EXHIBIT 10.7
CHANGE IN CONTROL
AGREEMENT
THIS AGREEMENT is entered into as of
December 31, 2008 by and between Pinnacle Bankshares
Corporation, a Virginia corporation (the “Company”),
and Bryan M. Lemley (the “Executive”).
RECITALS
I. The Executive currently serves as
Secretary, Treasurer and Chief Financial Officer of the Company,
and is a key member of management of the Company and its
affiliates, and the Executive’s services and knowledge are
valuable to the Company and its affiliates.
II. The Board (as defined below) has
determined that it is in the best interests of the Company and its
shareholders to assure that the Company and its affiliates will
have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change in Control (as
defined below) of the Company. The Board believes it is imperative
to diminish the inevitable distraction of the Executive by virtue
of the personal uncertainties and risks created by a pending or
threatened Change in Control and to encourage the Executive’s
full attention and dedication to the Company and its affiliates
currently and in the event of any threatened or pending Change in
Control. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this
Agreement.
III. The Board previously determined
that it is in the best interests of the Company and its
shareholders to enter into the Agreement in order to update and
replace that certain Change in Control Agreement dated May 26,
2006 between the Company and the Executive, which agreement is
hereby cancelled as of the Agreement Effective Date, in order to
comply with the requirements of Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”) and
applicable guidance issued thereunder (“Code
Section 409A”).
NOW, THEREFORE, it is hereby agreed
as follows:
1. CERTAIN
DEFINITIONS .
(a) “Agreement Effective
Date” means December 31, 2008.
(b) The “Agreement Term”
means the period commencing on the Agreement Effective Date and
ending on the earlier of (i) the Agreement Regular Termination
Date or (ii) the date this Agreement terminates pursuant to
Section 7. The “Agreement Regular Termination
Date” means the third anniversary of the Agreement Effective
Date, provided, however, that commencing on the first anniversary
of the Agreement Effective Date, and on each subsequent anniversary
(such date and each subsequent anniversary shall be hereinafter
referred to as the “Renewal Date”), unless this
Agreement is previously terminated, the Agreement Regular
Termination Date shall be automatically extended for three years
from the latest Renewal Date, unless at least one month prior to
the latest Renewal Date the Company shall give notice to the
Executive in accordance with Section 10(c) of this Agreement
that the Agreement Regular Termination Date shall not be so
extended.
(c) “Board” means the
Board of Directors of the Company.
(d) “Cause”
means:
(i) the willful and continued
failure of the Executive to substantially perform the
Executive’s duties with the Company or one of its affiliates
(other than any such failure resulting
from incapacity due to physical or
mental illness), after a written demand for substantial performance
is delivered to the Executive by the Board, pursuant to a vote of a
majority of the “Outside Directors” (as defined below),
which specifically identifies the manner in which the Outside
Directors of the Board believe that the Executive has not
substantially performed the Executive’s duties, or
(ii) the willful engaging by the
Executive in illegal conduct or gross misconduct which is
materially and demonstrably injurious to the Company.
For purposes of this provision, no
act or failure to act, on the part of the Executive, shall be
considered “willful” unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief
that the Executive’s action or omission was in the best
interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board
or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to
be for Cause unless and until there shall have been delivered to
the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than two-thirds of the members of the
Board who are not and have never been employed by the Company or
its subsidiaries (the “Outside Directors”) at a meeting
of the Board called and held for such purpose (after reasonable
notice is provided to the Executive in accordance with
Section 11(c) of this Agreement and the Executive is given an
opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive
has engaged in the conduct described in paragraph (i) or
(ii) above, and specifying the particulars thereof in
detail.
(e) The “Change in Control
Date” means the first date during the Agreement Term on which
a Change in Control (as defined in Section 2) occurs. Anything
in this Agreement to the contrary notwithstanding, if a Change in
Control occurs and if the Executive’s employment with the
Company is terminated prior to the date on which the Change in
Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment either (i) was
at the request of a third party who has taken steps reasonably
calculated to effect a Change in Control or (ii) otherwise
arose in connection with or anticipation of a Change in Control,
then for all purposes of this Agreement, except for the time and
form of payment of the Change in Control Benefits payable under
Section 4(c), the “Change in Control Date” shall
mean the date immediately prior to the date of such termination of
employment.
(f) “Company” means
Pinnacle Bankshares Corporation, a Virginia corporation.
(g) “Coverage Period”
means the period of time beginning with the Change in Control Date
and ending on the earliest to occur of (i) the
Executive’s death and (ii) the second anniversary of the
Change in Control Date.
