Exhibit 10.7
FORM OF KEY EMPLOYEE
AGREEMENT
THIS AGREEMENT is made as of the
day of , by and among The Berlin City
Bank, a New Hampshire bank with its main office in Berlin, New
Hampshire (the "Subsidiary"), Northway Financial, Inc. a New
Hampshire corporation ("Northway") (Northway and the Subsidiary
shall be hereinafter collectively referred to as the "Company"),
and _______., a resident of _______ _____________ (the
"Executive").
WHEREAS in order to allow the Executive to
consider the prospect of a Change in Control (as defined in Section
1) in an objective manner and in consideration of the services to
be rendered by the Executive to the Company and other good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by the Company, the Company is willing to
provide, subject to the terms of this Agreement, certain severance
benefits to protect the Executive from the consequences of a
Terminating Event (as defined in Section 1) occurring subsequent to
a Change in Control; and
WHEREAS, in consideration of the continued
employment of the Executive by the Company, the entering into by
Northway of that certain stock option agreement between Northway
and the Executive of even date herewith providing for participation
by the Executive in Northway's 1999 Stock Option and Grant Plan,
the severance benefits provided subject to the terms herein and
other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged by the Executive, the Executive
agrees to be bound by certain restrictions contained herein
regarding competition, Confidential Information (as defined in
Section 1) and proprietary rights.
1. Certain
Definitions. For the purposes of this Agreement, the following
terms shall have the following respective meanings:
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(a)
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"Change in
Control" shall be deemed to have occurred in any one of the
following events:
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(i)
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if there has
occurred a change in control of either Northway or the Subsidiary
which Northway would be required to report in response to Item 1
(or, in the case of the Subsidiary, Item 2) of Form 8-K promulgated
under the Securities Exchange Act of 1934, as amended (the "1934
Act"), or, if such regulation is no longer in effect, any
regulations promulgated by the Securities and Exchange Commission,
pursuant to the 1934 Act, which are intended to serve similar
purposes;
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(ii)
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when any
"person" (as such term is used in Sections 13(d) and 14(d)(2) of
the 1934 Act) becomes a "beneficial owner" (as such term is defined
in Rule 13d-3 promulgated under the 1934 Act), directly or
indirectly, of securities of Northway or the Subsidiary
representing 25% or more of the total number of votes that may be
cast for the election of directors of Northway or the Subsidiary,
as the case may be;
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(iii)
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during any
period of two consecutive years (not including any period prior to
the execution of this Agreement), individuals who are Continuing
Directors (as hereinafter defined) cease for any reason to
constitute at least a majority of the Board of Directors of
Northway or the Subsidiary. For this purpose, a "Continuing
Director" shall mean (a) an individual who was a director of
Northway or the Subsidiary at the beginning of such period or (b)
any new director (other than a director designated by a person who
has entered into an agreement with Northway or the Subsidiary to
effect a transaction described in clause (ii), (iv) or (v) of this
Section 1(a)) whose election by the Board or nomination for
election by Northway's or the Subsidiary's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors of
Northway or the Subsidiary, as appropriate, then still in office
who either were directors at the beginning of such period or whose
election or nomination for election was previously so
approved;
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(iv)
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the
stockholders of Northway approve a merger or consolidation of
Northway or the Subsidiary with any other corporation or bank,
other than (a) a merger or consolidation which would result in the
voting securities of Northway outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
more than 80% of the combined voting power of the voting securities
of Northway or such surviving entity outstanding immediately after
such merger or consolidation or (b) a merger or consolidation
effected to implement a recapitalization of Northway (or similar
transaction) in which no "person" (as defined above) acquires more
than 30% of the combined voting power of Northway's then
outstanding securities; or
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(v)
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the
stockholders of Northway or the Subsidiary approve a plan of
complete liquidation of Northway or the Subsidiary or an agreement
for the sale or disposition by Northway or the Subsidiary of all or
substantially all of Northway's or the Subsidiary's
assets;
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(b)
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"Company-Related Inventions and Developments"
means all Inventions and Developments which either (i) relate at
the time of conception or development to the actual or demonstrably
anticipated business or research and development activities of the
Company; (ii) result from or relate to any work performed for the
Company, whether or not during normal business hours; (iii) are
developed on Company work time; or (iv) are developed through the
use of Confidential Information, or the Company's equipment,
software, or other facilities or resources;
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(c)
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"Confidential
Information" means information belonging to the Company, whether
reduced to writing (or in a form from which such information can be
obtained, translated, or derived into reasonably usable form), or
maintained in the mind or memory of the Executive, which derives
independent economic value from not being readily known to or
ascertainable by proper means by others who can obtain economic
value from the disclosure or use of such information, including
without limitation, financial information, reports, and forecasts;
inventions, improvements and other intellectual property; trade
secrets; know-how; designs, processes or formulae; software or
related code; market or sales information or plans; customer lists;
and business plans, prospects and opportunities (such as possible
acquisitions or dispositions of businesses or facilities) which
have been discussed or considered by the management of the Company.
