THIS EMPLOYMENT
AGREEMENT, dated as of this 19th day of January, 2005, and amended
the 26 th
day of March 2007, by and
between Fauquier Bankshares, Inc., a Virginia corporation (the
“Company”), The Fauquier Bank, a Virginia banking
corporation (the “Bank”), and Randy K. Ferrell (the
“Executive”), and is amended as of December 31,
2008, in order to comply with applicable provisions of
Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”).
In
consideration of the mutual covenants and agreements set forth
herein, the parties agree as follows:
Part I: General Employment
Terms
1.
Employment and Duties . The Executive shall be employed by
the Bank as its Chief Executive Officer (the
“Position”) and shall also serve as an officer of the
Company. The Executive accepts such employment and agrees to
perform the managerial duties and responsibilities of Chief
Executive Officer of the Bank. The Executive agrees to devote his
time and attention on a full-time basis to the discharge of such
duties and responsibilities of an executive nature as may be
assigned him by the Company’s Board of Directors, provided,
that, with the consent of the Company’s Board of Directors,
the Executive may accept any elective or appointed positions or
offices with any duly recognized associations or organizations
whose activities or purposes are closely related to the banking
business or service for which would generate good will for the
Company and its subsidiaries and affiliates.
2. Term
. The term of this Agreement (which term, together with any
extension hereunder, is referred to as the “Term”)
shall commence on January 15, 2005 (the “Effective
Date”) and shall continue through December 31, 2008,
unless terminated or extended as hereinafter provided. This
Agreement shall be extended for successive one-year periods at
December 31, 2005 and at each December 31 thereafter
during the Term unless either party notifies the other in writing
at least 90 days prior to such December 31 that the
Agreement shall not be extended or further extended as the case may
be.
(a) Base
Salary . The Company shall pay or cause the Bank to pay the
Executive an annual base salary not less than $206,000 for 2005.
Such base salary shall be paid to the Executive in accordance with
established payroll practices of the Company. For each remaining
year of the Term, the Compensation Committee (“Compensation
Committee”) of the Board of Directors of the Company agrees
to review the Executive’s base salary and to consider
implementing changes to such base salary as it may deem
appropriate; however, such base salary shall not be reduced at any
time during the Term.
(b)
Annual Incentive . The Executive will be eligible to
participate in an annual incentive plan that will establish
measurable criteria and incentive compensation levels payable to
the Executive for corporate performance in relation to defined
benchmarks. The Compensation Committee or the Board of Directors of
the Company, as the case may be, will consult with management to
establish the targeted corporate performance levels for the Company
on an annual basis consistent with the Company’s business
plan and objectives. Achievement of the targeted corporate
performance levels will normally result in an annual cash incentive
payment equal to 40% of the Executive’s then current annual
base salary. Any annual incentive payments due hereunder shall be
paid to the Executive no later than 75 days after the end of
the year.
(c) Stock
Compensation . Subject to the annual approval of the
Compensation Committee or the Board of Directors of the Company, as
the case may be, the Executive will receive during the Term an
annual stock award under the Company’s Omnibus Stock
Ownership and Long Term Incentive Plan or any successor plan (the
“Stock Compensation Plan”), with a value up to 90% of
his actual annual cash incentive payment earned each year. The
stock award, which will consist of stock options, restricted stock
grants or other equity compensation grants, or any combination
thereof, will include such vesting and other terms and conditions
as required herein and as otherwise determined in the sole
discretion of the Compensation Committee or the Board of Directors
in accordance with the Stock Compensation Plan. The valuation of a
stock option award will be determined using the Black-Scholes or
similar methodology as determined by the Compensation Committee or
the Board of Directors of the Company.
4. Benefits
and Perquisite
(a) During
the Term, the Executive shall be eligible to participate in any
plans, programs or forms of compensation or benefits that the
Company or its subsidiaries and affiliates provide to the class of
employees that includes the Executive, on a basis not less
favorable than that provided to such class of employees, including,
without limitation, group medical, disability and life insurance,
paid time off, and a retirement plan; provided, however, a
reasonable transition period following any change in control,
merger, statutory share exchange, consolidation, acquisition or
transaction involving the Company or any of its subsidiaries and
affiliates shall be permitted in order to make appropriate
adjustments in compliance with this Section 4(a). Unless prior
notice to the contrary is provided, the Executive will be eligible
to participate in the Company’s other incentive programs,
dependent on the rules and goals established for such
programs.
(b) The
Executive shall be entitled such paid time off and perquisites as
are provided to or for similarly situated senior executives of the
Bank.
5.
