Document:

lzd-ex1019_261.htm

Exhibit 10.19

 

PROFITS INTEREST PARTICIPATION RIGHT UNIT AGREEMENT

THIS AGREEMENT, dated as of Date by, and among Lazard Ltd, a Bermuda exempted company (the “Company”), Lazard Group LLC, a Delaware limited liability company (“Lazard Group”), and Employee Name (the “Member”).

W I T N E S S E T H

In consideration of the mutual promises and covenants made herein and the mutual benefits to be derived herefrom, the parties hereto agree as follows:

1.  Grant and Vesting of PIPR Interest.

(a)  Subject to the provisions of this Agreement, the provisions of the Company’s 2018 Incentive Compensation Plan (the “Plan”) and the Amended and Restated Operating Agreement of Lazard Group, as amended from time to time (the “Operating Agreement”) (all capitalized terms used herein, to the extent not defined, shall have the meaning set forth in the Operating Agreement, unless otherwise specified), Lazard Group hereby grants to the Member, as of the date set forth above (the “Grant Date”), a PIPR Interest issued on the date hereof as Number PIPR Units.

The PIPR Interest is an “Other Equity-Based Award” within the meaning of Section 8 of the Plan.  These PIPR Units are not performance-based restricted participation units, or PRPUs, or Performance PIPRs for purposes of the Operating Agreement.

(b)  Subject to the terms and conditions of this Agreement and to the provisions of the Plan, each PIPR Unit shall vest and, subject to the Operating Agreement, no longer be subject to forfeiture, upon the date on which (i) such PIPR Unit has become an Equitized PIPR Unit (such date, as applicable to the relevant PIPR Unit, the “Equitization Date”) and (ii) the Member has remained in continuous service to the Company or any of its Affiliates until March 1, 2024 (such condition, the “Service Condition”).  The date that the Service Condition has been satisfied with respect to an Unvested Award (as defined below) is referred to herein as the “Vesting Date”, and an Unvested PIPR Unit or any Share (as defined in the Plan) that the Member receives in exchange for an Equitized PIPR Unit pursuant to Section 4 or receives pursuant to Section 10(a) (each such Share, a “Restricted Share”) that is outstanding prior to the Vesting Date is referred to as an “Unvested Award”. 

Notwithstanding anything in this Agreement or in the Plan to the contrary, except as provided in this Section 1(b) and Section 1(e), the Member will forfeit all Unvested Awards and all rights thereunder will terminate in the event that the Member incurs a Termination of Employment (as defined in the Plan) prior to the Vesting Date for any reason not set forth in Section 1(c), which Termination of Employment and forfeiture shall be deemed to occur on the date that the Member provides notice of termination to the Company, in the case of a resignation by the Member, or on the Date of Termination (as defined in Appendix A), in the case of Termination of Employment by the Company.  The Member’s PIPR Capital with respect to a PIPR Unit that has been forfeited, canceled or terminated shall be treated as provided in Section 4.03(c)(iv) of the Operating Agreement.

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(c)  (i) Except as set forth in Section 1(e), in the event that the Member incurs a Termination of Employment prior to the Vesting Date due to (A) the Member’s Disability (as defined in the Plan), (B) the Member’s death or (C) a Termination of Employment by the Company other than for Cause, the Member shall no longer be required to remain in continuous service to satisfy the Service Condition, but (other than in the case of death) the Unvested Awards shall remain outstanding and subject to forfeiture pursuant to Section 1(d) through the Vesting Date (for the avoidance of doubt, each PIPR Unit will remain outstanding subject to the occurrence of the relevant Equitization Date on or before the fifth anniversary of the date of grant (such date, the “Final Equitization Date”), and (other than in the case of death) will be subject to forfeiture pursuant to Section 1(d) through the Vesting Date).

(i)Except as set forth in Section 1(e), in the event that the Member incurs a Termination of Employment prior to the Vesting Date due to the Member’s Retirement (as defined below), the Member shall no longer be required to remain in continuous service to satisfy the Service Condition, but the Unvested Awards shall remain outstanding and subject to forfeiture pursuant to Section 1(d) through the Vesting Date (for the avoidance of doubt, each PIPR Unit will remain outstanding subject to the occurrence of the relevant Equitization Date on or before the Final Equitization Date, and will be subject to forfeiture pursuant to Section 1(d) through the Vesting Date).  For purposes of this Agreement, “Retirement” shall mean that the Member voluntarily incurs a Termination of Employment on or after the date on which the Member meets all of the requirements of the retirement policy applicable to equity awards granted under the Plan, as in effect from time to time.

(d)   Notwithstanding anything to the contrary in this Agreement, in the event that the Member incurs a Termination of Employment by the Company other than for Cause or a Termination of Employment due to Retirement in accordance with Section 1(c)(ii), in either case, prior to a Change in Control (as defined in the Plan), the Unvested Awards shall be treated as provided in Section 1(c)(i) or Section 1(c)(ii), as applicable, only if the Member (or the Member’s estate, if applicable) signs a customary release of claims in favor of the Company and its Affiliates that is acceptable to the Company, and such release becomes effective and irrevocable on or before the 65th day following the Member’s Termination of Employment.  In the event the Member (or the Member’s estate, if applicable) does not sign such release or revokes such release before it becomes effective, the Member shall forfeit all rights to any Unvested Awards.  In the event that, prior to a Change in Control or prior to a Termination of Employment (including by reason of Retirement in accordance with Section 1(c)(ii)) following a Change in Control, as applicable, the Member violates any of the restrictive covenants set forth in Appendix A, which are incorporated herein by reference (the “Restrictive Covenants”), all outstanding Unvested Awards shall be forfeited and canceled.  For the avoidance of doubt, in no event shall a violation of the Restrictive Covenants following a Termination of Employment serve as a basis for forfeiture of Unvested Awards from and after a Change in Control.  Notwithstanding that certain Restrictive Covenants apply for only a limited period following Termination of Employment, in the event that the Member incurs a Termination of Employment by reason of Retirement, the Member will forfeit any outstanding Unvested Awards if the Member does not comply with all of the Restrictive Covenants until the Vesting Date. 

(e)  (i) Upon a Change in Control, an Equitized PIPR Unit or a Restricted Share may be converted into an award in respect of stock of, or other equity interests in, the acquirer (or one of 

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its affiliates) based on the value of such Unvested Award (in the case of an Equitized PIPR Unit that is in Parity, which value shall be determined as if exchanged for a Share on a one-for-one basis) at the time of such Change in Control and, following conversion, any such award will be considered an Unvested Award to the extent provided in this Agreement.  A Non-Equitized PIPR Unit outstanding as of a Change in Control may either (A) remain outstanding or (B) be converted into replacement awards in accordance with Section 10(a) of this Agreement and Section 4.03(c)(iv) of the Operating Agreement in respect of stock of, or other equity interests in, the acquirer (or one of its affiliates).  Except as otherwise provided in this Section 1(e)(i) and Section 1(e)(ii), following a Change in Control, the Unvested Awards shall remain subject to the Service Condition; provided, however, that in the event that the Member incurs a Termination of Employment upon or following a Change in Control but prior to the Vesting Date under any of the circumstances described in Section 1(c), the Service Condition shall be deemed to have been satisfied immediately upon such Termination of Employment, and the date of such Termination of Employment shall be deemed to be the Vesting Date for purposes of such Unvested Awards (and any related Unvested Dividend Amount (as defined in Section 6 of this Agreement)).  Furthermore, in the event that the Member incurs a Termination of Employment under any of the circumstances described in Section 1(c) prior to the Vesting Date and prior to a Change in Control, upon a Change in Control, the date of the Change in Control shall be deemed to be the Vesting Date for purposes of any Unvested Awards (and any related Unvested Dividend Amount).  Notwithstanding the forgoing, solely to the extent required to avoid taxation and penalties under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”),  the Unvested Awards (and any related Unvested Dividend Amount) shall be settled no later than March 15th of the calendar year (or, if applicable, two and one-half months after the end of the applicable service recipient’s fiscal year) following the later of (1) the calendar year (or fiscal year, as applicable) in which the Change in Control occurs and (2) the calendar year (or fiscal year, as applicable) in which the Unvested Awards (and any related Unvested Dividend Amount) are no longer subject to a “substantial risk of forfeiture” within the meaning of Section 409A of the Code.  In the event of settlement of any Unvested Awards (and any related Unvested Dividend Amount) prior to the Vesting Date (or deemed Vesting Date) in accordance with the immediately preceding sentence, a portion of the Shares (or acquirer shares) may be sold pursuant to Section 1(e)(iv) below, and the remainder of the Unvested Award (and any related Unvested Dividend Amount) will remain forfeitable until the Vesting Date (or deemed Vesting Date).

