EXHIBIT 10.32
SEVERANCE AGREEMENT DUE TO CHANGE IN CONTROL
OF CORTLAND BANCORP.
This AGREEMENT is made and entered into this ___ day of _________, 2001, by
and among Cortland Bancorp. (the "Corporation"), a corporation organized under
the laws of the State of Ohio, with its main office in Cortland, Ohio, The
Cortland Savings and Banking Company (the "Bank"), an Ohio-chartered,
FDIC-insured member bank with its main offices in Cortland, Ohio and Xxxxxxx
Xxxxx (the "Employee"). Any reference to the "Board of Directors" herein shall
mean the Board of Directors of the Corporation.
WHEREAS, the Employee has heretofore served the Bank in the position of
Vice President, Manager of Computer Operations:
NOW THEREFORE, in consideration of the performance of the responsibilities
of the Employee and upon the other terms and conditions hereinafter provided,
the parties hereto agree as follows:
1. No Employment Contract
The parties hereto acknowledge and agree that this Agreement is not a
management or employment agreement and that none of the terms and conditions
contained herein shall be effective until such time as there is a Change in
Control as hereinafter defined in this Agreement. Prior to a Change in Control,
the Employee agrees and acknowledges that he is an employee-at-will of the Bank.
2. Term of Agreement
The term of this Agreement shall be a period of three years commencing
on January 1, 2001 (the "anniversary"). On each anniversary of this Agreement,
the term shall be extended for a period of one year in addition to the
then-remaining term, provided that the Corporation has not given notice to the
Employee in writing at least 90 days prior to such anniversary that the term of
this Agreement shall not be extended further. Unless sooner terminated as set
forth herein, this contract shall terminate when the Employee reaches age
sixty-five (65).
3. Termination for Cause
(a) The Employee shall have no right to receive severance or other
benefits under this Agreement for any period after the date of termination for
Cause. For purposes of this Agreement, termination by the Corporation or the
Bank for "Cause" shall mean only the following events:
(i) personal dishonesty;
(ii) incompetence;
(iii) material breach of any provision of this Agreement;
(iv) breach of a fiduciary duty involving personal gain or
profit;
(v) intentional failure to perform stated duties;
(vi) a willful and material breach of the policies and procedures
for the operation of the Bank provided to the Employee by
formal action of the Board of Directors;
(vii) willful violation of any law, rule, regulation (other than
a law, rule or regulation relating to a traffic violation or
similar offense) or final cease-and-desist order; or
(viii) willful misconduct.
(b) (i) For purposes of Paragraph 3(a)(ii), "incompetence" shall
mean the Employee's performance of his duties as measured
against the then prevailing standards in the Ohio banking
industry.
(ii) For purposes of Paragraph 3(a)(vii) and 3(a)(viii), no act,
or failure to act, on the Employee's part shall be
considered "willful" unless he has acted, or failed to act,
with an absence of good faith and without a reasonable
belief that his action or failure to act was in the best
interest of the Bank.
(iii) For purposes of Paragraph 3(a)(vii), a cease-and- desist
order shall not become final until consent by the
Corporation or the Bank, as the case may be, to such order,
or the exhaustion or lapse of all (administrative and
judicial) appeal rights in relation thereto.
4. Voluntary Termination of Agreement
This Agreement may be terminated by the Employee at any time upon
ninety (90) days' written notice to either the Bank or the Corporation or upon
such shorter period as may be agreed upon between the Employee and the Board of
Directors.
5. Change in Control
(a) If, during the term of this Agreement, there is a Change in
Control of the Corporation, the Employee shall be entitled to a termination or
severance payment. The amount of this severance payment shall be the benefits
specified in Paragraph 6 of this Agreement.
(b) For purposes of this Agreement, a "Change in Control of the
Corporation" shall mean any one or more of the following:
(i) The acquisition by a person or persons acting in concert of
the power to vote twenty-five percent (25%) or more of a
class of the Corporation's voting securities;
(ii) the acquisition by a person of the power to direct the
Corporation's management or policies, if the Board of
Directors has made a determination that such acquisition
constitutes or will constitute an acquisition of control of
the Corporation for the purposes of the Bank Holding Company
Act or the Change in Bank Control Act and the regulations
thereunder;
(iii) during any period of two (2) consecutive years during the
term of this Agreement, individuals who at the beginning of
such period constitute the Board of Directors of the Bank or
the Corporation cease for any reason to constitute at least
a majority thereof, unless the election of each director who
was not a director at the beginning of such period has been
approved in advance by directors representing at least
two-thirds (2/3) of the directors then in office;
(iv) the Corporation shall have merged into or consolidated with
another corporation, or merged another corporation into the
Corporation, on a basis whereby less than fifty percent
(50%) of the total voting power of the surviving corporation
is represented by shares held by persons who were
shareholders of the Corporation immediately before such
merger or consolidation;
(v) the Corporation shall have sold substantially all of its
assets to another person.
