Severance Agreement
Exhibit 10.32
This Severance Agreement (this “Agreement”) is entered into effective as of this
day of December 3, 2008, by and between Cortland
Bancorp, an Ohio corporation, and Xxxxxxx X. Xxxxx (the “Executive”), Vice President of The
Cortland Savings and Banking Company (the “Bank”), an Ohio-chartered bank and wholly owned
subsidiary of Cortland Bancorp, an Ohio corporation.
Whereas, recognizing the contributions to the profitability, growth, and financial
strength of Cortland Bancorp and the Bank that the Executive has made and is expected to continue
to make, intending to assure itself of the current and future continuity of management and
establish minimum severance benefits for certain officers and other key employees and 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 employ of Cortland Bancorp and the
Bank, Cortland Bancorp and the Bank entered into a Severance Agreement Due to Change in Control of
Cortland Bancorp dated as of December 26, 2000 with the Executive,
Whereas, Cortland Bancorp and the Executive intend that this Agreement supersede and
replace in its entirety the December 26, 2000 Severance Agreement Due to Change in Control of
Cortland Bancorp and that from and after the date hereof the December 26, 2000 Severance Agreement
Due to Change in Control of Cortland Bancorp shall be of no further force or effect, 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 Cortland Bancorp, is
contemplated insofar as Cortland Bancorp 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. Cash Benefit after a Change in Control. (a) Cash benefit. If a Change in Control occurs,
Cortland Bancorp shall make a lump-sum payment to the Executive in an amount in cash equal to one
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, including salary deferred at
the Executive’s election, plus (y) any bonus awarded for the most recent whole calendar year before
the year in which the Change in Control occurs, regardless of whether the bonus is paid in the year
earned and regardless of whether the bonus is vested or subject to elective deferral. The term
bonus means cash or non-cash compensation of the type that is required to be reported as bonus by
Securities and Exchange Commission rules governing tabular disclosure of executive compensation,
specifically Regulation S-K Item 402 (17 CFR 229.402, currently Item 402(c)(2)(iv)). The amount
payable to the Executive hereunder shall not be reduced to account for the time value of money or
discounted to present value. Subject to section 16 of this Agreement, the payment required under
this section 1(a) shall be made within
five business days after the Change in Control occurs. The Executive shall be entitled to a
payment under this section 1(a) on no more than one occasion during the term of this Agreement.
(b) Change in Control defined. For purposes of this Agreement the term 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 Cortland Bancorp occurs on the date
any one person or group accumulates ownership of Cortland Bancorp stock constituting more
than 50% of the total fair market value or total voting power of Cortland Bancorp stock,
(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 Cortland Bancorp stock possessing 30%
or more of the total voting power of Cortland Bancorp stock, or (y) a majority of Cortland
Bancorp’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 Cortland Bancorp’s board
of directors, or
(3) Change in ownership of a substantial portion of assets: a change in ownership of a
substantial portion of Cortland Bancorp’s assets occurs if in a 12-month period any one
person or more than one person acting as a group acquires from Cortland Bancorp assets
having a total gross fair market value equal to or exceeding 40% of the total gross fair
market value of all of Cortland Bancorp’s assets immediately before the acquisition or
acquisitions. For this purpose gross fair market value means the value of Cortland
Bancorp’s assets or the value of the assets being disposed of, determined without regard to
any liabilities associated with the assets.
2. Additional Benefits after Employment Termination. (a) Continued insurance benefits.
Subject to section 2(b), if the Executive’s employment terminates involuntarily but without Cause
or voluntarily but with Good Reason within 24 months after a Change in Control, Cortland Bancorp
shall cause to be continued medical, dental, accident, disability, and life insurance coverage
substantially identical to the coverage maintained for the Executive before employment termination,
in accordance with the same schedule prevailing before employment termination, and on substantially
the same terms and conditions prevailing before employment termination (including cost of coverage
to Cortland Bancorp and the Bank). The insurance coverage shall continue until the first to occur
of (x) the Executive’s return to employment with Cortland Bancorp, the Bank, or another employer,
(y) the Executive’s death, or (z) the end of the term remaining under this Agreement when the
Executive’s employment terminates.
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(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 on the terms specified in section 2(a), 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) Cortland Bancorp
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 Cortland Bancorp’s projected cost to maintain that particular insurance benefit
had the Executive’s employment not terminated, assuming continued coverage for the lesser of 36
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.
(c) Miscellaneous benefits. Subject to section 2(d), if the Executive’s employment terminates
involuntarily but without Cause or voluntarily but with Good Reason within 24 months after a Change
in Control —
(1) Cortland Bancorp shall for three years after termination pay or cause to be paid
the Executive’s initiation and membership assessments and dues in a civic or social club of
the Executive’s choice. The Executive shall be solely responsible for personal expenses for
use of the club,
(2) Cortland Bancorp shall for three years after termination and at no cost to the
Executive provide or cause to be provided to the Executive financial planning services,
including but not limited to tax preparation and financial planning having to do with
receipt of benefits under this Agreement,
(3) Cortland Bancorp shall for one year after termination and at no cost to the
Executive provide or cause to be provided to the Executive reasonable outplacement services,
including but not limited to employment counseling, resume services, and executive placement
services.
(d) Alternative lump-sum cash payment. 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 miscellaneous benefits specified in section 2(c) 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 benefit, instead of the
miscellaneous benefits under section 2(c) Cortland Bancorp 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 Cortland Bancorp’s
projected cost to maintain that particular benefit had the Executive’s employment not terminated.
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.
