single-life
annuity (calculated pursuant to Section 4(b) above, and subject to Section 18),
with such payments to be made in equal monthly installments (1/12th of the
annual annuity benefit) until the death of the Executive, with the first payment
commencing on the first day of the month following the Disability.

(b)  Upon the death of the Executive (i) while actively employed by the Bank, or
(ii) after a Separation from Service to which Section 4(b) applies, but prior to
the Insured’s receipt of the first installment payment under such Section 4(b),
the Accumulation Account shall be paid to the Executive’s beneficiary in a
single lump sum payment on the first day of the month following the occurrence
of death.

(c)  For purposes hereof, Disability shall mean an Executive (i) is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or can be expected to last for a continuous period of not less than twelve
months; or (ii) is, by reason of any medically determinable physical or mental
impairment which can be expected to result in death or can be expected to last
for a continuous period of not less than twelve months, receiving income
replacement benefits for a period of not less than three months under an
accident and health plan covering employees of the Bank (or would have received
such benefits if the Executive was eligible to participate in such plan).  If
any question shall arise as to whether during any period the Executive is
Disabled, the Executive may, and at the request of the Bank shall, submit to the
Bank a certification in reasonable detail by a physician selected by the Bank to
whom the Executive or the Executive’s guardian has no reasonable objection as to
whether the Executive is so Disabled, and such certification shall for the
purposes of this Agreement be conclusive of the issue. The physician

 
3

--------------------------------------------------------------------------------

 

shall be board-certified in the area of medicine applicable to the particular
disability involved. The Executive shall cooperate with any reasonable request
of the physician in connection with such certification. If such question shall
arise and the Executive shall fail to submit such certification (unless the
failure results from matters beyond the control of the Executive), the Bank’s
determination will determine the issue of whether the Executive is Disabled.

 
6.
Payment upon Termination of the Executive Without Cause or by the Executive for
Good Reason in connection with a Change in Control.

(a)  Notwithstanding anything in the Agreement to the contrary, in the event the
Executive’s employment shall be terminated by the Bank (which termination shall
constitute a Separation from Service), or its successor, without Cause, as
provided in Section 6(b), or by the Executive for Good Reason, as provided in
Section 6(c), concurrently with or within one (1) year of a Change in Control,
as defined in Section 6(d), and ending one year after consummation of such
Change in Control, the Executive’s Accumulation Account shall equal the GAAP
Accrual plus $750,000 and shall be paid in a single lump sum payment to the
Executive on the first day of the month following the lapse of six months after
such Separation from Service.

(b)  Termination by the Bank without Cause.  The Executive’s employment may be
terminated by the Bank, or its successor, without Cause (which, for purposes of
clarification, shall not include a termination of Executive’s employment under
this Agreement due to Executive’s death or Disability) upon written notice to
the Executive. A determination of whether the Executive’s employment shall be
terminated without Cause will be made solely by the Executive Committee of the
Board of Directors.

(c)  Termination by the Executive for Good Reason. The Executive’s employment
may be terminated by the Executive by written notice to the Board of Directors
within sixty (60) days following an event constituting “Good Reason.”  The
Executive’s termination of employment shall become effective on the thirty-first
(31st) day following such notice, provided the Bank, or its successor, has not
remedied the condition giving rise to the event of “Good Reason.”  For purposes
of this Agreement, “Good Reason” shall mean:

(i)           a material diminution or other substantial adverse change, not
consented to by Executive, in the nature or scope of the Executive’s
responsibilities or authorities as set forth in the employment agreement between
the Executive and the Bank, including a change in the Executive’s line of
reporting so that he no longer reports directly to the Bank’s Chief Executive
Officer;

(ii)           the assignment to Executive of any duties materially inconsistent
with Executive’s position, including any material change in status or duties,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and that is remedied by the Bank reasonably promptly after
receipt of notice thereof given by the Executive;

(iii)           a material reduction in the Executive’s base salary except for
across-the-board reductions similarly affecting all or substantially all
officers;

 
4

--------------------------------------------------------------------------------

 

(iv)           involuntary relocation of the Bank’s offices in which the
Executive is principally employed by more than 10 miles; or

(v)           failure of the Bank to comply with material terms of this
Agreement.

(d)  For purposes hereof, “Change in Control” shall mean a change in the
ownership of Meridian Interstate Bancorp, Inc. or the Bank, a change in the
effective control of the Company or the Bank or a change in the ownership of a
substantial portion of the assets of the Company or the Bank, in each case as
provided under Section 409A of the Code and the regulations thereunder.

(e)    Notwithstanding anything in this Agreement to the contrary, in no event
shall the Merger, or the reorganization of Meridian Financial Services,
Incorporated, the Company or Bank solely within its corporate structure
constitute a “Change in Control” for purposes of this Agreement, provided that
there is no reduction in the Executive’s compensation and benefits.

7.           Designation of Beneficiary.  The Executive may from time to time,
by providing a written notification to the Employer, designate any person or
persons (who may be designated concurrently, contingently or successively), his
estate or any trust or trusts created by him to receive benefits which are
payable under this Agreement.  Each beneficiary designation shall revoke all
prior designations and will be effective only when filed in writing with the
Employer’s Compensation Committee, or any successor thereto (the
“Committee”).  If the Executive fails to designate a beneficiary or if a
beneficiary dies before the date of the Executive’s death and no contingent
beneficiary has been designated, then the benefits which are payable as
aforesaid shall be paid to his estate.  If benefits to be paid to a beneficiary
commence and such beneficiary dies before all benefits to which such beneficiary
is entitled have been paid, the remaining benefits shall be paid to the
successive beneficiary or beneficiaries designated by the Executive, if any, and
if none to the estate of such beneficiary.

