First Federal of Northern Michigan Bancorp, Inc. 8-K [ffnm-8k_121914.htm] 

 

Exhibit 10.1

 

CHANGE IN CONTROL AGREEMENT

This AGREEMENT is made effective as of January 1, 2015, by and between FIRST
FEDERAL OF NORTHERN MICHIGAN, a federally chartered stock savings bank (the
“Bank”), and Michael W. Mahler (“Executive”). Any reference to “Company” herein
shall mean First Federal of Northern Michigan Bancorp, Inc., or any successor
thereto.

WHEREAS, the Bank wishes to assure itself of the continued services of Executive
as Chief Executive Officer of the Bank for the period provided in this
Agreement; and

 

WHEREAS, in order to induce Executive to continue employment with the Bank and
to provide further incentive to achieve the financial and performance objectives
of the Bank, the parties desire to specify the benefits which shall be due to
Executive in the event of a Change in Control (as defined below).

NOW, THEREFORE, in consideration of the contribution of Executive, and upon the
other terms and conditions hereinafter provided, the parties hereto agree as
follows:

1.TERM OF AGREEMENT

The “term” of this Agreement shall be twenty-four (24) full calendar months from
the effective date of this Agreement set forth above, and shall include any
extension or renewal made pursuant to Section 1 of this Agreement. At least
sixty (60) days prior to each anniversary date of this Agreement, the
Compensation Committee will conduct a performance evaluation and review of
Executive for purposes of determining whether to renew or extend this Agreement,
and the results thereof shall be included in the minutes of the Compensation
Committee’s meeting. In the event that the Compensation Committee recommends
renewal of the Agreement to the Board and the Board determines to renew or
extend the Agreement, this Agreement shall renew or extend for an additional
twelve (12) months from the anniversary date, such that the remaining term of
this Agreement shall be twenty-four (24) months from the anniversary date. In
the event the Board determines not to renew or extend this Agreement, the Board
shall provide a notice of non-renewal to Executive at least thirty (30) days
prior to the anniversary date of this Agreement. In the event the Board does not
renew or extend the Agreement, the remaining term of this Agreement shall be
twelve (12) months from the anniversary date of this Agreement, provided,
however, if the Agreement is in effect on the effective date of a Change in
Control (as defined below), the Agreement shall automatically renew on such date
so that the remaining term is twenty-four (24) months. If Executive is also a
director then he shall abstain from any and all voting with respect to the
renewal or extension of the term of this Agreement.

2.PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL AND TERMINATION

This Agreement provides for certain payments and benefits to Executive only in
the event of a Change in Control followed by a termination of Executive’s
services as described in this Agreement.

 

 

 

 

(a) Upon the occurrence of a “Change in Control” of the Bank or the Company
followed at any time during the term of this Agreement by the Involuntary
Termination of Executive’s employment, other than Termination for Cause, death
or Disability of Executive, the Bank shall be obligated to pay or provide
Executive or in the following event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be:

(i)Severance pay is a sum equal to two times the average annual base salary of
the Executive during the prior two years. Such payment shall be payable in a
lump-sum within sixty (60) days of the Date of Termination.

(ii)Non-taxable medical coverage (at the expense of the Bank) similar to the
coverage maintained by the Bank for Executive prior to his termination, for a
period of twenty-four (24) months after the date of termination. Such continued
coverage shall cease upon the earlier of: (i) the date which is two (2) years
from Executive’s date of termination or (ii) the date on which Executive becomes
a full-time employee of another employer, provided Executive is entitled to
benefits that are substantially similar to the health and welfare benefits
provided by the Bank. If the Bank cannot provide one or more of the benefits set
forth in this paragraph because Executive is no longer an employee, applicable
rules and regulations prohibit such benefits or the payment of such benefits in
the manner contemplated, or it would subject the Bank to penalties, then the
Bank shall pay Executive a cash lump sum payment reasonably estimated by the
Bank to be equal to the value of such benefits or the value of the remaining
benefits at the time of such determination. Such cash payment shall be made in a
lump sum within thirty (30) days after the later of Executive’s date of
termination or the effective date of the rules or regulations prohibiting such
benefits or subjecting the Bank to penalties.

