CHANGE IN CONTROL AGREEMENT
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Human Resources
- Change of Control Agreements
EX-10.2 3 j1272301exv10w2.htm EX-10.2 Exhibit 10.2
Exhibit 10.2
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT, made and entered into this 4th day of March, 2005, by and between Summit Financial Group, Inc. (the “Company”) and H. Charles Maddy, III (“Maddy”);
WHEREAS, Company recognizes that Maddy’s contribution to the growth, success and continued operation of Company has been substantial, and
WHEREAS, Company believes it is in the best interest of Company to grant Maddy a level of security to preserve key management and to assure fair consideration of any affiliation opportunities that arise.
NOW, THEREFORE, in consideration of the promises and respective covenants and agreements of the parties herein contained, Company and Maddy agree as follows:
| A. | Definitions. For purposes of this Change in Control Agreement, the following definitions shall apply: |
| (1) | “Change of Control” means |
| (a) | a change of ownership of the Company that would have to be reported to the Securities and Exchange Commission as a Change of Control, including but not limited to the acquisition by any “person” and/or entity as defined by securities regulations and law, of direct or indirect “beneficial ownership” as defined, of twenty-five percent (25%) or more of the combined voting power of the Company’s then outstanding securities; or | |||
| (b) | the failure during any period of three (3) consecutive years of individuals who at the beginning of such period constitute the Board for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds (2/3) of the directors at the beginning of the period; or | |||
| (c) | the consummation of a “Business Combination” as defined in the company’s Articles of Incorporation. | |||
| (2) | “Company” shall mean Summit Financial Group, Inc. |
| (3) | “Employment Agreement” shall mean the Employment Agreement dated as of March 4, 2005, by and between Summit Financial Group, Inc. and H. Charles Maddy, III. | |||
| (4) | “Salary” means Maddy’s Base Salary as defined in the Employment Agreement in effect on the date of termination of Maddy’s employment under this Agreement, or if no Employment Agreement is in effect, Maddy’s Base Salary on the date of termination of employment hereunder, corresponding to the definition of Base Salary in the most recent Employment Agreement. | |||
| (5) | For purposes of this Change in Control Agreement, “Good Cause” shall mean: (i) excessive absenteeism without approval of Summit not caused by disability; (ii) gross or willful neglect of duty resulting in substantial harm to Summit after Maddy has been given written direction and reasonable time to perform such duties; or (iii) any acts or omissions on the part of Maddy which when proven constitute fraud or commission of any criminal act involving the person or property of others or the public generally. | |||
| (6) | “Disability” means a physical or mental condition rendering Maddy substantially unable to perform the duties of an officer and director of a banking organization. | |||
| (7) | “Retirement” means termination of employment by Maddy in accordance with Company’s (or its successor’s) retirement plan, including early retirement as approved by the Board of Directors. | |||
| (8) | “Good Reason” means | |||
| (a) | A Change of Control in the Company (as defined above) and: |
| (i) | a decrease in Maddy’s overall compensation (including, without limitation, salary, perquisites, bonuses and other earnings reported on IRS Form W-2, but excluding a diminution in board fees) below its level in effect immediately prior to the date of consummation of the Change of Control, without Maddy’s prior written consent; or | |||
| (ii) | a material reduction in the importance of Maddy’s job responsibilities or assignment of job responsibilities inconsistent with Maddy’s responsibility prior to the Change of Control without Maddy’s prior written consent; or | |||
| (iii) | a geographical relocation of Maddy to an office more than 20 miles from Maddy’s location at the time of the Change of Control or the imposition of travel requirements inconsistent with those | |||
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| existing prior to the Change of Control without Maddy’s prior written consent; or |
| (b) | Failure of the Company to obtain assumption of this Change in Control Agreement by its successor as required by Paragraph M(1) below; or | |||
| (c) | Any removal of Maddy from, or failure to re-elect Maddy to any of Maddy’s positions with Company immediately prior to a Change of Control (except in connection with the termination of Maddy’s employment for Good Cause, death, Disability or Retirement) without Maddy’s prior consent. | |||
| (8) | “Wrongful Termination” means termination of Maddy’s employment by the Company or its affiliates for any reason other than at Maddy’s option, Good Cause or the death, Disability or Retirement of Maddy prior to the expiration of twelve (12) months after consummation of the Change of Control. |
