Document:

EX-10.3

 

EXHIBIT 10.3

AMENDED AND RESTATED SEVERANCE AGREEMENT

     This Amended and Restated Severance Agreement (this “Agreement”) dated as of this           
day of                     , 2003, by and between Middlefield Banc Corp., an Ohio
corporation (“Middlefield”), and James R. Heslop, II, Executive Vice President and Chief Operating
Officer of Middlefield (the “Executive”), amends and restates in its entirety the Severance
Agreement dated November 28, 2001 by and between Middlefield and the Executive.

     Whereas, the Executive is an Executive Vice President and Chief Operating Officer of
Middlefield, the Executive is employed by Middlefield and its subsidiary The Middlefield Banking
Company, an Ohio-chartered, FDIC-insured nonmember bank, and the Executive has made and is expected
to continue to make major contributions to the profitability, growth, and financial strength of
Middlefield and its subsidiaries,

     Whereas, Middlefield recognizes that, as is the case for most companies, the
possibility of a Change in Control (as defined in Section 1(c)) exists,

     Whereas, Middlefield desires to assure itself of the current and future continuity of
management and desires to establish minimum severance benefits for certain of its officers and
other key employees, including the Executive, if a Change in Control occurs,

     Whereas, Middlefield wishes 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,

     Whereas, Middlefield desires to provide additional inducement for the Executive to
continue to remain in the ongoing employ of Middlefield and subsidiary,

     Whereas, none of the conditions or events included in the definition of the term
“golden parachute payment” that is set forth in §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, and

     Whereas, Middlefield’s board of directors has approved an amendment of section
2(a)(1) of the November 28, 2001 Severance Agreement for the purpose of increasing the lump sum
cash severance payment from two times the Executive’s annual compensation to 2.5 times annual
compensation, without intending to modify or amend any other provisions of this Agreement,
including but not limited to the term of the Agreement stated in section 5.

     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 Combined with Employment Termination

     (a) Termination of Executive Within Two Years After a Change in Control. If a Change in
Control occurs during the term of this Agreement and if either of the following also occurs, the
Executive shall be entitled to severance and termination benefits specified in Section 2 of this
Agreement —

	 	(1)	 	Termination by Middlefield or Subsidiary: the Executive’s employment
with Middlefield or its Subsidiary(ies) is involuntarily terminated within two
years after a Change in Control, except for termination under Section 4 of this
Agreement. For purposes of this Agreement, “Subsidiary” means an entity in
which Middlefield directly or indirectly beneficially owns 50% or more of the
outstanding voting securities, or
	 
	 	(2)	 	Termination by the Executive for Good Reason: the Executive terminates his
employment with Middlefield or Subsidiary(ies) for Good Reason (as defined in Section
3) within two years after a Change in Control.

 

 

     If the Executive is removed from office or if his employment terminates after discussions with
a third party regarding a Change in Control commence, and if those discussions ultimately conclude
with a Change in Control, then for purposes of this Agreement the removal of the Executive or
termination of his employment shall be deemed to have occurred after the Change in Control.

     (b) Termination by the Executive During a 90-day Period 12 Months after a Change in Control.
The Executive shall also be entitled to severance and termination benefits under Section 2 of this
Agreement if he terminates employment with Middlefield and Subsidiary(ies) for any reason or for no
reason during the 90-day period beginning on the date that is 12 months after a Change in Control.

     (c) Definition of Change in Control. For purposes of this Agreement, “Change in Control”
means any of the following events occur:

	 	(1)	 	Merger: Middlefield merges into or consolidates with another corporation, or
merges another corporation into Middlefield, and as a result less than a majority of
the combined voting power of the resulting corporation immediately after the merger or
consolidation is held by persons who were the holders of Middlefield’s voting
securities immediately before the merger or consolidation. For purposes of this
Agreement, the term person means an individual, corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or other entity,
	 
	 	(2)	 	Acquisition of Significant Share Ownership: a report on Schedule 13D, Schedule
TO, or another form or schedule (other than Schedule 13G), is filed or is required to
be filed under Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, if the
schedule discloses that the filing person or persons acting in concert has or have
become the beneficial owner of 15% or more of a class of Middlefield’s voting
securities (but this clause (2) shall not apply to beneficial ownership of voting
shares held by a Subsidiary in a fiduciary capacity),
	 
	 	(3)	 	Change in Board Composition: during any period of two consecutive years,
individuals who constitute Middlefield’s board of directors at the beginning of the
two-year period cease for any reason to constitute at least a majority thereof;
provided, however, that — for purposes of this clause (3) — each director who is first
elected by the board (or first nominated by the board for election by stockholders) by
a vote of at least two-thirds
(2⁄3) of the directors who were directors at the beginning
of the period shall be deemed to have been a director at the beginning of the two-year
period, or
	 
	 	(4)	 	Sale of Assets: Middlefield sells to a third party substantially all of
Middlefield’s assets. For purposes of this Agreement, sale of substantially all of
Middlefield’s assets includes sale of The Middlefield Banking Company.

