The Corporation, the Bank and Mr. Bower entered into a new Employment Contract on October 24,
2019, with the initial term expiring on December 31, 2022. Thereafter, Mr. Bowers Employment Contract renews automatically for successive 12-month periods unless terminated by either party upon
120 days written notice. The Employment Contracts for Messrs. Lima, Greslick, Dell and Griffith shall automatically renew for successive terms of one year unless either party gives the other party ninety days written notice of intent not to
renew the contract prior to the end of the then-current term.
The Employment Contracts provide for a base salary to be established annually by the Board
and for annual increases, stock, stock options/rights and bonuses as may from time to time be awarded by the Board. Each Employment Contract contains a covenant not to compete against the Corporation and the Bank, their parent, affiliates or
subsidiaries during the term of employment and thereafter until the earlier of (i) the third anniversary of the executives termination of employment or (ii) the date of a change in control of the Corporation or the Bank. In addition,
each Employment Contract contains a covenant to protect the Corporations and the Banks confidential information.
The Employment Contracts
also provide for severance payments in the event a NEO is terminated without cause, regardless of whether such termination is in connection with a change of control, or voluntarily terminates employment under certain specific circumstances following
a change of control. Such circumstances include a reduction in title or responsibilities, assignment of duties or responsibilities inconsistent with current responsibilities, a reduction in salary or other benefits, and reassignment to a location
greater than 25 miles from the current location. Following such a termination of employment, Messrs. Bower and Greslick will be entitled to receive a lump sum cash payment equal to 2.99 times his base salary for the year in which his employment ends
and Messrs. Lima, Dell and Griffith will be entitled to receive a lump sum cash payment equal to 2.50 times his base salary for the year in which his employment ends. Messrs. Bower and Greslick will be entitled to receive a payment in the amount of
2.99 times the average incentive bonus paid over the preceding three-year period. Messrs. Lima, Dell and Griffith will be entitled to receive a payment in the amount of 2.50 times the average incentive bonus paid over the preceding three-year
period. The potential payments that would have occurred assuming a change of control event at December 31, 2020 were $2,595,526 for Mr. Bower, $804,913 for Mr. Lima, $1,302,378 for Mr. Greslick, $990,081 for Mr. Dell and $841,868 for Mr.
Griffith.
Cash and benefits paid to a NEO under the Employment Contracts together with payments under other benefit plans following a change of control
may constitute an excess parachute payment under Section 280G of the Code, resulting in the imposition of a 20% excise tax on the recipient and the denial of the deduction for such excess amounts to the Corporation or the Bank. If
amounts payable to the NEO would be excess parachute payments, then the NEOs severance benefits will be reduced to that amount that would result in no portion being an excess parachute payment unless payment of the full severance amount would
result in the executive receiving an amount equal to or greater than 110% of the reduced amount on an after-tax basis. The Employment Contracts do not provide for tax indemnity for any such potential excise
taxes that may be due by the NEOs.
Impact of Accounting and Tax
The ECC and our executive management team consider the accounting and tax (individual and corporate) consequences of the compensation plans prior to making
changes to the plans.
Section 162(m) of the Internal Revenue Code prohibits publicly held companies from deducting annual compensation in excess of
$1,000,000, for U.S. federal income tax purposes, paid to the CEO and all other NEOs in any one fiscal year. While the ECC recognizes the importance of tax deductibility and endeavors to formulate its compensation program in a tax-effective manner, it also believes it is critical to balance tax deductibility with ensuring that the Corporations programs are designed appropriately to recognize and reward executive performance, such
that at times current tax deductibility limits may be exceeded.
The ECC has considered the impact of the Financial Accounting Standards Board ASC Topic
718 (formerly known as FASB Statement 123R) on the Corporations equity incentives as a key retention tool.
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