Employment Agreement between Mineola Community Bank, S.S.B. and James H. Herlocker, III

Exhibit 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”) is made and entered into, effective as of the 1^st day of March, 2021 (the “Effective Date”), by and between Mineola Community Bank, S.S.B., a Texas-chartered stock savings bank (the “Bank”) and James H. Herlocker, III (the “Executive”). Any reference to the “Company” shall mean Texas Community Bancshares, Inc., the proposed holding company of the Bank.

RECITALS

WHEREAS, the Bank desires to continue to employ the Executive in an executive capacity in the conduct of its businesses, and the Executive desires to be so employed on the terms contained in this Agreement;

NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1.                  POSITION AND RESPONSIBILITIES.

(a)       Employment. During the Term (as defined in Section 2(a)) of this Agreement, the Executive agrees to serve as President and Chief Executive Officer of the Bank and the Company or any successor executive position with the Bank and the Company that is consented to, in writing, by the Executive (the “Executive Position”), and will perform the duties of and have all powers associated with the Executive Position as are appropriate for a person in the position of the Executive Position, as well as those as shall be assigned by the Board of Directors of the Bank (the “Board of Directors”). As President and Chief Executive Officer, the Executive will report directly to the Board of Directors. During the period provided for in this Agreement, the Executive also agrees to serve, if elected, as an officer, director of any subsidiary or affiliate of the Bank and in such capacity to carry out the duties and responsibilities reasonably appropriate to any such position.

(b)       Responsibilities. During the Executive’s employment hereunder, the Executive will be employed on a full-time basis and devote the Executive’s full business time and best efforts, business judgment, skill and knowledge to the performance of the Executive’s duties and responsibilities related to the Executive Position. Except as otherwise provided in Section 1(c), or as may be approved by the Board of Directors, the Executive will not engage in any other business activity during the term of this Agreement.

(c)       Service on Other Boards and Committees. The Bank encourages participation by the Executive on community boards and committees and in activities generally considered to be in the public interest, but the Board of Directors shall have the right to approve or disapprove, in its sole discretion, the Executive’s participation on those boards and committees.

2.                  TERM.

(a)               Term and Annual Renewal. The initial term of this Agreement will begin as of the Effective Date and continue for a period of three (3) years (the “Term”). Commencing on the first anniversary of the Effective Date and continuing on each subsequent anniversary of the Effective Date (each anniversary referred to as a “Renewal Date”), the Term will extend automatically for one additional year, so that the Term will be three (3) years from the applicable Renewal Date, unless either the Bank or the Executive, by written notice to the other given at least thirty (30) days prior to the Renewal Date, notifies the other of its intent not to extend the Term. In the event either party provides notice not to extend the Term, the Term will become fixed and terminate as of the last day of the then current Term. For avoidance of doubt, any extension to the Term will become the new “Term” for purposes of this Agreement.

At least thirty (30) days prior to a Renewal Date, the disinterested members of the Board of Directors will conduct a comprehensive performance evaluation and review of the Executive for purposes of determining whether to take action regarding non-renewal of the Agreement, and the results thereof will be included in the minutes of the meeting of the Board of Directors.

(b)       Change in Control. Notwithstanding the foregoing, in the event the Bank or the Company has entered into an agreement to effect a transaction that would be considered a Change in Control, as defined in Section 5, the Term of this Agreement will automatically extend so that it expire no less than two (2) years beyond the effective date of the Change in Control, subject to extensions as set forth in Section 2(a).

(c)       Continued Employment Following Expiration of Term. Nothing in this Agreement will mandate or prohibit a continuation of the Executive’s employment following the expiration of the Term.

3.             COMPENSATION, BENEFITS AND REIMBURSEMENT.

(a)       Base Salary. In consideration of the Executive’s performance of the responsibilities and duties set forth in this Agreement, the Executive will receive an annual base salary of $250,000 per year (“Base Salary”). The Bank will pay the Base Salary in accordance with its customary payroll practices. During the term of this Agreement, the Board of Directors (or the Compensation Committee of the Board of Directors (the “Compensation Committee”)) may increase, but not decrease, the Executive’s Base Salary. Any increase in Base Salary will become the new “Base Salary” for purposes of this Agreement.