2. Severance and Termination Benefits

     (a) Severance and Termination Benefits. The severance and termination benefits to which the
Executive is entitled under Section 1 are as follows —

	 	(1)	 	Lump Sum Payment: Middlefield shall make a lump sum payment to the Executive in
an amount in cash equal to 2.5 times the Executive’s annual compensation. For purposes
of this Agreement, annual compensation means (a) the Executive’s annual base salary on
the date of the Change in Control or the Executive’s termination of employment (at
whichever date the Executive’s current annual base salary is greater), plus (b) the
average of the bonuses and 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. 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

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	 	 	 	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 2(a)(1) is payable no later than 5 business days after
the date the Executive’s employment terminates. If the Executive terminates
employment for Good Reason, the date of termination shall be the date specified by
the Executive in his notice of termination.

	 	(2)	 	Benefit Plans: Middlefield shall cause the Executive to become fully vested in
any qualified and 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. Middlefield also shall contribute or cause a Subsidiary to
contribute to the Executive’s Middlefield Banking Company 401(k) Employee Savings and
Investment Plan account the matching and voluntary contributions, if any, that would
have been made had the Executive’s employment not terminated before the end of the plan
year.
	 
	 	(3)	 	Insurance Coverage: Middlefield shall cause to be continued life, health and
disability insurance coverage substantially identical to the coverage maintained for
the Executive before his 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. At the end of the 24-month period, the Executive
shall have the option to continue health insurance coverage at his own expense for a
period not less than the number of months by which the Consolidated Omnibus Budget
Reconciliation Act (COBRA) continuation period exceeds 24 months.

     (b) No Mitigation Required. Middlefield hereby acknowledges that it will be difficult and
could be impossible (1) for the Executive to find reasonably comparable employment after his
employment terminates, and (2) 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.
Accordingly, Middlefield further acknowledges that the payment of severance and termination
benefits by Middlefield under this Agreement is reasonable and will be liquidated damages, and 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.

3. Good Reason

     For purposes of this Agreement, “Good Reason” means the occurrence of any of the events or
conditions described in clauses (a) through (f) hereof without the Executive’s express written
consent —

     (a) Change in Office or Position or Termination as a Director: failure to elect or reelect
or otherwise to maintain the Executive in the office or position, or a substantially equivalent
office or position, of or with Middlefield and Subsidiary(ies) that the Executive held immediately
before the Change in Control, or the removal or failure to nominate the Executive as a director of
Middlefield (or any successor thereto) if the Executive shall have been a director of Middlefield
immediately before the Change in Control,

     (b) Adverse Change in the Scope of His Duties or Compensation and Benefits:

	 	(1)	 	a significant adverse change in the nature or scope of the authorities, powers,
functions, responsibilities or duties associated with the Executive’s position with
Middlefield compared to the nature or scope of the authorities, powers, functions,
responsibilities or duties associated with the position immediately before the Change
in Control,
	 
	 	(2)	 	a reduction in the aggregate of the Executive’s annual compensation received
from Middlefield, or
	 
	 	(3)	 	the termination or denial of the Executive’s rights to benefits under
Middlefield’s or Subsidiary’s(ies’) benefit, compensation and incentive plans and
arrangements or a reduction in

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	 	 	 	the scope or value thereof, which situation is not remedied within 10 calendar days
after written notice to Middlefield from the Executive,

     (c) Adverse Change in Circumstances: the Executive determines that a change in circumstances
has occurred after a Change in Control, including without limitation a change in the scope of the
business or other activities for which the Executive is responsible compared to his
responsibilities immediately before the Change in Control, (1) which renders the Executive
substantially unable to carry out, substantially hinders the Executive’s performance of, or causes
the Executive to suffer a substantial reduction in, any of the authorities, powers, functions,
responsibilities or duties associated with the office or position held by the Executive immediately
before the Change in Control, and (2) which situation is not remedied within 10 calendar days after
written notice to Middlefield from the Executive of such determination. Provided his determination
is made in good faith, the Executive’s determination will be conclusive and binding upon the
parties hereto. The Executive’s determination will be presumed to have been made in good faith,
unless Middlefield establishes by clear and convincing evidence that it was not made in good faith,