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(e) 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 Cortland Bancorp or the
Bank, or conviction of the Executive of 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 Cortland Bancorp or the Bank; willful or reckless
failure by the Executive to adhere to Cortland Bancorp’s or the Bank’s written policies;
intentional wrongful damage by the Executive to the business or property of Cortland Bancorp
or the Bank, including without limitation its reputation, which in Cortland Bancorp’s sole
judgment causes material harm to Cortland Bancorp or the Bank; breach by the Executive of
fiduciary duties to Cortland Bancorp and its stockholders, whether in the Executive’s
capacity as an officer or as a director of Cortland Bancorp or the Bank,
(3) removal of the Executive from office or permanent prohibition of the Executive from
participating in the Bank’s affairs 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
Cortland Bancorp or the Bank, which in Cortland Bancorp’s sole judgment causes material harm
to Cortland Bancorp or the Bank, or
(5) any actions that cause the Executive to be terminated for cause under any
employment agreement existing on the date hereof or hereafter entered into between the
Executive and Cortland Bancorp or the Bank, 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
Cortland Bancorp or the Bank, under a blanket bond or other fidelity or insurance policy
covering directors, officers, or employees.
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 Cortland Bancorp’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 Cortland Bancorp shall be conclusively presumed to be in good faith and in
Cortland Bancorp’s best interests.
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(f) 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
6) any other action or inaction that constitutes a material breach by Cortland
Bancorp of this Agreement.
(y) the Executive must give notice to Cortland Bancorp 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 Cortland Bancorp 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.
3. Termination for Which No Benefits Are Payable. Despite anything in this Agreement to the
contrary, the Executive shall not be entitled to benefits under this Agreement if the Executive’s
employment terminates with Cause, if the Executive dies while actively employed by Cortland Bancorp
or the Bank, or if the Executive becomes totally disabled while actively employed by Cortland
Bancorp or the Bank. 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 Cortland Bancorp or the Bank may have with the Executive relating to death
or disability, not by this Agreement.
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4. Term of Agreement. The initial term of this Agreement shall be for a period of three
years, commencing on the effective date of this Agreement first written above. 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 Cortland Bancorp’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 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 this Agreement is not a management or employment agreement and nothing in this Agreement shall
give the Executive any rights or impose any obligations to continued employment by Cortland Bancorp
or the Bank or successor of Cortland Bancorp.
6. Payment of Legal Fees. Cortland Bancorp is aware that after a Change in Control management
could cause or attempt to cause Cortland Bancorp to refuse to comply with its obligations under
this Agreement, or could institute or cause or attempt to cause Cortland Bancorp 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 purpose of this Agreement would be frustrated. Cortland Bancorp 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.
Cortland Bancorp 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) Cortland Bancorp has failed to comply with any of its
obligations under this Agreement or (y) Cortland Bancorp 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, Cortland Bancorp irrevocably authorizes the Executive from time to time
to retain counsel of the Executive’s choice, at Cortland Bancorp’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 Cortland Bancorp or any director, officer, stockholder, or other
person affiliated with Cortland Bancorp, in any jurisdiction. Despite any existing or previous
attorney-client relationship between Cortland Bancorp and any counsel chosen by the Executive under
this section 6, Cortland Bancorp irrevocably consents to the Executive entering into an
attorney-client relationship with that counsel, and Cortland Bancorp 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 Cortland Bancorp 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 $500,000, whether suit be
brought or not, and whether or not incurred in trial, bankruptcy, or appellate proceedings.
Cortland Bancorp’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 Cortland Bancorp may have
with the Executive under any separate salary continuation or other agreement. Despite anything in
this Agreement to the contrary however, Cortland Bancorp 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].
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7. Withholding of Taxes. Cortland Bancorp 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 Cortland Bancorp’s successors.
This Agreement shall be binding upon Cortland Bancorp and any successor to Cortland Bancorp,
including any persons acquiring directly or indirectly all or substantially all of the business or
assets of Cortland Bancorp by purchase, merger, consolidation, reorganization, or otherwise. But
this Agreement and Cortland Bancorp’s obligations under this Agreement are not otherwise
assignable, transferable, or delegable by Cortland Bancorp. By agreement in form and substance
satisfactory to the Executive, Cortland Bancorp shall require any successor to all or substantially
all of the business or assets of Cortland Bancorp expressly to assume and agree to perform this
Agreement in the same manner and to the same extent Cortland Bancorp would be required to perform
had no succession occurred.
(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, distributes, 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, Cortland Bancorp 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 Cortland Bancorp at the time of the delivery of the notice, and properly addressed
to Cortland Bancorp if addressed to the Board of Directors, Cortland Bancorp, 000 Xxxx Xxxx Xxxxxx,
Xxxxxxxx, Xxxx 00000, Attention: Corporate Secretary.
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10. Captions and Counterparts. The headings and subheadings used 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 Cortland Bancorp. 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 other provisions or conditions at the
same or at any other 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 only 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 the State of Ohio.
14. Entire Agreement. This Agreement constitutes the entire agreement between Cortland
Bancorp 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 have been made by either
party that are not set forth expressly in this Agreement. This Agreement supersedes and replaces
in its entirety the December 26, 2000 Severance Agreement Due to Change in Control of Cortland
Bancorp, and from and after the date of this Agreement the December 26, 2000 Severance Agreement
Due to Change in Control of Cortland Bancorp shall be of no further force or effect.
15. No Mitigation Required. Cortland Bancorp 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 because of termination.
Additionally, Cortland Bancorp acknowledges that its general severance pay plans do not provide for
mitigation, offset, or reduction of any severance payment received thereunder. Cortland Bancorp
further acknowledges that the payment of benefits by Cortland Bancorp 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.