Confidential Information includes information developed by the
Executive in the course of his employment by the Company, as well
as other information to which the Executive may have access in
connection with his employment. Confidential Information also
includes the confidential information of others with which the
Executive has a business relationship. Notwithstanding the
foregoing, Confidential Information does not include information in
the public domain, unless due to breach of the duties of the
Executive under Section 5 below;
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(d)
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"Customer"
means any person or entity who (i) is receiving Services, directly
or indirectly, from the Company on the date of termination of
employment of the Executive with the Company, (ii) received
Services, directly or indirectly, from the Company or the Executive
at any time during the two year period immediately preceding the
date of termination of employment of the Executive with the
Company, (iii) was solicited, directly or indirectly, in whole or
in part, by the Executive on behalf of the Company to provide
Services within two years preceding the termination of employment
of the Executive with the Company, or (iv) anyone solicited,
directly or indirectly, in whole or in part, on behalf of the
Company to provide Services within two years preceding the
termination of employment of the Executive with the
Company;
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(e)
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"Inventions and
Developments" means any and all inventions, developments, creative
works and useful ideas of any description whatsoever, whether or
not patentable, including without limitation, discoveries and
improvements which consist of or relate to any form of Confidential
Information;
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(f)
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"Restricted
Term" means the aggregate period equal to the period during which
the Executive is employed by the Company, plus a period of 1.5
years immediately following the termination of employment of the
Executive with the Company;
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(g)
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"Services"
means banking and bank-related services, and such other services
that are similar to and competitive with services the Company may
provide or develop plans to provide during the employment of the
Executive;
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(h)
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"Terminating
Event" shall mean:
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(i)
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termination by
either of Northway or the Subsidiary of the employment of the
Executive with either of Northway or the Subsidiary for any reason
other than (A) death, (B) deliberate dishonesty of the Executive
with respect to Northway or the Subsidiary or any subsidiary or
affiliate of either, or (C) conviction of the Executive of a crime
involving moral turpitude, or
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(ii)
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resignation of
the Executive from the employ of both of Northway and the
Subsidiary, while the Executive is not receiving payments or
benefits from either of Northway or the Subsidiary by reason of the
Executive's disability, subsequent to the occurrence of any of the
following events:
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(A)
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a significant
change in the nature or scope of the Executive's responsibilities,
authorities, powers, functions or duties from the responsibilities,
authorities, powers, functions or duties exercised by the Executive
immediately prior to the Change in Control; or
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(B)
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a determination
by the Executive that, as a result of a Change in Control, he is
unable to exercise the responsibilities, authorities, powers,
functions or duties exercised by the Executive immediately prior to
such Change in Control; or
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(C)
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a reduction in
the Executive's annual base salary as in effect on the date hereof
or as the same may be increased from time to time except for
across-the-board salary reductions similarly affecting all
management personnel of the Company and all management personnel of
any person in control of the Company; or
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(D)
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the failure by
the Company to pay to the Executive any portion of his current
compensation or to pay to the Executive any portion of an
installment of deferred compensation under any deferred
compensation program of the Company within seven (7) days of the
date such compensation is due; or
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(E)
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the failure by
the Company to continue in effect any material compensation,
incentive, bonus or benefit plan in which the Executive
participates immediately prior to the Change in Control, unless an
equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the
failure by the Company to continue the Executive's participation
therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of the Executive's participation relative to
other participants, as existed at the time of the Change in
Control; or
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(F)
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the failure by
the Company to continue to provide the Executive with benefits
substantially similar to those available to the Executive under any
of the life insurance, medical, health and accident, or disability
plans or any other material benefit plans in which the Executive
was participating at the time of the Change in Control, or the
taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits, or the failure
by the Company to provide the Executive with the number of paid
vacation days to which the Executive is entitled on the basis of
years of service with the Company in accordance with the Company's
normal vacation policy in effect at the time of the Change in
Control; or
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(G)
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the failure of
the Company to obtain a satisfactory agreement from any
successor(s) to assume and agree to perform this
Agreement.
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2. Severance
Payments. In the event a Terminating Event occurs within one (1)
year after a Change in Control, the Company shall pay to the
Executive, in periodic installments in accordance with the
Company's usual practice for its senior executives, for a period of
1.5 years from the date of such Terminating Event, a annualized
amount equal to the annual compensation paid by the Company to the
Executive which was includible in the gross income of the Executive
for the calendar year ending before the date on which the Change in
Control occurs; provided, that if the Executive is in breach of his
obligations under Section 7, the Company may withhold amounts
otherwise due to the Executive under this Section 2 until the
Executive has cured such breach or is otherwise in compliance with
Section 7.
3. Limitation
on Benefits.
(a) It is the
intention of the Executive and the Company that no payments by the
Company to or for the benefit of the Executive under this Agreement
or any other agreement or plan pursuant to which he is entitled to
receive payments or benefits shall be non-deductible to the Company
by reason of the operation of Section 280G of the Internal Revenue
Code of 1986 , as amended (the "Code") relating to parachute
payments. Accordingly, and notwithstanding any other provision of
this Agreement or any such agreement or plan, if by reason of the
operation of said Section 280G, any such payments exceed the amount
which can be deducted by the Company, such payments shall be
reduced to the maximum amount which can be deducted by the Company.
To the extent that payments exceeding such maximum deductible
amount have been made to or for the benefit of the Executive, such
excess payments shall be refunded to the Company with interest
thereon at the applicable Federal Rate determined under Section
1274(d) of the Code, compounded annually, or at such other rate as
may be required in order than no such payments shall be
non-deductible to the Company by reason of the operation of said
Section 280G. To the extent that there is more than one method of
reducing the payments to bring them within the limitations of said
Section 280G, the Executive shall determine which method shall be
followed, provided that if the Executive fails to make such
determination within 45 days after the Company has sent him written
notice of the need for such reduction, the Company may determine
the method of such reduction in its sole discretion.
(b) If any
dispute between the Company and the Executive as to any of the
amounts to be determined under this Section 3, or the method of
calculating such amounts, cannot be resolved by the Co
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