     (d) Liquidation and Merger of Middlefield: the liquidation, dissolution, merger,
consolidation or reorganization of Middlefield or transfer of all or substantially all of the
business or assets of either Middlefield or The Middlefield Banking Company, unless the successor
or successors (by liquidation, merger, consolidation, reorganization, transfer or otherwise) to
which all or substantially all of the business or assets have been transferred (directly or by
operation of law) assumes all duties and obligations of Middlefield under this Agreement,

     (e) Relocation of the Executive: Middlefield relocates its principal executive offices, or
requires the Executive to have his principal location of work changed, to any location that is more
than 15 miles from the location thereof immediately before the Change in Control, or requires the
Executive to travel away from his office in the course of discharging his responsibilities or
duties hereunder at least 20% more (in terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to any prior year) than was required of
Executive in any of the three full years immediately before the Change in Control, or

     (f) Breach of this Agreement: without limiting the generality or effect of the foregoing,
any material breach of this Agreement by Middlefield or any successor thereto.

4. Termination for Which No Severance or Termination Benefits Are Payable

     (a) No Severance for Termination for Cause. Anything in this Agreement to the contrary
notwithstanding, under no circumstance shall the Executive be entitled to severance or termination
benefits if his employment terminates for Cause.

	 	(1)	 	Cause Means Commission of Any of the Following Acts: For purposes of this
Agreement, “Cause” means the Executive shall have committed any of the following acts —

	 	(a)	 	Fraud, Embezzlement, Theft or Other Crime: an act of fraud,
embezzlement or theft in connection with his duties or in the course of his
employment with Middlefield or a Subsidiary, or commission of a felony or
commission of a misdemeanor involving moral turpitude,
	 
	 	(b)	 	Negligence, Disloyalty or Violation of Law or Policy: the
Executive’s gross negligence or gross neglect of duties, disloyalty,
dishonesty, or willful violation of any law or significant policy of
Middlefield committed in connection with the Executive’s employment and
resulting in an adverse effect on Middlefield or a Subsidiary,
	 
	 	(c)	 	Disclosure of Trade Secrets: intentional wrongful disclosure
of secret processes or confidential information of Middlefield or a Subsidiary,
causing material harm to Middlefield or the Subsidiary,

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	 	(d)	 	Competing with Middlefield: intentional wrongful engagement in
any competitive activity. For purposes of this Agreement, competitive activity
means the Executive’s participation, without the written consent of a senior
executive officer of Middlefield, in the management of any business enterprise
if (1) the enterprise engages in substantial and direct competition with
Middlefield, (2) the enterprise’s revenues derived from any product or service
competitive with any product or service of Middlefield or Subsidiary(ies)
amounted to 10% or more of the enterprise’s revenues for its most recently
completed fiscal year, and (3) 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 give him 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.
	 
	 	 	 	If the Executive is now or hereafter becomes subject to an agreement not to
compete with Middlefield or Subsidiary(ies), a breach by the Executive of
that other non-competition agreement shall be grounds for denial of
severance and termination benefits for Cause under this clause (d) of
Section 4(a)(1). But if the Executive engages in a competitive activity
under circumstances justifying denial of severance or termination benefits
for Cause under this clause (d), that shall not necessarily be grounds for
concluding that the Executive has also breached the other non-competition
agreement to which he is or may become subject. This clause (d) is not
intended to and shall not be construed to supersede or amend any provision
of an employment or non-competition agreement to which the Executive is or
may become subject. This clause (d) does not grant to the Executive any
right or privilege to engage in other activities or enterprises, whether in
competition with Middlefield or otherwise, or
	 
	 	(e)	 	Termination for Cause under an Employment Agreement: 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.

	 	(2)	 	Definition of “Intentional”: For purposes of this Agreement, no act or failure
to act on the part of the Executive 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 the best
interests of Middlefield.
	 
