CHANGE IN CONTROL AGREEMENT
This
CHANGE IN CONTROL AGREEMENT (this “Agreement”), is made and entered into as of
the 2nd day of
August 2010, between Emclaire Financial Corp., a Pennsylvania-chartered bank
holding company (the “Corporation”), the Farmers National Bank of Emlenton, a
national banking association (the “Bank”) and Xxxxxxx X. Xxxxx (the
“Executive”).
WITNESSETH:
WHEREAS,
the Executive is currently employed as a Senior Vice President of the
Corporation and the Bank (the Corporation and the Bank are referred to together
herein as the “Employers”);
WHEREAS,
the Employers desire to be ensured of the Executive’s continued active
participation in the business of the Employers; and
WHEREAS,
in order to induce the Executive to remain in the employ of the Employers and in
consideration of the Executive’s agreeing to remain in the employ of the
Employers, the parties desire to specify the severance benefits which shall be
due the Executive in the event that his employment with the Employers is
terminated under specified circumstances;
NOW
THEREFORE, in consideration of the premises and the mutual agreements herein
contained, the parties hereby agree as follows:
1. Definitions. The following
words and terms shall have the meanings set forth below for the purposes of this
Agreement:
(a) Annual
Compensation. The Executive’s “Annual Compensation” for
purposes of this Agreement shall be deemed to mean the highest level of
compensation paid to the Executive by the Employers or any subsidiary thereof
and included in the Executive’s gross income for tax purposes and any income
earned and deferred by the Executive pursuant to any plan or arrangement of the
Employers during the calendar year in which the Date of Termination occurs
(determined on an annualized basis) or either of the two calendar years
immediately preceding the calendar year in which the Date of Termination
occurs.
(b) Cause. Termination by the
Employers of the Executive’s employment for “Cause” shall mean termination
because of personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order. For purposes of
this paragraph, no act or failure to act on the Executive’s part shall be
considered “willful” unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive’s action or omission
was in the best interest of the Employers.
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(c) Change in
Control. “Change in Control” shall mean a change in the
ownership of the Corporation or the Bank, a change in the effective control of
the Corporation or the Bank or a change in the ownership of a substantial
portion of the assets of the Corporation or the Bank, in each case as provided
under Section 409A of the Code and the regulations thereunder.
(d) Code. Code shall mean the
Internal Revenue Code of 1986, as amended.
(e) Date of Termination. “Date of
Termination” shall mean (i) if the Executive’s employment is terminated for
Cause, the date on which the Notice of Termination is given, and (ii) if the
Executive’s employment is terminated for any other reason, the date specified in
such Notice of Termination.
(f) Disability. “Disability” shall
mean the Executive (i) is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment which can
be expected to result in death or can be expected to last for a continuous
period of not less than 12 months, or (ii) is, by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or can be expected to last for a continuous period of not less than 12
months, receiving income replacement benefits for a period of not less than
three months under an accident and health plan covering employees of the
Employers.
(g) Good Reason. Termination by
the Executive of the Executive’s employment for “Good Reason” shall mean
termination by the Executive following a Change of Control based
on:
(i)
any
material breach of this Agreement by the Employers, including without limitation
any of the following: (A) a material diminution in the Executive’s base
compensation, (B) a material diminution in the Executive’s authority, duties or
responsibilities, or (C) a material diminution in the authority, duties or
responsibilities of the officer to whom the Executive is required to report,
or
(ii)
any
material change in the geographic location at which the Executive must perform
his services under this Agreement, including a material change in the
Executive’s principal place of employment or the imposition of any requirement
that the Executive spend more than ninety (90) business days per year at a
location other than such principal place of employment;
provided,
however, that prior to any termination of employment for Good Reason, the
Executive must first provide written notice to the Corporation within ninety
(90) days of the initial existence of the condition, describing the existence of
such condition, and the Corporation shall thereafter have the right to remedy
the condition within thirty (30) days of the date the Corporation received the
written notice from the Executive. If the Corporation remedies the
condition within such thirty (30) cure period, then no Good Reason shall be
deemed to exist with respect to such condition.
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(h) IRS. IRS shall mean the
Internal Revenue Service.
(i) Notice of Termination. Any
purported termination of the Executive’s employment by the Employers for Cause,
Disability or Retirement or by the Executive for Good Reason shall be
communicated by written “Notice of Termination” to the other party hereto. For
purposes of this Agreement, a “Notice of Termination” shall mean a notice which
(i) indicates the specific termination provision in this Agreement relied upon,
(ii) sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive’s employment under the
provision so indicated, (iii) specifies a Date of Termination, which shall be
not less than thirty (30) nor more than ninety (90) days after such Notice of
Termination is given, except in the case of the Employers’ termination of the
Executive’s employment for Cause, which shall be effective immediately, and (iv)
is given in the manner specified in Section 7 hereof.