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16. Internal Revenue Code Section 409A. Cortland Bancorp 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
nevertheless be applied in a manner consistent with those requirements. If any provision of this
Agreement would subject the Executive to additional tax or interest under section 409A, Cortland
Bancorp shall reform the provision. However, Cortland Bancorp shall maintain to the maximum extent
practicable the original intent of the applicable provision without subjecting the Executive to
additional tax or interest, and Cortland Bancorp 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 | Cortland Bancorp | |||||||
| By: | ||||||||
| Its: | President and Chief Executive Officer | |||||||
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This Severance Agreement (this “Agreement”) is entered into effective as of this
day of
December 3, 2008, by and between Cortland
Bancorp, an Ohio corporation, and Xxxxx X. Phython (the “Executive”), Senior Vice President, Chief
Investment Officer and Treasurer of The Cortland Savings and Banking Company (the “Bank”), an
Ohio-chartered bank and wholly owned subsidiary of Cortland Bancorp, an Ohio corporation.
Whereas, recognizing the contributions to the profitability, growth, and financial
strength of Cortland Bancorp and the Bank that the Executive has made and is expected to continue
to make, intending to assure itself of the current and future continuity of management and
establish minimum severance benefits for certain officers and other key employees and 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 employ of Cortland Bancorp and the
Bank, 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 Cortland Bancorp, is
contemplated insofar as Cortland Bancorp 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. Cash Benefit after a Change in Control. (a) Cash benefit. If a Change in Control occurs,
Cortland Bancorp shall make a lump-sum payment to the Executive in an amount in cash equal to one
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, including salary deferred at
the Executive’s election, plus (y) any bonus awarded for the most recent whole calendar year before
the year in which the Change in Control occurs, regardless of whether the bonus is paid in the year
earned and regardless of whether the bonus is vested or subject to elective deferral. The term
bonus means cash or non-cash compensation of the type that is required to be reported as bonus by
Securities and Exchange Commission rules governing tabular disclosure of executive compensation,
specifically Regulation S-K Item 402 (17 CFR 229.402, currently Item 402(c)(2)(iv)). The amount
payable to the Executive hereunder shall not be reduced to account for the time value of money or
discounted to present value. Subject to section 16 of this Agreement, the payment required under
this section 1(a) shall be made within five business days after the Change in Control occurs. The
Executive shall be entitled to a payment under this section 1(a) on no more than one occasion
during the term of this Agreement.
(b) Change in Control defined. For purposes of this Agreement the term 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 Cortland Bancorp occurs on the date
any one person or group accumulates ownership of Cortland Bancorp stock constituting more
than 50% of the total fair market value or total voting power of Cortland Bancorp stock,
(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 Cortland Bancorp stock possessing 30%
or more of the total voting power of Cortland Bancorp stock, or (y) a majority of Cortland
Bancorp’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 Cortland Bancorp’s board
of directors, or
(3) Change in ownership of a substantial portion of assets: a change in ownership of a
substantial portion of Cortland Bancorp’s assets occurs if in a 12-month period any one
person or more than one person acting as a group acquires from Cortland Bancorp assets
having a total gross fair market value equal to or exceeding 40% of the total gross fair
market value of all of Cortland Bancorp’s assets immediately before the acquisition or
acquisitions. For this purpose gross fair market value means the value of Cortland
Bancorp’s assets or the value of the assets being disposed of, determined without regard to
any liabilities associated with the assets.
2. Additional Benefits after Employment Termination. (a) Continued insurance benefits.
Subject to section 2(b), if the Executive’s employment terminates involuntarily but without Cause
or voluntarily but with Good Reason within 24 months after a Change in Control, Cortland Bancorp
shall cause to be continued medical, dental, accident, disability, and life insurance coverage
substantially identical to the coverage maintained for the Executive before employment termination,
in accordance with the same schedule prevailing before employment termination, and on substantially
the same terms and conditions prevailing before employment termination (including cost of coverage
to Cortland Bancorp and the Bank). The insurance coverage shall continue until the first to occur
of (x) the Executive’s return to employment with Cortland Bancorp, the Bank, or another employer,
(y) the Executive’s death, or (z) the end of the term remaining under this Agreement when the
Executive’s employment terminates.
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(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 on the terms specified in section 2(a), 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) Cortland Bancorp
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 Cortland Bancorp’s projected cost to maintain that particular insurance benefit
had the Executive’s employment not terminated, assuming continued coverage for the lesser of 36
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.
(c) Miscellaneous benefits. Subject to section 2(d), if the Executive’s employment terminates
involuntarily but without Cause or voluntarily but with Good Reason within 24 months after a Change
in Control —
(1) Cortland Bancorp shall for three years after termination pay or cause to be paid
the Executive’s initiation and membership assessments and dues in a civic or social club of
the Executive’s choice. The Executive shall be solely responsible for personal expenses for
use of the club,
(2) Cortland Bancorp shall for three years after termination and at no cost to the
Executive provide or cause to be provided to the Executive financial planning services,
including but not limited to tax preparation and financial planning having to do with
receipt of benefits under this Agreement,
(3) Cortland Bancorp shall for one year after termination and at no cost to the
Executive provide or cause to be provided to the Executive reasonable outplacement services,
including but not limited to employment counseling, resume services, and executive placement
services.
(d) Alternative lump-sum cash payment. 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 miscellaneous benefits specified in section 2(c) 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 benefit, instead of the
miscellaneous benefits under section 2(c) Cortland Bancorp 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 Cortland Bancorp’s
projected cost to maintain that particular benefit had the Executive’s employment not terminated.
