Document:

Exhibit 10.16

 

MANAGEMENT STOCK SUBSCRIPTION AGREEMENT

 

By and Among

 

LINCOLN TECHNICAL INSTITUTE, INC.

 

And

 

THE MANAGEMENT INVESTORS LISTED IN SCHEDULE I

 

 

Dated
as of January 1, 2002

 

 

MANAGEMENT STOCK SUBSCRIPTION AGREEMENT

 

MANAGEMENT
STOCK SUBSCRIPTION AGREEMENT (the “Agreement”), dated as of January 1,
2002, by and among Lincoln Technical Institute, Inc., a New Jersey corporation,
(the “Company”), and the persons listed in Schedule I hereto, as such
Schedule I may be amended from time to time (collectively, the “Management
Investors” and each individually, a “Management Investor”).

 

W I  T  N  E  S
S  E  T  H:

 

WHEREAS,
pursuant to a Stock and Asset Purchase Agreement dated as of April 26, 1999
(the “Recapitalization Agreement”), the
Company was recapitalized on behalf of Back to School Acquisition, L.L.C., a
Delaware limited liability corporation (“Stonington”);

 

WHEREAS, the
Company was formed on behalf of Stonington Capital Appreciation 1994 Fund, L.P.
(“Stonington”);

 

WHEREAS,
pursuant to the terms and subject to the conditions set forth in this
Agreement, each Management Investor desires to subscribe for and purchase, and
the Company desires to issue and sell to such Management Investor, the number
of Management Shares (as hereinafter defined) set forth opposite such
Management Investor’s name in Column A of Schedule I hereto. The aggregate
purchase price to be paid for the Management Shares to be acquired by each
Management Investor is set forth opposite such Management Investor’s name in
Column B of Schedule I hereto (such Management Investor’s “Purchase Price”);

 

WHEREAS,
capitalized terms used in this Agreement and not otherwise defined shall have
the meanings ascribed to them in Article I hereof;

 

NOW,
THEREFORE, in order to implement the foregoing and in consideration of the
mutual representations, warranties, covenants and agreements contained herein
and for other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

As used in
this Agreement, the following terms shall have the meanings ascribed to them
below:

 

Closing. The term “Closing” shall have the
meaning specified in Section 2.2 hereof.

 

Closing Date. The term “Closing Date” shall
have the meaning specified in Section 2.2 hereof.

 

2

 

Collateral Agreements. The term “Collateral
Agreements” means the Stockholders Agreement, the Recapitalization Agreement,
the Management Stock Option Plan, the Management Notes, the Pledge Agreements
and the Stock Option Agreements.

 

Exchange Act. The term “Exchange Act” shall
mean the Securities Exchange Act of 1934, as amended, or any similar federal
statute then in effect, and a reference to a particular section thereof shall
be deemed to include a reference to the comparable section, if any, of such
similar federal statute.

 

Management Notes. The term “Management Notes”
shall mean the Management Notes, dated the date hereof, between each of the
Management Investors and the Company.

 

Management Shares. The term “Management
Shares” shall mean Shares purchased by a Management Investor from the Company
in exchange for cash, and, if applicable a promissory note, or pursuant to the
exercise of an option granted under the Management Stock Option Plan.

 

Management Stock Option Plan. The “Management
Stock Option Plan” shall mean the stock option plan of the Company, effective
January 1, 2002.

 

Pledge
Agreements. The term
“Pledge Agreements” shall mean the Pledge Agreements, dated the date hereof,
between each of the Management Investors and the Company.

 

Private
Placement Memorandum.
The term “Private Placement Memorandum” shall mean the Private Placement
Memorandum, as amended or supplemented on the Closing Date, pursuant to which
the Company offered the Shares to the Management Investors.

 

Rule
144. The term “Rule
144” shall have the meaning specified in Section 3.3 hereof.

 

SEC. The term “SEC” shall mean the Securities
and Exchange Commission or any other federal agency at the time administering
the Securities Act or the Exchange Act.

 

Securities
Act. The term
“Securities Act” shall mean the Securities Act of 1933, as amended, or any
similar federal statute then in effect, and a reference to a particular section
thereof shall be deemed to include a reference to the comparable section, if
any, of any such similar federal statute.

 

Shares. The term “Shares” shall mean any shares of
common stock, no par value, of the Company, including, without limitation, all
Shares issued in connection with any employee benefit plan of the Company or
its subsidiaries, including the Management Stock Option Plan.

 

Stock
Option Agreements.
The term “Stock Option Agreements” shall mean the agreements pursuant to which
options are granted pursuant to the Management Stock Option Plan.

 

3

 

Stockholders Agreement. The term “Stockholders
Agreement” shall have the meaning specified in Section 2.2(c) hereof.

