Severance Agreement
Exhibit 10.4.1
This Severance Agreement (this “Agreement”) is entered into effective as of this
day of , 2008, by and between Middlefield Banc
Corp., an Ohio corporation (“Middlefield”), and Xxxxxx X. Xxxxxxx (the “Executive”).
Whereas, recognizing the contributions made and expected to be made by the Executive
to the profitability, growth, and financial strength of Middlefield and its subsidiaries, intending
to assure itself of the current and future continuity of management, intending to establish minimum
severance benefits for certain officers and other key employees, including the Executive, intending
to ensure that officers and other key employees are not practically disabled from discharging their
duties if a proposed or actual transaction involving a change in control arises, and finally
desiring to provide additional inducement for the Executive to remain in the employment of The
Middlefield Banking Company, Middlefield entered into a Severance Agreement with the Executive
dated as of July 11, 2006,
Whereas, Middlefield and the Executive intend that this Agreement supersede and
replace in its entirety the July 11, 2006 Severance Agreement, and
Whereas, none of the conditions or events included in the definition of the term
“golden parachute payment” that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit
Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule
359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists or, to the best knowledge of Middlefield, is
contemplated insofar as either of Middlefield or any of its subsidiaries is concerned.
Now Therefore, in consideration of these premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows.
1. Termination after a Change in Control. (a) Cash benefit. If the Executive’s employment
terminates involuntarily but without Cause or voluntarily but with Good Reason, in either case
within 24 months after a Change in Control, Middlefield shall make a lump-sum payment to the
Executive in an amount in cash equal to two times the Executive’s compensation. For this purpose
the Executive’s compensation means (x) the sum of the Executive’s base salary when the Change in
Control occurs or when employment termination occurs, whichever amount is greater, plus (y) any
bonus earned for the most recent whole calendar year before the year in which the Change in Control
occurs or for the most recent whole calendar year before the year in which employment termination
occurs, whichever amount is greater, regardless of whether the bonus is paid in the year earned and
regardless of whether the bonus is subject to elective deferral or vesting. The term bonus means
cash or non-cash compensation of the type that is required to be reported as bonus by the
Securities and Exchange Commission’s rules governing tabular disclosure of executive compensation,
specifically Regulation S-K Item 402 (17 CFR 229.402, currently Item 402(c)(2)(iv)). Unless delay
is required under section 1(b), the payment required under this section 1(a) shall be made within
five business days after the Executive’s employment termination. The amount payable to the
Executive hereunder shall not be reduced to account for the time value of money or discounted to
present value. If the Executive’s employment terminates involuntarily but without Cause before the
Change in Control occurs but after discussions regarding the Change in Control commence, then for
purposes of this Agreement the Executive’s employment shall be deemed to have terminated
immediately after the Change in Control and, unless delay is required under section 1(b), the
Executive shall be entitled to the cash benefit under this section 1(a) within five business days
after the Change in Control.
(b) Payment of the benefit. If when employment termination occurs the Executive is a
specified employee within the meaning of section 409A of the Internal Revenue Code of 1986, if the
cash severance benefit under section 1(a) would be considered deferred compensation under section
409A, and finally if an exemption from the six-month delay requirement of section 409A(a)(2)(B)(i)
is not available, payment of the benefit under
section 1(a) shall be delayed and shall be made to
the Executive in a single lump sum without interest on the first day of the seventh month after the
month in which the Executive’s employment terminates. References in this Agreement to section 409A
of the Internal Revenue Code of 1986 include rules, regulations, and guidance of general
application issued by the Department of the Treasury under Internal Revenue Code section 409A.
(c) Change in Control defined. For purposes of this Agreement Change in Control means a
change in control as defined in Internal Revenue Code section 409A and rules, regulations, and
guidance of general application thereunder issued by the Department of the Treasury, including –
1) Change in ownership: a change in ownership of Middlefield occurs on the date any one person
or group accumulates ownership of Middlefield stock constituting more than 50% of the total fair
market value or total voting power of Middlefield stock, or
2) Change in effective control: (x) any one person or more than one person acting as a group
acquires within a 12-month period ownership of Middlefield stock possessing 30% or more of the
total voting power of Middlefield stock, or (y) a majority of Middlefield’s board of directors is
replaced during any 12-month period by directors whose appointment or election is not endorsed in
advance by a majority of Middlefield’s board of directors, or
3) Change in ownership of a substantial portion of assets: a change in ownership of a
substantial portion of Middlefield’s assets occurs if in a 12-month period any one person or more
than one person acting as a group acquires from Middlefield assets having a total gross fair market
value equal to or exceeding 40% of the total gross fair market value of all of Middlefield’s assets
immediately before the acquisition or acquisitions. For this purpose, gross fair market value
means the value of Middlefield’s assets, or the value of the assets being disposed of, determined
without regard to any liabilities associated with the assets.