(b)       Bonus and Incentive Compensation. The Executive (1) is eligible to participate in any bonus plan or arrangement of the Bank in which senior management is eligible to participate, pursuant to which a bonus may be paid to the Executive in accordance with the plan or arrangement; and/or (2) may receive a bonus, if any, on a discretionary basis, as determined by the Board of Directors or the Compensation Committee.

(c)       Benefit Plans. The Executive will be entitled to participate in all employee benefit plans, arrangements and perquisites offered to senior management of the Bank, on terms and conditions no less favorable than the plans, arrangements and perquisites are available to other members of senior management of the Bank. The Bank shall also pay the cost of the Executive’s membership dues to Mineola Country Club. Without limiting the generality of the foregoing provisions of this Section 3(c), the Executive also will be entitled to participate in any employee benefit plans including but not limited to retirement plans, pension plans, profit-sharing plans, health-and-accident plans, or any other employee benefit plan or arrangement made available by the Bank in the future to management employees, subject to and on a basis consistent with the terms, conditions and overall administration of the plans and arrangements as applicable to other management employees.

(d)       Leave and Paid Time Off. The Executive will be entitled to paid time off each year during the term of this Agreement measured on a calendar year basis, in accordance with the Bank’s customary practices and in accordance with the Bank’s policies and procedures for officers, in addition to all holidays observed by the Bank. Any unused paid time off during an annual period will be treated in accordance with the Bank’s personnel policies as in effect from time to time.

(e)        Automobile. The Bank will provide the Executive with an automobile allowance of not less than $6,000 per year for automobile-related expenses. The Bank will pay the automobile allowance in accordance with the regular payroll practices of the Bank and the Bank will include the automobile allowance on the Executive’s Form W-2 for each taxable year.

(f)        Expense Reimbursements. The Bank will reimburse the Executive for all reasonable travel, entertainment and other expenses incurred by the Executive in performing the Executive’s obligations under this Agreement, including, without limitation, fees for memberships in organizations that the Executive and the Board of Directors or the Compensation Committee mutually agree are necessary and appropriate in connection with the performance of the Executive’s duties under this Agreement. All reimbursements will be made as soon as practicable upon substantiation of the expenses by the Executive in accordance with the applicable policies and procedures of the Bank and, in any event, not later than the last day of the calendar year immediately following the calendar year in which the Executive incurred the expense.

Subject to Section 5, which governs the occurrence of a Change in Control, the Executive’s employment under this Agreement will terminate under the circumstances set forth in this Section 4.

(a)       Definition of Accrued Obligations. For purposes of this Agreement, the term “Accrued Obligations” means the sum of: (i) any Base Salary earned but unpaid through the Executive’s Date of Termination, (ii) unpaid expense reimbursements (subject to, and in accordance with, Section 3(e)), (iii) unused paid time off accrued through the Date of Termination (subject to an in accordance with Section 3(d)), (iv) any earned but unpaid short-term and long-term incentive compensation for the year immediately preceding the year of termination and (v) any vested benefits the Executive may have under any employee benefit plan of the Bank through the Date of Termination, which vested benefits will be paid and/or provided in accordance with the terms of the employee benefit plans. Unless otherwise provided by the applicable employee benefit plan, the Accrued Obligations, if any, will be paid to the Executive (or the Executive’s estate or beneficiary) within thirty (30) days following the Executive’s Date of Termination.

(b)       Death. This Agreement and the Executive’s employment with the Bank will terminate upon the Executive’s death, in which event the Bank’s sole obligation will be to pay or provide the Executive’s estate or beneficiary any Accrued Obligations.

(c)       Disability. The Bank shall be entitled to terminate the Executive’s employment and this Agreement due to the Executive’s Disability. If the Bank terminates the Executive’s employment due to the Executive’s Disability, the Bank’s sole obligation under this Agreement shall be to pay or provide the Executive any Accrued Obligations. For these purposes, the term “Disability” means the Executive is deemed disabled for purposes of the Bank’s long-term disability plan or policy that covers the Executive or is determined to be disabled by the Social Security Administration.