Reimbursement of Expenses . The Company shall reimburse or
cause the Bank to reimburse the Executive promptly, upon
presentation of adequate substantiation, including receipts, for
the reasonable travel, entertainment, lodging and other business
expenses incurred by the Executive, including, without limitation,
those expenses incurred by the Executive and his spouse in
attending approved trade and professional association conventions,
meetings and other related functions. However, the Compensation
Committee and Board of Directors of the Company reserves the right
to review these expenses periodically and determine, in his sole
discretion, whether future reimbursement of such expenses to the
Executive will continue without prior approval of the Compensation
Committee or Board of Directors of the Company.
6.
Termination of Employment .
(a)
Death . The Executive’s employment under this
Agreement shall terminate automatically upon the Executive’s
death.
(b)
Incapacity . If the Company determines that the Incapacity,
as hereinafter defined, of the Executive has occurred, it may
terminate the Executive’s employment and this Agreement upon
30 days’ written notice provided that, within
30 days after receipt of such notice, the Executive shall not
have returned to full-time performance of his assigned duties.
“Incapacity” shall mean the failure of the Executive to
perform his assigned duties with the Company and the Bank on a
full-time basis as a result of mental or physical illness or injury
as determined by a physician selected by the Compensation Committee
or the Board of Directors of the Company for the greater of 90
consecutive calendar days or the longest waiting period under any
long term disability insurance contract or program provided to him
as an employee. Notwithstanding the foregoing, if the Executive
takes a leave of absence due to Incapacity, for purposes of this
Agreement, the Executive’s employment will terminate at such
time as the Executive’s leave of absence would be considered
a separation from service under Treasury Regulation §
1.409A-1(h)(1).
(c)
Termination by the Company with or without Cause . The
Company may terminate the Executives employment during the Term,
with or without Cause. For purposes of this Agreement,
“Cause” shall mean:
(i) continual or
deliberate neglect by the Executive in the performance of his
material duties and responsibilities as established from time to
time, or the Executive’s willful failure to follow reasonable
instructions or policies of the Company and/or the Bank after being
advised in writing of such failure and being given a reasonable
opportunity and period to remedy such failure;
(ii) conviction
of, indictment for (or its procedural equivalent), entering of a
guilty plea or plea of no contest with respect to a felony, a crime
of moral turpitude or any other crime with respect to which
imprisonment is a possible punishment, or the commission of an act
of embezzlement or fraud against the Company or any subsidiary or
affiliate thereof;
(iii) any breach
by the Executive of a material term of this Agreement, or violation
in any material respect of any code or standard of behavior
generally applicable to officers of the Company and its
subsidiaries and affiliates, after being advised in writing of such
breach or violation and being given a reasonable opportunity and
period to remedy such breach or violation;
(iv) dishonesty of
the Executive with respect to the Company or any subsidiary or
affiliate thereof, or breach of a fiduciary duty owed to the
Company or any subsidiary or affiliate thereof; or
(v) the willful
engaging by the Executive in conduct that is reasonably likely to
result, in the good faith judgment of a majority of the outside
members of the Board of Directors of the Company, in material
injury to the Company or any subsidiary or affiliate, monetarily or
otherwise.
For purposes
hereof, no act, or failure to act, on the Executive’s part
shall be considered “willful” unless done, or omitted
to be done, by him not in good faith and without reasonable belief
that his act or omission was in the best interest of the Company;
provided that any act or omission to act on the Executive’s
behalf in reliance upon an opinion of counsel to the Company or
counsel to the Executive shall not be deemed to be willful.
Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for Cause unless and until there shall have
been delivered to him a copy of a certification by a majority of
the outside members of the Board of Directors of the Company
finding that, in the good faith opinion of such majority, the
Executive was guilty of conduct which is deemed to be Cause within
the meaning hereof and specifying the particulars thereof in
detail, after reasonable notice to the Executive and an opportunity
for him, together with his counsel, to be heard before such
majority.