(iii)Within sixty (60) days (or within such shorter period to the extent that
information can be reasonably obtained) following the Date of Termination, a
lump-sum payment in an amount equal to two (2) times the Bank’s contributions
(i.e., matching contribution, profit sharing contribution and/or safe harbor
contribution) to the Bank’s 401(k) Plan made or accrued on behalf of Executive
for the calendar year ending immediately prior to the year in which Executive’s
Date of Termination occurs (or if Executive’s termination occurs on December 31,
the contributions for the year in which the Date of Termination occurs).

(iv)Notwithstanding the foregoing, in the event Executive is a “Specified
Employee” (within the meaning of Treasury Regulation §1.409A-1(i)), and to the
extent required to avoid penalties under Code Section 409A, no payment shall be
made to Executive under this Section prior to the first day of the seventh month
following the termination of Executive’s employment in excess of the “permitted
amount” under Code Section 409A. For these purposes, the “permitted amount”
shall be an amount that does not exceed two times the lesser of: (A) the sum of
Executive’s annualized compensation based upon the annual rate of pay for
services provided to the Bank for the calendar year preceding the year in which
Executive has terminated employment with the Bank, or (B) the maximum amount
that may be taken into account under a tax-qualified plan pursuant to Code
Section 401(a)(17) for the calendar year in which Executive has terminated
employment with the Bank. The payment of the “permitted amount” shall be made
within sixty (60) days following the termination of Executive’s employment.

 

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(b) Upon the occurrence of a Change in Control, Executive will have such rights
as specified in any other employee benefit plan with respect to options, stock
awards or other stock incentives and such other rights as may have been granted
to Executive under such plans.

(c) Any payments to Executive under this Section 2 shall be reduced by
applicable withholding taxes.

(d) Notwithstanding the preceding paragraphs of this Section 2, in no event
shall the aggregate payments or benefits to be made or afforded to Executive
under this Agreement, either as a stand-alone benefit or when aggregated with
other payments to, or for the benefit of Executive that are contingent on a
Change in Control (the “Termination Benefits”) constitute an “excess parachute
payment” under Section 280G of the Code or any successor thereto, and in order
to avoid such a result, Termination Benefits will be reduced, if necessary, to
an amount (the “Non-Triggering Amount”), the value of which is one dollar
($1.00) less than an amount equal to three (3) times Executive’s “base amount”,
as determined in accordance with said Section 280G. The allocation of the
reduction of any aggregate payments or benefits under this Section 2 shall be
determined by Executive, provided, however, that if it is determined that such
election by Executive shall be in violation of Code Section 409A, the allocation
of the required reduction shall be pro-rata.

(e) Executive shall not have the right to receive Termination Benefits pursuant
to Section 2 hereof in the event of Executive’s Termination for Cause or
termination of employment due to Executive’s death or Disability.

 

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3.DEFINED TERMS

The following capitalized terms used in this Agreement are defined as set forth
below:

(a) Change in Control. A “Change in Control” of the Bank or the Company shall
mean a change in control of a nature that: (i) would be required to be reported
in response to Item 5.01 of the current report on Form 8-K, as in effect on the
date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (the “Exchange Act”); or (ii) results in a Change in Control of the Bank or
the Company within the meaning of the Home Owners’ Loan Act, as amended, and
applicable rules and regulations promulgated thereunder (collectively, the
“HOLA”) as in effect at the time of the Change in Control; or (iii) without
limitation such a Change in Control shall be deemed to have occurred at such
time as (a) any “person” (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company’s
outstanding securities, except for any securities purchased by the Bank’s
employee stock ownership plan or trust; or (b) individuals who constitute the
Board on the date hereof (the “Incumbent Board”) cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Company’s stockholders was approved by the
same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (b), considered as though he were a member of the
Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or the Company or similar
transaction in which the Bank or Company is not the surviving institution occurs
or is effected; or (d) a proxy statement soliciting proxies from stockholders of
the Company is distributed, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with one or more business
organizations as a result of which the outstanding shares of the class of
securities then subject to the plan are to be exchanged for or converted into
cash or property or securities not issued by the Company; or (e) a tender offer
is made for 25% or more of the voting securities of the Company and the
shareholders owning beneficially or of record 25% or more of the outstanding
securities of the Company have tendered or offered to sell their shares pursuant
to such tender offer and such tendered shares have been accepted by the tender
offeror.

