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Section 1: 8-K (8-K)

8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

March 11, 2019

(Date of Report: Date of earliest event reported)

 

 

Middlefield Banc Corp.

(Exact name of registrant as specified in its charter)

 

 

 

Ohio   001-36613   34-1585111

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification Number)

15985 East High Street

Middlefield, Ohio 44062

(Address of principal executive offices, including zip code)

(440) 632-1666

(Registrant’s telephone number, including area code)

(not applicable)

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


ITEM 5.02

Compensatory Arrangements of Certain Officers

On March 12, 2019, Middlefield Banc Corp. (“Middlefield”) entered into new change in control agreements with –

 

  1)

Thomas G. Caldwell, President and Chief Executive Officer of Middlefield and The Middlefield Banking Company (the “Bank”),

 

  2)

James R. Heslop II, Executive Vice President and Chief Operating Officer of Middlefield and the Bank,

 

  3)

Donald L. Stacy, Senior Vice President, Chief Financial Officer and Treasurer of Middlefield, and Executive Vice President and Chief Financial Officer of the Bank, and

 

  4)

Charles O. Moore, Central Ohio Region President for the Bank.

The change in control agreements for Messrs. Caldwell, Heslop and Stacy replace severance agreements that existed between each executive officer and Middlefield. Mr. Moore is not a party to an existing severance agreement with Middlefield. The change in control agreements of Messrs. Caldwell, Heslop, and Stacy provide that change-in-control benefits become payable upon a change in control of Middlefield. The change in control agreement of Mr. Moore provides that change-in-control benefits become payable if Mr. Moore’s employment is terminated involuntarily but without cause or voluntarily for good reason within 24 months after a change in control of Middlefield. The amount of the change-in-control benefit for Messrs. Caldwell, Heslop and Stacy is 2.5 times their respective annual compensation and the change-in-control benefit for Mr. Moore is two times Mr. Moore’s annual compensation. Each change in control agreement also provides that if the executive’s employment terminates within 24 months following a change in control the executive will be entitled to continued life, health, and disability insurance coverage for two years following termination or until the executive becomes employed by another employer. Under certain circumstances the executive may receive this insurance benefit in a lump sum payment equal to the present value of Middlefield’s projected cost to maintain that insurance benefit had the executive’s employment not been terminated. Middlefield has also agreed to pay up to $500,000 of legal fees incurred by Messrs. Caldwell and Heslop and $400,000 of legal fees incurred by Messrs. Stacy and Moore associated with the enforcement of their right to benefits under the change in control agreements.

 

Item 5.02(e):

Material Compensatory Plan

At a meeting of the board of directors of the Bank held on March 11, 2019, the nonemployee directors ratified and adopted the recommendation of the Compensation Committee that the Company’s Annual Incentive Plan be amended for 2019 and future years. Included in the action was the establishment of new minimum, intermediate and maximum award levels under the plan for executive officers and selected senior officers, including Chief Executive Officer Thomas G. Caldwell, Chief Operating Officer James R. Heslop, II, and Chief Financial Officer Donald L. Stacy.


If targeted performance is achieved in 2019, Mr. Caldwell is eligible for a cash bonus in an amount ranging from a minimum of 12% of his salary if actual performance is 90% of targeted performance goals established by the Compensation Committee, 24% of salary if actual performance is 100% of targeted performance goals, and a maximum of 36% of salary if actual performance is 110% or more of targeted performance goals. President and Chief Executive Officer Caldwell’s annual award under the plan is exclusively determined by the Bank’s performance. Chief Operating Officer James R. Heslop II, and Chief Financial Officer Donald L. Stacy are eligible for cash bonuses in an amount ranging from a minimum of 12% of salary if actual performance is 90% of targeted performance goals, 18% of salary if actual performance is 100% of targeted performance goals, and a maximum of 24% of salary if actual performance is 110% or more of targeted performance goals. Messrs. Heslop and Stacy’s annual award under the plan is exclusively determined by the Bank’s performance. Selected senior officers other than these named executive officers are eligible for a cash bonus under the plan of 9% for achievement of minimum performance measures, up to 12% for achievement of the targeted performance goals and up to 15% of salary for performance exceeding the target. In each case, the percentage achievement of the targeted performance over the minimum performance and of the maximum performance over the targeted performance will determine the proportionate incentive payment earned and paid for each of the goals. The annual awards for these senior officers are (i) 50% based upon the Bank’s performance, with the remaining 50% based upon business unit or departmental performance and individual performance.

The Annual Incentive Plan has certain forfeiture and recoupment, or “clawback,” provisions that allow the board to rescind awards under the plan that have not yet been paid, and recover awards that have been paid, upon the occurrence of certain events. The board’s Compensation Committee may rescind and not pay an incentive award to a participant in the Annual Incentive Plan if the Compensation Committee finds that the participant failed significantly to satisfy expectations, engaged in fraudulent or unethical conduct in the course of the participant’s employment or committed an intentional violation of Bank policy. The Annual Incentive Plan further provides that a participant in the plan agrees to repay to the Bank any award that is entirely or partially attributable to a financial reporting error. An award is entirely attributable to a financial reporting error if after the award is paid the financial statements of the Bank are required to be restated because of a financial reporting error and, in the sole judgement of the Compensation Committee, (x) the award would not have been made had the financial reporting not occurred or (y) the participant was responsible for the financial reporting error and the Compensation Committee concludes that the participant committed the error knowingly. An award is partially attributable to a financial reporting error if after the award is paid the financial statements of the Bank are required to be restated because of a financial reporting error and, in the sole judgement of the Compensation Committee, the award made to the participant might have been made nevertheless but would have been made in a lesser amount had the financial reporting not occurred. If an award is entirely attributable to a financial reporting error, the participant must promptly repay to the Bank the entire amount of the award and if an award is partially attributable to a financial reporting error the participant must promptly repay to the Bank the portion of the award that the Compensation Committee determines is attributable to the financial reporting error.


Item 9.01(d) Exhibits

 

10.2    Change in Control Agreement between Middlefield Banc Corp. and Thomas G. Caldwell
10.3    Change in Control Agreement between Middlefield Banc Corp. and James R. Heslop, II
10.4.2    Change in Control Agreement between Middlefield Banc Corp. and Charles O. Moore
10.4.3    Change in Control Agreement between Middlefield Banc Corp. and Donald L. Stacy
10.22    Annual Incentive Plan


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    MIDDLEFIELD BANC CORP.
Date: March 12, 2019    

/s/ James R. Heslop, II

    Executive Vice President and COO
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Section 2: EX-10.2 (EX-10.2)

EX-10.2

Exhibit 10.2

CHANGE IN CONTROL AGREEMENT

This CHANGE IN CONTROL AGREEMENT (this “Agreement”) is entered into effective as of this 12th day of March, 2019, by and between Middlefield Banc Corp., an Ohio corporation (“Middlefield”), and Thomas G. Caldwell, its President and Chief Executive Officer (the “Executive”).

WHEREAS, recognizing the contributions made and expected to be made by the Executive to the profitability, growth, and financial strength of Middlefield and subsidiaries, intending to assure itself of the current and future continuity of management, intending to establish minimum severance benefits for certain officers and other key employees, including the Executive, intending to ensure that officers and other key employees are not practically disabled from discharging their duties if a proposed or actual transaction involving a change in control arises, and finally desiring to provide additional inducement for the Executive to remain in the employment of Middlefield, Middlefield entered into a Severance Agreement with the Executive dated as of January 7, 2008,

WHEREAS, Middlefield and the Executive intend that this Agreement replace the January 7, 2008 Severance Agreement, and

WHEREAS, none of the conditions or events included in the definition of the term “golden parachute payment” that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule 359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists or, to the best knowledge of Middlefield, is contemplated insofar as either of Middlefield or any of its subsidiaries is concerned.

NOW THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows.

1. Change in Control. (a) If a Change in Control occurs before the Executive’s employment termination, Middlefield shall make a lump-sum payment to the Executive in cash in an amount equal to two and one-half (2.5) times the Executive’s annual compensation. For this purpose annual compensation means (x) the Executive’s annual base salary on the date of the Change in Control, plus (y) the average of the cash bonus and cash incentive compensation earned for the three calendar years immediately preceding the year in which the Change in Control occurs, regardless of when the bonus or incentive compensation is paid and regardless of whether the bonus or incentive compensation is subject to elective deferral or vesting. Middlefield recognizes that the bonus and incentive compensation earned by the Executive for a particular year’s service might be paid in the year after the calendar year in which the bonus or incentive compensation is earned. The amount payable to the Executive hereunder shall not be reduced to account for the time value of money or discounted to present value. The payment required under this section 1(a) is payable on the date of the Change in Control. The Executive shall be entitled to a payment under this section 1(a) on no more than one occasion.


(b) If the Executive’s employment terminates within 24 months after the Change in Control, Middlefield shall also (x) cause the Executive to become fully vested in any non-qualified plans, programs, or arrangements in which the Executive participated if the plan, program, or arrangement does not address the effect of a change in control and (y) continue or cause to be continued life, health, and disability insurance coverage substantially identical to the coverage maintained for the Executive before termination and in accordance with the same schedule prevailing before employment termination. The insurance coverage may cease when the Executive becomes employed by another employer or 24 months after the Executive’s termination, whichever occurs first. If under the terms of the life, health, or disability policy coverage maintained by Middlefield it is not possible to continue the Executive’s coverage after termination or if when employment termination occurs the Executive is a specified employee within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and applicable guidance thereunder (“Code Section 409A”), if the continued insurance benefit specified in this section 1(b) would be considered deferred compensation under Code Section 409A, and finally if an exemption from the six-month delay requirement of Code Section 409A(a)(2)(B)(i) is not available for that insurance benefit, instead of continued insurance coverage under this section 1(b) Middlefield shall pay to the Executive in a single lump sum an amount in cash equal to the present value of the Employer’s projected cost to maintain that particular insurance benefit had the Executive’s employment not terminated, assuming continued coverage for 24 months. The lump-sum payment shall be made 30 days after employment termination or, if a six-month delay is required by Code Section 409A, on the first day of the seventh month after the month in which the Executive’s employment terminates.

2. Change in Control Defined. For purposes of this Agreement the term Change in Control means a change in the ownership of Middlefield, a change in the effective control of Middlefield, or a change in the ownership of a substantial portion of the assets of Middlefield, in each case as provided under Code Section 409A and Treasury Rule 1.409A-3(i)(5), as the same may be amended from time to time. For purposes of clarification and without intending to affect the foregoing reference to Code Section 409A for the definition of Change in Control, as of the effective date of this Agreement a Change in Control event as defined in Treasury Rule 1.409A-3(i)(5) would include the following –

(a) Change in ownership: a change in ownership of Middlefield occurs on the date any one person or group accumulates ownership of Middlefield stock constituting more than 50% of the total fair market value or total voting power of Middlefield stock, or

(b) Change in effective control: (x) any one person or more than one person acting as a group acquires within a 12-month period ownership of Middlefield stock possessing 30% or more of the total voting power of Middlefield stock, or (y) a majority of Middlefield’s board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed in advance by a majority of Middlefield’s board of directors, or

 

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(c) Change in ownership of a substantial portion of assets: a change in ownership of a substantial portion of Middlefield’s assets occurs if in a 12-month period any one person or more than one person acting as a group acquires from Middlefield assets having a total gross fair market value equal to or exceeding 40% of the total gross fair market value of all of Middlefield’s assets immediately before the acquisition or acquisitions. For this purpose, gross fair market value means the value of Middlefield’s assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with the assets.

3. No Benefits After Termination with Cause. (a) Despite anything in this Agreement to the contrary, the Executive shall not be entitled to benefits under this Agreement if the Executive’s employment terminates with Cause. For purposes of this Agreement the term Cause means the Executive shall have committed any of the following acts –

1) an act of fraud, embezzlement, or theft while employed by Middlefield or a subsidiary, or conviction of the Executive for or plea of no contest to a felony or conviction of or plea of no contest to a misdemeanor involving moral turpitude, or the actual incarceration of the Executive for 45 consecutive days or more, or

2) gross negligence, insubordination, disloyalty, or dishonesty in the performance of the Executive’s duties as an officer of Middlefield or a subsidiary; willful or reckless failure by the Executive to adhere to Middlefield’s or subsidiary’s written policies; intentional wrongful damage by the Executive to the business or property of Middlefield or subsidiary, including without limitation its reputation, which in Middlefield’s sole judgment causes material harm to Middlefield or subsidiary; breach by the Executive of fiduciary duties to Middlefield and its stockholders, whether in the Executive’s capacity as an officer or as a director of Middlefield or subsidiary, or

3) removal of the Executive from office or permanent prohibition of the Executive from participating in the affairs of Middlefield’s subsidiary bank or banks by an order issued under section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or

4) intentional wrongful disclosure of secret processes or confidential information of Middlefield or affiliates, which in Middlefield’s sole judgment causes material harm to Middlefield or affiliates, or

5) any actions that have caused the Executive to be terminated for cause under any employment agreement existing on the date hereof or hereafter entered into between the Executive and Middlefield or a subsidiary, or

6) the occurrence of any event that results in the Executive being excluded from coverage, or having coverage limited for the Executive as compared to other executives of Middlefield or affiliates, under a blanket bond or other fidelity or insurance policy covering directors, officers, or employees, or

 

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7) intentional wrongful engagement in any competitive activity. For purposes of this Agreement, competitive activity means the Executive’s participation, without the consent of Middlefield’s board of directors, in the management of any business enterprise if (x) the enterprise engages in substantial and direct competition with Middlefield, (y) the enterprise’s revenues derived from any product or service competitive with any product or service of Middlefield or a subsidiary amounted to 10% or more of the enterprise’s revenues for its most recently completed fiscal year, and (z) Middlefield’s revenues from the product or service amounted to 10% of Middlefield’s revenues for its most recently completed fiscal year. A competitive activity does not include mere ownership of securities in an enterprise and the exercise of rights appurtenant thereto, provided the Executive’s share ownership does not represent practical or legal control of the enterprise. For this purpose, ownership of less than 5% of the enterprise’s outstanding voting securities shall conclusively be presumed to be insufficient for practical or legal control, and ownership of more than 50% shall conclusively be presumed to constitute practical and legal control.

