Employment Agreement between Federal Home Loan Bank of Chicago and Michael Ericson, entered into as of January 1, 2021

THIS AGREEMENT is entered into as of January 1, 2021 (the “Effective Date”) between the FEDERAL HOME LOAN BANK OF CHICAGO (the “Bank”) and MICHAEL ERICSON (the “Executive”) (each a “Party” and collectively, the “Parties”).

As used in this Agreement, unless the context otherwise requires a different meaning, the following terms shall have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof and words in the masculine gender being deemed to be feminine as may be applicable):

Board means the Board of Directors of the Bank.

Cause means any of the following activities by the Executive: (i) conviction of the Executive for any felony, or for a crime involving moral turpitude; (ii) commission of any act involving dishonesty, disloyalty, or fraud with respect to the Bank or any of its members; (iii) willful and continued failure to perform material duties that are reasonably directed by the Board, which are consistent with the terms of this Agreement and the position of President and CEO; (iv) gross negligence or willful misconduct with respect to the Bank or any of its members; (v) any violation of Bank policies regarding sexual harassment, discrimination, substance abuse, or the Bank’s Code of Ethics to the extent such acts would provide grounds for a termination for cause with respect to other employees; or (vi) a material breach of a material provision of this Agreement. No act or failure to act on the part of the Executive shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that his action or omission was in the best interests of the Bank.

Confidential Information means: (a) financial information, including, but not limited to, earnings, assets, debts, prices, fee structures, volumes of purchases or sales, or other financial data, whether relating to the Bank generally or to particular products or services offered by the Bank; (b) customer or member information, including, but not limited to, information concerning the products or services utilized or purchased by members, the names and addresses of members, terms of funding or loan agreements, or of particular transactions, or related information about potential members; (c) marketing information, including, but not limited to, details about ongoing or proposed marketing programs or agreements by or on behalf of the Bank, marketing forecasts, results of marketing efforts or information about impending transactions, and pricing strategies; (d) personnel information, including, but not limited to, employees' personal or medical histories, employment agreements, commission and bonus plans, compensation, or other terms of employment, actual or proposed promotions, hirings, resignations, disciplinary actions, terminations, training methods, performance, or other employee information; (e) information contained in any computer files, including, but not limited to, reports of examination issued by the Bank’s regulator, current and historical information regarding the Bank’s borrowing and other relationships with its members and other borrowers, results of the Bank’s internal ratings of its members and other borrowers, confidential information of third parties provided to the Bank under an agreement requiring the Bank to maintain the confidentiality of such information except for specified permitted uses, or other proprietary operating software systems and any associated passwords; (f) procedures manuals, policy manuals, sales training materials, brochures, funding agreements, license agreements, minutes of Board meetings, managers’ meetings, and sales meetings; and (g) contacts, including, but not limited to, any compilations of past, existing, or prospective sources of business, proposals, or agreements between members and the Bank, any sales or borrowing histories or other revenue information by member or customer, status of member or customer accounts or credit, or related information about actual or prospective members or contacts.

Determination Date means the date of termination of the Executive’s employment with the Bank, for any reason whatsoever, or any earlier date (during the Restricted Period) of an alleged breach of the Restrictive Covenants by the Executive.

Disability means that the Executive (a) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, as determined under the Bank’s short- or long-term disability program; or (b) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, as determined under the Bank’s short- or long-term disability program, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering the Bank’s employees.

Person means any individual or any corporation, partnership, joint venture, association, or other entity or enterprise.

Protected Employees means employees of the Bank who were employed by the Bank at any time within six (6) months prior to the Determination Date.

Restricted Period means the period of the Executive’s employment by the Bank under this Agreement plus a period extending two (2) years from the date of termination of employment.

Restrictive Covenants means the restrictive covenants contained in Section 9(b) and (c) hereof.

Retire or Retirement means the planned and voluntary termination by the Executive of his employment on or after reaching the earliest retirement age permitted by the Financial Institutions Retirement Fund.

Term of the Agreement means the period which commences on the Effective Date and, unless earlier terminated pursuant to Section 6, ends on December 31, 2024. The “Term of the Agreement” shall also include, as applicable, each subsequent one-year renewal period following the automatic renewal of this Agreement pursuant to Section 3, to the extent such automatic renewals occur.

The Executive has been retained by the Bank as its President and Chief Executive Officer (“President and CEO”) with overall charge and responsibility for the business and affairs of the Bank. The Executive shall report directly to the Board and shall perform such duties as the Executive shall reasonably be directed to perform by the Board. The Executive shall devote his best efforts to the performance of the duties of his position with the Bank and shall devote substantially all of his business time and attention to the performance of his duties under this Agreement, excluding any periods of vacation and sick leave to which the Executive is entitled. The Executive may (a) serve on civic or charitable boards or committees and (b) deliver lectures and fulfill speaking engagements, so long as such activities do not, in the view of the Board, interfere, in any substantive respect, with the Executive’s responsibilities hereunder or conflict, in any material way, with the business of the Bank or the Bank’s Code of Ethics.

