EXHIBIT 10.1
Severance Compensation Agreement
     This Severance Compensation Agreement (the “Agreement”), has been made on
July 24, 2008 by Fentura Financial, Inc., a Michigan corporation (the
“Company”), The State Bank, (the “Bank”) and Donald L. Grill, an individual (the
“Executive”).
Background Statement:
     The Executive is a principal officer of the Bank and the Company and his
continued services are important to the Bank, its depositors and customers, and
the Company’s shareholders. The Bank and the Company believe it is in their best
interests that the Executive continue to render services to the Bank and the
Company if a Change in Control is threatened or occurs, free from the
distractions and vexations which might result if his personal economic security
is made uncertain as a result of an impending Change in Control.
     1. Definitions. The following words and phrases have the following
meanings:

  a)   “Cause” means (i) the willful and continuing failure by the Executive to
substantially perform his duties with the Bank or the Company (other than any
such failure resulting from the Executive’s death or Disability) and which is
not remedied in a reasonable period of time after receipt by Executive of
written notice from the Bank specifying the duties the Executive has failed to
perform, or (ii) the willful and continued engaging by Executive in gross
misconduct that is materially injurious to the Bank or the Company and which is
not ceased within a reasonable period of time after receipt by Executive of
written notice from the Bank specifying the misconduct and the injury, or (iii)
an adjudication of the Executive’s guilt of any crime involving a serious and
substantial breach of the Executive’s fiduciary duties to the Bank. No act or
failure to act on the Executive’s part shall be considered “willful” unless
done, or omitted to be done, by him in bad faith and without reasonable belief
that his action or omission was in the best interest of the Bank or the Company.
    b)   “Change in Control” means (i) the acquisition, directly, indirectly
and/or beneficially, by any person or group, of more than fifty percent (50%) of
the voting securities of the Company or the Bank, (ii) the occurrence of any
event at any time during any two (2) year period which results in a majority

 

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      of the Board of Directors of the Company or the Bank being comprised of
individuals who were not members of such Board at the commencement of that two
(2) year period (the “Incumbent Board”); provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company’s or the Bank’s shareholders, was approved by a vote
of at least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the Incumbent
Board, but excluding for this purpose any such individual whose initial
assumption of the office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a person other
than the Incumbent Board, (iii) a sale of all or substantially all of the assets
of the Company or the Bank to another entity, or (iv) a merger or reorganization
of the Company or the Bank with another entity.

  c)   “Compensation” means with respect to the period under consideration, the
aggregate of all amounts paid by the Company and the Bank to and includable in
the Executive’s earnings as base salary, bonuses, commissions, fees and any
other compensation, but excluding contributions made to any welfare and pension
benefit plans by the Bank and/or Company at its or their sole expense.     d)  
“Disability” means any physical or mental impairment which meets the definition
of disability found in the long-term or short-term disability policy insuring
the Executive at the time disability is alleged or if no such policy is in
effect at that time, any physical or mental impairment that, on the basis of
qualified medical opinion of three (3) medical doctors, has rendered Executive
wholly and permanently unable to engage in the regular and continuous occupation
or employment for remuneration or profit of a nature similar to his employment
with the Bank for a period of six (6) consecutive months or more.     e)   “Good
Reason” means any of the following, as determined by the Executive in his
discretion: (i) a material diminution of the Executive’s duties,
responsibilities, or authority with the Bank or the Company immediately prior to
a Change in Control, or a change adverse to Executive in Executive’s reporting
responsibilities, titles, terms of employment (including bonus, compensation,
fringe benefits and vacation entitlement) or (ii) the Bank or the Company
requiring Executive to be based anywhere other than within fifty (50) miles of
his present office location, or (iii) a material breach of this Agreement
including the failure by the Company to obtain the assumption of this Agreement
as contemplated in Section 6 hereof. Upon the occurrence of any event referenced
above, Executive shall, within ninety (90) of any occurrence, provide the Bank
and the Company notice of the existence of the condition. Upon receiving notice,
the Bank and the Company shall

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      have no more than thirty (30) days to remedy the condition. Executive
shall have two years from the date of the initial existence of a violation of
one of the above events to terminate his employment under this section.

