Choiceone Financial Services 10-K [cofs-10k_123113.htm]

EXHIBIT 10.5

 

                    The following person has an Executive Employee Salary
Continuation Agreement with the Corporation in the form filed herewith with the
name or amounts set forth below inserted in the blanks identified by the
following column headings.

 

(i)   (ii)   (iii)   Michael McHugh    9,100   758.33  

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EXECUTIVE EMPLOYEE SALARY
CONTINUATION AGREEMENT

for

(i)

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TABLE OF CONTENTS

  PAGE SECTION 1 1   DEFINITIONS 1     1.1 Administrative Committee 1     1.2
Age 1     1.3 Change in Control 1     1.4 Crediting Rate 2     1.5 Disability 3
    1.6 Discharge for Cause 3     1.7 Early Retirement Date 3     1.8 Mortality
Assumptions 4     1.9 Normal Retirement Date 4     1.9a Specified Employee 4    
1.10 Termination of Employment 4     1.11 Vesting 5 SECTION 2 5   ELIGIBILITY 5
SECTION 3 5   PAYMENT OF BENEFITS 5     3.1 Benefits Upon Normal Retirement 5  
  3.2 Benefits Upon Early Retirement 6     3.3 Benefits Upon Late Retirement. 6
    3.4 Benefits Upon Disability. 6     3.5 Other Terminations of Employment 7  
    (a) Voluntary Termination of Employment Prior to the Early          
Retirement Date or Discharge for Cause at any Time 7       (b) Involuntary
Termination of Employment Prior to the Early           Retirement Date Other
Than Because of Death, Disability           or Discharge for Cause 7       (c)
Termination of Employment At or After A Change in           Ownership of Control
7     3.6 Survivorship Benefits 8       (a) Prior to Commencement of Normal or
Early Retirement           Benefits 8       (b) After Commencement of Benefits 8
    3.7 Recipients of Payments: Designation of Beneficiary 8     3.8 Restriction
on Timing of Distributions 9     3.9 Distributions Upon Income Inclusion Under
Section 409A
of the Code
9     3.10 Change in Form or Timing of Distributions 9

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SECTION 4 10   ADDITIONAL CHANGE IN CONTROL PROVISIONS 10     4.1 Application of
Section 10     4.2 Limit on Payments 10     4.3 Determination by Experts 10
SECTION 5 11   ADMINISTRATION AND INTERPRETATION OF THIS AGREEMENT 11 SECTION 6
11   CLAIMS PROCEDURE 11 SECTION 7 12   REVIEW PROCEDURE 12     7.1   12     7.2
  12 SECTION 8 12   LIFE INSURANCE AND FUNDING 12 SECTION 9 13   ASSIGNMENT OF
BENEFITS 13 SECTION 10 13   EMPLOYMENT NOT GUARANTEED BY AGREEMENT 13 SECTION 11
13   TAXES 13 SECTION 12 14   AMENDMENT AND TERMINATION 14     12.1 Amendments
14     12.2 Plan Termination Generally 14     12.3 Plan Terminations Under
Section 409A 14 SECTION 13 15   CONSTRUCTION 15 SECTION 14 15   FORM OF
COMMUNICATION 15 SECTION 15 15   CAPTIONS 15 SECTION 16 16   SEVERABILITY 16
SECTION 17 16   BINDING EFFECT 16 SECTION 18 16   COMPLIANCE WITH SECTION 409A
16     BENEFICIARY DESIGNATION 17

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EXECUTIVE EMPLOYEE SALARY CONTINUATION AGREEMENT
FOR

 

 

                    THIS AGREEMENT is made this ______ day of _____________,
1998, effective January 1, 1997, between Valley Ridge Bank, a Michigan
corporation (the "Company") and             (i)                    (the
"Participant").

 

                    WHEREAS, the Participant is an executive employee of the
Company and as such has materially contributed to the Company's position, and

 

                    WHEREAS the Company wishes to establish this Agreement for
purposes of promoting in the Participant the strongest interest in the
successful operation of the Company and increased efficiency in his work and to
provide the Participant benefits upon retirement, death, disability or other
termination of employment, in consideration of services to be performed after
the date of this agreement but prior to his retirement; and

 

                    WHEREAS, the Company also wishes to establish this Agreement
to enhance its abilities to attract and retain highly qualified executives and
to enable those executives to perform their duties in the best interests of the
Company and its shareholders in the event of possible or threatened Change in
Control of the Company without undue concern regarding the personal, financial
interests of such executives.