(d) Involuntary termination with Cause defined. For purposes of this Agreement involuntary
termination of the Executive’s employment shall be considered involuntary termination with Cause if
the Executive shall have committed any of the following acts –
1) an act of fraud, embezzlement, or theft while employed by Middlefield or a subsidiary, or
conviction of the Executive for or plea of no contest to a felony or conviction of or plea of no
contest to a misdemeanor involving moral turpitude, or the actual incarceration of the Executive
for 45 consecutive days or more, or
2) gross negligence, insubordination, disloyalty, or dishonesty in the performance of the
Executive’s duties as an officer of Middlefield or a subsidiary; willful or reckless failure by the
Executive to adhere to Middlefield’s or subsidiary’s written policies; intentional wrongful damage
by the Executive to the business or property of Middlefield or subsidiary, including without
limitation its reputation, which in Middlefield’s sole judgment causes material harm to Middlefield
or subsidiary; breach by the Executive of fiduciary duties to Middlefield and its stockholders,
whether in the Executive’s capacity as an officer or as a director of Middlefield or subsidiary, or
3) removal of the Executive from office or permanent prohibition of the Executive from
participating in the affairs of Middlefield’s subsidiary bank or banks by an order issued under
section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or
4) intentional wrongful disclosure of secret processes or confidential information of
Middlefield or affiliates, which in Middlefield’s sole judgment causes material harm to Middlefield
or affiliates, or
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5) any actions that have caused the Executive to be terminated with cause under any
employment agreement existing on the date hereof or hereafter entered into between the Executive
and Middlefield or a subsidiary, or
6) the occurrence of any event that results in the Executive being excluded from coverage, or
having coverage limited for the Executive as compared to other executives of Middlefield or
affiliates, under a blanket bond or other fidelity or insurance policy covering directors,
officers, or employees, or
7) intentional wrongful engagement in any competitive activity. For purposes of this
Agreement competitive activity means the Executive’s participation, without the consent of
Middlefield’s board of directors, in the management of any business enterprise if (x) the
enterprise engages in substantial and direct competition with Middlefield, (y) the enterprise’s
revenues derived from any product or service competitive with any product or service of Middlefield
or a subsidiary amounted to 10% or more of the enterprise’s revenues for its most recently
completed fiscal year, and (z) Middlefield’s revenues from the product or service amounted to 10%
of Middlefield’s revenues for its most recently completed fiscal year. A competitive activity does
not include mere ownership of securities in an enterprise and the exercise of rights appurtenant
thereto, provided the Executive’s share ownership does not represent practical or legal control of
the enterprise. For this purpose, ownership of less than 5% of the enterprise’s outstanding voting
securities shall conclusively be presumed to be insufficient for practical or legal control, and
ownership of more than 50% shall conclusively be presumed to constitute practical and legal
control.
For purposes of this Agreement no act or failure to act on the Executive’s part shall be
deemed to have been intentional if it was due primarily to an error in judgment or negligence. An
act or failure to act on the Executive’s part shall be considered intentional if it is not in good
faith and if it is without a reasonable belief that the action or failure to act is in
Middlefield’s best interests. Any act or failure to act based upon authority granted by
resolutions duly adopted by the board of directors or based upon the advice of counsel for
Middlefield shall be conclusively presumed to be in good faith and in Middlefield’s best interests.
For purposes of this Agreement the term subsidiary means any entity in which Middlefield directly
or indirectly beneficially owns 50% or more of the outstanding voting securities.
(e) Voluntary termination with Good Reason defined. For purposes of this Agreement a
voluntary termination by the Executive shall be considered a voluntary termination with Good Reason
if the conditions stated in both clauses (x) and (y) are satisfied –
(x) a voluntary termination by the Executive shall be considered a voluntary termination
with Good Reason if any of the following occur without the Executive’s advance written
consent, and the term Good Reason shall mean the occurrence of any of the following without
the Executive’s advance written consent –
1) a material diminution of the Executive’s base salary,
2) a material diminution of the Executive’s authority, duties, or
responsibilities,
3) a material diminution in the authority, duties, or responsibilities of the
supervisor to whom the Executive is required to report,
4) a material diminution in the budget over which the Executive retains
authority,
5) a material change in the geographic location at which the Executive must
perform services, or
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6) any other action or inaction that constitutes a material breach by
Middlefield of this Agreement.