(j) Retirement. “Retirement” shall
mean voluntary termination by the Executive upon reaching [age 65.]
2. Term of
Agreement. The term of this Agreement shall be for two
years, commencing as of August 2, 2010 (the “Start Date”). Commencing
on the first anniversary of the Start Date, the term of this Agreement shall
extend for an additional year on each annual anniversary of the Start Date of
this Agreement until such time as the Boards of Directors of the Employers or
the Executive give notice in accordance with the terms of Section 8 hereof of
their or his election, respectively, not to extend the term of this
Agreement. Such written notice of the election not to extend must be
given not less than thirty (30) days prior to any such anniversary
date. If any party gives timely notice that the term will not be
extended as of any annual anniversary date, then this Agreement shall terminate
at the conclusion of its remaining term. The Boards of Directors of
the Employers will review this Agreement and the Executive=s
performance annually for purposes of determining whether to extend this
Agreement. References herein to the term of this Agreement shall
refer both to the initial term and successive terms.
3. Benefits Upon Termination. If
the Executive’s employment by the Employers shall be terminated within twenty
four (24) months subsequent to a Change in Control by (i) the Employers other
than for Cause, Disability, Retirement or as a result of the Executive’s death,
or (ii) the Executive for Good Reason, then the Employers shall, subject to the
provisions of Section 3 hereof, if applicable:
(a) pay
to the Executive, in a lump sum as of the Date of Termination, a cash amount
equal to two (2) times the Executive’s Annual Compensation; and
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(b) maintain
and provide for a period ending at the earlier of (i) twenty-four (24) months
after the Date of Termination or (ii) the date of the Executive’s full-time
employment by another employer (provided that the Executive is entitled under
the terms of such employment to benefits substantially similar to those
described in this subparagraph (b)), at no cost to the Executive, the
Executive’s continued participation in all group insurance, life insurance,
health and accident, disability and other employee benefit plans, programs and
arrangements in which the Executive was entitled to participate immediately
prior to the Date of Termination (other than retirement plans or stock
compensation plans of the Employers), provided that in the event that the
Executive’s participation in any plan, program or arrangement as provided in
this subparagraph (b) is barred, or during such period any such plan, program or
arrangement is discontinued or the benefits thereunder are materially reduced,
the Employers shall arrange to provide the Executive with benefits substantially
similar to those which the Executive was entitled to receive under such plans,
programs and arrangements immediately prior to the Date of
Termination. If the provision of any of the benefits covered by this
Section 3(b) would trigger the 20% tax and interest penalties under Section 409A
of the Code either due to the nature of such benefit or the length of time it is
being provided, then the benefit(s) that would trigger such tax and interest
penalties due to the nature of such benefit shall not be provided at all and the
benefit(s) that would trigger the tax and interest penalties if provided beyond
the “limited period of time” set forth in the regulations under Section 409A
shall not be provided beyond such limited period of time (collectively, the
“Excluded Benefits”), and in lieu of the Excluded Benefits the Employers shall
pay to the Executive, in a lump sum within 30 days following termination of
employment or within 30 days after such determination should it occur after
termination of employment, a cash amount equal to the cost to the Employers of
providing the Excluded Benefits.
4. Limitation of Benefits under Certain
Circumstances. If the payments and benefits pursuant to
Section 3 hereof, either alone or together with other payments and benefits
which the Executive has the right to receive from the Employers would constitute
a “parachute payment” under Section 280G of the Code, then the payments and
benefits pursuant to Section 3 hereof shall be reduced by the minimum amount
necessary to result in no portion of the payments and benefits under Section 3
being non-deductible to either of the Employers pursuant to Section 280G of the
Code and subject to the excise tax imposed under Section 4999 of the
Code. If the payments and benefits under Section 3 are required to be
reduced, the cash severance shall be reduced first, followed by a reduction in
the fringe benefits. The determination of any reduction in the
payments and benefits to be made pursuant to Section 3 shall be based upon the
opinion of independent tax counsel selected by the Employers and paid for by the
Employers. Such counsel shall promptly prepare the foregoing opinion, but in no
event later than thirty (30) days from the Date of Termination, and may use such
actuaries as such counsel deems necessary or advisable for the
purpose. Nothing contained herein shall result in a reduction of any
payments or benefits to which the Executive may be entitled upon termination of
employment other than pursuant to Section 3 hereof, or a reduction in the
payments and benefits specified in Section 3 below zero.