 

                    NOW THEREFORE, in consideration of the premises, the parties
hereto agree as follows:

 

SECTION 1

 

DEFINITIONS

 

          1.1          Administrative Committee - "Administrative Committee"
shall consist of all outside directors of the Bank's Personnel Committee.

 

          1.2          Age - "Age" shall mean the age of the person as of the
date of his last birthday.

 

          1.3          Change in Control - For purposes of this Agreement, a
Change in Control of the Company shall have occurred (i) on the fifth day
preceding the scheduled expiration date of a tender offer by, or exchange offer
by any corporation, person, other entity or group (other than the Company

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or any of its wholly owned subsidiaries), to acquire Voting Stock of the Company
if (a) after giving effect to such offer such corporation, person other entity
or group would own twenty-five percent (25%) or more of the Voting Stock of the
Company, (b) there shall have been filed documents with the Securities and
Exchange Commission ("SEC") in connection therewith (or, if no such filling is
required, public evidence that the offer has already commenced), and (c) such
corporation, person, other entity or group has secured all required regulatory
approvals to own or control twenty-five percent (25%) or more of the Voting
Stock of the Company, (ii) if the shareholders of the Company approve a
definitive agreement to merge or consolidate the Company with or into another
corporation in a transaction in which neither the Company nor any of its wholly
owned subsidiaries will be the surviving corporation, or to sell or otherwise
dispose of all or substantially all of the Company's assets to any corporation,
person, other entity or group (other than the Company or any of its wholly owned
subsidiaries), and such definitive agreement is consummated; (iii) if any
corporation, person, other entity or group (other than the Company of any of its
wholly owned subsidiaries) becomes the Beneficial Owner of stock representing
twenty-five percent (25%) or more of the Voting Stock of the Company, or (iv) if
during any period of two (2) consecutive years Continuing Directors cease to
comprise a majority of the Company's Board of Directors. The term "Continuing
Director" means (i) any member of the Board of Directors of the Company who was
a member of the Board of Directors of the Company at the beginning of any period
of two (2) consecutive years, and (ii) any person who subsequently becomes a
member of the Board of Directors of the Company, if (a) such person's nomination
for election or election to the Board of Directors of the Company is recommended
or approved by resolution of a majority of the Continuing Directors, or (b) such
person is included as a nominee in a proxy statement of the Company distributed
when a majority of the Board of Directors of the Company consists of Continuing
Directors. For purposes of this Agreement, "Voting Stock" shall mean those
shares of the Company entitled to vote generally in the election of directors.

 

          1.4          Crediting Rate - "Crediting Rate" shall mean an annual
rate of interest equal to 7.5%.

 

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          1.5          Disability - "Disability" shall mean, if the Participant
is insured under the company long term disability policy, the definition of
total disability contained in the long term disability insurance policy. If the
Participant is not insured under such a policy, the board shall, in its complete
and sole discretion, determine whether the Participant is disabled for the
purposes of this Agreement.

 

          1.6          Discharge for Cause - The Company may terminate the
Participant's employment under this Agreement for "Cause." A termination for
Cause is a termination by reason of the Board's good faith determination that
the Participant (i) is incompetent or acted dishonestly or engaged in willful
misconduct in the performance of his duties, (ii) breached a fiduciary duty to
the Company for personal profit to himself, (iii) intentionally failed to
perform reasonably assigned duties, (iv) willfully violated any law, rule or
regulation (other than traffic violations or similar offenses) or any final
cease and desist order, or (v) materially breached this Agreement. No act, or
failure to act, on the Participant's part shall be considered "willful" unless
he has acted, or failed to act, with an absence of good faith and without a
reasonable belief that his action or failure to act was in the best interest of
the Company. Notwithstanding the foregoing, (i) the Participant shall not be
deemed to have been terminated for Cause unless there shall have been delivered
to the Participant a copy of a resolution duly adopted by the affirmative vote
of not less than a majority of the entire membership of the Board at a meeting
of the Board called and held for the purpose (after reasonable notice to the
Participant and an opportunity for the Participant, together with is counsel, to
be heard before the Board), finding that in the good faith opinion of the Board
the Participant was guilty of conduct set forth above in the second sentence of
this Section and specifying the particulars thereof in detail, and (ii) in no
event will the Participant be subject to termination for Cause pursuant to
clause (v) above unless the Participant shall have failed to cure, correct or
prevent the alleged breach within thirty days after such resolution has been
delivered to the Participant.