	 	(3)	 	Termination for Cause Can Occur Solely by Formal Board Action. The Executive
shall not be deemed under this Agreement to have been terminated for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of at least three-fourths (3/4) of the directors of
Middlefield then in office at a meeting of the board of directors called and held for
such purpose, which resolution shall (a) contain findings that, in the good faith
opinion of the board, the Executive has committed an act constituting Cause and (b)
specify the particulars thereof in detail. Notice of that meeting and the proposed
determination of Cause shall be given to the Executive a reasonable amount of time
before the board’s meeting. The Executive and his 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 his 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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     (b) No Severance under this Agreement for the Executive’s Death or Disability. Anything
in this Agreement to the contrary notwithstanding, under no circumstance shall the Executive be
entitled to severance payments or termination benefits under this Agreement if —

	 	(1)	 	Death: the Executive dies while actively employed by Middlefield or a
Subsidiary, or
	 
	 	(2)	 	Disability: 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
his duties.

     The benefits, if any, payable to the Executive or his beneficiary(ies) or estate relating to
his 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 November
28, 2001. On the first anniversary of the November 28, 2001 effective date of this Agreement, and
on each anniversary thereafter, the 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.
Unless terminated earlier, this Agreement shall terminate when the Executive reaches age 65. 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. The board’s decision not to extend the term
of this Agreement shall not — by itself — give the Executive any rights under this Agreement to
claim an adverse change in his position, compensation or circumstances or otherwise to claim
entitlement to severance or termination benefits under this Agreement.

6. This Agreement Is Not an Employment Contract

     The parties hereto acknowledge and agree that (a) this Agreement is not a management or
employment agreement and (b) 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, nor shall it give Middlefield any rights or impose any obligations for the continued
performance of duties by the Executive for Middlefield or any Subsidiary or successor of
Middlefield.

7. Payment of Legal Fees

     Middlefield desires that the Executive not be required to incur legal fees and the related
costs and expenses associated with the interpretation, enforcement or defense of Executive’s rights
under this Agreement by litigation or otherwise, because the amounts thereof would substantially
detract from the benefits intended to be extended to the Executive under this Agreement.
Therefore, even if the Executive does not prevail in whole or in part in litigation or other legal
action associated with the interpretation, enforcement or defense of Executive’s rights under this
Agreement, Middlefield hereby agrees to pay and be solely financially responsible for any and all
attorneys’ and related fees, costs and expenses incurred by the Executive in the litigation or
other legal action, up to a maximum of $500,000. The fees and expenses of counsel selected by the
Executive 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 such counsel in
accordance with counsel’s customary practices. Anything herein to the contrary notwithstanding,
nothing in this Agreement authorizes Middlefield to pay or the Executive to demand payment of fees,
costs and expenses if and to the extent payment of fees, costs and expenses constitutes a
“prohibited indemnification payment” within the meaning of Federal Deposit Insurance Corporation
Rule 359.1(l)(1) [12 CFR 359.1(l)(1)]. Middlefield’s obligation in this Section 7 to pay the
Executive’s legal fees operates separately from and in addition to any legal fee reimbursement
obligation Middlefield or a Subsidiary may have under any separate employment or other agreement
between the Executive and Middlefield.

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     Middlefield irrevocably authorizes the Executive to retain from time to time counsel of
Executive’s choice to advise and represent him in the interpretation, enforcement or defense of the
parties’ rights and responsibilities under this Agreement, if —

	 	(1)	 	the Executive concludes that Middlefield has failed to comply with any of its
obligations under this Agreement, or
	 
	 	(2)	 	if Middlefield or any other person takes or threatens to take any action to
declare this Agreement void or unenforceable, or institutes any litigation or other
action or proceeding designed to deny, or to recover from, the Executive the benefits
provided or intended to be provided to the Executive under this Agreement,

including without limitation 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.

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 Middlefield’s 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. Any such successor shall thereafter be deemed to be
the “Corporation” for purposes of this Agreement. 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 if no such succession had occurred.

     (b) This Agreement Is Enforceable by the Executive and His Heirs. This Agreement will inure
to the benefit of and be enforceable by the Executive’s personal or legal representatives,
executors, administrators, successors, heirs, distributes and legatees.

     (c) This Agreement Is Personal in Nature 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 or effect 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

     All notices, requests, demands and other communications hereunder shall be in writing and
shall be deemed to have been duly given if delivered by hand or mailed, certified or registered
mail, return receipt requested, with postage prepaid to the following addresses or to such other
address as either party may designate by like notice.

	 	 	 	 	 
	 

	 	(a) If to Middlefield, to:
	 	Middlefield Banc Corp.
	 