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
(e) 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 Cortland Bancorp or the
Bank, or conviction of the Executive of 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 Cortland Bancorp or the Bank; willful or reckless
failure by the Executive to adhere to Cortland Bancorp’s or the Bank’s written policies;
intentional wrongful damage by the Executive to the business or property of Cortland Bancorp
or the Bank, including without limitation its reputation, which in Cortland Bancorp’s sole
judgment causes material harm to Cortland Bancorp or the Bank; breach by the Executive of
fiduciary duties to Cortland Bancorp and its stockholders, whether in the Executive’s
capacity as an officer or as a director of Cortland Bancorp or the Bank,
(3) removal of the Executive from office or permanent prohibition of the Executive from
participating in the Bank’s affairs 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
Cortland Bancorp or the Bank, which in Cortland Bancorp’s sole judgment causes material harm
to Cortland Bancorp or the Bank, or
(5) any actions that cause the Executive to be terminated for cause under any
employment agreement existing on the date hereof or hereafter entered into between the
Executive and Cortland Bancorp or the Bank, 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
Cortland Bancorp or the Bank, under a blanket bond or other fidelity or insurance policy
covering directors, officers, or employees.
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 Cortland Bancorp’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 Cortland Bancorp shall be conclusively presumed to be in good
faith and in Cortland Bancorp’s best interests.
4
(f) 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
6) any other action or inaction that constitutes a material breach by Cortland
Bancorp of this Agreement.
(y) the Executive must give notice to Cortland Bancorp 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 Cortland Bancorp 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.
3. Termination for Which No Benefits Are Payable. Despite anything in this Agreement to the
contrary, the Executive shall not be entitled to benefits under this Agreement if the Executive’s
employment terminates with Cause, if the Executive dies while actively employed by Cortland Bancorp
or the Bank, or if the Executive becomes totally disabled while actively employed by Cortland
Bancorp or the Bank. 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 Cortland
Bancorp or the Bank may have with the Executive relating to death or disability, not by this
Agreement.
5
4. Term of Agreement. The initial term of this Agreement shall be for a period of three
years, commencing on the effective date of this Agreement first written above. 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 Cortland Bancorp’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 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 this Agreement is not a management or employment agreement and nothing in this Agreement shall
give the Executive any rights or impose any obligations to continued employment by Cortland Bancorp
or the Bank or successor of Cortland Bancorp.
6. Payment of Legal Fees. Cortland Bancorp is aware that after a Change in Control management
could cause or attempt to cause Cortland Bancorp to refuse to comply with its obligations under
this Agreement, or could institute or cause or attempt to cause Cortland Bancorp 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 purpose of this Agreement would be frustrated. Cortland Bancorp 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.
Cortland Bancorp 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) Cortland Bancorp has failed to comply with any of its
obligations under this Agreement or (y) Cortland Bancorp 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, Cortland Bancorp irrevocably authorizes the Executive from time to time
to retain counsel of the Executive’s choice, at Cortland Bancorp’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 Cortland Bancorp or any director, officer, stockholder, or other
person affiliated with Cortland Bancorp, in any jurisdiction. Despite any existing or previous
attorney-client relationship between Cortland Bancorp and any counsel chosen by the Executive under
this section 6, Cortland Bancorp irrevocably consents to the Executive entering into an
attorney-client relationship with that counsel, and Cortland Bancorp 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 Cortland Bancorp 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 $500,000, whether suit be
brought or not, and whether or not incurred in trial, bankruptcy, or appellate proceedings.
Cortland Bancorp’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 Cortland Bancorp may have
with the Executive under any separate salary continuation or other agreement. Despite anything in
this Agreement to the contrary however, Cortland Bancorp
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].
6
7. Withholding of Taxes. Cortland Bancorp 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 Cortland Bancorp’s successors.
This Agreement shall be binding upon Cortland Bancorp and any successor to Cortland Bancorp,
including any persons acquiring directly or indirectly all or substantially all of the business or
assets of Cortland Bancorp by purchase, merger, consolidation, reorganization, or otherwise. But
this Agreement and Cortland Bancorp’s obligations under this Agreement are not otherwise
assignable, transferable, or delegable by Cortland Bancorp. By agreement in form and substance
satisfactory to the Executive, Cortland Bancorp shall require any successor to all or substantially
all of the business or assets of Cortland Bancorp expressly to assume and agree to perform this
Agreement in the same manner and to the same extent Cortland Bancorp would be required to perform
had no succession occurred.
(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, distributes, 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, Cortland Bancorp 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 Cortland Bancorp at the time of the delivery of the notice, and properly addressed to
Cortland Bancorp if addressed to the Board of Directors, Cortland Bancorp, 000 Xxxx Xxxx Xxxxxx,
Xxxxxxxx, Xxxx 00000, Attention: Corporate Secretary.
7
10. Captions and Counterparts. The headings and subheadings used 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 Cortland Bancorp. 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 other provisions or conditions at the
same or at any other 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 only 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 the State of Ohio.
14. Entire Agreement. This Agreement constitutes the entire agreement between Cortland
Bancorp 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 have been made by either
party that are not set forth expressly in this Agreement.
15. No Mitigation Required. Cortland Bancorp 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 because of termination.
Additionally, Cortland Bancorp acknowledges that its general severance pay plans do not provide for
mitigation, offset, or reduction of any severance payment received thereunder. Cortland Bancorp
further acknowledges that the payment of benefits by Cortland Bancorp 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.
8
16. Internal Revenue Code Section 409A. Cortland Bancorp 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
nevertheless be applied in a manner consistent with those requirements. If any provision of this
Agreement would subject the Executive to additional tax or interest under section 409A, Cortland
Bancorp shall reform the provision. However, Cortland Bancorp shall maintain to the maximum extent
practicable the original intent of the applicable provision without subjecting the Executive to
additional tax or interest, and Cortland Bancorp 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 | Cortland Bancorp | |||||||
| By: | ||||||||
| Its: | President and Chief Executive Officer | |||||||
9
Severance Agreement
This Severance Agreement (this “Agreement”) is entered into effective as of this day of
December 3, 2008, by and between Cortland
Bancorp, an Ohio corporation, and Xxxxxxx X. Xxxxxxxx (the “Executive”), Vice President of The
Cortland Savings and Banking Company (the “Bank”), an Ohio-chartered bank and wholly owned
subsidiary of Cortland Bancorp, an Ohio corporation.