(b) For purposes of this Agreement, no act or failure to act on the Executive’s part shall be deemed to have been intentional if it was due primarily to an error in judgment or negligence. An act or failure to act on the Executive’s part shall be considered intentional if it is not in good faith and if it is without a reasonable belief that the action or failure to act is in Middlefield’s best interests. Any act or failure to act based upon authority granted by resolutions duly adopted by the board of directors or based upon the advice of counsel for Middlefield shall be conclusively presumed to be in good faith and in Middlefield’s best interests. For purposes of this Agreement the term subsidiary means any entity in which Middlefield directly or indirectly beneficially owns 50% or more of the outstanding voting securities.

(c) The Executive shall not be deemed under this Agreement to have been terminated with Cause unless and until there is delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of at least three-fourths (34) of the directors (excluding the Executive) of Middlefield then in office at a meeting of the board of directors called and held for such purpose, which resolution shall (x) contain findings that, in the good faith opinion of the board, the Executive has committed an act constituting Cause and (y) specify the particulars thereof. Notice of that meeting and the proposed determination of Cause shall be given to the Executive a reasonable time before the board’s meeting. The Executive and the Executive’s counsel (if the Executive chooses to have counsel present) shall have a reasonable opportunity to be heard by the board at the meeting. Nothing in this Agreement limits the Executive’s or beneficiaries’ right to contest the validity or propriety of the board’s determination of Cause, and they shall have the right to contest the validity or propriety of the board’s determination of Cause even if that right does not exist under any employment agreement of the Executive.

 

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4. No Benefits after Termination Because of Death or Disability. Despite anything in this Agreement to the contrary, the Executive shall not be entitled to benefits under this Agreement if the Executive dies while actively employed by Middlefield or a subsidiary or if the Executive becomes totally disabled while actively employed by Middlefield or a subsidiary. For purposes of this Agreement, the term totally disabled means that because of injury or sickness the Executive is unable to perform the Executive’s duties. The benefits, if any, payable to the Executive or the Executive’s beneficiary or estate relating to the Executive’s death or disability shall be determined solely by such benefit plans or arrangements as Middlefield or subsidiary may have with the Executive relating to death or disability, not by this Agreement.

5. Term of Agreement. The initial term of this Agreement shall be for a period of three years, commencing on the effective date. On the first anniversary of the effective date of this Agreement and on each anniversary thereafter, this Agreement shall be extended automatically for one additional year, unless Middlefield’s board of directors gives notice to the Executive in writing at least 90 days before the anniversary that the term of this Agreement will not be extended. If the board of directors determines not to extend the term, it shall promptly notify the Executive. References herein to the term of this Agreement mean the initial term and extensions of the initial term. If the board of directors decides not to extend the term of this Agreement, this Agreement shall nevertheless remain in force until its term expires.

6. This Agreement Is Not an Employment Contract. The parties hereto acknowledge and agree that (x) this Agreement is not a management or employment agreement and (y) nothing in this Agreement shall give the Executive any rights or impose any obligations to continued employment by Middlefield or any subsidiary or successor of Middlefield.

7. Payment of Legal Fees. Middlefield is aware that after a Change in Control management could cause or attempt to cause Middlefield to refuse to comply with its obligations under this Agreement, or could institute or cause or attempt to cause Middlefield to institute litigation seeking to have this Agreement declared unenforceable, or could take or attempt to take other action to deny Executive the benefits intended under this Agreement. In these circumstances the purposes of this Agreement would be frustrated. Middlefield desires that the Executive not be required to incur the expenses associated with the enforcement of rights under this Agreement, whether by litigation or other legal action, because the cost and expense thereof would substantially detract from the benefits intended to be granted to the Executive hereunder. Middlefield desires that the Executive not be forced to negotiate settlement of rights under this Agreement under threat of incurring expenses. Accordingly, if after a Change in Control occurs it appears to the Executive that (x) Middlefield has failed to comply with any of its obligations under this Agreement, or (y) Middlefield or any other person has taken any action to declare this Agreement void or unenforceable, or instituted any litigation or other legal action designed to deny, diminish, or to recover from the Executive the benefits intended to be provided to the Executive hereunder, Middlefield irrevocably authorizes the Executive from time to time to retain counsel of the Executive’s choice, at Middlefield’s expense as provided in this section 7, to represent the Executive in the initiation or defense of any litigation or other legal action, whether by or against Middlefield or any director, officer, stockholder, or other person affiliated with Middlefield, in any jurisdiction. Despite any existing or previous attorney-client relationship between Middlefield and any counsel chosen by the Executive under this section 7, Middlefield irrevocably consents to the Executive entering into an attorney-client relationship

 

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with that counsel and Middlefield and the Executive agree that a confidential relationship shall exist between the Executive and that counsel. The fees and expenses of counsel selected from time to time by the Executive as provided in this section shall be paid or reimbursed to the Executive by Middlefield on a regular, periodic basis upon presentation by the Executive of a statement or statements prepared by counsel in accordance with counsel’s customary practices, up to a maximum aggregate amount of $500,000, whether suit be brought or not, and whether or not incurred in trial, bankruptcy, or appellate proceedings. Middlefield’s obligation to pay the Executive’s legal fees under this section 7 operates separately from and in addition to any legal fee reimbursement obligation Middlefield may have with the Executive under any other agreement. Despite any contrary provision of this Agreement however, Middlefield shall not be required to pay or reimburse the Executive’s legal expenses if doing so would violate section 18(k) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)] and Rule 359.3 of the Federal Deposit Insurance Corporation [12 CFR 359.3].

8. Withholding of Taxes. Middlefield may withhold from any benefits payable under this Agreement all Federal, state, local or other taxes as may be required by law, governmental regulation, or ruling.

9. Successors and Assigns. (a) This Agreement is binding on successors. This Agreement shall be binding upon Middlefield and any successor to Middlefield, including any persons acquiring directly or indirectly all or substantially all of the business or assets of Middlefield by purchase, merger, consolidation, reorganization, or otherwise. But this Agreement and Middlefield’s obligations under this Agreement are not otherwise assignable, transferable, or delegable by Middlefield. By agreement in form and substance satisfactory to the Executive, Middlefield shall require any successor to all or substantially all of the business or assets of Middlefield expressly to assume and agree to perform this Agreement in the same manner and to the same extent Middlefield would be required to perform had no succession occurred.

(b) This Agreement is enforceable by the Executive’s heirs. This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, and legatees.

(c) This Agreement is personal and is not assignable. This Agreement is personal in nature. Without written consent of the other party, neither party shall assign, transfer, or delegate this Agreement or any rights or obligations under this Agreement except as expressly provided in this section 9. Without limiting the generality of the foregoing, the Executive’s right to receive payments hereunder is not assignable or transferable, whether by pledge, creation of a security interest, or otherwise, except for a transfer by Executive’s will or by the laws of descent and distribution. If the Executive attempts an assignment or transfer that is contrary to this section 9, Middlefield shall have no liability to pay any amount to the assignee or transferee.

 

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10. Notices. Any notice under this Agreement shall be deemed to have been effectively made or given if in writing and personally delivered, delivered by mail properly addressed in a sealed envelope, postage prepaid by certified or registered mail, or if delivered by a nationally recognized overnight delivery service. Unless otherwise changed by notice, notice shall be properly addressed to the Executive if addressed to the address of the Executive on the books and records of Middlefield at the time of the delivery of the notice, and properly addressed to Middlefield if addressed to the board of directors, Middlefield Banc Corp., 15985 East High Street, Middlefield, Ohio, 44062-0035 Attention: Corporate Secretary.

11. Captions and Counterparts. The headings and subheadings used in this Agreement are included solely for convenience and shall not affect the interpretation of this Agreement. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same agreement.

12. Amendments and Waivers. No provision of this Agreement may be modified, waived, or discharged unless the waiver, modification, or discharge is agreed to in a writing signed by the Executive and by Middlefield. No waiver by either party hereto at any time of any breach by the other party hereto or waiver of compliance with any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

13. Severability. The provisions of this Agreement are severable. The invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions of this Agreement. Any provision held to be invalid or unenforceable shall be reformed to the extent and solely to the extent necessary to make it valid and enforceable.

14. Governing Law. The validity, interpretation, construction, and performance of this Agreement shall be governed by and construed in accordance with the substantive laws of the State of Ohio, without giving effect to the principles of conflict of laws of such state.

15. Entire Agreement. This Agreement constitutes the entire agreement between Middlefield and the Executive concerning the subject matter. No rights are granted to the Executive under this Agreement other than those specifically set forth. No agreements or representations, oral or otherwise, expressed or implied concerning the subject matter hereof have been made by either party that are not set forth expressly in this Agreement. This Agreement supersedes and replaces in its entirety the January 7, 2008 Severance Agreement between Middlefield and the Executive, and from and after the date of this Agreement the January 7, 2008 Severance Agreement shall be of no further force or effect.

16. No Mitigation Required. Middlefield hereby acknowledges that it will be difficult and could be impossible (x) for the Executive to find reasonably comparable employment after termination and (y) to measure the amount of damages the Executive suffers as a result of termination. Additionally, Middlefield acknowledges that its general severance pay plans do not provide for mitigation, offset, or reduction of any severance payment received thereunder. Middlefield further acknowledges that the payment of benefits by Middlefield under

 

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this Agreement is reasonable and shall be liquidated damages. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor will any profits, income, earnings, or other benefits from any source whatsoever create any mitigation, offset, reduction, or any other obligation on the part of the Executive hereunder or otherwise.

17. Compliance with Internal Revenue Code Section 409A. (a) Interpretation. The intent of the parties is that payments and benefits under this Agreement comply with Code Section 409A or comply with an exemption of the application of Code Section 409A and, accordingly, all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Code Section 409A. References in this Agreement to Code Section 409A include rules, regulations, and guidance of general application issued by the Department of the Treasury under Code Section 409A.

(b) Action. Neither the Executive nor Middlefield shall take any action to accelerate or delay the payment of any monies or provision of any benefits in any matter which would not be in compliance with Code Section 409A.

(c) Separation from Service. A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement unless such termination is also a “separation from service” (within the meaning of Code Section 409A) and, for purposes of this Agreement, references to a “termination” or “termination of employment” or like references shall mean separation from service. If the Executive is deemed on the date of separation from service with Middlefield to be a “specified employee,” within the meaning of that term under Code Section 409A(a)(2)(B) and using the identification methodology selected by Middlefield from time to time, or if none, the default methodology, then with regard to any payment or benefit that is required to be delayed in compliance with Code Section 409A(a)(2)(B), such payment or benefit shall not be made or provided prior to the earlier of (i) the expiration of the six-month period measured from the date of the Executive’s separation from service or (ii) the date of the Executive’s death. In the case of benefits required to be delayed under Code Section 409A, however, the Executive may, to the extent permissible under Code Section 409A, pay the cost of benefit coverage, and thereby obtain benefits, during such six-month delay period and then be reimbursed by Middlefield thereafter when delayed payments are made pursuant to the next sentence. On the first day of the seventh month following the date of the Executive’s separation from service or, if earlier, on the date of the Executive’s death, all payments delayed pursuant to this section 17(c) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. If any cash payment is delayed under this section 17(c), then interest shall be paid on the amount delayed, with such interest to be calculated at the prime rate reported in The Wall Street Journal for the date of the Executive’s termination to the date of payment.

 

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(d) Treatment of Installment Payments. If under this Agreement an amount is to be paid in two or more installments, for purposes of Code Section 409A, each installment shall be treated as a separate payment. In the event any payment payable upon termination of employment would be exempt from Code Section 409A under Treasury Rule 1.409A-1(b)(9)(iii) but for the amount of such payment, the determination of the payments to the Executive that are exempt under such provision shall be made by applying the exemption to payments based on chronological order beginning with the payments paid closest in time on or after such termination of employment.

(e) Payment Period. When, if ever, a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within ten (10) days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of Middlefield.

IN WITNESS WHEREOF, the parties have executed this Change in Control Agreement as of the date first written above.

 

EXECUTIVE     MIDDLEFIELD BANC CORP.

 

    By:  

 

Thomas G. Caldwell       James R. Heslop, II
    Its:   Executive Vice President and Chief Operating Officer

 

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Section 3: EX-10.3 (EX-10.3)

EX-10.3

Exhibit 10.3

CHANGE IN CONTROL AGREEMENT

This CHANGE IN CONTROL AGREEMENT (this “Agreement”) is entered into effective as of this 12th day of March, 2019, by and between Middlefield Banc Corp., an Ohio corporation (“Middlefield”), and James R. Heslop, II, its Executive Vice President and Chief Operating Officer (the “Executive”).

WHEREAS, recognizing the contributions made and expected to be made by the Executive to the profitability, growth, and financial strength of Middlefield and subsidiaries, intending to assure itself of the current and future continuity of management, intending to establish minimum severance benefits for certain officers and other key employees, including the Executive, intending to ensure that officers and other key employees are not practically disabled from discharging their duties if a proposed or actual transaction involving a change in control arises, and finally desiring to provide additional inducement for the Executive to remain in the employment of Middlefield, Middlefield entered into a Severance Agreement with the Executive dated as of January 7, 2008,

WHEREAS, Middlefield and the Executive intend that this Agreement replace the January 7, 2008 Severance Agreement, and

WHEREAS, none of the conditions or events included in the definition of the term “golden parachute payment” that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule 359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists or, to the best knowledge of Middlefield, is contemplated insofar as either of Middlefield or any of its subsidiaries is concerned.

NOW THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows.