 

          1.7          Early Retirement Date - "Early Retirement Date" shall
mean the first day of the month following the month in which a Participant
reaches age 60.

 

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          1.8          Mortality Assumptions - "Mortality Assumptions" shall
mean the life expectancy of a Participant, determined by applying Commissioners
Standard Ordinary Mortality Table 1980CSO.

 

          1.9          Normal Retirement Date - "Normal Retirement Date" shall
mean the first day of the month following the month in which a Participant
reaches age 65.

 

          1.9a           Specified Employee - "Specified Employee" means a key
employee (as defined in Section 416(i) of the Code without regard to paragraph 5
thereof) of the Company if any stock of the Company is publicly traded on an
established securities market or otherwise, as determined by the plan
administrator based on the twelve (12) month period ending each December 31 (the
"identification period"). If the Participant is determined to be a Specified
Employee for an identification period, the Participant shall be treated as a
Specified Employee for purposes of this Agreement during the twelve (12) month
period that begins on the first day of the fourth month following the close of
the identification period.

 

          1.10.          Termination of Employment - "Termination of Employment"
means the termination of the Participant's employment with the Company for
reasons other than death. Whether a Termination of Employment takes place is
determined in accordance with the requirements of Code Section 409A and related
Treasury guidance or Regulations based on the facts and circumstances
surrounding the termination of the Participant's employment and whether the
Company and the Participant intended for the Participant to provide significant
services for the Company following such termination. A Termination of Employment
will not have occurred if

 

          (a)          the Participant continues to provide services as an
employee of the Company at an annual rate that is twenty percent (20%) or more
of the services rendered, on average, during the immediately preceding three (3)
full calendar years of employment (or, if employed less than three (3) years,
such lesser period) and the annual remuneration for such services is twenty
percent (20%) or more of the average annual remuneration earned during the final
three (3) full calendar years of employment (or, if less, such lesser period),
or

 

          (b)          the Participant continues to provide services to the
Company in a capacity other than as an employee of the Company at an annual rate
that is fifty percent (50%) or more of the services rendered, on average, during
the immediately preceding three (3) full calendar years of employment (or if
employed less than three (3) years, such lesser period)

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and the annual remuneration for such services is fifty percent (50%) or more of
the average annual remuneration earned during the final three (3) full calendar
years of employment (or if less, such lesser period).

 

The Participant's employment relationship will be treated as continuing intact
while the Participant is on military leave, sick leave, or other bona fide leave
of absence if the period of such leave of absence does not exceed six (6)
months, or if longer, so long as the Participant's right to reemployment with
the Company is provided either by statute or by contract. If the period of leave
exceeds six (6) months and there is no right to reemployment, a Termination of
Employment will be deemed to have occurred as of the first date immediately
following such six (6) month period.

 

          1.11          Vesting - For the purpose of this Agreement, vesting
shall accrue to the Participant on a pro rata annual basis commencing January 1,
1997. The Participant shall earn 20 percent vesting for each complete year under
the Agreement. Regardless of the number of years completed by the Participant,
upon a Change in Control, the Participant shall become 100% vested in all
benefits under this Agreement.

 

SECTION 2

 

ELIGIBILITY

 

                    The Participant is eligible for the benefits provided herein
in accordance with the terms of this Agreement upon the execution hereof.

 

                    A Participant shall cease to be a Participant at Termination
of Employment. However, the employment of a Participant shall not be deemed to
be terminated by reason of an approved leave of absence granted in accordance
with uniform rules applied in a non-discriminatory manner.