8.           Claims Procedure.  The Executive or his designated beneficiary or
beneficiaries may make a claim for benefits under this Agreement by filing a
written request with the Committee.  If a claim is wholly or partially denied,
the Committee shall furnish the claimant with written notice setting forth in a
manner calculated to be understood by the claimant;

(a)           the specific reason or reasons for the denial;

(b)           specific reference to the pertinent provisions of this Agreement
on which the denial is based;

(c)           a description of any additional material or information necessary
for the claimant to perfect his claim and an explanation why such material or
information is necessary; and

(d)           appropriate information as to the steps to be taken if the
claimant wishes to submit his claim for review.

 
5

--------------------------------------------------------------------------------

 

Such notice shall be furnished to the claimant within ninety (90) days after the
receipt of his claim, unless special circumstances require an extension of time
for processing his claim.  If an extension of time for processing is required,
the Committee shall, prior to the termination of the initial ninety (90) day
period, furnish the claimant with written notice indicating the special
circumstances requiring an extension and the date by which the Committee expects
to render its decision.  In no event shall an extension exceed a period of
ninety (90) days from the end of the initial ninety (90) day period.

A claimant may request the Committee to review a denied claim.  Such request
shall be in writing and must be delivered to the Committee within sixty (60)
days after receipt by the claimant of written notification of denial of
claim.  A claimant or his duly authorized representative may:

(a)           review pertinent documents, and

(b)           submit issues and comments in writing.

The Committee shall notify the claimant of its decision on review not later than
sixty (60) days after receipt of a request for review, unless special
circumstances require an extension of time for processing, in which case a
decision shall be rendered as soon as possible, but not later than one hundred
twenty (120) days after receipt of a request for review.  If an extension of
time for review is required because of special circumstances, written notice of
the extension must be furnished to the claimant prior to the commencement of the
extension.  The Committee’s decision on the review shall be in writing and shall
include specific reasons for the decision, as well as specific references to the
pertinent provisions of this Agreement on which the decision is based.

9.           Statement of Accumulation Account.  Within 90 days after the close
of each calendar year, the Committee shall submit to the Executive a statement
in such form as the Committee deems desirable setting forth the balance as of
the last day of the calendar year in the Accumulation Account maintained for the
Executive.

10.           Withholding.  To the extent required by the law in effect at the
time payment of the Accumulation Account is made, the Bank shall withhold from
such payment any taxes or other amounts required by law to be withheld.

11.           Unsecured Promise.  Nothing contained in this Agreement shall
create or require the Employer to create a trust of any kind to fund the
benefits payable hereunder.  To the extent that the Executive or any other
person acquires a right to receive payments from the Employer, such individual
shall at all times remain an unsecured general creditor of the Employer.

12.           Assignment.  The right of the Executive or any other person to the
payment of benefits under this Agreement shall not be subject to alienation,
assignment, garnishment, attachment, execution or levy of any kind, and any
attempt to cause such benefits to be so subjected shall not be recognized by the
Employer.

 
6

--------------------------------------------------------------------------------

 

13.           Employment.  Nothing contained herein shall be construed to grant
the Executive the right to be retained in the employ of the Employer or any
other rights or interests other than those specifically set forth.

14.           Amendment, Suspension or Termination.  This Agreement shall be
binding upon and inure to the benefit of the Employer and the Executive.  The
Employer shall have the right to suspend, terminate or amend this Agreement only
with the mutual consent of the Executive; provided, however, no such suspension,
termination or amendment shall adversely affect the rights of the Executive or
any beneficiary to the funds and benefits which have accrued as of the date of
such action.

15.           Successors.  This Agreement shall be binding upon and inure to the
benefit of the Employer, its successors and assigns and the Executive and his
heirs, executors, administrators, and legal representatives.

16.           Governing Law.  This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts.

17.           Entire Agreement. This Agreement contains the entire agreement of
the parties relating to the subject matter hereof, and supersedes in its
entirety any and all understandings or representations relating to the subject
matter hereof, including the MWCB SERP.
 
18.           Alternate Form of Annuity.  For purposes of Sections 4(b) or 5(a),
the Executive may, upon request made prior to commencement of payment of the
benefit, elect to have the Accumulation Account paid in the form of a joint and
50% survivor annuity or a joint and 100% survivor annuity rather than a
single-life annuity, provided that such alternate form of annuity is the
actuarial equivalent of the annuity described in Section 4(b), for purposes of
Section 409A of the Code and Reg. 1.409A-2(b)(2)(ii).

19.           Effectiveness.  Notwithstanding anything to the contrary contained
herein, this Agreement shall be subject to consummation of the Merger in
accordance with the terms of the Merger Agreement, as the same may be amended by
the parties thereto in accordance with its terms.  In the event the Merger
Agreement is terminated for any reason, this Agreement shall be deemed null and
void and the MWCB SERP shall remain in effect in accordance with its terms.

The remainder of this page has been intentionally left blank
 
 
 

 
7

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, this Agreement has been executed as of the date first above
written.

   
EAST BOSTON SAVINGS BANK
                   
BY:
 /s/ Richard J. Gavegnano
     
Richard J. Gavegnano
     
Chief Executive Officer
                   
EXECUTIVE
                           
By:
/s/ Edward J. Merritt
     
Edward J. Merritt
       

This SERP is joined in by Meridian Interstate Bancorp, Inc. for purposes of
fulfilling the obligations of the Bank under the SERP.

 
MERIDIAN INTERSTATE BANCORP, INC.
         
By:
 
/s/ Richard J. Gavegnano
 
Richard J. Gavegnano
 
Director