Whereas, recognizing the contributions to the profitability, growth, and financial
strength of Cortland Bancorp and the Bank that the Executive has made and is expected to continue
to make, intending to assure itself of the current and future continuity of management and
establish minimum severance benefits for certain officers and other key employees and 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 employ of Cortland Bancorp and the
Bank, Cortland Bancorp and the Bank entered into a Severance Agreement Due to Change in Control of
Cortland Bancorp dated as of December 26, 2000 with the Executive,
Whereas, Cortland Bancorp and the Executive intend that this Agreement supersede and
replace in its entirety the December 26, 2000 Severance Agreement Due to Change in Control of
Cortland Bancorp and that from and after the date hereof the December 26, 2000 Severance Agreement
Due to Change in Control of Cortland Bancorp shall be of no further force or effect, 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 Cortland Bancorp, is
contemplated insofar as Cortland Bancorp 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. Cash Benefit after a Change in Control. (a) Cash benefit. If a Change in Control occurs,
Cortland Bancorp shall make a lump-sum payment to the Executive in an amount in cash equal to one
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, including salary deferred at
the Executive’s election, plus (y) any bonus awarded for the most recent whole calendar year before
the year in which the Change in Control occurs, regardless of whether the bonus is paid in the year
earned and regardless of whether the bonus is vested or subject to elective deferral. The term
bonus means cash or non-cash compensation of the type that is required to be reported as bonus by
Securities and Exchange Commission rules governing tabular disclosure of executive compensation,
specifically Regulation S-K Item 402 (17 CFR 229.402, currently Item 402(c)(2)(iv)). The amount
payable to the Executive hereunder
shall not be reduced to account for the time value of money or discounted to present value.
Subject to section 16 of this Agreement, the payment required under this section 1(a) shall be made
within five business days after the Change in Control occurs. The Executive shall be entitled to a
payment under this section 1(a) on no more than one occasion during the term of this Agreement.
(b) Change in Control defined. For purposes of this Agreement the term 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 Cortland Bancorp occurs on the date
any one person or group accumulates ownership of Cortland Bancorp stock constituting more
than 50% of the total fair market value or total voting power of Cortland Bancorp stock,
(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 Cortland Bancorp stock possessing 30%
or more of the total voting power of Cortland Bancorp stock, or (y) a majority of Cortland
Bancorp’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 Cortland Bancorp’s board
of directors, or
(3) Change in ownership of a substantial portion of assets: a change in ownership of a
substantial portion of Cortland Bancorp’s assets occurs if in a 12-month period any one
person or more than one person acting as a group acquires from Cortland Bancorp assets
having a total gross fair market value equal to or exceeding 40% of the total gross fair
market value of all of Cortland Bancorp’s assets immediately before the acquisition or
acquisitions. For this purpose gross fair market value means the value of Cortland
Bancorp’s assets or the value of the assets being disposed of, determined without regard to
any liabilities associated with the assets.
2. Additional Benefits after Employment Termination. (a) Continued insurance benefits.
Subject to section 2(b), if the Executive’s employment terminates involuntarily but without Cause
or voluntarily but with Good Reason within 24 months after a Change in Control, Cortland Bancorp
shall cause to be continued medical, dental, accident, disability, and life insurance coverage
substantially identical to the coverage maintained for the Executive before employment termination,
in accordance with the same schedule prevailing before employment termination, and on substantially
the same terms and conditions prevailing before employment termination (including cost of coverage
to Cortland Bancorp and the Bank). The insurance coverage shall continue until the first to occur
of (x) the Executive’s return to employment with Cortland Bancorp, the Bank, or another employer,
(y) the Executive’s death, or (z) the end of the term remaining under this Agreement when the
Executive’s employment terminates.
2
(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 on the terms specified in section 2(a), 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) Cortland Bancorp
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 Cortland Bancorp’s projected cost to maintain that particular insurance benefit
had the Executive’s employment not terminated, assuming continued coverage for the lesser of 36
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.
(c) Miscellaneous benefits. Subject to section 2(d), if the Executive’s employment terminates
involuntarily but without Cause or voluntarily but with Good Reason within 24 months after a Change
in Control —
(1) Cortland Bancorp shall for three years after termination pay or cause to be paid
the Executive’s initiation and membership assessments and dues in a civic or social club of
the Executive’s choice. The Executive shall be solely responsible for personal expenses for
use of the club,
(2) Cortland Bancorp shall for three years after termination and at no cost to the
Executive provide or cause to be provided to the Executive financial planning services,
including but not limited to tax preparation and financial planning having to do with
receipt of benefits under this Agreement,
(3) Cortland Bancorp shall for one year after termination and at no cost to the
Executive provide or cause to be provided to the Executive reasonable outplacement services,
including but not limited to employment counseling, resume services, and executive placement
services.
(d) Alternative lump-sum cash payment. 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 miscellaneous benefits specified in section 2(c) 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 benefit, instead of the
miscellaneous benefits under section 2(c) Cortland Bancorp 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 Cortland Bancorp’s
projected cost to maintain that particular benefit had the Executive’s employment not
terminated. 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
(e) 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 Cortland Bancorp or the
Bank, or conviction of the Executive of 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 Cortland Bancorp or the Bank; willful or reckless
failure by the Executive to adhere to Cortland Bancorp’s or the Bank’s written policies;
intentional wrongful damage by the Executive to the business or property of Cortland Bancorp
or the Bank, including without limitation its reputation, which in Cortland Bancorp’s sole
judgment causes material harm to Cortland Bancorp or the Bank; breach by the Executive of
fiduciary duties to Cortland Bancorp and its stockholders, whether in the Executive’s
capacity as an officer or as a director of Cortland Bancorp or the Bank,
(3) removal of the Executive from office or permanent prohibition of the Executive from
participating in the Bank’s affairs 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
Cortland Bancorp or the Bank, which in Cortland Bancorp’s sole judgment causes material harm
to Cortland Bancorp or the Bank, or
(5) any actions that cause the Executive to be terminated for cause under any
employment agreement existing on the date hereof or hereafter entered into between the
Executive and Cortland Bancorp or the Bank, 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
Cortland Bancorp or the Bank, under a blanket bond or other fidelity or insurance policy
covering directors, officers, or employees.