| B. | Retention of Maddy After Change of Control. In order to facilitate management continuity and to promote an orderly transition of ownership, Company and Maddy agree that after a Change of Control, Maddy shall be employed by the acquiring company for a period of one (1) year (the “Transition Period”), commencing upon the date of consummation of the transaction resulting in a Change of Control. During the Transition Period, Maddy may terminate his employment for Good Reason, and the Company may terminate the employment of Maddy for Good Cause. If Company terminates Maddy in a manner constituting Wrongful Termination, or Maddy terminates for Good Reason, Maddy shall be entitled to receive the compensation set forth in paragraph E below. | |||
| If the Employment Agreement is still in effect, Maddy shall be employed pursuant to the terms of Article II and Article V, A-E of the Employment Agreement. All other terms of Maddy’s employment, including without limitation his right to receive termination payments and the term of his employment, will be controlled by this Agreement. | ||||
| C. | Compensation of Maddy for Death or Disability During the Transition Period. In the event of the Death or Disability of Maddy during the Transition Period, Maddy shall be entitled to three times the greater of (a) Maddy’s Salary in effect immediately prior to the date of consummation of a Change of Control or (b) Maddy’s Salary in effect on the date of termination of Maddy’s employment under this Agreement. | |||
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| D. | Compensation of Maddy Upon Expiration of the Transition Period. Within a period of thirty (30) days after expiration of the Transition Period, Maddy shall be entitled to be paid an amount equal to three (3) times the greater of (a) Maddy’s Salary in effect immediately prior to the date of consummation of a Change of Control or (b) Maddy’s Salary in effect on the date of expiration of the Transition Period. | |||
| E. | Compensation of Maddy Upon Termination for Good Reason or Wrongful Termination during the Transition Period. Except as hereinafter provided, if Maddy terminates his employment with the Company for Good Reason or the Company terminates Maddy’s employment in a manner constituting Wrongful Termination, the Company agrees as follows: | |||
| (1) | The Company shall pay Maddy a cash payment equal to three (3) times the greater of (a) Maddy’s Salary in effect immediately prior to the date of consummation of a Change of Control or (b) Maddy’s Salary in effect on the date of termination of Maddy’s employment under this Agreement. | |||
| (2) | Maddy will be entitled to receive his reasonable share of the Company’s cash bonuses, if any, allocated in accordance with existing principles and authorized by the Board of Directors. The amount of Maddy’s cash incentive award shall not be reduced due to Maddy not being actively employed for the full year. | |||
| (3) | Maddy will continue to participate, without discrimination, for the number of months between the Date of Termination and the date that is thirty-six (36) months after the date of the consummation of the Change of Control in benefit plans (such as retirement, disability and medical insurance) maintained after any Change of Control for Maddy, in general, of the Company, or any successor organization, provided Maddy’s continued participation is possible under the general terms and conditions of such plans. In the event Maddy’s participation in any such plan is barred, the Company shall arrange to provide Maddy with benefits substantially similar to those which Maddy would have been entitled had his participation not been barred. However, in no event will Maddy receive from the Company the employee benefits contemplated by this subparagraph if Maddy receives comparable benefits from any other source. | |||
| (4) | Paragraph F of this Agreement and Section VII of the Employment Agreement shall not apply. | |||
| F. | Termination at Maddy’s Option. During the Transition Period, Maddy may terminate his employment without reason at his option by giving written notice of termination within six (6) months of consummation of any Change of Control; |
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| provided that notice shall be given at least thirty (30) days prior to the effective time for termination. In such event, Maddy shall be entitled to receive a lump sum payment equal to 75% of the greater of (a) Maddy’s Salary in effect immediately prior to the date of consummation of a Change of Control or (b) Maddy’s Salary in effect on the date of termination of Maddy’s employment under this Agreement. | ||||
| G. | Noncompetition and Nonsolicitation. In consideration of the covenants set forth herein, including but not limited to the payment set forth in paragraphs C, D and E hereof, Maddy agrees as follows: | |||
| (1) | For a period of three (3) years after expiration of the Transition Period, provided Maddy’s employment under this Agreement is not sooner terminated, Maddy shall not, directly or indirectly engage in the business of banking, in the entire State of West Virginia, in any county or location in which Summit has operating offices at the time of termination , in the following designated locations in Virginia (See Exhibit to Paragraphs G(1) and (2) attached, which is incorporated herein by reference This Exhibit was molded to included the counties where the municipalities are located.), or in any location identified by Summit in its three-year strategic plan as a location for future expansion to be adopted by the Board and reviewed and updated at regular intervals. | |||
