Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain Officers
On March 31, 2021, Orrstown Financial Services, Inc. (“Orrstown”), the holding company for Orrstown Bank, announced the appointment of Neelesh Kalani as Executive Vice President and Chief Financial Officer of Orrstown, effective April 28, 2021.
Mr. Kalani, CPA, age 46, who joined the Company in February 2020 and had been serving as Senior Vice President, Chief Accounting Officer since March 2020. In his new role, Mr. Kalani will be responsible for the Company’s financial plans, policies, and financial compliance. Mr. Kalani is a graduate of Drexel University, with a BS in Accounting and Finance and has over 20 years of banking and financial services experience. Prior to joining the Bank in 2020, Mr. Kalani spent over seven years as the Chief Accounting Officer of Sun Bancorp, Inc. and served in previous comparable roles at Harleysville National Corporation and Willow Financial Bancorp, Inc. Previously, he worked seven years in the financial services audit group at KPMG, LLP with progressively increasing levels of responsibility.
In connection with his appointment, on April 28, 2021, Orrstown and Orrstown Bank entered into an Employment Agreement and Change in Control Agreement with Mr. Kalani.
The Employment Agreement provides Mr. Kalani with an initial base salary of $285,000, to be reviewed annually, and eligibility to participate in the annual short term and long-term incentive plans of Orrstown. Pursuant to the Employment Agreement, Mr. Kalani is also entitled to participate in Orrstown’s broad-based retirement plans, welfare benefit plans and other benefit programs. Upon his completion of ninety (90) days of employment, Mr. Kalani shall receive four thousand (4,000) shares of restricted stock to be issued pursuant to Orrstown’s 2011 Stock Incentive Plan (such shares to be subject to three-year cliff vesting).
The term of the Employment Agreement is for three (3) years, and automatically renews for an additional one (1) year term on each April 28th unless notice of non-renewal is delivered by either party. The Employment Agreement shall continue until the expiration date resulting from a notice of non-renewal or the earliest of: (a) Mr. Kalani’s voluntary termination of, or retirement from, employment other than for “Good Reason” (as defined in Section 4.2 of the Employment Agreement); (b) Mr. Kalani’s voluntary termination of employment for Good Reason; (c) the termination of Mr. Kalani’s employment by Orrstown for “Cause” (as defined in Section 4.3 of the Employment Agreement); (d) the termination of Mr. Kalani’s employment by Orrstown for any reason other than Cause; (e) the termination of Mr. Kalani’s employment with Orrstown due to “Disability” (as defined in Section 4.4 of the Employment Agreement); (f) the termination of Mr. Kalani’s employment due to his retirement upon attaining age sixty-five (65); or (f) his death.
In the event Mr. Kalani voluntarily terminates employment other than for Good Reason prior to attaining age sixty-five (65), the Employment Agreement does not provide for any payments other than those amounts accrued as of such date under generally accepted accounting principles. In the event Mr. Kalani voluntarily terminates employment after attaining age sixty-five (65), Orrstown shall continue his base salary for an additional six (6) months and make a lump sum cash payment equal to 150% of Orrstown’s actual premium cost of providing group term life insurance coverage to Mr. Kalani for the three (3) year period following his termination date, plus any accrued and unpaid benefits and vested benefits.
In the event Mr. Kalani voluntarily terminates employment for Good Reason or Orrstown terminates his employment without Cause absent a “Change in Control” (as defined in Section 2.1 of the Change in Control Agreement), Orrstown shall continue his base salary for an additional six (6) months or the remaining duration of the Employment Agreement (whichever is greater), plus pay him an amount equal to the average annual cash bonus earned by him during the prior three (3) calendar years. Mr. Kalani would also continue to
be eligible to participate in any group health plan maintained by Orrstown for six (6) months following the termination date, plus receive a lump sum cash payment equal to 150% of Orrstown’s actual premium cost of providing group term life insurance coverage to Mr. Kalani for the three (3) year period following his termination date. Mr. Kalani would also be entitled to be compensated in respect of his inability to continue to participate in Orrstown’s employee group disability plan for a period of six (6) months.
In the event Orrstown terminates Mr. Kalani’s employment for Cause or Disability, Mr. Kalani is entitled to receive only those amounts accrued or vested as of such date under generally accepted accounting principles (including under the terms of any employee benefit plan or incentive plan). In the event of a termination due to Mr. Kalani’s death, Orrstown shall pay his designated beneficiaries an amount equal to six (6) months’ base salary, plus a lump sum payment equal to the premium cost of COBRA continuation coverage for his spouse and dependent children.
The Change in Control Agreement provides that if Mr. Kalani’s employment is terminated by Orrstown without Cause during the period beginning ninety (90) days before a Change in Control and ending twenty-four (24) months after such Change in Control, or Mr. Kalani resigns for any reason within six (6) months following a Change in Control, Orrstown or its successor would pay Mr. Kalani an amount equal to two point nine nine (2.99) times the sum of his base salary in effect immediately before the Change in Control and the highest annual cash bonus or other incentive compensation awarded to him over the past three years, plus accelerated vesting of all time-based equity awards, and vesting and earning of performance-based equity awards, as set forth in the applicable award agreements. Mr. Kalani would also be eligible to receive an amount equal to that portion of Orrstown’s contribution to his 401(k), profit sharing, deferred compensation or other similar individual account plan which is not vested as of the date of termination, plus other benefits such as participating in Orrstown’s health and welfare employee benefit plans for twenty-four (24) months following termination of employment for a Change in Control. There are no single trigger benefits payable under the Change in Control Agreement solely by reason of the occurrence of a Change in Control.
Payments under the Change in Control Agreement are in lieu of any severance amounts payable under the Employment Agreement.
The Employment Agreement and the Change in Control Agreement do not provide for an excise tax gross-up for taxes applicable to a severance payment as a result of Mr. Kalani’s termination of employment. Instead, in the event he becomes eligible to receive a severance payment under the Change in Control Agreement that would result in the imposition of an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), such payment would be reduced, if necessary, to the extent required to avoid such excise tax imposition and, if any portion of the amount payable is determined to be non-deductible pursuant to the regulations promulgated under Section 280G of the Code, such payment would be further reduced to only the amount determined to be deductible under Section 280G.
The foregoing summary of the Employment Agreement and Change in Control Agreement is not complete and is qualified in its entirety by reference to the full text of such agreements, which are attached hereto as Exhibits 10.1 and 10.2, respectively, and are incorporated herein by reference.