(d)
Termination by Executive for Good Reason . The Executive may
terminate his employment for Good Reason. For purposes of this
Agreement, “Good Reason” shall mean any of the
following not occurring in connection with a termination of the
Executive’s employment for Cause:
(i) the continued
assignment to the Executive of duties inconsistent with the
Executive’s Position, and the authority, duties or
responsibilities inherent thereto, as contemplated by
Section 1 hereof or, in the event of a Change in Control (as
hereinafter defined), Section 10(a);
(ii) any action
taken by the Company and/or the Bank which results in a substantial
reduction in the status of the Executive, including a diminution in
his Position, and the authority, duties or responsibilities
inherent thereto, excluding for this purpose an isolated,
insubstantial and/or inadvertent action not taken in bad faith and
which is remedied promptly after receipt of notice thereof given by
the Executive;
(iii) the
relocation of the Executive to any other primary place of
employment which might require him to move his residence which, for
this purpose, includes any reassignment to a place of employment
located within the current market area of the Company or any of its
subsidiaries or affiliates at the Effective Date, as such market
area is defined for Community Reinvestment Act purposes, without
the Executive’s express written consent to such relocation;
or
(iv) any failure
by the Company, or any successor entity following a Change in
Control, to comply with the provisions of Sections 3 and 4 or
Section 10(b) hereof or to honor any other term or provision of
this Agreement, other than an isolated, insubstantial or
inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof
given by the Executive.
(e) Key
Employee . “Key Employee” shall have the meaning
assigned to that term under Section 409A of the Code, which
generally defines a Key Employee as an employee who, with respect
to a publicly traded company, is (a) one of the top fifty most
highly compensated officers with an annual compensation in excess
of $130,000 (as adjusted from time to time by Treasury
Regulations), (b) a five percent owner of the Bank, or
(c) a one percent owner of the Bank with annual compensation
in excess of $150,000 (as adjusted from time to time by Treasury
Regulations).
7.
Obligations upon Termination .
(a)
Death . If the Executive’s employment is terminated by
reason of death in accordance with Section 6(a) hereof, this
Agreement shall terminate without further obligation to the
Executive or his legal representatives under this Agreement, except
that his survivors, designees or estate shall continue to receive,
in addition to all other benefits to which they may be entitled
pursuant to the terms of any plan, program or arrangement of the
Company and its subsidiaries or affiliates, his base salary
hereunder for a period of three months following the month in which
his death occurred.
(b)
Incapacity . If the Executive’s employment is
terminated by reason of Incapacity in accordance with
Section 6(b) hereof, this Agreement shall
terminate without further obligation to the Executive under this
Agreement except that the Executive shall receive any benefits to
which he may be entitled pursuant to the terms of any plan, program
or arrangement of the Company and its subsidiaries or
affiliates.
(c)
Without Cause; Good Reason . Except as set forth in
Section 7(e), if, during the Term, the Company shall terminate
the Executive’s employment without Cause and other than for
death or Incapacity or the Executive shall terminate employment for
Good Reason, the Company will pay or provide the following to the
Executive:
(i) Within
30 days after the termination of employment, the Company will
pay or cause the Bank to pay to the Executive in a lump sum the sum
of (A) the Executive’s base salary through the date of
termination, (B) the amount, if any,of any incentive or bonus
compensation theretofore earned which has not yet been paid,
(C) the product of the Executive’s annual incentive
payment made paid or payable, including by reason of deferral, for
the most recently completed year and a fraction, the numerator of
which is the number of days in the current year through the date of
termination and the denominator of which is 365, and (D) an
amount equal to two times the average of the Executive’s
annual incentive payments made for the last two calendars years
preceding the calendar year of his termination of employment.
Notwithstanding the foregoing, if the Executive is a Key Employee
on the date of his termination of employment, any portion of such
payment that would be considered deferred compensation within the
meaning of Code Section 409A shall not be paid until the first
day of the seventh month following the Executive’s
termination of employment.
(ii) Commencing
within 30 days after the termination of employment, the
Company shall continue to pay or cause the Bank to continue to pay
to the Executive at regular payroll intervals Executive’s
annual base salary for a period of 24 months from the date of
termination of employment. Notwithstanding the foregoing, if the
Executive is a Key Employee on his termination of employment date,
these payments will not commence until the first day of the seventh
month following his date of termination, and the first payment
shall include the first six months of payments.
(iii) The Company
shall also maintain or cause the Bank to maintain in full force and
effect for the Executive’s continued benefit, until the
lesser of 24 months from the date of termination of
employment, all health and welfare plan and program coverage for
the Executive, his spouse and dependents then in effect, and
provided that the Executive’s continued participation is
possible under the general terms and provisions of such plans and
programs. If the Company reasonably determines that maintaining any
such health and welfare plan and program coverage in full force and
effect until 24 months from the Executive’s date of
termination of employment is not feasible, the Company either shall
provide substantially identical benefits directly or through an
insurance arrangement or shall pay the Executive a lump sum equal
to 1.4 times the estimated cost of maintaining such coverage. If
the Executive dies while receiving such health and welfare benefit
continuation, the Executive’s spouse and other dependents
will continue to be provided such benefits during the remainder of
the applicable 24 month period. The Executive, his spouse and
his dependents will become eligible for COBRA continuation coverage
as of the date health benefits cease.
