Exhibit 10.17
The Cortland Savings and Banking Company
Third Amended Salary Continuation Agreement
This
Third Amended Salary Continuation Agreement
(this “Agreement”) is entered into
as of this third day of December, 2008, by and between The
Cortland Savings and Banking Company (the “Bank”), an Ohio-chartered, FDIC-insured member bank, and
Timothy Carney, Senior Vice President and Chief Operations Officer of the Bank (the “Executive”).
Whereas
, the Executive has contributed substantially to the success of the Bank and
its parent company, Cortland Bancorp, an Ohio corporation, and the Bank desires that the Executive
continue in its employ,
Whereas
, to encourage the Executive to remain an employee, the Bank is willing to
provide to the Executive salary continuation benefits payable from the Bank’s general assets,
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 the Bank, is
contemplated insofar as the Bank is concerned,
Whereas
, the Bank and the Executive intend that this Agreement shall amend and
restate in its entirety the December 17, 2003 Second Amended Salary Continuation Agreement between
the Executive and the Bank, and
Whereas
, the parties hereto intend that this Agreement shall be considered an
unfunded arrangement maintained primarily to provide supplemental retirement benefits for the
Executive, and to be considered a non-qualified benefit plan for purposes of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”). The Executive is fully advised of
the Bank’s financial status.
Now Therefore
, in consideration of the foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows.
Article 1
Definitions
1.1
“
Accrual Balance
” means the liability that should be accrued by the Bank under generally
accepted accounting principles (“GAAP”) for the Bank’s obligation to the Executive under this
Agreement, applying Accounting Principles Board Opinion No. 12, as amended by Statement of
Financial Accounting Standards No. 106, and the calculation method and discount rate specified
hereinafter. The Accrual Balance shall be calculated such that when it is credited with interest
each month the Accrual Balance at Normal Retirement Age equals the present value
of the normal retirement benefits. The discount rate means the rate used by the Plan Administrator
for determining the Accrual Balance. In its sole discretion the Plan Administrator may adjust the
discount rate to maintain the rate within reasonable standards according to GAAP.
1.2
“
Beneficiary
” means each designated person, or the estate of the deceased Executive,
entitled to benefits, if any, upon the death of the Executive, determined according to Article 4.
1.3
“
Beneficiary Designation Form
” means the form established from time to time by the Plan
Administrator that the Executive completes, signs, and returns to the Plan Administrator to
designate one or more Beneficiaries.
1.4
“
Change in Control
” means a change in control as defined in Code section 409A and rules,
regulations, and guidance of general application thereunder issued by the Department of the
Treasury, including —
(a)
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,
(b)
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
(c)
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.
1.5
“
Code
” means the Internal Revenue Code of 1986, as amended, and rules, regulations, and
guidance of general application issued by the Department of the Treasury under the Internal Revenue
Code of 1986, as amended.
1.6
“
Disability
” means, because of a medically determinable physical or mental impairment
that can be expected to result in death or that can be expected to last for a continuous period of
at least 12 months, (
x
) the Executive is unable to engage in any substantial gainful activity, or
(
y
) the Executive is receiving income replacement benefits for a period of at least three months
under an accident and health plan of the employer. Medical determination of
disability may be made either by the Social Security Administration or by the provider of an
accident or health plan covering employees of the Bank. Upon request of the Plan Administrator,
the Executive must submit proof to the Plan Administrator of the Social Security Administration’s
or provider’s determination.
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1.7
“
Early Termination
” means Separation from Service before Normal Retirement Age for reasons
other than death, Disability, or Termination with Cause. Early Termination excludes a Separation
from Service governed by section 2.4.
1.8
“
Effective Date
” means March 1, 2001.
1.9
“
Intentional
,” for purposes of this Agreement, no act or failure to act on the part of the
Executive 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 the best interests of the Bank.
1.10
“
Normal Retirement Age
” means the Executive’s 65
th
birthday.
1.11
“
Plan Administrator
” or “
Administrator
” means the plan administrator described in Article
7.
1.12
“
Plan Year
” means a twelve-month period commencing on March 1 and ending on the last day
of February of each year. The initial Plan Year commenced on the Effective Date.
1.13
“
Separation from Service
” means the Executive’s service as an executive and independent
contractor to the Bank and any member of a controlled group, as defined in Code section 414,
terminates for any reason, other than because of a leave of absence approved by the Bank or the
Executive’s death. For purposes of this Agreement, if there is a dispute about the employment
status of the Executive or the date of the Executive’s Separation from Service, the Bank shall have
the sole and absolute right to decide the dispute unless a Change in Control shall have occurred.
1.14
“
Termination with Cause
” and “
Cause
” shall have the same meaning specified in any
effective severance or employment agreement existing on the date hereof or hereafter entered into
between the Executive and the Bank. If the Executive is not a party to a severance or employment
agreement containing a definition of termination with cause, Termination with Cause means the Bank
terminates the Executive’s employment because of —
(a) the Executive’s gross negligence or gross neglect of duties or intentional and material
failure to perform stated duties after written notice thereof, or
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(b) disloyalty or dishonesty by the Executive in the performance of the Executive’s duties, or
a breach of the Executive’s fiduciary duties for personal profit, in any case whether in the
Executive’s capacity as a director or officer, or
(c) intentional wrongful damage by the Executive to the business or property of the Bank or
its affiliates, including without limitation the reputation of the Bank, which in the judgement of
the Bank causes material harm to the Bank or affiliates, or
(d) a willful violation by the Executive of any applicable law or significant policy of the
Bank or an affiliate that, in the Bank’s judgement, results in an adverse effect on the Bank or the
affiliate, regardless of whether the violation leads to criminal prosecution or conviction. For
purposes of this Agreement applicable laws include any statute, rule, regulatory order, statement
of policy, or final cease-and-desist order of any governmental agency or body having regulatory
authority over the Bank, or
(e) 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 the Bank, under the
Bank’s blanket bond or other fidelity or insurance policy covering its directors, officers, or
employees, or
(f) the Executive is removed from office or permanently prohibited from participating in the
Bank’s affairs by an order issued under section 8(e)(4) or section 8(g)(1) of the Federal Deposit
Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or
(g) conviction of the Executive for 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.
1.15
“
Voluntary Termination with Good Reason
” means a voluntary Separation from Service by the
Executive within 24 months after a Change in Control if the following conditions (
x
) and (
y
) are
satisfied: (
x
) a voluntary Separation from Service by the Executive will be considered a Voluntary
Termination with Good Reason if any of the following occur 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,
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5) a material change in the geographic location at which the Executive must perform
services for the Bank, or
6) any other action or inaction that constitutes a material breach by the Bank of the
agreement under which the Executive provides services to the Bank.
(
y
) the Executive must give notice to the Bank 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
the Bank 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 earlier of the initial existence of the condition or the
Change in Control.
Article 2
Lifetime Benefits
2.1 Normal Retirement
. Unless Separation from Service occurs before Normal Retirement Age,
when the Executive attains Normal Retirement Age the Bank shall pay to the Executive the benefit
described in this section 2.1 instead of any other benefit under this Agreement. If the
Executive’s Separation from Service thereafter is a Termination with Cause or if this Agreement
terminates under Article 5, no further benefits shall be paid.
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2.1.1
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Amount of benefit
. The annual benefit under this section 2.1 is $67,200.
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2.1.2
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Payment of benefit
. Beginning with the month immediately after the month in
which the Executive attains Normal Retirement Age, the Bank shall pay the annual
benefit to the Executive in equal monthly installments on the last day of each month.
The annual benefit shall be paid to the Executive for 15 years.
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2.2 Early Termination
. If Early Termination occurs before Normal Retirement Age but on or
after the date the Executive attains age 62, the Bank shall pay to the Executive the benefit
described in this section 2.2 instead of any other benefit under this Agreement. If Early
Termination occurs before the Executive attains age 62, no benefit shall be payable under this
Agreement. Additionally, no benefits shall be payable under this Agreement if the Executive’s
employment is terminated under circumstances described in Article 5 of this Agreement. Neither the
Bank nor the Executive shall be entitled to elect in the 24-month period after a Change in Control
between the benefit under this section 2.2 versus the benefit under section 2.4. If the
Executive’s Separation from Service within 24 months after a Change in Control is an involuntary
termination without Cause or a Voluntary Termination with Good Reason, no benefit shall be payable
under this section 2.2 and the Executive shall instead be entitled to the benefit under section 2.4
or, if the Executive first attained Normal Retirement Age, section 2.1.
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2.2.1
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Amount of benefit
. The annual benefit under this section 2.2 is calculated as
the amount that fully amortizes the Accrual Balance existing at the end of the month
immediately before the month in which Separation from Service occurs,
amortizing that Accrual Balance over 15 years and taking into account interest at
the discount rate or rates established by the Plan Administrator.
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2.2.2
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Payment of benefit
. The Bank shall pay the annual benefit to the Executive in
equal monthly installments on the last day of each month, except that the first six
monthly installments after the Executive’s Separation from Service shall not be paid to
the Executive until the seventh month after the month in which Separation from Service
occurs. In the seventh month after the month in which Separation from Service occurs
the Executive shall be entitled to the first six monthly installments and the regular
monthly installment for the seventh month. The Executive shall be entitled to a total
of 180 monthly installments, including the first six installments that are paid in the
seventh month.
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2.3 Disability
. For Separation from Service because of Disability before Normal Retirement
Age, the Bank shall pay to the Executive the benefit described in this section 2.3 instead of any
other benefit under this Agreement.
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2.3.1
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Amount of benefit
. The annual benefit under this section 2.3 is calculated as
the amount that fully amortizes the Accrual Balance existing at the end of the month
immediately before the month in which Separation from Service occurs, amortizing that
Accrual Balance over 15 years and taking into account interest at the discount rate or
rates established by the Plan Administrator.
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2.3.2
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Payment of Benefit
. Beginning with the later of (
x
) the seventh month after
the month in which the Executive’s Separation from Service occurs, or (
y
) the month
immediately after the month in which the Executive attains Normal Retirement Age, the
Bank shall pay the annual benefit to the Executive in equal monthly installments on the
last day of each month. If the benefit is paid under clause (
x
) in the seventh month
after Separation from Service, the first six monthly installments after Separation from
Service shall not be paid to the Executive until the seventh month after the month in
which Separation from Service occurs. In the seventh month the Executive shall be
entitled to the first six monthly installments and the regular monthly installment for
the seventh month. The Executive shall be entitled to a total of 180 monthly
installments, including the first six installments that are paid in the seventh month.
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2.4 Change in Control
. If the Executive’s Separation from Service is an involuntary
termination without Cause or a Voluntary Termination with Good Reason, in either case within 24
months after a Change in Control, the Bank shall pay to the Executive the benefit described in this
section 2.4 instead of any other benefit under this Agreement. However, no benefits shall be
payable under this Agreement if the Executive’s employment is terminated under circumstances
described in Article 5 of this Agreement. Neither the Bank nor the Executive shall be entitled to
elect in the 24-month period after a Change in Control between the benefit under this section 2.4
versus the Early Termination benefit under section 2.2. If the Executive’s Separation from Service
within 24 months after a Change in Control is an involuntary termination without Cause
or a Voluntary Termination with Good Reason, no benefit shall be payable under section 2.2 and the
Executive shall instead be entitled to the benefit under this section 2.4. But if the Executive
shall have attained Normal Retirement Age when Separation from Service within 24 months after a
Change in Control occurs, whether Separation from Service is voluntary or involuntary for any
reason other than Termination with Cause, the Executive shall be entitled solely to the benefit
provided by section 2.1, not this section 2.4.
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2.4.1
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Amount of benefit
. The benefit under this section 2.4 is the Normal
Retirement Age Accrual Balance required by section 2.1, discounting the Normal
Retirement Age Accrual Balance to present value using a discount rate selected by the
Plan Administrator, but the discount rate selected by the Plan Administrator shall not
exceed the discount rate employed at the time of the Change in Control for purposes of
calculating the Accrual Balance.
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2.4.2
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Payment of benefit
. The Bank shall pay the benefit under this section 2.4 to
the Executive in a single lump sum on the first day of the seventh month after the
month in which Separation from Service occurs.
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2.5 Lump-Sum Payout of Remaining Normal Retirement Benefit, Early Termination Benefit, or
Disability Benefit When a Change in Control Occurs
. If a Change in Control occurs while the
Executive is receiving the Normal Retirement Age benefit under section 2.1, the Bank shall pay the
remaining salary continuation benefits to the Executive in a single lump sum within three days
after the Change in Control. If a Change in Control occurs after Separation from Service but while
the Executive is receiving or is entitled to receive the Early Termination benefit under section
2.2 or the Disability benefit under section 2.3, the Bank shall pay the remaining salary
continuation benefits to the Executive in a single lump sum within three days after the later of
(
x
) the Change in Control or (
y
) the first day of the seventh month after the month in which the
Executive’s Separation from Service occurs. The lump-sum payment due to the Executive as a result
of a Change in Control shall be an amount equal to the Accrual Balance amount corresponding to the
particular benefit when the Change in Control occurs.
2.6 Annual Benefit Statement
. Within 120 days after the end of each Plan Year the Plan
Administrator shall provide or cause to be provided to the Executive an annual benefit statement
showing benefits payable or potentially payable to the Executive under this Agreement. Each annual
benefit statement shall supersede the previous year’s annual benefit statement. If there is a
contradiction between this Agreement and the annual benefit statement concerning the amount of a
particular benefit payable or potentially payable to the Executive under sections 2.2, 2.3, or 2.4
hereof, the amount of the benefit determined under this Agreement shall control.
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2.7 Savings Clause Relating to Compliance with Code Section 409A
. Despite any contrary
provision of this Agreement, if when the Executive’s employment terminates the Executive is a
specified employee, as defined in Code section 409A, and if any payments under Article 2 of this
Agreement will result in additional tax or interest to the Executive because of
section 409A, the Executive shall not be entitled to the payments under Article 2 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. If any provision of this Agreement would subject the Executive to additional tax or
interest under section 409A, the Bank shall reform the provision. However, the Bank shall maintain
to the maximum extent practicable the original intent of the applicable provision without
subjecting the Executive to additional tax or interest, and the Bank shall not be required to incur
any additional compensation expense as a result of the reformed provision.
2.8 One Benefit Only
. Despite anything to the contrary in this Agreement, the Executive and
Beneficiary are entitled to one benefit only under this Agreement, which shall be determined by the
first event to occur that is dealt with by this Agreement. Except as provided in section 2.5 or
Article 3, subsequent occurrence of events dealt with by this Agreement shall not entitle the
Executive or Beneficiary to other or additional benefits under this Agreement.
Article 3
Death Benefits
3.1 Death in Active Service Before Normal Retirement Age
. If the Executive dies both before
Normal Retirement Age and before Separation from Service, instead of any other benefit payable
under this Agreement the Executive’s Beneficiary shall be entitled at the Executive’s death solely
to the benefit, if any, payable under the Split Dollar Agreement and Endorsement, as amended,
attached to this Agreement as Addendum A.
3.2 Death During Benefit Period
. If the Executive dies after benefit payments under Article 2
commence but before receiving all such payments, the Bank shall pay the remaining benefits to the
Executive’s Beneficiary at the same time and in the same amounts they would have been paid to the
Executive had the Executive survived. In that case, no death benefit shall be payable under the
Split Dollar Agreement and Endorsement, as amended. If the Executive is entitled to benefit
payments under Article 2 but dies before payments commence, the benefits shall be payable to the
Executive’s Beneficiary but payments shall commence on the last day of the month after the month in
which the Executive’s death occurs, and no death benefit shall be payable under the Split Dollar
Agreement and Endorsement, as amended.
3.3 Lump-Sum Payout of Remaining Normal Retirement Benefit, Early Termination Benefit, or
Disability Benefit When a Change in Control Occurs
. If a Change in Control occurs while the
Beneficiary is receiving under section 3.2 the section 2.1 Normal Retirement Age benefit after the
Executive’s death or if a Change in Control occurs after the Executive’s Separation from Service
but while the Beneficiary is receiving or is entitled to receive because of section 3.2 the section
2.2 Early Termination benefit or the section 2.3 Disability benefit after the Executive’s death,
the Bank shall pay the remaining benefits to the Beneficiary in a single lump sum within three days
after the Change in Control. The lump-sum payment due to the Beneficiary as a result of a Change
in Control shall be an amount equal to the
Accrual Balance amount corresponding to the particular benefit when the Change in Control occurs.
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Article 4
Beneficiaries
4.1 Beneficiary Designations
. The Executive shall have the right to designate at any time a
Beneficiary to receive any benefits payable under this Agreement after the Executive’s death. The
Beneficiary designated under this Agreement may be the same as or different from the beneficiary
designation under any other benefit plan of the Bank in which the Executive participates.
4.2 Beneficiary Designation: Change
. The Executive shall designate a Beneficiary by
completing and signing the Beneficiary Designation Form and delivering it to the Plan Administrator
or its designated agent. The Executive’s Beneficiary designation shall be deemed automatically
revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as
Beneficiary and the marriage is subsequently dissolved. The Executive shall have the right to
change a Beneficiary by completing, signing, and otherwise complying with the terms of the
Beneficiary Designation Form and the Plan Administrator’s rules and procedures, as in effect from
time to time. Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form,
all Beneficiary designations previously filed shall be cancelled. The Plan Administrator shall be
entitled to rely on the last Beneficiary Designation Form filed by the Executive and accepted by
the Plan Administrator before the Executive’s death.
4.3 Acknowledgment
. No designation or change in designation of a Beneficiary shall be
effective until received, accepted, and acknowledged in writing by the Plan Administrator or its
designated agent.
4.4 No Beneficiary Designation
. If the Executive dies without a valid beneficiary designation
or if all designated Beneficiaries predecease the Executive, the Executive’s spouse shall be the
designated Beneficiary. If the Executive has no surviving spouse, the benefits shall be made to
the personal representative of the Executive’s estate.
4.5 Facility of Payment
. If a benefit is payable to a minor, to a person declared
incapacitated, or to a person incapable of handling the disposition of his or her property, the
Bank may pay the benefit to the guardian, legal representative, or person having the care or
custody of the minor, incapacitated person, or incapable person. The Bank may require proof of
incapacity, minority, or guardianship as it may deem appropriate before distribution of the
benefit. Distribution shall completely discharge the Bank from all liability for the benefit.
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Article 5
General Limitations
5.1 Termination with Cause and Termination Before Vesting
. Despite any contrary provision of
this Agreement, the Bank shall not pay any benefit under this Agreement
and this Agreement shall terminate if Separation from Service is a Termination with Cause or if
Separation from Service is an Early Termination before the Executive attains age 62.
5.2 Misstatement
. No benefits shall be paid under this Agreement or under the Split Dollar
Agreement and Endorsement, as amended, if the Executive makes any material misstatement of fact on
any application or resume provided to the Bank, on any application for life insurance purchased by
the Bank, or on any application for benefits provided by the Bank.
5.3 Removal
. If the Executive is removed from office or permanently prohibited 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), all obligations of the Bank under
this Agreement shall terminate as of the effective date of the order, and the Split Dollar
Agreement and Endorsement, as amended, also shall terminate as of the effective date of the order.
5.4 Default
. Despite any contrary provision of this Agreement, if the Bank is in “default” or
“in danger of default,” as those terms are defined in section 3(x) of the Federal Deposit Insurance
Act, 12 U.S.C. 1813(x), all obligations under this Agreement shall terminate.
5.5 FDIC Open-Bank Assistance
. All obligations under this Agreement shall terminate, except
to the extent determined that continuation of the contract is necessary for the continued operation
of the Bank, when the Federal Deposit Insurance Corporation enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in section 13(c) of the
Federal Deposit Insurance Act. 12 U.S.C. 1823(c). Any rights of the parties that have already
vested shall not be affected by such action, however.
Article 6
Claims and Review Procedures
6.1 Claims Procedure
. Any person who has not received benefits under this Agreement that he
or she believes should be paid (the “claimant”) shall make a claim for benefits as follows.
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6.1.1
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Initiation — written claim
. The claimant initiates a claim by submitting to
the Administrator a written claim for the benefits. If the claim relates to the
contents of a notice received by the claimant, the claim must be made within 60 days
after the notice was received by the claimant. All other claims must be made within
180 days after the date of the event that caused the claim to arise. The claim must
state with particularity the determination desired by the claimant.
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6.1.2
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Timing of Administrator response
. The Administrator shall respond to the
claimant within 90 days after receiving the claim. If the Administrator determines
that special circumstances require additional time for processing the claim, the
Administrator can extend the response period by an additional 90 days by notifying the
claimant in writing, before the end of the initial 90-day period, that
an additional period is required. The notice of extension must set forth the
special circumstances and the date by which the Administrator expects to render its
decision.
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6.1.3
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Notice of decision
. If the Administrator denies part or all of the claim, the
Administrator shall notify the claimant in writing of the denial. The Administrator
shall write the notification in a manner calculated to be understood by the claimant.
The notification shall set forth —
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(a)
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The specific reasons for the denial,
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(b)
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A reference to the specific provisions of this Agreement on
which the denial is based,
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(c)
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A description of any additional information or material
necessary for the claimant to perfect the claim and an explanation of why it is
needed,
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(d)
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An explanation of the Agreement’s review procedures and the
time limits applicable to such procedures, and
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(e)
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A statement of the claimant’s right to bring a civil action
under ERISA section 502(a) after an adverse benefit determination on review.
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6.2 Review Procedure
. If the Administrator denies part or all of the claim, the claimant
shall have the opportunity for a full and fair review by the Administrator of the denial, as
follows.
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6.2.1
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Initiation — written request
. To initiate the review, the claimant must file
with the Administrator a written request for review within 60 days after receiving the
Administrator’s notice of denial.
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6.2.2
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Additional submissions — information access
. The claimant shall then have
the opportunity to submit written comments, documents, records, and other information
relating to the claim. Upon request and free of charge, the Administrator shall also
provide the claimant reasonable access to and copies of all documents, records, and
other information relevant (as defined in applicable ERISA regulations) to the
claimant’s claim for benefits.
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6.2.3
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Considerations on review
. In considering the review, the Administrator shall
take into account all materials and information the claimant submits relating to the
claim, without regard to whether the information was submitted or considered in the
initial benefit determination.
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6.2.4
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Timing of Administrator response
. The Administrator shall respond in writing
to the claimant within 60 days after receiving the request for review. If the
Administrator determines that special circumstances require additional time for
processing the claim, the Administrator can extend the response period by an additional
60 days by notifying the claimant in writing before the end of the initial 60-day
period that an additional period is required. The notice of extension must
set forth the special circumstances and the date by which the Administrator expects
to render its decision.
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6.2.5
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Notice of decision
. The Administrator shall notify the claimant in writing of
its decision on review. The Administrator shall write the notification in a manner
calculated to be understood by the claimant. The notification shall set forth:
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(a)
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The specific reasons for the denial,
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(b)
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A reference to the specific provisions of the Agreement on
which the denial is based,
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(c)
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A statement that the claimant is entitled to receive, upon
request and free of charge, reasonable access to and copies of all documents,
records, and other information relevant (as defined in applicable ERISA
regulations) to the claimant’s claim for benefits, and
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(d)
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A statement of the claimant’s right to bring a civil action
under ERISA section 502(a).
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Article 7
Administration of Agreement
7.1 Plan Administrator Duties
. This Agreement shall be administered by a Plan Administrator
consisting of the Board or such committee or person(s) as the Board shall appoint. The Executive
may not be a member of the Plan Administrator. The Plan Administrator shall have the discretion
and authority to (
x
) make, amend, interpret and enforce all appropriate rules and regulations for
the administration of this Agreement and (
y
) decide or resolve any and all questions that may
arise, including interpretations of this Agreement.
7.2 Agents
. In the administration of this Agreement the Plan Administrator may employ agents
and delegate to them such administrative duties as it sees fit (including acting through a duly
appointed representative) and may from time to time consult with counsel, who may be counsel to the
Bank.
7.3 Binding Effect of Decisions
. The decision or action of the Plan Administrator about any
question arising out of the administration, interpretation and application of the Agreement and the
rules and regulations promulgated hereunder shall be final and conclusive and binding upon all
persons having any interest in the Agreement. No Executive or Beneficiary shall be deemed to have
any right, vested or nonvested, regarding the continued use of any previously adopted assumptions,
including but not limited to the discount rate and calculation method employed in the determination
of the Accrual Balance.
7.4 Indemnity of Plan Administrator
. The Bank shall indemnify and hold harmless the members
of the Plan Administrator against any and all claims, losses, damages, expenses or liabilities
arising from any action or failure to act with respect to this Agreement, except in the case of
willful misconduct by the Plan Administrator or any of its members.
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7.5 Bank Information
. To enable the Plan Administrator to perform its functions, the Bank
shall supply full and timely information to the Plan Administrator on all matters relating to the
date and circumstances of the retirement, Disability, death, or Separation from Service of the
Executive and such other pertinent information as the Plan Administrator may reasonably require.
Article 8
Miscellaneous
8.1 Amendments and Termination
. Subject to section 8.14 of this Agreement, this Agreement may
be amended solely by a written agreement signed by the Bank and by the Executive, and except for
termination occurring under Article 5 this Agreement may be terminated solely by a written
agreement signed by the Bank and by the Executive.
8.2 Binding Effect
. This Agreement shall bind the Executive and the Bank and their
beneficiaries, survivors, executors, successors, administrators, and transferees.
8.3 No Guarantee of Employment
. This Agreement is not an employment policy or contract. It
does not give the Executive the right to remain an employee of the Bank nor does it interfere with
the Bank’s right to discharge the Executive. It also does not require the Executive to remain an
employee or interfere with the Executive’s right to terminate employment at any time.
8.4 Non-Transferability
. Benefits under this Agreement may not be sold, transferred,
assigned, pledged, attached, or encumbered.
8.5 Successors; Binding Agreement
. By an assumption agreement in form and substance
satisfactory to the Executive, the Bank shall require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all of the business or
assets of the Bank to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Bank would be required to perform this Agreement had no succession
occurred.
8.6 Tax Withholding
. The Bank shall withhold any taxes that are required to be withheld from
the benefits provided under this Agreement.
8.7 Applicable Law
. The Agreement and all rights hereunder shall be governed by the laws of
the State of Ohio, except to the extent preempted by the laws of the United States of America.
8.8 Unfunded Arrangement
. The Executive and beneficiary are general unsecured creditors of
the Bank for the payment of benefits under this Agreement. The benefits represent the mere promise
by the Bank to pay benefits. The rights to benefits are not subject to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors. Any insurance on the Executive’s life is a general asset of the Bank to
which the Executive and beneficiary have no preferred or secured claim.
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8.9 Entire Agreement
. This Agreement and the Split Dollar Agreement and Endorsement attached
as Addendum A, as amended, constitute the entire agreement between the Bank and the Executive
concerning the subject matter. No rights are granted to the Executive under this Agreement other
than those specifically set forth. This Agreement amends and restates in its entirety the December
17, 2003 Second Amended Salary Continuation Agreement.
8.10 Severability
. If any provision of this Agreement is held invalid, such invalidity shall
not affect any other provision of this Agreement not held invalid, and to the full extent
consistent with law each such other provision shall continue in full force and effect. If any
provision of this Agreement is held invalid in part, such invalidity shall not affect the remainder
of such provision not held invalid, and to the full extent consistent with law the remainder of
such provision, together with all other provisions of this Agreement, shall continue in full force
and effect.
8.11 Headings
. Headings are included solely for convenience of reference and shall not affect
the meaning or interpretation of any provision of this Agreement.
8.12 Notices
. All notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or
registered mail, return receipt requested, with postage prepaid, to the following addresses or to
such other address as either party may designate by like notice. If to the Bank, notice shall be
given to the board of directors, The Cortland Savings and Banking Company, 194 W. Main Street, P.O.
Box 98, Cortland, Ohio 44410-1466, or to such other or additional person or persons as the Bank
shall have designated to the Executive in writing. If to the Executive, notice shall be given to
the Executive at the Executive’s address appearing on the Bank’s records, or to such other or
additional person or persons as the Executive shall have designated to the Bank in writing.
8.13 Payment of Legal Fees
. The Bank is aware that after a Change in Control management of
the Bank could cause or attempt to cause the Bank to refuse to comply with its obligations under
this Agreement, or could institute or cause or attempt to cause the Bank to institute litigation
seeking to have this Agreement declared unenforceable, or could take or attempt to take other
action to deny the Executive the benefits intended under this Agreement. In these circumstances
the purpose of this Agreement would be frustrated. The Bank 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. The
Bank 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 it appears
to Executive that (
x
) the Bank has failed to comply with any of its obligations under this
Agreement, or (
y
) the Bank or any other person has taken any action to declare this Agreement void
or unenforceable, or
14
instituted
any litigation or other legal action designed to deny, diminish, or recover from the Executive the benefits intended to be provided to the Executive
hereunder, the Bank irrevocably authorizes the Executive from time to time to retain counsel of the
Executive’s choice, at the Bank’s expense as provided in this section 8.13, to represent the
Executive in the initiation or defense of any litigation or other legal action, whether by or
against the Bank or any director, officer, stockholder or other person affiliated with the Bank, in
any jurisdiction. Despite any existing or previous attorney-client relationship between the Bank
and any counsel chosen by the Executive under this section 8.13, the Bank irrevocably consents to
the Executive entering into an attorney-client relationship with that counsel, and the Bank 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 Executive as provided in
this section shall be paid or reimbursed to Executive by the Bank 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 regardless of whether incurred in trial, bankruptcy, or appellate proceedings.
The Bank’s obligation to pay the Executive’s legal fees provided by this section 8.13 operates
separately from and in addition to any legal fee reimbursement obligation the Bank or the Bank’s
parent Cortland Bancorp may have with the Executive under a severance or employment agreement by
and among the Executive, the Bank, and Cortland Bancorp. Despite any contrary provision within
this Agreement however, the Bank 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].
8.14 Termination or Modification of Agreement Because of Changes in Law, Rules or Regulations
.
The Bank is entering into this Agreement on the assumption that certain existing tax laws, rules,
and regulations will continue in effect in their current form. If that assumption materially
changes and the change has a material detrimental effect on this Agreement, then the Bank reserves
the right to terminate or modify this Agreement accordingly, subject to the written consent of the
Executive, which shall not be unreasonably withheld. This section 8.14 shall become null and void
effective immediately upon a Change in Control.
In Witness Whereof
, the Executive and a duly authorized Bank officer have executed
this Third Amended Salary Continuation Agreement as of the date first written above.
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Executive
:
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Bank
:
The Cortland Savings and Banking
Company
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By:
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Lawrence A. Fantauzzi
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Title: President and CEO
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15
Beneficiary Designation
The Cortland Savings and Banking Company
Third Amended Salary Continuation Agreement
Timothy Carney
I designate the following as beneficiary of any death benefits under this Third Amended Salary
Continuation Agreement:
Note: To name a trust as beneficiary, please provide the name of the trustee(s) and
the
exact
name and date of the trust agreement.
I understand that I may change these beneficiary designations by filing a new written
designation with the Bank. I further understand that the designations will be automatically
revoked if the beneficiary predeceases me, or, if I have named my spouse as beneficiary and our
marriage is subsequently dissolved.