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5. Mitigation; Exclusivity of
Benefits.
(a) The
Executive shall not be required to mitigate the amount of any benefits hereunder
by seeking other employment or otherwise, nor shall the amount of any such
benefits be reduced by any compensation earned by the Executive as a result of
employment by another employer after the Date of Termination or otherwise,
except as set forth in Section 3(b) above.
(b) The
specific arrangements referred to herein are not intended to exclude any other
benefits which may be available to the Executive upon a termination of
employment with the Employers pursuant to employee benefit plans of the
Employers or otherwise.
6. Withholding. All
payments required to be made by the Employers hereunder to the Executive shall
be subject to the withholding of such amounts, if any, relating to tax and other
payroll deductions as the Employers may reasonably determine should be withheld
pursuant to any applicable law or regulation.
7. Assignability. The Employers
may assign this Agreement and their rights hereunder in whole, but not in part,
to any corporation, bank or other entity with or into which the Employers may
hereafter merge or consolidate or to which the Employers may transfer all or
substantially all of their respective assets, if in any such case said
corporation, bank or other entity shall by operation of law or expressly in
writing assume all obligations of the Employers hereunder as fully as if it had
been originally made a party hereto, but may not otherwise assign this Agreement
or their rights hereunder. The Executive may not assign or transfer this
Agreement or any rights or obligations hereunder.
8. Notice. For the purposes of
this Agreement, notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered or mailed by certified or registered mail, return receipt requested,
postage prepaid, addressed to the respective addresses set forth
below:
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To
the Bank:
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Secretary
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Farmers
National Bank of Emlenton
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000
Xxxx Xxxxxx
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Xxxxxxxx,
Xxxxxxxxxxxx 00000
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To
the Corporation:
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Secretary
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000
Xxxx Xxxxxx
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Xxxxxxxx,
Xxxxxxxxxxxx 00000
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To
the Executive:
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Xxxxxxx
X. Xxxxx
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000
Xxxxx Xxxxx
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Xxxxxxxx
Xxxx, XX 00000
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9. Amendment; Waiver. No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing signed by the Executive and such officer or
officers as may be specifically designated by the Boards of Directors of the
Employers to sign on their behalf. No waiver by any party hereto at any time of
any breach by any other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. In addition, notwithstanding anything in
this Agreement to the contrary, the Employers may amend in good faith any terms
of this Agreement, including retroactively, in order to comply with Section 409A
of the Code.
10. Governing Law. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the United States where applicable and otherwise by the
substantive laws of the Commonwealth of Pennsylvania.
11. Nature of Employment and
Obligations.
(a) Nothing
contained herein shall be deemed to create other than a terminable at will
employment relationship between the Employers and the Executive, and the
Employers may terminate the Executive’s employment at any time, subject to
providing any payments specified herein in accordance with the terms
hereof.
(b) Nothing
contained herein shall create or require the Employers to create a trust of any
kind to fund any benefits which may be payable hereunder, and to the extent that
the Executive acquires a right to receive benefits from the Employers hereunder,
such right shall be no greater than the right of any unsecured general creditor
of the Employers.
12. Headings. The section headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
13. Validity. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
14. Counterparts. 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 will constitute one and the same
instrument.
15. Regulatory
Actions. The following provisions shall be applicable to the
parties or any successor thereto, and shall be controlling in the event of a
conflict with any other provision of this Agreement, including without
limitation Section 3 hereof.
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(a) If
the Executive is suspended from office and/or temporarily prohibited from
participating in the conduct of the Bank's affairs pursuant to notice served
under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance Act
(“FDIA”)(12 U.S.C. §§1818(e)(3) and 1818(g)(1)), the Bank's obligations under
this Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed,
the Bank may, in its discretion: (i) pay the Executive all or part of
the compensation withheld while its obligations under this Agreement were
suspended, and (ii) reinstate (in whole or in part) any of its obligations which
were suspended.
(b) If
the Executive is removed from office and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or Section 8(g)(1) of the FDIA (12 U.S.C. §§1818(e)(4) and
(g)(1)), all obligations of the Bank under this Agreement shall terminate as of
the effective date of the order, but vested rights of the Executive and the Bank
as of the date of termination shall not be affected.
(c) If
the Bank is in default, as defined in Section 3(x)(1) of the FDIA (12 U.S.C.
§1813(x)(1)), all obligations under this Agreement shall terminate as of the
date of default, but vested rights of the Executive and the Bank as of the date
of termination shall not be affected.