Unless terminated earlier as provided in Section 6, the Executive's employment as President and CEO under this Agreement shall continue for the Term of the Agreement, as defined above; provided, however, that the Term of the Agreement shall be automatically extended by one (1) year effective January 1, 2025 and each year thereafter until such date as either the Bank or the Executive shall have terminated this automatic extension provision by giving written notice to the other party at least three (3) months prior to the end of the initial Term of the Agreement or any extension thereof.

(b)    Incentive Plans.

The Executive shall be eligible to participate in, or receive benefits that are provided to employees under, the Bank’s various employee benefit plans, excluding incentive plans, if any, except as provided in Section 4. The terms of those plans are set forth in the respective plan documents, and are subject to change based on the terms set forth therein.

The Bank shall provide the Executive with the following perquisites: (a) a parking space at the Bank’s main office and (b) such airline club or other club memberships as recommended by the HR&C Committee and approved by the Board.

6. TERMINATION.

The Executive’s employment under this Agreement may be terminated under the following circumstances:

In no event shall the termination of the Executive's employment affect the rights and obligations of the Parties set forth in this Agreement, except as expressly set forth herein. Except to the extent provided in Section 6(b), any termination of the Executive's employment pursuant to this Section 6 shall be deemed to be a termination of all of the Executive’s positions with the Bank.

7. TERMINATION PAYMENTS.

The Executive shall be entitled to receive the following payments upon termination of the Executive's employment hereunder:

determined without regard to whether the Executive’s termination affects his eligibility to receive an incentive award under the Incentive Plan; and provided, however, that the HR&C Committee may, in its discretion, reduce or eliminate any incentive compensation amounts paid under this subsection (iii) for any of the circumstances set forth in Section 5.3(b)(1)-(3) or (5) of the Incentive Plan to the extent such circumstances existed at or before the time the Executive provided notice of resignation or any similar provision set forth in any successor plan, as applicable;

determined without regard to whether the Executive’s termination affects his eligibility to receive an incentive award under the Incentive Plan; provided, however, that the HR&C Committee may, in its discretion, reduce or eliminate any incentive compensation amounts paid under this subsection (iii) for any of the circumstances set forth in Section 5.3(b)(1)-(3) or (5) of the Incentive Plan to the extent such circumstances existed at or before the time the Executive provided notice of retirement or any similar provision set forth in any successor plan, as applicable;

 

the Executive (or the Executive's estate, as the case may be) shall be entitled to receive the following payments and benefits:

determined without regard to whether the Executive’s termination affects his eligibility to receive an incentive award under the Incentive Plan; provided, however, that the HR&C Committee may, in its discretion, reduce or eliminate any incentive compensation amounts paid under this subsection (iv) for any of the circumstances set forth in Section 5.3(b)(1)-(3) or (5) of the Incentive Plan to the extent such circumstances existed at or before the time the Executive’s Death, Disability, Termination Other than for Cause or resignation with Good Reason or any similar provision set forth in any successor plan, as applicable;

The Executive shall not be entitled to any other compensation, bonus, or severance pay from the Bank; provided, however, that nothing in this Section 7(d) shall affect any vested rights which the Executive has under any pension, thrift, or other benefit plan, excluding the Incentive Plan and the Severance Plan.

All payments under Section 7(d) are contingent upon the Executive being in compliance with Sections 9, 11, 12, and 13 of this Agreement as of the time such payment is due.

Following the completion of each of the foregoing conditions precedent in this Section 7 (e), each payment under this Section 7 will be payable, or in the case of a series of payments will begin to be paid, on the Bank’s first payroll date that occurs at least five (5) business days following the completion of such conditions.

Notwithstanding anything herein to the contrary, amounts payable under Section 7(d) upon a termination of Executive’s employment under Section 6(a) shall be paid in a single lump sum to the Executive’s estate.

The Executive may not use his position, influence, knowledge of confidential information, or the Bank’s assets for personal gain. A direct or indirect financial interest, including joint ventures in or with a competitor, supplier, vendor, customer, or prospective customer without disclosure and written approval from the Board is strictly prohibited and could be grounds for termination for Cause. The Executive shall at all times comply with the Bank’s Code of Ethics.

In the event the Executive breaches, or threatens to commit a breach, of any of the provisions of the Restrictive Covenants, the Bank shall have the right and remedy to enjoin, preliminarily and permanently, the Executive from violating or threatening to violate the Restrictive Covenants and to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Bank and that money damages would not provide an adequate remedy to the Bank. The rights referred to in the preceding sentence shall be independent of any others and severally enforceable, and shall be in addition to, and not in lieu of, any other rights and remedies available to the Bank at law or in equity.

The Executive agrees to deliver to the Bank upon the termination of the Executive’s employment, and at any other time upon the Bank's request: (a) all documents and other materials, whether made or compiled by the Executive alone or with others, or made available to the Executive while employed by the Bank, pertaining to Confidential Information or other inventions and works of the Bank; (b) all Confidential Information, other inventions, or any other property of the Bank in the Executive's possession, custody, or control, and (c) all cellular telephones, data storage devices, and personal digital assistants paid for or issued by the Bank. The above categories (a) through (c) include Confidential Information contained on personal digital assistants, cellular telephones, external hard drives, USB “flash” drives, other USB storage devices, FireWire storage devices, digital music players, digital tapes, floppy disks, CDs, DVDs, personal e-mail accounts (including web-based e-mail accounts such as Hotmail, Gmail, or Yahoo), memory cards, zip disks or drives, and all other similar mediums which can be used to store electronic data.