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Signature:
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Timothy Carney
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Date:
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, 2008
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Accepted by the Bank this
day of
, 2008
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By:
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Lawrence A. Fantauzzi
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Title: President and Chief Executive Officer
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16
Exhibit 10.18
The Cortland Savings and Banking Company
Third Amended Salary Continuation Agreement
This
Third Amended Salary Continuation Agreement
(this “Agreement”) is entered into
as of this third day of
December 3, 2008, by and between The
Cortland Savings and Banking Company (the “Bank”), an Ohio-chartered, FDIC-insured member bank, and
Lawrence A. Fantauzzi, President and Chief Executive Officer of the Bank (the “Executive”).
Whereas
, the Executive has contributed substantially to the success of the Bank and
its parent company, Cortland Bancorp, an Ohio corporation, and the Bank desires that the Executive
continue in its employ,
Whereas
, to encourage the Executive to remain an employee, the Bank is willing to
provide to the Executive salary continuation benefits payable from the Bank’s general assets,
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 the Bank, is
contemplated insofar as the Bank is concerned,
Whereas
, the Bank and the Executive intend that this Agreement shall amend and
restate in its entirety the December 16, 2003 Second Amended Salary Continuation Agreement between
the Executive and the Bank, and
Whereas
, the parties hereto intend that this Agreement shall be considered an
unfunded arrangement maintained primarily to provide supplemental retirement benefits for the
Executive, and to be considered a non-qualified benefit plan for purposes of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”). The Executive is fully advised of
the Bank’s financial status.
Now Therefore
, in consideration of the foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows.
Article 1
Definitions
1.1
“
Accrual Balance
” means the liability that should be accrued by the Bank under generally
accepted accounting principles (“GAAP”) for the Bank’s obligation to the Executive under this
Agreement, applying Accounting Principles Board Opinion No. 12, as amended by Statement of
Financial Accounting Standards No. 106, and the calculation method and discount rate specified
hereinafter. The Accrual Balance shall be calculated such that when it is credited with interest
each month the Accrual Balance at Normal Retirement Age equals the present value
of the normal retirement benefits. The discount rate means the rate used by the Plan Administrator
for determining the Accrual Balance. In its sole discretion the Plan Administrator may adjust the
discount rate to maintain the rate within reasonable standards according to GAAP.
1.2
“
Beneficiary
” means each designated person, or the estate of the deceased Executive,
entitled to benefits, if any, upon the death of the Executive, determined according to Article 4.
1.3
“
Beneficiary Designation Form
” means the form established from time to time by the Plan
Administrator that the Executive completes, signs, and returns to the Plan Administrator to
designate one or more Beneficiaries.
1.4
“
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 –
(a)
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’s stock,
(b)
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
(c)
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.
1.5
“
Code
” means the Internal Revenue Code of 1986, as amended, and rules, regulations, and
guidance of general application issued by the Department of the Treasury under the Internal Revenue
Code of 1986, as amended.
1.6
“
Disability
” means, because of a medically determinable physical or mental impairment that
can be expected to result in death or that can be expected to last for a continuous period of at
least 12 months, (
x
) the Executive is unable to engage in any substantial gainful activity, or (
y
)
the Executive is receiving income replacement benefits for a period of at least three months under
an accident and health plan of the employer. Medical determination of
disability may be made either by the Social Security Administration or by the provider of an
accident or health plan covering employees of the Bank. Upon request of the Plan Administrator,
the Executive must submit proof to the Plan Administrator of the Social Security Administration’s
or provider’s determination.
2
1.7
“
Early Termination
” means Separation from Service before Normal Retirement Age for reasons
other than death, Disability, or Termination with Cause.
1.8
“
Effective Date
” means March 1, 2001.
1.9
“
Intentional
,” for purposes of this Agreement, no act or failure to act on the part of the
Executive 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 the best interests of the Bank.
1.10
“
Normal Retirement Age
” means the Executive’s 65
th
birthday.
1.11
“
Plan Administrator
” or “
Administrator
” means the plan administrator described in Article
7.
1.12
“
Plan Year
” means a twelve-month period commencing on March 1 and ending on the last day
of February of each year. The initial Plan Year commenced on the Effective Date.
1.13
“
Separation from Service
” means the Executive’s service as an executive and independent
contractor to the Bank and any member of a controlled group, as defined in Code section 414,
terminates for any reason, other than because of a leave of absence approved by the Bank or the
Executive’s death. For purposes of this Agreement, if there is a dispute about the employment
status of the Executive or the date of the Executive’s Separation from Service, the Bank shall have
the sole and absolute right to decide the dispute unless a Change in Control shall have occurred.
1.14
“
Termination with Cause
” and “
Cause
” shall have the same meaning specified in any
effective severance or employment agreement existing on the date hereof or hereafter entered into
between the Executive and the Bank. If the Executive is not a party to a severance or employment
agreement containing a definition of termination with cause, Termination with Cause means the Bank
terminates the Executive’s employment because of –
(a) the Executive’s gross negligence or gross neglect of duties or intentional and material
failure to perform stated duties after written notice thereof, or
(b) disloyalty or dishonesty by the Executive in the performance of the Executive’s duties, or
a breach of the Executive’s fiduciary duties for personal profit, in any case whether in the
Executive’s capacity as a director or officer, or
3
(c) intentional wrongful damage by the Executive to the business or property of the Bank or
its affiliates, including without limitation the reputation of the Bank, which in the judgement of
the Bank causes material harm to the Bank or affiliates, or
(d) a willful violation by the Executive of any applicable law or significant policy of the
Bank or an affiliate that, in the Bank’s judgement, results in an adverse effect on the Bank or the
affiliate, regardless of whether the violation leads to criminal prosecution or conviction. For
purposes of this Agreement applicable laws include any statute, rule, regulatory order, statement
of policy, or final cease-and-desist order of any governmental agency or body having regulatory
authority over the Bank, or
(e) 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 the Bank, under the
Bank’s blanket bond or other fidelity or insurance policy covering its directors, officers, or
employees, or
(f) the Executive is removed from office or permanently prohibited from participating in the
Bank’s affairs by an order issued under section 8(e)(4) or section 8(g)(1) of the Federal Deposit
Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or
(g) conviction of the Executive for 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.
Article 2
Lifetime Benefits
2.1 Normal Retirement
. Unless Separation from Service or a Change in Control occurs before
Normal Retirement Age, when the Executive attains Normal Retirement Age the Bank shall pay to the
Executive the benefit described in this section 2.1 instead of any other benefit under this
Agreement. If the Executive’s Separation from Service thereafter is a Termination with Cause or if
this Agreement terminates under Article 5, no further benefits shall be paid.
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2.1.1
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Amount of benefit
. The annual benefit under this section 2.1 is $85,700.
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2.1.2
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Payment of benefit
. Beginning with the month immediately after the month in
which the Executive attains Normal Retirement Age, the Bank shall pay the annual
benefit to the Executive in equal monthly installments on the last day of each month.
The annual benefit shall be paid to the Executive for 15 years.
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4
2.2 Early Termination
. For Early Termination the Bank shall pay to the Executive the benefit
described in this section 2.2 instead of any other benefit under this Agreement, provided the
Executive has attained age 62 when Separation from Service occurs. The Executive
shall be entitled to no benefit under this section 2.2 if Early Termination occurs before the
Executive attains age 62 or if Early Termination occurs after a Change in Control.
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2.2.1
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Amount of benefit
. The annual benefit under this section 2.2 is calculated as
the amount that fully amortizes the Accrual Balance existing at the end of the month
immediately before the month in which Separation from Service occurs, amortizing that
Accrual Balance over 15 years and taking into account interest at the discount rate or
rates established by the Plan Administrator.
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2.2.2
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Payment of benefit
. The Bank shall pay the annual benefit to the Executive in
equal monthly installments on the last day of each month, except that the first six
monthly installments after the Executive’s Separation from Service shall not be paid to
the Executive until the seventh month after the month in which Separation from Service
occurs. In the seventh month after the month in which Separation from Service occurs
the Executive shall be entitled to the first six monthly installments and the regular
monthly installment for the seventh month. The Executive shall be entitled to a total
of 180 monthly installments, including the first six installments that are paid in the
seventh month.
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2.3 Disability
. For Separation from Service because of Disability before Normal Retirement
Age, the Bank shall pay to the Executive the benefit described in this section 2.3 instead of any
other benefit under this Agreement. The Executive shall be entitled to no benefit under this
section 2.3 if Separation from Service because of Disability occurs after a Change in Control.
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2.3.1
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Amount of benefit
. The annual benefit under this section 2.3 is calculated as
the amount that fully amortizes the Accrual Balance existing at the end of the month
immediately before the month in which Separation from Service occurs, amortizing that
Accrual Balance over 15 years and taking into account interest at the discount rate or
rates established by the Plan Administrator.
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2.3.2
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Payment of benefit
. Beginning with the later of (
x
) the seventh month after
the month in which the Executive’s Separation from Service occurs, or (
y
) the month
immediately after the month in which the Executive attains Normal Retirement Age, the
Bank shall pay the annual benefit to the Executive in equal monthly installments on the
last day of each month. If the benefit is paid under clause (
x
) in the seventh month
after Separation from Service, the first six monthly installments after Separation from
Service shall not be paid to the Executive until the seventh month after the month in
which Separation from Service occurs. In the seventh month the Executive shall be
entitled to the first six monthly installments and the regular monthly installment for
the seventh month. The Executive shall be entitled to a total of 180 monthly
installments, including the first six installments that are paid in the seventh month.
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2.4 Change in Control
. If a Change in Control occurs both before Normal Retirement Age and
before Separation from Service, the Bank shall pay to the Executive the benefit described in this
section 2.4 instead of any other benefit under this Agreement.
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2.4.1
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Amount of benefit
: The benefit under this section 2.4 is the Normal
Retirement Age Accrual Balance required by section 2.1, discounting the Normal
Retirement Age Accrual Balance to present value using a discount rate selected by the
Plan Administrator, but the discount rate selected by the Plan Administrator shall not
exceed the discount rate employed at the time of the Change in Control for purposes of
calculating the Accrual Balance.
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2.4.2
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Payment of benefit
: The Bank shall pay the benefit under this section 2.4 to
the Executive in a single lump sum within three days after the Change in Control. If
the Executive receives the benefit under this section 2.4 because of the occurrence of
a Change in Control, the Executive shall not be entitled to claim additional benefits
under section 2.4 if an additional Change in Control occurs thereafter.
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2.5 Lump-Sum Payout of Remaining Normal Retirement Benefit, Early Termination Benefit, or
Disability Benefit When a Change in Control Occurs
. If a Change in Control occurs while the
Executive is receiving the Normal Retirement Age benefit under section 2.1, the Bank shall pay the
remaining salary continuation benefits to the Executive in a single lump sum within three days
after the Change in Control. If a Change in Control occurs after Separation from Service but while
the Executive is receiving or is entitled to receive the Early Termination benefit under section
2.2 or the Disability benefit under section 2.3, the Bank shall pay the remaining salary
continuation benefits to the Executive in a single lump sum within three days after the later of
(
x
) the Change in Control or (
y
) the first day of the seventh month after the month in which the
Executive’s Separation from Service occurs. The lump-sum payment due to the Executive as a result
of a Change in Control shall be an amount equal to the Accrual Balance amount corresponding to the
particular benefit when the Change in Control occurs.
2.6 Annual Benefit Statement
. Within 120 days after the end of each Plan Year the Plan
Administrator shall provide or cause to be provided to the Executive an annual benefit statement
showing benefits payable or potentially payable to the Executive under this Agreement. Each annual
benefit statement shall supersede the previous year’s annual benefit statement. If there is a
contradiction between this Agreement and the annual benefit statement concerning the amount of a
particular benefit payable or potentially payable to the Executive under sections 2.2, 2.3, or 2.4
hereof, the amount of the benefit determined under this Agreement shall control.
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2.7 Savings Clause Relating to Compliance with Code Section 409A
. Despite any contrary
provision of this Agreement, if when the Executive’s employment terminates the Executive is a
specified employee, as defined in Code section 409A, and if any payments under Article 2 of this
Agreement will result in additional tax or interest to the Executive because of section 409A, the
Executive shall not be entitled to the payments under Article 2 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. If
any provision of this Agreement would subject the Executive to additional tax or interest under
section 409A, the Bank shall reform the provision. However, the Bank shall maintain to the maximum
extent practicable the original intent of the applicable provision without subjecting the Executive
to additional tax or interest, and the Bank shall not be required to incur any additional
compensation expense as a result of the reformed provision.
2.8 One Benefit Only
. Despite anything to the contrary in this Agreement, the Executive and
Beneficiary are entitled to one benefit only under this Agreement, which shall be determined by the
first event to occur that is dealt with by this Agreement. Except as provided in section 2.5 or
Article 3, subsequent occurrence of events dealt with by this Agreement shall not entitle the
Executive or Beneficiary to other or additional benefits under this Agreement.
Article 3
Death Benefits
3.1 Death in Active Service Before Normal Retirement Age
. If the Executive dies both before
Normal Retirement Age and before Separation from Service, instead of any other benefit payable
under this Agreement the Executive’s Beneficiary shall be entitled at the Executive’s death solely
to the benefit, if any, payable under the Split Dollar Agreement and Endorsement attached to this
Agreement as Addendum A, as amended, unless the Change-in-Control benefit under section 2.4 shall
have been paid. However, the Executive’s Beneficiary shall be entitled to no benefit under the
Split Dollar Agreement and Endorsement, as amended, if the Change-in-Control benefit under section
2.4 shall have been paid.
3.2 Death During Benefit Period
. If the Executive dies after benefit payments under Article 2
commence but before receiving all such payments, the Bank shall pay the remaining benefits to the
Executive’s Beneficiary at the same time and in the same amounts they would have been paid to the
Executive had the Executive survived. In that case no death benefit shall be payable under the
Split Dollar Agreement and Endorsement, as amended. If the Executive is entitled to benefit
payments under Article 2 but dies before payments commence, the benefits shall be payable to the
Executive’s Beneficiary but payments shall commence on the last day of the month after the date of
the Executive’s death, and no death benefit shall be payable under the Split Dollar Agreement and
Endorsement, as amended. However, the Executive’s Beneficiary shall be entitled to no benefit
under the Split Dollar Agreement and Endorsement, as amended, if the Change-in-Control benefit
under section 2.4 shall have been paid.
3.3 Lump-Sum Payout of Remaining Normal Retirement Benefit, Early Termination Benefit, or
Disability Benefit When a Change in Control Occurs
. If a Change in Control occurs while the
Beneficiary is receiving under section 3.2 the section 2.1 Normal Retirement Age benefit after the
Executive’s death or if a Change in Control occurs after the Executive’s Separation from Service
but while the Beneficiary is receiving or is entitled to receive because of section 3.2 the section
2.2 Early Termination benefit or the section 2.3
Disability benefit after the Executive’s death, the Bank shall pay the remaining benefits to the
Beneficiary in a single lump sum within three days after the Change in Control. The lump-sum
payment due to the Beneficiary as a result of a Change in Control shall be an amount equal to the
Accrual Balance amount corresponding to the particular benefit when the Change in Control occurs.
7
Article 4
Beneficiaries
4.1 Beneficiary Designations
. The Executive shall have the right to designate at any time a
Beneficiary to receive any benefits payable under this Agreement after the Executive’s death. The
Beneficiary designated under this Agreement may be the same as or different from the beneficiary
designation under any other benefit plan of the Bank in which the Executive participates.
4.2 Beneficiary Designation: Change
. The Executive shall designate a Beneficiary by
completing and signing the Beneficiary Designation Form and delivering it to the Plan Administrator
or its designated agent. The Executive’s Beneficiary designation shall be deemed automatically
revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as
Beneficiary and the marriage is subsequently dissolved. The Executive shall have the right to
change a Beneficiary by completing, signing, and otherwise complying with the terms of the
Beneficiary Designation Form and the Plan Administrator’s rules and procedures, as in effect from
time to time. Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form,
all Beneficiary designations previously filed shall be cancelled. The Plan Administrator shall be
entitled to rely on the last Beneficiary Designation Form filed by the Executive and accepted by
the Plan Administrator before the Executive’s death.
4.3 Acknowledgment
. No designation or change in designation of a Beneficiary shall be
effective until received, accepted, and acknowledged in writing by the Plan Administrator or its
designated agent.
4.4 No Beneficiary Designation
. If the Executive dies without a valid beneficiary designation
or if all designated Beneficiaries predecease the Executive, the Executive’s spouse shall be the
designated Beneficiary. If the Executive has no surviving spouse the benefits shall be made to the
personal representative of the Executive’s estate.
4.5 Facility of Payment
. If a benefit is payable to a minor, to a person declared
incapacitated, or to a person incapable of handling the disposition of his or her property, the
Bank may pay the benefit to the guardian, legal representative, or person having the care or
custody of the minor, incapacitated person, or incapable person. The Bank may require proof of
incapacity, minority, or guardianship as it may deem appropriate before distribution of the
benefit. Distribution shall completely discharge the Bank from all liability for the benefit.
8
Article 5
General Limitations
5.1 Termination with Cause and Termination Before Vesting
. Despite any contrary provision of
this Agreement, the Bank shall not pay any benefit under this Agreement and this Agreement shall
terminate if Separation from Service is a Termination with Cause or if Separation from Service is
an Early Termination before the Executive attains age 62.
5.2 Misstatement
. No benefits shall be paid under this Agreement or under the Split Dollar
Agreement and Endorsement, as amended, if the Executive makes any material misstatement of fact on
any application or resume provided to the Bank, on any application for life insurance purchased by
the Bank, or on any application for benefits provided by the Bank.
5.3 Removal
. If the Executive is removed from office or permanently prohibited 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), all obligations of the Bank under
this Agreement shall terminate as of the effective date of the order, and the Split Dollar
Agreement and Endorsement, as amended, also shall terminate as of the effective date of the order.
5.4 Default
. Despite any contrary provision of this Agreement, if the Bank is in “default” or
“in danger of default,” as those terms are defined in of section 3(x) of the Federal Deposit
Insurance Act, 12 U.S.C. 1813(x), all obligations under this Agreement shall terminate.
5.5 FDIC Open-Bank Assistance
. All obligations under this Agreement shall be terminated,
except to the extent determined that continuation of the contract is necessary for the continued
operation of the Bank, at the time the Federal Deposit Insurance Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority contained in
section 13(c) of the Federal Deposit Insurance Act. 12 U.S.C. 1823(c). Any rights of the parties
that have already vested shall not be affected by such action, however.
Article 6
Claims and Review Procedures
6.1 Claims Procedure
. Any person who has not received benefits under this Agreement that he
or she believes should be paid (the “claimant”) shall make a claim for benefits as follows.
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6.1.1
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Initiation – written claim
. The claimant initiates a claim by submitting to
the Administrator a written claim for the benefits. If the claim relates to the
contents of a notice received by the claimant, the claim must be made within 60 days
after the notice was received by the claimant. All other claims must be made within
180 days after the date of the event that caused the claim to arise. The claim must
state with particularity the determination desired by the claimant.
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6.1.2
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Timing of Administrator response
. The Administrator shall respond to the
claimant within 90 days after receiving the claim. If the Administrator determines
that special circumstances require additional time for processing the claim, the
Administrator can extend the response period by an additional 90 days by notifying the
claimant in writing, before the end of the initial 90-day period, that an additional
period is required. The notice of extension must set forth the special circumstances
and the date by which the Administrator expects to render its decision.
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6.1.3
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Notice of decision
. If the Administrator denies part or all of the claim, the
Administrator shall notify the claimant in writing of the denial. The Administrator
shall write the notification in a manner calculated to be understood by the claimant.
The notification shall set forth –
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(a)
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The specific reasons for the denial,
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(b)
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A reference to the specific provisions of this Agreement on
which the denial is based,
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(c)
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A description of any additional information or material
necessary for the claimant to perfect the claim and an explanation of why it is
needed,
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(d)
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An explanation of the Agreement’s review procedures and the
time limits applicable to such procedures, and
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(e)
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A statement of the claimant’s right to bring a civil action
under ERISA section 502(a) after an adverse benefit determination on review.
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6.2 Review Procedure
. If the Administrator denies part or all of the claim, the claimant
shall have the opportunity for a full and fair review by the Administrator of the denial, as
follows.
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6.2.1
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Initiation – written request
. To initiate the review, the claimant must file
with the Administrator a written request for review within 60 days after receiving the
Administrator’s notice of denial.
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6.2.2
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Additional submissions – information access
. The claimant shall then have the
opportunity to submit written comments, documents, records, and other information
relating to the claim. Upon request and free of charge, the Administrator shall also
provide the claimant reasonable access to and copies of all documents, records, and
other information relevant (as defined in applicable ERISA regulations) to the
claimant’s claim for benefits.
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6.2.3
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Considerations on review
. In considering the review, the Administrator shall
take into account all materials and information the claimant submits relating to the
claim, without regard to whether the information was submitted or considered in the
initial benefit determination.
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6.2.4
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Timing of Administrator response
. The Administrator shall respond in writing
to the claimant within 60 days after receiving the request for review. If the
Administrator determines that special circumstances require additional time for
processing the claim, the Administrator can extend the response period by an additional
60 days by notifying the claimant in writing before the end of the initial 60-day
period that an additional period is required. The notice of extension must set forth
the special circumstances and the date by which the Administrator expects to render its
decision.
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6.2.5
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Notice of decision
. The Administrator shall notify the claimant in writing of
its decision on review. The Administrator shall write the notification in a manner
calculated to be understood by the claimant. The notification shall set forth:
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(a)
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The specific reasons for the denial,
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(b)
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A reference to the specific provisions of the Agreement on
which the denial is based,
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(c)
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A statement that the claimant is entitled to receive, upon
request and free of charge, reasonable access to and copies of all documents,
records, and other information relevant (as defined in applicable ERISA
regulations) to the claimant’s claim for benefits, and
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(d)
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A statement of the claimant’s right to bring a civil action
under ERISA section 502(a).
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Article 7
Administration of Agreement
7.1 Plan Administrator Duties
. This Agreement shall be administered by a Plan Administrator
consisting of the Board or such committee or person(s) as the Board shall appoint. The Executive
may not be a member of the Plan Administrator. The Plan Administrator shall have the discretion
and authority to (
x
) make, amend, interpret, and enforce all appropriate rules and regulations for
the administration of this Agreement and (
y
) decide or resolve any and all questions that may
arise, including interpretations of this Agreement.
7.2 Agents
. In the administration of this Agreement the Plan Administrator may employ agents
and delegate to them such administrative duties as it sees fit (including acting through a duly
appointed representative) and may from time to time consult with counsel, who may be counsel to the
Bank.
7.3 Binding Effect of Decisions
. The decision or action of the Plan Administrator about any
question arising out of the administration, interpretation, and application of the Agreement and
the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all
persons having any interest in the Agreement. No Executive or Beneficiary shall be deemed to have
any right, vested or nonvested, regarding the continued use of any previously adopted assumptions,
including but not limited to the discount rate and calculation method employed in the determination
of the Accrual Balance.
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7.4 Indemnity of Plan Administrator
. The Bank shall indemnify and hold harmless the members
of the Plan Administrator against any and all claims, losses, damages, expenses, or liabilities
arising from any action or failure to act with respect to this Agreement, except in the case of
willful misconduct by the Plan Administrator or any of its members.
7.5 Bank Information
. To enable the Plan Administrator to perform its functions, the Bank
shall supply full and timely information to the Plan Administrator on all matters relating to the
date and circumstances of the retirement, Disability, death, or Separation from Service of the
Executive, and such other pertinent information as the Plan Administrator may reasonably require.
Article 8
Miscellaneous
8.1 Amendments and Termination
. Subject to section 8.14 of this Agreement, this Agreement may
be amended solely by a written agreement signed by the Bank and by the Executive, and except for
termination occurring under Article 5 this Agreement may be terminated solely by a written
agreement signed by the Bank and by the Executive.
8.2 Binding Effect
. This Agreement shall bind the Executive and the Bank and their
beneficiaries, survivors, executors, successors, administrators, and transferees.
8.3 No Guarantee of Employment
. This Agreement is not an employment policy or contract. It
does not give the Executive the right to remain an employee of the Bank nor does it interfere with
the Bank’s right to discharge the Executive. It also does not require the Executive to remain an
employee or interfere with the Executive’s right to terminate employment at any time.
8.4 Non-Transferability
. Benefits under this Agreement may not be sold, transferred,
assigned, pledged, attached, or encumbered.
8.5 Successors; Binding Agreement
. By an assumption agreement in form and substance
satisfactory to the Executive, the Bank shall require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all of the Bank’s business
or assets to expressly assume and agree to perform this Agreement in the same manner and to the
same extent the Bank would be required to perform this Agreement had no succession occurred.
8.6 Tax Withholding
. The Bank shall withhold any taxes that are required to be withheld from
the benefits provided under this Agreement.
8.7 Applicable Law
. The Agreement and all rights hereunder shall be governed by the laws of
the State of Ohio, except to the extent preempted by the laws of the United States of America.
8.8 Unfunded Arrangement
. The Executive and beneficiary are general unsecured creditors of
the Bank for the payment of benefits under this Agreement. The benefits represent the mere promise
by the Bank to pay benefits. The rights to benefits are not subject to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors. Any insurance on the Executive’s life is a general asset of the Bank to
which the Executive and beneficiary have no preferred or secured claim.
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8.9 Entire Agreement
. This Agreement and the Split Dollar Agreement and Endorsement attached
to this Agreement as Addendum A, as amended, constitute the entire agreement between the Bank and
the Executive concerning the subject matter. No rights are granted to the Executive under this
Agreement other than those specifically set forth. This Agreement amends and restates in its
entirety the December 16, 2003 Second Amended Salary Continuation Agreement.
8.10 Severability
. If any provision of this Agreement is held invalid, such invalidity shall
not affect any other provision of this Agreement not held invalid, and to the full extent
consistent with law each such other provision shall continue in full force and effect. If any
provision of this Agreement is held invalid in part, such invalidity shall not affect the remainder
of such provision not held invalid, and to the full extent consistent with law the remainder of
such provision, together with all other provisions of this Agreement, shall continue in full force
and effect.
8.11 Headings
. Headings are included herein solely for convenience of reference and shall not
affect the meaning or interpretation of any provision of this Agreement.
8.12 Notices
. All notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or
registered mail, return receipt requested, with postage prepaid, to the following addresses or to
such other address as either party may designate by like notice. If to the Bank, notice shall be
given to the board of directors, The Cortland Savings and Banking Company, 194 W. Main Street, P.O.
Box 98, Cortland, Ohio 44410-1466, or to such other or additional person or persons as the Bank
shall have designated to the Executive in writing. If to the Executive, notice shall be given to
the Executive at the Executive’s address appearing on the Bank’s records, or to such other or
additional person or persons as the Executive shall have designated to the Bank in writing.
8.13 Payment of Legal Fees
. The Bank is aware that after a Change in Control management of
the Bank could cause or attempt to cause the Bank to refuse to comply with its obligations under
this Agreement, or could institute or cause or attempt to cause the Bank to institute litigation
seeking to have this Agreement declared unenforceable, or could take or attempt to take other
action to deny the Executive the benefits intended under this Agreement. In these circumstances
the purpose of this Agreement would be frustrated. The Bank desires that the Executive not be
required to incur 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. The Bank 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 it appears to Executive that (
x
) the
Bank has failed to comply with any of its obligations under this Agreement, or (
y
) the Bank 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 recover from the Executive the
benefits intended to be provided to the Executive hereunder, the Bank irrevocably authorizes the
Executive from time to time to retain counsel of the Executive’s choice, at the Bank’s expense as
provided in this section 8.13, to represent the Executive in the initiation or defense
13
of any
litigation or other legal action, whether by or against the Bank or any director, officer, stockholder or other person affiliated with the Bank, in any
jurisdiction. Despite any existing or previous attorney-client relationship between the Bank and
any counsel chosen by the Executive under this section 8.13, the Bank irrevocably consents to the
Executive entering into an attorney-client relationship with that counsel, and the Bank 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 Executive as provided in
this section shall be paid or reimbursed to Executive by the Bank 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 regardless of whether incurred in trial, bankruptcy, or appellate proceedings.
The Bank’s obligation to pay the Executive’s legal fees provided by this section 8.13 operates
separately from and in addition to any legal fee reimbursement obligation the Bank or the Bank’s
parent Cortland Bancorp may have with the Executive under a severance or employment agreement by
and among the Executive, the Bank, and Cortland Bancorp. Despite any contrary provision within
this Agreement however, the Bank 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].
8.14 Termination or Modification of Agreement Because of Changes in Law, Rules or Regulations
.
The Bank is entering into this Agreement on the assumption that certain existing tax laws, rules,
and regulations will continue in effect in their current form. If that assumption materially
changes and the change has a material detrimental effect on this Agreement, then the Bank reserves
the right to terminate or modify this Agreement accordingly, subject to the written consent of the
Executive, which shall not be unreasonably withheld. This section 8.14 shall become null and void
effective immediately after a Change in Control.
In Witness Whereof
, the Executive and a duly authorized Bank officer have executed
this Third Amended Salary Continuation Agreement as of the date first written above.
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Executive
:
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Bank
:
The Cortland Savings and Banking
Company
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By:
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Title:
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14
Beneficiary Designation
The Cortland Savings and Banking Company
Third Amended Salary Continuation Agreement
Lawrence A. Fantauzzi
I designate the following as beneficiary of any death benefits under this Third Amended Salary
Continuation Agreement:
Note: To name a trust as beneficiary, please provide the name of the trustee(s) and
the
exact
name and date of the trust agreement.
I understand that I may change these beneficiary designations by filing a new written
designation with the Bank. I further understand that the designations will be automatically
revoked if the beneficiary predeceases me, or, if I have named my spouse as beneficiary and our
marriage is subsequently dissolved.
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Signature:
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Lawrence A. Fantauzzi
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Date:
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, 2008
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Accepted by the Bank this
_____
day of
_____, 2008
15
Exhibit 10.19
The Cortland Savings and Banking Company
Third Amended Salary Continuation Agreement
This
Third Amended Salary Continuation Agreement
(this “Agreement”) is entered into
as of this
third day of
December, 2008, by and between The Cortland Savings and Banking Company (the “Bank”), an Ohio-chartered, FDIC-insured member bank, and
James M. Gasior, Senior Vice President, Chief Financial Officer, and Secretary of the Bank (the
“Executive”).
Whereas
, the Executive has contributed substantially to the success of the Bank and
its parent company, Cortland Bancorp, an Ohio corporation, and the Bank desires that the Executive
continue in its employ,
Whereas
, to encourage the Executive to remain an employee, the Bank is willing to
provide to the Executive salary continuation benefits payable from the Bank’s general assets,
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 the Bank, is
contemplated insofar as the Bank is concerned,
Whereas
, the Bank and the Executive intend that this Agreement shall amend and
restate in its entirety the December 15, 2003 Second Amended Salary Continuation Agreement between
the Executive and the Bank, and
Whereas
, the parties hereto intend that this Agreement shall be considered an
unfunded arrangement maintained primarily to provide supplemental retirement benefits for the
Executive, and to be considered a non-qualified benefit plan for purposes of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”). The Executive is fully advised of
the Bank’s financial status.
Now Therefore
, in consideration of the foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows.
