CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT (the "Agreement") is entered into as of
the 8th day of January, 2003 (the "Effective Date"), by and between National
Bankshares, Inc. ("NBI") and Xxxxxxx X. Xxxxxxx ("Employee").
W I T N E S S E T H:
WHEREAS, Employee heretofore has been employed as Secretary and Counsel
of NBI, Senior Vice President, Secretary & Counsel of its wholly owned
subsidiary, the National Bank of Blacksburg, and Secretary of its wholly owned
subsidiary, National Bankshares Financial Services, Inc. (the "Employer"), and
in such position he or she has provided leadership and guidance in the growth
and development of the business of NBI and its subsidiaries; and,
WHEREAS, Employee's experience and knowledge of Employer's operations,
customers and affairs is a benefit to the continuation and growth of Employer's
business; and, for that reason, NBI desires to retain Employee's services as an
employee of the Employer; and,
WHEREAS, as an inducement to Employee's continued employment, NBI has
agreed to provide for certain payments to Employee in the event of a termination
of Employee's employment with the Employer under certain circumstances in
conjunction with a change in control of NBI, and, to set forth the terms and
conditions of that arrangement, NBI and Employee desire to enter into this
Agreement.
NOW, THEREFORE, in consideration of the premises and mutual promises,
covenants and conditions hereinafter set forth, and for other good and valuable
considerations, the receipt and sufficiency of which hereby are acknowledged,
NBI and Employee hereby agree as follows:
1. Effective Date of Agreement. This Agreement shall be effective on the
Effective Date set out above and shall remain in effect until terminated as
provided herein.
2. Payment in Certain Events. If at the effective time of a "Change in
Control" (as defined below) or any time within two years and 60 days following a
Change in Control (A) Employer terminates Employee's employment other than for
"Cause" (as defined below), or, (B) a "Termination Event" (as defined below)
occurs and, thereafter, Employee voluntarily terminates his or her own
employment with Employer in the manner described below, then (subject to the
limitations set forth herein) Employee shall be entitled to receive from NBI,
and NBI shall be obligated to pay or cause to be paid to Employee, an amount
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equal to two times the Employee's average annual compensation includable in the
Employee's annual gross income for federal income tax purposes for the five (5)
most recent taxable years ending before the date on which the Change in Control
occurs. If Employee's employment is terminated by Employer Without Cause (as
defined below) prior to the effective time of a Change in Control but following
the date on which NBI's board of directors takes action to approve an agreement
(including any definitive agreement or an agreement in principle) relating to a
Change in Control, then for purposes of this Agreement, such termination of
employment shall be deemed to occur at the effective time of the Change in
Control. Otherwise, if Employee's employment is terminated prior to the
effective time of a Change in Control, Employee shall have no rights hereunder.
Amounts payable under this Section 2 shall be paid, at Employee's option, either
in (a) a lump sum within 45 days following the Termination Date (as defined
below) or (b) up to six (6) equal monthly installments without interest which
shall commence on the 45th day following the Termination Date and on the same
day of each consecutive month thereafter, until fully paid.
3. Definitions. For purposes of this Agreement:
(A) a "Change in Control" shall be deemed to have occurred and be
effective at the time:
(i) of the acquisition by any individual, entity or group
(within the meaning of
Section 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act') of beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act), of securities of NBI representing 20% or more of the
combined voting power of the then outstanding securities; provided, however,
that the following acquisitions shall not constitute a Change in Control:
(a) any acquisition directly from NBI (excluding an
acquisition by virtue of
the exercise of a conversion privilege);
(b) any acquisition by NBI;
(c) any acquisition by any employee benefit plan
(or related trust) sponsored
or maintained by NBI or any corporation controlled by NBI; or
(d) any acquisition pursuant to a reorganization,
merger or consolidation by
any corporation owned or proposed to be owned, directly or indirectly, by NBI's
shareholders if NBI's shareholders' ownership of securities of the corporation
resulting from such transaction constitutes a majority of the ownership of
securities of the resulting entity and at least a majority of the members of the
board of directors of the corporation resulting from such transaction were
members of the Incumbent Board as defined in this Agreement at the time of the
execution of the initial agreement providing for such reorganization, merger or
consolidation; or
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(ii) when individuals who, as of the inception of this
Agreement, constitute the
board of directors of NBI (the "Incumbent Board") cease for any reason to
constitute at least a majority of such board of directors; provided, however,
that any individual becoming a director subsequent to the Effective Date whose
election, or nomination for election by the shareholders was approved by a vote
of at least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a person other than a member of the
NBI board of directors; or
(iii) NBI consummates,
(a) a merger, statutory share exchange, or
consolidation of NBI with any
other corporation, except as provided in Subsection 3(A)(i)(d), or
(b) the sale or other disposition of all or
substantially all of the assets
of NBI.