 

SECTION 3

 

PAYMENT OF BENEFITS

 

          3.1          Benefits Upon Normal Retirement.

 

                    Upon a Participant's Termination of Employment on or after
the Normal Retirement Date, the Company shall pay to the Participant the sum of
$      (ii)       per year, payable in monthly installments of
$     (iii)        each, commencing on the first day of the month coincident
with or next

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following the date of Termination of Employment and continuing on the first day
of each month thereafter for a period of 15 years, but in any event until a
minimum of 180 total monthly payments are made to the Participant or the
Participant's beneficiary per Section 3.6(b). At the sole discretion of the
board of directors, the initial benefit may be increased in

subsequent years to offset the effect of inflation.

 

          3.2          Benefits Upon Early Retirement.

 

                    Upon a Participant's Termination of Employment on or after
reaching the Early Retirement Date but prior to the Normal Retirement Date, the
Participant will become 100% vested in the benefit described in Section 3.1. The
Company shall pay the Participant the sum of (ii) per year, payable in monthly
installments of (iii) each, commencing on the Normal Retirement Date and
continuing on the first day of each month thereafter for a period of 15 years,
but in any event until a minimum of 180 total monthly payments are made to the
Participant or the Participant's beneficiary per Section 3.6(b).

 

          3.3          Benefits Upon Late Retirement.

 

                    Upon a Participant's Termination of Employment after the
Normal Retirement Date, the Company shall pay to the Participant the normal
retirement benefit described in Section 3.1 above, increased by .05 per year or
.00416 for each month that the Participant's Termination of Employment is
deferred beyond the Normal Retirement Date, in equal monthly installments
commencing on the first day of the month coincident with or next following the
date of Termination of Employment and continuing on the first day of each month
thereafter for the periods specified in Section 3.1.

 

          3.4          Benefits Upon Disability.

 

                    Upon a Participant's Termination of Employment prior to the
Normal Retirement Date due to Disability, no separate provision is made for a
disability benefit under this Agreement. However, any such Participant shall be
considered, notwithstanding such Termination of Employment, to continue to be a
Participant while disabled and for so long as the disability continues prior to
reaching the Early Retirement Date, such Participant's beneficiary shall receive
the survivor's benefits described in Section 3.6(a). In the event the
Participant lives to the Early Retirement Date, the Participant shall be
entitled to receive the early retirement benefit described in Section 3.2.

 

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          3.5          Other Terminations of Employment.

 

          (a)          Voluntary Termination of Employment Prior to the Early
Retirement Date or Discharge for Cause at any Time. Upon a Participant's
voluntary Termination of Employment prior to reaching the Early Retirement Date,
for reasons other than death or Disability, or upon the Participant's Discharge
for Cause at any time, the Company shall pay the vested benefit to the
Participant pursuant to Schedule A attached to this Agreement in the form of an
"Immediate Lump Sum Benefit", and the Participant shall have no further right to
receive any additional benefit hereunder.

 

          (b)          Involuntary Termination of Employment Prior to the Early
Retirement Date Other Than Because of Death, Disability or Discharge for Cause.
Upon a Participant's involuntary Termination of Employment prior to reaching the
Early Retirement Date, for reasons other than death, disability or discharge for
cause, the Participant shall become 100% vested and the Company shall pay to the
Participant as compensation for services rendered prior to such Termination of
Employment the "Immediate Lump Sum Benefit" as defined in Schedule A. For
purposes of this subsection 3.5(b), the Participant shall be deemed to have
incurred an Involuntary Termination of Employment covered by this subsection if
he quits employment as a result of the Company's significantly lessening either
his title, duties, responsibilities, compensation or altering his situs of
employment, without his consent. His compensation shall be deemed to be
significantly lessened if any cutback is imposed except as a part of an overall
cutback applied proportionately to all of the Company's management employees or
if the Participant fails to receive periodic increases substantially
proportionate to and coincident with the increase granted to management
employees.