(d)       Termination for Cause. The Board of Directors may immediately terminate the Executive’s employment and this Agreement at any time for “Cause.” In the event the Executive’s employment is terminated for Cause, the Bank’s sole obligation will be to pay or provide to the Executive any Accrued Obligations. For purposes of this Agreement, the term “Cause” means termination because of, in the good faith determination of the Board of Directors, the Executive’s:

Any determination of Cause under this Agreement will be made by resolution adopted by at least three-quarters (3/4) vote of the disinterested members of the Board of Directors at a meeting called and held for that purpose. The Executive will be provided with reasonable notice of the meeting and the Executive will be given an opportunity to be heard before a vote is taken by the disinterested members of the Board of Director regarding the termination of employment.

(e)       Resignation by Executive without Good Reason. The Executive may resign from employment during the term of this Agreement without Good Reason upon at least thirty (30) days prior written notice to the Board of Directors, provided, however, that the Bank may accelerate the Date of Termination upon receipt of written notice of the Executive’s resignation. In the event the Executive resigns without Good Reason, the Bank’s sole obligation under this Agreement will be to pay or provide any Accrued Obligations to the Executive.

(f)           Termination Without Cause or With Good Reason.

(A)           any Accrued Obligations;

(B)            a gross cash payment equal to the remaining Base Salary and bonus opportunity (based on the highest bonus earned by the Executive for the three most recently completed calendar years prior to the Executive’s Date of Termination) that would have been paid to the Executive during the remaining Term of the Agreement; payable in a lump sum within sixty (60) days of the Executive’s Date of Termination; and

(C)            provided that the Executive has elected continued health care coverage in accordance with the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), reimbursement of COBRA health care costs by the Bank for up to eighteen (18) consecutive months, or if less, for the period for which the Executive has elected COBRA coverage (commencing with the first month following the Executive's Date of Termination and continuing until the eighteenth month following the Executive's Date of Termination).

(g)       Effect on Status as a Director. In the event of the Executive’s termination of employment under this Agreement for any reason, unless otherwise agreed to by the mutual consent of the Executive and the Board of Directors, the termination will also constitute the Executive’s resignation as a director of the Bank and the Company, as well as a director of any subsidiary or affiliate thereof, to the extent the Executive is acting as a director of any of the aforementioned entities.

(h)       Notice; Effective Date of Termination. Any Notice of Termination of employment under this Agreement must be communicated by or to the Executive or the Bank, as applicable, in accordance with Section 17. For purposes of this Agreement, the term “Date of Termination” means the Executive’s termination of employment pursuant to this Agreement, which will be effective on the earliest of: (i) immediately after the Bank gives notice to the Executive of the Executive’s termination Without Cause, unless the parties agree to a later date, in which case, termination will be effective as of such later date; (ii) immediately upon approval by the Board of Directors of termination of the Executive’s employment for Cause; (iii) immediately upon the Executive’s death or Disability; (iv) thirty (30) days after the Executive gives written notice to the Bank of the Executive’s resignation from employment (including With Good Reason), provided that the Bank may set an earlier termination date at any time prior to the date of termination of employment, in which case the Executive’s resignation shall be effective as of that date; or (v) in the event of the Executive’s termination With Good Reason due to a material reduction in Base Salary, the date on which the Executive provides Notice of Termination in accordance with Section 4(f)(i).

(a)       Change in Control Defined. For purposes of this Agreement, the term “Change in Control” means: (i) a change in the ownership of the Corporation; (ii) a change in the effective control of the Corporation; or (iii) a change in the ownership of a substantial portion of the assets of the Corporation as defined in accordance with Code Section 409A. For purposes of this Section 5(a), the term “Corporation” means the Bank, the Company or any of their successors, as applicable.

For all purposes hereunder, the definition of Change in Control shall be construed to be consistent with the requirements of Treasury Regulation 1.409A-3(i)(5), except to the extent that such regulations are superseded by subsequent guidance.

Notwithstanding anything herein to the contrary, a Change in Control will not be deemed to have occurred for purposes of this Agreement in the event of a: (i) a minority stock offering of Mineola Community Financial Group, Inc.; or (ii) the conversion of Mineola Community MHC from mutual-to-stock form and contemporaneous stock offering of a newly-formed stock holding company.