1. Change in Control. (a) If a Change in Control occurs before the Executive’s employment termination, Middlefield shall make a lump-sum payment to the Executive in cash in an amount equal to two and one-half (2.5) times the Executive’s annual compensation. For this purpose annual compensation means (x) the Executive’s annual base salary on the date of the Change in Control, plus (y) the average of the cash bonus and cash incentive compensation earned for the three calendar years immediately preceding the year in which the Change in Control occurs, regardless of when the bonus or incentive compensation is paid and regardless of whether the bonus or incentive compensation is subject to elective deferral or vesting. Middlefield recognizes that the bonus and incentive compensation earned by the Executive for a particular year’s service might be paid in the year after the calendar year in which the bonus or incentive compensation is earned. The amount payable to the Executive hereunder shall not be reduced to account for the time value of money or discounted to present value. The payment required under this section 1(a) is payable on the date of the Change in Control. The Executive shall be entitled to a payment under this section 1(a) on no more than one occasion.


(b) If the Executive’s employment terminates within 24 months after the Change in Control, Middlefield shall also (x) cause the Executive to become fully vested in any non-qualified plans, programs, or arrangements in which the Executive participated if the plan, program, or arrangement does not address the effect of a change in control and (y) continue or cause to be continued life, health, and disability insurance coverage substantially identical to the coverage maintained for the Executive before termination and in accordance with the same schedule prevailing before employment termination. The insurance coverage may cease when the Executive becomes employed by another employer or 24 months after the Executive’s termination, whichever occurs first. If under the terms of the life, health, or disability policy coverage maintained by Middlefield it is not possible to continue the Executive’s coverage after termination or if when employment termination occurs the Executive is a specified employee within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and applicable guidance thereunder (“Code Section 409A”), if the continued insurance benefit specified in this section 1(b) would be considered deferred compensation under Code Section 409A, and finally if an exemption from the six-month delay requirement of Code Section 409A(a)(2)(B)(i) is not available for that insurance benefit, instead of continued insurance coverage under this section 1(b) Middlefield shall pay to the Executive in a single lump sum an amount in cash equal to the present value of the Employer’s projected cost to maintain that particular insurance benefit had the Executive’s employment not terminated, assuming continued coverage for 24 months. The lump-sum payment shall be made 30 days after employment termination or, if a six-month delay is required by Code Section 409A, on the first day of the seventh month after the month in which the Executive’s employment terminates.

2. Change in Control Defined. For purposes of this Agreement the term Change in Control means a change in the ownership of Middlefield, a change in the effective control of Middlefield, or a change in the ownership of a substantial portion of the assets of Middlefield, in each case as provided under Code Section 409A and Treasury Rule 1.409A-3(i)(5), as the same may be amended from time to time. For purposes of clarification and without intending to affect the foregoing reference to Code Section 409A for the definition of Change in Control, as of the effective date of this Agreement a Change in Control event as defined in Treasury Rule 1.409A-3(i)(5) would include the following –

(a) Change in ownership: a change in ownership of Middlefield occurs on the date any one person or group accumulates ownership of Middlefield stock constituting more than 50% of the total fair market value or total voting power of Middlefield stock, or

(b) Change in effective control: (x) any one person or more than one person acting as a group acquires within a 12-month period ownership of Middlefield stock possessing 30% or more of the total voting power of Middlefield stock, or (y) a majority of Middlefield’s board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed in advance by a majority of Middlefield’s board of directors, or


(c) Change in ownership of a substantial portion of assets: a change in ownership of a substantial portion of Middlefield’s assets occurs if in a 12-month period any one person or more than one person acting as a group acquires from Middlefield assets having a total gross fair market value equal to or exceeding 40% of the total gross fair market value of all of Middlefield’s assets immediately before the acquisition or acquisitions. For this purpose, gross fair market value means the value of Middlefield’s assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with the assets.

3. No Benefits After Termination with Cause. (a) Despite anything in this Agreement to the contrary, the Executive shall not be entitled to benefits under this Agreement if the Executive’s employment terminates with Cause. For purposes of this Agreement the term Cause means the Executive shall have committed any of the following acts –

1) an act of fraud, embezzlement, or theft while employed by Middlefield or a subsidiary, or conviction of the Executive for or plea of no contest to a felony or conviction of or plea of no contest to a misdemeanor involving moral turpitude, or the actual incarceration of the Executive for 45 consecutive days or more, or

2) gross negligence, insubordination, disloyalty, or dishonesty in the performance of the Executive’s duties as an officer of Middlefield or a subsidiary; willful or reckless failure by the Executive to adhere to Middlefield’s or subsidiary’s written policies; intentional wrongful damage by the Executive to the business or property of Middlefield or subsidiary, including without limitation its reputation, which in Middlefield’s sole judgment causes material harm to Middlefield or subsidiary; breach by the Executive of fiduciary duties to Middlefield and its stockholders, whether in the Executive’s capacity as an officer or as a director of Middlefield or subsidiary, or

3) removal of the Executive from office or permanent prohibition of the Executive from participating in the affairs of Middlefield’s subsidiary bank or banks by an order issued under section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or

4) intentional wrongful disclosure of secret processes or confidential information of Middlefield or affiliates, which in Middlefield’s sole judgment causes material harm to Middlefield or affiliates, or

5) any actions that have caused the Executive to be terminated for cause under any employment agreement existing on the date hereof or hereafter entered into between the Executive and Middlefield or a subsidiary, or

6) the occurrence of any event that results in the Executive being excluded from coverage, or having coverage limited for the Executive as compared to other executives of Middlefield or affiliates, under a blanket bond or other fidelity or insurance policy covering directors, officers, or employees, or

7) intentional wrongful engagement in any competitive activity. For purposes of this Agreement, competitive activity means the Executive’s participation, without the consent of Middlefield’s board of directors, in the management of any business enterprise if (x) the enterprise engages in substantial and direct competition with


Middlefield, (y) the enterprise’s revenues derived from any product or service competitive with any product or service of Middlefield or a subsidiary amounted to 10% or more of the enterprise’s revenues for its most recently completed fiscal year, and (z) Middlefield’s revenues from the product or service amounted to 10% of Middlefield’s revenues for its most recently completed fiscal year. A competitive activity does not include mere ownership of securities in an enterprise and the exercise of rights appurtenant thereto, provided the Executive’s share ownership does not represent practical or legal control of the enterprise. For this purpose, ownership of less than 5% of the enterprise’s outstanding voting securities shall conclusively be presumed to be insufficient for practical or legal control, and ownership of more than 50% shall conclusively be presumed to constitute practical and legal control.

(b) For purposes of this Agreement, no act or failure to act on the Executive’s part shall be deemed to have been intentional if it was due primarily to an error in judgment or negligence. An act or failure to act on the Executive’s part shall be considered intentional if it is not in good faith and if it is without a reasonable belief that the action or failure to act is in Middlefield’s best interests. Any act or failure to act based upon authority granted by resolutions duly adopted by the board of directors or based upon the advice of counsel for Middlefield shall be conclusively presumed to be in good faith and in Middlefield’s best interests. For purposes of this Agreement the term subsidiary means any entity in which Middlefield directly or indirectly beneficially owns 50% or more of the outstanding voting securities.

(c) The Executive shall not be deemed under this Agreement to have been terminated with Cause unless and until there is delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of at least three-fourths (34) of the directors (excluding the Executive) of Middlefield then in office at a meeting of the board of directors called and held for such purpose, which resolution shall (x) contain findings that, in the good faith opinion of the board, the Executive has committed an act constituting Cause and (y) specify the particulars thereof. Notice of that meeting and the proposed determination of Cause shall be given to the Executive a reasonable time before the board’s meeting. The Executive and the Executive’s counsel (if the Executive chooses to have counsel present) shall have a reasonable opportunity to be heard by the board at the meeting. Nothing in this Agreement limits the Executive’s or beneficiaries’ right to contest the validity or propriety of the board’s determination of Cause, and they shall have the right to contest the validity or propriety of the board’s determination of Cause even if that right does not exist under any employment agreement of the Executive.

4. No Benefits after Termination Because of Death or Disability. Despite anything in this Agreement to the contrary, the Executive shall not be entitled to benefits under this Agreement if the Executive dies while actively employed by Middlefield or a subsidiary or if the Executive becomes totally disabled while actively employed by Middlefield or a subsidiary. For purposes of this Agreement, the term totally disabled means that because of injury or sickness the Executive is unable to perform the Executive’s duties. The benefits, if any, payable to the Executive or the Executive’s beneficiary or estate relating to the Executive’s death or disability shall be determined solely by such benefit plans or arrangements as Middlefield or subsidiary may have with the Executive relating to death or disability, not by this Agreement.


5. Term of Agreement. The initial term of this Agreement shall be for a period of three years, commencing on the effective date. On the first anniversary of the effective date of this Agreement and on each anniversary thereafter, this Agreement shall be extended automatically for one additional year, unless Middlefield’s board of directors gives notice to the Executive in writing at least 90 days before the anniversary that the term of this Agreement will not be extended. If the board of directors determines not to extend the term, it shall promptly notify the Executive. References herein to the term of this Agreement mean the initial term and extensions of the initial term. If the board of directors decides not to extend the term of this Agreement, this Agreement shall nevertheless remain in force until its term expires.

6. This Agreement Is Not an Employment Contract. The parties hereto acknowledge and agree that (x) this Agreement is not a management or employment agreement and (y) nothing in this Agreement shall give the Executive any rights or impose any obligations to continued employment by Middlefield or any subsidiary or successor of Middlefield.

7. Payment of Legal Fees. Middlefield is aware that after a Change in Control management could cause or attempt to cause Middlefield to refuse to comply with its obligations under this Agreement, or could institute or cause or attempt to cause Middlefield to institute litigation seeking to have this Agreement declared unenforceable, or could take or attempt to take other action to deny Executive the benefits intended under this Agreement. In these circumstances the purposes of this Agreement would be frustrated. Middlefield desires that the Executive not be required to incur the expenses associated with the enforcement of rights under this Agreement, whether by litigation or other legal action, because the cost and expense thereof would substantially detract from the benefits intended to be granted to the Executive hereunder. Middlefield desires that the Executive not be forced to negotiate settlement of rights under this Agreement under threat of incurring expenses. Accordingly, if after a Change in Control occurs it appears to the Executive that (x) Middlefield has failed to comply with any of its obligations under this Agreement, or (y) Middlefield or any other person has taken any action to declare this Agreement void or unenforceable, or instituted any litigation or other legal action designed to deny, diminish, or to recover from the Executive the benefits intended to be provided to the Executive hereunder, Middlefield irrevocably authorizes the Executive from time to time to retain counsel of the Executive’s choice, at Middlefield’s expense as provided in this section 7, to represent the Executive in the initiation or defense of any litigation or other legal action, whether by or against Middlefield or any director, officer, stockholder, or other person affiliated with Middlefield, in any jurisdiction. Despite any existing or previous attorney-client relationship between Middlefield and any counsel chosen by the Executive under this section 7, Middlefield irrevocably consents to the Executive entering into an attorney-client relationship with that counsel and Middlefield and the Executive agree that a confidential relationship shall exist between the Executive and that counsel. The fees and expenses of counsel selected from time to time by the Executive as provided in this section shall be paid or reimbursed to the Executive by Middlefield on a regular, periodic basis upon presentation by the Executive of a statement or statements prepared by counsel in accordance with counsel’s customary practices, up to a maximum aggregate amount of $500,000, whether suit be brought or not, and whether or not incurred in trial, bankruptcy, or appellate proceedings. Middlefield’s obligation to pay the Executive’s legal fees under this section 7 operates separately from and in addition to any legal fee reimbursement obligation Middlefield may have with the Executive under any other


agreement. Despite any contrary provision of this Agreement however, Middlefield shall not be required to pay or reimburse the Executive’s legal expenses if doing so would violate section 18(k) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)] and Rule 359.3 of the Federal Deposit Insurance Corporation [12 CFR 359.3].

8. Withholding of Taxes. Middlefield may withhold from any benefits payable under this Agreement all Federal, state, local or other taxes as may be required by law, governmental regulation, or ruling.

9. Successors and Assigns. (a) This Agreement is binding on successors. This Agreement shall be binding upon Middlefield and any successor to Middlefield, including any persons acquiring directly or indirectly all or substantially all of the business or assets of Middlefield by purchase, merger, consolidation, reorganization, or otherwise. But this Agreement and Middlefield’s obligations under this Agreement are not otherwise assignable, transferable, or delegable by Middlefield. By agreement in form and substance satisfactory to the Executive, Middlefield shall require any successor to all or substantially all of the business or assets of Middlefield expressly to assume and agree to perform this Agreement in the same manner and to the same extent Middlefield would be required to perform had no succession occurred.

(b) This Agreement is enforceable by the Executive’s heirs. This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, and legatees.

(c) This Agreement is personal and is not assignable. This Agreement is personal in nature. Without written consent of the other party, neither party shall assign, transfer, or delegate this Agreement or any rights or obligations under this Agreement except as expressly provided in this section 9. Without limiting the generality of the foregoing, the Executive’s right to receive payments hereunder is not assignable or transferable, whether by pledge, creation of a security interest, or otherwise, except for a transfer by Executive’s will or by the laws of descent and distribution. If the Executive attempts an assignment or transfer that is contrary to this section 9, Middlefield shall have no liability to pay any amount to the assignee or transferee.

10. Notices. Any notice under this Agreement shall be deemed to have been effectively made or given if in writing and personally delivered, delivered by mail properly addressed in a sealed envelope, postage prepaid by certified or registered mail, or if delivered by a nationally recognized overnight delivery service. Unless otherwise changed by notice, notice shall be properly addressed to the Executive if addressed to the address of the Executive on the books and records of Middlefield at the time of the delivery of the notice, and properly addressed to Middlefield if addressed to the board of directors, Middlefield Banc Corp., 15985 East High Street, Middlefield, Ohio, 44062-0035 Attention: Corporate Secretary.