	 	 	 	15985 East High Street

	 

	 	 	 	P.O. Box 35
	 

	 	 	 	Middlefield, Ohio 44062

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Attn: Corporate Secretary

	 	 	 	 	 	 	 
	 

	 	(b) If to the Executive, to:
	 	Mr. James R. Heslop, II
	 	 
	 

	 	 	 	15985 East High Street	 	 
	 

	 	 	 	Middlefield, Ohio 44062	 	 

and to such other or additional person or persons as either party shall have designated to the
other party in writing by like notice.

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 such waiver,
modification or discharge is agreed to in a writing or writings 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 compliance with any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise, expressed or
implied with respect to the subject matter hereof have been made by either party that are not set
forth expressly in this Agreement.

13. Severability

     The provisions of this Agreement shall be deemed 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 only 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 hereof. No rights are granted to the Executive under this Agreement
other than those specifically set forth herein.

     In Witness Whereof, the parties have executed this Agreement as of the date first
written above.

Witnesses:                                         Middlefield Banc Corp.

	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	Thomas G. Caldwell
	 

	 	Its:
	 	President and Chief Executive Officer	 	 

Witnesses:                                         Executive

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James R. Heslop, II                    

	 	 	 	 	 	 	 
	County of Geauga

	 	 	)	 	 	 
	 

	 	 	 ) ss:	 	 	 
	State of Ohio

	 	 	)	 	 	 

     Before me this                     day of                     , 2003, personally appeared
the above named Thomas G. Caldwell and James R. Heslop, II, who acknowledged that they did sign the
foregoing instrument and that the same was their free act and deed.

	 	 	 	 	 
	 	 	 	 	 
	(Notary Seal)

	 	Notary Public	 	 
	 

	 	 	 	My Commission Expires:

9EX-10.1 Authorization, Terms and Conditions

 

Exhibit 10.1

HARSCO CORPORATION

1995 EXECUTIVE INCENTIVE COMPENSATION PLAN

AUTHORIZATION, TERMS, AND CONDITIONS OF

ANNUAL INCENTIVE AWARDS

(As Amended and Restated April 27, 2004)

	1.	 	Purposes of Annual Incentive Awards
	 
	 	 	The grant of Annual Incentive Awards (“Awards”) under the 1995 Executive Incentive
Compensation Plan is intended to further the profitable growth of Harsco Corporation (the
“Company”) by offering a short-term incentive opportunity, in addition to base salary, to
officers and key corporate and divisional employees of the Company and its subsidiaries who
are largely responsible for such growth, to the benefit of the Company’s stockholders. Such
Awards are expected to encourage recipients to improve their performance and remain with the
Company and its subsidiaries, and encourage other qualified persons to seek and accept
employment with the Company and its subsidiaries.
	 
	2.	 	Overview
	 
	 	 	This document (the “Terms and Conditions”) sets forth the authorization, terms, and conditions
of Awards under the Company’s 1995 Executive Incentive Compensation Plan (the “1995 Plan”), as
determined by the Management Development and Compensation Committee (the “Committee”). These
Terms and Conditions are subject to, and qualified in their entirety by reference to, the 1995
Plan, including Section 6(h) of the 1995 Plan setting forth certain terms relating to Awards.
If any of the Terms and Conditions are inconsistent with the 1995 Plan, the terms of the 1995
Plan shall control. Words used in these Terms and Conditions but not otherwise defined herein
shall have the meanings ascribed to such words in the 1995 Plan.
	 
	3.	 	Definitions
	 
	 	 	In addition to terms defined in Sections 1 and 2 hereof, the following terms shall be defined
as set forth below:

	 	3.1	 	Base Salary means salary actually earned by a Participant during the
Performance Year to which the Award relates (as distinct from the annual salary rate in
effect at the end of such Performance Year). This amount excludes (i) payments resulting
from awards authorized under the Company’s Annual and Long-Term Incentive Plans in effect
prior to

 

 

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	 	 	 	1995 and (ii) payments under the 1995 Plan, the Terms and Conditions, or any
Awards thereunder.
	 
	 	3.2	 	Bonus Multiple means the sum of the Excess Bonus Multiple and the Target
Multiple. The Bonus Multiple will not be less than zero.
	 
	 	3.3	 	Cash Bonus means the product of the Bonus Multiple and the Target Bonus,
provided however that the Bonus Multiple used in this calculation shall not exceed 2.0.
	 