The term "person" refers to an individual, corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or other entity.
Notwithstanding the foregoing, a Change in Control of the
Corporation shall not be deemed to occur solely because any person acquires
beneficial ownership of more than 25% of the Corporation voting securities as a
result of the acquisition of Corporation voting securities by the Corporation
which reduces the number of Corporation's voting securities outstanding;
provided, that if after such acquisition by the Corporation such person becomes
the beneficial owner of additional Corporation voting securities that increases
the percentage of
3
outstanding Corporation voting securities beneficially owned by such person, a
Change in Control of the Corporation shall then occur.
6. Termination Benefits
(a) Upon the occurrence of a Change in Control, the Corporation shall
pay Employee, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a lump-sum cash payment equal to one (1) year of Compensation
(as defined in the next sentence). As used herein, "Compensation" shall mean the
sum of Employee's then current annual base salary paid during the year the
Change in Control of the Corporation occurs plus any bonuses earned for the last
whole calendar year preceding the year in which the Change in Control of the
Corporation occurs (regardless of whether the bonus earned for that year's
service is paid that year). Bonuses refers to compensation of the type that
would be required to be reported by Securities and Exchange Commission Rule
228.402(b) (17 C.F.R. Section 228.402(b), specifically column (d) of that rule's
Summary Compensation Table (or any successor provision) and identified by the
Corporation in its 2000 Schedule 14A as the Profit Sharing Program.
(b) Upon the Employee's termination of employment arising within one
(1) year after the occurrence of a Change in Control of the Corporation, the
Corporation will continue to provide, for three years after Employee's
termination of employment, the Employee (and the Employee's dependents if
applicable) with the same level of club memberships and medical, dental,
accident, disability and life insurance benefits upon substantially the same
terms and conditions (including cost of coverage to the Employee) as existed
prior to Employee's severance; provided that, if the Employee cannot continue to
participate in the Corporation's plans providing such benefits, the Corporation
shall otherwise provide such benefits on the same after-tax basis as if
continued participation had been permitted. Notwithstanding the foregoing, in
the event the Employee becomes reemployed with another employer, and becomes
eligible to receive welfare benefits from such employer, the welfare benefits
described herein shall be secondary to such benefits during the period of the
Employee's eligibility, but only to the extent that the Corporation reimburses
the Employee for any increased cost and provides any additional benefits
necessary to give the Employee the benefits hereunder.
1. Payment of Legal Fees
(a) The Corporation is aware that upon the occurrence of a Change in
Control, then current management of the Corporation may cause or attempt to
cause the Corporation to refuse to comply with its obligations under this
Agreement, or may cause or attempt to cause the Corporation to institute, or may
institute, litigation seeking to have this Agreement declared unenforceable, or
may take, or attempt to take, other action to deny Employee the benefits
intended under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Corporation that Employee
not be required to incur the expenses associated with the enforcement of his
rights under this Agreement by litigation or other legal
4
action because the cost and expense thereof would substantially detract from the
benefits intended to be extended to Employee hereunder, nor be bound to
negotiate any settlement of his rights hereunder under threat of incurring such
expenses. Accordingly, if following a Change in Control of the Corporation it
should appear to Employee that (i) the Corporation has failed to comply with any
of its obligations under this Agreement, or (ii) the Corporation or the Bank, as
the case may be, has failed to comply with any other plan or arrangement
maintained by the Corporation or the Bank under which the Employee is or may be
entitled to receive benefits or (iii) in the event that the Corporation or any
other person takes any action to declare this Agreement void or unenforceable,
or institutes any litigation or other legal action designed to deny, diminish or
to recover from, Employee the benefits intended to be provided to Employee
hereunder, the Corporation irrevocably authorizes Employee from time to time to
retain counsel of his choice at the expense of the Corporation as provided in
this Paragraph 7, to represent Employee in connection with the initiation or
defense of any litigation or other legal action, whether by or against the
Corporation or any director, officer, stockholder or other person affiliated
with the Corporation, in any jurisdiction. The fees and expenses of counsel
selected from time to time by Employee as hereinabove provided shall be paid or
reimbursed to Employee by the Corporation on a regular, periodic basis upon
presentation by Employee of a statement or statements prepared by such counsel
in accordance with such counsel's customary practices, up to a maximum aggregate
amount of $500,000.