Article 1
Definitions
1.1
“
Accrual Balance
” means the liability that should be accrued by the Bank under generally
accepted accounting principles (“GAAP”) for the Bank’s obligation to the Executive under this
Agreement, applying Accounting Principles Board Opinion No. 12, as amended by Statement of
Financial Accounting Standards No. 106, and the calculation method and discount rate specified
hereinafter. The Accrual Balance shall be calculated such that when it is credited with interest
each month the Accrual Balance at Normal Retirement Age equals the present value
of the normal retirement benefits. The discount rate means the rate used by the Plan Administrator
for determining the Accrual Balance. In its sole discretion the Plan Administrator may adjust the
discount rate to maintain the rate within reasonable standards according to GAAP.
1.2
“
Beneficiary
” means each designated person, or the estate of the deceased Executive,
entitled to benefits, if any, upon the death of the Executive, determined according to Article 4.
1.3
“
Beneficiary Designation Form
” means the form established from time to time by the Plan
Administrator that the Executive completes, signs, and returns to the Plan Administrator to
designate one or more Beneficiaries.
1.4
“
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 —
(a)
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’s stock,
(b)
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
(c)
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.
1.5
“
Code
” means the Internal Revenue Code of 1986, as amended, and rules, regulations, and
guidance of general application issued by the Department of the Treasury under the Internal Revenue
Code of 1986, as amended.
1.6
“
Disability
” means, because of a medically determinable physical or mental impairment that
can be expected to result in death or that can be expected to last for a continuous period of at
least 12 months, (
x
) the Executive is unable to engage in any substantial gainful activity, or (
y
)
the Executive is receiving income replacement benefits for a period of at least
three months under an accident and health plan of the employer. Medical determination of
disability may be made either by the Social Security Administration or by the provider of an
accident or health plan covering employees of the Bank. Upon request of the Plan Administrator,
the Executive must submit proof to the Plan Administrator of the Social Security Administration’s
or provider’s determination.
2
1.7
“
Early Termination
” means Separation from Service before Normal Retirement Age for reasons
other than death, Disability, or Termination with Cause.
1.8
“
Effective Date
” means March 1, 2001.
1.9
“
Intentional
,” for purposes of this Agreement, no act or failure to act on the part of the
Executive 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 the best interests of the Bank.
1.10
“
Normal Retirement Age
” means the Executive’s 65
th
birthday.
1.11
“
Plan Administrator
” or “
Administrator
” means the plan administrator described in Article
7.
1.12
“
Plan Year
” means a twelve-month period commencing on March 1 and ending on the last day
of February of each year. The initial Plan Year commenced on the Effective Date.
1.13
“
Separation from Service
” means the Executive’s service as an executive and independent
contractor to the Bank and any member of a controlled group, as defined in Code section 414,
terminates for any reason, other than because of a leave of absence approved by the Bank or the
Executive’s death. For purposes of this Agreement, if there is a dispute about the employment
status of the Executive or the date of the Executive’s Separation from Service, the Bank shall have
the sole and absolute right to decide the dispute unless a Change in Control shall have occurred.
1.14
“
Termination with Cause
” and “
Cause
” shall have the same meaning specified in any
effective severance or employment agreement existing on the date hereof or hereafter entered into
between the Executive and the Bank. If the Executive is not a party to a severance or employment
agreement containing a definition of termination with cause, Termination with Cause means the Bank
terminates the Executive’s employment because of —
(a) the Executive’s gross negligence or gross neglect of duties or intentional and material
failure to perform stated duties after written notice thereof, or
3
(b) disloyalty or dishonesty by the Executive in the performance of the Executive’s duties, or
a breach of the Executive’s fiduciary duties for personal profit, in any case whether in the
Executive’s capacity as a director or officer, or
(c) intentional wrongful damage by the Executive to the business or property of the Bank or
its affiliates, including without limitation the reputation of the Bank, which in the judgement of
the Bank causes material harm to the Bank or affiliates, or
(d) a willful violation by the Executive of any applicable law or significant policy of the
Bank or an affiliate that, in the Bank’s judgement, results in an adverse effect on the Bank or the
affiliate, regardless of whether the violation leads to criminal prosecution or conviction. For
purposes of this Agreement applicable laws include any statute, rule, regulatory order, statement
of policy, or final cease-and-desist order of any governmental agency or body having regulatory
authority over the Bank, or
(e) 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 the Bank, under the
Bank’s blanket bond or other fidelity or insurance policy covering its directors, officers, or
employees, or
(f) the Executive is removed from office or permanently prohibited from participating in the
Bank’s affairs by an order issued under section 8(e)(4) or section 8(g)(1) of the Federal Deposit
Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or
(g) conviction of the Executive for 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.
Article 2
Lifetime Benefits
2.1 Normal Retirement
. Unless Separation from Service or a Change in Control occurs before
Normal Retirement Age, when the Executive attains Normal Retirement Age the Bank shall pay to the
Executive the benefit described in this section 2.1 instead of any other benefit under this
Agreement. If the Executive’s Separation from Service thereafter is a Termination with Cause or if
this Agreement terminates under Article 5, no further benefits shall be paid.
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2.1.1
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Amount of benefit
. The annual benefit under this section 2.1 is $72,100.
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2.1.2
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Payment of benefit
. Beginning with the month immediately after the month in
which the Executive attains Normal Retirement Age, the Bank shall pay the annual
benefit to the Executive in equal monthly installments on the last day of each month.
The annual benefit shall be paid to the Executive for 15 years.
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2.2 Early Termination
. For Early Termination, the Bank shall pay to the Executive the benefit
described in this section 2.2 instead of any other benefit under this Agreement, provided the
Executive has attained age 62 when Separation from Service occurs. The Executive shall be entitled
to no benefit under this section 2.2 if Early Termination occurs before the Executive attains age
62 or if Early Termination occurs after a Change in Control.
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2.2.1
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Amount of benefit
. The annual benefit under this section 2.2 is calculated as
the amount that fully amortizes the Accrual Balance existing at the end of the month
immediately before the month in which Separation from Service occurs, amortizing that
Accrual Balance over 15 years and taking into account interest at the discount rate or
rates established by the Plan Administrator.
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2.2.2
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Payment of benefit
. The Bank shall pay the annual benefit to the Executive in
equal monthly installments on the last day of each month, except that the first six
monthly installments after the Executive’s Separation from Service shall not be paid to
the Executive until the seventh month after the month in which Separation from Service
occurs. In the seventh month after the month in which Separation from Service occurs
the Executive shall be entitled to the first six monthly installments and the regular
monthly installment for the seventh month. The Executive shall be entitled to a total
of 180 monthly installments, including the first six installments that are paid in the
seventh month.
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2.3 Disability
. For Separation from Service because of Disability before Normal Retirement
Age, the Bank shall pay to the Executive the benefit described in this section 2.3 instead of any
other benefit under this Agreement. The Executive shall be entitled to no benefit under this
section 2.3 if Separation from Service because of Disability occurs after a Change in Control.
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2.3.1
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Amount of benefit
. The annual benefit under this section 2.3 is calculated as
the amount that fully amortizes the Accrual Balance existing at the end of the month
immediately before the month in which Separation from Service occurs, amortizing that
Accrual Balance over 15 years and taking into account interest at the discount rate or
rates established by the Plan Administrator.
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2.3.2
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Payment of benefit
. Beginning with the later of (
x
) the seventh month after
the month in which the Executive’s Separation from Service occurs, or (
y
) the month
immediately after the month in which the Executive attains Normal Retirement Age, the
Bank shall pay the annual benefit to the Executive in equal monthly installments on the
last day of each month. If the benefit is paid under clause (
x
) in the seventh month
after Separation from Service, the first six monthly installments after Separation from
Service shall not be paid to the Executive until the seventh month after the month in
which Separation from Service occurs. In the seventh month the Executive shall be
entitled to the first six monthly installments and the regular monthly installment for
the seventh month. The
Executive shall be entitled to a total of 180 monthly installments, including the
first six installments that are paid in the seventh month.
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2.4 Change in Control
. If a Change in Control occurs both before Normal Retirement Age and
before Separation from Service, the Bank shall pay to the Executive the benefit described in this
section 2.4 instead of any other benefit under this Agreement.
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2.4.1
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Amount of benefit
: The benefit under this section 2.4 is the Normal
Retirement Age Accrual Balance required by section 2.1, discounting the Normal
Retirement Age Accrual Balance to present value using a discount rate selected by the
Plan Administrator, but the discount rate selected by the Plan Administrator shall not
exceed the discount rate employed at the time of the Change in Control for purposes of
calculating the Accrual Balance.
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2.4.2
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Payment of benefit
: The Bank shall pay the benefit under this section 2.4 to
the Executive in a single lump sum within three days after the Change in Control. If
the Executive receives the benefit under this section 2.4 because of the occurrence of
a Change in Control, the Executive shall not be entitled to claim additional benefits
under section 2.4 if an additional Change in Control occurs thereafter.
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2.5 Lump-Sum Payout of Remaining Normal Retirement Benefit, Early Termination Benefit, or
Disability Benefit When a Change in Control Occurs
. If a Change in Control occurs while the
Executive is receiving the Normal Retirement Age benefit under section 2.1, the Bank shall pay the
remaining salary continuation benefits to the Executive in a single lump sum within three days
after the Change in Control. If a Change in Control occurs after Separation from Service but while
the Executive is receiving or is entitled to receive the Early Termination benefit under section
2.2 or the Disability benefit under section 2.3, the Bank shall pay the remaining salary
continuation benefits to the Executive in a single lump sum within three days after the later of
(
x
) the Change in Control or (
y
) the first day of the seventh month after the month in which the
Executive’s Separation from Service occurs. The lump-sum payment due to the Executive as a result
of a Change in Control shall be an amount equal to the Accrual Balance amount corresponding to the
particular benefit when the Change in Control occurs.
2.6 Annual Benefit Statement
. Within 120 days after the end of each Plan Year the Plan
Administrator shall provide or cause to be provided to the Executive an annual benefit statement
showing benefits payable or potentially payable to the Executive under this Agreement. Each annual
benefit statement shall supersede the previous year’s annual benefit statement. If there is a
contradiction between this Agreement and the annual benefit statement concerning the amount of a
particular benefit payable or potentially payable to the Executive under sections 2.2, 2.3, or 2.4
hereof, the amount of the benefit determined under this Agreement shall control.
6
2.7 Savings Clause Relating to Compliance with Code Section 409A
. Despite any contrary
provision of this Agreement, if when the Executive’s employment terminates the Executive is a
specified employee, as defined in Code section 409A, and if any payments under Article 2 of this
Agreement will result in additional tax or interest to the Executive because of section 409A, the
Executive shall not be entitled to the payments under Article 2 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. If any provision of this
Agreement would subject the Executive to additional tax or interest under section 409A, the Bank
shall reform the provision. However, the Bank shall maintain to the maximum extent practicable the
original intent of the applicable provision without subjecting the Executive to additional tax or
interest, and the Bank shall not be required to incur any additional compensation expense as a
result of the reformed provision.
2.8 One Benefit Only
. Despite anything to the contrary in this Agreement, the Executive and
Beneficiary are entitled to one benefit only under this Agreement, which shall be determined by the
first event to occur that is dealt with by this Agreement. Except as provided in section 2.5 or
Article 3, subsequent occurrence of events dealt with by this Agreement shall not entitle the
Executive or Beneficiary to other or additional benefits under this Agreement.
Article 3
Death Benefits
3.1 Death in Active Service Before Normal Retirement Age
. If the Executive dies both before
Normal Retirement Age and before Separation from Service, instead of any other benefit payable
under this Agreement the Executive’s Beneficiary shall be entitled at the Executive’s death solely
to the benefit, if any, payable under the Split Dollar Agreement and Endorsement attached to this
Agreement as Addendum A, as amended, unless the Change-in-Control benefit under section 2.4 shall
have been paid. However, the Executive’s Beneficiary shall be entitled to no benefit under the
Split Dollar Agreement and Endorsement, as amended, if the Change-in-Control benefit under section
2.4 shall have been paid.
3.2 Death During Benefit Period
. If the Executive dies after benefit payments under Article 2
commence but before receiving all such payments, the Bank shall pay the remaining benefits to the
Executive’s Beneficiary at the same time and in the same amounts they would have been paid to the
Executive had the Executive survived. In that case no death benefit shall be payable under the
Split Dollar Agreement and Endorsement, as amended. If the Executive is entitled to benefit
payments under Article 2 but dies before payments commence, the benefits shall be payable to the
Executive’s Beneficiary but payments shall commence on the last day of the month after the date of
the Executive’s death, and no death benefit shall be payable under the Split Dollar Agreement and
Endorsement, as amended. However, the Executive’s Beneficiary shall be entitled to no benefit
under the Split Dollar Agreement and Endorsement, as amended, if the Change-in-Control benefit
under section 2.4 shall have been paid.
7
3.3 Lump-Sum Payout of Remaining Normal Retirement Benefit, Early Termination Benefit, or
Disability Benefit When a Change in Control Occurs
. If a Change in Control occurs while the
Beneficiary is receiving under section 3.2 the section 2.1 Normal Retirement Age benefit after the
Executive’s death or if a Change in Control occurs after the Executive’s Separation from Service
but while the Beneficiary is receiving or is entitled to receive because of section 3.2 the section
2.2 Early Termination benefit or the section 2.3 Disability benefit after the Executive’s death,
the Bank shall pay the remaining benefits to the Beneficiary in a single lump sum within three days
after the Change in Control. The lump-sum payment due to the Beneficiary as a result of a Change
in Control shall be an amount equal to the Accrual Balance amount corresponding to the particular
benefit when the Change in Control occurs.
Article 4
Beneficiaries
4.1 Beneficiary Designations
. The Executive shall have the right to designate at any time a
Beneficiary to receive any benefits payable under this Agreement after the Executive’s death. The
Beneficiary designated under this Agreement may be the same as or different from the beneficiary
designation under any other benefit plan of the Bank in which the Executive participates.
4.2 Beneficiary Designation: Change
. The Executive shall designate a Beneficiary by
completing and signing the Beneficiary Designation Form and delivering it to the Plan Administrator
or its designated agent. The Executive’s Beneficiary designation shall be deemed automatically
revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as
Beneficiary and the marriage is subsequently dissolved. The Executive shall have the right to
change a Beneficiary by completing, signing, and otherwise complying with the terms of the
Beneficiary Designation Form and the Plan Administrator’s rules and procedures, as in effect from
time to time. Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form,
all Beneficiary designations previously filed shall be cancelled. The Plan Administrator shall be
entitled to rely on the last Beneficiary Designation Form filed by the Executive and accepted by
the Plan Administrator before the Executive’s death.
4.3 Acknowledgment
. No designation or change in designation of a Beneficiary shall be
effective until received, accepted, and acknowledged in writing by the Plan Administrator or its
designated agent.
4.4 No Beneficiary Designation
. If the Executive dies without a valid beneficiary designation
or if all designated Beneficiaries predecease the Executive, the Executive’s spouse shall be the
designated Beneficiary. If the Executive has no surviving spouse the benefits shall be made to the
personal representative of the Executive’s estate.
8
4.5 Facility of Payment
. If a benefit is payable to a minor, to a person declared
incapacitated, or to a person incapable of handling the disposition of his or her property, the
Bank may pay the benefit to the guardian, legal representative, or person having the care or
custody of the minor, incapacitated person, or incapable person. The Bank may require proof of
incapacity, minority, or guardianship as it may deem appropriate before distribution of the
benefit. Distribution shall completely discharge the Bank from all liability for the benefit.
Article 5
General Limitations
5.1 Termination with Cause and Termination Before Vesting
. Despite any contrary provision of
this Agreement, the Bank shall not pay any benefit under this Agreement and this Agreement shall
terminate if Separation from Service is a Termination with Cause or if Separation from Service is
an Early Termination before the Executive attains age 62.
5.2 Misstatement
. No benefits shall be paid under this Agreement or under the Split Dollar
Agreement and Endorsement, as amended, if the Executive makes any material misstatement of fact on
any application or resume provided to the Bank, on any application for life insurance purchased by
the Bank, or on any application for benefits provided by the Bank.
5.3 Removal
. If the Executive is removed from office or permanently prohibited 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), all obligations of the Bank under
this Agreement shall terminate as of the effective date of the order, and the Split Dollar
Agreement and Endorsement, as amended, also shall terminate as of the effective date of the order.
5.4 Default
. Despite any contrary provision of this Agreement, if the Bank is in “default” or
“in danger of default,” as those terms are defined in of section 3(x) of the Federal Deposit
Insurance Act, 12 U.S.C. 1813(x), all obligations under this Agreement shall terminate.
5.5 FDIC Open-Bank Assistance
. All obligations under this Agreement shall be terminated,
except to the extent determined that continuation of the contract is necessary for the continued
operation of the Bank, at the time the Federal Deposit Insurance Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority contained in
section 13(c) of the Federal Deposit Insurance Act. 12 U.S.C. 1823(c). Any rights of the parties
that have already vested shall not be affected by such action, however.
9
Article 6
Claims and Review Procedures
6.1 Claims Procedure
. Any person who has not received benefits under this Agreement that he
or she believes should be paid (the “claimant”) shall make a claim for benefits as follows.
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6.1.1
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Initiation — written claim
. The claimant initiates a claim by submitting to
the Administrator a written claim for the benefits. If the claim relates to the
contents of a notice received by the claimant, the claim must be made within 60 days
after the notice was received by the claimant. All other claims must be made within
180 days after the date of the event that caused the claim to arise. The claim must
state with particularity the determination desired by the claimant.
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6.1.2
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Timing of Administrator response
. The Administrator shall respond to the
claimant within 90 days after receiving the claim. If the Administrator determines
that special circumstances require additional time for processing the claim, the
Administrator can extend the response period by an additional 90 days by notifying the
claimant in writing, before the end of the initial 90-day period, that an additional
period is required. The notice of extension must set forth the special circumstances
and the date by which the Administrator expects to render its decision.
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6.1.3
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Notice of decision
. If the Administrator denies part or all of the claim, the
Administrator shall notify the claimant in writing of the denial. The Administrator
shall write the notification in a manner calculated to be understood by the claimant.
The notification shall set forth —
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(a)
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The specific reasons for the denial,
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(b)
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A reference to the specific provisions of this Agreement on
which the denial is based,
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(c)
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A description of any additional information or material
necessary for the claimant to perfect the claim and an explanation of why it is
needed,
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(d)
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An explanation of the Agreement’s review procedures and the
time limits applicable to such procedures, and
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(e)
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A statement of the claimant’s right to bring a civil action
under ERISA section 502(a) after an adverse benefit determination on review.
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6.2 Review Procedure
. If the Administrator denies part or all of the claim, the claimant
shall have the opportunity for a full and fair review by the Administrator of the denial, as
follows.
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6.2.1
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Initiation — written request
. To initiate the review, the claimant must file
with the Administrator a written request for review within 60 days after receiving the
Administrator’s notice of denial.
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6.2.2
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Additional submissions — information access
. The claimant shall then have
the opportunity to submit written comments, documents, records, and other information
relating to the claim. Upon request and free of charge, the Administrator shall also
provide the claimant reasonable access to and copies of
all documents, records, and other information relevant (as defined in applicable
ERISA regulations) to the claimant’s claim for benefits.
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6.2.3
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Considerations on review
. In considering the review, the Administrator shall
take into account all materials and information the claimant submits relating to the
claim, without regard to whether the information was submitted or considered in the
initial benefit determination.
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6.2.4
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Timing of Administrator response
. The Administrator shall respond in writing
to the claimant within 60 days after receiving the request for review. If the
Administrator determines that special circumstances require additional time for
processing the claim, the Administrator can extend the response period by an additional
60 days by notifying the claimant in writing before the end of the initial 60-day
period that an additional period is required. The notice of extension must set forth
the special circumstances and the date by which the Administrator expects to render its
decision.
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6.2.5
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Notice of decision
. The Administrator shall notify the claimant in writing of
its decision on review. The Administrator shall write the notification in a manner
calculated to be understood by the claimant. The notification shall set forth:
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(a)
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The specific reasons for the denial,
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(b)
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A reference to the specific provisions of the Agreement on
which the denial is based,
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(c)
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A statement that the claimant is entitled to receive, upon
request and free of charge, reasonable access to and copies of all documents,
records, and other information relevant (as defined in applicable ERISA
regulations) to the claimant’s claim for benefits, and
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(d)
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A statement of the claimant’s right to bring a civil action
under ERISA section 502(a).
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Article 7
Administration of Agreement
7.1 Plan Administrator Duties
. This Agreement shall be administered by a Plan Administrator
consisting of the Board or such committee or person(s) as the Board shall appoint. The Executive
may not be a member of the Plan Administrator. The Plan Administrator shall have the discretion
and authority to (
x
) make, amend, interpret, and enforce all appropriate rules and regulations for
the administration of this Agreement and (
y
) decide or resolve any and all questions that may
arise, including interpretations of this Agreement.
7.2 Agents
. In the administration of this Agreement the Plan Administrator may employ agents
and delegate to them such administrative duties as it sees fit (including acting
through a duly appointed representative) and may from time to time consult with counsel, who may be
counsel to the Bank.
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7.3 Binding Effect of Decisions
. The decision or action of the Plan Administrator about any
question arising out of the administration, interpretation, and application of the Agreement and
the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all
persons having any interest in the Agreement. No Executive or Beneficiary shall be deemed to have
any right, vested or nonvested, regarding the continued use of any previously adopted assumptions,
including but not limited to the discount rate and calculation method employed in the determination
of the Accrual Balance.
7.4 Indemnity of Plan Administrator
. The Bank shall indemnify and hold harmless the members
of the Plan Administrator against any and all claims, losses, damages, expenses, or liabilities
arising from any action or failure to act with respect to this Agreement, except in the case of
willful misconduct by the Plan Administrator or any of its members.
7.5 Bank Information
. To enable the Plan Administrator to perform its functions, the Bank
shall supply full and timely information to the Plan Administrator on all matters relating to the
date and circumstances of the retirement, Disability, death, or Separation from Service of the
Executive, and such other pertinent information as the Plan Administrator may reasonably require.
Article 8
Miscellaneous
8.1 Amendments and Termination
. Subject to section 8.14 of this Agreement, this Agreement may
be amended solely by a written agreement signed by the Bank and by the Executive, and except for
termination occurring under Article 5 this Agreement may be terminated solely by a written
agreement signed by the Bank and by the Executive.
8.2 Binding Effect
. This Agreement shall bind the Executive and the Bank and their
beneficiaries, survivors, executors, successors, administrators, and transferees.
8.3 No Guarantee of Employment
. This Agreement is not an employment policy or contract. It
does not give the Executive the right to remain an employee of the Bank nor does it interfere with
the Bank’s right to discharge the Executive. It also does not require the Executive to remain an
employee or interfere with the Executive’s right to terminate employment at any time.
8.4 Non-Transferability
. Benefits under this Agreement may not be sold, transferred,
assigned, pledged, attached, or encumbered.
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8.5 Successors; Binding Agreement
. By an assumption agreement in form and substance
satisfactory to the Executive, the Bank shall require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the
Bank’s business or assets to expressly assume and agree to perform this Agreement in the same
manner and to the same extent the Bank would be required to perform this Agreement had no
succession occurred.
8.6 Tax Withholding
. The Bank shall withhold any taxes that are required to be withheld from
the benefits provided under this Agreement.
8.7 Applicable Law
. The Agreement and all rights hereunder shall be governed by the laws of
the State of Ohio, except to the extent preempted by the laws of the United States of America.
8.8 Unfunded Arrangement
. The Executive and beneficiary are general unsecured creditors of
the Bank for the payment of benefits under this Agreement. The benefits represent the mere promise
by the Bank to pay benefits. The rights to benefits are not subject to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any
insurance on the Executive’s life is a general asset of the Bank to which the Executive and
beneficiary have no preferred or secured claim.
8.9 Entire Agreement
. This Agreement and the Split Dollar Agreement and Endorsement attached
to this Agreement as Addendum A, as amended, constitute the entire agreement between the Bank and
the Executive concerning the subject matter. No rights are granted to the Executive under this
Agreement other than those specifically set forth. This Agreement amends and restates in its
entirety the December 15, 2003 Second Amended Salary Continuation Agreement.
8.10 Severability
. If any provision of this Agreement is held invalid, such invalidity shall
not affect any other provision of this Agreement not held invalid, and to the full extent
consistent with law each such other provision shall continue in full force and effect. If any
provision of this Agreement is held invalid in part, such invalidity shall not affect the remainder
of such provision not held invalid, and to the full extent consistent with law the remainder of
such provision, together with all other provisions of this Agreement, shall continue in full force
and effect.
8.11 Headings
. Headings are included herein solely for convenience of reference and shall not
affect the meaning or interpretation of any provision of this Agreement.
8.12 Notices
. All notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or
registered mail, return receipt requested, with postage prepaid, to the following addresses or to
such other address as either party may designate by like notice. If to the Bank, notice shall be
given to the board of directors, The Cortland Savings and Banking Company, 194 W. Main Street, P.O.
Box 98, Cortland, Ohio 44410-1466, or to such other or additional person or persons as the Bank
shall have designated to the Executive in writing. If to the Executive, notice shall be given to
the Executive at the Executive’s address appearing on the Bank’s records, or to such other or
additional person or persons as the Executive shall have designated to the Bank in writing.
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8.13 Payment of Legal Fees
. The Bank is aware that after a Change in Control management of
the Bank could cause or attempt to cause the Bank to refuse to comply with its
obligations under this Agreement, or could institute or cause or attempt to cause the Bank to
institute litigation seeking to have this Agreement declared unenforceable, or could take or
attempt to take other action to deny the Executive the benefits intended under this Agreement. In
these circumstances the purpose of this Agreement would be frustrated. The Bank desires that the
Executive not be required to incur 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. The
Bank 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 it appears
to Executive that (
x
) the Bank has failed to comply with any of its obligations under this
Agreement, or (
y
) the Bank 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
recover from the Executive the benefits intended to be provided to the Executive hereunder, the
Bank irrevocably authorizes the Executive from time to time to retain counsel of the Executive’s
choice, at the Bank’s expense as provided in this section 8.13, to represent the Executive in the
initiation or defense of any litigation or other legal action, whether by or against the Bank or
any director, officer, stockholder or other person affiliated with the Bank, in any jurisdiction.
Despite any existing or previous attorney-client relationship between the Bank and any counsel
chosen by the Executive under this section 8.13, the Bank irrevocably consents to the Executive
entering into an attorney-client relationship with that counsel, and the Bank 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 Executive as provided in this section
shall be paid or reimbursed to Executive by the Bank 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 regardless of whether incurred in trial, bankruptcy, or appellate proceedings. The Bank’s
obligation to pay the Executive’s legal fees provided by this section 8.13 operates separately from
and in addition to any legal fee reimbursement obligation the Bank or the Bank’s parent Cortland
Bancorp may have with the Executive under a severance or employment agreement by and among the
Executive, the Bank, and Cortland Bancorp. Despite any contrary provision within this Agreement
however, the Bank 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].
8.14 Termination or Modification of Agreement Because of Changes in Law, Rules or Regulations
.
The Bank is entering into this Agreement on the assumption that certain existing tax laws, rules,
and regulations will continue in effect in their current form. If that assumption materially
changes and the change has a material detrimental effect on this Agreement, then the Bank reserves
the right to terminate or modify this Agreement accordingly, subject to the written consent of the
Executive, which shall not be unreasonably withheld. This section 8.14 shall become null and void
effective immediately after a Change in Control.
14
In Witness Whereof
, the Executive and a duly authorized Bank officer have executed
this Third Amended Salary Continuation Agreement as of the date first written above.
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Executive
:
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Bank
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The Cortland Savings and Banking
Company
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By:
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Lawrence A. Fantauzzi
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Title: President and CEO
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15
Beneficiary Designation
The Cortland Savings and Banking Company
Third Amended Salary Continuation Agreement
James M. Gasior
I designate the following as beneficiary of any death benefits under this Third Amended Salary
Continuation Agreement:
Note: To name a trust as beneficiary, please provide the name of the trustee(s) and
the
exact
name and date of the trust agreement.
I understand that I may change these beneficiary designations by filing a new written
designation with the Bank. I further understand that the designations will be automatically
revoked if the beneficiary predeceases me, or, if I have named my spouse as beneficiary and our
marriage is subsequently dissolved.
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Signature:
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James M. Gasior
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Date:
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, 2008
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Accepted by the Bank this
_____
day of
_____, 2008
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By:
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Lawrence A. Fantauzzi
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Title: President and Chief Executive Officer
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16
Exhibit 10.20
The Cortland Savings and Banking Company
Second Amended Salary Continuation Agreement
This
Second Amended Salary Continuation Agreement
(this “Agreement”) is entered into
as of this
third day of
December, 2008, by and between The
Cortland Savings and Banking Company (the “Bank”), an Ohio-chartered, FDIC-insured member bank, and
Marlene J. Lenio, Vice President of the Bank (the “Executive”).
Whereas
, the Executive has contributed substantially to the success of the Bank and
its parent company, Cortland Bancorp, an Ohio corporation, and the Bank desires that the Executive
continue in its employ,
Whereas
, to encourage the Executive to remain an employee, the Bank is willing to
provide to the Executive salary continuation benefits payable from the Bank’s general assets,
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 the Bank, is
contemplated insofar as the Bank is concerned,
Whereas
, the Bank and the Executive intend that this Agreement shall amend and
restate in its entirety the September 9, 2002 Amended Salary Continuation Agreement between the
Executive and the Bank, and
Whereas
, the parties hereto intend that this Agreement shall be considered an
unfunded arrangement maintained primarily to provide supplemental retirement benefits for the
Executive, and to be considered a non-qualified benefit plan for purposes of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”). The Executive is fully advised of
the Bank’s financial status.
Now Therefore
, in consideration of the foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows.
Article 1
Definitions
1.1
“
Accrual Balance
” means the liability that should be accrued by the Bank under generally
accepted accounting principles (“GAAP”) for the Bank’s obligation to the Executive under this
Agreement, applying Accounting Principles Board Opinion No. 12, as amended by Statement of
Financial Accounting Standards No. 106, and the calculation method and discount rate specified
hereinafter. The Accrual Balance shall be calculated such that when it is credited with interest
each month the Accrual Balance at Normal Retirement Age equals the present value of the normal
retirement benefits. The discount rate means the rate used by the Plan
Administrator for determining the Accrual Balance. In its sole discretion the Plan Administrator
may adjust the discount rate to maintain the rate within reasonable standards according to GAAP.
1.2
“
Beneficiary
” means each designated person, or the estate of the deceased Executive,
entitled to benefits, if any, upon the death of the Executive, determined according to Article 4.
1.3
“
Beneficiary Designation Form
” means the form established from time to time by the Plan
Administrator that the Executive completes, signs, and returns to the Plan Administrator to
designate one or more Beneficiaries.
1.4
“
Change in Control
” means a change in control as defined in Code section 409A and rules,
regulations, and guidance of general application thereunder issued by the Department of the
Treasury, including —
(a)
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,
(b)
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
(c)
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.
1.5
“
Code
” means the Internal Revenue Code of 1986, as amended, and rules, regulations, and
guidance of general application issued by the Department of the Treasury under the Internal Revenue
Code of 1986, as amended.