	 	3.4	 	Cause means (i) the willful and continued failure by the Participant to
substantially perform his or her duties with the Company or a subsidiary (other than such
failure resulting from the Participant’s incapacity due to physical or mental illness),
or (ii) the willful engaging by the Participant in illegal conduct, or (iii) the willful
engaging by the Participant in conduct in violation of any provision of the Code of
Conduct or other published policies of the Company, or (iv) the willful engaging by the
Participant in any act of serious dishonesty which adversely affects, or in the
reasonable judgment of the Committee, could in the future adversely affect, the value,
reliability or performance of the Participant to the Company. For purposes of this
definition, no act, or failure to act, on the part of the Participant shall be considered
“willful” unless done, or omitted to be done, by the Participant in bad faith and without
reasonable belief that his or her action or omission was in, or not opposed to, the best
interests of the Company.
	 
	 	3.5	 	EVA or Economic Value Added means the level of economic value added
generated by the Company or by a designated EVA Center during a given Performance Year or
other specified period and which is determined in accordance with the procedures and
guidelines established by the Company prior to the Performance Year.
	 
	 	3.6	 	EVA Center means the Company as a whole or any division, subsidiary or
business unit of the Company recognized by the Committee for purposes of this Plan and
for which a separate EVA calculation is performed.
	 
	 	3.7	 	EVA Improvement means, for any Performance Year for any EVA Center, the
difference between the current Performance Year’s EVA and the EVA for that same EVA
Center for the immediately prior Performance Year. EVA Improvement may be a negative
number.
	 
	 	3.8	 	EVA Interval means the difference between the Targeted EVA Improvement and
the EVA Improvement at the point at which the first dollar of bonus will be earned. (The
EVA Interval is also equal to the difference between the EVA Improvement level at which
the Bonus

 

 

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	 	 	 	Multiple is 2.0 and the Targeted EVA Improvement.) The EVA Interval will be
established by the Committee in accordance with Section 4.1.
	 
	 	3.9	 	Excess Bonus Multiple means the quotient of the Excess EVA Improvement
divided by the EVA Interval. This amount can be a negative number.
	 
	 	3.10	 	Excess EVA Improvement means the difference between the EVA Improvement for
a Performance Year less the Target EVA Improvement for that same Performance Year.
Excess EVA Improvement can have a negative value.
	 
	 	3.11	 	Fair Market Value of Common Stock as of any given date means the average of
the high and the low sale prices of a share of common stock reported in the table
entitled “New York Stock Exchange Composite Transactions” contained in The Wall
Street Journal (or an equivalent successor table) for such date or, if no such prices
are reported for such date, on the most recent trading day prior to that date for which
such prices were reported.
	 
	 	3.12	 	Normal Retirement means retirement at or after age 62 with at least 30
years of service, or at or after age 65.
	 
	 	3.13	 	Participant means an officer or key employee of the Company or a
subsidiary, who has been identified by the Committee as being eligible for a potential
award.
	 
	 	3.14	 	Performance Year means the fiscal year or other specified period during
which the achievement of Target EVA Improvement with respect to a given Award shall be
measured.
	 
	 	3.15	 	Salary Level means the numbered category assigned to each Participant for
purposes of determining annual salary rate under the Company’s executive compensation
program, as of the end of the Performance Year to which an Award relates.
	 
	 	3.16	 	Supplemental Stock Options mean options to purchase the Common Stock of
Harsco Corporation granted pursuant to Article 6 of these Terms and Conditions.
Supplemental Stock Options shall be separate from and in addition to any stock options
which may otherwise be granted under the Plan.
	 
	 	3.17	 	Target Bonus means an amount equal to the product of the Participant’s Base
Salary, Salary Level and 0.02 (.03 X .666) for any given Performance Year.

 

 

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	 	3.18	 	Target EVA Improvement means level of EVA improvement the Company or any
EVA Unit is to achieve in a given Performance Year. Targeted EVA Improvement is
generally intended to represent a level of performance which the Committee believes, in
its sole discretion, would merit payment of incentive compensation at a normal or median
level. The Target EVA Improvement shall be established by the Committee in accordance
with Section 4.1.
	 
	 	3.19	 	Target Multiple means, for purposes of calculating a Participant’s Award,
1.0.
	 
	 	3.20	 	Termination means a termination of employment immediately after which the
Participant is not an employee of the Company or any subsidiary. Conversion from
full-time or part-time employment or a leave of absence from employment, if approved by
the Committee, shall not be deemed to be a Termination for purposes of these Terms and
Conditions.