16. Regulatory
Prohibition. Notwithstanding any other provision of this
Agreement to the contrary, any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with Section 18(k) of the FDIA (12 U.S.C. §1828(k)) and 12 C.F.R. Part
359.
17. Payment of Costs and Legal Fees and
Reinstatement of Benefits. In the event any dispute or
controversy arising under or in connection with the Executive’s termination is
resolved in favor of the Executive, whether by judgment, arbitration or
settlement, the Executive shall be entitled to the payment of (a) all legal
fees incurred by the Executive in resolving such dispute or controversy, and
(b) any back-pay, including Base Salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due to the
Executive under this Agreement.
18. Arbitration. Any controversy
or claim arising out of or relating to this Agreement, or the breach thereof,
shall be settled by arbitration in accordance with the rules then in effect of
the district office of the American Arbitration Association (“AAA”) nearest to
the home office of the Bank, and judgment upon the award rendered may be entered
in any court having jurisdiction thereof, except to the extent that the parties
may otherwise reach a mutual settlement of such issue. The Employers
shall incur the cost of all fees and expenses associated with filing a request
for arbitration with the AAA, whether such filing is made on behalf of the
Employers or the Executive, and the costs and administrative fees associated
with employing the arbitrator and related administrative expenses assessed by
the AAA.
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19. Compliance
with the Troubled Asset Relief Program (“TARP”)
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(i)
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Notwithstanding
any provision to the contrary herein, during the period that any
obligation arising from financial assistance provided to the Corporation
under the TARP remains outstanding pursuant to the TARP Capital Purchase
Program (“CPP”) (excluding any period in which the Federal Government only
holds warrants to purchase common stock of the corporation), Executive
will not receive and will not be entitled to receive any payment or
compensation pursuant to this Agreement if the receipt of such payment or
compensation alone or when added to any other payment or compensation
received or to be received by Executive from the corporation would cause
Executive to receive a “golden parachute payment” within the meaning of
Section 111 of the Emergency Economic Stabilization Act of 2008 (the
“EESA”), as amended by Section 7001 of the American Recovery and
reinvestment Act of 2009 (the “ARRA”) or any of the rules and regulations
promulgated thereunder. The Corporation and the Bank shall
retain the exclusive and final authority, without the consent of
Executive, to cancel, reduce or otherwise eliminate any compensation or
other payments pursuant to this Agreement, including without limitation
any payments pursuant to Section 3 hereof, so as to comply with such
laws. Any compensation or other payments required to be
canceled, reduced or eliminated pursuant to this Section, will be
forfeited by Executive and he shall not be entitled to or have any claim
against the Bank to receive such payments at any
time.
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(ii)
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Notwithstanding
any provision to the contrary herein, Executive shall make prompt and
immediate repayment to the bank of the full amount of any payment made or
credited to Executive under this Agreement during the period that any
obligation arising from financial assistance provided to the Corporation
under the TARP remains outstanding pursuant to the CPP (excluding any
period in which the Federal Governments only holds warrants to purchase
common stock of the corporation), if such compensation or other payment(s)
are determined at any time by the Corporation and/or the Bank or their
federal bank regulator to have been compensation or payments that are
incentive, retention or bonus compensation that is not permitted by EESA,
as amended by ARRA or the rules and regulations promulgated
thereunder. The Corporation shall retain the exclusive and
final authority as to all such determinations under this subparagraph
(ii), so as to ensure compliance with applicable requirements of EESA, as
amended by ARRA and the rules and regulations promulgated thereunder, as
then in effect. Any compensation or other payments returned to
the Corporation or the Bank pursuant to the preceding sentence shall be
forfeited by Executive and he shall not be entitled to or have any claim
against the Corporation and/or the Bank for repayment or return of any
such amounts at any time.
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20. Entire
Agreement. This Agreement embodies the entire agreement
between the Employers and the Executive with respect to the matters agreed to
herein. All prior agreements between the Employers and the Executive
with respect to the matters agreed to herein, including without limitation any
prior change in control agreement between the Employers and the Executive, are
hereby superseded and shall have no force or effect.
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IN WITNESS WHEREOF, this Agreement has
been executed as of the date first above written.
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Attest:
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/s/Xxxxxx X. Xxxxxx
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By:
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/s/Xxxxxxx
X. Xxxxx
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Xxxxxxx
X. Xxxxx
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Chairman,
President and CEO
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FARMERS
NATIONAL BANK OF EMLENTON
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By:
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/s/Xxxxxxx
X. Xxxxx
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Xxxxxxx
X. Xxxxx
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President
and CEO
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EXECUTIVE
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By:
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/s/Xxxxxxx
X. Xxxxx
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Xxxxxxx
X. Xxxxx
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