1.6
“
Disability
” means, because of a medically determinable physical or mental impairment
that can be expected to result in death or that can be expected to last for a continuous period of
at least 12 months, (
x
) the Executive is unable to engage in any substantial gainful activity, or
(
y
) the Executive is receiving income replacement benefits for a period of at least three months
under an accident and health plan of the employer. Medical determination of
disability may be made either by the Social Security Administration or by the provider of an
accident or health plan covering employees of the Bank. Upon request of the Plan Administrator,
the Executive must submit proof to the Plan Administrator of the Social Security Administration’s
or provider’s determination.
2
1.7
“
Early Termination
” means Separation from Service before Normal Retirement Age for reasons
other than death, Disability, or Termination with Cause. Early Termination excludes a Separation
from Service governed by section 2.4.
1.8
“
Effective Date
” means March 1, 2001.
1.9
“
Intentional
,” for purposes of this Agreement, no act or failure to act on the part of the
Executive 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 the best interests of the Bank.
1.10
“
Normal Retirement Age
” means the Executive’s 65
th
birthday.
1.11
“
Plan Administrator
” or “
Administrator
” means the plan administrator described in Article
7.
1.12
“
Plan Year
” means a twelve-month period commencing on March 1 and ending on the last day
of February of each year. The initial Plan Year commenced on the Effective Date.
1.13
“
Separation from Service
” means the Executive’s service as an executive and independent
contractor to the Bank and any member of a controlled group, as defined in Code section 414,
terminates for any reason, other than because of a leave of absence approved by the Bank or the
Executive’s death. For purposes of this Agreement, if there is a dispute about the employment
status of the Executive or the date of the Executive’s Separation from Service, the Bank shall have
the sole and absolute right to decide the dispute unless a Change in Control shall have occurred.
1.14
“
Termination with Cause
” and “
Cause
” shall have the same meaning specified in any
effective severance or employment agreement existing on the date hereof or hereafter entered into
between the Executive and the Bank. If the Executive is not a party to a severance or employment
agreement containing a definition of termination with cause, Termination with Cause means the Bank
terminates the Executive’s employment because of —
(a) the Executive’s gross negligence or gross neglect of duties or intentional and material
failure to perform stated duties after written notice thereof, or
3
(b) disloyalty or dishonesty by the Executive in the performance of the Executive’s duties, or
a breach of the Executive’s fiduciary duties for personal profit, in any case whether in the
Executive’s capacity as a director or officer, or
(c) intentional wrongful damage by the Executive to the business or property of the Bank or
its affiliates, including without limitation the reputation of the Bank, which in the judgement of
the Bank causes material harm to the Bank or affiliates, or
(d) a willful violation by the Executive of any applicable law or significant policy of the
Bank or an affiliate that, in the Bank’s judgement, results in an adverse effect on the Bank or the
affiliate, regardless of whether the violation leads to criminal prosecution or conviction. For
purposes of this Agreement applicable laws include any statute, rule, regulatory order, statement
of policy, or final cease-and-desist order of any governmental agency or body having regulatory
authority over the Bank, or
(e) 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 the Bank, under the
Bank’s blanket bond or other fidelity or insurance policy covering its directors, officers, or
employees, or
(f) the Executive is removed from office or permanently prohibited from participating in the
Bank’s affairs by an order issued under section 8(e)(4) or section 8(g)(1) of the Federal Deposit
Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or
(g) conviction of the Executive for 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.
1.15
“
Voluntary Termination with Good Reason
” means a voluntary Separation from Service by the
Executive within 24 months after a Change in Control if the following conditions (
x
) and (
y
) are
satisfied: (
x
) a voluntary Separation from Service by the Executive will be considered a Voluntary
Termination with Good Reason if any of the following occur 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,
4
5) a material change in the geographic location at which the Executive must perform
services for the Bank, or
6) any other action or inaction that constitutes a material breach by the Bank of the
agreement under which the Executive provides services to the Bank.
(
y
) the Executive must give notice to the Bank 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
the Bank 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 earlier of the initial existence of the condition or the
Change in Control.
Article 2
Lifetime Benefits
2.1 Normal Retirement
. Unless Separation from Service occurs before Normal Retirement Age,
when the Executive attains Normal Retirement Age the Bank shall pay to the Executive the benefit
described in this section 2.1 instead of any other benefit under this Agreement. If the
Executive’s Separation from Service thereafter is a Termination with Cause or if this Agreement
terminates under Article 5, no further benefits shall be paid.
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2.1.1
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Amount of benefit
. The annual benefit under this section 2.1 is $12,500.
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2.1.2
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Payment of benefit
. Beginning with the month immediately after the month in
which the Executive attains Normal Retirement Age, the Bank shall pay the annual
benefit to the Executive in equal monthly installments on the last day of each month.
The annual benefit shall be paid to the Executive for 15 years.
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2.2 Early Termination
. If Early Termination occurs before Normal Retirement Age but on or
after the date the Executive attains age 62, the Bank shall pay to the Executive the benefit
described in this section 2.2 instead of any other benefit under this Agreement. If Early
Termination occurs before the Executive attains age 62, no benefit shall be payable under this
Agreement. Additionally, no benefits shall be payable under this Agreement if the Executive’s
employment is terminated under circumstances described in Article 5 of this Agreement. Neither the
Bank nor the Executive shall be entitled to elect in the 24-month period after a Change in Control
between the benefit under this section 2.2 versus the benefit under section 2.4. If the
Executive’s Separation from Service within 24 months after a Change in Control is an involuntary
termination without Cause or a Voluntary Termination with Good Reason, no benefit shall be payable
under this section 2.2 and the Executive shall instead be entitled to the benefit under section 2.4
or, if the Executive first attained Normal Retirement Age, section 2.1.
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2.2.1
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Amount of benefit
. The annual benefit under this section 2.2 is calculated as
the amount that fully amortizes the Accrual Balance existing at the end of the month
immediately before the month in which Separation from Service occurs, amortizing
that Accrual Balance over 15 years and taking into account interest at the discount
rate or rates established by the Plan Administrator.
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2.2.2
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Payment of benefit
. The Bank shall pay the annual benefit to the Executive in
equal monthly installments on the last day of each month, except that the first six
monthly installments after the Executive’s Separation from Service shall not be paid to
the Executive until the seventh month after the month in which Separation from Service
occurs. In the seventh month after the month in which Separation from Service occurs
the Executive shall be entitled to the first six monthly installments and the regular
monthly installment for the seventh month. The Executive shall be entitled to a total
of 180 monthly installments, including the first six installments that are paid in the
seventh month.
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2.3 Disability
. For Separation from Service because of Disability before Normal Retirement
Age, the Bank shall pay to the Executive the benefit described in this section 2.3 instead of any
other benefit under this Agreement.
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2.3.1
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Amount of benefit
. The annual benefit under this section 2.3 is calculated as
the amount that fully amortizes the Accrual Balance existing at the end of the month
immediately before the month in which Separation from Service occurs, amortizing that
Accrual Balance over 15 years and taking into account interest at the discount rate or
rates established by the Plan Administrator.
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2.3.2
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Payment of Benefit
. Beginning with the later of (
x
) the seventh month after
the month in which the Executive’s Separation from Service occurs, or (
y
) the month
immediately after the month in which the Executive attains Normal Retirement Age, the
Bank shall pay the annual benefit to the Executive in equal monthly installments on the
last day of each month. If the benefit is paid under clause (
x
) in the seventh month
after Separation from Service, the first six monthly installments after Separation from
Service shall not be paid to the Executive until the seventh month after the month in
which Separation from Service occurs. In the seventh month the Executive shall be
entitled to the first six monthly installments and the regular monthly installment for
the seventh month. The Executive shall be entitled to a total of 180 monthly
installments, including the first six installments that are paid in the seventh month.
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2.4 Change in Control
. If the Executive’s Separation from Service is an involuntary
termination without Cause or a Voluntary Termination with Good Reason, in either case within 24
months after a Change in Control, the Bank shall pay to the Executive the benefit described in this
section 2.4 instead of any other benefit under this Agreement. However, no benefits shall be
payable under this Agreement if the Executive’s employment is terminated under circumstances
described in Article 5 of this Agreement. Neither the Bank nor the Executive shall be entitled to
elect in the 24-month period after a Change in Control between the benefit under this section 2.4
versus the Early Termination benefit under section 2.2. If the Executive’s Separation from Service
within 24 months after a Change in Control is an involuntary termination without Cause or a
Voluntary Termination with Good Reason, no benefit shall be payable under section 2.2 and the
Executive shall instead be entitled to the benefit under this section 2.4. But if the Executive
shall have attained Normal Retirement Age when Separation from Service within 24 months after a
Change in Control occurs, whether Separation from Service is voluntary or involuntary for any
reason other than Termination with Cause, the Executive shall be entitled solely to the benefit
provided by section 2.1, not this section 2.4.
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2.4.1
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Amount of benefit
. The benefit under this section 2.4 is the Normal
Retirement Age Accrual Balance required by section 2.1, discounting the Normal
Retirement Age Accrual Balance to present value using a discount rate selected by the
Plan Administrator, but the discount rate selected by the Plan Administrator shall not
exceed the discount rate employed at the time of the Change in Control for purposes of
calculating the Accrual Balance.
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2.4.2
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Payment of benefit
. The Bank shall pay the benefit under this section 2.4 to
the Executive in a single lump sum on the first day of the seventh month after the
month in which Separation from Service occurs.
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2.5 Lump-Sum Payout of Remaining Normal Retirement Benefit, Early Termination Benefit, or
Disability Benefit When a Change in Control Occurs
. If a Change in Control occurs while the
Executive is receiving the Normal Retirement Age benefit under section 2.1, the Bank shall pay the
remaining salary continuation benefits to the Executive in a single lump sum within three days
after the Change in Control. If a Change in Control occurs after Separation from Service but while
the Executive is receiving or is entitled to receive the Early Termination benefit under section
2.2 or the Disability benefit under section 2.3, the Bank shall pay the remaining salary
continuation benefits to the Executive in a single lump sum within three days after the later of
(
x
) the Change in Control or (
y
) the first day of the seventh month after the month in which the
Executive’s Separation from Service occurs. The lump-sum payment due to the Executive as a result
of a Change in Control shall be an amount equal to the Accrual Balance amount corresponding to the
particular benefit when the Change in Control occurs.
2.6 Annual Benefit Statement
. Within 120 days after the end of each Plan Year the Plan
Administrator shall provide or cause to be provided to the Executive an annual benefit statement
showing benefits payable or potentially payable to the Executive under this Agreement. Each annual
benefit statement shall supersede the previous year’s annual benefit statement. If there is a
contradiction between this Agreement and the annual benefit statement concerning the amount of a
particular benefit payable or potentially payable to the Executive under sections 2.2, 2.3, or 2.4
hereof, the amount of the benefit determined under this Agreement shall control.
7
2.7 Savings Clause Relating to Compliance with Code Section 409A
. Despite any contrary
provision of this Agreement, if when the Executive’s employment terminates the Executive is a
specified employee, as defined in Code section 409A, and if any payments under Article 2 of this
Agreement will result in additional tax or interest to the Executive because of section 409A, the
Executive shall not be entitled to the payments under Article 2 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. If any provision of this
Agreement would subject the Executive to additional tax or interest under section 409A, the Bank
shall reform the provision. However, the Bank shall maintain to the maximum extent practicable the
original intent of the applicable provision without subjecting the Executive to additional tax or
interest, and the Bank shall not be required to incur any additional compensation expense as a
result of the reformed provision.
2.8 One Benefit Only
. Despite anything to the contrary in this Agreement, the Executive and
Beneficiary are entitled to one benefit only under this Agreement, which shall be determined by the
first event to occur that is dealt with by this Agreement. Except as provided in section 2.5 or
Article 3, subsequent occurrence of events dealt with by this Agreement shall not entitle the
Executive or Beneficiary to other or additional benefits under this Agreement.
Article 3
Death Benefits
3.1 Death in Active Service Before Normal Retirement Age
. If the Executive dies both before
Normal Retirement Age and before Separation from Service, instead of any other benefit payable
under this Agreement the Executive’s Beneficiary shall be entitled at the Executive’s death solely
to the benefit, if any, payable under the Split Dollar Agreement and Endorsement, as amended,
attached to this Agreement as Addendum A.
3.2 Death During Benefit Period
. If the Executive dies after benefit payments under Article 2
commence but before receiving all such payments, the Bank shall pay the remaining benefits to the
Executive’s Beneficiary at the same time and in the same amounts they would have been paid to the
Executive had the Executive survived. In that case, no death benefit shall be payable under the
Split Dollar Agreement and Endorsement, as amended. If the Executive is entitled to benefit
payments under Article 2 but dies before payments commence, the benefits shall be payable to the
Executive’s Beneficiary but payments shall commence on the last day of the month after the month in
which the Executive’s death occurs, and no death benefit shall be payable under the Split Dollar
Agreement and Endorsement, as amended.
3.3 Lump-Sum Payout of Remaining Normal Retirement Benefit, Early Termination Benefit, or
Disability Benefit When a Change in Control Occurs
. If a Change in Control occurs while the
Beneficiary is receiving under section 3.2 the section 2.1 Normal Retirement Age benefit after the
Executive’s death or if a Change in Control occurs after the Executive’s Separation from Service
but while the Beneficiary is receiving or is entitled to
receive because of section 3.2 the section 2.2 Early Termination benefit or the section 2.3
Disability benefit after the Executive’s death, the Bank shall pay the remaining benefits to the
Beneficiary in a single lump sum within three days after the Change in Control. The lump-sum
payment due to the Beneficiary as a result of a Change in Control shall be an amount equal to the
Accrual Balance amount corresponding to the particular benefit when the Change in Control occurs.
8
Article 4
Beneficiaries
4.1 Beneficiary Designations
. The Executive shall have the right to designate at any time a
Beneficiary to receive any benefits payable under this Agreement after the Executive’s death. The
Beneficiary designated under this Agreement may be the same as or different from the beneficiary
designation under any other benefit plan of the Bank in which the Executive participates.
4.2 Beneficiary Designation: Change
. The Executive shall designate a Beneficiary by
completing and signing the Beneficiary Designation Form and delivering it to the Plan Administrator
or its designated agent. The Executive’s Beneficiary designation shall be deemed automatically
revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as
Beneficiary and the marriage is subsequently dissolved. The Executive shall have the right to
change a Beneficiary by completing, signing, and otherwise complying with the terms of the
Beneficiary Designation Form and the Plan Administrator’s rules and procedures, as in effect from
time to time. Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form,
all Beneficiary designations previously filed shall be cancelled. The Plan Administrator shall be
entitled to rely on the last Beneficiary Designation Form filed by the Executive and accepted by
the Plan Administrator before the Executive’s death.
4.3 Acknowledgment
. No designation or change in designation of a Beneficiary shall be
effective until received, accepted, and acknowledged in writing by the Plan Administrator or its
designated agent.
4.4 No Beneficiary Designation
. If the Executive dies without a valid beneficiary designation
or if all designated Beneficiaries predecease the Executive, the Executive’s spouse shall be the
designated Beneficiary. If the Executive has no surviving spouse the benefits shall be made to the
personal representative of the Executive’s estate.
4.5 Facility of Payment
. If a benefit is payable to a minor, to a person declared
incapacitated, or to a person incapable of handling the disposition of his or her property, the
Bank may pay the benefit to the guardian, legal representative, or person having the care or
custody of the minor, incapacitated person, or incapable person. The Bank may require proof of
incapacity, minority, or guardianship as it may deem appropriate before distribution of the
benefit. Distribution shall completely discharge the Bank from all liability for the benefit.
9
Article 5
General Limitations
5.1 Termination with Cause and Termination Before Vesting
. Despite any contrary provision of
this Agreement, the Bank shall not pay any benefit under this Agreement and this Agreement shall
terminate if Separation from Service is a Termination with Cause or if Separation from Service is
an Early Termination before the Executive attains age 62.
5.2 Misstatement
. No benefits shall be paid under this Agreement or under the Split Dollar
Agreement and Endorsement, as amended, if the Executive makes any material misstatement of fact on
any application or resume provided to the Bank, on any application for life insurance purchased by
the Bank, or on any application for benefits provided by the Bank.
5.3 Removal
. If the Executive is removed from office or permanently prohibited 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), all obligations of the Bank under
this Agreement shall terminate as of the effective date of the order, and the Split Dollar
Agreement and Endorsement, as amended, also shall terminate as of the effective date of the order.
5.4 Default
. Despite any contrary provision of this Agreement, if the Bank is in “default” or
“in danger of default,” as those terms are defined in section 3(x) of the Federal Deposit Insurance
Act, 12 U.S.C. 1813(x), all obligations under this Agreement shall terminate.
5.5 FDIC Open-Bank Assistance
. All obligations under this Agreement shall terminate, except
to the extent determined that continuation of the contract is necessary for the continued operation
of the Bank, when the Federal Deposit Insurance Corporation enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in section 13(c) of the
Federal Deposit Insurance Act. 12 U.S.C. 1823(c). Any rights of the parties that have already
vested shall not be affected by such action, however.
Article 6
Claims and Review Procedures
6.1 Claims Procedure
. Any person who has not received benefits under this Agreement that he
or she believes should be paid (the “claimant”) shall make a claim for benefits as follows.
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6.1.1
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Initiation — written claim
. The claimant initiates a claim by submitting to
the Administrator a written claim for the benefits. If the claim relates to the
contents of a notice received by the claimant, the claim must be made within 60 days
after the notice was received by the claimant. All other claims must be made within
180 days after the date of the event that caused the claim to arise. The claim must
state with particularity the determination desired by the claimant.
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6.1.2
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Timing of Administrator response
. The Administrator shall respond to the
claimant within 90 days after receiving the claim. If the Administrator determines
that special circumstances require additional time for processing the claim, the
Administrator can extend the response period by an additional 90 days by notifying the
claimant in writing, before the end of the initial 90-day period, that an additional
period is required. The notice of extension must set forth the special circumstances
and the date by which the Administrator expects to render its decision.
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6.1.3
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Notice of decision
. If the Administrator denies part or all of the claim, the
Administrator shall notify the claimant in writing of the denial. The Administrator
shall write the notification in a manner calculated to be understood by the claimant.
The notification shall set forth —
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(a)
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The specific reasons for the denial,
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(b)
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A reference to the specific provisions of this Agreement on
which the denial is based,
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(c)
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A description of any additional information or material
necessary for the claimant to perfect the claim and an explanation of why it is
needed,
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(d)
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An explanation of the Agreement’s review procedures and the
time limits applicable to such procedures, and
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(e)
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A statement of the claimant’s right to bring a civil action
under ERISA section 502(a) after an adverse benefit determination on review.
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6.2 Review Procedure
. If the Administrator denies part or all of the claim, the claimant
shall have the opportunity for a full and fair review by the Administrator of the denial, as
follows.
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6.2.1
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Initiation — written request
. To initiate the review, the claimant must file
with the Administrator a written request for review within 60 days after receiving the
Administrator’s notice of denial.
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6.2.2
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Additional submissions — information access
. The claimant shall then have
the opportunity to submit written comments, documents, records, and other information
relating to the claim. Upon request and free of charge, the Administrator shall also
provide the claimant reasonable access to and copies of all documents, records, and
other information relevant (as defined in applicable ERISA regulations) to the
claimant’s claim for benefits.
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6.2.3
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Considerations on review
. In considering the review, the Administrator shall
take into account all materials and information the claimant submits relating to the
claim, without regard to whether the information was submitted or considered in the
initial benefit determination.
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6.2.4
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Timing of Administrator response
. The Administrator shall respond in writing
to the claimant within 60 days after receiving the request for review. If the
Administrator determines that special circumstances require additional time for
processing the claim, the Administrator can extend the response period by an additional
60 days by notifying the claimant in writing before the end of the initial 60-day
period that an additional period is required. The notice of extension must set forth
the special circumstances and the date by which the Administrator expects to render its
decision.
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6.2.5
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Notice of decision
. The Administrator shall notify the claimant in writing of
its decision on review. The Administrator shall write the notification in a manner
calculated to be understood by the claimant. The notification shall set forth:
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(a)
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The specific reasons for the denial,
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(b)
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A reference to the specific provisions of the Agreement on
which the denial is based,
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(c)
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A statement that the claimant is entitled to receive, upon
request and free of charge, reasonable access to and copies of all documents,
records, and other information relevant (as defined in applicable ERISA
regulations) to the claimant’s claim for benefits, and
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(d)
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A statement of the claimant’s right to bring a civil action
under ERISA section 502(a).
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Article 7
Administration of Agreement
7.1 Plan Administrator Duties
. This Agreement shall be administered by a Plan Administrator
consisting of the Board or such committee or person(s) as the Board shall appoint. The Executive
may not be a member of the Plan Administrator. The Plan Administrator shall have the discretion
and authority to (
x
) make, amend, interpret and enforce all appropriate rules and regulations for
the administration of this Agreement and (
y
) decide or resolve any and all questions that may
arise, including interpretations of this Agreement.
7.2 Agents
. In the administration of this Agreement the Plan Administrator may employ agents
and delegate to them such administrative duties as it sees fit (including acting through a duly
appointed representative) and may from time to time consult with counsel, who may be counsel to the
Bank.
7.3 Binding Effect of Decisions
. The decision or action of the Plan Administrator about any
question arising out of the administration, interpretation and application of the Agreement and the
rules and regulations promulgated hereunder shall be final and conclusive and binding upon all
persons having any interest in the Agreement. No Executive or Beneficiary shall be deemed to have
any right, vested or nonvested, regarding the continued use of any
previously adopted assumptions, including but not limited to the discount rate and calculation
method employed in the determination of the Accrual Balance.
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7.4 Indemnity of Plan Administrator
. The Bank shall indemnify and hold harmless the members
of the Plan Administrator against any and all claims, losses, damages, expenses or liabilities
arising from any action or failure to act with respect to this Agreement, except in the case of
willful misconduct by the Plan Administrator or any of its members.
7.5 Bank Information
. To enable the Plan Administrator to perform its functions, the Bank
shall supply full and timely information to the Plan Administrator on all matters relating to the
date and circumstances of the retirement, Disability, death, or Separation from Service of the
Executive and such other pertinent information as the Plan Administrator may reasonably require.
Article 8
Miscellaneous
8.1 Amendments and Termination
. Subject to section 8.14 of this Agreement, this Agreement may
be amended solely by a written agreement signed by the Bank and by the Executive, and except for
termination occurring under Article 5 this Agreement may be terminated solely by a written
agreement signed by the Bank and by the Executive.
8.2 Binding Effect
. This Agreement shall bind the Executive and the Bank and their
beneficiaries, survivors, executors, successors, administrators, and transferees.
8.3 No Guarantee of Employment
. This Agreement is not an employment policy or contract. It
does not give the Executive the right to remain an employee of the Bank nor does it interfere with
the Bank’s right to discharge the Executive. It also does not require the Executive to remain an
employee or interfere with the Executive’s right to terminate employment at any time.
8.4 Non-Transferability
. Benefits under this Agreement may not be sold, transferred,
assigned, pledged, attached, or encumbered.
8.5 Successors; Binding Agreement
. By an assumption agreement in form and substance
satisfactory to the Executive, the Bank shall require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all of the business or
assets of the Bank to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Bank would be required to perform this Agreement had no succession
occurred.
8.6 Tax Withholding
. The Bank shall withhold any taxes that are required to be withheld from
the benefits provided under this Agreement.
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8.7 Applicable Law
. The Agreement and all rights hereunder shall be governed by the laws of
the State of Ohio, except to the extent preempted by the laws of the United States of America.
8.8 Unfunded Arrangement
. The Executive and beneficiary are general unsecured creditors of
the Bank for the payment of benefits under this Agreement. The benefits represent the mere promise
by the Bank to pay benefits. The rights to benefits are not subject to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any
insurance on the Executive’s life is a general asset of the Bank to which the Executive and
beneficiary have no preferred or secured claim.
8.9 Entire Agreement
. This Agreement and the Split Dollar Agreement and Endorsement attached
as Addendum A, as amended, constitute the entire agreement between the Bank and the Executive
concerning the subject matter. No rights are granted to the Executive under this Agreement other
than those specifically set forth. This Agreement amends and restates in its entirety the
September 9, 2002 Amended Salary Continuation Agreement.
8.10 Severability
. If any provision of this Agreement is held invalid, such invalidity shall
not affect any other provision of this Agreement not held invalid, and to the full extent
consistent with law each such other provision shall continue in full force and effect. If any
provision of this Agreement is held invalid in part, such invalidity shall not affect the remainder
of such provision not held invalid, and to the full extent consistent with law the remainder of
such provision, together with all other provisions of this Agreement, shall continue in full force
and effect.
8.11 Headings
. Headings are included solely for convenience of reference and shall not affect
the meaning or interpretation of any provision of this Agreement.
8.12 Notices
. All notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or
registered mail, return receipt requested, with postage prepaid, to the following addresses or to
such other address as either party may designate by like notice. If to the Bank, notice shall be
given to the board of directors, The Cortland Savings and Banking Company, 194 W. Main Street, P.O.
Box 98, Cortland, Ohio 44410-1466, or to such other or additional person or persons as the Bank
shall have designated to the Executive in writing. If to the Executive, notice shall be given to
the Executive at the Executive’s address appearing on the Bank’s records, or to such other or
additional person or persons as the Executive shall have designated to the Bank in writing.
14
8.13 Payment of Legal Fees
. The Bank is aware that after a Change in Control management of
the Bank could cause or attempt to cause the Bank to refuse to comply with its obligations under
this Agreement, or could institute or cause or attempt to cause the Bank to institute litigation
seeking to have this Agreement declared unenforceable, or could take or attempt to take other
action to deny the Executive the benefits intended under this Agreement. In
these circumstances the purpose of this Agreement would be frustrated. The Bank 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.
The Bank 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 it appears
to Executive that (
x
) the Bank has failed to comply with any of its obligations under this
Agreement, or (
y
) the Bank 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
recover from the Executive the benefits intended to be provided to the Executive hereunder, the
Bank irrevocably authorizes the Executive from time to time to retain counsel of the Executive’s
choice, at the Bank’s expense as provided in this section 8.13, to represent the Executive in the
initiation or defense of any litigation or other legal action, whether by or against the Bank or
any director, officer, stockholder or other person affiliated with the Bank, in any jurisdiction.
Despite any existing or previous attorney-client relationship between the Bank and any counsel
chosen by the Executive under this section 8.13, the Bank irrevocably consents to the Executive
entering into an attorney-client relationship with that counsel, and the Bank 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 Executive as provided in this section
shall be paid or reimbursed to Executive by the Bank 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 regardless of whether incurred in trial, bankruptcy, or appellate proceedings. The Bank’s
obligation to pay the Executive’s legal fees provided by this section 8.13 operates separately from
and in addition to any legal fee reimbursement obligation the Bank or the Bank’s parent Cortland
Bancorp may have with the Executive under a severance or employment agreement by and among the
Executive, the Bank, and Cortland Bancorp. Despite any contrary provision within this Agreement
however, the Bank 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].
8.14 Termination or Modification of Agreement Because of Changes in Law, Rules or Regulations
.
The Bank is entering into this Agreement on the assumption that certain existing tax laws, rules,
and regulations will continue in effect in their current form. If that assumption materially
changes and the change has a material detrimental effect on this Agreement, then the Bank reserves
the right to terminate or modify this Agreement accordingly, subject to the written consent of the
Executive, which shall not be unreasonably withheld. This section 8.14 shall become null and void
effective immediately upon a Change in Control.
15
In Witness Whereof
, the Executive and a duly authorized Bank officer have executed
this Second Amended Salary Continuation Agreement as of the date first written above.
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Executive
:
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Bank
:
The Cortland Savings and Banking
Company
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By:
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Lawrence A. Fantauzzi
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Title: President and CEO
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16
Beneficiary Designation
The Cortland Savings and Banking Company
Second Amended Salary Continuation Agreement
Marlene J. Lenio
I designate the following as beneficiary of any death benefits under this Second Amended
Salary Continuation Agreement:
Note: To name a trust as beneficiary, please provide the name of the trustee(s) and
the
exact
name and date of the trust agreement.
I understand that I may change these beneficiary designations by filing a new written
designation with the Bank. I further understand that the designations will be automatically
revoked if the beneficiary predeceases me, or, if I have named my spouse as beneficiary and our
marriage is subsequently dissolved.
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Signature:
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Marlene J. Lenio
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Date:
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, 2008
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Accepted by the Bank this
_____
day of
_____, 2008
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By:
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Lawrence A. Fantauzzi
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Title: President and Chief Executive Officer
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17
Exhibit 10.21
The Cortland Savings and Banking Company
Amended Salary Continuation Agreement
This
Amended Salary Continuation Agreement
(this “Agreement”) is entered into as of
this
third
day of
December, 2008, by and between The Cortland
Savings and Banking Company (the “Bank”), an Ohio-chartered, FDIC-insured member bank, and Craig M.
Phythyon, Senior Vice President, Chief Investment Officer, and Treasurer of the Bank (the
“Executive”).
Whereas
, the Executive has contributed substantially to the success of the Bank and
its parent company, Cortland Bancorp, an Ohio corporation, and the Bank desires that the Executive
continue in its employ,
Whereas
, to encourage the Executive to remain an employee, the Bank is willing to
provide to the Executive salary continuation benefits payable from the Bank’s general assets,
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 the Bank, is
contemplated insofar as the Bank is concerned,
Whereas
, the Bank and the Executive intend that this Agreement shall amend and
restate in its entirety the December 15, 2003 Salary Continuation Agreement between the Executive
and the Bank, and
Whereas
, the parties hereto intend that this Agreement shall be considered an
unfunded arrangement maintained primarily to provide supplemental retirement benefits for the
Executive, and to be considered a non-qualified benefit plan for purposes of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”). The Executive is fully advised of
the Bank’s financial status.
Now Therefore
, in consideration of the foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows.
Article 1
Definitions
1.1
“
Accrual Balance
” means the liability that should be accrued by the Bank under generally
accepted accounting principles (“GAAP”) for the Bank’s obligation to the Executive under this
Agreement, applying Accounting Principles Board Opinion No. 12, as amended by Statement of
Financial Accounting Standards No. 106, and the calculation method and discount rate specified
hereinafter. The Accrual Balance shall be calculated such that when it is credited with interest
each month the Accrual Balance at Normal Retirement Age equals the present value
of the normal retirement benefits. The discount rate means the rate used by the Plan Administrator
for determining the Accrual Balance. In its sole discretion the Plan Administrator may adjust the
discount rate to maintain the rate within reasonable standards according to GAAP.
1.2
“
Beneficiary
” means each designated person, or the estate of the deceased Executive,
entitled to benefits, if any, upon the death of the Executive, determined according to Article 4.
1.3
“
Beneficiary Designation Form
” means the form established from time to time by the Plan
Administrator that the Executive completes, signs, and returns to the Plan Administrator to
designate one or more Beneficiaries.
1.4
“
Change in Control
” means a change in control as defined in Code section 409A and rules,
regulations, and guidance of general application thereunder issued by the Department of the
Treasury, including –
(a)
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,
(b)
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
(c)
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.
1.5
“
Code
” means the Internal Revenue Code of 1986, as amended, and rules, regulations, and
guidance of general application issued by the Department of the Treasury under the Internal Revenue
Code of 1986, as amended.