(iv) Vesting in
all equity compensation awards granted to the Executive evidencing
the grant of a stock option or other award under the
Company’s Stock Compensation Plan, or any predecessor plan
thereto, will automatically be accelerated and such equity
compensation awards shall be immediately exercisable and fully
vested as of the date of termination of employment. In the case of
stock options, stock appreciation rights or similar awards, the
Executive will have at least 90 days after termination of
employment, or such longer period as may be provided for in the
separate award agreement, to exercise his rights thereunder,
provided that such extended exercise period shall not extend beyond
the maximum term of such awards determined without regard to the
Executive’s termination of employment.
In addition,
the Executive shall receive any benefits to which he may be
entitled pursuant to the terms of any plan, program or arrangement
of the Company and its subsidiaries or affiliates.
(d)
Cause; other than for Good Reason . If the Executive’s
employment shall be terminated for Cause or for other than death,
Incapacity or Good Reason, this Agreement shall terminate without
any further obligation of the Company to the Executive other than
to pay to the Executive his annual base salary through the date of
termination and to provide any benefits to which he may be entitled
pursuant to the terms of any plan, program or arrangement of the
Company and its subsidiaries or affiliates. The Executive will
still be required to comply with the non-competition
and
confidentiality covenants set forth in
Section 7(e).
(e)
Non-Competition . Notwithstanding the foregoing, all
payments and benefits under Section 7(c) otherwise continuing for
periods after the Executive’s termination of employment shall
cease to be paid, and the Company and the Bank shall have no
further obligation due with respect thereto, in the event the
Executive engages in “Competition” or makes any
“Unauthorized Disclosure of Confidential Information.”
In addition, in exchange for the payments on termination as
provided herein, other provisions of this Agreement and other
valuable consideration hereby acknowledged, the Executive agrees
that he will not engage in competition for a period of
24 months after his employment ceases for any reason,
including the expiration or nonrenewal of this Agreement. For
purposes hereof:
(i)
“Competition” means the Executive’s engaging
without the written consent of the Board of Directors of the
Company or a person authorized thereby, in an activity as an
officer, a director, an employee, a partner, a more than one
percent shareholder or other owner, an agent, a consultant, or in
any other individual or representative capacity within the market
area of the Company or any of its subsidiaries or affiliates at the
relevant time, as such market area is defined for Community
Reinvestment Act purposes, (unless the Executive’s duties,
responsibilities and activities, including supervisory activities,
for or on behalf of such activity, are not related in any way to
such competitive activity) if it involves:
(A) engaging in or
entering into the business of banking, lending or any other
business activity in which the Company or any of its subsidiaries
or affiliates is actively engaged at the time the Executive’s
employment ceases, or
(B) soliciting or
contacting, either directly or indirectly, any of the customers or
clients of the Company or any of its subsidiaries or affiliates for
the purpose of competing with the products or services provided by
the Company or any of its subsidiaries or affiliates, or
(C) employing or
soliciting for employment, either directly or indirectly, any
employees of the Company or any of its affiliates for the purpose
of competing with the Company or any of its subsidiaries or
affiliates.
(ii)
“Unauthorized Disclosure of Confidential Information”
means the use or disclosure of information in violation of
Section 8 of this Agreement.
(iii) For purposes
of this Agreement, “customers” or “clients”
of the Company or any of its subsidiaries or affiliates means
individuals or entities to whom the Company or any of its
affiliates has provided products or services at any time from the
Effective Date through the date the Executive’s employment
ceases.
(f)
Remedies . The Executive acknowledges that the restrictions
set forth in paragraph 7(e) of this Agreement are just, reasonable,
and necessary to protect the legitimate business interests of the
Company. The Executive further acknowledges that if he breaches or
threatens to breach any provision of paragraph 7(e), the
Company’s remedies at law will be inadequate, and the Company
will be irreparably harmed. Accordingly, the Company shall be
entitled to an injunction, both preliminary and permanent,
restraining the Executive from such breach or threatened breach,
such injunctive relief not to preclude the Company from pursuing
all available legal and equitable remedies. In addition to all
other available remedies, if the Executive violates the provisions
of paragraph 7(e), the Executive shall pay all costs and fees,
including attorneys’ fees, incurred by the Company in
enforcing the provisions of that paragraph. If, on the other hand,
it is finally determined by a court of competent jurisdiction that
a breach or threatened breach did not occur under paragraph 7(e) of
this Agreement, the Company shall reimburse the Executive for
re
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