| (2) | For a period of one (1) year after Maddy’s employment with Summit is terminated for any reason other than Maddy’s Disability, Retirement, Good Reason or termination at Maddy’s option as provided in paragraph E hereof, Maddy shall not, directly or indirectly, engage in the business of banking in the entire State of West Virginia, in any county or location in which Summit has operating offices at the time of termination, , in the following designated locations in Virginia (See Exhibit to Paragraphs G (1) and (2)) attached, which is incorporated herein by reference This Exhibit was molded to included the counties where the municipalities are located.), or in any location identified by Summit in its three-year strategic plan as a location for future expansion to be adopted by the Board and reviewed and updated at regular intervals. | |||
| (3) | For purposes of Paragraphs G(1) - (2), being engaged in the business of banking shall mean Maddy’s engaging in any business or activity of any nature that is competitive with the business of Summit or its affiliates in the specified geographic area or Maddy’s solicitation of business from clients with a primary or principal office in the specified geographic area. | |||
| (4) | In the event that this provision shall be deemed by any Court or body of competent jurisdiction to be unenforceable in whole or in part by reason of its | |||
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| extending for too long a period of time, or too great a geographical area or over too great a range of activities, or is overly broad in any other respect or for any other reason, then in such event this Employment Agreement shall be deemed modified and interpreted to extend over only such maximum period of time, geographical area, or range of activity or otherwise, so as to render these provisions valid and enforceable, and as so modified, these shall be enforceable and enforced. |
| H. | Other Employment. Maddy shall not be required to mitigate the amount of any payment provided for in this Change in Control Agreement by seeking other employment. The amount of any payment provided for in this Change in Control Agreement shall not be reduced by any compensation earned or benefits provided (except as set forth in Paragraph E(3) above) as the result of employment by another employer after the Date of Termination. | |||
| I. | Rights of Company Prior to the Change of Control. This Change in Control Agreement shall not affect the right of the Company or Maddy to terminate the foregoing Employment Agreement or the employment of Maddy in accordance thereof; provided, however, that any termination or reduction in salary or benefits that takes place after discussions have commenced that result in a Change of Control shall be presumed (without clear and convincing evidence to the contrary) to be Good Reason and a violation of this Change in Control Agreement entitling Maddy to the benefits hereof, so that any termination by Company shall be deemed to be a Wrongful Termination, and all references in this Change in Control Agreement to Salary shall be deemed to mean the Salary, as defined herein, based on the earnings Maddy would have had prior to any reduction thereof. | |||
| J. | Confidentiality. Maddy shall not, during the term of this Agreement or at any time thereafter, directly or indirectly, publish or disclose to any person or entity any confidential information (other than a Company employee entitled to know such confidential information) concerning the assets, customer/client lists, business or affairs of Company, and its affiliates, including but not limited to any trade secrets, financial data, employee or customer/client information or organizational structure. Notwithstanding the foregoing, nothing herein shall prevent Maddy from utilizing the knowledge and experience he has acquired in the banking industry including without limitation the knowledge of producer bonus plans. | |||
| All files, records, documents, information, letters, notes, media lists, notebook and similar items relating to the business of Company shall remain the exclusive property of Company. Upon the expiration or earlier termination of this Agreement, or when requested by Company, Maddy shall immediately deliver to | ||||
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| Company all such files, computer data files, records, documents, information and other items in the possession of or under the control of Maddy. | ||||
| All business produced by Maddy while in the employ of is the exclusive property of Company unless specifically excluded elsewhere in this Agreement. Maddy shall not, during the term of this Agreement or any time thereafter, intentionally interfere with any business or contractual relationship of Summit. | ||||
| K. | Gross-Up Payment. Notwithstanding anything in this Agreement to the contrary, in the event it shall be determined that any payment or distribution by Company and any of its subsidiaries and affiliates to or for the benefit of Maddy (whether paid or payable or distributed or distributable pursuant to this Agreement, the Supplemental Retirement Agreement between Company and Maddy, the Employment Agreement between Company and Maddy, or any other agreement, contract, plan or arrangement, but determined without regard to any additional payments required under this Paragraph J) (any such payments and distributions collectively referred to as “Payments”), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any similar tax that may hereinafter be imposed or any interest and penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then Company shall pay to Maddy an additional payment (the “Gross-Up Payment”) equal to one hundred percent (100%) of the Excise Tax and one hundred percent (100%) of the amount of any federal, state and local income taxes and Excise Tax imposed on the Gross-Up Payment. | |||