1.6
“
Disability
” means, because of a medically determinable physical or mental impairment
that can be expected to result in death or that can be expected to last for a continuous period of
at least 12 months, (
x
) the Executive is unable to engage in any substantial gainful activity, or
(
y
) the Executive is receiving income replacement benefits for a period of at least three months
under an accident and health plan of the employer. Medical determination of
disability may be made either by the Social Security Administration or by the provider of an
accident or health plan covering employees of the Bank. Upon request of the Plan Administrator,
the Executive must submit proof to the Plan Administrator of the Social Security Administration’s
or provider’s determination.
2
1.7
“
Early Termination
” means Separation from Service before Normal Retirement Age for reasons
other than death, Disability, or Termination with Cause. Early Termination excludes a Separation
from Service governed by section 2.4.
1.8
“
Effective Date
” means July 1, 2003.
1.9
“
Intentional
,” for purposes of this Agreement, no act or failure to act on the part of the
Executive 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 the best interests of the Bank.
1.10
“
Normal Retirement Age
” means the Executive’s 65
th
birthday.
1.11
“
Plan Administrator
” or “
Administrator
” means the plan administrator described in Article
7.
1.12
“
Plan Year
” means a twelve-month period commencing on March 1 and ending on the last day
of February of each year. The initial Plan Year commenced on the Effective Date.
1.13
“
Separation from Service
” means the Executive’s service as an executive and independent
contractor to the Bank and any member of a controlled group, as defined in Code section 414,
terminates for any reason, other than because of a leave of absence approved by the Bank or the
Executive’s death. For purposes of this Agreement, if there is a dispute about the employment
status of the Executive or the date of the Executive’s Separation from Service, the Bank shall have
the sole and absolute right to decide the dispute unless a Change in Control shall have occurred.
1.14
“
Termination with Cause
” and “
Cause
” shall have the same meaning specified in any
effective severance or employment agreement existing on the date hereof or hereafter entered into
between the Executive and the Bank. If the Executive is not a party to a severance or employment
agreement containing a definition of termination with cause, Termination with Cause means the Bank
terminates the Executive’s employment because of –
(a) the Executive’s gross negligence or gross neglect of duties or intentional and material
failure to perform stated duties after written notice thereof, or
3
(b) disloyalty or dishonesty by the Executive in the performance of the Executive’s duties, or
a breach of the Executive’s fiduciary duties for personal profit, in any case whether in the
Executive’s capacity as a director or officer, or
(c) intentional wrongful damage by the Executive to the business or property of the Bank or
its affiliates, including without limitation the reputation of the Bank, which in the judgement of
the Bank causes material harm to the Bank or affiliates, or
(d) a willful violation by the Executive of any applicable law or significant policy of the
Bank or an affiliate that, in the Bank’s judgement, results in an adverse effect on the Bank or the
affiliate, regardless of whether the violation leads to criminal prosecution or conviction. For
purposes of this Agreement applicable laws include any statute, rule, regulatory order, statement
of policy, or final cease-and-desist order of any governmental agency or body having regulatory
authority over the Bank, or
(e) 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 the Bank, under the
Bank’s blanket bond or other fidelity or insurance policy covering its directors, officers, or
employees, or
(f) the Executive is removed from office or permanently prohibited from participating in the
Bank’s affairs by an order issued under section 8(e)(4) or section 8(g)(1) of the Federal Deposit
Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or
(g) conviction of the Executive for 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.
1.15
“
Voluntary Termination with Good Reason
” means a voluntary Separation from Service by the
Executive within 24 months after a Change in Control if the following conditions (
x
) and (
y
) are
satisfied: (
x
) a voluntary Separation from Service by the Executive will be considered a Voluntary
Termination with Good Reason if any of the following occur 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,
4
5) a material change in the geographic location at which the Executive must perform
services for the Bank, or
6) any other action or inaction that constitutes a material breach by the Bank of the
agreement under which the Executive provides services to the Bank.
(
y
) the Executive must give notice to the Bank 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
the Bank 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 earlier of the initial existence of the condition or the
Change in Control.
Article 2
Lifetime Benefits
2.1 Normal Retirement
. Unless Separation from Service occurs before Normal Retirement Age,
when the Executive attains Normal Retirement Age the Bank shall pay to the Executive the benefit
described in this section 2.1 instead of any other benefit under this Agreement. If the
Executive’s Separation from Service thereafter is a Termination with Cause or if this Agreement
terminates under Article 5, no further benefits shall be paid.
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2.1.1
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Amount of benefit
. The annual benefit under this section 2.1 is $20,300.
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2.1.2
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Payment of benefit
. Beginning with the month immediately after the month in
which the Executive attains Normal Retirement Age, the Bank shall pay the annual
benefit to the Executive in equal monthly installments on the last day of each month.
The annual benefit shall be paid to the Executive for 15 years.
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2.2 Early Termination
. If Early Termination occurs before Normal Retirement Age but on or
after the date the Executive attains age 62, the Bank shall pay to the Executive the benefit
described in this section 2.2 instead of any other benefit under this Agreement. If Early
Termination occurs before the Executive attains age 62, no benefit shall be payable under this
Agreement. Additionally, no benefits shall be payable under this Agreement if the Executive’s
employment is terminated under circumstances described in Article 5 of this Agreement. Neither the
Bank nor the Executive shall be entitled to elect in the 24-month period after a Change in Control
between the benefit under this section 2.2 versus the benefit under section 2.4. If the
Executive’s Separation from Service within 24 months after a Change in Control is an involuntary
termination without Cause or a Voluntary Termination with Good Reason, no benefit shall be payable
under this section 2.2 and the Executive shall instead be entitled to the benefit under section 2.4
or, if the Executive first attained Normal Retirement Age, section 2.1.
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2.2.1
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Amount of benefit
. The annual benefit under this section 2.2 is calculated as
the amount that fully amortizes the Accrual Balance existing at the end of the month
immediately before the month in which Separation from Service occurs,
amortizing that Accrual Balance over 15 years and taking into account interest at
the discount rate or rates established by the Plan Administrator.
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2.2.2
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Payment of benefit
. The Bank shall pay the annual benefit to the Executive in
equal monthly installments on the last day of each month, except that the first six
monthly installments after the Executive’s Separation from Service shall not be paid to
the Executive until the seventh month after the month in which Separation from Service
occurs. In the seventh month after the month in which Separation from Service occurs
the Executive shall be entitled to the first six monthly installments and the regular
monthly installment for the seventh month. The Executive shall be entitled to a total
of 180 monthly installments, including the first six installments that are paid in the
seventh month.
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2.3 Disability
. For Separation from Service because of Disability before Normal Retirement
Age, the Bank shall pay to the Executive the benefit described in this section 2.3 instead of any
other benefit under this Agreement.
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2.3.1
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Amount of benefit
. The annual benefit under this section 2.3 is calculated as
the amount that fully amortizes the Accrual Balance existing at the end of the month
immediately before the month in which Separation from Service occurs, amortizing that
Accrual Balance over 15 years and taking into account interest at the discount rate or
rates established by the Plan Administrator.
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2.3.2
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Payment of Benefit
. Beginning with the later of (
x
) the seventh month after
the month in which the Executive’s Separation from Service occurs, or (
y
) the month
immediately after the month in which the Executive attains Normal Retirement Age, the
Bank shall pay the annual benefit to the Executive in equal monthly installments on the
last day of each month. If the benefit is paid under clause (
x
) in the seventh month
after Separation from Service, the first six monthly installments after Separation from
Service shall not be paid to the Executive until the seventh month after the month in
which Separation from Service occurs. In the seventh month the Executive shall be
entitled to the first six monthly installments and the regular monthly installment for
the seventh month. The Executive shall be entitled to a total of 180 monthly
installments, including the first six installments that are paid in the seventh month.
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2.4 Change in Control
. If the Executive’s Separation from Service is an involuntary
termination without Cause or a Voluntary Termination with Good Reason, in either case within 24
months after a Change in Control, the Bank shall pay to the Executive the benefit described in this
section 2.4 instead of any other benefit under this Agreement. However, no benefits shall be
payable under this Agreement if the Executive’s employment is terminated under circumstances
described in Article 5 of this Agreement. Neither the Bank nor the Executive shall be entitled to
elect in the 24-month period after a Change in Control between the benefit under this section 2.4
versus the Early Termination benefit under section 2.2. If the Executive’s Separation from Service
within 24 months after a Change in Control is an involuntary termination without Cause
or a Voluntary Termination with Good Reason, no benefit shall be payable under section 2.2 and the
Executive shall instead be entitled to the benefit under this section 2.4. But if the Executive
shall have attained Normal Retirement Age when Separation from Service within 24 months after a
Change in Control occurs, whether Separation from Service is voluntary or involuntary for any
reason other than Termination for Cause, the Executive shall be entitled solely to the benefit
provided by section 2.1, not this section 2.4.
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2.4.1
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Amount of benefit
. The benefit under this section 2.4 is the Normal
Retirement Age Accrual Balance required by section 2.1, discounting the Normal
Retirement Age Accrual Balance to present value using a discount rate selected by the
Plan Administrator, but the discount rate selected by the Plan Administrator shall not
exceed the discount rate employed at the time of the Change in Control for purposes of
calculating the Accrual Balance.
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2.4.2
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Payment of benefit
. The Bank shall pay the benefit under this section 2.4 to
the Executive in a single lump sum on the first day of the seventh month after the
month in which Separation from Service occurs.
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2.5 Lump-Sum Payout of Remaining Normal Retirement Benefit, Early Termination Benefit, or
Disability Benefit When a Change in Control Occurs
. If a Change in Control occurs while the
Executive is receiving the Normal Retirement Age benefit under section 2.1, the Bank shall pay the
remaining salary continuation benefits to the Executive in a single lump sum within three days
after the Change in Control. If a Change in Control occurs after Separation from Service but while
the Executive is receiving or is entitled to receive the Early Termination benefit under section
2.2 or the Disability benefit under section 2.3, the Bank shall pay the remaining salary
continuation benefits to the Executive in a single lump sum within three days after the later of
(
x
) the Change in Control or (
y
) the first day of the seventh month after the month in which the
Executive’s Separation from Service occurs. The lump-sum payment due to the Executive as a result
of a Change in Control shall be an amount equal to the Accrual Balance amount corresponding to the
particular benefit when the Change in Control occurs.
2.6 Annual Benefit Statement
. Within 120 days after the end of each Plan Year the Plan
Administrator shall provide or cause to be provided to the Executive an annual benefit statement
showing benefits payable or potentially payable to the Executive under this Agreement. Each annual
benefit statement shall supersede the previous year’s annual benefit statement. If there is a
contradiction between this Agreement and the annual benefit statement concerning the amount of a
particular benefit payable or potentially payable to the Executive under sections 2.2, 2.3, or 2.4
hereof, the amount of the benefit determined under this Agreement shall control.
7
2.7 Savings Clause Relating to Compliance with Code Section 409A
. Despite any contrary
provision of this Agreement, if when the Executive’s employment terminates the Executive is a
specified employee, as defined in Code section 409A, and if any payments under Article 2 of this
Agreement will result in additional tax or interest to the Executive because of
section 409A, the Executive shall not be entitled to the payments under Article 2 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. If any provision of this Agreement would subject the Executive to additional tax or
interest under section 409A, the Bank shall reform the provision. However, the Bank shall maintain
to the maximum extent practicable the original intent of the applicable provision without
subjecting the Executive to additional tax or interest, and the Bank shall not be required to incur
any additional compensation expense as a result of the reformed provision.
2.8 One Benefit Only
. Despite anything to the contrary in this Agreement, the Executive and
Beneficiary are entitled to one benefit only under this Agreement, which shall be determined by the
first event to occur that is dealt with by this Agreement. Except as provided in section 2.5 or
Article 3, subsequent occurrence of events dealt with by this Agreement shall not entitle the
Executive or Beneficiary to other or additional benefits under this Agreement.
Article 3
Death Benefits
3.1 Death in Active Service Before Normal Retirement Age
. If the Executive dies both before
Normal Retirement Age and before Separation from Service, instead of any other benefit payable
under this Agreement the Executive’s Beneficiary shall be entitled at the Executive’s death solely
to the benefit, if any, payable under the Split Dollar Agreement and Endorsement, as amended,
attached to this Agreement as Addendum A.
3.2 Death During Benefit Period
. If the Executive dies after benefit payments under Article 2
commence but before receiving all such payments, the Bank shall pay the remaining benefits to the
Executive’s Beneficiary at the same time and in the same amounts they would have been paid to the
Executive had the Executive survived. In that case, no death benefit shall be payable under the
Split Dollar Agreement and Endorsement, as amended. If the Executive is entitled to benefit
payments under Article 2 but dies before payments commence, the benefits shall be payable to the
Executive’s Beneficiary but payments shall commence on the last day of the month after the month in
which the Executive’s death occurs, and no death benefit shall be payable under the Split Dollar
Agreement and Endorsement, as amended.
3.3 Lump-Sum Payout of Remaining Normal Retirement Benefit, Early Termination Benefit, or
Disability Benefit When a Change in Control Occurs
. If a Change in Control occurs while the
Beneficiary is receiving under section 3.2 the section 2.1 Normal Retirement Age benefit after the
Executive’s death or if a Change in Control occurs after the Executive’s Separation from Service
but while the Beneficiary is receiving or is entitled to receive because of section 3.2 the section
2.2 Early Termination benefit or the section 2.3 Disability benefit after the Executive’s death,
the Bank shall pay the remaining benefits to the Beneficiary in a single lump sum within three days
after the Change in Control. The lump-sum payment due to the Beneficiary as a result of a Change
in Control shall be an amount equal to the
Accrual Balance amount corresponding to the particular benefit when the Change in Control occurs.
8
Article 4
Beneficiaries
4.1 Beneficiary Designations
. The Executive shall have the right to designate at any time a
Beneficiary to receive any benefits payable under this Agreement after the Executive’s death. The
Beneficiary designated under this Agreement may be the same as or different from the beneficiary
designation under any other benefit plan of the Bank in which the Executive participates.
4.2 Beneficiary Designation: Change
. The Executive shall designate a Beneficiary by
completing and signing the Beneficiary Designation Form and delivering it to the Plan Administrator
or its designated agent. The Executive’s Beneficiary designation shall be deemed automatically
revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as
Beneficiary and the marriage is subsequently dissolved. The Executive shall have the right to
change a Beneficiary by completing, signing, and otherwise complying with the terms of the
Beneficiary Designation Form and the Plan Administrator’s rules and procedures, as in effect from
time to time. Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form,
all Beneficiary designations previously filed shall be cancelled. The Plan Administrator shall be
entitled to rely on the last Beneficiary Designation Form filed by the Executive and accepted by
the Plan Administrator before the Executive’s death.
4.3 Acknowledgment
. No designation or change in designation of a Beneficiary shall be
effective until received, accepted, and acknowledged in writing by the Plan Administrator or its
designated agent.
4.4 No Beneficiary Designation
. If the Executive dies without a valid beneficiary designation
or if all designated Beneficiaries predecease the Executive, the Executive’s spouse shall be the
designated Beneficiary. If the Executive has no surviving spouse the benefits shall be made to the
personal representative of the Executive’s estate.
4.5 Facility of Payment
. If a benefit is payable to a minor, to a person declared
incapacitated, or to a person incapable of handling the disposition of his or her property, the
Bank may pay the benefit to the guardian, legal representative, or person having the care or
custody of the minor, incapacitated person, or incapable person. The Bank may require proof of
incapacity, minority, or guardianship as it may deem appropriate before distribution of the
benefit. Distribution shall completely discharge the Bank from all liability for the benefit.
9
Article 5
General Limitations
5.1 Termination with Cause and Termination Before Vesting
. Despite any contrary provision of
this Agreement, the Bank shall not pay any benefit under this Agreement
and this Agreement shall terminate if Separation from Service is a Termination with Cause or if
Separation from Service is an Early Termination before the Executive attains age 62.
5.2 Misstatement
. No benefits shall be paid under this Agreement or under the Split Dollar
Agreement and Endorsement, as amended, if the Executive makes any material misstatement of fact on
any application or resume provided to the Bank, on any application for life insurance purchased by
the Bank, or on any application for benefits provided by the Bank.
5.3 Removal
. If the Executive is removed from office or permanently prohibited 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), all obligations of the Bank under
this Agreement shall terminate as of the effective date of the order, and the Split Dollar
Agreement and Endorsement, as amended, also shall terminate as of the effective date of the order.
5.4 Default
. Despite any contrary provision of this Agreement, if the Bank is in “default” or
“in danger of default,” as those terms are defined in section 3(x) of the Federal Deposit Insurance
Act, 12 U.S.C. 1813(x), all obligations under this Agreement shall terminate.
5.5 FDIC Open-Bank Assistance
. All obligations under this Agreement shall terminate, except
to the extent determined that continuation of the contract is necessary for the continued operation
of the Bank, when the Federal Deposit Insurance Corporation enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in section 13(c) of the
Federal Deposit Insurance Act. 12 U.S.C. 1823(c). Any rights of the parties that have already
vested shall not be affected by such action, however.
Article 6
Claims and Review Procedures
6.1 Claims Procedure
. Any person who has not received benefits under this Agreement that he
or she believes should be paid (the “claimant”) shall make a claim for benefits as follows.
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6.1.1
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Initiation – written claim
. The claimant initiates a claim by submitting to
the Administrator a written claim for the benefits. If the claim relates to the
contents of a notice received by the claimant, the claim must be made within 60 days
after the notice was received by the claimant. All other claims must be made within
180 days after the date of the event that caused the claim to arise. The claim must
state with particularity the determination desired by the claimant.
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6.1.2
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Timing of Administrator response
. The Administrator shall respond to the
claimant within 90 days after receiving the claim. If the Administrator determines
that special circumstances require additional time for processing the claim, the
Administrator can extend the response period by an additional 90 days by notifying the
claimant in writing, before the end of the initial 90-day period, that
an additional period is required. The notice of extension must set forth the
special circumstances and the date by which the Administrator expects to render its
decision.
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6.1.3
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Notice of decision
. If the Administrator denies part or all of the claim, the
Administrator shall notify the claimant in writing of the denial. The Administrator
shall write the notification in a manner calculated to be understood by the claimant.
The notification shall set forth –
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(a)
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The specific reasons for the denial,
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(b)
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A reference to the specific provisions of this Agreement on
which the denial is based,
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(c)
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A description of any additional information or material
necessary for the claimant to perfect the claim and an explanation of why it is
needed,
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(d)
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An explanation of the Agreement’s review procedures and the
time limits applicable to such procedures, and
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(e)
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A statement of the claimant’s right to bring a civil action
under ERISA section 502(a) after an adverse benefit determination on review.
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6.2 Review Procedure
. If the Administrator denies part or all of the claim, the claimant
shall have the opportunity for a full and fair review by the Administrator of the denial, as
follows.
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6.2.1
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Initiation – written request
. To initiate the review, the claimant must file
with the Administrator a written request for review within 60 days after receiving the
Administrator’s notice of denial.
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6.2.2
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Additional submissions – information access
. The claimant shall then have the
opportunity to submit written comments, documents, records, and other information
relating to the claim. Upon request and free of charge, the Administrator shall also
provide the claimant reasonable access to and copies of all documents, records, and
other information relevant (as defined in applicable ERISA regulations) to the
claimant’s claim for benefits.
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6.2.3
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Considerations on review
. In considering the review, the Administrator shall
take into account all materials and information the claimant submits relating to the
claim, without regard to whether the information was submitted or considered in the
initial benefit determination.
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6.2.4
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Timing of Administrator response
. The Administrator shall respond in writing
to the claimant within 60 days after receiving the request for review. If the
Administrator determines that special circumstances require additional time for
processing the claim, the Administrator can extend the response period by an additional
60 days by notifying the claimant in writing before the end of the initial 60-day
period that an additional period is required. The notice of extension must
set forth the special circumstances and the date by which the Administrator expects
to render its decision.
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6.2.5
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Notice of decision
. The Administrator shall notify the claimant in writing of
its decision on review. The Administrator shall write the notification in a manner
calculated to be understood by the claimant. The notification shall set forth:
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(a)
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The specific reasons for the denial,
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(b)
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A reference to the specific provisions of the Agreement on
which the denial is based,
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(c)
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A statement that the claimant is entitled to receive, upon
request and free of charge, reasonable access to and copies of all documents,
records, and other information relevant (as defined in applicable ERISA
regulations) to the claimant’s claim for benefits, and
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(d)
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A statement of the claimant’s right to bring a civil action
under ERISA section 502(a).
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Article 7
Administration of Agreement
7.1 Plan Administrator Duties
. This Agreement shall be administered by a Plan Administrator
consisting of the Board or such committee or person(s) as the Board shall appoint. The Executive
may not be a member of the Plan Administrator. The Plan Administrator shall have the discretion
and authority to (
x
) make, amend, interpret and enforce all appropriate rules and regulations for
the administration of this Agreement and (
y
) decide or resolve any and all questions that may
arise, including interpretations of this Agreement.
7.2 Agents
. In the administration of this Agreement the Plan Administrator may employ agents
and delegate to them such administrative duties as it sees fit (including acting through a duly
appointed representative) and may from time to time consult with counsel, who may be counsel to the
Bank.
7.3 Binding Effect of Decisions
. The decision or action of the Plan Administrator about any
question arising out of the administration, interpretation and application of the Agreement and the
rules and regulations promulgated hereunder shall be final and conclusive and binding upon all
persons having any interest in the Agreement. No Executive or Beneficiary shall be deemed to have
any right, vested or nonvested, regarding the continued use of any previously adopted assumptions,
including but not limited to the discount rate and calculation method employed in the determination
of the Accrual Balance.
7.4 Indemnity of Plan Administrator
. The Bank shall indemnify and hold harmless the members
of the Plan Administrator against any and all claims, losses, damages, expenses or liabilities
arising from any action or failure to act with respect to this Agreement, except in the case of
willful misconduct by the Plan Administrator or any of its members.
12
7.5 Bank Information
. To enable the Plan Administrator to perform its functions, the Bank
shall supply full and timely information to the Plan Administrator on all matters relating to the
date and circumstances of the retirement, Disability, death, or Separation from Service of the
Executive and such other pertinent information as the Plan Administrator may reasonably require.
Article 8
Miscellaneous
8.1 Amendments and Termination
. Subject to section 8.14 of this Agreement, this Agreement may
be amended solely by a written agreement signed by the Bank and by the Executive, and except for
termination occurring under Article 5 this Agreement may be terminated solely by a written
agreement signed by the Bank and by the Executive.
8.2 Binding Effect
. This Agreement shall bind the Executive and the Bank and their
beneficiaries, survivors, executors, successors, administrators, and transferees.
8.3 No Guarantee of Employment
. This Agreement is not an employment policy or contract. It
does not give the Executive the right to remain an employee of the Bank nor does it interfere with
the Bank’s right to discharge the Executive. It also does not require the Executive to remain an
employee or interfere with the Executive’s right to terminate employment at any time.
8.4 Non-Transferability
. Benefits under this Agreement may not be sold, transferred,
assigned, pledged, attached, or encumbered.
8.5 Successors; Binding Agreement
. By an assumption agreement in form and substance
satisfactory to the Executive, the Bank shall require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all of the business or
assets of the Bank to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Bank would be required to perform this Agreement had no succession
occurred.
8.6 Tax Withholding
. The Bank shall withhold any taxes that are required to be withheld from
the benefits provided under this Agreement.
8.7 Applicable Law
. The Agreement and all rights hereunder shall be governed by the laws of
the State of Ohio, except to the extent preempted by the laws of the United States of America.
8.8 Unfunded Arrangement
. The Executive and beneficiary are general unsecured creditors of
the Bank for the payment of benefits under this Agreement. The benefits represent the mere promise
by the Bank to pay benefits. The rights to benefits are not subject to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors. Any insurance on the Executive’s life is a general asset of the Bank to
which the Executive and beneficiary have no preferred or secured claim.
13
8.9 Entire Agreement
. This Agreement and the Split Dollar Agreement and Endorsement attached
as Addendum A, as amended, constitute the entire agreement between the Bank and the Executive
concerning the subject matter. No rights are granted to the Executive under this Agreement other
than those specifically set forth. This Agreement amends and restates in its entirety the December
15, 2003 Salary Continuation Agreement.
8.10 Severability
. If any provision of this Agreement is held invalid, such invalidity shall
not affect any other provision of this Agreement not held invalid, and to the full extent
consistent with law each such other provision shall continue in full force and effect. If any
provision of this Agreement is held invalid in part, such invalidity shall not affect the remainder
of such provision not held invalid, and to the full extent consistent with law the remainder of
such provision, together with all other provisions of this Agreement, shall continue in full force
and effect.
8.11 Headings
. Headings are included solely for convenience of reference and shall not affect
the meaning or interpretation of any provision of this Agreement.
8.12 Notices
. All notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or
registered mail, return receipt requested, with postage prepaid, to the following addresses or to
such other address as either party may designate by like notice. If to the Bank, notice shall be
given to the board of directors, The Cortland Savings and Banking Company, 194 W. Main Street, P.O.
Box 98, Cortland, Ohio 44410-1466, or to such other or additional person or persons as the Bank
shall have designated to the Executive in writing. If to the Executive, notice shall be given to
the Executive at the Executive’s address appearing on the Bank’s records, or to such other or
additional person or persons as the Executive shall have designated to the Bank in writing.
8.13 Payment of Legal Fees
. The Bank is aware that after a Change in Control management of
the Bank could cause or attempt to cause the Bank to refuse to comply with its obligations under
this Agreement, or could institute or cause or attempt to cause the Bank to institute litigation
seeking to have this Agreement declared unenforceable, or could take or attempt to take other
action to deny the Executive the benefits intended under this Agreement. In these circumstances
the purpose of this Agreement would be frustrated. The Bank 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. The
Bank 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 it appears
to Executive that (
x
) the Bank has failed to comply with any of its obligations under this
Agreement, or (
y
) the Bank or any other person has taken any action to declare this Agreement void
or unenforceable, or
14
instituted
any litigation or other legal action designed to deny, diminish, or recover from the Executive the benefits intended to be provided to the Executive
hereunder, the Bank irrevocably authorizes the Executive from time to time to retain counsel of the
Executive’s choice, at the Bank’s expense as provided in this section 8.13, to represent the
Executive in the initiation or defense of any litigation or other legal action, whether by or
against the Bank or any director, officer, stockholder or other person affiliated with the Bank, in
any jurisdiction. Despite any existing or previous attorney-client relationship between the Bank
and any counsel chosen by the Executive under this section 8.13, the Bank irrevocably consents to
the Executive entering into an attorney-client relationship with that counsel, and the Bank 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 Executive as provided in
this section shall be paid or reimbursed to Executive by the Bank 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 regardless of whether incurred in trial, bankruptcy, or appellate proceedings.
The Bank’s obligation to pay the Executive’s legal fees provided by this section 8.13 operates
separately from and in addition to any legal fee reimbursement obligation the Bank or the Bank’s
parent Cortland Bancorp may have with the Executive under a severance or employment agreement by
and among the Executive, the Bank, and Cortland Bancorp. Despite any contrary provision within
this Agreement however, the Bank 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].
8.14 Termination or Modification of Agreement Because of Changes in Law, Rules or Regulations
.
The Bank is entering into this Agreement on the assumption that certain existing tax laws, rules,
and regulations will continue in effect in their current form. If that assumption materially
changes and the change has a material detrimental effect on this Agreement, then the Bank reserves
the right to terminate or modify this Agreement accordingly, subject to the written consent of the
Executive, which shall not be unreasonably withheld. This section 8.14 shall become null and void
effective immediately upon a Change in Control.
In Witness Whereof
, the Executive and a duly authorized Bank officer have executed
this Amended Salary Continuation Agreement as of the date first written above.
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Executive
:
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Bank
:
The Cortland Savings and Banking Company
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By:
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Lawrence A. Fantauzzi
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Title: President and CEO
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15
Beneficiary Designation
The Cortland Savings and Banking Company
Amended Salary Continuation Agreement
Craig M. Phythyon
I designate the following as beneficiary of any death benefits under this Amended Salary
Continuation Agreement:
Note: To name a trust as beneficiary, please provide the name of the trustee(s) and
the
exact
name and date of the trust agreement.
I understand that I may change these beneficiary designations by filing a new written
designation with the Bank. I further understand that the designations will be automatically
revoked if the beneficiary predeceases me, or, if I have named my spouse as beneficiary and our
marriage is subsequently dissolved.
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Signature:
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Craig M. Phythyon
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Date:
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, 2008
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Accepted by the Bank this
_____
day of
_____, 2008
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By:
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Lawrence A. Fantauzzi
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Title: President and Chief Executive Officer
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16
Exhibit 10.22
The Cortland Savings and Banking Company
Third Amended Salary Continuation Agreement
This
Third Amended Salary Continuation Agreement
(this “Agreement”) is entered into
as of this third day of December, 2008, by and between The
Cortland Savings and Banking Company (the “Bank”), an Ohio-chartered, FDIC-insured member bank, and
Stephen A. Telego Sr., Senior Vice President and Director of Human Resources and Corporate
Administration of the Bank (the “Executive”).
Whereas
, the Executive has contributed substantially to the success of the Bank and
its parent company, Cortland Bancorp, an Ohio corporation, and the Bank desires that the Executive
continue in its employ,
Whereas
, to encourage the Executive to remain an employee, the Bank is willing to
provide to the Executive salary continuation benefits payable from the Bank’s general assets,
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 the Bank, is
contemplated insofar as the Bank is concerned,
Whereas
, the Bank and the Executive intend that this Agreement shall amend and
restate in its entirety the December 15, 2003 Second Amended Salary Continuation Agreement between
the Executive and the Bank, and
Whereas
, the parties hereto intend that this Agreement shall be considered an
unfunded arrangement maintained primarily to provide supplemental retirement benefits for the
Executive, and to be considered a non-qualified benefit plan for purposes of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”). The Executive is fully advised of
the Bank’s financial status.
Now Therefore
, in consideration of the foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows.
Article 1
Definitions
1.1
“
Accrual Balance
” means the liability that should be accrued by the Bank under generally
accepted accounting principles (“GAAP”) for the Bank’s obligation to the Executive under this
Agreement, applying Accounting Principles Board Opinion No. 12, as amended by Statement of
Financial Accounting Standards No. 106, and the calculation method and discount rate specified
hereinafter. The Accrual Balance shall be calculated such that when it is credited with interest
each month the Accrual Balance at Normal Retirement Age equals the present value
of the normal retirement benefits. The discount rate means the rate used by the Plan Administrator
for determining the Accrual Balance. In its sole discretion the Plan Administrator may adjust the
discount rate to maintain the rate within reasonable standards according to GAAP.
1.2
“
Beneficiary
” means each designated person, or the estate of the deceased Executive,
entitled to benefits, if any, upon the death of the Executive, determined according to Article 4.
1.3
“
Beneficiary Designation Form
” means the form established from time to time by the Plan
Administrator that the Executive completes, signs, and returns to the Plan Administrator to
designate one or more Beneficiaries.
1.4
“
Change in Control
” means a change in control as defined in Code section 409A and rules,
regulations, and guidance of general application thereunder issued by the Department of the
Treasury, including –
(a)
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,
(b)
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
(c)
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.