(b) Involuntary Termination. “Involuntary Termination” of Executive shall mean
either (i) Executive’s termination by the Bank, the Company or any successor(s)
thereto during the term of this Agreement and following a Change in Control for
any reason other than a Termination for Cause, Disability or death, or (ii)
Executive’s resignation of employment during the term of this Agreement and
following a Change in Control as a result of: any demotion, loss of title,
office, significant change in Executive’s functions, duties or responsibilities,
which change would cause Executive’s position to become one of lesser
importance, responsibility or scope from the position held immediately prior to
the Change in Control, a material reduction in Executive’s annual compensation
or benefits, relocation of Executive’s principal place of employment by more
than 25 miles from its location immediately prior to the Change in Control, or
material breach of this Agreement by the Bank, the Company or its successor(s)
following a Change in Control. Upon the occurrence of any events described in
clauses (ii) or (iii) above, Executive shall have the right to elect to
terminate his employment under this Agreement by providing a Notice of
Termination within a period not to exceed ninety (90) days after the initial
event giving rise to said right to elect. Upon receiving such notice, the Bank
shall have at least ninety (90) days to remedy any condition set forth in clause
(ii) or (iii), provided, however, that the Bank shall be entitled to waive such
period and make an immediate payment hereunder. For purposes of this Section
3(b), “Involuntary Termination” shall be construed to require “Separation from
Service” as defined in Code Section 409A and the Treasury Regulations
promulgated thereunder, provided, however, that the Bank and Executive
reasonably anticipate that the level of bona-fide services Executive would
perform after termination would permanently decrease to a level that is less
than 50% of the average level of bona fide services performed (whether as an
employee or an independent contractor) over the immediately preceding 12-month
period.

 

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(c) Termination for Cause. “Termination for Cause” shall mean termination
because of Executive’s intentional failure to perform stated duties, personal
dishonesty, incompetence, willful misconduct, any breach of fiduciary duty
involving personal profit, willful violation of any law, rule, regulation (other
than traffic violations or similar offenses) or final cease and desist order, or
any material breach of any material provision of this Agreement. In determining
incompetence, the acts or omissions shall be measured against standards
generally prevailing in the savings institution industry. Notwithstanding the
foregoing, Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of not less than a majority of the members
of the Board at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty of conduct justifying Termination for Cause
and specifying the particulars thereof in detail. Executive shall not have the
right to receive compensation or other benefits for any period after Termination
for Cause.

(d) Disability. “Disability” shall mean Executive’s inability to perform duties
normally associated with his position on a full-time basis for a period a six
consecutive months by reason of illness or other physical or mental disability.
The Bank or the Company may require a physician’s written confirmation that
Executive cannot perform his duties because of Executive’s Disability.

4.NOTICE OF TERMINATION

(a) Any termination by the Bank or by Executive shall be communicated by Notice
of Termination to the other party hereto. For purposes of this Agreement, a
“Notice of Termination” shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive’s employment under the provision so indicated. Any
termination by Executive as a result of an Involuntary Termination under Section
3(b)(ii) or (iii) hereof shall be communicated by Notice of Termination to the
Company within ninety (90) days of the event giving rise to the Involuntary
Termination.

(b) “Date of Termination” shall mean (A) if Executive’s employment is terminated
for Disability, thirty (30) days after a Notice of Termination is given
(provided that Executive shall not have returned to the performance of
Executive’s duties on a full-time basis during such thirty (30) day period), (B)
any termination of by Executive as a result of an Involuntary Termination as set
forth in Section 3(b)(ii) or (iii), thirty (30) days after a Notice of
Termination is given unless the Bank waives its right to cure and agrees to the
Involuntary Termination, and (C) if Executive’s employment is terminated for any
other reason, the date specified in the Notice of Termination (which, in the
case of a Termination for Cause, shall be immediate). In no event shall the Date
of Termination exceed thirty (30) days from the date Notice of Termination is
given.

5.SOURCE OF PAYMENTS

It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Bank. The
Company, however, guarantees payment and provision of all amounts and benefits
due hereunder to Executive and, if such amounts and benefits due from the Bank
are not timely paid or provided by the Bank, such amounts and benefits shall be
paid or provided by the Company.

 

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6.EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS

This Agreement contains the entire understanding between the parties hereto and
supersedes any prior agreement between the Bank and Executive, except that this
Agreement shall not affect or operate to reduce any benefit or compensation
inuring to Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that Executive is subject to receiving
fewer benefits than those available to him without reference to this Agreement.

7.NO ATTACHMENT

(a) Except as required by law, no right to receive payments under this Agreement
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or hypothecation, or to execution, attachment,
levy, or similar process or assignment by operation of law, and any attempt,
voluntary or involuntary, to affect any such action shall be null, void, and of
no effect.