     2. Income Protection Benefits. If the Executive is an employee of the Bank
or the Company when a Change in Control occurs, and the Executive’s employment
with the Bank, the Company and all affiliates of the Company is thereafter
terminated without Cause, or by the Executive for Good Reason, then:

  a)   The Company and the Bank shall pay to the Executive, in a lump sum in
cash within 30 days after the date of termination of employment the aggregate of
the following amounts:

  i)   that portion of the Executive’s annual base salary and director’s fees
through the date of termination not theretofore paid, and     ii)   the product
of (x) the sum of all commissions and bonuses of any kind paid or payable to
Executive in the calendar year immediately preceding the year in which
termination of employment occurs multiplied by (y) a fraction, the numerator of
which is the number of days in the current calendar year through the date of
termination, and the denominator of which is 365, and     iii)   a separate
lump-sum amount equal to 21/2 times the sum of the highest amount of the
Executive’s annual Compensation in the five calendar years immediately preceding
Executive’s termination.     iv)   any compensation previously deferred by the
Executive (together with any accrued interest o earnings thereon), and     v)  
any accrued vacation pay.

  b)   The Executive shall have the right within 90 days following termination
of employment to exercise any stock options awarded him prior to the termination
of his employment.     c)   The Bank and/or the Company shall provide to the
Executive, at its expense, hospital and medical insurance coverage of the same
or equivalent scope as he was covered by immediately prior to termination of his
employment for a period of 5 years after Executive’s termination of employment.
If, however, the Bank or the Company determines that such continued coverage
would be taxable as includible in income, the Bank or the Company, within
30 days after the date of termination of employment, shall provide to Executive
a

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      lump sum payment equal to the value 5 years of continued hospital and
medical insurance coverage of the same or equivalent scope as Executive was
covered by immediately prior to termination of his employment.

     3. Maximum Benefits upon Change in Control. If it is determined, in the
opinion of the Company’s independent accountants, in consultation, if necessary,
with the Company’s legal counsel, that any amount paid under this Agreement in
connection with a Termination Upon Change in Control, either separately or in
conjunction with any other payments, benefits and entitlements received by the
Executive in respect of a Change in Control hereunder or under any other plan or
agreement under which the Executive participates or to which he is a party,
would constitute an “excess Parachute Payment” within the meaning of
Section 280G of the Internal Revenue Code of 1986, and would thereby be subject
to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then
in such event, the Company shall pay to the Executive a “grossing-up” amount
equal to the amount of such Excise Tax, plus all federal and state income or
other taxes with respect to the payment of the amount of such Excise Tax,
including all such taxes with respect to any such grossing—up amount. If, at a
later date, the Internal Revenue Service assesses a deficiency against the
Executive for the Excise Tax which is greater than that which was determined at
the time such amounts were paid, then the Company shall pay to the Executive the
amount of such unreimbursed Excise Tax, plus any interest, penalties and
reasonable professional fees or expenses incurred by the Executive as a result
of such assessment, including all such taxes with respect to any such additional
amount. The highest marginal tax rate applicable to individuals at the time of
the payment of such amounts will be used for purposes of determining the federal
and state income and other taxes with respect thereto. The Company shall
withhold from any amounts paid under this Agreement the amount of any Excise Tax
or other federal, state or local taxes then required to be withheld.
Computations of the amount of any grossing-up supplemental compensation paid
under this Section

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shall be conclusively made by the Company’s independent accountants, or other
independent accountants retained by the Company, in consultation, if necessary
with the Company’s independent legal counsel. If, after the Executive receives
any gross-up payments or other amount pursuant to this Section, the Executive
receives any refund with respect to the Excise Tax, the Executive shall promptly
pay the Company the amount of such refund within ten (10) days of receipt by the
Executive, on a grossed-up basis. If the Company deems it necessary or advisable
to contest or appeal any assessment, or determination made by the Internal
Revenue Service relating to the imposition of an Excise Tax as described herein
(an “Excise Tax Contest/Appeal”), the Executive covenants and agrees to
reasonably cooperate with the Company in connection with the Excise Tax
Contest/Appeal; provided, however, that the Company shall be responsible for all
professional costs and expenses incurred by the Executive in connection with
such Excise Tax Contest/Appeal.
     4. Term. Unless earlier terminated by mutual agreement of the Company and
the Executive, this Agreement shall terminate upon the earliest of (a) the
termination of the Executive’s employment with the Bank and the Company for any
reason prior to a Change in Control; or (b) five (5) years from the date of a
Change in Control. Obligations under Section 2 of this Agreement created prior
to termination shall survive termination.
     5. Termination Prior To Change in Control. Notwithstanding anything in this
agreement to the contrary, if a Change in Control occurs and (i) if the
Executive’s employment with the Company or the Bank is terminated prior to the
date on which Change in Control occurs, and if the termination of employment
(a) was at the request or suggestion of a 3rd party who has taken steps
reasonably calculated to effect the Change in Control or (b) otherwise arose in
connection with or in anticipation of the Change in Control, or (ii) Executive
has terminated his employment with Company and/or Bank for Good Reason prior to
Change in Control, then Executive shall be entitled