1.5
“
Code
” means the Internal Revenue Code of 1986, as amended, and rules, regulations, and
guidance of general application issued by the Department of the Treasury under the Internal Revenue
Code of 1986, as amended.
1.6
“
Disability
” means, because of a medically determinable physical or mental impairment
that can be expected to result in death or that can be expected to last for a continuous period of
at least 12 months, (
x
) the Executive is unable to engage in any substantial gainful activity, or
(
y
) the Executive is receiving income replacement benefits for a period of at least three months
under an accident and health plan of the employer. Medical determination of
disability may be made either by the Social Security Administration or by the provider of an
accident or health plan covering employees of the Bank. Upon request of the Plan Administrator,
the Executive must submit proof to the Plan Administrator of the Social Security Administration’s
or provider’s determination.
2
1.7
“
Early Termination
” means Separation from Service before Normal Retirement Age for reasons
other than death, Disability, or Termination with Cause. Early Termination excludes a Separation
from Service governed by section 2.4.
1.8
“
Effective Date
” means March 1, 2001.
1.9
“
Intentional
,” for purposes of this Agreement, no act or failure to act on the part of the
Executive 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 the best interests of the Bank.
1.10
“
Normal Retirement Age
” means the Executive’s 65
th
birthday.
1.11
“
Plan Administrator
” or “
Administrator
” means the plan administrator described in Article
7.
1.12
“
Plan Year
” means a twelve-month period commencing on March 1 and ending on the last day
of February of each year. The initial Plan Year commenced on the Effective Date.
1.13
“
Separation from Service
” means the Executive’s service as an executive and independent
contractor to the Bank and any member of a controlled group, as defined in Code section 414,
terminates for any reason, other than because of a leave of absence approved by the Bank or the
Executive’s death. For purposes of this Agreement, if there is a dispute about the employment
status of the Executive or the date of the Executive’s Separation from Service, the Bank shall have
the sole and absolute right to decide the dispute unless a Change in Control shall have occurred.
1.14
“
Termination with Cause
” and “
Cause
” shall have the same meaning specified in any
effective severance or employment agreement existing on the date hereof or hereafter entered into
between the Executive and the Bank. If the Executive is not a party to a severance or employment
agreement containing a definition of termination with cause, Termination with Cause means the Bank
terminates the Executive’s employment because of –
(a) the Executive’s gross negligence or gross neglect of duties or intentional and material
failure to perform stated duties after written notice thereof, or
3
(b) disloyalty or dishonesty by the Executive in the performance of the Executive’s duties, or
a breach of the Executive’s fiduciary duties for personal profit, in any case whether in the
Executive’s capacity as a director or officer, or
(c) intentional wrongful damage by the Executive to the business or property of the Bank or
its affiliates, including without limitation the reputation of the Bank, which in the judgement of
the Bank causes material harm to the Bank or affiliates, or
(d) a willful violation by the Executive of any applicable law or significant policy of the
Bank or an affiliate that, in the Bank’s judgement, results in an adverse effect on the Bank or the
affiliate, regardless of whether the violation leads to criminal prosecution or conviction. For
purposes of this Agreement applicable laws include any statute, rule, regulatory order, statement
of policy, or final cease-and-desist order of any governmental agency or body having regulatory
authority over the Bank, or
(e) 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 the Bank, under the
Bank’s blanket bond or other fidelity or insurance policy covering its directors, officers, or
employees, or
(f) the Executive is removed from office or permanently prohibited from participating in the
Bank’s affairs by an order issued under section 8(e)(4) or section 8(g)(1) of the Federal Deposit
Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or
(g) conviction of the Executive for 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.
1.15
“
Voluntary Termination with Good Reason
” means a voluntary Separation from Service by the
Executive within 24 months after a Change in Control if the following conditions (
x
) and (
y
) are
satisfied: (
x
) a voluntary Separation from Service by the Executive will be considered a Voluntary
Termination with Good Reason if any of the following occur 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,
4
5) a material change in the geographic location at which the Executive must perform
services for the Bank, or
6) any other action or inaction that constitutes a material breach by the Bank of the
agreement under which the Executive provides services to the Bank.
(
y
) the Executive must give notice to the Bank 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
the Bank 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 earlier of the initial existence of the condition or the
Change in Control.
Article 2
Lifetime Benefits
2.1 Normal Retirement
. Unless Separation from Service occurs before Normal Retirement Age,
when the Executive attains Normal Retirement Age the Bank shall pay to the Executive the benefit
described in this section 2.1 instead of any other benefit under this Agreement. If the
Executive’s Separation from Service thereafter is a Termination with Cause or if this Agreement
terminates under Article 5, no further benefits shall be paid.
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2.1.1
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Amount of benefit
. The annual benefit under this section 2.1 is $74,500.
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2.1.2
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Payment of benefit
. Beginning with the month immediately after the month in
which the Executive attains Normal Retirement Age, the Bank shall pay the annual
benefit to the Executive in equal monthly installments on the last day of each month.
The annual benefit shall be paid to the Executive for 15 years.
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2.2 Early Termination
. If Early Termination occurs before Normal Retirement Age but on or
after the date the Executive attains age 62, the Bank shall pay to the Executive the benefit
described in this section 2.2 instead of any other benefit under this Agreement. If Early
Termination occurs before the Executive attains age 62, no benefit shall be payable under this
Agreement. Additionally, no benefits shall be payable under this Agreement if the Executive’s
employment is terminated under circumstances described in Article 5 of this Agreement. Neither the
Bank nor the Executive shall be entitled to elect in the 24-month period after a Change in Control
between the benefit under this section 2.2 versus the benefit under section 2.4. If the
Executive’s Separation from Service within 24 months after a Change in Control is an involuntary
termination without Cause or a Voluntary Termination with Good Reason, no benefit shall be payable
under this section 2.2 and the Executive shall instead be entitled to the benefit under section 2.4
or, if the Executive first attained Normal Retirement Age, section 2.1.
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2.2.1
|
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Amount of benefit
. The annual benefit under this section 2.2 is calculated as
the amount that fully amortizes the Accrual Balance existing at the end of the month
immediately before the month in which Separation from Service occurs,
amortizing that Accrual Balance over 15 years and taking into account interest at
the discount rate or rates established by the Plan Administrator.
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5
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2.2.2
|
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Payment of benefit
. The Bank shall pay the annual benefit to the Executive in
equal monthly installments on the last day of each month, except that the first six
monthly installments after the Executive’s Separation from Service shall not be paid to
the Executive until the seventh month after the month in which Separation from Service
occurs. In the seventh month after the month in which Separation from Service occurs
the Executive shall be entitled to the first six monthly installments and the regular
monthly installment for the seventh month. The Executive shall be entitled to a total
of 180 monthly installments, including the first six installments that are paid in the
seventh month.
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2.3 Disability
. For Separation from Service because of Disability before Normal Retirement
Age, the Bank shall pay to the Executive the benefit described in this section 2.3 instead of any
other benefit under this Agreement.
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2.3.1
|
|
Amount of benefit
. The annual benefit under this section 2.3 is calculated as
the amount that fully amortizes the Accrual Balance existing at the end of the month
immediately before the month in which Separation from Service occurs, amortizing that
Accrual Balance over 15 years and taking into account interest at the discount rate or
rates established by the Plan Administrator.
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2.3.2
|
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Payment of Benefit
. Beginning with the later of (
x
) the seventh month after
the month in which the Executive’s Separation from Service occurs, or (
y
) the month
immediately after the month in which the Executive attains Normal Retirement Age, the
Bank shall pay the annual benefit to the Executive in equal monthly installments on the
last day of each month. If the benefit is paid under clause (
x
) in the seventh month
after Separation from Service, the first six monthly installments after Separation from
Service shall not be paid to the Executive until the seventh month after the month in
which Separation from Service occurs. In the seventh month the Executive shall be
entitled to the first six monthly installments and the regular monthly installment for
the seventh month. The Executive shall be entitled to a total of 180 monthly
installments, including the first six installments that are paid in the seventh month.
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2.4 Change in Control
. If the Executive’s Separation from Service is an involuntary
termination without Cause or a Voluntary Termination with Good Reason, in either case within 24
months after a Change in Control, the Bank shall pay to the Executive the benefit described in this
section 2.4 instead of any other benefit under this Agreement. However, no benefits shall be
payable under this Agreement if the Executive’s employment is terminated under circumstances
described in Article 5 of this Agreement. Neither the Bank nor the Executive shall be entitled to
elect in the 24-month period after a Change in Control between the benefit under this section 2.4
versus the Early Termination benefit under section 2.2. If the Executive’s Separation from Service
within 24 months after a Change in Control is an involuntary termination without Cause
or a Voluntary Termination with Good Reason, no benefit shall be payable under section 2.2 and the
Executive shall instead be entitled to the benefit under this section 2.4. But if the Executive
shall have attained Normal Retirement Age when Separation from Service within 24 months after a
Change in Control occurs, whether Separation from Service is voluntary or involuntary for any
reason other than Termination with Cause, the Executive shall be entitled solely to the benefit
provided by section 2.1, not this section 2.4.
6
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2.4.1
|
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Amount of benefit
. The benefit under this section 2.4 is the Normal
Retirement Age Accrual Balance required by section 2.1, discounting the Normal
Retirement Age Accrual Balance to present value using a discount rate selected by the
Plan Administrator, but the discount rate selected by the Plan Administrator shall not
exceed the discount rate employed at the time of the Change in Control for purposes of
calculating the Accrual Balance.
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2.4.2
|
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Payment of benefit
. The Bank shall pay the benefit under this section 2.4 to
the Executive in a single lump sum on the first day of the seventh month after the
month in which Separation from Service occurs.
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2.5 Lump-Sum Payout of Remaining Normal Retirement Benefit, Early Termination Benefit, or
Disability Benefit When a Change in Control Occurs
. If a Change in Control occurs while the
Executive is receiving the Normal Retirement Age benefit under section 2.1, the Bank shall pay the
remaining salary continuation benefits to the Executive in a single lump sum within three days
after the Change in Control. If a Change in Control occurs after Separation from Service but while
the Executive is receiving or is entitled to receive the Early Termination benefit under section
2.2 or the Disability benefit under section 2.3, the Bank shall pay the remaining salary
continuation benefits to the Executive in a single lump sum within three days after the later of
(
x
) the Change in Control or (
y
) the first day of the seventh month after the month in which the
Executive’s Separation from Service occurs. The lump-sum payment due to the Executive as a result
of a Change in Control shall be an amount equal to the Accrual Balance amount corresponding to the
particular benefit when the Change in Control occurs.
2.6 Annual Benefit Statement
. Within 120 days after the end of each Plan Year the Plan
Administrator shall provide or cause to be provided to the Executive an annual benefit statement
showing benefits payable or potentially payable to the Executive under this Agreement. Each annual
benefit statement shall supersede the previous year’s annual benefit statement. If there is a
contradiction between this Agreement and the annual benefit statement concerning the amount of a
particular benefit payable or potentially payable to the Executive under sections 2.2, 2.3, or 2.4
hereof, the amount of the benefit determined under this Agreement shall control.
7
2.7 Savings Clause Relating to Compliance with Code Section 409A
. Despite any contrary
provision of this Agreement, if when the Executive’s employment terminates the Executive is a
specified employee, as defined in Code section 409A, and if any payments under Article 2 of this
Agreement will result in additional tax or interest to the Executive because of
section 409A, the Executive shall not be entitled to the payments under Article 2 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. If any provision of this Agreement would subject the Executive to additional tax or
interest under section 409A, the Bank shall reform the provision. However, the Bank shall maintain
to the maximum extent practicable the original intent of the applicable provision without
subjecting the Executive to additional tax or interest, and the Bank shall not be required to incur
any additional compensation expense as a result of the reformed provision.
2.8 One Benefit Only
. Despite anything to the contrary in this Agreement, the Executive and
Beneficiary are entitled to one benefit only under this Agreement, which shall be determined by the
first event to occur that is dealt with by this Agreement. Except as provided in section 2.5 or
Article 3, subsequent occurrence of events dealt with by this Agreement shall not entitle the
Executive or Beneficiary to other or additional benefits under this Agreement.
Article 3
Death Benefits
3.1 Death in Active Service Before Normal Retirement Age
. If the Executive dies both before
Normal Retirement Age and before Separation from Service, instead of any other benefit payable
under this Agreement the Executive’s Beneficiary shall be entitled at the Executive’s death solely
to the benefit, if any, payable under the Split Dollar Agreement and Endorsement, as amended,
attached to this Agreement as Addendum A.
3.2 Death During Benefit Period
. If the Executive dies after benefit payments under Article 2
commence but before receiving all such payments, the Bank shall pay the remaining benefits to the
Executive’s Beneficiary at the same time and in the same amounts they would have been paid to the
Executive had the Executive survived. In that case, no death benefit shall be payable under the
Split Dollar Agreement and Endorsement, as amended. If the Executive is entitled to benefit
payments under Article 2 but dies before payments commence, the benefits shall be payable to the
Executive’s Beneficiary but payments shall commence on the last day of the month after the month in
which the Executive’s death occurs, and no death benefit shall be payable under the Split Dollar
Agreement and Endorsement, as amended.
3.3 Lump-Sum Payout of Remaining Normal Retirement Benefit, Early Termination Benefit, or
Disability Benefit When a Change in Control Occurs
. If a Change in Control occurs while the
Beneficiary is receiving under section 3.2 the section 2.1 Normal Retirement Age benefit after the
Executive’s death or if a Change in Control occurs after the Executive’s Separation from Service
but while the Beneficiary is receiving or is entitled to receive because of section 3.2 the section
2.2 Early Termination benefit or the section 2.3 Disability benefit after the Executive’s death,
the Bank shall pay the remaining benefits to the Beneficiary in a single lump sum within three days
after the Change in Control. The lump-sum payment due to the Beneficiary as a result of a Change
in Control shall be an amount equal to the
Accrual Balance amount corresponding to the particular benefit when the Change in Control occurs.
8
Article 4
Beneficiaries
4.1 Beneficiary Designations
. The Executive shall have the right to designate at any time a
Beneficiary to receive any benefits payable under this Agreement after the Executive’s death. The
Beneficiary designated under this Agreement may be the same as or different from the beneficiary
designation under any other benefit plan of the Bank in which the Executive participates.
4.2 Beneficiary Designation: Change
. The Executive shall designate a Beneficiary by
completing and signing the Beneficiary Designation Form and delivering it to the Plan Administrator
or its designated agent. The Executive’s Beneficiary designation shall be deemed automatically
revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as
Beneficiary and the marriage is subsequently dissolved. The Executive shall have the right to
change a Beneficiary by completing, signing, and otherwise complying with the terms of the
Beneficiary Designation Form and the Plan Administrator’s rules and procedures, as in effect from
time to time. Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form,
all Beneficiary designations previously filed shall be cancelled. The Plan Administrator shall be
entitled to rely on the last Beneficiary Designation Form filed by the Executive and accepted by
the Plan Administrator before the Executive’s death.
4.3 Acknowledgment
. No designation or change in designation of a Beneficiary shall be
effective until received, accepted, and acknowledged in writing by the Plan Administrator or its
designated agent.
4.4 No Beneficiary Designation
. If the Executive dies without a valid beneficiary designation
or if all designated Beneficiaries predecease the Executive, the Executive’s spouse shall be the
designated Beneficiary. If the Executive has no surviving spouse the benefits shall be made to the
personal representative of the Executive’s estate.
4.5 Facility of Payment
. If a benefit is payable to a minor, to a person declared
incapacitated, or to a person incapable of handling the disposition of his or her property, the
Bank may pay the benefit to the guardian, legal representative, or person having the care or
custody of the minor, incapacitated person, or incapable person. The Bank may require proof of
incapacity, minority, or guardianship as it may deem appropriate before distribution of the
benefit. Distribution shall completely discharge the Bank from all liability for the benefit.
9
Article 5
General Limitations
5.1 Termination with Cause and Termination Before Vesting
. Despite any contrary provision of
this Agreement, the Bank shall not pay any benefit under this Agreement
and this Agreement shall terminate if Separation from Service is a Termination with Cause or if
Separation from Service is an Early Termination before the Executive attains age 62.
5.2 Misstatement
. No benefits shall be paid under this Agreement or under the Split Dollar
Agreement and Endorsement, as amended, if the Executive makes any material misstatement of fact on
any application or resume provided to the Bank, on any application for life insurance purchased by
the Bank, or on any application for benefits provided by the Bank.
5.3 Removal
. If the Executive is removed from office or permanently prohibited 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), all obligations of the Bank under
this Agreement shall terminate as of the effective date of the order, and the Split Dollar
Agreement and Endorsement, as amended, also shall terminate as of the effective date of the order.
5.4 Default
. Despite any contrary provision of this Agreement, if the Bank is in “default” or
“in danger of default,” as those terms are defined in section 3(x) of the Federal Deposit Insurance
Act, 12 U.S.C. 1813(x), all obligations under this Agreement shall terminate.
5.5 FDIC Open-Bank Assistance
. All obligations under this Agreement shall terminate, except
to the extent determined that continuation of the contract is necessary for the continued operation
of the Bank, when the Federal Deposit Insurance Corporation enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in section 13(c) of the
Federal Deposit Insurance Act. 12 U.S.C. 1823(c). Any rights of the parties that have already
vested shall not be affected by such action, however.
Article 6
Claims and Review Procedures
6.1 Claims Procedure
. Any person who has not received benefits under this Agreement that he
or she believes should be paid (the “claimant”) shall make a claim for benefits as follows.
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6.1.1
|
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Initiation – written claim
. The claimant initiates a claim by submitting to
the Administrator a written claim for the benefits. If the claim relates to the
contents of a notice received by the claimant, the claim must be made within 60 days
after the notice was received by the claimant. All other claims must be made within
180 days after the date of the event that caused the claim to arise. The claim must
state with particularity the determination desired by the claimant.
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6.1.2
|
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Timing of Administrator response
. The Administrator shall respond to the
claimant within 90 days after receiving the claim. If the Administrator determines
that special circumstances require additional time for processing the claim, the
Administrator can extend the response period by an additional 90 days by notifying the
claimant in writing, before the end of the initial 90-day period, that
an additional period is required. The notice of extension must set forth the
special circumstances and the date by which the Administrator expects to render its
decision.
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10
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6.1.3
|
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Notice of decision
. If the Administrator denies part or all of the claim, the
Administrator shall notify the claimant in writing of the denial. The Administrator
shall write the notification in a manner calculated to be understood by the claimant.
The notification shall set forth –
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(a)
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The specific reasons for the denial,
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(b)
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A reference to the specific provisions of this Agreement on
which the denial is based,
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(c)
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A description of any additional information or material
necessary for the claimant to perfect the claim and an explanation of why it is
needed,
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(d)
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An explanation of the Agreement’s review procedures and the
time limits applicable to such procedures, and
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(e)
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A statement of the claimant’s right to bring a civil action
under ERISA section 502(a) after an adverse benefit determination on review.
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6.2 Review Procedure
. If the Administrator denies part or all of the claim, the claimant
shall have the opportunity for a full and fair review by the Administrator of the denial, as
follows.
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6.2.1
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Initiation – written request
. To initiate the review, the claimant must file
with the Administrator a written request for review within 60 days after receiving the
Administrator’s notice of denial.
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6.2.2
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Additional submissions – information access
. The claimant shall then have the
opportunity to submit written comments, documents, records, and other information
relating to the claim. Upon request and free of charge, the Administrator shall also
provide the claimant reasonable access to and copies of all documents, records, and
other information relevant (as defined in applicable ERISA regulations) to the
claimant’s claim for benefits.
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6.2.3
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Considerations on review
. In considering the review, the Administrator shall
take into account all materials and information the claimant submits relating to the
claim, without regard to whether the information was submitted or considered in the
initial benefit determination.
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6.2.4
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Timing of Administrator response
. The Administrator shall respond in writing
to the claimant within 60 days after receiving the request for review. If the
Administrator determines that special circumstances require additional time for
processing the claim, the Administrator can extend the response period by an additional
60 days by notifying the claimant in writing before the end of the initial 60-day
period that an additional period is required. The notice of extension must
set forth the special circumstances and the date by which the Administrator expects
to render its decision.
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11
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6.2.5
|
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Notice of decision
. The Administrator shall notify the claimant in writing of
its decision on review. The Administrator shall write the notification in a manner
calculated to be understood by the claimant. The notification shall set forth:
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(a)
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The specific reasons for the denial,
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(b)
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A reference to the specific provisions of the Agreement on
which the denial is based,
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(c)
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A statement that the claimant is entitled to receive, upon
request and free of charge, reasonable access to and copies of all documents,
records, and other information relevant (as defined in applicable ERISA
regulations) to the claimant’s claim for benefits, and
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(d)
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A statement of the claimant’s right to bring a civil action
under ERISA section 502(a).
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Article 7
Administration of Agreement
7.1 Plan Administrator Duties
. This Agreement shall be administered by a Plan Administrator
consisting of the Board or such committee or person(s) as the Board shall appoint. The Executive
may not be a member of the Plan Administrator. The Plan Administrator shall have the discretion
and authority to (
x
) make, amend, interpret and enforce all appropriate rules and regulations for
the administration of this Agreement and (
y
) decide or resolve any and all questions that may
arise, including interpretations of this Agreement.
7.2 Agents
. In the administration of this Agreement the Plan Administrator may employ agents
and delegate to them such administrative duties as it sees fit (including acting through a duly
appointed representative) and may from time to time consult with counsel, who may be counsel to the
Bank.
7.3 Binding Effect of Decisions
. The decision or action of the Plan Administrator about any
question arising out of the administration, interpretation and application of the Agreement and the
rules and regulations promulgated hereunder shall be final and conclusive and binding upon all
persons having any interest in the Agreement. No Executive or Beneficiary shall be deemed to have
any right, vested or nonvested, regarding the continued use of any previously adopted assumptions,
including but not limited to the discount rate and calculation method employed in the determination
of the Accrual Balance.
7.4 Indemnity of Plan Administrator
. The Bank shall indemnify and hold harmless the members
of the Plan Administrator against any and all claims, losses, damages, expenses or liabilities
arising from any action or failure to act with respect to this Agreement, except in the case of
willful misconduct by the Plan Administrator or any of its members.
12
7.5 Bank Information
. To enable the Plan Administrator to perform its functions, the Bank
shall supply full and timely information to the Plan Administrator on all matters relating to the
date and circumstances of the retirement, Disability, death, or Separation from Service of the
Executive and such other pertinent information as the Plan Administrator may reasonably require.
Article 8
Miscellaneous
8.1 Amendments and Termination
. Subject to section 8.14 of this Agreement, this Agreement may
be amended solely by a written agreement signed by the Bank and by the Executive, and except for
termination occurring under Article 5 this Agreement may be terminated solely by a written
agreement signed by the Bank and by the Executive.
8.2 Binding Effect
. This Agreement shall bind the Executive and the Bank and their
beneficiaries, survivors, executors, successors, administrators, and transferees.
8.3 No Guarantee of Employment
. This Agreement is not an employment policy or contract. It
does not give the Executive the right to remain an employee of the Bank nor does it interfere with
the Bank’s right to discharge the Executive. It also does not require the Executive to remain an
employee or interfere with the Executive’s right to terminate employment at any time.
8.4 Non-Transferability
. Benefits under this Agreement may not be sold, transferred,
assigned, pledged, attached, or encumbered.
8.5 Successors; Binding Agreement
. By an assumption agreement in form and substance
satisfactory to the Executive, the Bank shall require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all of the business or
assets of the Bank to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Bank would be required to perform this Agreement had no succession
occurred.
8.6 Tax Withholding
. The Bank shall withhold any taxes that are required to be withheld from
the benefits provided under this Agreement.
8.7 Applicable Law
. The Agreement and all rights hereunder shall be governed by the laws of
the State of Ohio, except to the extent preempted by the laws of the United States of America.
8.8 Unfunded Arrangement
. The Executive and beneficiary are general unsecured creditors of
the Bank for the payment of benefits under this Agreement. The benefits represent the mere promise
by the Bank to pay benefits. The rights to benefits are not subject to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors. Any insurance on the Executive’s life is a general asset of the Bank to
which the Executive and beneficiary have no preferred or secured claim.
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8.9 Entire Agreement
. This Agreement and the Split Dollar Agreement and Endorsement attached
as Addendum A, as amended, constitute the entire agreement between the Bank and the Executive
concerning the subject matter. No rights are granted to the Executive under this Agreement other
than those specifically set forth. This Agreement amends and restates in its entirety the December
15, 2003 Second Amended Salary Continuation Agreement.
8.10 Severability
. If any provision of this Agreement is held invalid, such invalidity shall
not affect any other provision of this Agreement not held invalid, and to the full extent
consistent with law each such other provision shall continue in full force and effect. If any
provision of this Agreement is held invalid in part, such invalidity shall not affect the remainder
of such provision not held invalid, and to the full extent consistent with law the remainder of
such provision, together with all other provisions of this Agreement, shall continue in full force
and effect.
8.11 Headings
. Headings are included solely for convenience of reference and shall not affect
the meaning or interpretation of any provision of this Agreement.
8.12 Notices
. All notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or
registered mail, return receipt requested, with postage prepaid, to the following addresses or to
such other address as either party may designate by like notice. If to the Bank, notice shall be
given to the board of directors, The Cortland Savings and Banking Company, 194 W. Main Street, P.O.
Box 98, Cortland, Ohio 44410-1466, or to such other or additional person or persons as the Bank
shall have designated to the Executive in writing. If to the Executive, notice shall be given to
the Executive at the Executive’s address appearing on the Bank’s records, or to such other or
additional person or persons as the Executive shall have designated to the Bank in writing.
8.13 Payment of Legal Fees
. The Bank is aware that after a Change in Control management of
the Bank could cause or attempt to cause the Bank to refuse to comply with its obligations under
this Agreement, or could institute or cause or attempt to cause the Bank to institute litigation
seeking to have this Agreement declared unenforceable, or could take or attempt to take other
action to deny the Executive the benefits intended under this Agreement. In these circumstances
the purpose of this Agreement would be frustrated. The Bank 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. The
Bank 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 it appears
to Executive that (
x
) the Bank has failed to comply with any of its obligations under this
Agreement, or (
y
) the Bank or any other person has taken any action to declare this Agreement void
or unenforceable, or
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instituted
any litigation or other legal action designed to deny, diminish, or recover from the Executive the benefits intended to be provided to the Executive
hereunder, the Bank irrevocably authorizes the Executive from time to time to retain counsel of the
Executive’s choice, at the Bank’s expense as provided in this section 8.13, to represent the
Executive in the initiation or defense of any litigation or other legal action, whether by or
against the Bank or any director, officer, stockholder or other person affiliated with the Bank, in
any jurisdiction. Despite any existing or previous attorney-client relationship between the Bank
and any counsel chosen by the Executive under this section 8.13, the Bank irrevocably consents to
the Executive entering into an attorney-client relationship with that counsel, and the Bank 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 Executive as provided in
this section shall be paid or reimbursed to Executive by the Bank 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 regardless of whether incurred in trial, bankruptcy, or appellate proceedings.
The Bank’s obligation to pay the Executive’s legal fees provided by this section 8.13 operates
separately from and in addition to any legal fee reimbursement obligation the Bank or the Bank’s
parent Cortland Bancorp may have with the Executive under a severance or employment agreement by
and among the Executive, the Bank, and Cortland Bancorp. Despite any contrary provision within
this Agreement however, the Bank 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].
8.14 Termination or Modification of Agreement Because of Changes in Law, Rules or Regulations
.
The Bank is entering into this Agreement on the assumption that certain existing tax laws, rules,
and regulations will continue in effect in their current form. If that assumption materially
changes and the change has a material detrimental effect on this Agreement, then the Bank reserves
the right to terminate or modify this Agreement accordingly, subject to the written consent of the
Executive, which shall not be unreasonably withheld. This section 8.14 shall become null and void
effective immediately upon a Change in Control.
In Witness Whereof
, the Executive and a duly authorized Bank officer have executed
this Third Amended Salary Continuation Agreement as of the date first written above.
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Executive
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Bank
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The Cortland Savings and Banking
Company
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By:
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Lawrence A. Fantauzzi
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Title: President and CEO
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Beneficiary Designation
The Cortland Savings and Banking Company
Third Amended Salary Continuation Agreement
Stephen A. Telego Sr.
I designate the following as beneficiary of any death benefits under this Third Amended Salary
Continuation Agreement:
Note: To name a trust as beneficiary, please provide the name of the trustee(s) and
the
exact
name and date of the trust agreement.
I understand that I may change these beneficiary designations by filing a new written
designation with the Bank. I further understand that the designations will be automatically
revoked if the beneficiary predeceases me, or, if I have named my spouse as beneficiary and our
marriage is subsequently dissolved.
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Signature:
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Stephen A. Telego Sr.
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Date:
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,
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2008
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Accepted by the Bank this
day of
, 2008
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By:
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Lawrence A. Fantauzzi
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Title: President and Chief Executive Officer
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16
Exhibit 10.23
The Cortland Savings and Banking Company
Third Amended Salary Continuation Agreement
This
Third Amended Salary Continuation Agreement
(this “Agreement”) is entered into
as of this third day of December, 2008, by and between The
Cortland Savings and Banking Company (the “Bank”), an Ohio-chartered, FDIC-insured member bank, and
Danny L. White, Senior Vice President and Chief Lending Officer of the Bank (the “Executive”).
Whereas
, the Executive has contributed substantially to the success of the Bank and
its parent company, Cortland Bancorp, an Ohio corporation, and the Bank desires that the Executive
continue in its employ,
Whereas
, to encourage the Executive to remain an employee, the Bank is willing to
provide to the Executive salary continuation benefits payable from the Bank’s general assets,
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 the Bank, is
contemplated insofar as the Bank is concerned,
Whereas
, the Bank and the Executive intend that this Agreement shall amend and
restate in its entirety the December 15, 2003 Second Amended Salary Continuation Agreement between
the Executive and the Bank, and
Whereas
, the parties hereto intend that this Agreement shall be considered an
unfunded arrangement maintained primarily to provide supplemental retirement benefits for the
Executive, and to be considered a non-qualified benefit plan for purposes of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”). The Executive is fully advised of
the Bank’s financial status.
Now Therefore
, in consideration of the foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows.
Article 1
Definitions
1.1
“
Accrual Balance
” means the liability that should be accrued by the Bank under generally
accepted accounting principles (“GAAP”) for the Bank’s obligation to the Executive under this
Agreement, applying Accounting Principles Board Opinion No. 12, as amended by Statement of
Financial Accounting Standards No. 106, and the calculation method and discount rate specified
hereinafter. The Accrual Balance shall be calculated such that when it is credited with interest
each month the Accrual Balance at Normal Retirement Age equals the present value
of the normal retirement benefits. The discount rate means the rate used by the Plan Administrator
for determining the Accrual Balance. In its sole discretion the Plan Administrator may adjust the
discount rate to maintain the rate within reasonable standards according to GAAP.
1.2
“
Beneficiary
” means each designated person, or the estate of the deceased Executive,
entitled to benefits, if any, upon the death of the Executive, determined according to Article 4.
1.3
“
Beneficiary Designation Form
” means the form established from time to time by the Plan
Administrator that the Executive completes, signs, and returns to the Plan Administrator to
designate one or more Beneficiaries.