 

ARTICLE II

 

SUBSCRIPTION FOR AND ISSUANCE OF SHARES

 

Section 2.1 Subscription
for and Issuance of Shares. Pursuant to the terms and subject to the
conditions set forth in this Agreement, each Management Investor hereby
subscribes for and agrees to purchase, and the Company hereby agrees to issue
and sell to each Management Investor on the Closing Date the number of
Management Shares set forth opposite such Management Investor’s name in Column
A of Schedule I hereto at a purchase price of $3.10 per Management Share. Each
Management Investor shall pay the Purchase Price set forth opposite such
Management Investor’s name in Column B of Schedule I hereto.

 

Section 2.2 The
Closing. The closing (the “Closing”) of the transactions
contemplated by this Article II shall take place at the offices of Shearman
& Sterling, 599 Lexington Avenue, New York, New York, on March 18, 2002.
The date of such closing is hereinafter referred to as the “Closing Date.”

 

(a)           At the Closing the Company shall have
delivered to each Management Investor, against delivery of the Purchase Price
set forth opposite such Management Investor’s name in Column B of Schedule I
hereto, duly issued stock certificates representing the number of Management
Shares set forth opposite such Management Investor’s name in Column A of
Schedule I hereto.

 

(b)           By 5:00 p.m. U.S. Eastern Standard
Time of the third day prior to the Closing, each Management Investor shall have
delivered to the Company, against delivery to the Management Investor of stock
certificates representing the Management Shares to be purchased by such
Management Investor, a combination of cash and Management Notes in the amount
equal to such Management Investor’s Purchase Price set forth opposite such
Management Investor’s name in Column B of Schedule I hereto.

 

(c)           At the Closing, the Company,
Stonington, the Management Investors will enter into the Stockholders
Agreement, substantially in the form attached as Exhibit A hereto (the “Stockholders
Agreement”).

 

(d)           At the Closing, the Management
Investors and the Company shall enter into the Pledge Agreements in the form
attached as Exhibit B hereto.

 

Section 2.3 Representations,
Warranties and Covenants of the Management Investors. Each of the
Management Investors severally, but not jointly, represents and warrants to the
Company and covenants with the Company as follows:

 

(i)            such Management
Investor has full right, power and authority to execute and deliver this
Agreement, and to perform such Management Investor’s obligations hereunder, and
this Agreement has been duly authorized, executed and delivered by such

 

4

 

Management
Investor and is valid, binding and enforceable against such Management Investor
in accordance with its terms;

 

(ii)           such Management
Investor has full right, power and authority to execute and deliver the
Stockholders Agreement, his Management Note and his Pledge Agreement and to
perform the obligations thereunder and each of the Stockholders Agreement, the
Management Note and the Pledge Agreement has been duly authorized by such
Management Investor and will, when executed and delivered by such Management
Investor, be valid, binding and enforceable against such Management Investor in
accordance with its terms; and

 

(iii)          none of the
execution, delivery and performance of this Agreement, the Stockholders
Agreement, the Management Note and the Pledge Agreement by such Management
Investor will conflict with or result in any material breach of any terms or
provisions of, or constitute a default under, any material contract, agreement
or instrument to which such Management Investor is a party or by which such
Management Investor is bound.

 

Section 2.4 Representations,
Warranties and Covenants of the Company. The Company represents and
warrants to each of the Management Investors as follows:

 

(i)            the Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of New Jersey;

 

(ii)           the Company has
full corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and this Agreement has been duly authorized,
executed and delivered by the Company and is valid, binding and enforceable
against the Company in accordance with its terms;

 

(iii)          the Company has
full corporate power and authority to execute and deliver the Stockholders
Agreement, and the Pledge Agreements and to perform its obligations thereunder
and each such agreement has been duly authorized by the Company and will, when
executed and delivered by the Company, be valid, binding and enforceable
against the Company in accordance with its terms;

 

(iv)          the Management
Shares to be issued to such Management Investor pursuant to this Agreement,
when issued and delivered in accordance with the terms hereof, will be duly and
validly issued and, upon receipt of cash or other consideration in an amount
equal to the par value of such Shares, will be fully paid and nonassessable;

 

(v)           none of the
execution, delivery and performance of this Agreement, the Stockholders
Agreement, or the Pledge Agreements by the Company will conflict with the
Company’s Certificate of Incorporation or By-Laws or result in any material
breach of any terms or provisions of, or constitute a default under, any
material contract, agreement or instrument to which the Company is a party or
by which the Company is bound;

 

5

 