11. Captions and Counterparts. The headings and subheadings used in this Agreement are included solely for convenience and shall not affect the interpretation of this Agreement. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same agreement.


12. Amendments and Waivers. No provision of this Agreement may be modified, waived, or discharged unless the waiver, modification, or discharge is agreed to in a writing signed by the Executive and by Middlefield. No waiver by either party hereto at any time of any breach by the other party hereto or waiver of compliance with any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

13. Severability. The provisions of this Agreement are severable. The invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions of this Agreement. Any provision held to be invalid or unenforceable shall be reformed to the extent and solely to the extent necessary to make it valid and enforceable.

14. Governing Law. The validity, interpretation, construction, and performance of this Agreement shall be governed by and construed in accordance with the substantive laws of the State of Ohio, without giving effect to the principles of conflict of laws of such state.

15. Entire Agreement. This Agreement constitutes the entire agreement between Middlefield and the Executive concerning the subject matter. No rights are granted to the Executive under this Agreement other than those specifically set forth. No agreements or representations, oral or otherwise, expressed or implied concerning the subject matter hereof have been made by either party that are not set forth expressly in this Agreement. This Agreement replaces the January 7, 2008 Severance Agreement between Middlefield and the Executive.

16. No Mitigation Required. Middlefield hereby acknowledges that it will be difficult and could be impossible (x) for the Executive to find reasonably comparable employment after termination and (y) to measure the amount of damages the Executive suffers as a result of termination. Additionally, Middlefield acknowledges that its general severance pay plans do not provide for mitigation, offset, or reduction of any severance payment received thereunder. Middlefield further acknowledges that the payment of benefits by Middlefield under this Agreement is reasonable and shall be liquidated damages. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor will any profits, income, earnings, or other benefits from any source whatsoever create any mitigation, offset, reduction, or any other obligation on the part of the Executive hereunder or otherwise.

17. Compliance with Internal Revenue Code Section 409A. (a) Interpretation. The intent of the parties is that payments and benefits under this Agreement comply with Code Section 409A or comply with an exemption of the application of Code Section 409A and, accordingly, all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Code Section 409A. References in this Agreement to Code Section 409A include rules, regulations, and guidance of general application issued by the Department of the Treasury under Code Section 409A.


(b) Action. Neither the Executive nor Middlefield shall take any action to accelerate or delay the payment of any monies or provision of any benefits in any matter which would not be in compliance with Code Section 409A.

(c) Separation from Service. A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement unless such termination is also a “separation from service” (within the meaning of Code Section 409A) and, for purposes of this Agreement, references to a “termination” or “termination of employment” or like references shall mean separation from service. If the Executive is deemed on the date of separation from service with Middlefield to be a “specified employee,” within the meaning of that term under Code Section 409A(a)(2)(B) and using the identification methodology selected by Middlefield from time to time, or if none, the default methodology, then with regard to any payment or benefit that is required to be delayed in compliance with Code Section 409A(a)(2)(B), such payment or benefit shall not be made or provided prior to the earlier of (i) the expiration of the six-month period measured from the date of the Executive’s separation from service or (ii) the date of the Executive’s death. In the case of benefits required to be delayed under Code Section 409A, however, the Executive may, to the extent permissible under Code Section 409A, pay the cost of benefit coverage, and thereby obtain benefits, during such six-month delay period and then be reimbursed by Middlefield thereafter when delayed payments are made pursuant to the next sentence. On the first day of the seventh month following the date of the Executive’s separation from service or, if earlier, on the date of the Executive’s death, all payments delayed pursuant to this section 17(c) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. If any cash payment is delayed under this section 17(c), then interest shall be paid on the amount delayed, with such interest to be calculated at the prime rate reported in The Wall Street Journal for the date of the Executive’s termination to the date of payment.

(d) Treatment of Installment Payments. If under this Agreement an amount is to be paid in two or more installments, for purposes of Code Section 409A, each installment shall be treated as a separate payment. In the event any payment payable upon termination of employment would be exempt from Code Section 409A under Treasury Rule 1.409A-1(b)(9)(iii) but for the amount of such payment, the determination of the payments to the Executive that are exempt under such provision shall be made by applying the exemption to payments based on chronological order beginning with the payments paid closest in time on or after such termination of employment.

(e) Payment Period. When, if ever, a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within ten (10) days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of Middlefield.


IN WITNESS WHEREOF, the parties have executed this Change in Control Agreement as of the date first written above.

 

EXECUTIVE     MIDDLEFIELD BANC CORP.
     

 

    By:  

 

James R. Heslop, II       Thomas G. Caldwell
    Its:   President and Chief Executive Officer

 

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Section 4: EX-10.4.2 (EX-10.4.2)

EX-10.4.2

Exhibit 10.4.2

CHANGE IN CONTROL AGREEMENT

This CHANGE IN CONTROL AGREEMENT (this “Agreement”) is entered into effective as of this 12th day of March, 2019, by and between Middlefield Banc Corp., an Ohio corporation (“Middlefield”), and Charles O. Moore, President, Central Ohio Region of The Middlefield Banking Company, a subsidiary of Middlefield (the “Executive”).

WHEREAS, recognizing the contributions made and expected to be made by the Executive to the profitability, growth, and financial strength of Middlefield and its subsidiaries, intending to assure itself of the current and future continuity of management, intending to establish minimum severance benefits for certain officers and other key employees, including the Executive, intending to ensure that officers and other key employees are not practically disabled from discharging their duties if a proposed or actual transaction involving a change in control arises, and finally desiring to provide additional inducement for the Executive to remain in the employment of The Middlefield Banking Company, and

WHEREAS, none of the conditions or events included in the definition of the term “golden parachute payment” that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule 359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists or, to the best knowledge of Middlefield, is contemplated insofar as either of Middlefield or any of its subsidiaries is concerned.

NOW THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows.

1. Termination after a Change in Control. (a) Cash benefit. If the Executive’s employment terminates involuntarily but without Cause or voluntarily but with Good Reason, in either case within 24 months after a Change in Control, Middlefield shall make a lump-sum payment to the Executive in an amount in cash equal to two times the Executive’s compensation. For this purpose the Executive’s compensation means (x) the sum of the Executive’s base salary when the Change in Control occurs or when employment termination occurs, whichever amount is greater, plus (y) the average of the cash bonus and cash incentive compensation earned for the three calendar years immediately preceding the year in which the Change in Control occurs, regardless of when the bonus or incentive compensation is paid and regardless of whether the bonus or incentive compensation is subject to elective deferral or vesting. Middlefield recognizes that the bonus and incentive compensation earned by the Executive for a particular year’s service might be paid in the year after the calendar year in which the bonus or incentive compensation is earned. Unless delay is required under section 1(b), the payment required under this section 1(a) shall be made the day the Executive’s employment terminates. The amount payable to the Executive hereunder shall not be reduced to account for the time value of money or discounted to present value. If the Executive’s employment terminates involuntarily but without Cause before the Change in Control occurs but after discussions regarding the Change in Control commence, then for purposes of this Agreement the Executive’s employment shall be deemed to have terminated immediately after the Change in Control and the Executive shall be entitled to the cash benefit under this section 1(a) on the date of the Change in Control.


(b) Payment of the benefit. If when employment termination occurs the Executive is a specified employee within the meaning of section 409A of the Internal Revenue Code of 1986, as amended, and applicable guidance thereunder (“Code Section 409A”), if the cash severance benefit under section 1(a) would be considered deferred compensation under Code Section 409A, and finally if an exemption from the six-month delay requirement of Code Section 409A(a)(2)(B)(i) is not available, payment of the benefit under section 1(a) shall be delayed and shall be made to the Executive in a single lump sum without interest on the first day of the seventh month after the month in which the Executive’s employment terminates.

(c) Change in Control defined. For purposes of this Agreement the term Change in Control means a change in the ownership of Middlefield, a change in the effective control of Middlefield, or a change in the ownership of a substantial portion of the assets of Middlefield, in each case as provided under Code Section 409A and Treasury Rule 1.409A-3(i)(5), as the same may be amended from time to time. For purposes of clarification and without intending to affect the foregoing reference to Code Section 409A for the definition of Change in Control, as of the effective date of this Agreement a Change in Control event as defined in Treasury Rule 1.409A-3(i)(5) would include the following –

 

  1)

Change in ownership: a change in ownership of Middlefield occurs on the date any one person or group accumulates ownership of Middlefield stock constituting more than 50% of the total fair market value or total voting power of Middlefield stock, or

 

  2)

Change in effective control: (x) any one person or more than one person acting as a group acquires within a 12-month period ownership of Middlefield stock possessing 30% or more of the total voting power of Middlefield stock, or (y) a majority of Middlefield’s board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed in advance by a majority of Middlefield’s board of directors, or

 

  3)

Change in ownership of a substantial portion of assets: a change in ownership of a substantial portion of Middlefield’s assets occurs if in a 12-month period any one person or more than one person acting as a group acquires from Middlefield assets having a total gross fair market value equal to or exceeding 40% of the total gross fair market value of all of Middlefield’s assets immediately before the acquisition or acquisitions. For this purpose, gross fair market value means the value of Middlefield’s assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with the assets.

 

2


(d) Involuntary termination with Cause defined. For purposes of this Agreement involuntary termination of the Executive’s employment shall be considered involuntary termination with Cause if the Executive shall have committed any of the following acts –

 

  1)

an act of fraud, embezzlement, or theft while employed by Middlefield or a subsidiary, or conviction of the Executive for or plea of no contest to a felony or conviction of or plea of no contest to a misdemeanor involving moral turpitude, or the actual incarceration of the Executive for 45 consecutive days or more, or

 

  2)

gross negligence, insubordination, disloyalty, or dishonesty in the performance of the Executive’s duties as an officer of Middlefield or a subsidiary; willful or reckless failure by the Executive to adhere to Middlefield’s or subsidiary’s written policies; intentional wrongful damage by the Executive to the business or property of Middlefield or subsidiary, including without limitation its reputation, which in Middlefield’s sole judgment causes material harm to Middlefield or subsidiary; breach by the Executive of fiduciary duties to Middlefield and its stockholders, whether in the Executive’s capacity as an officer or as a director of Middlefield or subsidiary, or

 

  3)

removal of the Executive from office or permanent prohibition of the Executive from participating in the affairs of Middlefield’s subsidiary bank or banks by an order issued under section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or

 

  4)

intentional wrongful disclosure of secret processes or confidential information of Middlefield or affiliates, which in Middlefield’s sole judgment causes material harm to Middlefield or affiliates, or

 

  5)

any actions that have caused the Executive to be terminated with cause under any employment agreement existing on the date hereof or hereafter entered into between the Executive and Middlefield or a subsidiary, or

 

  6)

the occurrence of any event that results in the Executive being excluded from coverage, or having coverage limited for the Executive as compared to other executives of Middlefield or affiliates, under a blanket bond or other fidelity or insurance policy covering directors, officers, or employees, or

 

  7)

intentional wrongful engagement in any competitive activity. For purposes of this Agreement competitive activity means the Executive’s participation, without the consent of Middlefield’s board of directors, in the management of any business enterprise if (x) the enterprise engages in substantial and direct competition with Middlefield, (y) the enterprise’s revenues derived from any product or service competitive with any product or service of Middlefield or a subsidiary amounted to 10% or more of the enterprise’s revenues for its most recently completed fiscal year, and (z) Middlefield’s revenues from the product or service amounted to 10% of Middlefield’s revenues for its most recently completed fiscal year. A competitive activity does not include mere ownership of securities in an enterprise and the exercise of rights appurtenant thereto, provided the Executive’s share ownership does not represent practical or legal control of the enterprise. For this purpose, ownership of less than 5% of the enterprise’s outstanding voting securities shall conclusively be presumed to be insufficient for practical or legal control, and ownership of more than 50% shall conclusively be presumed to constitute practical and legal control.

 

3


For purposes of this Agreement no act or failure to act on the Executive’s part shall be deemed to have been intentional if it was due primarily to an error in judgment or negligence. An act or failure to act on the Executive’s part shall be considered intentional if it is not in good faith and if it is without a reasonable belief that the action or failure to act is in Middlefield’s best interests. Any act or failure to act based upon authority granted by resolutions duly adopted by the board of directors or based upon the advice of counsel for Middlefield shall be conclusively presumed to be in good faith and in Middlefield’s best interests. For purposes of this Agreement the term subsidiary means any entity in which Middlefield directly or indirectly beneficially owns 50% or more of the outstanding voting securities.

(e) Voluntary termination with Good Reason defined. For purposes of this Agreement a voluntary termination by the Executive shall be considered a voluntary termination with Good Reason if the conditions stated in both clauses (x) and (y) are satisfied –

(x) a voluntary termination by the Executive shall be considered a voluntary termination with Good Reason if any of the following occur without the Executive’s advance written consent, and the term Good Reason shall mean the occurrence of any of the following without the Executive’s advance written consent –

 

  1)

a material diminution of the Executive’s base salary,

 

  2)

a material diminution of the Executive’s authority, duties, or responsibilities,

 

  3)

a material diminution in the authority, duties, or responsibilities of the supervisor to whom the Executive is required to report,

 

  4)

a material diminution in the budget over which the Executive retains authority,

 

  5)

a material change in the geographic location at which the Executive must perform services, or

 

  6)

any other action or inaction that constitutes a material breach by Middlefield of this Agreement.

(y) the Executive must give notice to Middlefield of the existence of one or more of the conditions described in clause (x) within 90 days after the initial existence of the condition, and Middlefield shall have 30 days thereafter to remedy the condition. In addition, the Executive’s voluntary termination because of the existence of one or more of the conditions described in clause (x) must occur within 24 months after the initial existence of the condition.