(b) Upon the occurrence of a Change in Control, the $500,000 cap on
legal fee reimbursement will be subject to a cost of living adjustment equal to
the value of the expression A x B, in which expression:
A = $500,000; and
B= Cost of living adjustment or inflation factor. This is computed by
dividing the Consumer Price Index for All Urban Consumers ("CPI-U")
prepared by the U.S. Bureau of Labor Statistics, or any successor
thereto, for the CPI-U for January of the year during which the Change
in Control occurs by the CPI-U for January 2000.
The cost of living adjustment provided in this Paragraph 7(b) shall be
considered to be part of Employee's payment of legal fees for purposes of this
Agreement.
(c) Illustration. To explain the cost of living adjustment calculation
for Payment of Legal Fees, we will use the following example.
First, we determine the appropriate CPI-Us. The Agreement calls for
the use of the CPI-Us for January 2000 and the January of the year during which
the Change in Control occurs. Assume a Change in Control occurs in April 2009.
For illustrative purposes only, the CPI-U for January 2000 is 156.7, and the
CPI-U for January 2009 is 213.3.
Second, we calculate the cost of living adjustment or inflation
factor. To do this,
5
we divide the CPI-U for January 2009 (213.3) by the CPI-U for January 2000
(156.7). Our result is 1.361 (i.e., a 36.1 percent increase).
Finally, we calculate the raw cost of living adjustment. To do this,
we multiply the base Payment of Legal Fees amount by the inflation factor. In
our example, $500,000 multiplied by the inflation factor of 1.361 equals
$680,500.
8. Provision for Out Placement and Financial Planning Services
(a) In the event of Employee's termination of employment following a
Change in Control of the Corporation, Employee shall be entitled to one year of
out placement services following termination of employment. Such services shall
include employment counseling, resume services, executive placement services and
similar services generally provided to executives by professional executive out
placement service providers. All costs of such out placement services shall be
paid for by the Corporation.
(b) In the event of Employee's termination of Employment following a
Change in Control of the Corporation, Employee shall be entitled to three years
of financial planning services following termination of Employment. All costs of
such financial planning services shall be paid for by the Corporation. Financial
planning services paid for by the Corporation shall assist the Employee in tax
preparation and financial planning with respect to the Employee's receipt of
Total Benefits and their impact on the Employee's economic standing.
9. Successor Organization
The obligations of the Corporation and the Bank as set forth herein
shall continue to be the obligation of any successor organization, any
organization which purchases substantially all of the liabilities of the
Corporation or the Bank, as well as any organization which assumes substantially
all of the liabilities of the Corporation or the Bank whether by merger,
consolidation, or other form of business combination. This Agreement is personal
to the Employee and the Employee may not delegate his duties hereunder.
10. Notices
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
hand or mailed, certified or registered mail, return receipt requested, with
postage prepaid, to the following addresses or to such other address as either
party may designate by like notice.
A. If to the Corporation, to:
6
Board of Directors
Cortland Bancorp.
000 Xxxx Xxxx Xxxxxx
Xxxxxxxx, Xxxx 00000
B. If to the Employee, to:
Xx. Xxxxxxx Xxxxx
and to such other or additional person or persons as either party shall have
designated to the other party in writing by like notice.
11. No Mitigation Required
There shall be no requirement that Employee mitigate any damages or
reduce the amount of any payment provided for in this Paragraph 6 by seeking
other employment or otherwise, nor shall the amount of any payment provided for
in this Paragraph 6 be reduced by any compensation earned by Employee as the
result of employment by any other employer after the date of termination or
otherwise.
12. Amendments
No amendments or additions to this Agreement shall be binding unless
in writing and signed by both parties, except as herein otherwise provided.
13. Paragraph Headings
The paragraph headings used in this Agreement are included solely for
convenience and shall not effect, or be used in connection with, the
interpretation of this Agreement.
14. Severability
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof.
15. Governing Law
7
This Agreement shall, except to the extent that federal law shall be
deemed to apply, be governed by and construed and enforced in accordance with
the laws of Ohio.
16. Arbitration
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
WITNESSES: CORTLAND BANCORP.
By:
------------------------------------- ------------------------------------
Its:
------------------------------------- -----------------------------------
WITNESSES: THE CORTLAND SAVINGS & BANKING COMPANY
By:
------------------------------------- ------------------------------------
Its:
------------------------------------- -----------------------------------
WITNESSES:
-------------------------------------
-------------------------------------
("Employee")
8