(vi)          after giving effect
to the transactions contemplated by this Agreement, the authorized capital of
the Company will consist of 50,000,000 authorized Shares. Up to 2,087,835 of
such Shares will have been reserved for issuance under the Management Stock
Option Plan. Immediately after the Closing, the ownership of the Shares by all
stockholders of the Company shall be as set forth in Schedule II of this
Agreement and the Management Investors and certain other employees will own
1.7% (on a fully diluted basis) of the voting capital stock of the
Company.  All of the outstanding Shares
will be duly authorized, and upon the issuance thereof will be validly issued,
fully paid and nonassessable;

 

(vii)         except for options
under the Management Stock Option Plan for the purchase of up to 2,087,835
Shares and otherwise set forth in the Management Stock Option Plan and the
Stockholders Agreement, and a option held by Steven Hart for the purchase of up
to 161,500 Shares, the Company (x) has no outstanding stock or securities
convertible into or exchangeable for any shares of capital stock, or any rights
or any options for the purchase of, or any agreements providing for the issue
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, any capital stock or any stock or securities convertible
into or exchangeable for any capital stock and is not subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of capital stock or any convertible securities, rights or options of the
type described in the foregoing clause (x).

 

ARTICLE III

 

INVESTMENT REPRESENTATIONS OF THE MANAGEMENT INVESTORS

 

Section 3.1 Investment
Intention; No Resales. Each Management Investor represents and warrants
that such Management Investor is acquiring his or her Management Shares for
investment, solely for his or her own account and not with a view to, or for
resale in connection with, the distribution or other disposition thereof or
with any present intention of distributing or reselling any Management Shares
thereof, except for such distributions and dispositions permitted under the
Stockholders Agreement and effected in compliance with the Securities Act and
the rules and regulations thereunder and all applicable state securities, or
“blue sky”, laws. Each Management Investor agrees and acknowledges that such
Management Investor will not, directly or indirectly, offer, transfer, sell,
assign, pledge, hypothecate or otherwise dispose of any Management Shares, or
solicit any offers to purchase or otherwise acquire or take a pledge of any
Management Shares, other than transfers, sales, assignments, pledges,
hypothecations or other dispositions explicitly permitted by the Stockholders
Agreement.

 

Section 3.2 Legend.
Each certificate representing Management Shares shall bear the legend set forth
in Section 2.5 of the Stockholders Agreement.

 

Section 3.3 Stock
Unregistered. Each Management Investor acknowledges and represents that
such Management Investor has been advised that (a) the Management Shares have
not been registered under the Securities Act; (b) the Management Shares must be
held indefinitely and such Management Investor must continue to bear the
economic risk of the

 

6

 

investment in the Management
Shares unless they are subsequently registered under the Securities Act or an
exemption from such registration is available; (c) it is not anticipated that
there will be any public market for the Management Shares; (d) Rule 144
promulgated under the Securities Act (“Rule 144”) is not currently
available with respect to the sales of any securities of the Company, and the
Company has made no covenant to make such rule available; (e) if and when the
Management Shares may be disposed of without registration in reliance on Rule
144, such disposition can be made only in limited amounts in accordance with
the terms and conditions of such rule; (f) if the Rule 144 exemption is not
available, public offer or sale without registration will require the
availability of an exemption under the Securities Act; (g) a restrictive legend
in the form set forth in the Stockholders Agreement shall be placed on the
certificates representing the Management Shares; and (h) a notation shall be
made in the appropriate records of the Company indicating that the Management
Shares are subject to restrictions on transfer and, if the Company should at
some time in the future engage the services of a securities transfer agent,
appropriate stop-transfer instructions will be issued to such transfer agent
with respect to the Management Shares.

 

Section 3.4 Rule
144. If any Management Shares are disposed of in accordance with Rule 144
or any similar or successor rule or regulation, each Management Investor
disposing of Management Shares shall deliver to the Company at or prior to the
time of such disposition an executed copy of Form 144 (if required by Rule 144)
or of such other form or forms required by any such similar or successor rule
or regulation and such other documentation as the Company may require in
connection with such disposition. Notwithstanding anything to the contrary
contained in this Section 3.4, the Company may deregister any of its securities
under Section 12 of the Exchange Act if it is then permitted to do so pursuant
to the Exchange Act and the rules and regulations in effect thereunder.