(B) All references to "NBI" shall include any "Successor" to NBI
which shall have assumed and become liable for NBI's obligations hereunder
(whether such assumption is by agreement, operation of law or otherwise).
"Successor" refers to any person or entity (corporate or otherwise) into which
NBI (or any such Successor) shall be merged or consolidated or to which all or
substantially all of NBI's (or any such Successor's) assets shall be transferred
in any manner.
(C) For purposes of this Agreement, a "Termination Event" shall
be deemed to have occurred if, within two years and 60 days following a Change
in Control Employee terminates his or her employment with Employer for Good
Reason (as defined below).
(D) "Without Cause" shall mean the termination of Employee's
employment which does not occur by virtue of Employee's death, Retirement or
pursuant to a Determination of Long Term Incapacity, or by Employer With Cause
or by Employee for Good Reason or for Other than Good Reason;
(E) "Cause" or "with Cause" shall mean:
(i) continual or deliberate neglect by Employee in the
performance of his material duties and responsibilities or the Employee's
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willful failure to follow reasonable instructions or policies of Employer after
being notified of such failure and being given a reasonable opportunity and
period (as determined by Employer) to remedy such failure;
(ii) with respect to Employee, conviction of,
indictment for (or its procedural equivalent), entering of a guilty plea or plea
of no contest with respect to a felony, a crime of moral turpitude or any other
crime with respect to which imprisonment is a possible punishment, or the
commission of an act of embezzlement or fraud;
(iii) any breach or violation by Employee in any material
respect of any code or standard of behavior generally applicable to employees of
Employer, after being advised in writing of such breach or violation and being
given a reasonable opportunity and period (as determined by Employer) to remedy
such breach or violation;
(iv) dishonesty of Employee in any aspect of his or her
employment, or breach of a fiduciary duty to Employer or to Employer's parent
or any of its subsidiaries or affiliates;
(v) the willful engaging by Employee in conduct that is
reasonably likely to result, in the good faith judgment of Employer, in material
injury to Employer or Employer's parent, or any of its subsidiaries or
affiliates, monetarily or otherwise;
(vi) the violation by Employee of any applicable federal
or state law, or any applicable rule, regulation, order or statement of policy
promulgated by any governmental agency or authority having jurisdiction over
Employer, its parent or any of its affiliates or subsidiaries (a "Regulatory
Authority," including without limitation the Federal Deposit Insurance
Corporation, the Virginia Bureau of Financial Institutions, Office of the
Comptroller of the Currency, the Federal Reserve Board, the Securities and
Exchange Commission or any other regulatory agency), which results from
Employee's negligence, willful misconduct or intentional disregard of such law,
rule, regulation, order or policy statement and results in any substantial
damage, monetary or otherwise, to Employer, its parent or any of its affiliates
or subsidiaries or to their reputation;
(vii) the conviction of Employee of any felony or any
criminal offense involving dishonesty or breach of trust, or the occurrence of
any event described in Section 19 of the Federal Deposit Insurance Act or any
other event or circumstance which disqualifies Employee from serving as an
employee or executive officer of, or a party affiliated with, Employer, its
parent or any of its affiliates or subsidiaries; or, in the event Employee
becomes unacceptable to, or is removed, suspended or prohibited from
participating in the conduct of the affairs of Employer, its parent or any of
its affiliates or subsidiaries (or if proceedings for that purpose are
commenced) by, any Regulatory Authority; or
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(viii) the exclusion of Employee by the carrier or
underwriter from coverage under Employer's then current "blanket bond" or other
fidelity bond or insurance policy covering its or their directors, officers or
employees, or the occurrence of any event which Employer believes, in good
faith, will result in Employee being excluded from such coverage, or having
coverage limited as to Employee as compared to other covered officers or
employees, pursuant to the terms and conditions of such "blanket bond" or other
fidelity bond or insurance policy.