(b)       Change in Control Benefits. Upon the termination of the Executive’s employment by the Bank or the Company (or any successor) Without Cause or by the Executive With Good Reason during the Term on or within two years after the effective time of a Change in Control, the Bank (or any successor) will pay or provide the Executive, or the Executive’s estate in the event of the Executive’s death, with the following:

Notwithstanding the foregoing, the payments and benefits provided in this Section 5(b) will be payable to the Executive in lieu of any payments or benefits that are payable under Section 4(f).

6.                  COVENANTS OF EXECUTIVE.

(a)               Non-Solicitation/Non-Compete. The Executive hereby covenants and agrees that during the “Restricted Period,” the Executive will not, without the written consent of the Bank, either directly or indirectly:

The restrictions contained in this Section 6(a) shall not apply in the event of the Executive’s termination of employment on or after the effective time of a Change in Control.

For purposes of this Section 6(a), the “Restricted Period” will be: (i) at all times during Executive’s period of employment with the Bank; and (ii) except as provided above, during the period beginning on Executive’s Date of Termination and ending on the one-year anniversary of the Date of Termination.

(b)               Confidentiality. The Executive recognizes and acknowledges that the Executive has been and will be the recipient of confidential and proprietary business information concerning the Bank, including without limitation, past, present, planned or considered business activities of the Bank, and the Executive acknowledges and agrees that the Executive will not, during or after the term of the Executive’s employment, disclose such confidential and proprietary information for any purposes whatsoever, except as may be expressly permitted in writing signed by the Bank, or as may be required by regulatory inquiry, law or court order.

(c)               Information/Cooperation. The Executive will, upon reasonable notice, furnish any information and assistance to the Bank as may be reasonably required by the Bank, in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party; provided, however, that the Executive shall not be required to provide information or assistance with respect to any litigation between the Executive and the Bank or any other subsidiaries or affiliates.

(d)               Reliance. Except as otherwise provided, all payments and benefits to the Executive under this Agreement will be subject to the Executive’s compliance with this Section 6, to the extent applicable. The parties hereto, recognizing that irreparable injury will result to the Bank, its business and property in the event of the Executive’s breach of this Section 6, agree that, in the event of any such breach by the Executive, the Bank will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by the Executive and all persons acting for or with the Executive. The Executive represents and admits that the Executive’s experience and capabilities are such that the Executive can obtain employment in a business engaged in other lines of business than the Bank, and that the enforcement of a remedy by way of injunction will not prevent Executive from earning a livelihood. Nothing herein will be construed as prohibiting the Bank from pursuing any other remedies available to them for such breach or threatened breach, including the recovery of damages from the Executive.

7.               SOURCE OF PAYMENTS.

All payments provided in this Agreement shall be timely paid by check or direct deposit from the general funds of the Bank (or any successor of the Bank).

8.                  EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.

This Agreement contains the entire understanding between the parties hereto and supersedes any prior employment agreement between the Bank or any predecessor of the Bank and the Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to the Executive under another plan, program or agreement (other than an employment agreement) between the Bank and the Executive.

9.                  NO ATTACHMENT; BINDING ON SUCCESSORS.

(a)       Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect.

(b)        The Bank shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Bank, expressly and unconditionally to assume and agree to perform the Bank’s obligations under this Agreement, in the same manner and to the same extent that the Bank would be required to perform if no such succession or assignment had taken place. A successor’s failure to assent to this Agreement following a Change in Control shall be deemed to be a material breach of this Agreement under Section 4(f) hereof.

10.              MODIFICATION AND WAIVER.

(a)       This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto.

(b)       No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of the term or condition for the future as to any act other than that specifically waived.

11.              certain Applicable law.

Notwithstanding anything herein contained to the contrary, the following provisions shall apply:

(a)       The Bank may terminate the Executive’s employment at any time, but any termination by the Bank other than termination for Cause shall not prejudice the Executive’s right to compensation or other benefits under this Agreement. The Executive shall have no right to receive compensation or other benefits under this Agreement for any period after the Executive’s termination for Cause, other than the Accrued Obligations.

(b)       In no event shall the Bank (nor any affiliate) be obligated to make any payment pursuant to this Agreement that is prohibited by Section 18(k) of the Federal Deposit Insurance Act (codified at 12 U.S.C. sec. 1828(k)), 12 C.F.R. Part 359, or any other applicable law.