 

Section 3.5 Additional
Investment Representations. Each Management Investor represents and
warrants that (a) such Management Investor’s financial situation is such that
such Management Investor can afford to bear the economic risk of holding the
Shares for an indefinite period of time and suffer complete loss of such Management
Investor’s investment in the Shares; (b) such Management Investor’s knowledge
and experience in financial and business matters are such that such Management
Investor is capable of evaluating the merits and risks of such Management
Investor’s investment in the Shares, or such Management Investor has been
advised by a purchaser representative (as such term is defined in Rule 501 (n)
of the General Rules and Regulations promulgated under the Securities Act)
possessing such knowledge and experience; (c) such Management Investor
understands that the Shares are a speculative investment which involve a high
degree of risk of loss of such Management Investor’s investment therein, that
there are substantial restrictions on the transferability of the Shares and
that on the Closing Date and for an indefinite period following the Closing
there will be no public market for the Shares and, accordingly, it may not be
possible to liquidate such Management Investor’s investment in the Company in
case of emergency, if at all; (d) in making such Management Investor’s decision
to invest in the Shares hereunder, such Management Investor has relied upon
independent investigations made by such Management Investor and, to the extent
believed by such Management Investor to be appropriate, such Management
Investor’s representatives, including such Management Investor’s own
professional, tax and other advisors; (e) such Management Investor and such
Management Investor’s representatives have been given the opportunity to examine
all documents and to ask questions of, and to receive answers from, the Company
and

 

7

 

its representatives concerning the terms and
conditions of the investment in the Shares, and no representations have been
made to such Management Investor or such representatives concerning the
Management Shares, the Company, its subsidiaries, their business or prospects
or other matters; and (f) such Management Investor is an officer or key
employee of the Company or one or more of its subsidiaries.

 

ARTICLE
IV

 

MISCELLANEOUS

 

Section 4.1 Binding
Effect. The provisions of this Agreement shall be binding upon the parties
hereto and their respective heirs, legal representatives, successors and
assigns.

 

Section 4.2 No Right of
Employment. Neither this Agreement nor any purchase or sale of Management
Shares pursuant hereto shall create, or be construed or deemed to create, any
right of employment in favor of any Management Investor or any other person by
the Company or any of its subsidiaries.

 

Section 4.3 Recapitalizations,
Exchanges, Etc. Affecting Shares. The provisions of this Agreement
regarding Shares shall apply to any and all shares of capital stock of the
Company or any successor or assign of the Company (whether by merger,
consolidation, sale of assets, reorganization or otherwise) which may be issued
in respect of, in exchange for, or in substitution of the Shares by reason of
any stock dividend, stock split, stock issuance, reverse stock split,
combination, recapitalization, reclassification, merger, consolidation or
otherwise. Subject only to the provisions of the preceding sentence, nothing
contained in this Agreement shall prohibit or restrict the Company from taking
any corporate action, including, without limitation, declaring any dividend
(whether in cash or stock) or engaging in any corporate transaction of any
kind, including, without limitation, any merger, consolidation, liquidation or
sale of assets.

 

Section 4.4 Waiver and
Amendment. Any party hereto may waive its rights under this Agreement at
any time, and no such waiver shall operate to waive the Company’s rights under
this Agreement with respect to any other Management Investor. Any agreement on
the part of any such party to any such waiver shall be valid only if set forth
in an instrument in writing signed by such party. This Agreement may be amended
only by a written instrument signed by the Company, and by Management Investors
owning a majority of the then outstanding Management Shares.

 

Section 4.5 Notices.
All notices and other communications provided for herein shall be dated and in
writing and shall be deemed to have been duly given when delivered, if
delivered personally, or when deposited in the mail if sent by registered or
certified mail, return receipt requested, postage prepaid and when received if
delivered otherwise, to the party to whom it is directed:

 

8

 

(a)           If to the Company, to it at the
following address:

 

Lincoln
Technical Institute, Inc.

c/o Stonington
Partners, Inc.

767 Fifth
Avenue, 48th Floor

New York, New
York 10153

Attention:
James J. Burke, Jr.

 

with a copy
to:

 

Shearman & Sterling

599 Lexington
Avenue

New York, New
York 10022

Attention:
John J. Cannon, III, Esq.

 

(b)                                 If
to any of the Management Investors, to such Management Investor at the address
set forth below under such Management Investor’s signature;

 

or at such other address as the
parties hereto shall have specified by notice in writing to the other parties.

 

Section 4.6 Applicable
Law. The laws of the State of New York without reference to the choice of
law principles thereof shall govern the interpretation, validity and
performance of the terms of this Agreement, regardless of the law that might be
applied under principles of conflicts of law.

 

Section 4.7 Integration.
This Agreement and the documents referred to herein or delivered pursuant
hereto which form a part hereof contain the entire understanding of the parties
with respect to its subject matter. There are no restrictions, agreements,
promises, representations, warranties, covenants or undertakings with respect
to the subject matter hereof other than those expressly set forth herein and in
the Collateral Agreements. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its subject matter other
than such agreements and understandings set forth in the Collateral Agreements.

 

Section 4.8 Descriptive
Headings, Etc. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning of terms contained
herein. Unless the context of this Agreement otherwise requires, (i) words of
any gender shall be deemed to include each other gender; (ii) words using the
singular or plural number shall also include the plural or singular number,
respectively; and (iii) references to “hereof,” “herein,” “hereby” and similar
terms shall refer to this entire Agreement.