4
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 Cortland Bancorp’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 Cortland Bancorp shall be conclusively presumed to be in good
faith and in Cortland Bancorp’s best interests.
(f) 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
6) any other action or inaction that constitutes a material breach by Cortland
Bancorp of this Agreement.
(y) the Executive must give notice to Cortland Bancorp 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 Cortland Bancorp 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.
5
3. Termination for Which No Benefits Are Payable. Despite anything in this Agreement to the
contrary, the Executive shall not be entitled to benefits under this Agreement if the Executive’s
employment terminates with Cause, if the Executive dies while actively employed by Cortland Bancorp
or the Bank, or if the Executive becomes totally disabled while actively
employed by Cortland Bancorp or the Bank. 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 Cortland Bancorp or the Bank 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 of this Agreement first written above. 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 Cortland Bancorp’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 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 this Agreement is not a management or employment agreement and nothing in this Agreement shall
give the Executive any rights or impose any obligations to continued employment by Cortland Bancorp
or the Bank or successor of Cortland Bancorp.
6. Payment of Legal Fees. Cortland Bancorp is aware that after a Change in Control management
could cause or attempt to cause Cortland Bancorp to refuse to comply with its obligations under
this Agreement, or could institute or cause or attempt to cause Cortland Bancorp 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 purpose of this Agreement would be frustrated. Cortland Bancorp 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.
Cortland Bancorp 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) Cortland Bancorp has failed to comply with any of its
obligations under this Agreement or (y) Cortland Bancorp 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, Cortland Bancorp irrevocably authorizes the Executive from time to time
to retain counsel of the Executive’s choice, at Cortland Bancorp’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 Cortland Bancorp or any director, officer, stockholder, or other
person affiliated with Cortland Bancorp, in any jurisdiction.
6
Despite any existing or previous attorney-client relationship between Cortland Bancorp and any
counsel chosen by the Executive under this section 6, Cortland Bancorp irrevocably consents to the
Executive entering into an attorney-client relationship with that counsel, and Cortland Bancorp 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 Cortland Bancorp 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 $500,000,
whether suit be brought or not, and whether or not incurred in trial, bankruptcy, or appellate
proceedings. Cortland Bancorp’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 Cortland Bancorp
may have with the Executive under any separate salary continuation or other agreement. Despite
anything in this Agreement to the contrary however, Cortland Bancorp 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. Cortland Bancorp 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 Cortland Bancorp’s successors.
This Agreement shall be binding upon Cortland Bancorp and any successor to Cortland Bancorp,
including any persons acquiring directly or indirectly all or substantially all of the business or
assets of Cortland Bancorp by purchase, merger, consolidation, reorganization, or otherwise. But
this Agreement and Cortland Bancorp’s obligations under this Agreement are not otherwise
assignable, transferable, or delegable by Cortland Bancorp. By agreement in form and substance
satisfactory to the Executive, Cortland Bancorp shall require any successor to all or substantially
all of the business or assets of Cortland Bancorp expressly to assume and agree to perform this
Agreement in the same manner and to the same extent Cortland Bancorp would be required to perform
had no succession occurred.
(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, distributes, 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, Cortland Bancorp shall have no liability to pay any amount to the assignee or transferee.
7
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 Cortland Bancorp at the time of the delivery of the notice, and properly addressed to
Cortland Bancorp if addressed to the Board of Directors, Cortland Bancorp, 000 Xxxx Xxxx Xxxxxx,
Xxxxxxxx, Xxxx 00000, Attention: Corporate Secretary.
10. Captions and Counterparts. The headings and subheadings used 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 Cortland Bancorp. 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 other provisions or conditions at the
same or at any other 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 only 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 the State of Ohio.
14. Entire Agreement. This Agreement constitutes the entire agreement between Cortland
Bancorp 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 have been made by either
party that are not set forth expressly in this Agreement. This Agreement supersedes and replaces
in its entirety the December 26, 2000 Severance Agreement Due to Change in Control of Cortland
Bancorp, and from and after the date of this Agreement the December 26, 2000 Severance Agreement
Due to Change in Control of Cortland Bancorp shall be of no further force or effect.
8
15. No Mitigation Required. Cortland Bancorp 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 because of
termination. Additionally, Cortland Bancorp acknowledges that its general severance pay plans do
not provide for mitigation, offset, or reduction of any severance payment received thereunder.
Cortland Bancorp further acknowledges that the payment of benefits by Cortland Bancorp 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. Cortland Bancorp 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
nevertheless be applied in a manner consistent with those requirements. If any provision of this
Agreement would subject the Executive to additional tax or interest under section 409A, Cortland
Bancorp shall reform the provision. However, Cortland Bancorp shall maintain to the maximum extent
practicable the original intent of the applicable provision without subjecting the Executive to
additional tax or interest, and Cortland Bancorp 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 | Cortland Bancorp | |||||||
| By: | ||||||||
| Its: | President and Chief Executive Officer | |||||||
9
Severance Agreement
This Severance Agreement (this “Agreement”) is entered into effective as of this day of
December 3, 2008, by and between Cortland
Bancorp, an Ohio corporation, and Xxxxx X. Xxxxx (the “Executive”), Senior Vice President and Chief
Lending Officer of The Cortland Savings and Banking Company (the “Bank”), an Ohio-chartered bank
and wholly owned subsidiary of Cortland Bancorp, an Ohio corporation.