 

          (c)          Termination of Employment At or After A Change in
Ownership of Control. If a Participant incurs an involuntary Termination of
Employment prior to reaching the Early Retirement Date, for reasons other than
death, disability, or discharge for cause, but on or after the occurrence of a
Change in Control, or if in connection with such change in control, the
Participant's title, duties, responsibilities, or compensation is significantly
lessened or his situs of employment is changed, without his consent, the Company
shall immediately pay to the Participant an amount equal to the sum of a) 100%
of the Participant's gross annual salary for the twelve-month period prior to
Termination, and b) the "Immediate Lump Sum Benefit"

 

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on Schedule A. For purposes hereof, the standards set forth in subparagraph (b)
above with respect to what constitutes a significant lessening of compensation
shall apply.

 

          3.6          Survivorship Benefits.

 

          (a)          Prior to Commencement of Normal or Early Retirement
Benefits. If a Participant dies while in the service of the Company or after a
Termination of Employment due to Disability and while Disabled or after a
Termination of Employment on or after the Early Retirement Date, but prior to
commencement of any benefit payments under this Agreement, the Company shall pay
to the Participant's beneficiary a survivor's benefit of 180 equal monthly
installments of $______ commencing on the first day of the month after the
Participant's death and continuing on the first day of each month thereafter
until all such payments are completed. In the event a beneficiary dies before
receiving all the survivor's benefit payments, the remaining payments shall be
paid to the legal representatives of the beneficiary's estate. Payment of the
survivor's benefit shall relieve the Company of the obligation to pay any other
benefit which the Participant would have otherwise received, under the terms of
this Agreement.

 

          (b)          After Commencement of Benefits. If a Participant dies
after any benefit payments have commenced, but prior to receiving all of the
scheduled minimum number of monthly payments, the company shall pay the
remaining monthly payment to the Participant's beneficiary. In the event a
beneficiary dies before receiving all of the remaining payments, the remaining
payments shall be paid to the legal representatives of the beneficiary's estate.

 

          3.7          Recipients of Payments: Designation of Beneficiary.

 

                    All payments to be made by the Company shall be made to the
Participant, if living. In the event of a Participant's death prior to the
receipt of all benefit payments, all subsequent payments to be made under this
Agreement shall be to the beneficiary or beneficiaries of the Participant. The
Participant shall designate a beneficiary by filing a written notice of such
designation with the Company in such form as the Company may prescribe. The
Participant may revoke or modify said designation at any time by a further
written designation. The Participant's beneficiary designation shall be deemed
automatically revoked in the event of the death of the beneficiary, or if the
beneficiary is the Participant's spouse, in the event of dissolution of
marriage. If no designation shall be in effect at the time of any benefits
payable under this Agreement shall

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become due, the beneficiary shall be the spouse of the Participant, or if no
spouse is then living, the legal representatives of the Participant's estate.

 

          3.8          Restriction on Timing of Distributions.

 

                    Notwithstanding any provision of this Agreement to the
contrary, if the Participant is considered a Specified Employee at Termination
of Employment, the provisions of this Section 3.8 shall govern all distributions
hereunder. Benefit distributions that are made due to a Termination of
Employment occurring while the Participant is a Specified Employee shall not be
made during the first six (6) months following Termination of Employment.
Rather, any distribution which would otherwise be paid to the Participant during
such period shall be accumulated and paid to the Participant in a lump sum on
the first day of the seventh month following the Termination of Employment. All
subsequent distributions shall be paid in the manner specified.

 

          3.9          Distributions Upon Income Inclusion Under Section 409A of
the Code.

 

                    If any amount is required to be included in income by the
Participant prior to receipt due to a failure of this Agreement to meet the
requirements of Code Section 409A, the Participant may petition the plan
administrator for a distribution of that portion of the amount the Company has
accrued with respect to the Company's obligations hereunder that is required to
be included in the Participant's income. Upon the grant of such a petition,
which grant shall not be unreasonably withheld, the Company shall distribute to
the Participant immediately available funds in an amount equal to the portion of
the amount the Company has accrued with respect to the Company's obligations
hereunder required to be included in income as a result of the failure of this
Agreement to meet the requirements of Code Section 409A, within ninety (90) days
of the date when the Participant's petition is granted. Such a distribution
shall affect and reduce the Participant's benefits to be paid under this
Agreement.