(i)Notwithstanding any other provision of this Agreement, in the event of a Change in Control prior to the Vesting Date, unless (A) either (1) the Unvested Awards remain outstanding following the Change in Control or (2) provision is made in connection with the Change in Control for assumption of Unvested Awards or substitution of such Unvested Awards for new awards covering equity interests in a successor entity, with appropriate adjustments to the number of Unvested Awards, as determined by the Committee (as defined in the Plan) in accordance with Section 1(e)(i) of this Agreement and Section 4.03(c)(iv) of the Operating Agreement, prior to the Change in Control pursuant to Section 3(b)(ii) of the Plan and (B) the material terms and conditions of such Unvested Awards as in effect immediately prior to the Change in Control are preserved following the Change in Control (including, without limitation, with respect to the vesting schedule, the intrinsic value of the Unvested Awards (or similar potential fair value in accordance with Section 10(a) of this Agreement and Section 4.03(c)(iv) of the Operating Agreement, in the case of a Non-Equitized PIPR Unit) and transferability of the 

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Unvested Awards (and interests into which the Unvested Awards may be converted or exchanged) prior to and following the Change in Control), the Service Condition shall be deemed satisfied immediately upon such Change in Control, and the date of the Change in Control shall be deemed to be the Vesting Date for purposes of such Unvested Awards (and any related Unvested Dividend Amount). 

(ii)Notwithstanding Section 10(a) of the Plan, except as set forth in Section 1(e)(ii), in the event that the Member incurs a Termination of Employment upon or following a Change in Control but prior to the Vesting Date, under any circumstances other than those described in Section 1(c) or this Section 1(e) (including a voluntary resignation if the individual is not retirement eligible (in accordance with the Company’s policies as in effect prior to the Change in Control) or a termination for Cause), then any outstanding Unvested Awards shall be immediately forfeited.

(iii)To the extent that the conversion, assumption or substitution of the PIPR Units in connection with a Change in Control would result in the Member incurring tax liability with respect to such PIPR Units, subject to applicable law and any policies of the Company or any successor that impose trading restrictions (such as blackout periods), the Member shall be permitted to sell the number of Shares (or acquirer shares) subject to the replacement award that the Company determines to be necessary to satisfy the Member’s tax liability incurred in connection with such exchange.  Any such Shares (or acquirer shares) that the Member is entitled to sell pursuant to this Section 1(e)(iv) will no longer be considered Unvested Awards.

2.  Capital.

(a)  Capital Contribution.  Each Member of Lazard Group has made or shall be required to make an initial capital contribution to Lazard Group.  In the event that the Member fails to make the required capital contribution prior to the date specified by Lazard Group, the PIPR Units will be immediately forfeited and the Member will have no further rights pursuant to this Agreement.

(b)  PIPR Capital Accounts. 

(i)On the Grant Date, the Member’s initial PIPR Capital Account shall have a balance of zero, provided that in the event that the Member has made a capital contribution to Lazard Group pursuant to Section 2(a) above, then the Member’s initial PIPR Capital Account balance shall equal the amount of such contribution.  The Member shall not be entitled to withdraw or otherwise receive any distributions in respect of, or any return on, any PIPR Capital except as provided in the Operating Agreement. 

(ii)Certain adjustments to the Member’s PIPR Capital Account shall be handled in the manner specified in Section 5.04 of the Operating Agreement (the date of any such adjustment, a “Revaluation Date”).

3.  Achievement of Equitizing Target Capital.

Upon any Revaluation Date, PIPR Units shall become Equitized PIPR Units subject to the conditions set forth in the Operating Agreement.  Except as otherwise set forth in this 

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Agreement, any Non-Equitized PIPR Unit that does not become an Equitized PIPR Unit on such Revaluation Date shall remain outstanding and shall be eligible to become an Equitized PIPR Unit on each subsequent Revaluation Date in accordance with the Operating Agreement; provided that any such Non-Equitized PIPR Unit that has not become an Equitized PIPR Unit on or prior to the Final Equitization Date shall be automatically forfeited.  For the avoidance of doubt, from and after the relevant Equitization Date, the Equitized PIPR Units shall remain Unvested Awards until the Vesting Date.  

4.  Exchange of Equitized PIPR Units for Shares.

(a)  As of the Vesting Date, the Member shall have the right to exchange all of the Member’s Equitized PIPR Units that are Exchangeable PIPR Units for Shares at such times, on the terms, and subject to the conditions set forth in Section 7.03 of the Operating Agreement; provided that, notwithstanding anything in Section 7.03(a) of the Operating Agreement to the contrary, in no event shall Lazard Group be permitted to defer an exchange of the Member’s Exchangeable PIPR Units if the Member is an “officer” within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

(b)  The Committee shall have the right to require the exchange of any or all Equitized PIPR Units that the Member has received pursuant to this Agreement for Shares in accordance with Section 7.03 of the Operating Agreement.  In the event that the Committee requires any such exchange prior to the Vesting Date, then the Shares that the Member receives will be considered an Unvested Award until the Vesting Date and will be subject to the forfeiture provisions in Section 1 of this Agreement.  Notwithstanding anything in this Agreement, the Plan or the Operating Agreement to the contrary, in the event that the Committee requires an exchange of Equitized PIPR Units for Shares, subject to Section 7.03(f) of the Operating Agreement, applicable law and any Company policies that impose trading restrictions (such as blackout periods), the Shares will be subject to the same vesting conditions that were applicable to the Equitized PIPR Units; provided that the Member shall be permitted to sell the number of Shares that the Company determines to be necessary to satisfy the Member’s tax liability incurred with respect to such Shares and in connection with such exchange.  Any such Shares that the Member is entitled to sell pursuant to this Section 4(b) will no longer be considered Unvested Awards.

5.  Nontransferability.

(a)  Except as provided by the Committee, the PIPR Units shall not be transferrable by the Member except as set forth in Section 7.02(c) of the Operating Agreement, and the Restricted Shares shall not be transferable by the Member by means of sale, assignment, exchange, encumbrance, pledge, hedge or otherwise, except (i) upon the death of the Member, a transfer by operation of law to the Member’s estate, direct descendants or spouse or (ii) to an affiliate of the Company in exchange solely for affiliate equity interests.  In the event of any transfer pursuant Section 7.02(c) of the Operating Agreement or any transfer pursuant to the preceding clause (i) or (ii) of this Section 5(a), any obligations of the Member to claim tax benefits or to refund amounts to the Company or Lazard Group shall be binding upon the relevant Transferee.  

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(b)  Any Unvested Awards that are Shares shall be evidenced in such manner as the Committee may deem appropriate, including book-entry registration or issuance of one or more stock certificates.  Any certificate or book entry credit delivered or entered in respect thereof pursuant to Section 4(b) of this Agreement shall be registered in the name of the Member and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable thereto, substantially in the following form:

“The transferability of this certificate (if certificated) and the shares of stock represented hereby is subject to the terms and conditions (including forfeiture) of the Lazard Ltd 2018 Incentive Compensation Plan, the Amended and Restated Operating Agreement of Lazard Group LLC and an Award Agreement, as well as the terms and conditions of applicable law.  Copies of such Plan, Operating Agreement and Award Agreement are on file at the offices of Lazard Ltd.”

The Committee is likely to require that the certificates or book entry credits evidencing title of the Restricted Shares be held in custody by the escrow agent (if any) that is designated by the Company (the “Designated Escrow Agent” which, in the absence of any such designation, shall mean the Company) until the restrictions thereon shall have lapsed and that, as a condition of receiving the Restricted Shares, the Member shall have delivered to the Company a stock power, endorsed in blank, relating to such Restricted Shares.  If and when the Vesting Date occurs with respect to the Restricted Shares or the Restricted Shares otherwise become vested in accordance with Section 1(c)(i) or 1(e), provided that the Restricted Shares have not been forfeited pursuant to Section 1(b), 1(d) or 1(e)(iii), the legend set forth above shall be removed from the certificates or book entry credits evidencing such Shares within 30 days following such date.  Notwithstanding the foregoing, the Designated Escrow Agent shall be entitled to hold the Restricted Shares until the Company shall have received from the Member a duly executed Form W-9 and any other information or completed forms the Company may reasonably require.