 

Section 4.9 Counterparts.
This Agreement may be executed in multiple counterparts, each of which shall be
deemed an original, but all of which shall constitute one and the same
instrument, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.

 

Section 4.10 Expenses.
The Company shall pay the legal fees and the expenses of the Management
Investors reasonably incurred in connection with the preparation and

 

9

 

negotiation of this Agreement; provided
that the Company shall not be obligated pursuant to this Agreement to pay the
fees and expenses of more than one counsel for all of the Management Investors.

 

Section 4.11 Severability.
In the event that any one or more of the provisions, paragraphs, words,
clauses, phrases or sentences contained herein, or the application thereof in
any circumstances, is held invalid, illegal or unenforceable in any respect for
any reason, the validity, legality and enforceability of any such provision,
paragraph, word, clause, phrase or sentence in every other respect and of the
other remaining provisions, paragraphs, words, clauses, phrases or sentences
hereof shall not be in any way impaired, it being intended that all rights,
powers and privileges of the parties hereto shall he enforceable to the fullest
extent permitted by law.

 

Section 4.12 Further
Assurances. The parties hereto shall from time to time execute and deliver
all such further documents and do all acts and things as the other party may
reasonably require to effectively carry out or better evidence or perfect the
full intent and meaning of this Agreement.

 

Section 4.13 Waiver
of Jury Trial. Each of the Company and the Management Investors hereby
irrevocably waives all right to a trial by jury in any action, proceeding or
counterclaim, arising out of or relating to this Agreement or the transactions
contemplated hereby.

 

Section 4.14 Survival
of Covenants. The Company and the Management Investors hereby agree that
the applicable provisions of this Agreement, including without limitation,
Sections 2.3 and 2.4, shall survive and remain in full force and effect
following the Closing.

 

10

 

IN WITNESS WHEREOF, the
parties have executed this Agreement as of the date first above written.

 

	
   

  	
  LINCOLN TECHNICAL
  INSTITUTE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Alexandra Tsamultalis

  	
   

  
	
   

  	
   

  	
  Alexandra Tsamultalis

  
	
   

  	
   

  	
  Assistant Secretary

  

 

11

 

	
   

  	
   

  
	
  /s/ David F.
  Carney

  	
   

  
	
  Name:

  	
  David F.
  Carney

  
	
  Address:

  	
  14
  Stuyvesant Road

  
	
   

  	
  Montvale, NJ
  07645

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Miryam
  Knutson

  	
   

  
	
  Name:

  	
  Miryam
  Knutson

  
	
  Address:

  	
  5023 Frew
  Avenue, Apt 8B

  
	
   

  	
  Pittsburgh,
  PA 15213

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Lawrence
  E. Brown

  	
   

  
	
  Name:

  	
  Lawrence E.
  Brown

  
	
  Address:

  	
  59 Redner
  Road

  
	
   

  	
  Morristown,
  NJ 07960

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Scott M.
  Shaw

  	
   

  
	
  Name:

  	
  Scott M.
  Shaw

  
	
  Address:

  	
  126 Tower
  Hill Road

  
	
   

  	
  Tuxedo Park,
  NY 10987

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Jerry Rubenstein

  	
   

  
	
  Name:

  	
  Jerry Rubenstein

  
	
  Address:

  	
  223 Glenmoor
  Road

  
	
   

  	
  Gladwyne, PA
  19035

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Keiko
  Shimada

  	
   

  
	
  Name:

  	
  Keiko
  Shimada

  
	
  Address:

  	
  57 Laura
  Lane

  
	
   

  	
  Park Ridge,
  NJ 07656-1905

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Leroy
  Keith

  	
   

  
	
  Name:

  	
  Leroy Keith

  
	
  Address:

  	
  736 Market
  Street, Suite 1340

  
	
   

  	
  Chattanooga,
  TN 37402-4809

  
			

 

12

 

Schedule I

 

	
  Management Investor

  	
   

  	
  Number of

  Management

  Shares

  A

  	
   

  	
  Purchase

  Price

  B

  	
   

  
	
  Miryam Knutson

  	
   

  	
  115,400

  	
   

  	
  $

  	
  357,740.00

  	
   

  
	
  David F. Carney

  	
   

  	
  115,288

  	
   

  	
  $

  	
  357,392.80

  	
   

  
	
  Lawrence E. Brown

  	
   

  	
  65,626

  	
   

  	
  $

  	
  203,440.60

  	
   

  
	
  Scott M. Shaw

  	
   

  	
  65,626

  	
   

  	
  $

  	
  203,440.60

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  361,940

  	
   