 

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2. Insurance and Miscellaneous Benefits. (a) Benefits. Subject to section 2(b), if the Executive’s employment terminates involuntarily but without Cause or voluntarily but for Good Reason within 24 months after a Change in Control, Middlefield shall also (x) cause the Executive to become fully vested in any non-qualified plans, programs, or arrangements in which the Executive participated if the plan, program, or arrangement does not address the effect of a change in control and (y) continue or cause to be continued life, health, and disability insurance coverage substantially identical to the coverage maintained for the Executive before termination and in accordance with the same schedule prevailing before employment termination. The insurance coverage may cease when the Executive becomes employed by another employer or 24 months after the Executive’s termination, whichever occurs first.

(b) Alternative lump-sum cash payment. If (x) under the terms of the applicable policy or policies for the insurance benefits specified in section 2(a) it is not possible to continue the Executive’s coverage, or (y) if when employment termination occurs the Executive is a specified employee within the meaning of Code Section 409A, if any of the continued insurance coverage benefits specified in section 2(a) would be considered deferred compensation under Code Section 409A, and finally if an exemption from the six-month delay requirement of Code Section 409A(a)(2)(B)(i) is not available for that insurance benefit, instead of continued insurance coverage under section 2(a) Middlefield shall pay or cause to be paid to the Executive in a single lump sum an amount in cash equal to the present value of Middlefield’s projected cost to maintain that particular insurance benefit had the Executive’s employment not terminated, assuming continued coverage for 24 months. The lump-sum payment shall be made 30 days after employment termination or, if a six-month delay is required by Code Section 409A, on the first day of the seventh month after the month in which the Executive’s employment terminates.

3. Termination for Which No Benefits Are Payable. Despite anything in this Agreement to the contrary, the Executive shall be entitled to no benefits under this Agreement if the Executive’s employment terminates with Cause, if the Executive dies while actively employed by Middlefield or a subsidiary, or if the Executive becomes totally disabled while actively employed by Middlefield or a subsidiary. For purposes of this Agreement, the term totally disabled means that because of injury or sickness the Executive is unable to perform the Executive’s duties. The benefits, if any, payable to the Executive or the Executive’s beneficiary or estate relating to the Executive’s death or disability shall be determined solely by such benefit plans or arrangements as Middlefield or subsidiary may have with the Executive relating to death or disability, not by this Agreement.

4. Term of Agreement. The initial term of this Agreement shall be for a period of three years, commencing on the effective date. On the first anniversary of the effective date of this Agreement and on each anniversary thereafter, this Agreement shall be extended automatically for one additional year, unless Middlefield’s board of directors gives notice to the Executive in writing at least 90 days before the anniversary that the term of this Agreement will not be extended. If the board of directors determines not to extend the term, it shall promptly notify the Executive. References herein to the term of this Agreement mean the initial term and extensions of the initial term. If the board of directors decides not to extend the term of this Agreement, this Agreement shall nevertheless remain in force until its term expires.

 

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5. This Agreement Is Not an Employment Contract. The parties hereto acknowledge and agree that (x) this Agreement is not a management or employment agreement and (y) nothing in this Agreement shall give the Executive any rights or impose any obligations to continued employment by Middlefield or any subsidiary or successor of Middlefield.

6. Payment of Legal Fees. Middlefield is aware that after a Change in Control management could cause or attempt to cause Middlefield to refuse to comply with its obligations under this Agreement, or could institute or cause or attempt to cause Middlefield to institute litigation seeking to have this Agreement declared unenforceable, or could take or attempt to take other action to deny Executive the benefits intended under this Agreement. In these circumstances the purposes of this Agreement would be frustrated. Middlefield desires that the Executive not be required to incur the expenses associated with the enforcement of rights under this Agreement, whether by litigation or other legal action, because the cost and expense thereof would substantially detract from the benefits intended to be granted to the Executive hereunder. Middlefield desires that the Executive not be forced to negotiate settlement of rights under this Agreement under threat of incurring expenses. Accordingly, if after a Change in Control occurs it appears to the Executive that (x) Middlefield has failed to comply with any of its obligations under this Agreement, or (y) Middlefield or any other person has taken any action to declare this Agreement void or unenforceable, or instituted any litigation or other legal action designed to deny, diminish, or to recover from the Executive the benefits intended to be provided to the Executive hereunder, Middlefield irrevocably authorizes the Executive from time to time to retain counsel of the Executive’s choice, at Middlefield’s expense as provided in this section 6, to represent the Executive in the initiation or defense of any litigation or other legal action, whether by or against Middlefield or any director, officer, stockholder, or other person affiliated with Middlefield, in any jurisdiction. Despite any existing or previous attorney-client relationship between Middlefield and any counsel chosen by the Executive under this section 6, Middlefield irrevocably consents to the Executive entering into an attorney-client relationship with that counsel and Middlefield and the Executive agree that a confidential relationship shall exist between the Executive and that counsel. The fees and expenses of counsel selected from time to time by the Executive as provided in this section shall be paid or reimbursed to the Executive by Middlefield on a regular, periodic basis upon presentation by the Executive of a statement or statements prepared by counsel in accordance with counsel’s customary practices, up to a maximum aggregate amount of $400,000, whether suit be brought or not, and whether or not incurred in trial, bankruptcy, or appellate proceedings. Middlefield’s obligation to pay the Executive’s legal fees under this section 6 operates separately from and in addition to any legal fee reimbursement obligation Middlefield may have with the Executive under any other agreement. Despite any contrary provision of this Agreement however, Middlefield shall not be required to pay or reimburse the Executive’s legal expenses if doing so would violate section 18(k) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)] and Rule 359.3 of the Federal Deposit Insurance Corporation [12 CFR 359.3].

7. Withholding of Taxes. Middlefield may withhold from any benefits payable under this Agreement all Federal, state, local or other taxes as may be required by law, governmental regulation, or ruling.

 

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8. Successors and Assigns. (a) This Agreement is binding on successors. This Agreement shall be binding upon Middlefield and any successor to Middlefield, including any persons acquiring directly or indirectly all or substantially all of the business or assets of Middlefield by purchase, merger, consolidation, reorganization, or otherwise. But this Agreement and Middlefield’s obligations under this Agreement are not otherwise assignable, transferable, or delegable by Middlefield. By agreement in form and substance satisfactory to the Executive, Middlefield shall require any successor to all or substantially all of the business or assets of Middlefield expressly to assume and agree to perform this Agreement in the same manner and to the same extent Middlefield would be required to perform had no succession occurred.

(b) This Agreement is enforceable by the Executive’s heirs. This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, and legatees.

(c) This Agreement is personal and is not assignable. This Agreement is personal in nature. Without written consent of the other party, neither party shall assign, transfer, or delegate this Agreement or any rights or obligations under this Agreement except as expressly provided in this section 8. Without limiting the generality of the foregoing, the Executive’s right to receive payments hereunder is not assignable or transferable, whether by pledge, creation of a security interest, or otherwise, except for a transfer by Executive’s will or by the laws of descent and distribution. If the Executive attempts an assignment or transfer that is contrary to this section 8, Middlefield shall have no liability to pay any amount to the assignee or transferee.

9. Notices. Any notice under this Agreement shall be deemed to have been effectively made or given if in writing and personally delivered, delivered by mail properly addressed in a sealed envelope, postage prepaid by certified or registered mail, or if delivered by a nationally recognized overnight delivery service. Unless otherwise changed by notice, notice shall be properly addressed to the Executive if addressed to the address of the Executive on the books and records of Middlefield at the time of the delivery of the notice, and properly addressed to Middlefield if addressed to the board of directors, Middlefield Banc Corp., 15985 East High Street, Middlefield, Ohio, 44062-0035 Attention: Corporate Secretary.

10. Captions and Counterparts. The headings and subheadings in this Agreement are included solely for convenience and shall not affect the interpretation of this Agreement. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same agreement.

11. Amendments and Waivers. No provision of this Agreement may be modified, waived, or discharged unless the waiver, modification, or discharge is agreed to in a writing signed by the Executive and by Middlefield. No waiver by either party hereto at any time of any breach by the other party hereto or waiver of compliance with any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

 

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12. Severability. The provisions of this Agreement are severable. The invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions of this Agreement. Any provision held to be invalid or unenforceable shall be reformed to the extent and solely to the extent necessary to make it valid and enforceable.

13. Governing Law. The validity, interpretation, construction, and performance of this Agreement shall be governed by and construed in accordance with the substantive laws of the State of Ohio, without giving effect to the principles of conflict of laws of such state.

14. Entire Agreement. This Agreement constitutes the entire agreement between Middlefield and the Executive concerning the subject matter. No rights are granted to the Executive under this Agreement other than those specifically set forth. No agreements or representations, oral or otherwise, expressed or implied concerning the subject matter hereof have been made by either party that are not set forth expressly in this Agreement.

15. No Mitigation Required. Middlefield hereby acknowledges that it will be difficult and could be impossible (x) for the Executive to find reasonably comparable employment after termination and (y) to measure the amount of damages the Executive suffers as a result of termination. Additionally, Middlefield acknowledges that its general severance pay plans do not provide for mitigation, offset, or reduction of any severance payment received thereunder. Middlefield further acknowledges that the payment of benefits by Middlefield under this Agreement is reasonable and shall be liquidated damages. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall any profits, income, earnings, or other benefits from any source whatsoever create any mitigation, offset, reduction, or any other obligation on the part of the Executive hereunder or otherwise.

16. Compliance with Internal Revenue Code Section 409A. (a) Interpretation. The intent of the parties is that payments and benefits under this Agreement comply with Code Section 409A or comply with an exemption of the application of Code Section 409A and, accordingly, all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Code Section 409A. References in this Agreement to Code Section 409A include rules, regulations, and guidance of general application issued by the Department of the Treasury under Code Section 409A.

(b) Action. Neither the Executive nor Middlefield shall take any action to accelerate or delay the payment of any monies or provision of any benefits in any matter which would not be in compliance with Code Section 409A.

(c) Separation from Service. A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement unless such termination is also a “separation from service” (within the meaning of Code Section 409A) and, for purposes of this Agreement, references to a “termination” or “termination of employment” or like references shall mean separation from service. If the Executive is deemed on the date of separation from service with Middlefield to be a “specified employee,” within the meaning of that term under Code Section 409A(a)(2)(B) and using the identification methodology selected by Middlefield

 

8


from time to time, or if none, the default methodology, then with regard to any payment or benefit that is required to be delayed in compliance with Code Section 409A(a)(2)(B), such payment or benefit shall not be made or provided prior to the earlier of (i) the expiration of the six-month period measured from the date of the Executive’s separation from service or (ii) the date of the Executive’s death. In the case of benefits required to be delayed under Code Section 409A, however, the Executive may, to the extent permissible under Code Section 409A, pay the cost of benefit coverage, and thereby obtain benefits, during such six-month delay period and then be reimbursed by Middlefield thereafter when delayed payments are made pursuant to the next sentence. On the first day of the seventh month following the date of the Executive’s separation from service or, if earlier, on the date of the Executive’s death, all payments delayed pursuant to this section 16(c) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. If any cash payment is delayed under this section 16(c), then interest shall be paid on the amount delayed, with such interest to be calculated at the prime rate reported in The Wall Street Journal for the date of the Executive’s termination to the date of payment.

(d) Treatment of Installment Payments. If under this Agreement an amount is to be paid in two or more installments, for purposes of Code Section 409A, each installment shall be treated as a separate payment. In the event any payment payable upon termination of employment would be exempt from Code Section 409A under Treasury Rule 1.409A-1(b)(9)(iii) but for the amount of such payment, the determination of the payments to the Executive that are exempt under such provision shall be made by applying the exemption to payments based on chronological order beginning with the payments paid closest in time on or after such termination of employment.

(e) Payment Period. When, if ever, a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within ten (10) days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of Middlefield.

IN WITNESS WHEREOF, the parties have executed this Change in Control Agreement as of the date first written above.

 

EXECUTIVE     MIDDLEFIELD BANC CORP.

 

    By:  

 

Charles O. Moore       Thomas G. Caldwell
    Its:   President and Chief Executive Officer

 

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Section 5: EX-10.4.3 (EX-10.4.3)

EX-10.4.3

Exhibit 10.4.3

CHANGE IN CONTROL AGREEMENT

This CHANGE IN CONTROL AGREEMENT (this “Agreement”) is entered into effective as of this 12th day of March, 2019, by and between Middlefield Banc Corp., an Ohio corporation (“Middlefield”), and Donald L. Stacy, its Senior Vice President, Treasurer and Chief Financial Officer (the “Executive”).

WHEREAS, recognizing the contributions made and expected to be made by the Executive to the profitability, growth, and financial strength of Middlefield and subsidiaries, intending to assure itself of the current and future continuity of management, intending to establish minimum severance benefits for certain officers and other key employees, including the Executive, intending to ensure that officers and other key employees are not practically disabled from discharging their duties if a proposed or actual transaction involving a change in control arises, and finally desiring to provide additional inducement for the Executive to remain in the employment of Middlefield, Middlefield entered into a Severance Agreement with the Executive dated as of January 7, 2008,

WHEREAS, Middlefield and the Executive intend that this Agreement replace the January 7, 2008 Severance Agreement, and

WHEREAS, none of the conditions or events included in the definition of the term “golden parachute payment” that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule 359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists or, to the best knowledge of Middlefield, is contemplated insofar as either of Middlefield or any of its subsidiaries is concerned.

NOW THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows.

1. Change in Control. (a) If a Change in Control occurs before the Executive’s employment termination, Middlefield shall make a lump-sum payment to the Executive in cash in an amount equal to two and one-half (2.5) times the Executive’s annual compensation. For this purpose annual compensation means (x) the Executive’s annual base salary on the date of the Change in Control, plus (y) the average of the cash bonus and cash incentive compensation earned for the three calendar years immediately preceding the year in which the Change in Control occurs, regardless of when the bonus or incentive compensation is paid and regardless of whether the bonus or incentive compensation is subject to elective deferral or vesting. Middlefield recognizes that the bonus and incentive compensation earned by the Executive for a particular year’s service might be paid in the year after the calendar year in which the bonus or incentive compensation is earned. The amount payable to the Executive hereunder shall not be reduced to account for the time value of money or discounted to present value. The payment required under this section 1(a) is payable on the date of the Change in Control. The Executive shall be entitled to a payment under this section 1(a) on no more than one occasion.