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to the Income Protection Benefits and all other rights and privileges provided
by this Agreement.
     6. Successors, Binding Agreements.

  a)   Any purchaser, successor or assign (whether direct or indirect), to or of
all, substantially all, or any material part of the business, properties and
assets of the Bank and/or the Company shall be bound by the terms of this
Agreement, and the Bank and the Company shall require any such purchaser,
successor or assign, by agreement in form and substance satisfactory to
Executive, expressly, absolutely and unconditionally to assume and agree to
perform this Agreement in the same manner and to the same extent that the Bank
and the Company would be required to perform if no such succession or assignment
had taken place.     b)   The Bank and the Company each hereby guarantee the
timely payment and performance, when due, of the other’s obligations under this
Agreement.     c)   This Agreement shall inure to the benefit of and be
enforceable by the Executive’s personal and legal representatives, executives,
administrators, successors, heirs, distributees, devisees and legatees.

     7. Exemption from Section 409A. The Agreement and transactions under this
Agreement are intended to be structured in accordance with applicable laws,
rules and regulations including, but not limited to, the short-term deferral
exemption under Section 409A of the Internal Revenue Code and any applicable
regulations thereunder.
     8. Notices. Notices under this Agreement shall be in writing and shall be
deemed given when hand delivered or three (3) days after being mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
as follows:

     
If to the Company
or the Bank:
  Fentura Financial, Inc.
175 N. Leroy St.

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  PO Box 725
Fenton, MI 48430-0725
 
   
If to the Executive:
  Mr. Donald L. Grill
14655 S. Fowlerville Rd.
Perry, MI 48872-9594

     or to such other address as either party may designate.
     9. At Will Employment Preserved. This Agreement is intended only to provide
an economic benefit for Executive if his employment with the Bank or the Company
is terminated under the circumstances described herein. Even though this
economic benefit may be payable, Executive’s employment with the Bank and the
Company shall continue to be “at will,” and the Bank, the Company or the
Executive may terminate Executive’s employment with the Bank or the Company at
any time, with or without cause. Further, the existence of this Agreement and
the economic benefits herein provided shall not contradict, override, supersede
or in any way detract from or affect the “at will” employment status of any
other employee of the Bank or the Company. The employment terms set forth in the
Bank’s employee handbook or employee manual, as they may be in effect from time
to time, shall control.
     10. Miscellaneous.

  a)   Modification; Waiver. This Agreement may be modified, waived or
discharged only in, and limited to the extent specifically set forth in, a
written document signed by the Executive and the Company.     b)   Validity. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.     c)   Governing Law. This
Agreement shall be governed in all respects according to the laws of the State
of Michigan.

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  d)   Entire Agreement. This Agreement contains the entire understanding of the
parties concerning the Executive’s severance compensation opportunities. This
Agreement supersedes and controls over the Executive’s March 20, 1997 and
March 16, 2007 Severance Compensation Agreements with the Company and the Bank.
This Agreement does not supersede Executive’s Fentura Financial, Inc.
Confidentiality and Shareholder Protection Agreement dated July 9, 2003.

            COMPANY:
Fentura Financial, Inc.,
a Michigan corporation
      By:   /s/ Forrest A. Shook         Forrest A. Shook, Chairman             
  BANK:
The State Bank
      By:   /s/ Brian P. Petty         Brian P. Petty, Chairman               
EXECUTIVE:
      /s/ Donald L. Grill       Donald L. Grill           

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