6.  Allocations, Distributions and Dividends. 

Allocations and distributions with respect to the PIPR Units (including tax distributions) shall be handled in the manner specified in the Operating Agreement.  In the case of any Restricted Shares, any dividends or other distributions that are paid on such Restricted Shares prior to the Vesting Date (whether payable in cash or in kind) will be held by the Designated Escrow Agent and shall vest and be paid (less any taxes required to be withheld) at the time the corresponding Restricted Shares vest (it being understood that the provisions of this sentence shall not apply to any extraordinary dividends or distributions, which are addressed in Section 9 of this Agreement and Section 3(c)(i) of the Plan).  In the event that any Restricted Shares are forfeited in accordance with Section 1(b), 1(d) or 1(e)(iii), all dividends held by the Designated Escrow Agent with respect to such Restricted Shares shall also be forfeited.  The amount of any distributions credited under Section 6.03 of the Operating Agreement to the Member’s PIPR Units prior to the Vesting Date and any amounts that are held by the Designated Escrow Agent, are referred to herein as “Unvested Dividend Amounts”.  Any such Unvested Dividend Amounts shall be settled through a cash payment (less any prior tax distributions pursuant to Section 6.02 of the Operating Agreement in respect of Unvested Dividend Amounts) to the Member upon the Member’s satisfaction of the Service Condition applicable to the Unvested Awards to which such Unvested Dividend Amounts relate.  Upon the forfeiture of an Unvested Award pursuant to 

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the terms of this Agreement, all Unvested Dividend Amounts (including the amount of cash tax distributions previously paid pursuant to Section 6.02 of the Operating Agreement) allocated to the Member’s forfeited PIPR Units and any amounts that are held by the Designated Escrow Agent with respect to such Unvested Award, shall also be forfeited.  The Member’s PIPR Capital that has been forfeited, canceled or terminated shall be treated as provided in Section 4.03(c)(iv) of the Operating Agreement, as applicable.  From and after the Vesting Date, the rights of the Member to receive distributions with respect to any PIPR Unit shall be governed by the Operating Agreement, and the rights of the Member to receive distributions with respect to the Shares shall be the same as regular shareholders of the Company.

7.  Tax Distributions.

Tax distributions in respect of the PIPR Units shall be handled in the manner specified in Section 6.02 of the Operating Agreement.  Notwithstanding anything in Section 6.02 of the Operating Agreement, if the Member forfeits any Unvested Awards because the Member is not permitted to retire pursuant to Section 1(c)(ii) above and resigns prior to the Vesting Date or is terminated by the Company for Cause and if the Member is not entitled to a sufficient amount of distributions pursuant to Section 6.02 or Section 6.03 of the Operating Agreement, then, subject to the limitations set forth in Section 6.02 of the Operating Agreement, Lazard Group shall be permitted to require the Member to repay, and the Member agrees to repay and shall be obligated to repay, Lazard Group the amount of such advance not later than 30 days following such forfeiture. 

 

8.  Section 83(b) Election.

The Member agrees that the Member will make a protective election to be taxed immediately on the value of the PIPR Interest on the Grant Date;  provided that the Member shall have no liability to the Company if the Member fails to comply with this Section 8.  In order to do so, the Member must file an election with the Internal Revenue Service pursuant to Section 83(b) of the Code, and the applicable Treasury Regulations thereunder (a “Section 83(b) Election”) with respect to the PIPR Interest within 30 days following the Grant Date.  The Member further agrees that, in the event that the Member receives Restricted Shares pursuant to Section 4(b) of this Agreement, the Member will make a Section 83(b) Election with respect to such Restricted Shares within 30 days following the date the Member receives such Restricted Shares.  The Member will provide a copy of each such Section 83(b) Election to Lazard Group not later than ten (10) days after filing the election with the Internal Revenue Service or other governmental authority.

9.  Payment of Transfer Taxes, Fees and Other Expenses.

(a)  The Company agrees to pay, or to cause its applicable Affiliate to pay, any and all original issue taxes and stock transfer taxes that may be imposed on the delivery of any PIPR Units or Shares (including any Restricted Shares) pursuant to this Agreement, together with any 

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and all other fees and expenses necessarily incurred by the Company or any of its Affiliates in connection therewith.  

(b)  If the Company, or its applicable Affiliate, pays any taxes (including any related interest, penalties or additions to tax) in respect of PIPR Units or Shares (including any Restricted Shares) on the Member’s behalf, (i) except if the Member is an “executive officer” (within the meaning of Rule 3b-7 under the Exchange Act), as may be required to comply with the Sarbanes-Oxley Act, if requested by Lazard Group, the Member agrees to reimburse and shall reimburse Lazard Group for such taxes within 30 days following the Company’s request or (ii) if such taxes are paid by Lazard Group, Lazard Group may treat any such taxes as an advance to the Member to be repaid by reducing the amount of distributions that would otherwise be made to the Member under this Agreement and the Operating Agreement; provided that the Member shall be treated as receiving such distributions, unreduced by this Section 9, for all other purposes of this Agreement and the Operating Agreement.  For the avoidance of doubt, all determinations of the Managing Members in accordance with Section 5.05 of the Operating Agreement, the Tax Representative and Lazard Group in accordance with Section 5.07 of the Operating Agreement shall be binding on the Member and any Transferee.

(c)  Except as otherwise provided in Section 9(a), Section 9(b) and Section 13, the Member shall be solely responsible for the payment of any taxes in respect of PIPR Units or Shares (including any Restricted Shares) (including any related interest, penalties or additions to tax) and shall hold the Company and its Affiliates and their respective directors, officers and employees harmless from any liability arising from the Member’s failure to comply with the foregoing provisions of this Section 9(c).  

10.  Termination of Unvested Awards; Adjustment Provisions.

(a)  The Committee shall have the right to terminate any Non-Equitized PIPR Units on the terms and subject to the conditions set forth in Section 4.03(c)(iv) of the Operating Agreement.  For purposes of Section 4.03(c)(iv) of the Operating Agreement, “replacement awards” for the terminated Non-Equitized PIPR Units shall constitute restricted stock units in respect of Shares (or acquirer shares) or Restricted Shares (or restricted stock of an acquirer) or any other stock or cash-based Award (as defined in the Plan), which in the case of replacement awards with respect to Unvested Awards would have the same remaining vesting conditions as the applicable Non-Equitized PIPR Units.

(b)  In the event of any extraordinary dividend or other extraordinary distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, rights offering, stock split, reverse stock split, split-up or spin-off or any other event that constitutes an “equity restructuring” within the meaning of Topic 718 in the FASB Accounting Standards Codification with respect to Shares, the Committee shall, in the manner determined appropriate or desirable by the Committee, adjust any outstanding PIPR Units.

11.  Effect of Agreement.

Except as otherwise provided hereunder, this Agreement shall be binding upon and shall inure to the benefit of any successor or successors of the Company or Lazard Group.  The 

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invalidity or enforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.  Nothing in this Agreement or the Plan shall confer upon the Member any right to continue in the employ of the Company or any of its Affiliates or interfere in any way with the right of the Company or any such Affiliates to terminate the Member’s service at any time.  Until Shares are actually delivered to the Member upon exchange of Equitized PIPR Units for Shares, the Member shall not have any rights as a shareholder, except as specifically provided herein.  

12.  Laws Applicable to Construction; Consent to Jurisdiction.

(a)  Notwithstanding anything in the Operating Agreement to the contrary, this Agreement shall be governed by and construed in accordance with the laws of the State of New York (United States of America), without regard to principles of conflict of laws that could cause the application of the law of any jurisdiction other than the State of New York.  In addition to the terms and conditions set forth in this Agreement and the Restrictive Covenants, the Unvested Awards are subject to the terms and conditions of the Plan, which is hereby incorporated by reference, and the PIPR Units are subject to the Operating Agreement, which is hereby incorporated by reference.  By signing this Agreement, the Member agrees to and is bound by the Plan, the Operating Agreement and the Restrictive Covenants.

(b)  Notwithstanding anything in the Operating Agreement to the contrary, subject to the provisions of Section 12(c), any controversy or claim between the Member and the Company, Lazard Group or any of its or their Affiliates arising out of or relating to or concerning the provisions of this Agreement or the Plan shall be finally settled by arbitration in New York City before, and in accordance with the rules then obtaining of, the Financial Industry Regulatory Authority (“FINRA”) or, if FINRA declines to arbitrate the matter, the American Arbitration Association (the “AAA”) in accordance with the commercial arbitration rules of the AAA.

(c)  Notwithstanding the provisions of Section 12(b), and in addition to its right to submit any dispute or controversy to arbitration in accordance with Section 12(b), the Company or Lazard Group may submit any dispute or controversy hereunder to arbitration in accordance with Section 10.05 of the Operating Agreement or bring an action or special proceeding in a state or federal court of competent jurisdiction sitting in the City of New York, whether or not an arbitration proceeding has theretofore been or is ever initiated, for the purpose of temporarily, preliminarily, or permanently enforcing the provisions of the Restrictive Covenants, or to enforce an arbitration award, and, for the purposes of this Section 12(c), the Member (i) expressly consents to the application of Section 12(d) to any such action or proceeding, (ii) agrees that proof shall not be required that monetary damages for breach of the provisions of the Restrictive Covenants or this Agreement would be difficult to calculate and that remedies at law would be inadequate, and (iii) irrevocably appoints the General Counsel of the Company as the Member’s agent for service of process in connection with any such action or proceeding, who shall promptly advise the Member of any such service of process by notifying the Member at the last address on file in the Company’s records.