(h) “Disability” means
the absence of the Executive from the Executive’s duties with
the Company on a full-time basis for six months as a result of
incapacity to serve as the Chief Executive Officer of the Company,
including substantially all duties normally considered a part
thereof, due to mental or physical illness or injury which is
determined to be total and permanent by a physician selected by the
Company or its insurers and acceptable to the Executive or the
Executive’s legal representative. If the Company determines
in good faith that the Disability of the Executive has occurred, it
may give to the Executive written notice in accordance with
Section 11(c) of this Agreement of its intention to terminate
the Executive’s employment. In such event, the
Executive’s employment with the Company shall terminate
effective on the 30th day after receipt of such notice by the
Executive (the “Disability Effective Date”), provided
that, within the 30 days after such receipt, the Executive shall
not have returned to full-time performance of the Executive’s
duties.
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(i) “Good Reason” means
any good faith determination made by the Executive (which
determination shall be conclusive) that any of the following has
occurred:
(i) the occurrence, on or after the
Agreement Effective Date and during the Coverage Period, of any of
the following:
(A) the assignment to the Executive
of any duties inconsistent in any material adverse respect with the
Executive’s position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities
immediately prior to the Change in Control, or any other action by
the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad
faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive in accordance with
Section 11(c) of this Agreement;
(B) a reduction by the Company in
the Executive’s rate of annual base salary, benefits
(including, without limitation, incentive or bonus pay
arrangements, stock plan benefit arrangements, and retirement and
welfare plan coverage) and perquisites as in effect immediately
prior to the Change in Control or as the same may be increased from
time to time thereafter, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof
given by the Executive in accordance with Section 11(c) of
this Agreement;
(C) the Company’s requiring
the Executive to be based at any office or location more than 35
miles from the facility where the Executive is located at the time
of the Change in Control or the Company’s requiring the
Executive to travel on Company business to a substantially greater
extent than required immediately prior to the Change in Control
Date (but determined without regard to travel necessitated by
reason of any anticipated Change in Control);
(D) any purported termination by the
Company of the Executive’s employment otherwise than as
expressly permitted by this Agreement; or
(E) any failure by the Company to
comply with and satisfy Section 10(c) of this Agreement by
obtaining satisfactory agreement from any successor to assume and
perform this Agreement.
(ii) any event or condition
described in paragraph (i) of this Section 1(i) which
occurs on or after the Agreement Effective Date, but prior to a
Change in Control, but was at the request of a third party who
effectuates the Change in Control, notwithstanding that it occurred
prior to the Change in Control, but such event or condition shall
not be considered to actually have occurred until the Change in
Control Date.
(j) “Covered
Termination” means a termination of Executive’s
employment during the Coverage Period (i) by the Company for
any reason other than Cause or the Executive’s Disability or
death, or (ii) by the Executive for Good Reason.
(k) “Noncovered
Termination” means a cessation of Executive’s
employment which is not a Covered Termination.
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2. CHANGE IN
CONTROL . A “Change in Control” means a
change in the ownership of the Company, a change in the effective
control of the Company, or a change in the ownership of a
substantial portion of the assets of the Company, consistent with
and interpreted in accordance with Code Section 409A and
regulations issued thereunder, and specifically defined as
follows:
(a) General Rules. In order to
constitute a Change in Control as to the Executive, the Change in
Control shall relate to:
(i) The corporation for whom the
Executive is performing services at the time of the Change in
Control; or
(ii) The corporation that is liable
for the payment of the deferred compensation (or all corporations
liable for the payment if more than one corporation is liable) but
only if either the deferred compensation is attributable to the
performance of service by the Executive for such corporation (or
corporations) or there is a bona fide business purpose for such
corporation or corporations to be liable for such payment and, in
either case, no significant purpose of making such corporation or
corporations liable for such payment is the avoidance of Federal
income tax; or
(iii) A corporation that is a
majority shareholder of a corporation identified in either
paragraph (i) or (ii), or any corporation in a chain of
corporations in which each corporation is a majority shareholder of
another corporation in the chain, ending in a corporation
identified in either paragraph (i) or
(ii) above.
(b) Change In Ownership. A change in
the ownership of a corporation shall occur on the date that any one
person, or more than one person acting as a group, acquires
ownership of stock of the corporation that, together with stock
held by such person or group, constitutes more than 50% of the
total fair market value or total voting power of the stock of such
corporation. However, if any person, or more than one person acting
as a group, is considered to own more than 50% of the total fair
market value or total voting power of the stock of a corporation,
then the acquisition of additional stock by the same person or
persons shall not be considered to cause a change in the ownership
of the corporation (or to cause a change in the effective control
of the corporation).