	4.	 	Performance Objectives and Award Notification

	 	4.1	 	Performance Objectives. Prior to the commencement of each Performance
Year, the Committee shall specify the Target EVA Improvement and the EVA Interval for the
Company and each EVA Center. Initially, the Target EVA Improvement and the EVA Interval
shall be established for each Performance Year of the subsequent three year performance
cycle. Annually thereafter, the applicable Target EVA Improvement and EVA Interval will
be established by the Committee shall be only for the third year of the ongoing three
year performance cycle. The Committee, in its sole discretion, may adjust any previously
established Target EVA Improvement or EVA Interval for any Performance Year, provided
that such adjustment must be made prior to the commencement of such Performance Year.
	 
	 	4.2	 	Notification of Awards. The Company shall notify members of the class of
eligible employees of their selection for participation and the applicable Target EVA
Improvement and EVA Interval for the Performance Year as promptly as practicable. Such
notification shall be accomplished in any reasonable manner, in the discretion of the
Committee.

 

 

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	5.	 	Settlement of Awards

	 	5.1	 	Determination of Award and Limitation Thereof. As promptly as practicable
following the end of each Performance Year, the Company shall determine the EVA achieved
by the Company and each EVA Center for such year. The Committee shall review the EVA
determinations along with the other material terms and conditions relating to the payout
of an award under the Plan. If all conditions for the payout of an Award have been
satisfied, the Committee shall then determine the Award if any, deemed to be earned as a
result of the actual EVA achieved by the Company and/or the EVA Center for the
Performance Year. The Earned Award shall be calculated by determining the EVA
Improvement for the Performance Year and comparing that with the Targeted EVA Improvement
and the EVA Interval to determine the Excess EVA Improvement. The Committee shall then
determine the Excess Bonus Multiple, the Bonus Multiple and the Cash Bonus. In the event
that a Participant’s Cash Bonus exceeds $2,000,000, the Cash Bonus for such Participant
shall be reduced to that amount. An sample calculation of an award is attached as
Exhibit A to this Plan.
	 
	 	5.2	 	Payment of Cash and Grant of Stock. At the time the Committee determines a
Participant’s Cash Bonus under Section 5.1, each Participant shall become entitled,
subject to Sections 5.3 and 5.4, to receive a payment in cash equal to his or her Cash
Bonus. Such cash payment shall be made as promptly as practicable after the
determination by the Committee of the Participant’s Cash Bonus.
	 
	 	5.3	 	Committee Discretion. The Committee may, at any time prior to the payment
under Section 5.2, adjust or modify the Cash Bonus determined under Section 5.1: (1) in
recognition of unusual or nonrecurring events affecting the Company or any EVA Center, or
the financial statements or results thereof, or in response to changes in applicable laws
(including tax, disclosure, and other laws), regulations, accounting principles, or other
circumstances deemed relevant by the Committee, (2) in view of the Committee’s assessment
of the business strategy of the Company and/or the EVA Centers thereof, performance of
comparable organizations, economic and business conditions, personal performance of the
Participant, and other circumstances deemed relevant by the Committee, or (3) with
respect to any Participant whose position or duties with the Company or any subsidiary
has changed; provided, however, that no such adjustment or modification may be made with
respect to an Award granted to a “covered employee” within the meaning of Code Section
162(m) and regulations thereunder if and to the extent that such adjustment or
modification would increase the amount of compensation payable to

 

 

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	 	 	 	such covered employee. Examples of considerations which might influence the Committee in exercising its
discretion hereunder include:

	 	(a)	 	Achievement of a rate of return on stockholders’ equity which was either
significantly more or significantly less than the Committee’s estimate of the
Company’s competitive cost of equity.
	 
	 	(b)	 	The existence of compensation restraints at an EVA Center.
	 
	 	(c)	 	A substantial change in the established strategic performance objectives
during the period.
	 
	 	(d)	 	A substantial change in the composition of an EVA Center during the
period.

	 	5.4	 	Settlement of Award In the Event of Termination. In the event of a
Participant’s Termination, such Participant (or his or her beneficiary) shall receive, in
lieu of payment of all amounts specified in Section 5.2, settlement of such Participant’s
Award as provided in this Section 5.4.
	 