(F) "Good Reason" shall mean the following occurrences after the
effective time of a Change in Control:
(i) the continued assignment to the Employee of duties
inconsistent with the Employee's position, authority, duties or responsibilities
immediately prior to the Change in Control;
(ii) a substantial reduction in the status of the
Employee, including a diminution in his position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and/or
inadvertent action not taken in had faith and which is remedied by Employer
promptly after receipt of notice thereof given by the Employee;
(iii) the relocation of Employee to a principal place of
employment located more than 50 miles from Employee's principal place of
employment immediately preceding the Change in Control, without Employee's
express written consent to such relocation;
(iv) any failure by a Successor expressly to assume all of
NBI's liabilities, duties and obligations hereunder;
(v) a reduction in the Employee's annual base salary rate
below the annual rate in effect immediately preceding the effective time of the
Change in Control or as the same shall have been increased from time to time
following such effective time;
(vi) a reduction in the level, scope or coverage of
Employee's life insurance, medical or hospitalization insurance, disability
insurance or similar plans or benefits (including any retirement plan) from that
being provided by Employer to Employee immediately preceding the effective time
of the Change in Control or any such insurance, plans or benefits are eliminated
without being replaced with substantially similar plans or benefits, unless such
reduction or elimination applies proportionately to all salaried employees of
Employer who participated in such plans or benefits immediately prior to such
Change in Control; or
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(vii) anything in this Agreement to the contrary
notwithstanding, a termination by Employee for any reason during the thirty (30)
day period immediately following the first anniversary of a Change in Control
shall be deemed to be a termination for Good Reason for all purposes of this
Agreement.
Any good faith (meaning honesty-in-fact)
determination of Good Reason, based on one or more of the foregoing, made by the
Employee shall be conclusive.
(G) "Other than Good Reason" shall mean any termination by the
Employee which is not for Good Reason or Retirement shall be deemed a
termination for Other than Good Reason.
(H) "Retirement" shall mean the Employee's retirement on or after
the Employee's normal retirement date under the terms of the National Bankshares
Retirement Income Plan (or any successor or substitute plan or plans of NBI).
(I) "Determination of Long Term Incapacity" shall mean a good
faith determination by Employer that, as a result of mental or physical illness
or injury the Employee has failed to perform his assigned duties with Employer
on a full time basis for a period exceeding twelve (12) consecutive months.
(J) "Termination Date" means the effective date as of which the
Employee's employment with Employer is terminated, giving rise to a payment
obligation under Section 2.
4. Possible Reduction in Payment and Benefits. Following any Change in
Control, to the extent that any amount of pay or benefits provided under to
Employee under this Agreement would cause Employee to be subject to excise tax
under sections 280G and 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), and after taking into consideration all other amounts payable to
Employee under other NBI or Employer plans, programs, policies, and
arrangements, then the amount of pay and benefits provided under this Agreement
shall be reduced to the extent necessary to avoid imposition of any such excise
taxes. Employee may select the payments and benefits to be limited or reduced,
including an election not to have the vesting of certain benefits, including
stock options, accelerate as a result of a Change in Control.
5. Legal Fees and Costs. Except as otherwise provided herein, NBI will
pay or reimburse Employee for all costs and expenses, including without
limitation court costs and reasonable attorneys' fees and expert witness fees
and expenses, incurred by Employee in seeking to obtain or enforce by legal
proceeding any right or benefit provided by this Agreement, in each case
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provided Employee's claim is substantially upheld by a court of competent
jurisdiction.
6. Documents. All documents, record, tapes and other media of any kind
or description relating to the business of NBI or any of its subsidiaries and
affiliates (the "Documents"), whether or not prepared by Employee, shall be the
sole and exclusive property of NBI. The Documents (and any copies) shall be
returned to NBI upon Employee's termination of employment for any reason or at
such earlier time or times as NBI may specify.
7. Regulatory Requirements. Notwithstanding anything contained in this
Agreement to the contrary, it is understood and agreed that NBI (or any of its
Successors) shall not be required to make any payment or take any action under
this Agreement if:
(A) NBI or Employer is declared by any Regulatory Authority to be
insolvent, in default or operating in an unsafe or unsound manner, or if
(B) in the opinion of counsel to NBI or Employer such payment or
action (i) would be prohibited by or would violate any provision of state or
federal law applicable to NBI or Employer, including without limitation the
Federal Deposit Insurance Act, as now in effect or hereafter amended, (ii) would
be prohibited by or would violate any applicable rules, regulations, orders or
formal statements of policy, whether now existing or hereafter promulgated, of
any Regulatory Authority, or (iii) otherwise is prohibited by any Regulatory
Authority.