(c) Change In Effective Control.
Notwithstanding the fact that a corporation has not undergone a
change in ownership as described above, a change in the effective
control of a corporation shall occur only on the date that
either:
(i) Any one person or more than one
person acting as a group acquires (or has acquired during the
twelve month period ending on the date of the most recent
acquisition by such person or persons) ownership of stock of the
corporation possessing 30% or more of the total voting power of the
stock of such corporation; or
(ii) A majority of members of the
corporation’s Board of Directors is replaced during any
12-month period by Directors whose appointment or election is not
endorsed by a majority of the members of the corporation’s
Board of Directors prior to the date of the appointment or
election, provided that for purposes of this paragraph (ii), the
term “corporation” refers solely to the relevant
corporation identified above, for which no other corporation is a
majority shareholder.
(d) Change In Ownership of Assets. A
change in the ownership of a substantial portion of the assets of a
corporation shall occur on the date that any one person, or more
than one person acting as a group, acquires (or has acquired during
the twelve-month period ending on the date of the most recent
acquisition by such person or persons) assets from the corporation
that have a total gross fair market value
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equal to or more than 40% of the total gross
fair market value of all of the assets of the corporation
immediately prior to such acquisition or acquisitions. For this
purpose, “gross fair market value” shall mean the value
of the assets of the corporation, or the value of the assets being
disposed of, determined without regard to any liabilities
associated with such assets.
A transfer of assets by a
corporation shall not be treated as a change in the ownership of
such assets if the assets are transferred to:
(i) A shareholder of the corporation
(immediately before the asset transfer) in exchange for or with
respect to its stock;
(ii) An entity, 50% or more of the
total value or voting power of which is owned, directly or
indirectly, by the corporation; or
(iii) A person, or more than one
person acting as a group, that owns, directly or indirectly, 50% or
more of the total value or voting power of all the outstanding
stock of the corporation; or
(iv) An entity, at least 50% of the
total value or voting power of which is owned, directly or
indirectly, by a person who is a “related person” under
applicable Treasury Regulations.
There shall be no Change in Control
when there is a transfer to an entity that is controlled by the
shareholders of the transferring corporation immediately after the
transfer.
3. OBLIGATIONS OF THE
EXECUTIVE TO REMAIN EMPLOYED . The Executive agrees
that in the event any person or group attempts a Change in Control,
the Executive shall not voluntarily leave the employ of the Company
without Good Reason (i) until such attempted Change in Control
terminates or (ii) if a Change in Control shall occur, until
the Change in Control Date. For purposes of the foregoing clause
(i), Good Reason shall be determined as if a Change in Control had
occurred when such attempted Change in Control became known to the
Board.
4. OBLIGATIONS UPON THE
EXECUTIVE’S TERMINATION .
(a) Notice of Termination .
Any termination of the Executive’s employment by the Company
or by the Executive, other than by reason of death, shall be
communicated by Notice of Termination to the other party hereto
given. For purposes hereof:
(i) “Notice of
Termination” means a written notice given in accordance with
Section 11(c) of this Agreement which (A) states whether
such termination is for Cause, Good Reason or Disability,
(B) indicates the specific termination provision in this
Agreement relied upon, if any, (C) to the extent applicable,
sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive’s
employment under the provision so indicated, and (D) if the
Date of Termination is other than the date of receipt of such
notice, specifies the termination date. The failure by the
Executive or the Company to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Good
Reason, Cause or Disability shall not waive any right of the
Executive or the Company, respectively, hereunder or preclude the
Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive’s or the
Company’s rights hereunder.
(ii) “Date of
Termination” means (A) if the Executive’s
employment is terminated by reason of Disability, the Disability
Effective Date, (B) if the Executive’s employment is
terminated
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by the Company for any reason other
than Disability, the date of the Executive’s receipt of the
Notice of Termination or any later date specified therein, as the
case may be, and (C) if the Executive’s employment is
terminated by the Executive for any reason, the date of the
Company’s receipt of the Notice of Termination or any later
date specified therein, as the case may be.