 

          3.10          Change in Form or Timing of Distributions.

 

                    All changes in the form or timing of distributions hereunder
must comply with the following requirements. The changes:

 

          (a)          may not accelerate the time or schedule of any
distribution, except as provided in Code Section 409A and the regulations
thereunder;

 

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          (b)          must, for benefits distributable under Sections 3.1, 3.2,
3.3, 3.5(a) and 3.5(b), delay the commencement

of distributions for a minimum of five (5) years from the date the first
distribution was originally scheduled to be made; and

 

          (c)          must take effect not less than twelve (12) months after
the election is made.

  

SECTION 4

 

ADDITIONAL CHANGE IN CONTROL PROVISIONS

 

          4.1          Application of Section.

 

                    If the Participant receives payments under this Agreement
that are contingent upon a Change in Control, as determined under Section 280G
of the Internal Revenue Code of 1986 (the "Code") and the regulations
thereunder, then the provisions of this Section 4 shall apply.

 

          4.2          Limit on Payments.

 

                    If payments or benefits under this Agreement, after taking
into account all other payments or benefits to which the Participant is entitled
from the Company, are expected to result in an excise tax on the Participant or
the loss of certain tax deductions by the Company by reason of Code Section 280G
and 4999, then payments under this Agreement shall be reduced to an amount such
that all payments to the Participant from the Company, which are considered
contingent upon the Change in Control, shall not exceed 2.99 times the
Participant's Base Amount as defined in Code Section 280G.

 

          4.3          Determination by Experts.

 

                    If the Participant and the Company shall disagree as to
whether a payment under this Agreement could result in the loss of a deduction,
the matter shall be resolved by an opinion of [the Company's law firm], or if
[Company's law firm] is unable to provide such an opinion, counsel selected by
the Company, and agreed to by the Officer. Counsel's opinion need not be
unqualified. Counsel's opinion shall be based on determinations of the Base
Amount and Excess Parachute Payments, as such terms are defined by Section 280G
of the Code or its successor, by [Consulting Firm], or if [Consulting Firm] is
unable to make such determinations, a consulting firm chosen by the Company and
agreed to by the Officer. The Company shall pay the fees and expenses of such
counsel and consulting firm, and shall make available such information as may be
reasonably requested by such counsel and consulting firm to prepare the opinion.
If the maximum amount

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payable to the Officer pursuant to this Section cannot be determined prior to
the due date for such payment, the Company shall pay on the due date the minimum
amount which it in good faith determines to be payable, and shall pay the
remaining amount as soon as practicable after such remaining amount is
determined.

 

SECTION 5

 

ADMINISTRATION AND INTERPRETATION OF THIS AGREEMENT

 

                    The Board of Directors shall appoint an Administrative
Committee consisting of three (3) or more persons to administer and interpret
this Agreement. Interpretation by the Administrative Committee shall be final
and binding upon a Participant. The Administrative Committee may adopt rules and
regulations relating to this Agreement as it may deem necessary or advisable for
the administration thereof.

 

SECTION 6

 

CLAIMS PROCEDURE

 

                    If the Participant or the Participant's beneficiary
(hereinafter referred to as a "Claimant") is denied all or a portion of an
expected benefit under this Plan for any reason, he or she may file a claim with
the Administrative Committee. The Administrative Committee shall notify the
Claimant within sixty (60) days of allowance or denial of the claim, unless the
Claimant receives written notice from the Administrative Committee prior to the
end of the sixty (60) day period stating that special circumstances requires an
extension of the time for decision. The notice of the Administrative Committee's
decision shall be in writing, sent by mail to Claimant's last known address,
and, if a denial of the claim, must contain the following information:

 

  (a) the specific reasons for the denial;   (b) specific reference to pertinent
provisions of the Plan on which the denial is based; and   (c) if applicable, a
description of any additional information or material necessary to perfect the
claim, an explanation of why such information or material is necessary, and an
explanation of the claims review procedure.

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SECTION 7

 

REVIEW PROCEDURE

 

          7.1          A Claimant is entitled to request a review of any denial
of his claim by the Administrative Committee. The request for review must be
submitted in writing within a sixty (60) day period, the claim will be deemed to
be conclusively denied. The Claimant or his representative shall be entitled to
review all pertinent documents, and to submit issues and comments orally and in
writing.