8. Termination of Agreement. This Agreement automatically shall
terminate and become null and void upon any termination of Employee's employment
with Employer other than a termination of employment which results in NBI's
payment obligation provided for under Section 2 above. Following any such
termination of this Agreement, it shall be of no further force or effect and
Employee shall have no further rights hereunder.
9. Severability. If any provision of this Agreement, or part thereof, is
determined to be unenforceable for any reason whatsoever, it shall be severable
from the remainder of this Agreement and shall not invalidate or affect the
other provisions of this Agreement, which shall remain in full force and effect
arid shall be enforceable according to their terms. No covenant shall be
dependent upon any other covenant or provision herein, each of which stands
independently.
10. Modification. The parties expressly agree that should a court find
any provision of this Agreement, or part thereof, to be unenforceable or
unreasonable, the court may modify the provision, or part thereof, in a manner
which renders that provision reasonable, enforceable, and in conformity with the
public policy of Virginia.
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11. Governing Law. This agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia.
12. Notices. All written notices required by this Agreement shall be
deemed given when delivered personally or sent by registered or certified mail,
return receipt requested, to the parties at their addresses set forth on the
signature page of this Agreement. Each party may, from time to time, designate a
different address to which notices should be sent by giving notice thereof in
writing to the other party at least three days before the effective date of such
change in address.
13. Amendment. This Agreement may not be varied, altered, modified or in
any way amended except by an instrument in writing executed by the parties
hereto or their legal representatives.
14. Binding Effect. This Agreement shall be binding upon Employee and on
NBI, its Successors and assigns effective on the date first above written.
15. No Construction Against Any Party. This Agreement is the product of
informed negotiations between the Employee and NBI. If any part of this
Agreement is deemed to he unclear or ambiguous, it shall be construed as if it
were drafted jointly by all parties. The Employee and NBI agree that neither
party was in a superior bargaining position regarding the substantive terms of
this Agreement.
16. Entire Agreement. This Agreement constitutes the complete, final and
entire agreement of the parties with respect to the matters addressed herein and
it supersedes all other prior agreements and understandings, both written and
oral, express or implied, with respect to the subject matter of this Agreement.
No promises, representations or warranties have been made by any party to or for
the benefit of the other with respect to such matters which are not expressly
set forth herein.
17. Exclusions. Notwithstanding anything contained herein to the
contrary, it is expressly understood and agreed by Employee that:
(a) Employee shall not be entitled to any payments under this
Agreement if no Change in Control occurs or in the event (i) Employer terminates
Employee's employment for Cause, or (ii) Employee voluntarily terminates his or
employment with Employer for Other than Good Reason, or (iii) Employee's
employment with Employer terminates or is terminated due to his death,
Retirement or pursuant to a Determination of Long Term Disability,
(b) Employee's employment with Employer is on an "at will" basis
and this Agreement does not constitute an employment contract or an agreement by
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Employer to employ Employee for any particular period of time or in any
particular capacity. Nothing in this Agreement is intended or should be
interpreted to confer upon Employee the right to continue in the employ of
Employer or to interfere with or restrict in any way the right of Employer to
discharge Employee or terminate his or her employment at any time or for any
reason whatsoever, with or without Cause, and without any obligation or
liability to Employee except as herein provided, it being the intent of the
parties hereto only to provide for payment of the severance benefits specified
herein in the event of the termination of Employee's employment with Employer
under the circumstances described in Section 2.
18. Confidentiality. The Employee recognizes that as an employee of
Employer, Employee will have access to and may participate in the origination of
non-public, proprietary and confidential information and that Employee owes a
fiduciary duty to the Employer. Confidential information may include, but is not
limited to, trade secrets, customer lists and information, internal corporate
planning, strategic plans, methods of marketing and operation, and other data or
information of or concerning the Employer or its customers that is not generally
known to the public or in the banking industry. The Employee agrees that he will
never make a disclosure of confidential information to a third party or use
confidential information other than for the exclusive benefit of the Employer
and its affiliates.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written herein.
National Bankshares, Inc.
By: /s/ XXXXX X. XXXXX
--------------------------------
President
Address: 000 Xxxxxxx Xxxxxx
X.X. Xxx 00000
Xxxxxxxxxx, XX 00000-0000
/s/ XXXXXXX X. XXXXXXX
------------------------------------
Employee
Address: 0000 Xxxxxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
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