(b) Obligations of the Company in
a Covered Termination . If the Executive’s employment
shall cease by reason of a Covered Termination, then the following
shall be paid or provided (the payments and benefits described in
(i), (ii) and (iii) below may hereinafter sometimes be
referred to as the “Change in Control Benefit” or
“Change in Control Benefits”):
(i) the Company
shall pay or cause to be paid in cash to the Executive in eight
(8) consecutive quarterly installments (the “Payment
Period”), with interest at the applicable federal rate (as
defined in Section 1274(d) of the Code determined at the
Change in Control Date on the unpaid balance paid at the same time
on each installment payment other than the first payment, with the
first of such installments being paid on the 60
th
day following the
Date of Termination and with the aggregate payments (excluding
interest) totaling an amount equal to the product of (A) two
and (B) the sum of the Executive’s (1) highest
aggregate annual base salary from the Company and its affiliated
companies in effect at any time during the 24 month period ending
on the Change in Control Date and (2) highest aggregate annual
bonuses (including any deferrals thereof) from the Company and its
affiliated companies payable for the Company’s three fiscal
years immediately preceding the fiscal year which includes the
Change in Control Date;
(ii) for two years after the
Executive’s Date of Termination, the Company shall continue
or cause to be continued benefits to the Executive and/or the
Executive’s family at least equal to those under the Welfare
Benefit Plans. (Nothing in this Agreement shall limit the
Executive’s right to additional retiree or other welfare
benefits provided under the applicable benefit plan subject to any
and all limitations in such plan.) If the Executive becomes
reemployed with another employer and is eligible to receive medical
or other welfare benefits under another employer-provided plan, the
medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the
Executive for any retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered
to have remained employed until two years after the Date of
Termination and to have retired on the last day of such period. For
purposes hereof, the term “Welfare Benefit Plan” means
the welfare benefit plans, practices, policies and programs
provided by the Company and its affiliates (including, without
limitation, any medical, prescription, dental, vision, disability,
life, accidental death and travel accident insurance plans and
split dollar insurance programs) to the extent applicable generally
to other peer executives of the Company and its affiliates, but in
no event shall such plans, practices, policies and programs provide
the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time
during the one year period immediately preceding the Change in
Control Date or, if more favorable to the Executive, those provided
generally at any time after the Change in Control Date to other
peer executives of the Company and its affiliated
companies;
(iii) to the extent not theretofore
paid or provided, the Company shall timely pay or cause to be paid
or provide or cause to be provided to the Executive any other
amounts or benefits required to be paid or provided or which the
Executive is eligible to receive under any compensation
arrangement, plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies with such
payments being made in accordance with the terms of any such
arrangements, plan, program or policy (such other amounts and
benefits shall be hereinafter referred to as the “Other
Benefits”).
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For purposes of this Section 4(b), unless
otherwise permitted by Code Section 409A, for any payment or
benefit hereunder which is nonqualified deferred compensation
covered by Code Section 409A, no such payment or benefit shall
be provided to the Executive pursuant to this Section 4(b)
unless the Release attached hereto is duly executed by the
Executive and provided to the Company no later than forty-five
(45) days after the Executive’s Date of Termination and
is not revoked by the Executive.
(c) Pre-Change in
Control Termination. Nothwithstanding any other provisions of
this Agreement, if the requirements of Section 1(e) are met
regarding the Executive’s termination prior to a Change in
Control, the Change in Control Benefits shall be paid on the
60 th day following the date of the
Change in Control (not the Date of Termination). The Release called
for in Section 4(b) shall not be required.
(d) Obligations of the Company in
a Noncovered Termination . If the Executive’s employment
shall cease by reason of a Noncovered Termination, this Agreement
shall terminate without further obligations to the Executive other
than the obligation timely to pay or cause to be paid or provide or
cause to be provided to the Executive the Executive’s Other
Benefits.
5. FULL
SETTLEMENT .
(a) No Offset or Mitigation .
The Company’s obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder
shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have
against the Executive. In no event shall the Executive be obligated
to seek other employment or take any other action by way of
mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and such amounts shall not be reduced
whether or not the Executive obtains other employment.
(b) Executive’s Expenses in
Dispute Resolution . The Company agrees to pay, to the full
extent permitted by law, all legal fees and expenses which the
Executive may reasonably incur as a result of a contest (in which
the Executive substantially prevails) by the Company, the Executive
or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement), plus
in each case interest on any delayed payment at the lower of
(i) the Wall Street Journal Prime Rate or (ii) the
applicable Federal mid-term rate provided for in
Section 1274(d), compounded semi-annually, of the
Code.
(c) Payment prior to Dispute
Resolution . If there shall be any dispute between the Company
and the Executive in the event of any termination of
Executive’s employment, then, unless and until there is a
final, nonappealable judgment by a court of competent jurisdiction
declaring that such termination was a Noncovered Termination, that
the determination by the Executive of the existence of Good Reason
was not made in good faith, or that the Company is not otherwise
obligate