Neither Party shall issue, without consent of the other Party, any press release or make any public announcement with respect to this Agreement or the employment relationship between them. Following the Effective Date of this Agreement, and regardless of any dispute that may arise in the future, the Executive and the Bank jointly and mutually agree that they shall not disparage, criticize, or make statements that are negative, detrimental, or injurious to the other to any individual or company, including within the Bank: provided that this paragraph shall not prohibit either Party from offering truthful testimony or evidence in any legal proceeding in which the Party is compelled to appear.

14. FEDERAL BENEFITS RULES.

All payments and benefits provided under this Agreement are intended to be exempt from, or comply with, Section 409A of the Code, and the Agreement is to be interpreted accordingly. Notwithstanding any other provision of this Agreement, payments provided under this Agreement may only be made upon an event and in a manner that complies with Section 409A of the Code or an applicable exemption. In no event may the Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement that constitutes a "deferral of compensation" within the meaning of Section 409A of the Code. Any payments under this Agreement that may be excluded from Section 409A of the Code either as separation pay or as a short-term deferral will be excluded from Section 409A of the Code to the maximum extent possible. Each installment payment or payment in a series of payments provided under this Agreement will be treated as a separate payment. A termination of Executive’s employment under the Agreement must constitute a “separation from service” under Section 409A(a)(2) to the extent required to comply with or be exempt from Section 409A of the Code. To the extent any reimbursements or in-kind benefit payments under this Agreement are subject to Section 409A of the Code, such reimbursements and in-kind benefit payments will be made in accordance with Section 1.409A-3(i)(1)(iv) of the Treasury Regulations (or any or successor provisions).

 

If any provision of this Agreement (or any award of compensation) would cause the Executive to incur any additional tax or interest under Section 409A of the Code, or any regulations or Treasury guidance promulgated thereunder, the Bank may reform such provision, provided that it shall (i) maintain, to the maximum extent practical, the original intent of the applicable provision without violating the provisions of Section 409A of the Code and (ii) notify and consult with the Executive regarding such amendments or modifications prior to the effective date of any change.

Notwithstanding the foregoing, the Bank makes no representations that the payments and benefits provided under this Agreement comply with Section 409A of the Code and in no event will the Bank be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Executive on account of Section 409A of the Code.

The Executive acknowledges and agrees that the Restrictive Covenants are reasonable and valid in all respects. If any provision, restriction, or section in this Agreement is determined to be in violation of any law, rule, or regulation, or otherwise unenforceable, such determination shall not affect the validity of any other provision, restriction, or section of this Agreement, but such other provisions, restrictions, or sections shall remain in full force and effect. Each provision, restriction, or section of this Agreement is severable from every other provision, restriction, or section and constitutes a separate and distinct covenant. In the event that a court of competent jurisdiction determines that any provision of this Agreement is overly broad or unenforceable, the Bank and the Executive specifically request that such court sever it or reform such provision so that it is enforceable to the maximum extent permitted by law; provided that the Bank’s obligation to pay the Termination Payments set forth in Sections 7(b), (c), and (d) remain contingent upon the Executive complying with Sections 9, 11, 12, and 13. If the Executive challenges the enforceability of Sections 9, 11, 12, or 13, the Executive shall not be entitled to the separation payments set forth in Sections 7(b), (c), and (d).

This Agreement shall be binding upon and inure to the benefit of the Bank and its successors and assigns, and the Executive, the Executive’s heirs, executors, and administrators.

Notwithstanding any provision of this Agreement, the terms of this Agreement and any payment to the Executive, including the timing thereof, shall be subject to the prior approval or non-objection of the Federal Housing Finance Agency or any successor agency.

This Agreement constitutes the entire Agreement between the Parties. The Parties acknowledge that they have not relied on any representations, promises, or agreements of any kind made in connection with the decision to sign this Agreement, except for those set forth in this Agreement. This Agreement may not be altered or amended, except in writing, signed by the Executive and an authorized representative of the Bank.

The Parties agree that this Agreement is to be governed by, and construed under, the laws of the State of Illinois, without regard to its conflicts of law provisions. The Parties further agree that all disputes shall be resolved exclusively in the state or federal court located in Cook County, Illinois.

The Bank agrees that it shall pay Executive a one-time payment of $5,000 for individual financial/tax counseling. Such amount shall not be grossed up to the Executive for tax purposes.

Any notice required or permitted hereunder shall be in writing, and shall be deemed duly given when hand delivered, or when mailed, first class mail, postage prepaid, registered or certified, return receipt requested, to the addresses set forth below:

200 East Randolph Drive

Chicago, IL 60601

Attention: General Counsel

        

[Address Redacted]

The foregoing addresses may be changed at any time, or from time to time, by written notice given in accordance with the provisions of this section.

IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the Effective Date.