(d)  Notwithstanding anything in the Operating Agreement to the contrary, the Member, the Company and Lazard Group hereby irrevocably submit to the exclusive jurisdiction of any state or federal court located in the City of New York over any suit, action, or proceeding arising 

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out of, relating to or in connection with this Agreement or the Plan that is not otherwise required to be arbitrated or resolved in accordance with the provisions of Section 12(b).  This includes any suit, action or proceeding to compel arbitration or to enforce an arbitration award.  The Member, the Company and Lazard Group acknowledge that the forum designated by this Section 12(d) has a reasonable relation to this Agreement, and to the Member’s relationship to the Company.  Notwithstanding the foregoing, nothing herein shall preclude the Company, Lazard Group or the Member from bringing any action or proceeding in any other court for the purpose of enforcing the provisions of Section 12(a) or this Section 12(d).  The agreement of the Company, Lazard Group and the Member as to forum is independent of the law that may be applied in the action, and the Company, Lazard Group and the Member agree to such forum even if the forum may under applicable law choose to apply non-forum law.  The Member, the Company and Lazard Group hereby waive, to the fullest extent permitted by applicable law, any objection which the Member, the Company or Lazard Group now or hereafter may have to personal jurisdiction or to the laying of venue of any such suit, action or proceeding in any court referred to in this Section 12(d).  The Member, the Company and Lazard Group undertake not to commence any action arising out of or relating to or in connection with this Agreement in any forum other than a forum described in this Section 12(d), or, to the extent applicable, Section 12(b).  The Member, the Company and Lazard Group agree that, to the fullest extent permitted by applicable law, a final and non-appealable judgment in any such suit, action or proceeding in any such court shall be conclusive and binding upon the Member, the Company and Lazard Group, as applicable.

13.  Section 409A of the Code. 

It is intended that the PIPR Units shall comply with or shall be exempt from Section 409A of the Code.  In the event that it shall be determined that the PIPR Units are subject to and are not in compliance with Section 409A of the Code and any payment that is paid or payable in respect of the PIPR Units pursuant to this Agreement, the Plan or the Operating Agreement is subject to the additional tax described in Section 409A(a)(1)(B)(i)(II) of the Code (to the extent that the Member incurs the additional tax) or any penalties are incurred by the Member with respect to such additional tax or any premium interest tax under Section 409A of the Code (such tax, together with any such penalties and premium interest tax, are hereinafter collectively referred to as the “409A Tax”), then the Member shall be entitled to receive an additional payment (an “Indemnity Payment”) in an amount such that after payment by the Member of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and 409A Tax imposed upon the Indemnity Payment, the Member retains an amount of the Indemnity Payment equal to the 409A Tax imposed upon the payments.  All determinations required to be made under this Section 13, including whether and when a Indemnity Payment is required and the amount of such Indemnity Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Managing Members in accordance with Section 5.05 of the Operating Agreement. 

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Any Indemnity Payment, as determined pursuant to this Section 13, shall be paid by Lazard Group to the Member within 30 days of the receipt of the Managing Members’ determination; provided that, the Indemnity Payment shall in all events be paid no later than the end of the Member’s taxable year next following the Member’s taxable year in which the 409A Tax (and any income or other related taxes or interest or penalties thereon) on a payment are remitted to the Internal Revenue Service or any other applicable taxing authority or, in the case of amounts relating to a claim that does not result in the remittance of any federal, state, local and foreign income, excise, social security and other taxes, the calendar year in which the claim is finally settled or otherwise resolved.  Notwithstanding any other provision of this Section 13, Lazard Group may, in its sole discretion, following reasonable notice to the Member, withhold and pay over to the Internal Revenue Service or any other applicable taxing authority, for the benefit of the Member, all or any portion of any Indemnity Payment, and the Member hereby consents to such withholding.

For purposes of Section 409A of the Code, each installment payable to the Member pursuant to this Agreement shall be deemed to be a “separate payment” within the meaning of Treas. Reg. Section 1.409A-2(b)(iii) or any successor thereto.  The provisions of Section 12 of the Plan are hereby incorporated by reference.   

14.  Conflicts and Interpretation.

In the event of any conflict between the terms of the Operating Agreement, the Plan and/or this Agreement relating to PIPR Units, the agreements shall take precedence in the following order: (a) this Agreement, (b) the Operating Agreement and (c) the Plan; provided that Sections 7.03(b) and 10.02 of the Operating Agreement shall take precedence over the terms of this Agreement.  Except as expressly set forth in this Agreement with respect to PIPR Units, the Operating Agreement shall govern the Member’s rights and obligations with respect to Lazard Group under the Operating Agreement.  In the event of any ambiguity in this Agreement, or any matters as to which this Agreement is silent, the Plan shall govern including, without limitation, the provisions thereof pursuant to which the Committee has the power, among others, to (i) interpret the Plan, (ii) prescribe, amend and rescind rules and regulations relating to the Plan, and (iii) make all other determinations deemed necessary or advisable for the administration of the Plan.  

15.  Amendment.

Except for the actions specifically described in Section 10 of this Agreement, any modification, amendment or waiver to this Agreement that shall materially impair the rights of the Member shall require an instrument in writing to be signed by the Member, the Company and Lazard Group, except such a modification, amendment or waiver made to cause the Plan, the Operating Agreement or this Agreement to comply with applicable law, tax rules, stock exchange rules or accounting rules and which is made to similarly situated service providers.  Any compensation or benefits that are provided to the Member in connection with any such amendment shall be taken into account for purposes of determining whether the Member’s rights would be materially impaired by such amendment.  The waiver by any of the Member, the Company or Lazard Group of compliance with any provision of this Agreement shall not operate 

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or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement.

16.  Headings.

The headings of paragraphs herein are included solely for convenience of reference and shall not affect the meaning or interpretation of any of the provisions of this Agreement.

17.  Counterparts.

This Agreement may be executed in counterparts, which together shall constitute one and the same original.

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IN WITNESS WHEREOF, as of the date first above written, each of the Company and Lazard Group has caused this Agreement to be executed on behalf of itself or its applicable Affiliate by a duly authorized officer and the Member has hereunto set the Member’s hand.

LAZARD LTD

	
 
	
By:
	
__________________________

LAZARD GROUP LLC

By: __________________________

______________________________
Name

 

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Exhibit 10.19

 

Appendix A

Restrictive Covenants

1Document

Exhibit 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (“Agreement”) is effective as of April 28, 2021 (the “Effective Date”), by and among Orrstown Financial Services, Inc., a Pennsylvania corporation (“Orrstown”), Orrstown Bank, a bank and trust company organized under the Pennsylvania Banking Code of 1965 and a wholly owned subsidiary of Orrstown (the “Bank”) (Orrstown and the Bank are hereinafter collectively referred to as the “Employer”) and Neelesh Kalani, an adult individual (the “Executive”).  

BACKGROUND
The Employer desires to enter into a comprehensive Employment Agreement with the Executive (this “Agreement”), addressing the terms and conditions of Executive’s employment, including but not limited to the consequences if the Executive’s employment is terminated for Good Reason or without Cause, each as defined herein.  The Executive desires to continue in the employment of the Employer, on the terms and conditions contained in this Agreement.  On the date hereof, the Employer and Executive are also entering into a Change in Control Agreement (the “Change in Control Agreement”) to provide certain rights and benefits to Executive in the event of a change of control of Orrstown.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein and intending to be legally bound hereby, the parties hereto agree as follows: 

ARTICLE I.Capacity and Duties. 
1.1 Continuation of Employment.  The Employer hereby continues the employment of the Executive, and Executive hereby agrees to continue Executive’s employment by the Employer, for the period and upon the terms and conditions hereinafter set forth.  Executive acknowledges that the Employer has given Executive good and valuable consideration for the execution of this Agreement and the restrictive covenants contained herein, the sufficiency of which is acknowledged by Executive.
1.2 Capacity and Duties. 
(a)  Executive shall serve hereunder initially as Executive Vice President, Chief Financial Officer, and thereafter during the Employment Period (as defined in Section 2.1 below) in such other or additional positions as may be assigned by the Board of Directors of the Employer and/or the Bank (collectively, the “Board”) or by the President and Chief Executive Officer of the Employer acting on behalf of the Board.  Executive shall perform such duties and shall have such authority consistent with Executive’s position as may from time to time reasonably be specified by the Board or by the President and Chief Executive Officer acting on behalf of the Board.  Executive shall report directly to the Chief Executive Officer of the Employer and shall perform Executive’s duties for the Employer principally at the Harrisburg, Pennsylvania office, or at such other locations as may be determined by the Board or by the President and Chief Executive Officer of the Employer acting on behalf of 