(y) the Executive must give notice to Middlefield of the existence of one or more of the
conditions described in clause (x) within 90 days after the initial existence of the
condition, and Middlefield shall have 30 days thereafter to remedy the condition. In
addition, the Executive’s voluntary termination because of the existence of one or more of
the conditions described in clause (x) must occur within 24 months after the initial
existence of the condition.
2. Insurance and Miscellaneous Benefits. (a) Benefits. Subject to section 2(b), if the
Executive’s employment terminates involuntarily but without Cause or voluntarily but for Good
Reason within 24 months after a Change in Control, Middlefield shall also (x) cause the Executive
to become fully vested in any non-qualified plans, programs, or arrangements in which the Executive
participated if the plan, program, or arrangement does not address the effect of a change in
control and (y) continue or cause to be continued life, health, and disability insurance coverage
substantially identical to the coverage maintained for the Executive before termination and in
accordance with the same schedule prevailing before employment termination. The insurance coverage
may cease when the Executive becomes employed by another employer or 24 months after the
Executive’s termination, whichever occurs first.
(b) Alternative lump-sum cash payment. If (x) under the terms of the applicable policy or
policies for the insurance benefits specified in section 2(a) it is not possible to continue the
Executive’s coverage, or (y) if when employment termination occurs the Executive is a specified
employee within the meaning of section 409A of the Internal Revenue Code of 1986, if any of the
continued insurance coverage benefits specified in section 2(a) would be considered deferred
compensation under section 409A, and finally if an exemption from the six-month delay requirement
of section 409A(a)(2)(B)(i) is not available for that particular insurance benefit, instead of
continued insurance coverage under section 2(a) Middlefield shall pay or cause to be paid to the
Executive in a single lump sum an amount in cash equal to the present value of Middlefield’s
projected cost to maintain that particular insurance benefit had the Executive’s employment not
terminated, assuming continued coverage for the lesser of 24 months or the number of months until
the Executive attains age 65. The lump-sum payment shall be made within five business days after
employment termination or, if the Executive is a specified employee within the meaning of section
409A and an exemption from the six-month delay requirement of section 409A(a)(2)(B)(i) is not
available, on the first day of the seventh month after the month in which the Executive’s
employment terminates.
3. Termination for Which No Benefits Are Payable. Despite anything in this Agreement to the
contrary, the Executive shall be entitled to no benefits under this Agreement if the Executive’s
employment terminates with Cause, if the Executive dies while actively employed by Middlefield or a
subsidiary, or if the Executive becomes totally disabled while actively employed by Middlefield or
a subsidiary. For purposes of this Agreement, the term totally disabled means that because of
injury or sickness the Executive is unable to perform the Executive’s duties. The benefits, if
any, payable to the Executive or the Executive’s beneficiary or estate relating to the Executive’s death or
disability shall be determined solely by such benefit plans or arrangements as Middlefield or
subsidiary may have with the Executive relating to death or disability, not by this Agreement.
4. Term of Agreement. The initial term of this Agreement shall be for a period of
three years, commencing on the effective date. On the first anniversary of the effective date of
this Agreement and on each anniversary thereafter this Agreement shall be extended automatically
for one additional year, unless Middlefield’s board of directors gives notice to the Executive in
writing at least 90 days before the anniversary that the term of this Agreement will not be
extended. If the board of directors determines not to extend the term, it shall promptly notify
the Executive. References herein to the term of this Agreement mean the initial term and
extensions of the initial term. Unless terminated earlier, this Agreement shall terminate when the
Executive
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attains age 65. If the board of directors decides not to extend the term of this
Agreement, this Agreement shall nevertheless remain in force until its term expires.
5. This Agreement Is Not an Employment Contract. The parties hereto acknowledge and agree
that (x) this Agreement is not a management or employment agreement and (y) nothing in this
Agreement shall give the Executive any rights or impose any obligations to continued employment by
Middlefield or any subsidiary or successor of Middlefield.