Whereas, recognizing the contributions to the profitability, growth, and financial
strength of Cortland Bancorp and the Bank that the Executive has made and is expected to continue
to make, intending to assure itself of the current and future continuity of management and
establish minimum severance benefits for certain officers and other key employees and 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 employ of Cortland Bancorp and the
Bank, Cortland Bancorp and the Bank entered into a Severance Agreement Due to Change in Control of
Cortland Bancorp dated as of December 26, 2000 with the Executive,
Whereas, Cortland Bancorp and the Executive intend that this Agreement supersede and
replace in its entirety the December 26, 2000 Severance Agreement Due to Change in Control of
Cortland Bancorp and that from and after the date hereof the December 26, 2000 Severance Agreement
Due to Change in Control of Cortland Bancorp shall be of no further force or effect, 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 Cortland Bancorp, is
contemplated insofar as Cortland Bancorp 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. Cash Benefit after a Change in Control. (a) Cash benefit. If a Change in Control occurs,
Cortland Bancorp shall make a lump-sum payment to the Executive in an amount in cash equal to one
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, including salary deferred at
the Executive’s election, plus (y) any bonus awarded for the most recent whole calendar year before
the year in which the Change in Control occurs, regardless of whether the bonus is paid in the year
earned and regardless of whether the bonus is vested or subject to elective deferral. The term
bonus means cash or non-cash compensation of the type that is required to be reported as bonus by
Securities and Exchange Commission rules governing tabular disclosure of executive compensation,
specifically Regulation S-K Item 402 (17 CFR 229.402, currently Item 402(c)(2)(iv)). The amount
payable to the Executive hereunder shall not be reduced to account for the time value of money or
discounted to present value. Subject to section 16 of this Agreement,
the payment required under this section 1(a) shall be made within five business days after the
Change in Control occurs. The Executive shall be entitled to a payment under this section 1(a) on
no more than one occasion during the term of this Agreement.
(b) Change in Control defined. For purposes of this Agreement the term 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 Cortland Bancorp occurs on the date
any one person or group accumulates ownership of Cortland Bancorp stock constituting more
than 50% of the total fair market value or total voting power of Cortland Bancorp stock,
(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 Cortland Bancorp stock possessing 30%
or more of the total voting power of Cortland Bancorp stock, or (y) a majority of Cortland
Bancorp’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 Cortland Bancorp’s board
of directors, or
(3) Change in ownership of a substantial portion of assets: a change in ownership of a
substantial portion of Cortland Bancorp’s assets occurs if in a 12-month period any one
person or more than one person acting as a group acquires from Cortland Bancorp assets
having a total gross fair market value equal to or exceeding 40% of the total gross fair
market value of all of Cortland Bancorp’s assets immediately before the acquisition or
acquisitions. For this purpose gross fair market value means the value of Cortland
Bancorp’s assets or the value of the assets being disposed of, determined without regard to
any liabilities associated with the assets.
2. Additional Benefits after Employment Termination. (a) Continued insurance benefits.
Subject to section 2(b), if the Executive’s employment terminates involuntarily but without Cause
or voluntarily but with Good Reason within 24 months after a Change in Control, Cortland Bancorp
shall cause to be continued medical, dental, accident, disability, and life insurance coverage
substantially identical to the coverage maintained for the Executive before employment termination,
in accordance with the same schedule prevailing before employment termination, and on substantially
the same terms and conditions prevailing before employment termination (including cost of coverage
to Cortland Bancorp and the Bank). The insurance coverage shall continue until the first to occur
of (x) the Executive’s return to employment with Cortland Bancorp, the Bank, or another employer,
(y) the Executive’s death, or (z) the end of the term remaining under this Agreement when the
Executive’s employment terminates.
2
(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 on the terms specified in section 2(a), 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) Cortland Bancorp
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 Cortland Bancorp’s projected cost to maintain that particular insurance benefit
had the Executive’s employment not terminated, assuming continued coverage for the lesser of 36
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.
(c) Miscellaneous benefits. Subject to section 2(d), if the Executive’s employment terminates
involuntarily but without Cause or voluntarily but with Good Reason within 24 months after a Change
in Control —
(1) Cortland Bancorp shall for three years after termination pay or cause to be paid
the Executive’s initiation and membership assessments and dues in a civic or social club of
the Executive’s choice. The Executive shall be solely responsible for personal expenses for
use of the club,
(2) Cortland Bancorp shall for three years after termination and at no cost to the
Executive provide or cause to be provided to the Executive financial planning services,
including but not limited to tax preparation and financial planning having to do with
receipt of benefits under this Agreement,
(3) Cortland Bancorp shall for one year after termination and at no cost to the
Executive provide or cause to be provided to the Executive reasonable outplacement services,
including but not limited to employment counseling, resume services, and executive placement
services.
(d) Alternative lump-sum cash payment. 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 miscellaneous benefits specified in section 2(c) 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 benefit, instead of the
miscellaneous benefits under section 2(c) Cortland Bancorp 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 Cortland Bancorp’s
projected cost to maintain that particular benefit had the Executive’s employment not terminated.