the Board, except for periodic travel that may be necessary or appropriate in connection with the performance of Executive’s duties hereunder.  The terms and conditions of this Agreement have been reviewed and approved by the Board’s Executive Compensation Committee, and such Committee shall review the Agreement at least annually, or more frequently, to assess the continuing appropriateness of this Agreement in light of the then-current needs of the Employer.  No change in duties of Executive shall in any way diminish the Base Salary payable to Executive pursuant to the provisions of Section 3 herein.
(b) Executive shall devote Executive’s full working time, energy, skill and best efforts to the performance of Executive’s duties hereunder, in a manner that will faithfully and diligently further the business and interests of the Employer, and shall not be employed by or participate or engage in or be a part of in any manner the management or operation of any business enterprise other than the Employer, (including, without limitation, participation by Executive on any unaffiliated profit or non-profit board of directors) except: (i) upon the prior written notice to and consent of Executive Committee of the Board or the Chief Executive Officer, or (ii) solely as an investor in real or personal property, the management of which shall not detract from the performance of his duties hereunder; provided, however, that the engagement by Executive in any such business activity shall at all times be in conformity with the Employer’s Code of Ethics, as the same may be amended or supplemented from time to time.  Notwithstanding anything herein to the contrary, Executive shall terminate any such activity upon thirty (30) days’ written request by the Employer. 
ARTICLE II. Term of Employment. 
2.1 Term.  The term of Executive’s employment under this Agreement shall commence on the Effective Date and continue for a three (3) year-period if not sooner terminated or further extended pursuant to the terms of this Agreement (such period, as earlier terminated or further extended, the “Employment Period”).  The Employment Period shall be extended automatically for one (1) additional year on each anniversary of the Effective Date, unless either the Employer or Executive gives contrary written notice to the other at least sixty (60) days prior to the anniversary date.  Upon the giving of notice of non-renewal of the Employment Period, the Employment Period shall continue for a two (2) year-period after the relevant anniversary date.  It is the intention of the parties that this Agreement continue until (i) the expiration date if either party has given written notice to the other party of his or its intention not to renew this Agreement as provided above or (ii) the earliest of (a) the voluntary termination of Executive’s employment with the Employer by Executive other than for Good Reason (as defined in Section 4.2), (b) the voluntary termination of Executive’s employment by Executive for Good Reason, (c) the termination of Executive’s employment by the Employer for Cause (as defined in Section 4.3), (d) the termination of Executive’s employment by the Employer without Cause, (e) termination of Executive’s employment with the Employer due to Disability (as defined in Section 4.4), (f) the termination of Executive’s employment with the Employer due to his retirement upon attaining age 65 or (g) the death of Executive.  For the avoidance of doubt, written notice given by any party of an intention not to renew this Agreement does not, in and of itself, establish a right to any payments contemplated in Section 4 of this Agreement.
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ARTICLE III.Compensation. 
3.1  Basic Compensation.  As compensation for Executive’s services hereunder, the Employer shall pay to Executive a salary at an initial annual rate equal to $285,000, payable in periodic installments in accordance with the Employer’s regular payroll practices in effect from time to time.  Executive’s annual salary, as determined in accordance with this Section 3.1, is hereinafter referred to as Executive’s “Base Salary.”  For years subsequent to the initial year of the Employment Period, Executive’s Base Salary shall be set by the Employer at an amount no less than the initial Base Salary.  For each year in the Employment Period, Executive shall be a participant in any bonus and/or incentive compensation program for executives, including in particular any annual cash bonus plan and/or equity-based long term incentive plan, that the Employer may implement and administer from time to time during the Employment Period, and the amount and form of such bonus and incentive compensation shall be determined annually by the Employer consistent with its Board’s executive compensation practices.  References herein to the amount of Executive’s Base Salary or annual cash bonus or cash incentive compensation shall be to the gross amount of such compensation element, exclusive of any elective compensation deferral agreements entered into by Executive from time to time.  The determination of compensation payable by the Employer hereunder shall be made by the Executive Compensation Committee of the Board, or its designee, which shall perform an annual review of this Agreement, the Employee’s performance with the Employer and compensation payable hereunder.  In such annual review, the Executive Compensation Committee shall consider the recommendations of the Board.  The results of such review, including recommendation as to base salary adjustment and bonus, shall be reported to the Board and shall be memorialized in the minutes of the meetings of the Board or held in a confidential file by the Employer’s Human Resources Department.   
3.2  Employee Benefits.  In addition to the compensation provided for in Section 3.1, during the Employment Period, Executive shall participate in those of the Employer’s broad-based employee retirement plans, welfare benefit plans, and other benefit programs for which Executive is eligible under the terms of the plan or program, on the same terms and conditions that are applicable to employees generally.  In addition, Executive may be eligible, as determined by the Executive Compensation Committee of the Board from time to time, during the Employment Period to participate in any of the Employer’s executive-only retirement plan, deferred compensation plan, welfare benefit plan, or other benefit programs, as and to the extent any such benefit programs, plans or arrangements are or may from time to time be in effect during the Employment Period.
3.3  Vacation and Leave.  Executive shall be entitled to annual paid vacation, leave of absence and leave for illness or temporary disability in conformity with the Employer’s regular policies and practices, and any leave on account of illness or temporary disability shall not constitute a breach by Executive of Executive’s agreements hereunder. 
3.4  Expense Reimbursement.  During the Employment Period, the Employer shall reimburse Executive for all reasonable expenses incurred by Executive in connection with the performance of Executive’s duties hereunder in accordance with its regular reimbursement policies as in effect from time to time and upon receipt of itemized vouchers therefor and such other supporting information as the Employer may reasonably require. 
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ARTICLE IV.Termination of Employment. 
4.1  Voluntary Termination or Retirement.  In the event Executive’s employment is voluntarily terminated by the Executive other than for Good Reason (as defined in Section 4.2), Employer shall not thereafter be obligated to make any further payments hereunder other than amounts (including salary, expense reimbursement, and employee benefits) accrued under this Agreement as of the date of such termination in accordance with generally accepted accounting principles.  Termination of Executive’s employment based on “Retirement” shall mean voluntary termination of Executive’s employment by Executive at any time after Executive reaches age 65 or in accordance with any retirement policy establish by the Board with Executive’s consent as it applies to him.  In the event Executive’s employment terminates due to Retirement, the Employer shall be obligated to pay Executive an amount equal to six months’ Base Salary payable during such six (6) month period in accordance with the Employer’s normal payroll processing intervals in effect from time to time at the rate in effect immediately prior to the Date of Termination, together with a lump sum payment within thirty-five (35) days after Executive’s termination date in an amount equal to 150% of the Employer’s actual premium cost of providing group term life insurance coverage to Executive for the three year period following Executive’s termination date, applicable expense reimbursements and all accrued and unpaid benefits and vested benefits in accordance with the applicable employee benefit plans.  Upon making the payments described in this Section 4.1, the Employer shall have no further compensation obligation to Executive hereunder.  
4.2  Termination for Good Reason:  Termination Without Cause. 
(a)    Except as expressly provided in Section 2.2(a) and 2.2(b) of the Change in Control Agreement, in the event: 
(i)    Executive’s employment is terminated during the Employment Period by Executive for Good Reason (as defined herein) within thirty (30) days of the initial existence of the Good Reason condition; or 
(ii)    Executive’s employment is terminated during the Employment Period by the Employer for any reason other than Cause (as defined herein): 
then, subject to Section 6.14 (“Release”), the Employer shall pay (or cause to be paid) to Executive in accordance with the Employer’s normal payroll processing intervals an amount equal to (i) Executive’s Base Salary for (A) six (6) months following such termination or (B) the remaining duration of the Employment Period (whichever is greater), and (ii) an amount equal to the average annual cash bonus earned during the past three calendar years preceding the calendar year in which Executive’s termination of employment is effective (exclusive of any election to defer receipt of compensation Executive may have made).  Executive shall also continue to be eligible to participate in any “group health plan,” as defined in 29 U.S.C. §1167(1), in which Executive participated pursuant to Section 3.2 for a period of six (6) months (continuing to pay the employee portion of the premium costs for the active plan), subject to the law known as COBRA, pursuant to Section 4980(B)(f) of the Internal Revenue Code of 1986, as amended, and 29 U.S.C. §1161 et seq.  Furthermore, in lieu of ongoing coverage under the Employer’s group term life insurance program, 
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the Employer shall pay Executive a lump sum payment within thirty-five (35) days after Executive’s termination date in an amount equal to 150% of the Employer’s actual premium cost of providing group term life insurance coverage to Executive for the three year period following Executive’s termination date.  Executive shall be compensated in respect of his inability to participate in the Employer’s insured employee group disability plan for a period of six (6) months through payment by the Employer to Executive, of an amount equal to the cost that would have been incurred by the Employer if Executive were able to participate in such plan or program (less the employee portion of the premium costs for the active plan) plus an amount which, when added to the Employer annual cost to the Employer, would be sufficient after Federal, state and local income and payroll taxes (based on the tax returns filed by Executive most recently prior to the Date of Termination) to enable the Executive to net an amount equal to the Employer annual cost to the Employer.