  	
  $

  	
  1,122,014.00

  	
   

  

 

13

 

Schedule II

 

Equity Ownership of the Company

(as of the day following the
Closing)

 

	
  Shareholder

  	
   

  	
  Number of

  Shares

  	
   

  	
  Number of

  Adjusted

  Shares*

  	
   

  
	
  Back To School Acquisition, LLC

  	
   

  	
  18,165,500

  	
   

  	
  18,165,500

  	
   

  
	
  Five Mile River Capital Partners LLC

  	
   

  	
  3,132,100

  	
   

  	
  3,132,100

  	
   

  
	
  Stephen Hart

  	
   

  	
  0

  	
   

  	
  161,500

  	
   

  
	
  Miryam Knutson

  	
   

  	
  115,400

  	
   

  	
  150,020

  	
   

  
	
  David F. Carney

  	
   

  	
  115,288

  	
   

  	
  517,738

  	
   

  
	
  Lawrence E. Brown

  	
   

  	
  65,626

  	
   

  	
  306,526

  	
   

  
	
  Scott M. Shaw

  	
   

  	
  65,626

  	
   

  	
  301,126

  	
   

  
	
  Other Management

  	
   

  	
  0

  	
   

  	
  1,174,365

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL

  	
   

  	
  21,659,540

  	
   

  	
  23,908,875

  	
   

  

 

 

Schedule I

 

*                 Assumes
that all options granted under the Stock Option Plan immediately after the
Closing (whether or not then exercisable) are exercised in full.

 

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Exhibit 10.10  

 
 

CHANGE IN CONTROL
  SEVERANCE PAYMENT AGREEMENT    
    

        This Agreement, made and entered into as of the 9th day of July, 2001, by and between Bank WestStar Bank, a state chartered bank (the "Bank") and a
wholly owned subsidiary of Vail Banks, Inc., and Paul M. Ferguson (hereinafter called the "Executive"), 

W I T N E S S E T H:  

        WHEREAS, the Executive has been hired by the Bank and will render valuable services to the Bank and its subsidiaries; and 

        WHEREAS,
the Bank wishes to induce the Executive to remain in employment during a possible Change in Control of Vail Banks, Inc. (as defined in Section 3 below) and
believes that the execution of this Agreement will further its aim in retaining the Executive during an actual or attempted Change in Control and will tend to assure fair treatment of executives in
the event of a Change in Control; 

        NOW,
THEREFORE, for and in consideration of the premises and of the Executive's employment with the Bank, the parties hereto agree as follows: 

        1.     Duties and Status of Executive. 

        The
Executive shall perform such duties and responsibilities as shall be assigned to him from time to time by the President of the Bank or the Board of Directors of the Bank. The
Executive shall devote his working time and attention to the discharge of his duties with the Bank and its subsidiaries. In addition to the compensation and other benefits provided the Executive by
the Bank, the Executive shall have the additional benefits provided by this Agreement. 

        2.     Term. 

        (a)   Initial Term. The term of this Agreement shall initially be a fixed period of two years that expires on the second
anniversary of the date of this Agreement and may be extended as provided in subsection (b) below. 

        (b)   Extension. The term of this Agreement shall be extended automatically on the first anniversary and on each subsequent
anniversary of the date of this Agreement (each such anniversary being referred to as an "Extension Date") for an additional one year period so that the Agreement then expires on the second
anniversary of the applicable Extension Date; provided that 

        (i)    the
then current term of this Agreement will not be extended on any Extension Date if, 

        (A)  not
later than 90 days before such Extension Date the Bank gives the Executive written notice that it does not wish to extend the term, or 

        (B)  before
such Extension Date the Bank terminates the employment of the Executive for Cause (as defined in Section 4(c)), and 

        (ii)   whether
or not the Bank has given notice to the Executive pursuant to clause (i) (A) above that it does not wish to extend the term of this
Agreement, if a Change in Control occurs during the initial term of this Agreement, or any extension thereof, the term of this Agreement shall not expire sooner than the first anniversary of the date
of such Change in Control. 

 

        3.     Change in Control. For the purposes of this Agreement, a "Change in Control" shall be deemed to have occurred in the event
of: 

        (a)   an
acquisition by any Person of Beneficial Ownership of the Shares of the Vail Banks, Inc. (the "Company") then outstanding (the "Company Common Stock
Outstanding") or the voting securities of the Company then outstanding entitled to vote generally in the election of directors (the "Company Voting Securities Outstanding"), if such acquisition of
Beneficial Ownership results in the Person beneficially owning (within the meaning of Rule 13d-3 promulgated under the Exchange Act) twenty-five percent (25%) or more of
the Company Common Stock Outstanding or twenty-five percent (25%) or more of the combined voting power of the Company Voting Securities Outstanding; provided, that immediately prior to
such acquisition such Person was not a direct or indirect Beneficial Owner of twenty-five percent (25%) or more of the Company Common Stock Outstanding or twenty-five percent
(25%) or more of the combined voting power of Company Voting Securities Outstanding, as the case may be; or 