(b) If the Executive’s employment terminates within 24 months after the Change in Control, Middlefield shall also (x) cause the Executive to become fully vested in any non-qualified plans, programs, or arrangements in which the Executive participated if the plan, program, or arrangement does not address the effect of a change in control and (y) continue or cause to be continued life, health, and disability insurance coverage substantially identical to the coverage maintained for the Executive before termination and in accordance with the same schedule prevailing before employment termination. The insurance coverage may cease when the Executive becomes employed by another employer or 24 months after the Executive’s termination, whichever occurs first. If under the terms of the life, health, or disability policy coverage maintained by Middlefield it is not possible to continue the Executive’s coverage after termination or if when employment termination occurs the Executive is a specified employee within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and applicable guidance thereunder (“Code Section 409A”), if the continued insurance benefit specified in this section 1(b) would be considered deferred compensation under Code Section 409A, and finally if an exemption from the six-month delay requirement of Code Section 409A(a)(2)(B)(i) is not available for that insurance benefit, instead of continued insurance coverage under this section 1(b) Middlefield shall pay to the Executive in a single lump sum an amount in cash equal to the present value of the Employer’s projected cost to maintain that particular insurance benefit had the Executive’s employment not terminated, assuming continued coverage for 24 months. The lump-sum payment shall be made 30 days after employment termination or, if a six-month delay is required by Code Section 409A, on the first day of the seventh month after the month in which the Executive’s employment terminates.

2. Change in Control Defined. For purposes of this Agreement the term Change in Control means a change in the ownership of Middlefield, a change in the effective control of Middlefield, or a change in the ownership of a substantial portion of the assets of Middlefield, in each case as provided under Code Section 409A and Treasury Rule 1.409A-3(i)(5), as the same may be amended from time to time. For purposes of clarification and without intending to affect the foregoing reference to Code Section 409A for the definition of Change in Control, as of the effective date of this Agreement a Change in Control event as defined in Treasury Rule 1.409A-3(i)(5) would include the following –

(a) Change in ownership: a change in ownership of Middlefield occurs on the date any one person or group accumulates ownership of Middlefield stock constituting more than 50% of the total fair market value or total voting power of Middlefield stock, or

(b) Change in effective control: (x) any one person or more than one person acting as a group acquires within a 12-month period ownership of Middlefield stock possessing 30% or more of the total voting power of Middlefield stock, or (y) a majority of Middlefield’s board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed in advance by a majority of Middlefield’s board of directors, or


(c) Change in ownership of a substantial portion of assets: a change in ownership of a substantial portion of Middlefield’s assets occurs if in a 12-month period any one person or more than one person acting as a group acquires from Middlefield assets having a total gross fair market value equal to or exceeding 40% of the total gross fair market value of all of Middlefield’s assets immediately before the acquisition or acquisitions. For this purpose, gross fair market value means the value of Middlefield’s assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with the assets.

3. No Benefits After Termination with Cause. (a) Despite anything in this Agreement to the contrary, the Executive shall not be entitled to benefits under this Agreement if the Executive’s employment terminates with Cause. For purposes of this Agreement the term Cause means the Executive shall have committed any of the following acts –

1) an act of fraud, embezzlement, or theft while employed by Middlefield or a subsidiary, or conviction of the Executive for or plea of no contest to a felony or conviction of or plea of no contest to a misdemeanor involving moral turpitude, or the actual incarceration of the Executive for 45 consecutive days or more, or

2) gross negligence, insubordination, disloyalty, or dishonesty in the performance of the Executive’s duties as an officer of Middlefield or a subsidiary; willful or reckless failure by the Executive to adhere to Middlefield’s or subsidiary’s written policies; intentional wrongful damage by the Executive to the business or property of Middlefield or subsidiary, including without limitation its reputation, which in Middlefield’s sole judgment causes material harm to Middlefield or subsidiary; breach by the Executive of fiduciary duties to Middlefield and its stockholders, whether in the Executive’s capacity as an officer or as a director of Middlefield or subsidiary, or

3) removal of the Executive from office or permanent prohibition of the Executive from participating in the affairs of Middlefield’s subsidiary bank or banks by an order issued under section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or

4) intentional wrongful disclosure of secret processes or confidential information of Middlefield or affiliates, which in Middlefield’s sole judgment causes material harm to Middlefield or affiliates, or

5) any actions that have caused the Executive to be terminated for cause under any employment agreement existing on the date hereof or hereafter entered into between the Executive and Middlefield or a subsidiary, or

6) the occurrence of any event that results in the Executive being excluded from coverage, or having coverage limited for the Executive as compared to other executives of Middlefield or affiliates, under a blanket bond or other fidelity or insurance policy covering directors, officers, or employees, or

7) intentional wrongful engagement in any competitive activity. For purposes of this Agreement, competitive activity means the Executive’s participation, without the consent of Middlefield’s board of directors, in the management of any business enterprise if (x) the enterprise engages in substantial and direct competition with


Middlefield, (y) the enterprise’s revenues derived from any product or service competitive with any product or service of Middlefield or a subsidiary amounted to 10% or more of the enterprise’s revenues for its most recently completed fiscal year, and (z) Middlefield’s revenues from the product or service amounted to 10% of Middlefield’s revenues for its most recently completed fiscal year. A competitive activity does not include mere ownership of securities in an enterprise and the exercise of rights appurtenant thereto, provided the Executive’s share ownership does not represent practical or legal control of the enterprise. For this purpose, ownership of less than 5% of the enterprise’s outstanding voting securities shall conclusively be presumed to be insufficient for practical or legal control, and ownership of more than 50% shall conclusively be presumed to constitute practical and legal control.

(b) For purposes of this Agreement, no act or failure to act on the Executive’s part shall be deemed to have been intentional if it was due primarily to an error in judgment or negligence. An act or failure to act on the Executive’s part shall be considered intentional if it is not in good faith and if it is without a reasonable belief that the action or failure to act is in Middlefield’s best interests. Any act or failure to act based upon authority granted by resolutions duly adopted by the board of directors or based upon the advice of counsel for Middlefield shall be conclusively presumed to be in good faith and in Middlefield’s best interests. For purposes of this Agreement the term subsidiary means any entity in which Middlefield directly or indirectly beneficially owns 50% or more of the outstanding voting securities.

4. No Benefits after Termination Because of Death or Disability. Despite anything in this Agreement to the contrary, the Executive shall not be entitled to benefits under this Agreement if the Executive dies while actively employed by Middlefield or a subsidiary or if the Executive becomes totally disabled while actively employed by Middlefield or a subsidiary. For purposes of this Agreement, the term totally disabled means that because of injury or sickness the Executive is unable to perform the Executive’s duties. The benefits, if any, payable to the Executive or the Executive’s beneficiary or estate relating to the Executive’s death or disability shall be determined solely by such benefit plans or arrangements as Middlefield or subsidiary may have with the Executive relating to death or disability, not by this Agreement.

5. Term of Agreement. The initial term of this Agreement shall be for a period of three years, commencing on the effective date. On the first anniversary of the effective date of this Agreement and on each anniversary thereafter, this Agreement shall be extended automatically for one additional year, unless Middlefield’s board of directors gives notice to the Executive in writing at least 90 days before the anniversary that the term of this Agreement will not be extended. If the board of directors determines not to extend the term, it shall promptly notify the Executive. References herein to the term of this Agreement mean the initial term and extensions of the initial term. If the board of directors decides not to extend the term of this Agreement, this Agreement shall nevertheless remain in force until its term expires.

6. This Agreement Is Not an Employment Contract. The parties hereto acknowledge and agree that (x) this Agreement is not a management or employment agreement and (y) nothing in this Agreement shall give the Executive any rights or impose any obligations to continued employment by Middlefield or any subsidiary or successor of Middlefield.


7. Payment of Legal Fees. Middlefield is aware that after a Change in Control management could cause or attempt to cause Middlefield to refuse to comply with its obligations under this Agreement, or could institute or cause or attempt to cause Middlefield to institute litigation seeking to have this Agreement declared unenforceable, or could take or attempt to take other action to deny Executive the benefits intended under this Agreement. In these circumstances the purposes of this Agreement would be frustrated. Middlefield desires that the Executive not be required to incur the expenses associated with the enforcement of rights under this Agreement, whether by litigation or other legal action, because the cost and expense thereof would substantially detract from the benefits intended to be granted to the Executive hereunder. Middlefield desires that the Executive not be forced to negotiate settlement of rights under this Agreement under threat of incurring expenses. Accordingly, if after a Change in Control occurs it appears to the Executive that (x) Middlefield has failed to comply with any of its obligations under this Agreement, or (y) Middlefield or any other person has taken any action to declare this Agreement void or unenforceable, or instituted any litigation or other legal action designed to deny, diminish, or to recover from the Executive the benefits intended to be provided to the Executive hereunder, Middlefield irrevocably authorizes the Executive from time to time to retain counsel of the Executive’s choice, at Middlefield’s expense as provided in this section 7, to represent the Executive in the initiation or defense of any litigation or other legal action, whether by or against Middlefield or any director, officer, stockholder, or other person affiliated with Middlefield, in any jurisdiction. Despite any existing or previous attorney-client relationship between Middlefield and any counsel chosen by the Executive under this section 7, Middlefield irrevocably consents to the Executive entering into an attorney-client relationship with that counsel and Middlefield and the Executive agree that a confidential relationship shall exist between the Executive and that counsel. The fees and expenses of counsel selected from time to time by the Executive as provided in this section shall be paid or reimbursed to the Executive by Middlefield on a regular, periodic basis upon presentation by the Executive of a statement or statements prepared by counsel in accordance with counsel’s customary practices, up to a maximum aggregate amount of $400,000, whether suit be brought or not, and whether or not incurred in trial, bankruptcy, or appellate proceedings. Middlefield’s obligation to pay the Executive’s legal fees under this section 7 operates separately from and in addition to any legal fee reimbursement obligation Middlefield may have with the Executive under any other agreement. Despite any contrary provision of this Agreement however, Middlefield shall not be required to pay or reimburse the Executive’s legal expenses if doing so would violate section 18(k) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)] and Rule 359.3 of the Federal Deposit Insurance Corporation [12 CFR 359.3].

8. Withholding of Taxes. Middlefield may withhold from any benefits payable under this Agreement all Federal, state, local or other taxes as may be required by law, governmental regulation, or ruling.

9. Successors and Assigns. (a) This Agreement is binding on successors. This Agreement shall be binding upon Middlefield and any successor to Middlefield, including any persons acquiring directly or indirectly all or substantially all of the business or assets of Middlefield by purchase, merger, consolidation, reorganization, or otherwise. But this Agreement and Middlefield’s obligations under this Agreement are not otherwise assignable,


transferable, or delegable by Middlefield. By agreement in form and substance satisfactory to the Executive, Middlefield shall require any successor to all or substantially all of the business or assets of Middlefield expressly to assume and agree to perform this Agreement in the same manner and to the same extent Middlefield would be required to perform had no succession occurred.

(b) This Agreement is enforceable by the Executive’s heirs. This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, and legatees.

(c) This Agreement is personal and is not assignable. This Agreement is personal in nature. Without written consent of the other party, neither party shall assign, transfer, or delegate this Agreement or any rights or obligations under this Agreement except as expressly provided in this section 9. Without limiting the generality of the foregoing, the Executive’s right to receive payments hereunder is not assignable or transferable, whether by pledge, creation of a security interest, or otherwise, except for a transfer by Executive’s will or by the laws of descent and distribution. If the Executive attempts an assignment or transfer that is contrary to this section 9, Middlefield shall have no liability to pay any amount to the assignee or transferee.

10. Notices. Any notice under this Agreement shall be deemed to have been effectively made or given if in writing and personally delivered, delivered by mail properly addressed in a sealed envelope, postage prepaid by certified or registered mail, or if delivered by a nationally recognized overnight delivery service. Unless otherwise changed by notice, notice shall be properly addressed to the Executive if addressed to the address of the Executive on the books and records of Middlefield at the time of the delivery of the notice, and properly addressed to Middlefield if addressed to the board of directors, Middlefield Banc Corp., 15985 East High Street, Middlefield, Ohio, 44062-0035 Attention: Corporate Secretary.

11. Captions and Counterparts. The headings and subheadings used in this Agreement are included solely for convenience and shall not affect the interpretation of this Agreement. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same agreement.

12. Amendments and Waivers. No provision of this Agreement may be modified, waived, or discharged unless the waiver, modification, or discharge is agreed to in a writing signed by the Executive and by Middlefield. No waiver by either party hereto at any time of any breach by the other party hereto or waiver of compliance with any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

13. Severability. The provisions of this Agreement are severable. The invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions of this Agreement. Any provision held to be invalid or unenforceable shall be reformed to the extent and solely to the extent necessary to make it valid and enforceable.


14. Governing Law. The validity, interpretation, construction, and performance of this Agreement shall be governed by and construed in accordance with the substantive laws of the State of Ohio, without giving effect to the principles of conflict of laws of such state.

15. Entire Agreement. This Agreement constitutes the entire agreement between Middlefield and the Executive concerning the subject matter. No rights are granted to the Executive under this Agreement other than those specifically set forth. No agreements or representations, oral or otherwise, expressed or implied concerning the subject matter hereof have been made by either party that are not set forth expressly in this Agreement. This Agreement replaces the January 7, 2008 Severance Agreement between Middlefield and the Executive.