| All determinations required to be made under this Paragraph J, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by the firm of independent accountants selected by Company to audit its financial statements (the “Accounting Firm”) which shall provide detailed supporting calculations both to Company and Maddy in good faith within a reasonable time period. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting a “change in control,” Maddy shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the “Accounting Firm” hereunder). All fees and expenses of the Accounting Firm shall be borne solely by Company. Any Gross-Up Payment, as determined pursuant to this Paragraph J, shall be paid to Maddy within 30 days of the receipt of the Accounting Firm’s determination. | ||||
| L. | Arbitration. Any dispute between the parties arising out of or with respect to this Agreement or any of its provisions or Maddy’s employment with Company, whether sounding in tort or contract, shall be resolved by the sole and exclusive remedy of | |||
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| binding arbitration. Maddy hereby waives his right to a jury trial and his right to receive noneconomic damages. Arbitration shall be conducted in Moorefield, West Virginia, in accordance with the rules of the American Arbitration Association (“AAA”). The parties agree each to select one arbitrator from an AAA employment panel. Within ten days after selection of the second arbitrator, the two arbitrators shall select a third arbitrator. The arbitration shall be conducted in accordance with the West Virginia Rules of Evidence and all discovery issues shall be decided by the arbitrator. The panel of arbitrators shall supply a written opinion and analysis of the matter submitted for arbitration along with the decision. The arbitration decision shall be final and subject to enforcement in the local circuit court. | ||
| In any arbitration proceeding between the parties, the losing party shall pay to the prevailing party all reasonable expenses and costs including attorneys’ fees incurred by the prevailing party. A party shall be considered a prevailing party if: |
| (i) | it initiated the arbitration and substantially obtained the relief it sought, either through a judgment or the losing party’s voluntary action before arbitration (after it is scheduled) or judgment; | |||
| (ii) | the other party withdraws its action without substantially obtaining the relief it sought, or | |||
| (iii) | it did not initiate the arbitration and judgment is entered for either party, but without substantially granting the relief sought. | |||
| M. | Successors; Binding Agreement. |
| (1) | The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to Maddy, to expressly assume and agree to perform this Change in Control Agreement. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of the this Change in Control Agreement and shall entitle Maddy to compensation from the Company in the same amount and on the same terms as he would be entitled to hereunder if he terminated his employment for Good Reason hereunder. | |||
| (2) | This Change in Control Agreement and all rights of Maddy hereunder shall inure to the benefit of and be enforceable by Maddy’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If Maddy should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this | |||
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| Amended and Restated Agreement to Maddy’s devisee, legatee, or other designee or, if there be no such designee, to Maddy’s estate. |
| N. | Indemnification. To the fullest extent permitted under West Virginia law and federal banking law, Summit agrees that it will indemnify and hold harmless Maddy from and against all costs and expenses, including without limitation, all court costs and attorney’s fees, incurred by him in defending any and all claims, demands, proceedings, suits or actions, actually instituted or threatened, by third parties, involving this Agreement, its validity or enforceability or with respect to any payments to be made pursuant thereto. | |||
| O. | Survival of Change in Control Agreement. This Change in Control Agreement shall survive the expiration of the Employment Agreement. | |||
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day first written above:
| SUMMIT FINANCIAL GROUP, INC. | ||||
| By: | /s/ Oscar M. Bean | |||
| Its: | Chairman of the Board | |||
| /s/ H. Charles Maddy, III | ||||
| H. CHARLES MADDY, III | ||||
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Exhibit to Paragraphs G(1) and (2) of Change in Control Agreement
By and Between Summit Financial Group, Inc. and H. Charles Maddy, III, dated March 4, 2005
Designated Virginia Locations
| Ashburn | ||
| Charlottesville | ||
| Fredericksburg | ||
| Leesburg | ||
| Purcellville | ||
| Warrenton |
| * | The designation of the municipality expressly includes the county in which the municipality is located. |