(b)    As used herein, Executive shall have “Good Reason” to terminate his employment if one of the following conditions (i) through (iii) comes into existence, Executive provides notice to the Employer of the existence of the condition within thirty (30) days of its initial existence, and the Employer fails to remedy the condition within thirty (30) days of receiving notice of its existence:  
(i)    The Employer has materially breached its material obligations under this Agreement; 
(ii)    The Employer, without Executive’s prior written consent, changes in any material respect the authority, duties, Base Salary or reporting structure of Executive, in a manner and to the extent that results in a material diminution; or 
(iii)    The Employer requires Executive to relocate his principal business location 75 miles or more from the location of the Employer’s Harrisburg, Pennsylvania office as of the Effective Date. 
(c)    the amounts payable in accordance with the Employer’s normal payroll processing intervals pursuant to this Section 4.2 shall be paid commencing within 60 days after the Date of Termination; provided, however, that if the 60-day period begins in one (1) calendar year and ends in a second calendar year, the amount shall begin to be paid in the second calendar year by the last day of such 60-day period; provided, further, that the initial payment shall include a catch-up payment to cover amounts retroactive to the day immediately following the Date of Termination.  Each payment pursuant to this Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2).
4.3    Termination for Cause.  Executive’s employment hereunder shall terminate immediately upon notice of termination for Cause (as defined herein), in which event the Employer shall not thereafter be obligated to make any further payments hereunder other than amounts (including salary, expense reimbursement, and employee benefits) accrued under this Agreement or accrued or vested under the terms of any employee benefit plan or incentive and/or equity based long 
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term incentive plan as of the date of such termination in accordance with generally accepted accounting principles.  As used herein, “Cause” shall mean the following: 
(a)    Executive shall have committed an act of dishonesty with respect to material communications with the Board or anyone to whom the Executive reports; 
(b)    Executive’s willful misconduct in the performance of his duties as an employee of the Employer or otherwise related to his employment with the Employer; 
(c)    the issuance of a final cease-and-desist order by a state or federal agency having jurisdiction over the Employer or any entity which controls the Employer to the extent such cease-and-desist order requires the termination of Executive’s employment; 
(d)    Executive’s breach of fiduciary duty; 
(e)    Executive’s material breach of any provision of this Agreement; 
(f)    Executive’s willful violation of any law, rule or regulation that constitutes a felony (other than traffic violations or similar offenses);
(g)    Executive’s deliberate and intentional refusal or failure (for reasons other than incapacity due to accident or physical or mental illness) to perform Executive’s duties to the Employer, where such refusal or failure continues for a period of at least thirty (30) consecutive days following the receipt by Executive of written notice from the Employer setting forth in reasonable detail the facts upon which the Employer relies in concluding that Executive has deliberately and intentionally refused or failed to perform such duties; or 
(h)    Executive’s conduct that brings public discredit on or injures the reputation of the Employer, in the Employer’s reasonable opinion. 
4.4    Benefits Following Death or Disability. 
(a)    Following Executive’s total disability (“Disability”, as defined below) or death during the Employment Period, the employment of the Executive will terminate automatically, in which event the Bank shall not thereafter be obligated to make any further payments hereunder other than amounts (including salary, expense reimbursement, and employee benefits) accrued under this Agreement or accrued or vested under the terms of any employee benefit plan, or incentive and/or equity based long term incentive plan as of the date of such termination in accordance with generally accepted accounting principles or as otherwise specifically provided herein.  For purposes hereof, “Disability” shall mean that the Executive, by reason of a medically determinable physical or medical impairment that can be expected to result in death or expected to last for a continuous period of at least (12) twelve months, (i) is unable to engage in any substantial gainful activity or (ii) has received income replacement benefits for a period of at least three (3) months under an accident or health plan of the Employer.  
(b)    In the event of a termination of Executive’s employment as a result of Executive’s death, the Employer shall, as soon as administratively practicable, pay 
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Executive’s designated beneficiaries an amount equal to six months’ Base Salary at the rate and as required by Section 3.1 and in effect immediately prior to the date of death, together with a lump sum payment in an amount equal to 100% of the premium cost of COBRA continuation coverage under the applicable health plan of the Employer or its Affiliates pursuant to Code Section 4980B for Executive’s (i) surviving spouse for the period commencing as of the first day of the first month next following Executive’s death and continuing for the duration of the applicable COBRA continuation period and (ii) dependent children for the period commencing as of the first day of the first month next following Executive’s death and continuing until the earlier of (A) the duration of the applicable COBRA continuation period, or (B) the date such dependent children cease to be “qualifying children” under the Employer’s health plan, at the COBRA rate then in effect as of the date of Executive’s death (as reasonably determined by the Employer) (less the employee portion of the premium costs for the active plan), subject to increase based on premium rate increases over the applicable periods of time described in this sentence.  The period of continued health coverage required by COBRA shall run concurrently with the coverage provided herein.  Executive’s dependents, beneficiaries and estate, as the case may be, will also receive such survivor’s income and other benefits as they may be entitled under the terms of the benefit programs, plans, and arrangements described in Section 3.2 which provide benefits upon the death of Executive.
(c)    In the event of a termination of this Agreement as a result of the Executive’s Disability, subject to Section 6.14 (“Release”) (A) the Employer shall pay Executive within thirty-five (35) days following termination an amount equal to six (6) months’ Base Salary at the rate and as required by Section 3.1 and in effect immediately prior to the date of Disability, together with a lump sum payment in an amount equal to 100% of the premium cost of COBRA continuation coverage under the applicable health plan of the Employer or its affiliates pursuant to Code Section 4980B for Executive’s (i) individual coverage and that of his spouse for the period commencing as of the first day of the first month next following Executive’s termination as a result of Disability and continuing for the duration of the applicable COBRA continuation period and (ii) dependent children for the period commencing as of the first day of the first month next following Executive’s termination as a result of Disability and continuing until the  earlier of (A) the applicable COBRA continuation period or (B) the date such dependent children cease to be “qualifying children” under the Employer’s health plan, at the COBRA rate then in effect as of the date of Executive’s termination as a result of Disability (as reasonably determined by the Employer) (less the employee portion of the premium costs for the active plan), subject to increase based on premium rate increases over the applicable periods of time described in this sentence.  The Employer shall also pay Executive a lump sum payment within thirty-five (35) days after Executive’s termination date equal to 150% of the Employer’s actual premium cost of providing group term life insurance coverage to Executive for the three year period following Executive’s date of Disability and (A) thereafter for as long as Executive continues to be disabled, the Employer shall continue to pay an amount equal to at least 60% of Base Salary in effect immediately prior to the date of Disability until the earlier of Executive’s death or December 31 of the calendar year in which Executive attains age 65, reduced by any disability payments from any Employer provided disability insurance plans or programs and any benefits payments received from the Federal Social Security or applicable state disability 
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benefits programs; and (B), to the extent not duplicative of the foregoing, Executive shall receive those benefits customarily provided by the Employer to disabled former employees, which benefits may include, but shall not be limited to, life, medical, health, accident insurance and a survivor’s income benefit.  The period of continued health coverage required by COBRA shall run concurrently with the coverage provided herein.
(d)    For the purposes of (b) and (c) above, Executive or Executive’s dependents shall pay the same percentage of the total cost of group health plan coverage as Executive was paying, if any, when Executive’s employment terminated.  The total cost of Executive’s continued coverage shall be determined using the same rates for group health plan coverage that apply from time to time to similarly situated active employees. 
4.5    Death or Disability Following Termination of Employment.  Executive’s disability or death following Executive’s termination of employment pursuant to Section 4.2 shall not affect Executive’s right, or if applicable, the right of Executive’s beneficiaries, to receive the payments for the balance of the period described in Section 4.2. 
4.6    Beneficiary Designation.  Executive may, at any time, by written notice to the Employer, name one or more beneficiaries of any benefits which may become payable by the Employer pursuant to this Agreement.  If Executive fails to designate a beneficiary any benefits to be paid pursuant to this Agreement shall be paid to Executive’s estate. 
4.7    Preemptive Consideration.  Notwithstanding anything to the contrary set forth herein, if Executive is suspended and/or temporarily prohibited from participating in the conduct of the Employer’s, or any of its affiliates’, affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. §1818 (e)(3) and (g)(1)) or any amendments or supplements thereto, the Employer’s obligations under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Employer may in its discretion (i) pay Executive all or part of the compensation withheld while this Agreement’s obligations were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended.  If Executive is removed or permanently prohibited from participating in the conduct of the Employer’s, or any of its affiliates’, business affairs by an order issued by the FDIC or SEC, or equivalent provisions relating to a regulator with supervisory authority over the Employer or any of its affiliates, all obligations of the Employer and any of its affiliates under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected.
4.8    FDIC Compliance.  Notwithstanding anything herein contained to the contrary, any payments to Executive by the Employer, whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. §1828(k) and FDIC regulation 12 C.F.R. Part 359, Golden Parachute and Indemnification Payments.