16. No Mitigation Required. Middlefield hereby acknowledges that it will be difficult and could be impossible (x) for the Executive to find reasonably comparable employment after termination and (y) to measure the amount of damages the Executive suffers as a result of termination. Additionally, Middlefield acknowledges that its general severance pay plans do not provide for mitigation, offset, or reduction of any severance payment received thereunder. Middlefield further acknowledges that the payment of benefits by Middlefield under this Agreement is reasonable and shall be liquidated damages. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor will any profits, income, earnings, or other benefits from any source whatsoever create any mitigation, offset, reduction, or any other obligation on the part of the Executive hereunder or otherwise.

17. Compliance with Internal Revenue Code Section 409A. (a) Interpretation. The intent of the parties is that payments and benefits under this Agreement comply with Code Section 409A or comply with an exemption of the application of Code Section 409A and, accordingly, all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Code Section 409A. References in this Agreement to Code Section 409A include rules, regulations, and guidance of general application issued by the Department of the Treasury under Code Section 409A.

(b) Action. Neither the Executive nor Middlefield shall take any action to accelerate or delay the payment of any monies or provision of any benefits in any matter which would not be in compliance with Code Section 409A.

(c) Separation from Service. A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement unless such termination is also a “separation from service” (within the meaning of Code Section 409A) and, for purposes of this Agreement, references to a “termination” or “termination of employment” or like references shall mean separation from service. If the Executive is deemed on the date of separation from service with Middlefield to be a “specified employee,” within the meaning of that term under Code Section 409A(a)(2)(B) and using the identification methodology selected by Middlefield from time to time, or if none, the default methodology, then with regard to any payment or benefit that is required to be delayed in compliance with Code Section 409A(a)(2)(B), such payment or benefit shall not be made or provided prior to the earlier of (i) the expiration of the


six-month period measured from the date of the Executive’s separation from service or (ii) the date of the Executive’s death. In the case of benefits required to be delayed under Code Section 409A, however, the Executive may, to the extent permissible under Code Section 409A, pay the cost of benefit coverage, and thereby obtain benefits, during such six-month delay period and then be reimbursed by Middlefield thereafter when delayed payments are made pursuant to the next sentence. On the first day of the seventh month following the date of the Executive’s separation from service or, if earlier, on the date of the Executive’s death, all payments delayed pursuant to this section 17(c) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. If any cash payment is delayed under this section 17(c), then interest shall be paid on the amount delayed, with such interest to be calculated at the prime rate reported in The Wall Street Journal for the date of the Executive’s termination to the date of payment.

(d) Treatment of Installment Payments. If under this Agreement an amount is to be paid in two or more installments, for purposes of Code Section 409A, each installment shall be treated as a separate payment. In the event any payment payable upon termination of employment would be exempt from Code Section 409A under Treasury Rule 1.409A-1(b)(9)(iii) but for the amount of such payment, the determination of the payments to the Executive that are exempt under such provision shall be made by applying the exemption to payments based on chronological order beginning with the payments paid closest in time on or after such termination of employment.

(e) Payment Period. When, if ever, a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within ten (10) days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of Middlefield.

IN WITNESS WHEREOF, the parties have executed this Change in Control Agreement as of the date first written above.

 

EXECUTIVE     MIDDLEFIELD BANC CORP.

 

    By:  

 

Donald L. Stacy       Thomas G. Caldwell
    Its:   President and Chief Executive Officer
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Section 6: EX-10.22 (EX-10.22)

EX-10.22

Exhibit 10.22

The Middlefield Banking Company

Annual Incentive Plan

1. Plan Objectives. The primary objective of this Annual Incentive Plan, which is referred to hereinafter as the Plan, is to promote the success of The Middlefield Banking Company by linking employee compensation to the bank’s financial success. The Plan is one means by which The Middlefield Banking Company can create on the part of its employees personal financial incentives to achieve corporate goals and objectives. The Plan is also one part of a comprehensive compensation package that The Middlefield Banking Company desires to make available so that it may attract and retain the employee talent that will give the bank a competitive advantage.

2. Plan Year and Term. The Plan Year is the calendar year. The Plan is effective beginning January 1, 2019 for the 2019 Plan Year. The Plan shall remain in effect for subsequent Plan Years and until terminated by the Board of Directors of The Middlefield Banking Company.

3. Eligibility. All full-time employees of The Middlefield Banking Company are eligible to participate in and receive awards under the Plan. Employees who receive awards or who are eligible to receive awards are referred to hereinafter as Participants, and each a Participant.

4. Plan Administration. (a) Plan Administration. The Plan shall be administered by those directors on the Compensation Committee of the Board of Directors of The Middlefield Banking Company who are considered independent under proxy voting guidelines issued by Institutional Shareholder Services, Inc. or similar proxy advisory firms registered under the federal securities laws (together, “Proxy Advisory Firms”). The Compensation Committee shall have the authority to construe and interpret the Plan and to adopt rules and regulations governing the administration of the Plan. Consistent with any limitations on the Compensation Committee’s authority that are explicitly stated in this Plan, the Compensation Committee also shall have authority to exercise all other duties and powers conferred on it by the Plan or that are incidental or ancillary thereto. To carry out its responsibilities under the Plan, the Compensation Committee may use agents and delegate to them such administrative duties as the Compensation Committee sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel, who may be counsel to The Middlefield Banking Company. A decision or action of the Compensation Committee concerning any question arising out of the administration, interpretation, and application of the Plan and the rules and regulations promulgated hereunder shall be final and binding upon all persons.

(b) Final Authority to Determine the Performance Criteria and the Potential Award Amount. At the beginning of each Plan Year, the performance criteria and specific goals that must be satisfied in order for a Participant to become entitled to an incentive award for that Plan Year are established. The potential amount of a Participant’s award is determined at that time also. The Compensation Committee shall recommend to the Board of Directors of The Middlefield Banking Company the performance criteria, specific goals, and potential award amounts, but final approval of those criteria, goals, and potential award amounts is the responsibility of the nonemployee members of the Board of Directors. The Compensation Committee may delegate to agents, including but not limited to the Chief Executive Officer, the Chief Operating Officer, or others, the committee’s responsibility for making recommendations concerning the performance criteria, specific goals, and


potential award amounts applicable to Participants other than the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer, or any executive who serves also as a director of The Middlefield Banking Company or its holding company, but the Compensation Committee may not delegate its responsibility to recommend performance criteria, specific goals, and potential award amounts applicable to the Chief Executive Officer, to the Chief Operating Officer, to the Chief Financial Officer, or to any executive who serves also as a director of The Middlefield Banking Company or its holding company. The Compensation Committee shall make its recommendations to the nonemployee members of the Board of Directors within 60 days after the beginning of the Plan Year. Within 90 days after the beginning of the Plan Year, the nonemployee directors that are considered independent by Proxy Advisory Firms shall approve the performance criteria, goals, and potential award amounts. The performance criteria, goals, and potential award amounts approved by the nonemployee directors may be those recommended by the Compensation Committee or may be different from the criteria, goals, and amounts recommended by the Compensation Committee, but the performance criteria, goals, and potential award amounts shall be consistent with the limitations specified in section 5 of this Plan.

References in this Plan to actions taken and decisions made by the nonemployee directors mean actions taken and decisions made by a majority of all nonemployee directors of the Board of Directors of The Middlefield Banking Company, including the members of the Compensation Committee, acting at a meeting duly called and held or acting by written consent, in either case in a manner consistent with the articles of incorporation and regulations of The Middlefield Banking Company.

In their deliberations concerning the performance criteria for awards, the specific goals to be achieved, and the potential award amounts, both the Compensation Committee and the nonemployee directors shall take into account not only the terms of this Plan and the compensation policies and guidelines of The Middlefield Banking Company and its holding company, but also applicable regulatory limitations and guidance concerning compensation, including but not limited to the Interagency Guidance on Sound Incentive Compensation Policies adopted in June of 2010. The Compensation Committee and the nonemployee directors shall seek to ensure that this Plan is administered and that awards are determined in a manner that does not encourage unnecessary and excessive risks or earnings manipulation, that appropriately balances risks and rewards, that is compatible with effective controls and risk management, and that is supported by strong corporate governance, including active oversight by the Compensation Committee.

(c) Calculation of Award Amounts. Within 60 days after the end of a Plan Year, the Compensation Committee, acting through members that are considered independent by Proxy Advisory Firms, shall determine whether the performance criteria and goals applicable to a Participant for that Plan Year were achieved. Based on that determination, the Compensation Committee shall calculate the Participant’s award amount for that Plan Year, consistent with the criteria, goals, and potential award amounts approved under section 4(b) by the nonemployee directors for that Plan Year.

5. Incentive Awards. (a) Form of Award. Incentive awards shall be paid in cash and in no other form. Award amounts or potential award limits shall be stated as a percentage of a Participant’s annual compensation, or in the case of a salaried officer a percentage of the officer’s salary.


(b) Absolute Award Limit. Because a potential short-term cash incentive award can encourage excessive risk-taking if the potential award constitutes a dominant or excessively large portion of an employee’s total compensation, under no circumstance may the maximum potential cash award under this Plan to a Participant for a Plan Year exceed 36% of the Participant’s annual compensation (without taking the incentive award under this Plan into account), or 36% of salary in the case of a salaried officer.

(c) Awards Are Based on Full-Year Results Only. No incentive awards shall be made for performance measured over a period less than a full Plan Year, except as may be specifically allowed by this Plan.

(d) Awards. A Participant’s award under this Plan shall be based on two principal variables: the maximum potential award, stated as a percentage of annual compensation, or a percentage of annual salary in the case of a salaried employee, and the specific performance criteria and goals that must be satisfied in a Plan Year in order for the Participant to actually receive the incentive award payment.

(1) The first variable, the maximum potential award, is established by the nonemployee directors of the Board of Directors that are considered independent directors by Proxy Advisory Firms, and may change from one Plan Year to the next, subject to the 36% absolute award limit stated in section 5(b). For purposes of determining the maximum potential award, the nonemployee directors may for convenience segregate employees into categories or tiers. The maximum potential award of one category or tier of employee may be different from the maximum potential award of another category or tier of employee, and in the discretion of the nonemployee directors the maximum potential award may even be different from one employee to the next within the same category or tier.

(2) The second variable, the award performance criteria and the specific goals to be achieved, is likewise established by the nonemployee directors of the Board of Directors that are considered independent directors by Proxy Advisory Firms, may change from one Plan Year to the next, and likewise may be different for one employee category or tier from the performance criteria and goals applicable to another category or tier, and may even be different for one employee within a particular category or tier from the performance criteria and goals applicable to another employee within that same category or tier. Performance criteria can be divided into three distinct classes: (x) bank-wide performance criteria, (y) business unit or departmental performance criteria, and (z) individual performance criteria, with each employee category or tier being subject to varying combinations of any one or more of these three classes of performance criteria, as determined by the nonemployee directors.

The performance criteria and goals may take into account factors such as total revenue, revenue growth, net income, earnings, earnings growth, earnings per share, cash flow, efficiency ratio, total deposits, deposit growth, fee income, non-interest income, total loans, loan growth, loan charge offs, nonperforming assets-to-assets ratio, classified asset coverage ratio, return on assets, return on equity, customer satisfaction, peer data, market data, management input, and other factors.


If first recommended by the Compensation Committee directors that are considered independent directors by Proxy Advisory Firms, the nonemployee members of the Board of Directors may adjust or modify performance criteria and goals during a Plan Year to prevent the dilution or enlargement of awards that might otherwise result because of an unusual or extraordinary corporate item, transaction, event, or development that occurs during the Plan Year or that might result because of changes in applicable laws or accounting principles.

(3) As of the January 1, 2019 effective date of this Plan, the employee categories or tiers, identification of employees within each category or tier, and their maximum potential awards are illustrated in the table to follow. The table is included for illustrative purposes only. The employee categories or tiers and their maximum potential awards may be changed at any time by the nonemployee directors and may be different from those shown, except that the maximum potential award may not exceed 36% of annual compensation (or salary).

 

employee
tier

   maximum
potential
award
    

officers and employees

1      36.0%      President and Chief Executive Officer
2      24.0%      Chief Operating Officer and Chief Financial Officer
3      15.0%      Senior Vice Presidents, Head of Loan Administration, Risk Officer
4      12.0%      Vice Presidents
5      10.0%      Assistant Vice Presidents, Branch Managers, all other officers
6      8.0%      all other employees (including Lenders, Loan Administration Assistants, Collections/Special Assets, Tellers (all offices), Head Tellers (all offices), Audit Assistants, CSRs (all offices), Bookkeeping/Proof, Facilities)

As of the January 1, 2019 effective date of this Plan, the employee categories or tiers, their maximum potential awards, and the classes of performance criteria to which they are subject are illustrated in the tables to follow. The table is included for illustrative purposes only. The employee categories or tiers, their maximum potential awards, and the classes of performance criteria may be changed at any time by the nonemployee directors and may be different from those shown, although the maximum potential award may not exceed 36% of annual compensation (or salary).


employee tier

  

potential cash award as a percentage of annual compensation (or salary) based

on achievement of performance goals*

   classes of performance criteria and weight (not to
exceed 100% in the aggregate) applicable to each
employee category or tier
  

minimum **

  

midpoint **

  

maximum **

   bank-wide
performance
   business unit or
departmental
performance
   individual
performance
1   

12%

(if actual performance is 90% of goal)

  

24%

(if actual performance is 100% of goal)

  

36%

(if actual performance is 110% or more of goal)

   100%    0%    0%
2   

12%

(if actual performance is 90% of goal)

  

18%**

(if actual performance is 100% of goal)

  

24%

(if actual performance is 110% or more of goal)

   100%    0%    0%
3   

9%

(if actual performance is 90% of goal)

  

12%

(if actual performance is 100% of goal)

  

15%

(if actual performance is 110% or more of goal)

   50%    0% to 50%    0% to 50%
4   

6%

(if actual performance is 90% of goal)

  

9%

(if actual performance is 100% of goal)

  

12%

(if actual performance is 110% or more of goal)

   20% to 40%    20% to 80%    20% to 80%
5   

4%

(if actual performance is 90% of goal)

  

7%

(if actual performance is 100% of goal)

  

10%

(if actual performance is 110% or more of goal)

   20% to 40%    20% to 80%    20% to 80%
6   

4%

(if actual performance is 90% of goal)

  

6%

(if actual performance is 100% of goal)

  

8%

(if actual performance is 110% or more of goal)

   20% to 40%    0% to 80%    0% to 80%

 

*

Instead of performance ranges stated in percentage terms for the minimum, midpoint, and maximum awards, the Compensation Committee and nonemployee directors may establish specific numeric goals for the minimum, midpoint, and maximum awards. The award parameters stated in the table are included for illustrative purposes only.