        (b)   the
approval by the shareholders of the Company of (i) a reorganization, merger, consolidation, complete liquidation or dissolution of the Company,
(ii) the sale or disposition of all or substantially all of the assets of the Company or (iii) similar corporate transaction (in each case referred to in this Section 3 as a
"Corporate Transaction") or, if consummation of such Corporate Transaction is subject, at the time of such approval by shareholders, to the consent of any government or governmental agency, the
obtaining of such consent (either explicitly or implicitly); or 

        (c)   a
change in the composition of the Board of Directors of the Company (the "Board") such that the individuals who, as of the date of this Agreement, constitute the Board
(such Board shall be hereinafter referred to as the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this Section 3
that any individual who becomes a member of the Board subsequent to the date of this Agreement whose election, or nomination for election by the Company's shareholders, was approved by a vote of at
least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such
individual were a member of the Incumbent Board; but, provided, further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, including any successor to such Rule), or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the Board, shall not be so considered as a member of the Incumbent Board. 

        (d)   Notwithstanding
the provisions set forth in subsections (a) and (b), the following shall not constitute a Change in Control for purposes of this Agreement:
(1) any acquisition of Shares by, or consummation of a Corporate Transaction with, any Subsidiary or any employee benefit plan (or related trust) sponsored or maintained by the Company or an
affiliate; or (2) any acquisition of Shares, or consummation of a Corporate Transaction, following which more than fifty percent (50%) of, respectively, the shares then outstanding of common
stock of the corporation resulting from such acquisition or Corporate Transaction and the combined voting power of the voting securities then outstanding of such corporation entitled to vote generally
in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were Beneficial Owners, respectively, of the Company
Common Stock Outstanding and Company Voting Securities Outstanding immediately prior to such acquisition or Corporate Transaction in substantially the same proportions as their ownership, immediately
prior to such acquisition or Corporate Transaction, of the Company Common Stock Outstanding and Company Voting Securities Outstanding, as the case may be. 

2

 

        4.     Change in Control Severance Payments and Benefits. 

        (a)   If
a Change in Control of the Company occurs and within 12 months of the date of such Change in Control the Executive's employment is terminated: 

        (i)    by
the Bank, other than for Cause, death or Disability; or 

        (ii)   by
the Executive for Good Reason, 

then
the Executive shall be entitled to receive (subject to withholding of all applicable taxes) the severance payments and benefits described in (b) below after his termination of employment.
If the Executive's employment is terminated by the Bank for Cause or as a result of death or Disability, or by the Executive without Good Reason, the Executive shall not be entitled to any payments
under this Agreement. 

        (b)   If
the Executive becomes eligible for benefits under Section 4(a) above, the Bank shall pay or provide to Executive the compensation and benefits set forth
in this Section 4(b). 

        (i)    As
severance payments, the Executive will be entitled to continue to receive his base salary (subject to withholding of all applicable taxes) for a period of eighteen
(18) months from his date of termination
in the same manner as it was being paid as of his date of termination. For purposes of this Agreement, "base salary" shall mean Executive's base salary at the highest rate in effect during the
six months prior to his termination. 

        (ii)   The
medical coverage provided to the Executive at his date of termination shall be continued by the Bank at the same level and in the same manner as if his employment
had not terminated (subject to Executive's right to make any changes in such coverages that an active employee is permitted to make), beginning on the date of such termination and ending on the date
eighteen (18) months from the date of such termination. Any additional coverages the Executive had at termination, including dependent coverage, will also be continued for such period on the
same terms, to the extent permitted by the applicable policies or contracts. Any costs the Executive was paying for such coverages at the time of termination shall be paid by the Executive by separate
check payable to the Bank each month in advance or by deduction from the payments in (i) above. The coverage provided for in this subsection (ii) shall be applied against and
reduce the period for which COBRA coverage will be provided. If the Executive is employed by another employer after terminating employment with the Bank and receives medical coverage from such
employer, then the Bank's obligations under this subsection (ii) shall cease. 

        (c)   For
the purposes of this Section 4, "Cause" means: 

        (i)    the
conviction of the Executive of, or a plea of guilty or nolo contendere by the Executive to, any felony involving conduct on the part of the Executive that renders
him unfit for the performance of his duties to the Bank, or its subsidiaries and affiliates, or 

        (ii)   any
willful misconduct on the part of the Executive in the performance of his duties that is harmful to the Bank, its subsidiaries or affiliates, or the Company
monetarily or otherwise. 