 

          7.2          If the request for review by a Claimant concerns the
interpretation and application of the provisions of the Agreement and the
Company's obligations, then the review shall be conducted by a separate
committee consisting of three persons designated or appointed by the
Administrative Committee. The separate committee shall afford the Claimant a
hearing and the opportunity to review all pertinent documents and submit issues
and comments orally and in writing and shall render a review decision in
writing, all within sixty (60) days after receipt of a request for a review,
provided that, in special circumstances (such as the necessity of holding a
hearing) the committee may extend the time for decision by not more than sixty
(60) days upon written notice to the Claimant. The Claimant shall receive
written notice of the separate committee's review decision, together with
specific reasons for the decision and reference to the pertinent provisions of
this Agreement.

 

SECTION 8

 

LIFE INSURANCE AND FUNDING

 

                    The Company in its discretion may apply for and procure as
owner and for its own benefit, insurance on the life of the Participant, in such
amounts and in such forms as the Company may choose. The Participant shall have
no interest whatsoever in any such policy or policies, but at the request of the
Company he shall submit to medical examinations and supply such information and
execute such documents as may be required by the insurance company or companies
to whom the Company has applied for insurance.

 

                    The rights of the Participant, or his beneficiary, or
estate, to benefits under the Plan shall be solely those of an unsecured
creditor of the Company. Any insurance policy or other assets acquired by or
held by the Company in connection with the liabilities assumed by it pursuant to
the

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Plan shall not be deemed to be held under any trust for the benefit of the
Participant, his beneficiary, or his estate, or to be security for the
performance of the obligations of the Company but shall be, in remain, a
general, unpledged, and unrestricted asset of the Company.

 

                    If this Agreement is funded through insurance on the life of
the Participant, then in the event of such Participant's death during the first
two (2) years after the effective date of this Agreement, and if such
Participant's death was a result of suicide or if such Participant made any
material misstatement or failed to make a material disclosure of information in
any documentation which the Participant is requested to complete in connection
with this Agreement, then no death benefits under the terms of this Agreement
will be payable, unless and to the extent that the Board of Directors of
Company, in their absolute discretion, may otherwise determine.

 

SECTION 9

 

ASSIGNMENT OF BENEFITS

 

                    Neither the Participant nor any other beneficiary under the
Plan shall have any right to assign the right to receive any benefits hereunder,
and in the event of any attempted assignment or transfer, the Company shall have
no further liability hereunder.

 

SECTION 10

  

EMPLOYMENT NOT GUARANTEED BY AGREEMENT

 

                    Neither this Agreement nor any action taken hereunder shall
be construed as giving the Participant the right to be retained as an Executive
Employee or as an employee of the Company for any period.

 

SECTION 11

 

TAXES

 

                    The Company shall deduct from all payments made hereunder
all applicable federal or state taxes required by law to be withheld from such
payments. In the event that the Company determines that benefits under the Plan
are subject to FICA currently, the Company shall withhold the Participant's
portion of FICA from such other amounts payable to the Participant as the
Company deems appropriate.

 

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SECTION 12

 

AMENDMENT AND TERMINATION

 

          12.1          Amendments.

 

                    The company may amend this Agreement unilaterally by written
action; provided, however, that the Company may not reduce or modify any benefit
that is in pay status or any benefit that would become payable hereunder if the
Participant was involuntarily terminated under Section 3.5(b) hereof on the day
prior to such action by the Board, without the prior written consent of the
Participant.

 

          12.2          Plan Termination Generally.

 

                    The Company may terminate this Agreement unilaterally by
written action. In the event that the Company terminates this Agreement, the
Participant will become 100% vested in the benefit described in Section 3.1 as
of the date that the Company terminates this Agreement. Except as provided in
Section 12.3, the termination of this Agreement shall not cause a distribution
of benefits under this Agreement. Rather, after such termination, benefit
distributions will be made at the earliest distribution event permitted under
Article 3.