**

The percentage achievement of the midpoint over the minimum and of the maximum over the midpoint will determine the proportionate incentive payment earned and paid for each of the goals.

The following hypothetical illustrates application of section 5(d).

Award potential established at the beginning of Plan Year X. Assume that for Plan Year X the potential award amounts and tiers are as set forth in the immediately preceding table. Assume that the nonemployee directors establish at the beginning of Plan Year X the following performance criteria for the following officers and employees –

 

   

tier 1, salary of $250,000: for the CEO, the only performance criteria are bank-wide performance criteria, and the specific goals established by the nonemployee directors for the CEO for Plan Year X are (1) net income after tax of $1.0 million and (2) reduction of the classified asset coverage ratio from 50% to 45%. The directors assign a 75% weight to the net income goal and a 25% weight to the classified asset coverage ratio goal

 

   

tier 2, salary of $200,000: for the CFO the only performance criteria are bank-wide performance criteria, and the only bank-wide goal established by the nonemployee directors for the CFO is net income after tax of $1.0 million

 

   

tier 3, salary of $100,000: for one of the bank’s Senior Vice Presidents, an officer with responsibility for loan operations, the performance criteria and goals established by the nonemployee directors are: (1) bank-wide performance goals of net income after tax of $1.0 million, reduction of the classified asset coverage ratio from 50% to 45%, and a 10% increase in interest income, with a 50% weight allocated to the aggregate of these bank-wide goals (the aggregate 50% weight being calculated based on a 75% weight


 

assigned to the net income goal, a 15% weight for the classified asset coverage goal, and a 10% weight assigned to the interest income goal) (2) business unit goal of a 10% reduction of loan charge offs, with a weight of 30% allocated to this goal, and (3) an individual performance goal consisting of a determination that the individual achieved all expectations for the year, with a weight of 20% allocated to this goal

 

   

tier 4, salary of $75,000: a Vice President also involved in the lending function is subject to the exact same criteria and specific goals to which the Senior Vice President is subject, but with a weight of 40% assigned to the bank-wide performance goal (rather than 50%), 40% to the business unit goal, and 20% to the individual performance goal

 

   

tier 5, salary of $65,000: the Branch Manager of Branch A is subject to the following performance criteria and goals established by the nonemployee directors: (1) bank-wide performance goal of net income after tax of $1.0 million, with a weight of 20% allocated to this goal, (2) business unit goal of a 10% increase in deposits held at Branch A, with a weight of 60% allocated to this goal, and (3) an individual performance goal consisting of a determination that the individual achieved all expectations for the year, with a weight of 20% allocated to this goal

 

   

tier 6, annual compensation of $32,750: the performance criteria and goals of a Teller employed at Branch A are exactly the same as those of the Branch Manager, except that the weights are (1) bank-wide performance, 20% weight, (2) business unit goal, 10% weight, and (3) individual performance goal, 70% weight

Actual results for Plan Year X. By the 60th day of Plan Year X+1, the Compensation Committee determines that the following are the results for Plan Year X:

 

   

net income after tax of $1.05 million, or 105% of the goal

 

   

classified asset coverage ratio reduced by 5.0 percentage points to 45%, or 100% of the goal

 

   

interest income increased by only 9.5%, rather than by the 10% goal that is applicable solely to the Senior Vice President (tier 3) and Vice President (tier 4)

 

   

loan charge offs reduced more than 10%, or 106% of goal

 

   

the deposits of Branch A increased by 30%, or 300% of the goal

 

   

for purposes of the individual performance evaluations, the Compensation Committee concludes that the tier 3 Senior Vice President did not achieve expectations and that no portion of the Senior Vice President’s award shall be attributable to the individual performance factor. The Compensation Committee concludes also that the tier 4 Vice President precisely achieved expectations, that the tier 5 Branch Manager exceeded expectations, and that the tier 6 Teller greatly exceeded expectations.


Based on these results the Compensation Committee calculates the following awards:

 

    

portion of award attributable to

    

bank-wide performance

  

business unit performance

  

individual performance

CEO, tier 1    with a 75% weight for achievement of 105% of the net income goal and a weight of 25% for achievement of 100% of the classified asset coverage goal, the combined performance is 103.8% of goal. Because this exceeds the midpoint for tier 1, the CEO’s award is a proportionate incentive payment between the midpoint 24% of salary and the maximum 36% of salary    not applicable    not applicable
CFO, tier 2    105% of goal is achieved. Because this exceeds the midpoint for tier 2, the CFO’s award is a proportionate incentive payment between the midpoint 18% of salary and the maximum 24% of salary    not applicable    not applicable
SVP, tier 3    the minimum 100% of goal is achieved for the classified asset portion of the bank-wide performance goal (15% weight), and 105% of the net income portion of the bank-wide performance goal (75% weight), but only 95% for the interest income goal (10% weight), so aggregate bank-wide performance is 103.25% of goal [(15% x 100%) + (75% x 105%) + (10% x 95%) = 103.25%]. Because this exceeds the midpoint for tier 3, the SVP’s award is a proportionate incentive payment between the midpoint 12% of salary and the maximum 15% of salary, multiplied by the 50% weight    the reduction of loan charge offs was 106% of goal, which exceeds the midpoint for tier 3, so this criterion accounts for an award equal to a proportionate incentive payment between the midpoint 12% of salary and the maximum 15% of salary, multiplied by the 30% weight    the SVP failed to achieve expectations, so this criterion accounts for an award of 0% of salary
VP, tier 4    100% of goal is achieved for the classified asset portion of the bank-wide performance goal (15% weight), and 105% of the net income portion of the bank-wide performance goal (75% weight), but only 95% for the interest income goal (10% weight), so aggregate bank-wide performance is 103.25% of goal [(15% x 100%) + (75% x 105%) + (10% x 95%) = 103.25%]. Because this exceeds the midpoint for tier 4, the VP’s award is a proportionate incentive payment between the midpoint 9% of salary and the maximum 12% of salary, multiplied by the 40% weight    loan charge offs are 106% of goal, which exceeds the midpoint for tier 4, so this criterion accounts for an award equal to a proportionate incentive payment between the midpoint 9% of salary and the maximum 12% of salary, multiplied by the 40% weight    this criterion accounts for an award equal to 1.2% of salary (20% weight of the midpoint 9% of salary)
Branch Manager, tier 5    results are 115% of the only bank-wide goal applicable to this employee. Because this is in the maximum award range for tier 5, the Branch Manager’s award is the maximum 2% of salary (20% weight of the 10% maximum)    results are 300% of goal, so this criterion accounts for the maximum award of 6.0% of salary (60% weight of the 10% maximum)    the Branch Manager exceeded expectations, so this criterion a proportionate incentive payment between the midpoint 7% of salary and the maximum 10% of salary, multiplied by the 20% weight
Teller, tier 6    results are 115% of goal. Because this is in the maximum award range for tier 6, the Teller’s award is the maximum award of 1.6% of compensation (20% weight of the 8% maximum)    results are 300% of goal, so this criterion accounts for the maximum award of 0.8% of compensation (10% weight of the 8% maximum)    this criterion accounts for the maximum award of 5.6% of compensation (70% weight of the 8% maximum)


(e) Award Forfeiture. If the Compensation Committee in its sole and absolute judgement determines that the individual performance of any Participant for a Plan Year failed significantly to satisfy expectations, or if the Compensation Committee determines in its sole and absolute judgement that the Participant engaged in fraudulent or unethical conduct in the course of the Participant’s employment or otherwise committed what the Compensation Committee concludes is an intentional violation of policy of The Middlefield Banking Company, the Compensation Committee shall rescind and shall not pay or provide for payment of an incentive award to that Participant for the Plan Year, regardless of whether the Participant’s individual performance is a criterion for an incentive award. In that case the Participant’s award for that Plan Year shall be forfeited in its entirety.

6. Time of Payment. Subject to the provisions of any separate written deferred compensation plan or agreement that may be applicable to a Participant, any incentive award payable under the Plan shall be paid as soon as practicable after the Compensation Committee’s determinations under section 4(c), but in no event shall payment be made (x) before the end of the Plan Year for which the award is made or (y) later than the 15th day of the third month after the end of the Plan Year for which the award is made.

7. Tax Withholding. The Middlefield Banking Company shall withhold from any amounts payable under this Plan any and all Federal, state, and local income taxes, the Participant’s share of FICA and other employment taxes, and any other taxes that are required under applicable law to be withheld from the payment.

8. Recovery of Awards. By accepting an award under this Plan, a Participant agrees to repay to The Middlefield Banking Company any award that is entirely or partially attributable to a financial reporting error. The award is entirely attributable to a financial reporting error if after the award is paid the financial statements of The Middlefield Banking Company are required to be restated because of a financial reporting error and, in the sole judgement of the Compensation Committee, (x) the award would not have been made had the financial reporting not occurred or (y) the Participant was responsible for the financial reporting error and the Compensation Committee concludes that the Participant committed the error knowingly. If an award is entirely attributable to a financial reporting error, the Participant shall repay promptly to The Middlefield Banking Company upon demand the entire amount of the award. A Participant shall be ineligible for any future awards under the Plan unless the Participant repays to The Middlefield Banking Company the entire amount demanded.

An award is partially attributable to a financial reporting error if after the award is paid the financial statements of The Middlefield Banking Company are required to be restated because of a financial reporting error and, in the sole judgement of the Compensation Committee, the award made to the Participant might have been made nevertheless but would have been made in a lesser amount had the financial reporting not occurred. If an award is partially attributable to a financial reporting error, the Participant shall repay promptly to The Middlefield Banking Company upon demand the portion of the award that the Compensation Committee determines is attributable to the financial reporting error. A Participant shall be ineligible for any future awards under the Plan unless the Participant repays to The Middlefield Banking Company the entire amount demanded.


9. Employment Termination. (a) Employment Termination after the End of a Plan Year. In the case of employment termination after the end of a Plan Year, a Participant forfeits the entire award for the completed Plan Year if the Participant’s employment terminates in the approximately 75-day period after the end of the Plan Year but before payment of the award for that Plan Year is made, unless (x) the Participant’s termination is an involuntary termination by The Middlefield Banking Company without cause, (y) the Participant’s termination is on account of death or disability, or (z) the Participant’s termination is a voluntary termination by the Participant after attaining age 65. If a Participant satisfies the performance award criteria that are applicable for a Plan Year but terminates employment in the approximately 75-day period after the end of the Plan Year but before receiving payment of the award, the award shall nevertheless be paid to the Participant or to the Participant’s estate or representative if the Participant’s employment termination is on account of involuntary termination by The Middlefield Banking Company without cause, death, disability, or voluntary termination after attaining age 65. For a Participant who would not otherwise be entitled to payment under this section 9(a) after employment termination, the Compensation Committee may in its sole discretion elect to make an award payment to a Participant whose employment terminates in the period after the end of a Plan Year but before payment of awards for that Plan Year is made.

(b) Employment Termination During a Plan Year. In the case of employment termination during a Plan Year, the Participant forfeits all expectation of and entitlement to an award for the Plan Year in which employment termination occurs, regardless of the reason employment termination occurs. In its sole discretion, however, the Compensation Committee may at the end of the Plan Year elect to make a pro rata award payment to the terminated Participant or to the Participant’s representative or estate, for example in the case of a Participant who retires during a Plan Year or who dies or becomes disabled during a Plan Year.

10. Amendment, Suspension, or Termination. The Board of Directors of The Middlefield Banking Company may amend, suspend, or terminate the Plan in whole or in part, but only if the Compensation Committee first recommends that action. Likewise, the Board of Directors also shall have authority to reinstate any or all of the provisions of the Plan if the Plan is suspended or terminated, but only if the Compensation Committee first recommends that action.

11. No Right to an Incentive Award or to Continued Employment. Neither the establishment of the Plan nor the provision for or payment of any amounts hereunder nor any action by The Middlefield Banking Company, by the Board of Directors, or by the Compensation Committee concerning the Plan shall be held or construed to confer upon any person any legal right to receive, or any interest in, an incentive award or any other benefit under the Plan, or any legal right to be continued in the employ of The Middlefield Banking Company.

12. Unfunded Arrangement. The Middlefield Banking Company shall not be required to fund or otherwise segregate any cash or any other assets that may at any time be paid to Participants under the Plan. The Plan constitutes an unfunded plan. The Middlefield Banking Company shall not, by any provisions of the Plan, be deemed to be a trustee of any property, and any rights of any Participant or former Participant shall be no greater than those of a general unsecured creditor of The Middlefield Banking Company.

13. Non-Transferability of Benefits and Interests. No benefit payable under the Plan shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or garnishment by creditors, and any such attempted action shall be void. This section 13 shall not apply to an assignment of a contingency or payment due (x) after the death of a Participant to the deceased Participant’s legal representative or beneficiary or (y) after the disability of a Participant to the disabled Participant’s personal representative.


14. Governing Law. All questions pertaining to the construction, regulation, validity, and effect of the provisions of the Plan shall be determined in accordance with the laws of the State of Ohio.

15. Non-Exclusivity. The Plan does not limit the authority of The Middlefield Banking Company, the Board of Directors, the Compensation Committee, or the Chief Executive Officer to grant awards or authorize any other compensation to any person under any other plan or authority.

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