1.4
“
Change in Control
” means a change in control as defined in Code section 409A and rules,
regulations, and guidance of general application thereunder issued by the Department of the
Treasury, including –
(a)
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,
(b)
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
(c)
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.
1.5
“
Code
” means the Internal Revenue Code of 1986, as amended, and rules, regulations, and
guidance of general application issued by the Department of the Treasury under the Internal Revenue
Code of 1986, as amended.
1.6
“
Disability
” means, because of a medically determinable physical or mental impairment
that can be expected to result in death or that can be expected to last for a continuous period of
at least 12 months, (
x
) the Executive is unable to engage in any substantial gainful activity, or
(
y
) the Executive is receiving income replacement benefits for a period of at least three months
under an accident and health plan of the employer. Medical determination of
disability may be made either by the Social Security Administration or by the provider of an
accident or health plan covering employees of the Bank. Upon request of the Plan Administrator,
the Executive must submit proof to the Plan Administrator of the Social Security Administration’s
or provider’s determination.
2
1.7
“
Early Termination
” means Separation from Service before Normal Retirement Age for reasons
other than death, Disability, or Termination with Cause. Early Termination excludes a Separation
from Service governed by section 2.4.
1.8
“
Effective Date
” means March 1, 2001.
1.9
“
Intentional
,” for purposes of this Agreement, no act or failure to act on the part of the
Executive 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 the best interests of the Bank.
1.10
“
Normal Retirement Age
” means the Executive’s 65
th
birthday.
1.11
“
Plan Administrator
” or “
Administrator
” means the plan administrator described in Article
7.
1.12
“
Plan Year
” means a twelve-month period commencing on March 1 and ending on the last day
of February of each year. The initial Plan Year commenced on the Effective Date.
1.13
“
Separation from Service
” means the Executive’s service as an executive and independent
contractor to the Bank and any member of a controlled group, as defined in Code section 414,
terminates for any reason, other than because of a leave of absence approved by the Bank or the
Executive’s death. For purposes of this Agreement, if there is a dispute about the employment
status of the Executive or the date of the Executive’s Separation from Service, the Bank shall have
the sole and absolute right to decide the dispute unless a Change in Control shall have occurred.
1.14
“
Termination with Cause
” and “
Cause
” shall have the same meaning specified in any
effective severance or employment agreement existing on the date hereof or hereafter entered into
between the Executive and the Bank. If the Executive is not a party to a severance or employment
agreement containing a definition of termination with cause, Termination with Cause means the Bank
terminates the Executive’s employment because of –
(a) the Executive’s gross negligence or gross neglect of duties or intentional and material
failure to perform stated duties after written notice thereof, or
3
(b) disloyalty or dishonesty by the Executive in the performance of the Executive’s duties, or
a breach of the Executive’s fiduciary duties for personal profit, in any case whether in the
Executive’s capacity as a director or officer, or
(c) intentional wrongful damage by the Executive to the business or property of the Bank or
its affiliates, including without limitation the reputation of the Bank, which in the judgement of
the Bank causes material harm to the Bank or affiliates, or
(d) a willful violation by the Executive of any applicable law or significant policy of the
Bank or an affiliate that, in the Bank’s judgement, results in an adverse effect on the Bank or the
affiliate, regardless of whether the violation leads to criminal prosecution or conviction. For
purposes of this Agreement applicable laws include any statute, rule, regulatory order, statement
of policy, or final cease-and-desist order of any governmental agency or body having regulatory
authority over the Bank, or
(e) 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 the Bank, under the
Bank’s blanket bond or other fidelity or insurance policy covering its directors, officers, or
employees, or
(f) the Executive is removed from office or permanently prohibited from participating in the
Bank’s affairs by an order issued under section 8(e)(4) or section 8(g)(1) of the Federal Deposit
Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or
(g) conviction of the Executive for 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.
1.15
“
Voluntary Termination with Good Reason
” means a voluntary Separation from Service by the
Executive within 24 months after a Change in Control if the following conditions (
x
) and (
y
) are
satisfied: (
x
) a voluntary Separation from Service by the Executive will be considered a Voluntary
Termination with Good Reason if any of the following occur 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,
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5) a material change in the geographic location at which the Executive must perform
services for the Bank, or
6) any other action or inaction that constitutes a material breach by the Bank of the
agreement under which the Executive provides services to the Bank.
(
y
) the Executive must give notice to the Bank 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
the Bank 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 earlier of the initial existence of the condition or the
Change in Control.
Article 2
Lifetime Benefits
2.1 Normal Retirement
. Unless Separation from Service occurs before Normal Retirement Age,
when the Executive attains Normal Retirement Age the Bank shall pay to the Executive the benefit
described in this section 2.1 instead of any other benefit under this Agreement. If the
Executive’s Separation from Service thereafter is a Termination with Cause or if this Agreement
terminates under Article 5, no further benefits shall be paid.
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2.1.1
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Amount of benefit
. The annual benefit under this section 2.1 is $41,500.
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2.1.2
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Payment of benefit
. Beginning with the month immediately after the month in
which the Executive attains Normal Retirement Age, the Bank shall pay the annual
benefit to the Executive in equal monthly installments on the last day of each month.
The annual benefit shall be paid to the Executive for 15 years.
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2.2 Early Termination
. If Early Termination occurs before Normal Retirement Age but on or
after the date the Executive attains age 62, the Bank shall pay to the Executive the benefit
described in this section 2.2 instead of any other benefit under this Agreement. If Early
Termination occurs before the Executive attains age 62, no benefit shall be payable under this
Agreement. Additionally, no benefits shall be payable under this Agreement if the Executive’s
employment is terminated under circumstances described in Article 5 of this Agreement. Neither the
Bank nor the Executive shall be entitled to elect in the 24-month period after a Change in Control
between the benefit under this section 2.2 versus the benefit under section 2.4. If the
Executive’s Separation from Service within 24 months after a Change in Control is an involuntary
termination without Cause or a Voluntary Termination with Good Reason, no benefit shall be payable
under this section 2.2 and the Executive shall instead be entitled to the benefit under section 2.4
or, if the Executive first attained Normal Retirement Age, section 2.1.
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2.2.1
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Amount of benefit
. The annual benefit under this section 2.2 is calculated as
the amount that fully amortizes the Accrual Balance existing at the end of the month
immediately before the month in which Separation from Service occurs,
amortizing that Accrual Balance over 15 years and taking into account interest at
the discount rate or rates established by the Plan Administrator.
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2.2.2
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Payment of benefit
. The Bank shall pay the annual benefit to the Executive in
equal monthly installments on the last day of each month, except that the first six
monthly installments after the Executive’s Separation from Service shall not be paid to
the Executive until the seventh month after the month in which Separation from Service
occurs. In the seventh month after the month in which Separation from Service occurs
the Executive shall be entitled to the first six monthly installments and the regular
monthly installment for the seventh month. The Executive shall be entitled to a total
of 180 monthly installments, including the first six installments that are paid in the
seventh month.
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2.3 Disability
. For Separation from Service because of Disability before Normal Retirement
Age, the Bank shall pay to the Executive the benefit described in this section 2.3 instead of any
other benefit under this Agreement.
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2.3.1
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Amount of benefit
. The annual benefit under this section 2.3 is calculated as
the amount that fully amortizes the Accrual Balance existing at the end of the month
immediately before the month in which Separation from Service occurs, amortizing that
Accrual Balance over 15 years and taking into account interest at the discount rate or
rates established by the Plan Administrator.
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2.3.2
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Payment of Benefit
. Beginning with the later of (
x
) the seventh month after
the month in which the Executive’s Separation from Service occurs, or (
y
) the month
immediately after the month in which the Executive attains Normal Retirement Age, the
Bank shall pay the annual benefit to the Executive in equal monthly installments on the
last day of each month. If the benefit is paid under clause (
x
) in the seventh month
after Separation from Service, the first six monthly installments after Separation from
Service shall not be paid to the Executive until the seventh month after the month in
which Separation from Service occurs. In the seventh month the Executive shall be
entitled to the first six monthly installments and the regular monthly installment for
the seventh month. The Executive shall be entitled to a total of 180 monthly
installments, including the first six installments that are paid in the seventh month.
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2.4 Change in Control
. If the Executive’s Separation from Service is an involuntary
termination without Cause or a Voluntary Termination with Good Reason, in either case within 24
months after a Change in Control, the Bank shall pay to the Executive the benefit described in this
section 2.4 instead of any other benefit under this Agreement. However, no benefits shall be
payable under this Agreement if the Executive’s employment is terminated under circumstances
described in Article 5 of this Agreement. Neither the Bank nor the Executive shall be entitled to
elect in the 24-month period after a Change in Control between the benefit under this section 2.4
versus the Early Termination benefit under section 2.2. If the Executive’s Separation from Service
within 24 months after a Change in Control is an involuntary termination without Cause
or a Voluntary Termination with Good Reason, no benefit shall be payable under section 2.2 and the
Executive shall instead be entitled to the benefit under this section 2.4. But if the Executive
shall have attained Normal Retirement Age when Separation from Service within 24 months after a
Change in Control occurs, whether Separation from Service is voluntary or involuntary for any
reason other than Termination with Cause, the Executive shall be entitled solely to the benefit
provided by section 2.1, not this section 2.4.
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2.4.1
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Amount of benefit
. The benefit under this section 2.4 is the Normal
Retirement Age Accrual Balance required by section 2.1, discounting the Normal
Retirement Age Accrual Balance to present value using a discount rate selected by the
Plan Administrator, but the discount rate selected by the Plan Administrator shall not
exceed the discount rate employed at the time of the Change in Control for purposes of
calculating the Accrual Balance.
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2.4.2
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Payment of benefit
. The Bank shall pay the benefit under this section 2.4 to
the Executive in a single lump sum on the first day of the seventh month after the
month in which Separation from Service occurs.
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2.5 Lump-Sum Payout of Remaining Normal Retirement Benefit, Early Termination Benefit, or
Disability Benefit When a Change in Control Occurs
. If a Change in Control occurs while the
Executive is receiving the Normal Retirement Age benefit under section 2.1, the Bank shall pay the
remaining salary continuation benefits to the Executive in a single lump sum within three days
after the Change in Control. If a Change in Control occurs after Separation from Service but while
the Executive is receiving or is entitled to receive the Early Termination benefit under section
2.2 or the Disability benefit under section 2.3, the Bank shall pay the remaining salary
continuation benefits to the Executive in a single lump sum within three days after the later of
(
x
) the Change in Control or (
y
) the first day of the seventh month after the month in which the
Executive’s Separation from Service occurs. The lump-sum payment due to the Executive as a result
of a Change in Control shall be an amount equal to the Accrual Balance amount corresponding to the
particular benefit when the Change in Control occurs.
2.6 Annual Benefit Statement
. Within 120 days after the end of each Plan Year the Plan
Administrator shall provide or cause to be provided to the Executive an annual benefit statement
showing benefits payable or potentially payable to the Executive under this Agreement. Each annual
benefit statement shall supersede the previous year’s annual benefit statement. If there is a
contradiction between this Agreement and the annual benefit statement concerning the amount of a
particular benefit payable or potentially payable to the Executive under sections 2.2, 2.3, or 2.4
hereof, the amount of the benefit determined under this Agreement shall control.
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2.7 Savings Clause Relating to Compliance with Code Section 409A
. Despite any contrary
provision of this Agreement, if when the Executive’s employment terminates the Executive is a
specified employee, as defined in Code section 409A, and if any payments under Article 2 of this
Agreement will result in additional tax or interest to the Executive because of
section 409A, the Executive shall not be entitled to the payments under Article 2 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. If any provision of this Agreement would subject the Executive to additional tax or
interest under section 409A, the Bank shall reform the provision. However, the Bank shall maintain
to the maximum extent practicable the original intent of the applicable provision without
subjecting the Executive to additional tax or interest, and the Bank shall not be required to incur
any additional compensation expense as a result of the reformed provision.
2.8 One Benefit Only
. Despite anything to the contrary in this Agreement, the Executive and
Beneficiary are entitled to one benefit only under this Agreement, which shall be determined by the
first event to occur that is dealt with by this Agreement. Except as provided in section 2.5 or
Article 3, subsequent occurrence of events dealt with by this Agreement shall not entitle the
Executive or Beneficiary to other or additional benefits under this Agreement.
Article 3
Death Benefits
3.1 Death in Active Service Before Normal Retirement Age
. If the Executive dies both before
Normal Retirement Age and before Separation from Service, instead of any other benefit payable
under this Agreement the Executive’s Beneficiary shall be entitled at the Executive’s death solely
to the benefit, if any, payable under the Split Dollar Agreement and Endorsement, as amended,
attached to this Agreement as Addendum A.
3.2 Death During Benefit Period
. If the Executive dies after benefit payments under Article 2
commence but before receiving all such payments, the Bank shall pay the remaining benefits to the
Executive’s Beneficiary at the same time and in the same amounts they would have been paid to the
Executive had the Executive survived. In that case, no death benefit shall be payable under the
Split Dollar Agreement and Endorsement, as amended. If the Executive is entitled to benefit
payments under Article 2 but dies before payments commence, the benefits shall be payable to the
Executive’s Beneficiary but payments shall commence on the last day of the month after the month in
which the Executive’s death occurs, and no death benefit shall be payable under the Split Dollar
Agreement and Endorsement, as amended.
3.3 Lump-Sum Payout of Remaining Normal Retirement Benefit, Early Termination Benefit, or
Disability Benefit When a Change in Control Occurs
. If a Change in Control occurs while the
Beneficiary is receiving under section 3.2 the section 2.1 Normal Retirement Age benefit after the
Executive’s death or if a Change in Control occurs after the Executive’s Separation from Service
but while the Beneficiary is receiving or is entitled to receive because of section 3.2 the section
2.2 Early Termination benefit or the section 2.3 Disability benefit after the Executive’s death,
the Bank shall pay the remaining benefits to the Beneficiary in a single lump sum within three days
after the Change in Control. The lump-sum payment due to the Beneficiary as a result of a Change
in Control shall be an amount equal to the
Accrual Balance amount corresponding to the particular benefit when the Change in Control occurs.
8
Article 4
Beneficiaries
4.1 Beneficiary Designations
. The Executive shall have the right to designate at any time a
Beneficiary to receive any benefits payable under this Agreement after the Executive’s death. The
Beneficiary designated under this Agreement may be the same as or different from the beneficiary
designation under any other benefit plan of the Bank in which the Executive participates.
4.2 Beneficiary Designation: Change
. The Executive shall designate a Beneficiary by
completing and signing the Beneficiary Designation Form and delivering it to the Plan Administrator
or its designated agent. The Executive’s Beneficiary designation shall be deemed automatically
revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as
Beneficiary and the marriage is subsequently dissolved. The Executive shall have the right to
change a Beneficiary by completing, signing, and otherwise complying with the terms of the
Beneficiary Designation Form and the Plan Administrator’s rules and procedures, as in effect from
time to time. Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form,
all Beneficiary designations previously filed shall be cancelled. The Plan Administrator shall be
entitled to rely on the last Beneficiary Designation Form filed by the Executive and accepted by
the Plan Administrator before the Executive’s death.
4.3 Acknowledgment
. No designation or change in designation of a Beneficiary shall be
effective until received, accepted, and acknowledged in writing by the Plan Administrator or its
designated agent.
4.4 No Beneficiary Designation
. If the Executive dies without a valid beneficiary designation
or if all designated Beneficiaries predecease the Executive, the Executive’s spouse shall be the
designated Beneficiary. If the Executive has no surviving spouse the benefits shall be made to the
personal representative of the Executive’s estate.
4.5 Facility of Payment
. If a benefit is payable to a minor, to a person declared
incapacitated, or to a person incapable of handling the disposition of his or her property, the
Bank may pay the benefit to the guardian, legal representative, or person having the care or
custody of the minor, incapacitated person, or incapable person. The Bank may require proof of
incapacity, minority, or guardianship as it may deem appropriate before distribution of the
benefit. Distribution shall completely discharge the Bank from all liability for the benefit.
Article 5
General Limitations
5.1 Termination with Cause and Termination Before Vesting
. Despite any contrary provision of
this Agreement, the Bank shall not pay any benefit under this Agreement
and this Agreement shall terminate if Separation from Service is a Termination with Cause or if
Separation from Service is an Early Termination before the Executive attains age 62.
9
5.2 Misstatement
. No benefits shall be paid under this Agreement or under the Split Dollar
Agreement and Endorsement, as amended, if the Executive makes any material misstatement of fact on
any application or resume provided to the Bank, on any application for life insurance purchased by
the Bank, or on any application for benefits provided by the Bank.
5.3 Removal
. If the Executive is removed from office or permanently prohibited 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), all obligations of the Bank under
this Agreement shall terminate as of the effective date of the order, and the Split Dollar
Agreement and Endorsement, as amended, also shall terminate as of the effective date of the order.
5.4 Default
. Despite any contrary provision of this Agreement, if the Bank is in “default” or
“in danger of default,” as those terms are defined in section 3(x) of the Federal Deposit Insurance
Act, 12 U.S.C. 1813(x), all obligations under this Agreement shall terminate.
5.5 FDIC Open-Bank Assistance
. All obligations under this Agreement shall terminate, except
to the extent determined that continuation of the contract is necessary for the continued operation
of the Bank, when the Federal Deposit Insurance Corporation enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in section 13(c) of the
Federal Deposit Insurance Act. 12 U.S.C. 1823(c). Any rights of the parties that have already
vested shall not be affected by such action, however.
Article 6
Claims and Review Procedures
6.1 Claims Procedure
. Any person who has not received benefits under this Agreement that he
or she believes should be paid (the “claimant”) shall make a claim for benefits as follows.
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6.1.1
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Initiation – written claim
. The claimant initiates a claim by submitting to
the Administrator a written claim for the benefits. If the claim relates to the
contents of a notice received by the claimant, the claim must be made within 60 days
after the notice was received by the claimant. All other claims must be made within
180 days after the date of the event that caused the claim to arise. The claim must
state with particularity the determination desired by the claimant.
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6.1.2
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Timing of Administrator response
. The Administrator shall respond to the
claimant within 90 days after receiving the claim. If the Administrator determines
that special circumstances require additional time for processing the claim, the
Administrator can extend the response period by an additional 90 days by notifying the
claimant in writing, before the end of the initial 90-day period, that
an additional period is required. The notice of extension must set forth the
special circumstances and the date by which the Administrator expects to render its
decision.
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6.1.3
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Notice of decision
. If the Administrator denies part or all of the claim, the
Administrator shall notify the claimant in writing of the denial. The Administrator
shall write the notification in a manner calculated to be understood by the claimant.
The notification shall set forth –
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(a)
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The specific reasons for the denial,
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(b)
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A reference to the specific provisions of this Agreement on
which the denial is based,
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(c)
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A description of any additional information or material
necessary for the claimant to perfect the claim and an explanation of why it is
needed,
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(d)
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An explanation of the Agreement’s review procedures and the
time limits applicable to such procedures, and
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(e)
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A statement of the claimant’s right to bring a civil action
under ERISA section 502(a) after an adverse benefit determination on review.
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6.2 Review Procedure
. If the Administrator denies part or all of the claim, the claimant
shall have the opportunity for a full and fair review by the Administrator of the denial, as
follows.
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6.2.1
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Initiation – written request
. To initiate the review, the claimant must file
with the Administrator a written request for review within 60 days after receiving the
Administrator’s notice of denial.
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6.2.2
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Additional submissions – information access
. The claimant shall then have the
opportunity to submit written comments, documents, records, and other information
relating to the claim. Upon request and free of charge, the Administrator shall also
provide the claimant reasonable access to and copies of all documents, records, and
other information relevant (as defined in applicable ERISA regulations) to the
claimant’s claim for benefits.
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6.2.3
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Considerations on review
. In considering the review, the Administrator shall
take into account all materials and information the claimant submits relating to the
claim, without regard to whether the information was submitted or considered in the
initial benefit determination.
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6.2.4
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Timing of Administrator response
. The Administrator shall respond in writing
to the claimant within 60 days after receiving the request for review. If the
Administrator determines that special circumstances require additional time for
processing the claim, the Administrator can extend the response period by an additional
60 days by notifying the claimant in writing before the end of the initial 60-day
period that an additional period is required. The notice of extension must
set forth the special circumstances and the date by which the Administrator expects
to render its decision.
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6.2.5
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Notice of decision
. The Administrator shall notify the claimant in writing of
its decision on review. The Administrator shall write the notification in a manner
calculated to be understood by the claimant. The notification shall set forth:
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(a)
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The specific reasons for the denial,
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(b)
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A reference to the specific provisions of the Agreement on
which the denial is based,
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(c)
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A statement that the claimant is entitled to receive, upon
request and free of charge, reasonable access to and copies of all documents,
records, and other information relevant (as defined in applicable ERISA
regulations) to the claimant’s claim for benefits, and
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(d)
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A statement of the claimant’s right to bring a civil action
under ERISA section 502(a).
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Article 7
Administration of Agreement
7.1 Plan Administrator Duties
. This Agreement shall be administered by a Plan Administrator
consisting of the Board or such committee or person(s) as the Board shall appoint. The Executive
may not be a member of the Plan Administrator. The Plan Administrator shall have the discretion
and authority to (
x
) make, amend, interpret and enforce all appropriate rules and regulations for
the administration of this Agreement and (
y
) decide or resolve any and all questions that may
arise, including interpretations of this Agreement.
7.2 Agents
. In the administration of this Agreement the Plan Administrator may employ agents
and delegate to them such administrative duties as it sees fit (including acting through a duly
appointed representative) and may from time to time consult with counsel, who may be counsel to the
Bank.
7.3 Binding Effect of Decisions
. The decision or action of the Plan Administrator about any
question arising out of the administration, interpretation and application of the Agreement and the
rules and regulations promulgated hereunder shall be final and conclusive and binding upon all
persons having any interest in the Agreement. No Executive or Beneficiary shall be deemed to have
any right, vested or nonvested, regarding the continued use of any previously adopted assumptions,
including but not limited to the discount rate and calculation method employed in the determination
of the Accrual Balance.
7.4 Indemnity of Plan Administrator
. The Bank shall indemnify and hold harmless the members
of the Plan Administrator against any and all claims, losses, damages, expenses or liabilities
arising from any action or failure to act with respect to this Agreement, except in the case of
willful misconduct by the Plan Administrator or any of its members.
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7.5 Bank Information
. To enable the Plan Administrator to perform its functions, the Bank
shall supply full and timely information to the Plan Administrator on all matters relating to the
date and circumstances of the retirement, Disability, death, or Separation from Service of the
Executive and such other pertinent information as the Plan Administrator may reasonably require.
Article 8
Miscellaneous
8.1 Amendments and Termination
. Subject to section 8.14 of this Agreement, this Agreement may
be amended solely by a written agreement signed by the Bank and by the Executive, and except for
termination occurring under Article 5 this Agreement may be terminated solely by a written
agreement signed by the Bank and by the Executive.
8.2 Binding Effect
. This Agreement shall bind the Executive and the Bank and their
beneficiaries, survivors, executors, successors, administrators, and transferees.
8.3 No Guarantee of Employment
. This Agreement is not an employment policy or contract. It
does not give the Executive the right to remain an employee of the Bank nor does it interfere with
the Bank’s right to discharge the Executive. It also does not require the Executive to remain an
employee or interfere with the Executive’s right to terminate employment at any time.
8.4 Non-Transferability
. Benefits under this Agreement may not be sold, transferred,
assigned, pledged, attached, or encumbered.
8.5 Successors; Binding Agreement
. By an assumption agreement in form and substance
satisfactory to the Executive, the Bank shall require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all of the business or
assets of the Bank to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Bank would be required to perform this Agreement had no succession
occurred.
8.6 Tax Withholding
. The Bank shall withhold any taxes that are required to be withheld from
the benefits provided under this Agreement.
8.7 Applicable Law
. The Agreement and all rights hereunder shall be governed by the laws of
the State of Ohio, except to the extent preempted by the laws of the United States of America.
8.8 Unfunded Arrangement
. The Executive and beneficiary are general unsecured creditors of
the Bank for the payment of benefits under this Agreement. The benefits represent the mere promise
by the Bank to pay benefits. The rights to benefits are not subject to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors. Any insurance on the Executive’s life is a general asset of the Bank to
which the Executive and beneficiary have no preferred or secured claim.
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8.9 Entire Agreement
. This Agreement and the Split Dollar Agreement and Endorsement attached
as Addendum A, as amended, constitute the entire agreement between the Bank and the Executive
concerning the subject matter. No rights are granted to the Executive under this Agreement other
than those specifically set forth. This Agreement amends and restates in its entirety the December
15, 2003 Second Amended Salary Continuation Agreement.
8.10 Severability
. If any provision of this Agreement is held invalid, such invalidity shall
not affect any other provision of this Agreement not held invalid, and to the full extent
consistent with law each such other provision shall continue in full force and effect. If any
provision of this Agreement is held invalid in part, such invalidity shall not affect the remainder
of such provision not held invalid, and to the full extent consistent with law the remainder of
such provision, together with all other provisions of this Agreement, shall continue in full force
and effect.
8.11 Headings
. Headings are included solely for convenience of reference and shall not affect
the meaning or interpretation of any provision of this Agreement.
8.12 Notices
. All notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or
registered mail, return receipt requested, with postage prepaid, to the following addresses or to
such other address as either party may designate by like notice. If to the Bank, notice shall be
given to the board of directors, The Cortland Savings and Banking Company, 194 W. Main Street, P.O.
Box 98, Cortland, Ohio 44410-1466, or to such other or additional person or persons as the Bank
shall have designated to the Executive in writing. If to the Executive, notice shall be given to
the Executive at the Executive’s address appearing on the Bank’s records, or to such other or
additional person or persons as the Executive shall have designated to the Bank in writing.
8.13 Payment of Legal Fees
. The Bank is aware that after a Change in Control management of
the Bank could cause or attempt to cause the Bank to refuse to comply with its obligations under
this Agreement, or could institute or cause or attempt to cause the Bank to institute litigation
seeking to have this Agreement declared unenforceable, or could take or attempt to take other
action to deny the Executive the benefits intended under this Agreement. In these circumstances
the purpose of this Agreement would be frustrated. The Bank 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. The
Bank 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 it appears
to Executive that (
x
) the Bank has failed to comply with any of its obligations under this
Agreement, or (
y
) the Bank or any other person has taken any action to declare this Agreement void
or unenforceable, or
14
instituted
any litigation or other legal action designed to deny, diminish, or recover from the Executive the benefits intended to be provided to the Executive
hereunder, the Bank irrevocably authorizes the Executive from time to time to retain counsel of the
Executive’s choice, at the Bank’s expense as provided in this section 8.13, to represent the
Executive in the initiation or defense of any litigation or other legal action, whether by or
against the Bank or any director, officer, stockholder or other person affiliated with the Bank, in
any jurisdiction. Despite any existing or previous attorney-client relationship between the Bank
and any counsel chosen by the Executive under this section 8.13, the Bank irrevocably consents to
the Executive entering into an attorney-client relationship with that counsel, and the Bank 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 Executive as provided in
this section shall be paid or reimbursed to Executive by the Bank 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 regardless of whether incurred in trial, bankruptcy, or appellate proceedings.
The Bank’s obligation to pay the Executive’s legal fees provided by this section 8.13 operates
separately from and in addition to any legal fee reimbursement obligation the Bank or the Bank’s
parent Cortland Bancorp may have with the Executive under a severance or employment agreement by
and among the Executive, the Bank, and Cortland Bancorp. Despite any contrary provision within
this Agreement however, the Bank 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].
8.14 Termination or Modification of Agreement Because of Changes in Law, Rules or Regulations
.
The Bank is entering into this Agreement on the assumption that certain existing tax laws, rules,
and regulations will continue in effect in their current form. If that assumption materially
changes and the change has a material detrimental effect on this Agreement, then the Bank reserves
the right to terminate or modify this Agreement accordingly, subject to the written consent of the
Executive, which shall not be unreasonably withheld. This section 8.14 shall become null and void
effective immediately upon a Change in Control.
In Witness Whereof
, the Executive and a duly authorized Bank officer have executed
this Third Amended Salary Continuation Agreement as of the date first written above.
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Executive
:
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Bank
:
The Cortland Savings and Banking Company
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By:
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Lawrence A. Fantauzzi
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Title: President and CEO
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15
Beneficiary Designation
The Cortland Savings and Banking Company
Third Amended Salary Continuation Agreement
Danny L. White
I designate the following as beneficiary of any death benefits under this Third Amended Salary
Continuation Agreement:
Note: To name a trust as beneficiary, please provide the name of the trustee(s) and
the
exact
name and date of the trust agreement.
I understand that I may change these beneficiary designations by filing a new written
designation with the Bank. I further understand that the designations will be automatically
revoked if the beneficiary predeceases me, or, if I have named my spouse as beneficiary and our
marriage is subsequently dissolved.
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Signature:
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Danny L. White
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Date:
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2008
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Accepted by the Bank this
day of
, 2008
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By:
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Lawrence A. Fantauzzi
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Title: President and Chief Executive Officer
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16
Exhibit 10.31
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 Timothy Carney (the “Executive”), Senior Vice President and Chief
Operating Officer of The Cortland Savings and Banking Company (the “Bank”), an Ohio-chartered bank
and wholly owned subsidiary of Cortland Bancorp.
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 17 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
.
Gross-Up for Taxes
. (a)
Additional payment to account for excise taxes
. If the Executive
receives change-in-control benefits under this Agreement and acceleration of benefits under any
other benefit, compensation, or incentive plan or arrangement with Cortland Bancorp or the Bank
(collectively, the “
Total Benefits
”), and if any part of the Total Benefits is subject to
the Excise Tax under Internal Revenue Code sections 280G and 4999 (the “
Excise Tax
”),
Cortland Bancorp shall pay to the Executive the following additional amounts, consisting of (
x
) a
payment equal to the Excise Tax payable by the Executive under section 4999 on the Total Benefits
(the “
Excise Tax Payment
”) and (
y
) a payment equal to 80% of the difference between (
w
) a
full gross-up amount (including the Excise Tax Payment) that would provide to the Executive the
Excise Tax Payment net of all income, payroll, and excise taxes and (
v
) the Excise Tax Payment.
Together, the additional amounts described in clauses (
x
) and (
y
) are referred to in this Agreement
as the “
Gross-Up Payment Amount
.” Payment of the Gross-Up Payment Amount shall be in
addition to the benefits set forth in section 1 and section 2.