6. Payment of Legal Fees. Middlefield is aware that after a Change in Control management
could cause or attempt to cause Middlefield to refuse to comply with its obligations under this
Agreement, or could institute or cause or attempt to cause Middlefield to institute litigation
seeking to have this Agreement declared unenforceable, or could take or attempt to take other
action to deny Executive the benefits intended under this Agreement. In these circumstances the
purposes of this Agreement would be frustrated. Middlefield desires that the Executive not be
required to incur the expenses associated with the enforcement of rights under this Agreement,
whether by litigation or other legal action, because the cost and expense thereof would
substantially detract from the benefits intended to be granted to the Executive hereunder.
Middlefield desires that the Executive not be forced to negotiate settlement of rights under this
Agreement under threat of incurring expenses. Accordingly, if after a Change in Control occurs it
appears to the Executive that (x) Middlefield has failed to comply with any of its obligations
under this Agreement, or (y) Middlefield or any other person has taken any action to declare this
Agreement void or unenforceable, or instituted any litigation or other legal action designed to
deny, diminish, or to recover from the Executive the benefits intended to be provided to the
Executive hereunder, Middlefield irrevocably authorizes the Executive from time to time to retain
counsel of the Executive’s choice, at Middlefield’s expense as provided in this section 6, to
represent the Executive in the initiation or defense of any litigation or other legal action,
whether by or against Middlefield or any director, officer, stockholder, or other person affiliated
with Middlefield, in any jurisdiction. Despite any existing or previous attorney-client
relationship between Middlefield and any counsel chosen by the Executive under this section 6,
Middlefield irrevocably consents to the Executive entering into an attorney-client relationship
with that counsel and Middlefield and the Executive agree that a confidential relationship shall
exist between the Executive and that counsel. The fees and expenses of counsel selected from time
to time by the Executive as provided in this section shall be paid or reimbursed to the Executive
by Middlefield on a regular, periodic basis upon presentation by the Executive of a statement or
statements prepared by counsel in accordance with counsel’s customary practices, up to a maximum
aggregate amount of $300,000, whether suit be brought or not, and whether or not incurred in trial,
bankruptcy, or appellate proceedings. Middlefield’s obligation to pay the Executive’s legal fees
under this section 6 operates separately from and in addition to any legal fee reimbursement
obligation Middlefield may have with the Executive under any separate severance or other agreement.
Despite any contrary provision of this Agreement however, Middlefield shall not be required to pay
or reimburse the Executive’s legal expenses if doing so would violate section 18(k) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)] and Rule 359.3
of the Federal Deposit Insurance Corporation [12 CFR 359.3].
7. Withholding of Taxes. Middlefield may withhold from any benefits payable under this
Agreement all Federal, state, local or other taxes as may be required by law, governmental
regulation, or ruling.
8. Successors and Assigns. (a) This Agreement is binding on successors. This Agreement
shall be binding upon Middlefield and any successor to Middlefield, including any persons acquiring
directly or indirectly all or substantially all of the business or assets of Middlefield by
purchase, merger, consolidation, reorganization, or otherwise. But this Agreement and
Middlefield’s obligations under this Agreement are not otherwise assignable, transferable, or
delegable by Middlefield. By agreement in form and substance satisfactory to the Executive,
Middlefield shall require any successor to all or substantially all of the business or assets of
Middlefield expressly to assume and agree to perform this Agreement in the same manner and to the
same extent Middlefield would be required to perform had no succession occurred.
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(b) This Agreement is enforceable by the Executive’s heirs. This Agreement shall inure
to the benefit of and be enforceable by the Executive’s personal or legal representatives,
executors, administrators, successors, heirs, distributees, and legatees.
(c) This Agreement is personal and is not assignable. This Agreement is personal in nature.
Without written consent of the other party, neither party shall assign, transfer, or delegate this
Agreement or any rights or obligations under this Agreement except as expressly provided in this
section 8. Without limiting the generality of the foregoing, the Executive’s right to receive
payments hereunder is not assignable or transferable, whether by pledge, creation of a security
interest, or otherwise, except for a transfer by Executive’s will or by the laws of descent and
distribution. If the Executive attempts an assignment or transfer that is contrary to this section
8, Middlefield shall have no liability to pay any amount to the assignee or transferee.