(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Bank and their respective successors and assigns.

8.MODIFICATION AND WAIVER

(a) This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto.

(b) No term or condition of this Agreement shall be deemed to have been waived,
nor shall there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument of the party charged with such waiver or
estoppel. No such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of such term
or condition for the future or as to any act other than that specifically
waived.

9.REQUIRED PROVISIONS

 

(a) The Bank may terminate Executive’s employment at any time. Any termination
of Executive, however, shall be subject to the terms and conditions of this
Agreement. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause as defined herein.

(b) If Executive is suspended from office and/or temporarily prohibited from
participating in the conduct of the Bank’s affairs by a notice served under
Section 8(e)(3) (12 USC § 1818(e)(3)) or 8(g) (12 USC § 1818(g)) of the Federal
Deposit Insurance Act (the “FDI Act”), the Bank’s obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the Bank
may in its discretion (i) pay Executive all or part of the compensation withheld
while their contract obligations were suspended and (ii) reinstate (in whole or
in part) any of the obligations which were suspended.

 

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(c) If Executive is removed and/or permanently prohibited from participating in
the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) (12
USC § 1818(e)(4)) or 8(g)(1) (12 USC § 1818(g)(1)) of the FDI Act, all
obligations of the Bank under this Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.

(d) If the Bank is in default, as defined in Section 3(x)(1) (12 USC
§ 1813(x)(1)) of the FDI Act, all obligations of the Bank under this contract
shall terminate as of the date of default, but this paragraph shall not affect
any vested rights of the contracting parties.

(e) All obligations of the Bank under this contract shall be terminated, except
to the extent determined that continuation of the contract is necessary for the
continued operation of the Bank, (i) by the Comptroller of the Office of the
Comptroller of the Currency (the “OCC”) or his or her designee, at the time the
Federal Deposit Insurance Corporation (the “FDIC”) enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) (12 USC § 1823(c)) of the Federal Deposit Insurance Act; or (ii)
by the Comptroller or his or her designee at the time the Comptroller or his or
her designee approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the Comptroller to be in
an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.

(f) Notwithstanding anything herein contained to the contrary, any payments to
Executive by the Bank or the Company, whether pursuant to this Agreement or
otherwise, are subject to and conditioned upon their compliance with Section
18(k) of the Federal Deposit Insurance Act, 12 U.S.C. § 1828(k), and the
regulations promulgated thereunder in 12 C.F.R. Part 359.

10.SEVERABILITY

If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision, and part thereof, shall, to the full extent consistent
with law, continue in full force and effect.

11.HEADINGS FOR REFERENCE ONLY

The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

12.GOVERNING LAW

The validity, interpretation, performance, and enforcement of this Agreement
shall be governed by the laws of the State of Michigan, unless superseded or
preempted by Federal law as now or hereafter in effect.

 

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Any dispute or controversy arising under or in connection with this Agreement
shall be settled exclusively by arbitration, conducted before a single
arbitrator selected by the Bank and Executive and sitting in a location selected
by Executive within fifty (50) miles from the location of the Bank, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator’s award in any court having
jurisdiction.

13.PAYMENT OF LEGAL FEES

Legal fees pursuant to any dispute or question of interpretation relating to
this Agreement shall be paid by the Executive for those fees incurred by the
Executive and by the Bank for those fees incurred by the Bank.

14.SUCCESSOR TO THE BANK

The Bank shall require any successor or assignee, whether direct or indirect, by
purchase, merger, consolidation or otherwise, to all or substantially all the
business or assets of the Bank, expressly and unconditionally to assume and
agree to perform the Bank’s obligations under this Agreement, in the same manner
and to the same extent that the Bank would be required to perform if no such
succession or assignment had taken place.

 

[Signature page follows]

 

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SIGNATURES

IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement to be
executed by their duly authorized officer or director, and Executive has
executed this Agreement, on the day and date first above written.

ATTEST:     FIRST FEDERAL OF NORTHERN MICHIGAN             By:        
Name:  Martin A. Thomson       Title:    Chairman         ATTEST:     FIRST
FEDERAL OF NORTHERN       MICHIGAN BANCORP, INC.             By:        
Name:  Martin A. Thomson       Title:    Chairman         WITNESS:     EXECUTIVE
          By:         Name:  Michael W. Mahler       Title:    Chief Executive
Officer

 

 

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