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
(e) 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 Cortland Bancorp or the
Bank, or conviction of the Executive of 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 Cortland Bancorp or the Bank; willful or reckless
failure by the Executive to adhere to Cortland Bancorp’s or the Bank’s written policies;
intentional wrongful damage by the Executive to the business or property of Cortland Bancorp
or the Bank, including without limitation its reputation, which in Cortland Bancorp’s sole
judgment causes material harm to Cortland Bancorp or the Bank; breach by the Executive of
fiduciary duties to Cortland Bancorp and its stockholders, whether in the Executive’s
capacity as an officer or as a director of Cortland Bancorp or the Bank,
(3) removal of the Executive from office or permanent prohibition of the Executive from
participating in the Bank’s affairs 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
Cortland Bancorp or the Bank, which in Cortland Bancorp’s sole judgment causes material harm
to Cortland Bancorp or the Bank, or
(5) any actions that cause the Executive to be terminated for cause under any
employment agreement existing on the date hereof or hereafter entered into between the
Executive and Cortland Bancorp or the Bank, 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
Cortland Bancorp or the Bank, under a blanket bond or other fidelity or insurance policy
covering directors, officers, or employees.
4
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 Cortland Bancorp’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 Cortland Bancorp shall be conclusively presumed to be in good faith and in Cortland
Bancorp’s best interests.
(f) 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
6) any other action or inaction that constitutes a material breach by Cortland
Bancorp of this Agreement.
(y) the Executive must give notice to Cortland Bancorp 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 Cortland Bancorp 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.
3. Termination for Which No Benefits Are Payable. Despite anything in this Agreement to the
contrary, the Executive shall not be entitled to benefits under this Agreement if the Executive’s
employment terminates with Cause, if the Executive dies while actively employed by Cortland Bancorp
or the Bank, or if the Executive becomes totally disabled while actively employed by Cortland
Bancorp or the Bank. 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 Cortland Bancorp or the Bank may have with the Executive relating to death or
disability, not by this Agreement.
5
4. Term of Agreement. The initial term of this Agreement shall be for a period of three
years, commencing on the effective date of this Agreement first written above. 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 Cortland Bancorp’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 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 this Agreement is not a management or employment agreement and nothing in this Agreement shall
give the Executive any rights or impose any obligations to continued employment by Cortland Bancorp
or the Bank or successor of Cortland Bancorp.
6. Payment of Legal Fees. Cortland Bancorp is aware that after a Change in Control management
could cause or attempt to cause Cortland Bancorp to refuse to comply with its obligations under
this Agreement, or could institute or cause or attempt to cause Cortland Bancorp 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 purpose of this Agreement would be frustrated. Cortland Bancorp 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.
Cortland Bancorp 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) Cortland Bancorp has failed to comply with any of its
obligations under this Agreement or (y) Cortland Bancorp 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, Cortland Bancorp irrevocably authorizes the Executive from time to time
to retain counsel of the Executive’s choice, at Cortland Bancorp’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 Cortland Bancorp or any director, officer, stockholder, or other
person affiliated with Cortland Bancorp, in any jurisdiction. Despite any existing or previous
attorney-client relationship between Cortland Bancorp and any counsel chosen by the Executive under
this section 6, Cortland Bancorp irrevocably consents to the Executive entering into an
attorney-client relationship with that counsel, and Cortland Bancorp 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 Cortland Bancorp 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 $500,000, whether suit be brought or not, and
whether or not incurred in trial, bankruptcy, or appellate proceedings. Cortland Bancorp’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 Cortland Bancorp may have with the Executive
under any separate salary continuation or other agreement. Despite anything in this Agreement to
the contrary however, Cortland Bancorp 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].
6
7. Withholding of Taxes. Cortland Bancorp 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 Cortland Bancorp’s successors.
This Agreement shall be binding upon Cortland Bancorp and any successor to Cortland Bancorp,
including any persons acquiring directly or indirectly all or substantially all of the business or
assets of Cortland Bancorp by purchase, merger, consolidation, reorganization, or otherwise. But
this Agreement and Cortland Bancorp’s obligations under this Agreement are not otherwise
assignable, transferable, or delegable by Cortland Bancorp. By agreement in form and substance
satisfactory to the Executive, Cortland Bancorp shall require any successor to all or substantially
all of the business or assets of Cortland Bancorp expressly to assume and agree to perform this
Agreement in the same manner and to the same extent Cortland Bancorp would be required to perform
had no succession occurred.
(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, distributes, 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, Cortland Bancorp 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
Cortland Bancorp at the time of the delivery of the notice, and properly addressed to Cortland
Bancorp if addressed to the Board of Directors, Cortland Bancorp, 000 Xxxx Xxxx Xxxxxx, Xxxxxxxx,
Xxxx 00000, Attention: Corporate Secretary.
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10. Captions and Counterparts. The headings and subheadings used 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 Cortland Bancorp. 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 other provisions or conditions at the
same or at any other 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 only 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 the State of Ohio.
14. Entire Agreement. This Agreement constitutes the entire agreement between Cortland
Bancorp 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 have been made by either
party that are not set forth expressly in this Agreement. This Agreement supersedes and replaces
in its entirety the December 26, 2000 Severance Agreement Due to Change in Control of Cortland
Bancorp, and from and after the date of this Agreement the December 26, 2000 Severance Agreement
Due to Change in Control of Cortland Bancorp shall be of no further force or effect.
15. No Mitigation Required. Cortland Bancorp 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 because of termination.
Additionally, Cortland Bancorp acknowledges that its general severance pay plans do not provide for
mitigation, offset, or reduction of any severance payment received thereunder. Cortland Bancorp
further acknowledges that the payment of benefits by Cortland Bancorp 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.
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16. Internal Revenue Code Section 409A. Cortland Bancorp 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
nevertheless be applied in a manner consistent with those requirements. If any provision of this
Agreement would subject the Executive to additional tax or interest under section 409A, Cortland
Bancorp shall reform the provision. However, Cortland Bancorp shall maintain to the maximum extent
practicable the original intent of the applicable provision without subjecting the Executive to
additional tax or interest, and Cortland Bancorp 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 | Cortland Bancorp | |||||||
| By: | ||||||||
| Its: | President and Chief Executive Officer | |||||||
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