 

          12.3          Plan Terminations Under Section 409A.

 

                    Notwithstanding anything to the contrary in Section 12.2, if
this Agreement terminates in the following circumstances:

 

          (a)          Within thirty (30) days before or twelve (12) months
after a change in the ownership or effective control of the Company, or in the
ownership of a substantial portion of the assets of the Company as described in
Section 409A(2)(A)(v) of the Code, provided that all distributions are made no
later than twelve (12) months following such termination of the Agreement and
further provided that all the Company's arrangements which are substantially
similar to the Agreement are terminated so the Participant and all participants
in the similar arrangements are required to receive all amounts of compensation
deferred under the terminated arrangements within twelve (12) months of the such
terminations;

 

          (b)          Upon the Company's dissolution or with the approval of a
bankruptcy court provided that the amounts deferred under the Agreement are
included in the Participant's gross income in the latest of (i) the calendar
year in which the Agreement terminates; (ii) the

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calendar year in which the amount is no longer subject to a substantial risk of
forfeiture; or (iii) the first calendar year in which the distribution is
administratively practical; or

 

          (c)          Upon the Company's termination of this and all other
non-account balance plans (as referenced in Section 409A of the Code or the
regulations thereunder), provided that all distributions are made no earlier
than twelve (12) months and no later than twenty-four (24) months following such
termination, and the Company does not adopt any new non-account balance plans
for a minimum of five (5) years following the date of such termination;

 

The Company may distribute the amount of the Participant's vested benefit to the
Participant in a lump sum subject to the above terms.

  

SECTION 13

 

CONSTRUCTION

 

                    This Agreement shall be construed according to the laws of
the State of Michigan.

 

SECTION 14

 

FORM OF COMMUNICATION

 

                    Any election, application, claim, notice or other
communication required or permitted to be made by the Participant to the Company
shall be made in writing and in such form as the Company shall prescribe. Such
communication shall be effective upon mailing, if sent by first-class mail,
postage prepaid, and addressed to the Company's office at 6 Main Street, Kent
City, Michigan 49330.

 

SECTION 15

 

CAPTIONS

 

                    The captions at the head of a section or a paragraph of this
Agreement are designed for convenience of reference only and are not to be
resorted to for the purpose of interpreting any provision of this Agreement.

 

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SECTION 16

 

SEVERABILITY

 

                    The invalidity of any portion of this Agreement shall not
invalidate the remainder thereof, and said remainder shall continue in full
force and effect.

 

SECTION 17

 

BINDING EFFECT

 

                    This Agreement shall be binding upon and shall inure to the
benefit of the Company and the Participant, and each of their successors, heirs,
personal representatives and permitted assigns. No sale of substantially all of
the Company's assets shall be made without the buyer expressly assuming the
obligation of this Agreement. The Company further agrees that it will not be a
party to any merger, consolidation or reorganization unless and until its
obligations hereunder are expressly assumed by the successor or successors.

 

SECTION 18

 

COMPLIANCE WITH SECTION 409A

 

                    This Agreement shall be interpreted and administered
consistent with Code Section 409A.

 

                    IN WITNESS WHEREOF, this Agreement has been executed by the
parties as of the date first set forth above.

  By:           Its:                

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BENEFICIARY DESIGNATION NOTICE

 

VALLEY RIDGE BANK

 

To the Plan Administrator of ______________________ Executive Salary
Continuation Agreement:

Pursuant to the Provisions of my Executive Salary Continuation Agreement with
__________________________ permitting the designation of a beneficiary or
beneficiaries by the participant, I hereby designate the following persons and
entities as primary and secondary beneficiaries of any benefit under said
Agreement payable by reason of my death.

 

Primary Beneficiary:     Name Address Relationship                  

  

Secondary (Contingent) Beneficiary:   Name Address Relationship                
 

 

THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF BENEFICIARIES AND SECONDARY BENEFICIARIES ARE
HEREBY REVOKED.

The Plan Administrator shall pay all sums payable under this Agreement by reason
of my death to the Primary Beneficiary, if he or she survives me, and if no
Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if
no named beneficiary survives me, then the Plan Administrator shall pay all
amounts in accordance with the terms of the Executive Salary Continuation
Agreement. In the event that a named beneficiary survives me and dies prior to
receiving the entire benefit payable under said Agreement, then and in that
event, the remaining unpaid benefit, payable according to the terms of the
Agreement, shall be payable to the personal representatives of the estate of
said deceased beneficiary, who survives me, but die prior to receiving the total
benefit.

 

    Date of Designation   Signature of Executive

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