Calculating the excise tax
. For purposes of determining whether any of the Total
Benefits are subject to the Excise Tax and for purposes of determining the amount of the Excise Tax —
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1)
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Determination of “parachute payments” subject to the Excise Tax
: any other
payments or benefits received or to be received by the Executive in connection with a
Change in Control or the Executive’s termination of employment (whether under the terms
of this Agreement or any other agreement or any other benefit plan or arrangement with
Cortland Bancorp, the Bank, any person whose actions result in a Change in Control, or
any person affiliated with Cortland Bancorp, the Bank, or such person) shall be treated
as “
parachute payments
” within the meaning of Internal Revenue Code section
280G(b)(2) and all “
excess parachute payments
” within the meaning of section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of the
certified public accounting firm that is retained by Cortland Bancorp as of the date
immediately before the Change in Control (the “
Accounting Firm
”) such other
payments or benefits do not constitute (in whole or in part) parachute payments, or
such excess parachute payments represent (in whole or in part) reasonable compensation
for services actually rendered within the meaning of Internal revenue Code section
280G(b)(4) in excess of the “base amount” (as defined in Internal Revenue Code section
280G(b)(3)), or are otherwise not subject to the Excise Tax,
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2)
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Calculation of benefits subject to the Excise Tax
: the amount of the Total
Benefits that shall be treated as subject to the Excise Tax shall be equal to the
lesser of (
x
) the total amount of the Total Benefits reduced by the amount of such
Total Benefits that in the opinion of the Accounting Firm are not parachute payments,
or (
y
) the amount of excess parachute payments within the meaning of section 280G(b)(1)
(after applying clause (1), above), and
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3)
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Value of noncash benefits and deferred payments
: the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Accounting Firm
according to the principles of Internal Revenue Code sections 280G(d)(3) and (4).
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6
Assumed marginal income tax rate
. For purposes of determining the Gross-Up Payment
Amount, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar years in which the Gross-Up Payment Amount is to be made
and state and local income taxes at the highest marginal rate of taxation in the state and locality
of the Executive’s residence on the date of termination of employment, net of the reduction in
federal income taxes that can be obtained from deduction of state and local taxes (calculated by
assuming that any reduction under Internal Revenue Code section 68 in the amount of itemized
deductions allowable to the Executive applies first to reduce the amount of state and local income
taxes that would otherwise be deductible by the Executive, and applicable federal FICA and Medicare
withholding taxes).
Return of reduced Excise Tax payment or payment of additional Excise Tax
. If the
Excise Tax is later determined to be less than the amount taken into account hereunder when the
Executive’s employment terminated, the Executive shall repay to Cortland Bancorp — when the amount
of the reduction in Excise Tax is finally determined — the portion of the Gross-Up Payment Amount
attributable to the reduction (plus that portion of the Gross-Up Payment Amount attributable to the
Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed
on the Gross-Up Payment Amount being repaid by the Executive to the extent that the repayment
results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or a federal, state
or local income tax deduction).
If the Excise Tax is later determined to be more than the amount taken into account hereunder
when the Executive’s employment terminated (due, for example, to a payment whose existence or
amount cannot be determined at the time of the Gross-Up Payment Amount), Cortland Bancorp shall
make an additional payment to the Executive for that excess (plus any interest, penalties or
additions payable by the Executive for the excess) when the amount of the excess is finally
determined.
(b)
Responsibilities of the Accounting Firm and Cortland Bancorp
.
Determinations shall be
made by the Accounting Firm
. Subject to the provisions of section 3(a), all determinations
required to be made under this section 3(b) — including whether and when a Gross-Up Payment Amount
is required, the amount of the Gross-Up Payment Amount and the assumptions to be used to arrive at
the determination (collectively, the “
Determination
”) — shall be made by the Accounting
Firm, which shall provide detailed supporting calculations both to Cortland Bancorp and the
Executive within 15 business days after receipt of notice from Cortland Bancorp or the Executive
that there has been a Gross-Up Payment Amount, or such earlier time as is requested by Cortland
Bancorp.
Fees and expenses of the Accounting Firm and agreement with the Accounting Firm
. All
fees and expenses of the Accounting Firm shall be borne solely by Cortland Bancorp. Cortland
Bancorp shall enter into any agreement requested by the Accounting Firm in connection with the
performance of its services hereunder.
7
Accounting Firm’s opinion
. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, the Accounting Firm shall furnish the Executive with a written opinion to
that effect and to the effect that failure to report Excise Tax, if any, on the Executive’s
applicable federal income tax return will not result in the imposition of a negligence or similar
penalty.
Accounting Firm’s Determination is binding; underpayment and overpayment
. The
Determination by the Accounting Firm shall be binding on Cortland Bancorp and the Executive.
Because of the uncertainty when the Determination is made about whether any of the Total Benefits
will be subject to the Excise Tax, it is possible that a Gross-Up Payment Amount that should have
been made will not have been made by Cortland Bancorp (“
Underpayment
”), or that a Gross-Up
Payment Amount will be made that should not have been made by Cortland Bancorp
(“
Overpayment
”). If after a Determination by the Accounting Firm the Executive is required
to make a payment of additional Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment. The Underpayment (together with interest at the rate provided in Internal Revenue
Code section 1274(d)(2)(B)) shall be paid promptly by Cortland Bancorp to or for the benefit of the
Executive. If the Gross-Up Payment Amount exceeds the amount necessary to reimburse the Executive
for the Excise Tax according to section 2(a), the Accounting Firm shall determine the amount of the
Overpayment. The Overpayment (together with interest at the rate provided in Internal Revenue Code
section 1274(d)(2)(B)) shall be paid promptly by the Executive to or for the benefit of Cortland
Bancorp. Provided that the Executive’s expenses are reimbursed by Cortland Bancorp, the Executive
shall cooperate with any reasonable requests by Cortland Bancorp in any contests or disputes with
the Internal Revenue Service relating to the Excise Tax.
Accounting Firm conflict of interest
. If the Accounting Firm is serving as accountant
or auditor for the individual, entity, or group effecting the Change in Control, the Executive may
appoint another nationally recognized public accounting firm to make the Determinations required
hereunder (in which case the term “Accounting Firm” as used in this Agreement shall be deemed to
refer to the accounting firm appointed by the Executive).
4
.
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.
8
5
.
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.
6
.
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.
7
.
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 7, 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 7, 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 7 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].
9
8
.
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.
9
.
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 9. 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
9, Cortland Bancorp shall have no liability to pay any amount to the assignee or transferee.
10
.
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, 194 West Main Street,
Cortland, Ohio 44410, Attention: Corporate Secretary.
10
11
.
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.
12
.
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.
13
.
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.
14
.
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.
15
.
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.
16
.
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.
11
17
.
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.
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Executive
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Cortland Bancorp
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By:
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Lawrence A. Fantauzzi
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Its:
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President and Chief Executive Officer
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12
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 Lawrence A. Fantauzzi (the “Executive”), President and Chief
Executive Officer of Cortland Bancorp and The Cortland Savings and Banking Company (the “Bank”), an
Ohio-chartered bank and wholly owned subsidiary of Cortland Bancorp.
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 17 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, including a requirement that
the Executive report to a corporate officer or employee instead of reporting
directly to the board of directors,
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
.
Gross-Up for Taxes
. (a)
Additional payment to account for excise taxes
. If the Executive
receives change-in-control benefits under this Agreement and acceleration of benefits
under any other benefit, compensation, or incentive plan or arrangement with Cortland Bancorp or
the Bank (collectively, the “
Total Benefits
”), and if any part of the Total Benefits is
subject to the Excise Tax under Internal Revenue Code sections 280G and 4999 (the “
Excise
Tax
”), Cortland Bancorp shall pay to the Executive the following additional amounts, consisting
of (
x
) a payment equal to the Excise Tax payable by the Executive under section 4999 on the Total
Benefits (the “
Excise Tax Payment
”) and (
y
) a payment equal to 80% of the difference
between (
w
) a full gross-up amount (including the Excise Tax Payment) that would provide to the
Executive the Excise Tax Payment net of all income, payroll, and excise taxes and (
v
) the Excise
Tax Payment. Together, the additional amounts described in clauses (
x
) and (
y
) are referred to in
this Agreement as the “
Gross-Up Payment Amount
.” Payment of the Gross-Up Payment Amount
shall be in addition to the benefits set forth in section 1 and section 2.
Calculating the excise tax
. For purposes of determining whether any of the Total
Benefits are subject to the Excise Tax and for purposes of determining the amount of the Excise Tax
—
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1)
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Determination of “parachute payments” subject to the Excise Tax
: any other
payments or benefits received or to be received by the Executive in connection with a
Change in Control or the Executive’s termination of employment (whether under the terms
of this Agreement or any other agreement or any other benefit plan or arrangement with
Cortland Bancorp, the Bank, any person whose actions result in a Change in Control, or
any person affiliated with Cortland Bancorp, the Bank, or such person) shall be treated
as “
parachute payments
” within the meaning of Internal Revenue Code section
280G(b)(2) and all “
excess parachute payments
” within the meaning of section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of the
certified public accounting firm that is retained by Cortland Bancorp as of the date
immediately before the Change in Control (the “
Accounting Firm
”) such other
payments or benefits do not constitute (in whole or in part) parachute payments, or
such excess parachute payments represent (in whole or in part) reasonable compensation
for services actually rendered within the meaning of Internal revenue Code section
280G(b)(4) in excess of the “base amount” (as defined in Internal Revenue Code section
280G(b)(3)), or are otherwise not subject to the Excise Tax,
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2)
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Calculation of benefits subject to the Excise Tax
: the amount of the Total
Benefits that shall be treated as subject to the Excise Tax shall be equal to the
lesser of (
x
) the total amount of the Total Benefits reduced by the amount of such
Total Benefits that in the opinion of the Accounting Firm are not parachute payments,
or (
y
) the amount of excess parachute payments within the meaning of section 280G(b)(1)
(after applying clause (1), above), and
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3)
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Value of noncash benefits and deferred payments
: the value of any noncash
benefits or any deferred payment or benefit shall be determined by the
Accounting Firm according to the principles of Internal Revenue Code sections
280G(d)(3) and (4).
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6
Assumed marginal income tax rate
. For purposes of determining the Gross-Up Payment
Amount, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar years in which the Gross-Up Payment Amount is to be made
and state and local income taxes at the highest marginal rate of taxation in the state and locality
of the Executive’s residence on the date of termination of employment, net of the reduction in
federal income taxes that can be obtained from deduction of state and local taxes (calculated by
assuming that any reduction under Internal Revenue Code section 68 in the amount of itemized
deductions allowable to the Executive applies first to reduce the amount of state and local income
taxes that would otherwise be deductible by the Executive, and applicable federal FICA and Medicare
withholding taxes).
Return of reduced Excise Tax payment or payment of additional Excise Tax
. If the
Excise Tax is later determined to be less than the amount taken into account hereunder when the
Executive’s employment terminated, the Executive shall repay to
Cortland Bancorp — when the amount
of the reduction in Excise Tax is finally determined — the portion of the Gross-Up Payment Amount
attributable to the reduction (plus that portion of the Gross-Up Payment Amount attributable to the
Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed
on the Gross-Up Payment Amount being repaid by the Executive to the extent that the repayment
results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or a federal, state
or local income tax deduction).
If the Excise Tax is later determined to be more than the amount taken into account hereunder
when the Executive’s employment terminated (due, for example, to a payment whose existence or
amount cannot be determined at the time of the Gross-Up Payment Amount), Cortland Bancorp shall
make an additional payment to the Executive for that excess (plus any interest, penalties or
additions payable by the Executive for the excess) when the amount of the excess is finally
determined.
(b)
Responsibilities of the Accounting Firm and Cortland Bancorp
.
Determinations shall be
made by the Accounting Firm
. Subject to the provisions of section 3(a), all determinations
required to be made under this section 3(b) — including whether and when a Gross-Up Payment Amount
is required, the amount of the Gross-Up Payment Amount and the assumptions to be used to arrive at
the determination (collectively, the “
Determination
”) — shall be made by the Accounting
Firm, which shall provide detailed supporting calculations both to Cortland Bancorp and the
Executive within 15 business days after receipt of notice from Cortland Bancorp or the Executive
that there has been a Gross-Up Payment Amount, or such earlier time as is requested by Cortland
Bancorp.
Fees and expenses of the Accounting Firm and agreement with the Accounting Firm
. All
fees and expenses of the Accounting Firm shall be borne solely by Cortland Bancorp. Cortland
Bancorp shall enter into any agreement requested by the Accounting Firm in connection with the
performance of its services hereunder.
7
Accounting Firm’s opinion
. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, the Accounting Firm shall furnish the Executive with a written opinion to
that effect and to the effect that failure to report Excise Tax, if any, on the Executive’s
applicable federal income tax return will not result in the imposition of a negligence or similar
penalty.
Accounting Firm’s Determination is binding; underpayment and overpayment
. The
Determination by the Accounting Firm shall be binding on Cortland Bancorp and the Executive.
Because of the uncertainty when the Determination is made about whether any of the Total Benefits
will be subject to the Excise Tax, it is possible that a Gross-Up Payment Amount that should have
been made will not have been made by Cortland Bancorp (“
Underpayment
”), or that a Gross-Up
Payment Amount will be made that should not have been made by Cortland Bancorp
(“
Overpayment
”). If after a Determination by the Accounting Firm the Executive is required
to make a payment of additional Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment. The Underpayment (together with interest at the rate provided in Internal Revenue
Code section 1274(d)(2)(B)) shall be paid promptly by Cortland Bancorp to or for the benefit of the
Executive. If the Gross-Up Payment Amount exceeds the amount necessary to reimburse the Executive
for the Excise Tax according to section 2(a), the Accounting Firm shall determine the amount of the
Overpayment. The Overpayment (together with interest at the rate provided in Internal Revenue Code
section 1274(d)(2)(B)) shall be paid promptly by the Executive to or for the benefit of Cortland
Bancorp. Provided that the Executive’s expenses are reimbursed by Cortland Bancorp, the Executive
shall cooperate with any reasonable requests by Cortland Bancorp in any contests or disputes with
the Internal Revenue Service relating to the Excise Tax.
Accounting Firm conflict of interest
. If the Accounting Firm is serving as accountant
or auditor for the individual, entity, or group effecting the Change in Control, the Executive may
appoint another nationally recognized public accounting firm to make the Determinations required
hereunder (in which case the term “Accounting Firm” as used in this Agreement shall be deemed to
refer to the accounting firm appointed by the Executive).
4
.
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.
8
5
.
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.
6
.
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.
7
.
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 7, 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 7, 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 7 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].
9
8
.
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.
9
.
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 9. 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
9, Cortland Bancorp shall have no liability to pay any amount to the assignee or transferee.
10
10
.
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, 194 West
Main Street, Cortland, Ohio 44410, Attention: Corporate Secretary.
11
.
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.
12
.
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.
13
.
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.
14
.
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.
15
.
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.
11
16
.
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.
17
.
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.
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Cortland Bancorp
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By:
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Its:
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12
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 James M. Gasior (the “Executive”), Senior Vice President, Chief
Financial Officer, and Secretary of Cortland Bancorp and The Cortland Savings and Banking Company
(the “Bank”), an Ohio-chartered bank and wholly owned subsidiary of Cortland Bancorp.
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 17 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.
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
.
Gross-Up for Taxes
. (a)
Additional payment to account for excise taxes
. If the Executive
receives change-in-control benefits under this Agreement and acceleration of benefits under any
other benefit, compensation, or incentive plan or arrangement with Cortland Bancorp or the Bank
(collectively, the “
Total Benefits
”), and if any part of the Total Benefits is subject to
the Excise Tax under Internal Revenue Code sections 280G and 4999 (the “
Excise Tax
”),
Cortland Bancorp shall pay to the Executive the following additional amounts, consisting of (
x
) a
payment equal to the Excise Tax payable by the Executive under section 4999 on the Total Benefits
(the “
Excise Tax Payment
”) and (
y
) a payment equal to 80% of the difference between (
w
) a
full gross-up amount (including the Excise Tax Payment) that would provide to the Executive the Excise Tax
Payment net of all income, payroll, and excise taxes and (
v
) the Excise Tax Payment. Together, the
additional amounts described in clauses (
x
) and (
y
) are referred to in this Agreement as the
“
Gross-Up Payment Amount
.” Payment of the Gross-Up Payment Amount shall be in addition to
the benefits set forth in section 1 and section 2.
5
Calculating the excise tax
. For purposes of determining whether any of the Total
Benefits are subject to the Excise Tax and for purposes of determining the amount of the Excise Tax —
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1)
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Determination of “parachute payments” subject to the Excise Tax
: any other
payments or benefits received or to be received by the Executive in connection with a
Change in Control or the Executive’s termination of employment (whether under the terms
of this Agreement or any other agreement or any other benefit plan or arrangement with
Cortland Bancorp, the Bank, any person whose actions result in a Change in Control, or
any person affiliated with Cortland Bancorp, the Bank, or such person) shall be treated
as “
parachute payments
” within the meaning of Internal Revenue Code section
280G(b)(2) and all “
excess parachute payments
” within the meaning of section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of the
certified public accounting firm that is retained by Cortland Bancorp as of the date
immediately before the Change in Control (the “
Accounting Firm
”) such other
payments or benefits do not constitute (in whole or in part) parachute payments, or
such excess parachute payments represent (in whole or in part) reasonable compensation
for services actually rendered within the meaning of Internal revenue Code section
280G(b)(4) in excess of the “base amount” (as defined in Internal Revenue Code section
280G(b)(3)), or are otherwise not subject to the Excise Tax,
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2)
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Calculation of benefits subject to the Excise Tax
: the amount of the Total
Benefits that shall be treated as subject to the Excise Tax shall be equal to the
lesser of (
x
) the total amount of the Total Benefits reduced by the amount of such
Total Benefits that in the opinion of the Accounting Firm are not parachute payments,
or (
y
) the amount of excess parachute payments within the meaning of section 280G(b)(1)
(after applying clause (1), above), and
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3)
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Value of noncash benefits and deferred payments
: the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Accounting Firm
according to the principles of Internal Revenue Code sections 280G(d)(3) and (4).
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Assumed marginal income tax rate
. For purposes of determining the Gross-Up Payment
Amount, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar years in which the Gross-Up Payment Amount is to be made
and state and local income taxes at the highest marginal rate of taxation in the state and locality
of the Executive’s residence on the date of termination of employment, net of the reduction in
federal income taxes that can be obtained from deduction of state and local taxes (calculated by
assuming
that any reduction under Internal Revenue Code section 68 in the amount of itemized deductions
allowable to the Executive applies first to reduce the amount of state and local income taxes that
would otherwise be deductible by the Executive, and applicable federal FICA and Medicare
withholding taxes).
6
Return of reduced Excise Tax payment or payment of additional Excise Tax
. If the
Excise Tax is later determined to be less than the amount taken into account hereunder when the
Executive’s employment terminated, the Executive shall repay to Cortland Bancorp — when the amount
of the reduction in Excise Tax is finally determined — the portion of the Gross-Up Payment Amount
attributable to the reduction (plus that portion of the Gross-Up Payment Amount attributable to the
Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed
on the Gross-Up Payment Amount being repaid by the Executive to the extent that the repayment
results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or a federal, state
or local income tax deduction).
If the Excise Tax is later determined to be more than the amount taken into account hereunder
when the Executive’s employment terminated (due, for example, to a payment whose existence or
amount cannot be determined at the time of the Gross-Up Payment Amount), Cortland Bancorp shall
make an additional payment to the Executive for that excess (plus any interest, penalties or
additions payable by the Executive for the excess) when the amount of the excess is finally
determined.
(b)
Responsibilities of the Accounting Firm and Cortland Bancorp
.
Determinations shall be
made by the Accounting Firm
. Subject to the provisions of section 3(a), all determinations
required to be made under this section 3(b) — including whether and when a Gross-Up Payment Amount
is required, the amount of the Gross-Up Payment Amount and the assumptions to be used to arrive at
the determination (collectively, the “
Determination
”) — shall be made by the Accounting
Firm, which shall provide detailed supporting calculations both to Cortland Bancorp and the
Executive within 15 business days after receipt of notice from Cortland Bancorp or the Executive
that there has been a Gross-Up Payment Amount, or such earlier time as is requested by Cortland
Bancorp.
Fees and expenses of the Accounting Firm and agreement with the Accounting Firm
. All
fees and expenses of the Accounting Firm shall be borne solely by Cortland Bancorp. Cortland
Bancorp shall enter into any agreement requested by the Accounting Firm in connection with the
performance of its services hereunder.
Accounting Firm’s opinion
. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, the Accounting Firm shall furnish the Executive with a written opinion to
that effect and to the effect that failure to report Excise Tax, if any, on the Executive’s
applicable federal income tax return will not result in the imposition of a negligence or similar
penalty.
7
Accounting Firm’s Determination is binding; underpayment and overpayment
. The
Determination by the Accounting Firm shall be binding on Cortland Bancorp and the Executive.
Because of the uncertainty when the Determination is made about whether any of the Total Benefits
will be subject to the Excise Tax, it is possible that a Gross-Up Payment Amount that should have
been made will not have been made by Cortland Bancorp (“
Underpayment
”), or that a Gross-Up
Payment Amount will be made that should not have been made by Cortland Bancorp
(“
Overpayment
”). If after a Determination by the Accounting Firm the Executive is required
to make a payment of additional Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment. The Underpayment (together with interest at the rate provided in Internal Revenue
Code section 1274(d)(2)(B)) shall be paid promptly by Cortland Bancorp to or for the benefit of the
Executive. If the Gross-Up Payment Amount exceeds the amount necessary to reimburse the Executive
for the Excise Tax according to section 2(a), the Accounting Firm shall determine the amount of the
Overpayment. The Overpayment (together with interest at the rate provided in Internal Revenue Code
section 1274(d)(2)(B)) shall be paid promptly by the Executive to or for the benefit of Cortland
Bancorp. Provided that the Executive’s expenses are reimbursed by Cortland Bancorp, the Executive
shall cooperate with any reasonable requests by Cortland Bancorp in any contests or disputes with
the Internal Revenue Service relating to the Excise Tax.
Accounting Firm conflict of interest
. If the Accounting Firm is serving as accountant
or auditor for the individual, entity, or group effecting the Change in Control, the Executive may
appoint another nationally recognized public accounting firm to make the Determinations required
hereunder (in which case the term “Accounting Firm” as used in this Agreement shall be deemed to
refer to the accounting firm appointed by the Executive).
4
.
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
.
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.
8
6
.
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.
7
.
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 7, 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 7, 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 7 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].
9
8
.
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.
9
.
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 9. 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
9, Cortland Bancorp shall have no liability to pay any amount to the assignee or transferee.
10
.
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, 194 West Main Street,
Cortland, Ohio 44410, Attention: Corporate Secretary.
11
.
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.
10
12
.
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.
13
.
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.
14
.
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.
15
.
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.
16
.
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.
11
17
.
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.
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Executive
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Cortland Bancorp
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By:
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Lawrence A. Fantauzzi
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Its:
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President and Chief Executive Officer
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12
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 Stephen A. Telego Sr. (the “Executive”), Senior Vice President
and Director of Human Resources and Corporate Administration 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 17 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.
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
.
Gross-Up for Taxes
. (a)
Additional payment to account for excise taxes
. If the Executive
receives change-in-control benefits under this Agreement and acceleration of benefits under any
other benefit, compensation, or incentive plan or arrangement with Cortland Bancorp or the Bank
(collectively, the “
Total Benefits
”), and if any part of the Total Benefits is subject to
the Excise Tax under Internal Revenue Code sections 280G and 4999 (the “
Excise Tax
”),
Cortland Bancorp shall pay to the Executive the following additional amounts, consisting of (
x
) a
payment equal to the Excise Tax payable by the Executive under section 4999 on the Total Benefits
(the “
Excise Tax Payment
”) and (
y
) a payment equal to 80% of the difference between (
w
) a
full gross-
up amount (including the Excise Tax Payment) that would provide to the Executive the Excise Tax
Payment net of all income, payroll, and excise taxes and (
v
) the Excise Tax Payment. Together, the
additional amounts described in clauses (
x
) and (
y
) are referred to in this Agreement as the
“
Gross-Up Payment Amount
.” Payment of the Gross-Up Payment Amount shall be in addition to
the benefits set forth in section 1 and section 2.
5
Calculating the excise tax
. For purposes of determining whether any of the Total
Benefits are subject to the Excise Tax and for purposes of determining the amount of the Excise Tax —
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1)
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Determination of “parachute payments” subject to the Excise Tax
: any other
payments or benefits received or to be received by the Executive in connection with a
Change in Control or the Executive’s termination of employment (whether under the terms
of this Agreement or any other agreement or any other benefit plan or arrangement with
Cortland Bancorp, the Bank, any person whose actions result in a Change in Control, or
any person affiliated with Cortland Bancorp, the Bank, or such person) shall be treated
as “
parachute payments
” within the meaning of Internal Revenue Code section
280G(b)(2) and all “
excess parachute payments
” within the meaning of section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of the
certified public accounting firm that is retained by Cortland Bancorp as of the date
immediately before the Change in Control (the “
Accounting Firm
”) such other
payments or benefits do not constitute (in whole or in part) parachute payments, or
such excess parachute payments represent (in whole or in part) reasonable compensation
for services actually rendered within the meaning of Internal revenue Code section
280G(b)(4) in excess of the “base amount” (as defined in Internal Revenue Code section
280G(b)(3)), or are otherwise not subject to the Excise Tax,
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2)
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Calculation of benefits subject to the Excise Tax
: the amount of the Total
Benefits that shall be treated as subject to the Excise Tax shall be equal to the
lesser of (
x
) the total amount of the Total Benefits reduced by the amount of such
Total Benefits that in the opinion of the Accounting Firm are not parachute payments,
or (
y
) the amount of excess parachute payments within the meaning of section 280G(b)(1)
(after applying clause (1), above), and
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3)
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Value of noncash benefits and deferred payments
: the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Accounting Firm
according to the principles of Internal Revenue Code sections 280G(d)(3) and (4).
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Assumed marginal income tax rate
. For purposes of determining the Gross-Up Payment
Amount, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar years in which the Gross-Up Payment Amount is to be made
and state and local income taxes at the highest marginal rate of taxation in the state and locality
of the Executive’s residence on the date of termination of employment, net of the reduction in
federal income taxes that can be obtained from deduction of state and local taxes (calculated by
assuming
that any reduction under Internal Revenue Code section 68 in the amount of itemized deductions
allowable to the Executive applies first to reduce the amount of state and local income taxes that
would otherwise be deductible by the Executive, and applicable federal FICA and Medicare
withholding taxes).
6
Return of reduced Excise Tax payment or payment of additional Excise Tax
. If the
Excise Tax is later determined to be less than the amount taken into account hereunder when the
Executive’s employment terminated, the Executive shall repay to Cortland Bancorp — when the amount
of the reduction in Excise Tax is finally determined — the portion of the Gross-Up Payment Amount
attributable to the reduction (plus that portion of the Gross-Up Payment Amount attributable to the
Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed
on the Gross-Up Payment Amount being repaid by the Executive to the extent that the repayment
results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or a federal, state
or local income tax deduction).
If the Excise Tax is later determined to be more than the amount taken into account hereunder
when the Executive’s employment terminated (due, for example, to a payment whose existence or
amount cannot be determined at the time of the Gross-Up Payment Amount), Cortland Bancorp shall
make an additional payment to the Executive for that excess (plus any interest, penalties or
additions payable by the Executive for the excess) when the amount of the excess is finally
determined.
(b)
Responsibilities of the Accounting Firm and Cortland Bancorp
.
Determinations shall be
made by the Accounting Firm
. Subject to the provisions of section 3(a), all determinations
required to be made under this section 3(b) — including whether and when a Gross-Up Payment Amount
is required, the amount of the Gross-Up Payment Amount and the assumptions to be used to arrive at
the determination (collectively, the “
Determination
”) — shall be made by the Accounting
Firm, which shall provide detailed supporting calculations both to Cortland Bancorp and the
Executive within 15 business days after receipt of notice from Cortland Bancorp or the Executive
that there has been a Gross-Up Payment Amount, or such earlier time as is requested by Cortland
Bancorp.
Fees and expenses of the Accounting Firm and agreement with the Accounting Firm
. All
fees and expenses of the Accounting Firm shall be borne solely by Cortland Bancorp. Cortland
Bancorp shall enter into any agreement requested by the Accounting Firm in connection with the
performance of its services hereunder.
Accounting Firm’s opinion
. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, the Accounting Firm shall furnish the Executive with a written opinion to
that effect and to the effect that failure to report Excise Tax, if any, on the Executive’s
applicable federal income tax return will not result in the imposition of a negligence or similar
penalty.
7
Accounting Firm’s Determination is binding; underpayment and overpayment
. The
Determination by the Accounting Firm shall be binding on Cortland Bancorp and the Executive.
Because of the uncertainty when the Determination is made about whether any of the Total Benefits
will be subject to the Excise Tax, it is possible that a Gross-Up Payment Amount that should have
been made will not have been made by Cortland Bancorp (“
Underpayment
”), or that a Gross-Up
Payment Amount will be made that should not have been made by Cortland Bancorp
(“
Overpayment
”). If after a Determination by the Accounting Firm the Executive is required
to make a payment of additional Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment. The Underpayment (together with interest at the rate provided in Internal Revenue
Code section 1274(d)(2)(B)) shall be paid promptly by Cortland Bancorp to or for the benefit of the
Executive. If the Gross-Up Payment Amount exceeds the amount necessary to reimburse the Executive
for the Excise Tax according to section 2(a), the Accounting Firm shall determine the amount of the
Overpayment. The Overpayment (together with interest at the rate provided in Internal Revenue Code
section 1274(d)(2)(B)) shall be paid promptly by the Executive to or for the benefit of Cortland
Bancorp. Provided that the Executive’s expenses are reimbursed by Cortland Bancorp, the Executive
shall cooperate with any reasonable requests by Cortland Bancorp in any contests or disputes with
the Internal Revenue Service relating to the Excise Tax.
Accounting Firm conflict of interest
. If the Accounting Firm is serving as accountant
or auditor for the individual, entity, or group effecting the Change in Control, the Executive may
appoint another nationally recognized public accounting firm to make the Determinations required
hereunder (in which case the term “Accounting Firm” as used in this Agreement shall be deemed to
refer to the accounting firm appointed by the Executive).
4
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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
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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.
8
6
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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.
7
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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 7, 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 7, 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 7 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].
9
8
.
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.
9
.
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 9. 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
9, Cortland Bancorp shall have no liability to pay any amount to the assignee or transferee.
10
.
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, 194 West Main Street,
Cortland, Ohio 44410, Attention: Corporate Secretary.
11
.
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.
10
12
.
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.
13
.
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.
14
.
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.
15
.
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.
16
.
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.
11
17
.
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.
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Executive
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Cortland Bancorp
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By:
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Lawrence A. Fantauzzi
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Its:
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President and Chief Executive Officer
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12
Exhibit 10.32
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 Marlene J. Lenio (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.
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, 194 West Main Street,
Cortland, Ohio 44410, 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. 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.
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.
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Executive
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Cortland Bancorp
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By:
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Lawrence A. Fantauzzi
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Its:
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President and Chief Executive Officer
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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 Craig M. 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.
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.
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
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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, 194 West Main Street,
Cortland, Ohio 44410, 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.
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Executive
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Cortland Bancorp
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By:
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Lawrence A. Fantauzzi
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Its:
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President and Chief Executive Officer
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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 Barbara R. Sandrock (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, 194 West Main Street,
Cortland, Ohio 44410, 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.
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Executive
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Cortland Bancorp
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By:
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Lawrence A. Fantauzzi
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Its:
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President and Chief Executive Officer
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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 Danny L. White (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, 194 West Main Street, Cortland,
Ohio 44410, 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. 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.
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.
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Executive
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Cortland Bancorp
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By:
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Lawrence A. Fantauzzi
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Its:
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President and Chief Executive Officer
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9