Exhibit 10.5
FORM OF EXECUTIVE SALARY
CONTINUATION AGREEMENT THAT SUPERSEDES AND REPLACES THE EXECUTIVE
SALARY CONTINUATION AGREEMENT
EFFECTIVE JANUARY 1,
2006
THIS
AGREEMENT , made and
entered into as of the 1st day of January, 2008, provided, however,
that all provisions applicable to compliance under Section 409A of
the Internal Revenue Code of 1986, as amended (the
“Code”) shall be effective as of January 1, 2005, by
and between Summit Financial Group, Inc., a corporation organized
and existing under the laws of the State of West Virginia
(hereinafter referred to as the “Company”), and
_____________________, an Executive of the Company (hereinafter
referred to as the “Executive”).
WHEREAS, the Company and the Executive are currently
parties to an Executive Salary Continuation Agreement signed on
July 19, 2007 and effective January 1, 2006 (which superseded and
replaced the original Agreement, an Executive Supplemental
Retirement Plan effective the 25th day of January, 2002, and a subsequent amendment
thereto), that provides for the payment of certain
benefits. This Executive Salary Continuation Agreement
and the benefits provided hereunder shall supersede and replace the
existing Executive Salary Continuation Agreement and the benefits
provided thereby;
WHEREAS , the Executive has been and continues to be a
valued Executive of the Company who is a member of a select group
of management or a highly-compensated employee of the
Company;
WHEREAS , the purpose of this Agreement is to further
the growth and development of the Company by providing the
Executive with supplemental retirement income, and thereby
encourage the Executive’s productive efforts on behalf of the
Company and the Company’s shareholders, and to align the
interests of the Executive and those shareholders;
WHEREAS , it is the desire of the Company and the
Executive to enter into this Agreement under which the Company will
agree to make certain payments to the Executive at retirement or
the Executive’s Beneficiary in the event of the
Executive’s death pursuant to this Agreement; and
WHEREAS , the Company intends this Agreement to comply
with Final Regulations and Transition Relief promulgated by the
Internal Revenue Service pursuant to Code Section 409A, and
accordingly, notwithstanding any other provisions of this
Agreement, this amendment applies only to amounts that would not
otherwise be payable in 2006, 2007 or 2008 and shall not cause (i)
an amount to be paid in 2006 that would not otherwise be payable in
such year, (ii) an amount to be paid in 2007 that would not
otherwise be payable in such year, and (iii) an amount to be paid
in 2008 that would not otherwise be payable in such year, and to
the extent necessary to qualify under such Transition Relief to not
be treated as a change in the form and timing of a payment under
Code Section 409A(a)(4) or an acceleration of a payment under Code
Section 409A(a)(3), the Executive, by executing this Agreement,
shall be deemed to have elected the
form and timing
of distribution provisions of this Agreement, on or before December
31, 2008.
ACCORDINGLY , it is intended that the Agreement be
“unfunded” for purposes of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”) and
not be construed to provide income to the participant or
beneficiary under the Code, particularly Section 409A of the Code
and guidance or regulations issued thereunder, prior to actual
receipt of benefits; and
THEREFORE , it is agreed as follows:
Except as
otherwise provided herein, the Effective Date of this Agreement
shall be January 1, 2008, provided, however, that all provisions
applicable to compliance under Code Section 409A shall be effective
as of January 1, 2005.
The salary
continuation benefits provided by this Agreement are granted by the
Company as a fringe benefit to the Executive and are not part of
any salary reduction plan or an arrangement deferring a bonus or a
salary increase. The Executive has no option to take any
current payment or bonus in lieu of these salary continuation
benefits except as set forth hereinafter.
If the
Executive remains in the continuous employ of the Company until at
least the Executive’s Normal Retirement Age, (except as
otherwise set forth in Paragraph IX,) and provided that no
determination of Disability of Executive, at any time prior to
Executive’s Normal Retirement Age, has been made, (regardless
of any return to active service of Executive subsequent to any such
determination of Disability,) the Executive’s Retirement Date
shall be the date on which the Executive attains the age of
sixty-five (65) years or has a Separation from Service, whichever
is later.
Normal
Retirement Age shall mean the date on which the Executive attains
age sixty-five (65).
Any reference
to “Plan Year” shall mean a calendar year from January
1 to December 31. In the year of implementation, the
term “Plan Year” shall mean the period from the
effective date to December 31 of the year of the effective
date.
D.
Termination of Employment :
Termination of
Employment shall mean voluntary resignation of employment by the
Executive, or the Company’s discharge of the Executive
without cause ( i.e., a discharge of the Executive by the
Company that does not satisfy the definition of discharge
“for cause” set forth in Subparagraph III
[F]).
E.