        For
the purpose of this subsection (c), no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in the best interest of the Bank. 

        (d)   For
the purpose of this Section 4, "Disability" shall be deemed to exist if, as a result of the Executive's incapacity due to physical or mental illness, he shall
have been absent from his duties with the Bank on a full-time basis for 150 consecutive calendar days and within 30 days 

3

 

after
he has received notice of termination pursuant to Section 5 he has not returned to the performance of his duties on a full-time basis. 

        (e)   For
the purposes of this Section 4, "Good Reason" shall be deemed to exist under any of the following circumstances, but only to the extent that they occur within
the twelve month period immediately after a Change in Control: 

        (i)    A
material adverse alteration in the nature or status of Executive's responsibilities from those in effect immediately prior to the Change in Control, or 

        (ii)   A
material reduction by the Bank in the Executive's compensation and benefits as in effect on the date hereof or as the same may be increased from time to time, except
in connection with a reduction for executives generally. 

        (f)    The
Bank agrees that, if the Executive's employment is terminated and he is entitled to payments and benefits under Section 4(b), he shall not be required to
mitigate damages by seeking other employment, nor shall any amount he earns or benefits he receives after his termination of employment reduce the amount payable, or benefits provided, by the Bank
under this Agreement (except as provided in Section 4(b)(ii)). 

        5.     Notice of Termination. Any termination by the Bank or by the Executive of the Executive's employment shall be communicated
by a written notice of termination to the other party, and shall specify the provision of this Agreement relied upon and shall set forth in reasonable detail the circumstances claimed to provide a
basis for termination. The date of termination shall be the date on which the notice of termination is delivered if by the Executive or 30 days after the date of the notice of termination if
given by the Bank. 

        6.     Assignment; Successors in Interest. 

        (a)   General. Except with the prior written consent of the Executive, no assignment by operation of law or otherwise by the
Bank of any of its rights and obligations under this Agreement may be made other than to an entity which is a successor to all or a substantial portion of the business of the Bank (but then only if
such entity assumes by operation of law or by specific assumption executed by the transferee and delivered to the Executive all obligations and liabilities of the Bank under this Agreement); no
transfer by operation of law or otherwise by the Bank of all or a substantial part of its business or assets shall be made unless the obligations and liabilities of the Bank under this Agreement are
assumed in connection with such transfer either by operation of law or by specific assumption executed by the transferee. In such event, the Bank shall remain liable for the performance of all of its
obligations under this Agreement (which liability shall be a primary obligation for full and prompt performance rather than a secondary guarantee of collectibility of damages). Except for any transfer
or assignment of rights under this Agreement, in whole or in part, upon the death of the Executive to his heirs, devisees, legatees or beneficiaries or except with the prior written consent of the
Bank, no assignment or transfer by operation of law or otherwise may be made by the Executive of any of his rights under this Agreement. 

        (b)   Binding Nature. This Agreement shall be binding upon the parties to this Agreement and their respective legal
representatives, heirs, devisees, legatees, beneficiaries and successors and assigns; shall inure to the benefit of the parties to this Agreement and their respective permitted legal representatives,
heirs, devisees, legatees, beneficiaries and other permitted successors and assigns (and to or for the benefit of no other person or entity, whether an employee or otherwise, whatsoever); and any
reference to a party to this Agreement shall also be a reference to a permitted successor or assign. 

4

 

        7.     Miscellaneous. 

        (a)   The
failure of any party to this Agreement at any time or times to require performance of any provision of this Agreement shall in no manner affect the right to enforce
the same. No waiver by any party to this Agreement of any provision (or of a breach of any provision) of this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed
or construed either as a further or continuing waiver of any such provision or breach or as a waiver of any other provision (or of a breach of any other provision) of this Agreement. 

        (b)   Wherever
possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid but if any one or more of the provisions of this
Agreement shall be invalid, illegal or unenforceable in any respect for any reason, the validity, legality or enforceability of any such provisions in every other respect and of the remaining
provisions of this Agreement shall not be impaired. 

        (c)   This
Agreement shall be governed by and interpreted in accordance with the laws of the State of Colorado (without giving effect to any choice of law provisions). 

        (d)   This
Agreement may only be amended by a written instrument signed by the parties hereto which makes specific reference to the Agreement. 

        IN
WITNESS WHEREOF, the Bank has caused this Agreement to be executed by its duly authorized officer and the Executive has executed this Agreement as of the date and year first written
above. 

	

 	
 	
WESTSTAR BANK
	
 	
 	

By:	
 	

	

 	
 	
EXECUTIVE
	
 	
 	

 Name: Paul M. Ferguson

5

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CHANGE IN CONTROL SEVERANCE PAYMENT AGREEMENT

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