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ARTICLE V.Restrictive Covenants and Clawback. 
5.1    Confidentiality and Non-disclosure.  Executive acknowledges a duty of confidentiality owed to the Employer and shall not, at any time during or after Executive’s employment by the Employer, retain in writing, use, divulge, disclose, furnish, or make accessible to any person or entity, without the express authorization of the Board or senior management of the Employer, any trade secret, private or confidential information or knowledge of the Employer or any of their affiliates learned, obtained or acquired by Executive while so employed, including but not limited to, proprietary business information, products, processes, services, formulas, materials and formulations, research and development, techniques or know-how, financial records, sales records and data, customer lists, customer contact information and customer preference information, historical volumes, business strategies and competitive sales or marketing strategies and trade secrets as defined by Pennsylvania law.  All computer software, business cards, customer lists, price lists, contract forms, catalogs, books, records, files and know-how acquired while an employee of the Employer are acknowledged to be the property of the Employer (or the applicable affiliate) and shall not be duplicated, removed from the Employer’s possession or made use of other than in pursuit of the Employer’s business.  Upon the termination of the employment hereunder, the Executive shall deliver to the Bank all correspondence, reports, customer files, customer lists, office keys, manuals, advertising brochures, sample contracts, price lists, employee lists, prospective employee or customer lists, mailing lists, letters, records and any and all other documents pertaining to or containing information relative to the business of the Bank, and the Executive shall not remove any of such records either during the course of employment or upon the termination thereof.
    Executive understands that in the event of a violation of the provisions of this Section 5.1, the Bank shall have the right to seek injunctive relief, in addition to any other existing rights provided herein or by operation of law, without the requirement of posting bond.  The remedies provided in this Section 5.1 shall be in addition to any legal or equitable remedies existing between Executive, and shall not be construed as a limitation upon, or as alternative or in lieu of, such remedies.

5.2    Intellectual Property Rights.  Executive agrees that all literary work, copyrightable material or other proprietary information or materials developed by the Executive during the term of this Agreement and relating to, or capable of being used or adopted for use in, the business of the Employer or any Affiliates shall inure to and be the property of the Employer and Affiliates and must be promptly disclosed to the Employer.  Employee hereby transfers and assigns to Employer all rights in and to such Intellectual Property.  Both during employment by the Employer and thereafter, the Executive shall, at the expense of the Employer, execute such documents and do such things as the Employer reasonably may request to enable the Employer or their nominee (i) to apply for copyright or equivalent protection in the United States, Canada and elsewhere for any literary work hereinabove referred in this paragraph, or (ii) to be vested with any such copyright protection in the United States, Canada and elsewhere.
5.3    Non-Competition and Non-solicitation.  
(a)    Executive shall not, during the Employment Period and for a Restricted Period (as defined below) after Executive ceases to be employed by or provide service to Employer, directly or indirectly, be or become an officer, owner, shareholder, general or limited partner, director or employee or agent of, or a consultant to, or give financial or other assistance to, 
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any person or entity considering engaging in commercial banking or the provision of financial products or services, or is so engaged, within an area having a seventy-five (75) mile radius from the location of Employer’s Harrisburg, Pennsylvania office at the Effective Time, at the time Executive ceases to be employed by Employer; provided such person or entity is engaged in a business or activity which is substantially similar to the business or activity in which Executive is engaged while employed by or providing service to Employer.  “Restricted Period” shall mean the longer of (i) six (6) months or (ii) the length of time Executive is to receive payments under this Agreement (or any applicable Change in Control Agreement); provided, however, that the period under (ii) above shall not exceed twenty-four (24) months.
(b)    Executive shall not, during the Employment Period and for a period of twelve (12) months after Executive ceases to be employed by or provide service to Employer, directly or indirectly:
(i)    seek, in competition with the business of the Employer, to procure orders from or do business with any customer of the Employer or its subsidiaries or affiliates (which shall include current customers and former customers that had a customer relationship within the previous ten (10) years) which Executive knew or should have known after reasonable inquiry to have had a customer relationship during the last ten years of Executive’s employment with Employer, or solicit on behalf of a competitor any prospective customers who are or were identified through leads developed during the last three years of Executive’s employment with Employer, or divert or attempt to divert away from the Employer or its subsidiaries or affiliates, the business of any customer or business entity with which the Employer or its subsidiaries or affiliates, did business; 
(ii)    solicit or contact any person who is an employee of the Employer or its subsidiaries or affiliates, with a view to the engagement or employment of such person by a third party, or cause any person who is an employee of the Employer to terminate his or her employment for the purpose of joining or becoming employed by a third party; 
(c)    seek to contract with or engage (in such a way as to adversely affect or interfere with the business of the Employer or its subsidiaries or affiliates) any person or entity who has been contracted with or engaged to provide goods or services to the Employer or its subsidiaries or affiliates, if such contract or engagement remains in effect or was last in effect within the period of one (1) year preceding such action by Executive; or 
(d)    engage in or participate in any effort or act to induce any of the customers, associates, consultants, or employees of the Employer to modify adversely such person’s business relationship with the Employer or its subsidiaries or affiliates; 
provided, however, (i) that nothing herein shall prohibit the Executive and Executive’s affiliates from owning, as passive investors, in the aggregate not more than 10% of the outstanding publicly traded stock of any corporation so engaged and (ii) in the event the Executive’s employment is 
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terminated by the Executive with or without Good Reason or by the Employer other than for Cause, the non-competition covenants in this Section 5.3(a) shall apply.

The parties expressly acknowledge that the restrictions contained in this Section 5.3 are reasonable in order to preserve the Employer’s good will and other proprietary rights.  Notwithstanding this acknowledgment, if a court having jurisdiction makes a final judicial determination that the duration or geographic scope of the restrictions in this Section 5.3 are unreasonable or otherwise unenforceable, the covenants in Section 5.3 shall not be rendered void but shall be amended to apply the maximum duration and geographic scope that such court may judicially deem or indicate to be reasonable.  For the purpose of Sections 5.2 and 5.3, the Employer shall be deemed to refer to the Employer and all of their present or future affiliates. 

5.4    Injunctive and Other Relief. 
(a)    Executive acknowledges and agrees that the covenants contained herein are fair and reasonable in light of the additional consideration paid hereunder, which Executive acknowledges is adequate and sufficient consideration, and that damages alone shall not be an adequate remedy for any breach by Executive of Executive’s covenants which then apply and accordingly expressly agrees that, in addition to any other remedies which the Employer may have, the Employer shall be entitled to seek injunctive relief in any court of competent jurisdiction for any breach or threatened breach of any such covenants by Executive without the requirement of posting a bond.  Nothing contained herein shall prevent or delay the Employer from seeking, in any court of competent jurisdiction, specific performance or other equitable remedies in the event of any breach or intended breach by Executive of any of its obligations hereunder. 
(b)    In the event Executive breaches Executive’s obligations under Section 5.3, the period specified therein shall be tolled during the period of any such breach and any litigation seeking remedies for such breach and shall resume upon the conclusion or termination of any such breach and any such litigation.  The remedies set forth in this Section are cumulative and in addition to any and all other remedies available to the Employer at law or in equity.
(c)    In addition to other remedies contained in this Agreement to which the Employer may be entitled, the Employer shall receive attorney’s fees and any other expenses incident to the maintenance of any action to enforce its rights under this Agreement if such litigation is concluded or terminated, in whole or in part, in the Employer’s favor.
5.5    Disclosure.  Executive agrees to disclose the restrictive covenants contained in Sections 5.2 and 5.3 of this Agreement to any prospective employer prior to employment with the prospective employer both during his employment by the Employer and for a period of one (1) year following termination of employment with the Employer.
5.6    Clawback.  Executive acknowledges that the Executive is subject to any clawback policy that may be adopted by the Board.  Absent any formal clawback policy, the Executive agrees that Executive shall be required to forfeit and pay back to the Employer any bonus or other incentive compensation paid to Executive if: (a) a court makes a final determination that the Executive directly or indirectly engaged in fraud or misconduct that caused or partially caused the need for a material 
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financial restatement by the Employer; or (b) the independent members of the Board determine that the Executive has committed a material violation of the Employer’s Code of Conduct.
ARTICLE VI.Miscellaneous. 
6.1    Invalidity.  If any provision hereof is determined to be invalid or unenforceable by a court of competent jurisdiction, Executive shall negotiate in good faith to provide the Employer with protection as nearly equivalent to that found to be invalid or unenforceable and if any such provision shall be so determined to be invalid or unenforceable by reason of the duration or geographical scope of the covenants contained therein, such duration or geographical scope, or both, shall be considered to be reduced to a duration or geographical scope to the extent necessary to cure such invalidity. 
6.2    Assignment: Benefit.  This Agreement shall not be assignable by Executive, and shall be assignable by the Employer only to any affiliate or to any person or entity which may become a successor in interest (by purchase of assets or stock, or by merger, or otherwise) to the Employer in the business or a portion of the business presently operated by it.  Subject to the foregoing, this Agreement and the rights and obligations set forth herein shall inure to the benefit of, and be binding upon, the parties hereto and each of their respective permitted successors, assigns, heirs, executors and administrators, including the restrictive covenants of this Agreement. 
6.3    Notices.  All notices hereunder shall be in writing and shall be sufficiently given if hand-delivered, sent by documented overnight delivery service or registered or certified mail, postage prepaid, return receipt requested or by telegram, fax or telecopy (confirmed by U. S. mail), receipt acknowledged, addressed as set forth below or to such other person and/or at such other address as may be furnished in writing by any party hereto to the other.  Any such notice shall be deemed to have been given as of the date received, in the case of personal delivery, or on the date shown on the receipt or confirmation therefor, in all other cases.  Any and all service of process and any other notice in any such action, suit or proceeding shall be effective against any party if given as provided in this Agreement; provided that nothing herein shall be deemed to affect the right of any party to serve process in any other manner permitted by law. 
(a)    If to the Employer: 
Orrstown Bank
77 East King Street 
Shippensburg, PA  17257
Attention: Chief Human Resources Officer
(b)    If to Executive: 
Neelesh Kalani
709 Carlton Court
Mullica Hill, NJ  08062