(c)       Notwithstanding anything in this Agreement to the contrary, to the extent that a payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code, and to the extent that the payment or benefit is payable upon the Executive’s termination of employment, then the payments or benefits will be payable only upon the Executive’s “Separation from Service.” For purposes of this Agreement, a “Separation from Service” will have occurred if the Bank and the Executive reasonably anticipate that either no further services will be performed by the Executive after the Date of Termination (whether as an employee or as an independent contractor) or the level of further services performed is less than fifty (50) percent of the average level of bona fide services in the thirty-six (36) months immediately preceding the termination. For all purposes hereunder, the definition of Separation from Service shall be interpreted consistent with Treasury Regulation Section 1.409A-1(h)(ii).

(d)       Notwithstanding the foregoing, if the Executive is a “Specified Employee” (i.e., a “key employee” of a publicly traded company within the meaning of Section 409A of the Code and the regulations issued thereunder) and any payment under this Agreement is triggered due to the Executive’s Separation from Service, then solely to the extent necessary to avoid penalties under Section 409A of the Code, no payment will be made during the first six (6) months following the Executive’s Separation from Service. Rather, any payment which would otherwise be paid to the Executive during such period shall be accumulated and paid to the Executive in a lump sum on the first day of the seventh month following the Separation from Service. All subsequent payments shall be paid in the manner specified in this Agreement.

(e)       To the extent not specifically provided in this Agreement, any compensation or reimbursements payable to Executive shall be paid or provided no later than two and one-half (2.5) months after the calendar year in which such compensation is no longer subject to a substantial risk of forfeiture within the meaning of Treasury Regulation Section 1.409A-1(d).

(f)       Each payment pursuant to this Agreement is intended to constitute a separate payment for purposes Treasury Regulation Section 1.409A-2(b)(2).

(g)       Notwithstanding anything in this Agreement to the contrary, the Executive understands that nothing contained in this Agreement limits the Executive’s ability to file a charge or complaint with the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”) about a possible securities law violation without approval of the Bank (or any affiliate). The Executive further understands that this Agreement does not limit 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 providing documents or other information, without notice to the Bank (or any affiliate) related to the possible securities law violation. This Agreement does not limit the Executive’s right to receive any resulting monetary award for information provided to any Government Agency. In addition, pursuant to the Defend Trade Secrets Act of 2016, the Executive understands that an individual may not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (i) is made (A) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.  Further, an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the employer's trade secrets to the attorney and use the trade secret information in the court proceeding if the individual (y) files any document containing the trade secret under seal; and (z) does not disclose the trade secret, except pursuant to court order.

12.              SEVERABILITY.

If any provision of this Agreement is determined to be void or unenforceable, then the remaining provisions of this Agreement will remain in full force and effect.

13.              GOVERNING LAW.

This Agreement shall be governed by the laws of the State of Texas, but only to the extent not superseded by federal law.

14.              ARBITRATION.

Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted by a single arbitrator selected by the Bank (or in the case of arbitration following a Change in Control, selected by the Executive) within fifty (50) miles of Mineola, Texas, in accordance with the Commercial Rules of the American Arbitration Association then in effect.  Judgment may be entered on the arbitrators’ award in any court having jurisdiction.  The above notwithstanding, the Bank may seek injunctive relief in a court of competent jurisdiction in Texas to restrain any breach or threatened breach of any provision of this Agreement, without prejudice to any other rights or remedies that may otherwise be available to the Bank.

15.              INDEMNIFICATION.

The Bank will provide the Executive (including the Executive’s heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy at its expense, and will indemnify the Executive (and the Executive’s heirs, executors and administrators) in accordance with the charter and bylaws of the Bank and to the fullest extent permitted under applicable law against all expenses and liabilities reasonably incurred by the Executive in connection with or arising out of any action, suit or proceeding in which the Executive may be involved by reason of having been a trustee, director or officer of the Bank or any subsidiary or affiliate of the Bank.

16.              TAX Withholding.

The Bank may withhold from any amounts payable to the Executive hereunder all federal, state, local or other taxes that the Bank may reasonably determine are required to be withheld pursuant to any applicable law or regulation (it being understood that Executive is responsible for payment of all taxes in respect of the payments and benefits provided herein).

17.              Notice.

For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below or if sent by facsimile or email, on the date it is actually received.

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