Separation from Service :
“Separation from Service” shall mean
that the Executive has experienced a Termination of Employment from
the Company. However, the employment relationship is
treated as continuing intact while the Executive is on military
leave, sick leave, or other bona fide leave of absence if the
period of such leave does not exceed six months, or if longer, so
long as the Executive’s right to reemployment with the
Company or any Affiliate is provided either by statute or by
contract. If the period of leave exceeds six months and
the Executive’s right to reemployment is not provided either
by statute or by contract, the employment relationship is deemed to
terminate on the first date immediately following such six-month
period. Notwithstanding the foregoing, where a leave of
absence is due to any medically determinable physical or mental
impairment that can be expected to result in death or can be
expected to last for a continuous period of not less than six
months, where such impairment causes the Executive to be unable to
perform the duties of his position of employment or any
substantially similar position of employment, a 29-month period of
absence may be substituted for such six-month period. In
addition, notwithstanding any of the foregoing, the term
“Separation from Service” shall be interpreted under
this Agreement in a manner consistent with the requirements of Code
Section 409A including, but not limited to:
(i) an
examination of the relevant facts and circumstances, as set forth
in Code Section 409A and the regulations and guidance thereunder,
in the case of any performance of services or availability to
perform services after a purported Termination of Employment or
Separation from Service,
(ii) in
any instance in which the Executive is participating or has at any
time participated in any other plan which is, under the aggregation
rules of Code Section 409A and the regulations and guidance issued
thereunder, aggregated with this Agreement and with respect to
which amounts deferred hereunder and under such other plan or plans
are treated as deferred under a single plan (hereinafter sometimes
referred to as an “Aggregated Plan” or together as the
“Aggregated Plans”), then in such instance Executive
shall only be considered to meet the requirements of a Separation
from Service hereunder if such Executive meets (a) the requirements
of a Separation from Service under all such Aggregated Plans and
(b) the requirements of a Separation from Service under this
Agreement which would otherwise apply,
(iii) in any
instance in which Executive is an employee and an independent
contractor of the Company or any Affiliate or both, the Executive
must have a Separation from Service in all such capacities to meet
the requirements of a Separation from Service hereunder, although,
notwithstanding the foregoing, if Executive provides services both
as an employee and a member of the Board of Directors of the
Company or any Affiliate or both or any combination thereof, the
services provided as a director are not taken into account in
determining whether the Executive has had a Separation from Service
as an employee under this Agreement, provided that no plan in which
Executive participates or has participated in his capacity as a
director is an Aggregated Plan, and
(iv) a
determination of whether a Separation from Service has occurred
shall be made in accordance with Treasury Regulations Section
1.409A-1(h)(4) or any similar or successor law, regulation or
guidance of like import, in the event of an asset purchase
transaction as described therein.
The term
“for cause” shall mean for the conviction of Executive
for commission of a felony against the Company or any
Affiliate. If a dispute arises as to discharge
“for cause,” such dispute shall be resolved by
arbitration as set forth in this Executive Plan. In the
alternative, if the Executive is permitted to resign due to
conviction of a felon as described above, the Board of Directors
may vote to deny all benefits. A majority decision by
the Board of Directors is required for forfeiture of the
Executive’s benefits under the preceding sentence.
“Change of Control” shall mean
with respect to (i) the Company or an Affiliate for whom the
Executive is performing services at the time of the Change in
Control Event; (ii) the Company or any Affiliate that is liable for
the payment to the Executive hereunder (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 Company or such corporation (or
corporations) or there is a bona fide business purpose for Company
or such corporation or corporations to be liable for such payment
and, in either case, no significant purpose of making Company or
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 paragraph (i)
or (ii) of this section, 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 paragraph (i) or (ii) of this section, a Change in
Ownership or Effective Control or a Change in the Ownership of a
Substantial Portion of the Assets of a Corporation as defined in
Section 409A of the Code, and the regulations or guidance issued by
the Internal Revenue Service thereunder, meeting the requirements
of a “Change in Control Event” thereunder.
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Restriction
on Timing of Distribution :
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Notwithstanding
any provision of this Agreement to the contrary, distributions of
deferred compensation (within the meaning of Code Section 409A)
under this Plan to the Executive may not commence earlier than six
(6) months after the date of a Separation from Service if, pursuant
to Code Section 409A and the regulations and guidance thereunder,
the Executive is considered a “specified employee” of
the Company if any stock of the Company or any parent thereof is
publicly traded on an established securities market or
otherwise. In the event a distribution of deferred
compensation under this Plan is delayed pursuant to this paragraph,
the originally scheduled payment shall be delayed until six months
after the date of Separation from Service and shall commence
instead on the first day of the seventh month following Separation
from Service, as follows: if payments are scheduled
under this Plan to be made in installments, all such installment
payments which would have otherwise been paid within six (6) months
after the date of a Separation from Service shall be delayed,
aggregated, and paid instead on the first day of the seventh month
after Separation from Service, after which all installment payments
shall be made on their regular schedule; if payment is scheduled
under this Plan to be made in a lump sum, the lump payment shall be
delayed until six months after the date of Separation from Service
and instead be made on the first day of the seventh month after the
date of Separation from Service. This Subparagraph III
[H] shall only apply to delay the payment of deferred compensation
to specified employees as required by Code Section 409A and the
regulations and guidance issued thereunder.