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6.4    Entire Agreement and Modification.  This Agreement between the parties, along with the Change of Control Agreement of even date herewith, constitute the entire agreement between the parties hereto with respect to the matters contemplated herein and supersede all prior agreements and understandings with respect thereto.  Any amendment, modification, or waiver of this Agreement shall not be effective unless in writing and agreed and executed by the Employer and Executive.  Neither the failure nor any delay on the part of any party to exercise any right, remedy, power or privilege shall preclude any other or further exercise of the same or of any other right, remedy, power, or privilege with respect to any occurrence and such failure or delay to exercise any right shall be construed as a waiver of any right, remedy, power, or privilege with respect to any other occurrence. 
6.5    Governing Law, Forum.  This Agreement is made pursuant to, and shall be construed and enforced in accordance with, the laws of the Commonwealth of Pennsylvania (and United States federal law, to the extent applicable), without giving effect to otherwise applicable principles of conflicts of law.  All actions hereunder shall be filed in the appropriate courts located in Cumberland and Franklin Counties, Pennsylvania and Executive consents to venue and jurisdiction therein.
6.6    Headings; Counterparts.  The headings of sections and subsections in this Agreement are for convenience only and shall not affect its interpretation.  This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall be deemed to constitute but one and the same Agreement. 
6.7    Further Assurances.  Each of the parties hereto shall execute such further instruments and take such other actions as any other party shall reasonably request in order to effectuate the purposes of this Agreement. 
6.8    Attorneys’ Fees and Related Expenses.  All reasonable attorneys’ fees and related expenses incurred by Executive in connection with or relating to the review and negotiation of this Agreement up to $5,000 or, if Executive prevails in connection with enforcing Executive’s rights under this Agreement, the enforcement by Executive of Executive’s rights under this Agreement, shall be paid in full by the Employer. 
6.9    Mitigation.  Executive shall not be required to mitigate the amount of any payment or benefit provided for in Section 4 herein or pursuant to the Change in Control Agreement by seeking employment or otherwise and shall not be entitled to set-off against the amount of any payments made pursuant to Section 4 herein or pursuant to the Change in Control Agreement with respect to any compensation earned by Executive arising from other employment. 
6.10    Indemnification.  Except to the extent inconsistent with the Employer’s certificate of incorporation or bylaws, the Employer will indemnify the Executive and hold Executive harmless to the fullest extent permitted by law with respect to Executive’s service as an officer and employee of the Employer and its subsidiaries, which indemnification shall be provided following termination of employment for so long as Executive may have liability with respect to Executive’s service as an officer or employee of the Employer and its subsidiaries.  The Executive will be covered by a directors’ and officers’ insurance policy with respect to Executive’s acts as an officer to the same extent as all other officers of the Employer under such policies.  
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6.11    409A Safe Harbor.  Notwithstanding anything in this Agreement to the contrary, in no event shall the Employer be obligated to commence payment or distribution to the Executive of any amount that constitutes nonqualified deferred compensation within the meaning of Code Section 409A (“Section 409A”) earlier than the earliest permissible date under Section 409A that such amount could be paid without additional taxes or interest being imposed under Section 409A.  The Employer and Executive agree that they will execute any and all amendments to this Agreement as they mutually agree in good faith may be necessary to ensure compliance with the distribution provisions of Section 409A and to cause any and all amounts due under this Agreement, the payment or distribution of which is delayed pursuant to Section 409A, to be paid or distributed in a single sum payment at the earliest permissible date under Section 409A.  Without limiting the generality of the foregoing, in the event Executive is to receive a payment of compensation hereunder that is on account of a separation from service, such payment is subject to the provisions of Section 409A, and Executive is a “key employee” (as defined in accordance with Section 409A) of the Employer, then payment shall not be made before the date that is six months after the date of separation from service (or, if earlier than the end of the six month period, the date of the Executive’s death).  Amounts otherwise payable during such six month payment shall be accumulated and paid in a lump sum on the first day of the seventh month.  For purposes hereof, Executive is a key employee of the Employer if, on his date of separation from service, the Employer is publicly traded and he met the definition of key employee found in Code Section 416(i)(1)(A)(i), (ii) or (iii) (disregarding Section 416(i)(5)) as of the last day of the calendar year preceding the date of separation.  
6.12    Taxes and Withholdings.  All amount paid to Executive under this Agreement during for following the Employment Period shall be subject to withholding and other employment taxes imposed by applicable law.  Executive shall be solely responsible for the payment of all taxes relating to the payment or provision of any amounts or benefits paid to Executive hereunder or otherwise.
6.13    Non-Disparagement.  Upon termination of employment hereunder, Executive shall not malign, criticize or otherwise disparage Orrstown, the Bank or any of their affiliates or any of their respective officers, employees or directors.
6.14    Release.  Notwithstanding any other provision of this Agreement, any severance or termination payments or benefits described (other than in connection with Section 4.4(b)) are conditioned on Executive’s execution and delivery to the Employer of an effective general release and non-disparagement agreement (the “Release”) in a form prescribed by the Employer in substantial conformity with such agreement attached hereto as Annex A and in a manner consistent with the requirements of the Older Workers Benefit Protection Act and any applicable state law.
6.15    Protected Disclosures and Other Protected Action.  Nothing in this Agreement shall be interpreted or applied to prohibit the Executive from making any good faith report to any governmental agency or other governmental entity (a “Government Agency”) concerning any act or omission that the Executive reasonably believes constitutes a possible violation of federal or state law or making other disclosures that are protected under the anti-retaliation or whistleblower provisions of applicable federal or state law or regulation.  In addition, nothing contained in this Agreement limits the Executive’s ability to communicate with any Government Agency or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including the Executive’s ability to provide documents or other information, without notice to the 
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Company.  In addition, for the avoidance of doubt, pursuant to the federal Defend Trade Secrets Act of 2016, the Executive shall not be held criminally or civilly liable under any federal or state trade secret law or under this Agreement or the Restrictive Covenants Agreements for the disclosure of a trade secret that (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.
6.16    Other Rights.  Nothing in this Agreement is intended to limit Executive’s right to (a) payment or reimbursement for welfare benefit claims incurred prior to the cessation of his/her employment under any group insurance plan, policy or arrangement of the Employer in accordance with the terms of such plan, policy or arrangement (b) elect COBRA benefits in accordance with the applicable law, or (c) receive a distribution of vested accrued benefits from any employee pension benefit plan in accordance with the terms of that plan.
6.17    Survival.  Notwithstanding anything to the contrary in this Agreement, the parties agree that the Employee’s obligations under Article 5 of this Agreement shall continue despite the expiration of the term of this Agreement or its termination.
[Signature page follows]

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

Name: Neelesh Kalani (“Executive”) 

/s/ Neelesh Kalani
                Signature

ORRSTOWN FINANCIAL CORPORATION (“Orrstown”)

By:   /s/ Thomas R. Quinn, Jr.        
                Name:  Thomas R. Quinn, Jr.    
                Title:    President and Chief Executive Officer

ORRSTOWN BANK (the “Bank”)

By:   /s/ Thomas R. Quinn, Jr.        
                Name:  Thomas R. Quinn, Jr.
                Title:  President and Chief Executive Officer
 
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