	 	 	 	In the event of a Participant’s Termination by reason of Normal Retirement, death, or
full and permanent disability (as determined by the Committee) prior to the end of a
Performance Year to which an award relates, the calculation of the Participant’s Cash
Bonus shall be determined under Section 5.1. However, the definition of “Base Salary”
will have the effect of prorating the Participant’s Award according to the salary
actually earned during the year to the date of retirement. In the event of a
Participant’s Termination for any reason other than an involuntary Termination for Cause
after the end of a Performance Year to which an Award relates but prior to settlement of
an Award relating to such Performance Year, the Participant’s Cash Bonus shall be
determined under Section 5.1.
	 
	 	 	 	Any settlement under this Section 5.4 shall be made in the form of a payment in cash only
(as adjusted under this Section 5.4).
	 
	 	 	 	In the event of a Participant’s Termination (i) for any reason other than Normal
Retirement, death, or full and permanent disability (as determined by the Committee)
prior to the end of a Performance Year to which an Award relates or (ii) which is an
involuntary Termination for Cause after the end of a Performance Year to which an Award
relates but prior to the Committee’s determination of the Participant’s Cash Bonus, the
Award of such Participant for such Performance Year shall be forfeited.

 

 

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	 	5.5	 	Certification. Determinations by the Committee under this Section 5 shall
be set forth in a written certification, which may include for this purpose approved
minutes of a meeting of the Committee at which such determinations were made.

	6.	 	Supplemental Stock Options

	 	6.1	 	In the event the Bonus Multiple for any Participant exceeds 2.0, the Participant
shall be eligible to receive a grant of Supplemental Stock Options, the value of which
shall be equal to the difference between (i) the product of the Bonus Multiple and the
Target Bonus and (ii) the product of 2.0 and the Target Bonus. Any fractional amount
shall be rounded to the nearest whole share amount. The Committee shall review every
grant of Supplemental Stock Options authorized under this Section to confirm that such
payments can be made under the terms of the Plan and that necessary shares are available
to make such payment. The Committee shall have discretion to reduce or eliminate the
Supplemental Stock Option grant provided for in this Section 6.1 if it determines, in its
sole discretion that the granting of the Supplemental Stock Options would not be in the
best interest of the Company.
	 
	 	6.2	 	No payment of Supplemental Stock Options shall be made to any Participant if (i)
the Participant’s Cash Bonus for the given Performance Year was equal to $2,000,000 or
(ii) if such Participant was not eligible to receive a grant of Supplemental Stock
Options for that Performance Year under the terms of the 1995 Plan. In addition, any
Participant’s Supplemental Stock Option grant which may be payable under Section 6.1
shall be reduced to the extent that the sum of the values of the Participant’s
Cash Bonus and Supplemental Stock Option grant under Section 6.1 exceeds $2,000,000.
	 
	 	6.3	 	
 For purposes of determining the number of Supplemental Stock Options to be granted
under Section 6.1 the Black-Scholes method of stock option valuation shall be used. No
Supplemental Stock Options for fractional shares shall be issued. The valuation of
Supplemental Stock Options for purposes of Section 6.2 shall also be determined in
accordance with the Black-Scholes method of valuing stock options

	7.	 	Administration
	 
	 	 	Administrative details relating to Awards shall be handled by the Administrator, which shall
be one or more individuals, employed in the Company’s corporate office, designated by the
Chief Executive Officer of the Company to serve in such capacity.

 

 

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EXHIBIT A

EXAMPLE BONUS CALCULATION

	 	 	 	 	 	 	 	 	 
	 	 	2001	 	 	2002	 
	EVA
	 	 	($19.5	)	 	$	15.0	 
	 
	 	 	 	 	 	 	 	 
	EVA Improvement
	 	 	 	 	 	$	34.5	 
	Less: Target EVA Improvement
	 	 	 	 	 	$	4.8	 
	 
	 	 	 	 	 	 	 
	= Excess EVA Improvement
	 	 	 	 	 	$	29.7	 
	 
	 	 	 	 	 	 	 	 
	Divide by Interval
	 	 	 	 	 	$	32.0	 
	 
	 	 	 	 	 	 	 
	= Excess Bonus Multiple
	 	 	 	 	 	 	0.93	 
	 
	 	 	 	 	 	 	 	 
	+ Target Multiple
	 	 	 	 	 	 	1.00	 
	 
	 	 	 	 	 	 	 
	= Bonus Multiple
	 	 	 	 	 	 	1.93	 
	x Target Bonus
	 	 	 	 	 	$	10,000	 
	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	= Bonus Declared
	 	 	 	 	 	$	19,281

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