The Executive
shall have the right to name a Beneficiary of any benefit payable
under this Agreement on the Executive’s death. The
Executive shall have the right to name such Beneficiary at any time
prior to the Executive’s death and submit it to the Plan
Administrator (or Plan Administrator’s representative) on the
form provided. Once received and acknowledged by the
Plan Administrator, the form shall be effective. The
Executive may change a Beneficiary designation at any time by
submitting a new form to the Plan Administrator. Any
such change shall follow the same rules as for the original
Beneficiary designation and shall automatically supersede the
existing Beneficiary form on file with the Plan
Administrator.
If the
Executive dies without a valid Beneficiary designation on file with
the Plan Administrator, death benefits shall be paid to the
Executive’s estate.
If the Plan
Administrator determines in its discretion that a benefit is to be
paid to a minor, to a person declared incompetent, or to a person
incapable of handling the disposition of that person’s
property, the Plan Administrator may direct distribution of such
benefit to the guardian, legal representative or person having the
care or custody of such minor, incompetent person or incapable
person. The Plan Administrator may require proof of
incompetence, minority or guardianship as it may deem appropriate
prior to distribution of the benefit. Any distribution
of a benefit shall be a distribution for the account of the
Executive and the
Beneficiary, as
the case may be, and shall be a complete discharge of any liability
under the Agreement for such distribution amount.
“Disability” shall mean the
Executive: (i) is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than twelve
(12) months, or (ii) is, by reason of any medically determinable
physical or mental impairment which can be expected to result in
death or has lasted or can be expected to last for a continuous
period of not less than twelve (12) months, receiving income
replacement benefits for a period of not less than three (3) months
under an accident and health plan covering employees of the
Company. Medical determination of Disability may be made
by either the Social Security Administration or by the provider of
an accident or health plan covering employees of the
Company. Upon the request of the Plan Administrator, the
Executive must submit proof to the Plan Administrator of Social
Security Administration’s or the provider’s
determination. Notwithstanding any of the foregoing, the
term “Disability” shall be interpreted under this
Agreement in a manner consistent with the requirements of Code
Section 409A and the regulations and guidance
thereunder.
IV. RETIREMENT
BENEFIT AND POST-RETIREMENT DEATH BENEFIT
Upon attainment
of the Retirement Date, (as set forth in Subparagraph III [A,]
subject to the provisions of Paragraph IX,) the Company shall pay
the Executive an annual benefit equal to One Hundred Twenty Five
Thousand ($125,000), the “Retirement
Benefit.” Said Retirement Benefit shall be paid in
equal monthly installments (1/12 th of the annual benefit) until the death of the
Executive. Said payment shall commence the first day of
the month following (i) the date of such Separation from Service,
or (ii) if applicable, in accordance with the Restriction on Timing
of Distribution, whichever is later. Upon the death of
the Executive after attainment of the Retirement Date, (as set
forth in III [A,] subject to the provisions of Paragraph IX,) if
there is a balance in the accrued liability retirement account, an
amount equal to such balance shall be paid in a lump sum to the
Beneficiary. Said payment due hereunder shall be made
the first day of the second month following the Executive’s
death.
V. DEATH
BENEFIT PRIOR TO RETIREMENT
In the event
the Executive should die while actively employed by the Company at
any time after the date of this Agreement but prior to the
Executive’s Separation from Service, and prior to any
determination of Disability (as provided in Paragraph X) the
Company will pay an amount equal to the accrued balance on the date
of death of the Executive’s accrued liability retirement
account in a lump sum to the Beneficiary. Said payment
due hereunder shall be made the first day of the second month
following the Executive’s death.
VI. BENEFIT
ACCOUNTING/ACCRUED LIABILITY RETIREMENT ACCOUNT
Notwithstanding
any provision herein to the contrary, the provisions of this
Paragraph VI, shall be effective beginning January 1,
2006. Prior to the date on which Executive attains
Executive’s Normal Retirement Age, and during the time that
Executive continues in the employment of Company, (or after
Separation from Service but before Executive has attained Normal
Retirement Age if a Change in Control has occurred and Executive
has thereafter had a Separation from Service as set forth in
Paragraph IX,) and provided this Agreement is in effect, the
Company shall account for this benefit using Generally Accepted
Accounting Principles (“GAAP”). Prior to the
date on which Executive attains Executive’s Normal Retirement
Age and during the time that Executive continues in the employment
of Company, and prior to any determination of Disability of
Executive prior to Executive attaining Normal Retirement Age, (or
after Separation from Service but before Executive has attained
Executive’s Normal Retirement Age if a Change in Control has
occurred and Executive has had a Separation from Service
as