9. Notices. Any notice under this Agreement shall be deemed to have been effectively made or
given if in writing and personally delivered, delivered by mail properly addressed in a sealed
envelope, postage prepaid by certified or registered mail, delivered by a reputable overnight
delivery service, or sent by facsimile. Unless otherwise changed by notice, notice shall be
properly addressed to the Executive if addressed to the address of the Executive on the books and
records of Middlefield at the time of the delivery of the notice, and properly addressed to
Middlefield if addressed to the board of directors, Middlefield Banc Corp., 00000 Xxxx Xxxx Xxxxxx,
Xxxxxxxxxxx, Xxxx, 00000-0000 Attention: Corporate Secretary.
10. Captions and Counterparts. The headings and subheadings in this Agreement are included
solely for convenience and shall not affect the interpretation of this Agreement. This Agreement
may be executed in one or more counterparts, each of which shall be deemed to be an original but
all of which together shall constitute one and the same agreement.
11. Amendments and Waivers. No provision of this Agreement may be modified, waived, or
discharged unless the waiver, modification, or discharge is agreed to in a writing signed by the
Executive and by Middlefield. No waiver by either party hereto at any time of any breach by the
other party hereto or waiver of compliance with any condition or provision of this Agreement to be
performed by the other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
12. Severability. The provisions of this Agreement are severable. The invalidity or
unenforceability of any provision shall not affect the validity or enforceability of the other
provisions of this Agreement. Any provision held to be invalid or unenforceable shall be reformed
to the extent and solely to the extent necessary to make it valid and enforceable.
13. Governing Law. The validity, interpretation, construction, and performance of this
Agreement shall be governed by and construed in accordance with the substantive laws of the State
of Ohio, without giving effect to the principles of conflict of laws of such state.
14. Entire Agreement. This Agreement constitutes the entire agreement between Middlefield and
the Executive concerning the subject matter. No rights are granted to the Executive under this
Agreement other than those specifically set forth. No agreements or representations, oral or
otherwise, expressed or implied concerning the subject matter hereof have been made by either party
that are not set forth expressly in this Agreement. This Agreement supersedes and replaces in its
entirety the July 11, 2006 Severance Agreement between Middlefield and the Executive, and from and
after the date of this Agreement the July 11, 2006 Severance Agreement shall be of no further force
or effect.
15. No Mitigation Required. Middlefield hereby acknowledges that it will be difficult and
could be impossible (x) for the Executive to find reasonably comparable employment after
termination and (y) to measure the amount of damages the Executive suffers as a result of
termination. Additionally, Middlefield acknowledges
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that its general severance pay plans do not
provide for mitigation, offset, or reduction of any severance payment received thereunder.
Middlefield further acknowledges that the payment of benefits by Middlefield under this Agreement
is reasonable and shall be liquidated damages. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor
shall any profits, income, earnings, or other benefits from any source whatsoever create any
mitigation, offset, reduction, or any other obligation on the part of the Executive hereunder or
otherwise.
16. Internal Revenue Code Section 409A. Middlefield and the Executive intend that their
exercise of authority or discretion under this Agreement shall comply with section 409A of the
Internal Revenue Code of 1986. If when the Executive’s employment terminates the Executive is a
specified employee, as defined in section 409A of the Internal Revenue Code of 1986, and if any
payments or benefits under this Agreement will result in additional tax or interest to the
Executive because of section 409A, then despite any provision of this Agreement to the contrary the
Executive shall not be entitled to the payments or benefits until the earliest of (x) the date that
is at least six months after termination of the Executive’s employment for reasons other than the
Executive’s death, (y) the date of the Executive’s death, or (z) any earlier date that does not
result in additional tax or interest to the Executive under section 409A. As promptly as possible
after the end of the period during which payments or benefits are delayed under this provision, the
entire amount of the delayed payments shall be paid to the Executive in a single lump sum. If any
provision of this Agreement does not satisfy the requirements of section 409A, the provision shall
be applied in a manner consistent with those requirements, despite any contrary provision of this
Agreement. If any provision of this Agreement would subject the Executive to additional tax or
interest under section 409A, Middlefield shall reform the provision. However, Middlefield shall
maintain to the maximum extent practicable the original intent of the applicable provision without
subjecting the Executive to additional tax or interest, and Middlefield shall not be required to
incur any additional compensation expense as a result of the reformed provision. References in
this Agreement to section 409A of the Internal Revenue Code of 1986 include rules, regulations, and
guidance of general application issued by the Department of the Treasury under Internal Revenue
Code section 409A.
In Witness Whereof, the parties have executed this Severance Agreement as of the date
first written above.
| Executive | Middlefield Banc Corp. | |||||||
| By: | ||||||||
| Its: | President and Chief Executive Officer | |||||||
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