Document:

a50600265ex10_2.htm

Exhibit 10.2

 

RABBI TRUST AGREEMENT

 (a)           This Agreement made this 28th day of March, 2013, by and between LNB Bancorp, Inc, a corporation organized under the laws of the State of Ohio (the “Company”) and U.S. Bank National Association, a national banking association organized under the laws of the United States with offices in Minneapolis, Minnesota (the “Trustee”);

 (b)           WHEREAS, Company has adopted and maintains the nonqualified deferred compensation plan listed in Exhibit A hereto (the “Plan”).

 (c)           WHEREAS, Company has incurred or expects to incur liability under the terms of such Plan with respect to the individual participating in such Plan;

(d)           WHEREAS, Company wishes to establish a trust (the “Trust”) and to contribute to the Trust assets that will be held therein, subject to the claims of Company's creditors in the event of Company's Insolvency, as herein defined, until paid to the Plan participant and his beneficiaries in such manner and at such times as specified in the Plan;

(e)           WHEREAS, it is the intention of the parties that this Trust will constitute an unfunded arrangement and will not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”);

(f)           WHEREAS, it is the intention of Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plan;

(g)           WHEREAS, “Trustee Type” means a directed trustee; and

(h)           WHEREAS, “1099 Filer” means Trustee.

NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust will be comprised, held and disposed of as follows:

SECTION 1.  ESTABLISHMENT OF TRUST

(a)           Company hereby deposits with Trustee in trust $25,000 which will become the principal of the Trust to be held, administered and disposed of by Trustee as provided in this Agreement.  Notwithstanding any provision herein to the contrary, upon inspection, Trustee may decline to accept real property and other non-cash assets into the trust.

(b)           The Trust hereby established is revocable by Company, but it will become irrevocable upon the occurrence of a Special Circumstance.  The Company hereby represents that the occurrence of a Special Circumstance will not result in assets becoming restricted to the payment of benefits in connection with a change in the Company’s financial health within the meaning of Section 409A(b)(2) of the Internal Revenue Code of 1986, as amended (the “Tax Code”);

(c)           The Trust is intended to be a grantor trust, of which Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Tax Code (more commonly known as a “rabbi trust”) and will be construed accordingly.

(d)           The principal of the Trust and any earnings thereon will be held separate and apart from other funds of Company and will be used exclusively for the uses and purposes of the Plan participant and general creditors as herein set forth. The Plan participant and his beneficiaries will have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust.  Any rights created under the Plan and this Agreement will be mere unsecured contractual rights of the Plan participant and his beneficiaries against Company.  Any assets held by the Trust will be subject to the claims of Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3(a) herein.  If Company’s parent corporation contributes assets to the Trust for the benefit of employees or service providers of Company, or if Company contributes assets to the Trust for the benefit of employees or service providers of Company’s subsidiary (in either case, “Parent Contributions”), the Parent Contributions will be subject to the claims of general creditors under federal and state law of (i) the parent corporation, in the event of the parent corporation’s Insolvency, as defined in Section 3(a) herein, and (ii) the subsidiary, in the event of the subsidiary’s Insolvency, as defined in Section 3(a) herein.

 

  

  

  

 

(e)           Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with Trustee to augment the principal to be held, administered and disposed of by Trustee as provided in this Agreement.  Neither Trustee nor the Plan participant or his beneficiaries will have any right to compel such additional deposits.

Upon the occurrence of a Special Circumstance, Company will, as soon as possible, but in no event longer than thirty (30) days following the date of the occurrence of the Special Circumstance:  (i) make an irrevocable contribution to the Trust in an amount that is sufficient to pay the Plan participant or his beneficiaries the benefits to which the Plan participant or his beneficiaries would be entitled pursuant to the terms of the Plan as of the date on which the Special Circumstance occurred, plus an amount that is sufficient to pay for five (5) years of expenses of Trustee and of any Outside Manager (as that term is defined in Section 5(a) herein); and (ii) within thirty (30) days following the end of each Plan year, ending after the Trust has become irrevocable pursuant to Section 1(b) hereof, Company will be required to irrevocably deposit additional cash or other property to the Trust in an amount sufficient to pay the Plan participant or his beneficiaries the benefits payable pursuant to the terms of the Plan as of the close of the Plan year.

(f)           Notwithstanding anything herein to the contrary, Company hereby represents that it

(1)           Will not contribute assets to the Trust that are located outside of the United States or cause Trust assets to be transferred outside of the United States;

(2)           Will not contribute assets to the Trust (i) in connection with a change in Company’s financial health; (ii) when Company’s tax-qualified defined benefit plan, if any, is in at-risk status; (iii) when Company is a debtor in a case under the United States Bankruptcy Code (the “Bankruptcy Code”) or similar state law; or (iv) six (6) months before or after the date Company’s tax-qualified defined benefit plan, if any, terminates while insufficient for benefit liabilities;

(3)           Will give Trustee prompt written notice should the preceding conditions (i) through (iv) preclude the operation of an Agreement provision that would otherwise cause the Trust to become irrevocable; and

(4)           Is not a “nonqualified entity” within the meaning of Tax Code Section 457A(b).

(g)           Trustee will be subject to the direction of Company as set forth herein.  To the extent Company delegates any of its rights or duties under this Agreement to a third party, Company will remain liable under this Agreement as if Company had exercised such rights or performed such duties directly.

SECTION 2.  PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES.

(a)           Company is the administrator of the Plan.  Company will deliver to Trustee a schedule (the “Payment Schedule”) that shows the:

 

  

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(1)           Amounts payable from the Trust (gross of all taxes to be paid with Trust assets) in respect of the Plan participant (and his beneficiaries);

(2)           Each payee’s status as current employee, former employee, outside director, independent contractor, or beneficiary;

(3)           The amount, type, and taxing authority for each tax to be paid with Trust assets in respect of the Plan participant (and his beneficiaries) (the total dollar amount thereof, the “Tax Reserve”);

(4)           Amounts payable from the Trust (net of all taxes to be paid with Trust assets) in respect of the Plan participant (and his beneficiaries) (“Net Benefit Payments”);

(5)           Form in which Net Benefit Payments are to be paid (as provided for or available under the Plan), and;

(6)           Time of commencement for Net Benefit Payments.

Notwithstanding anything herein to the contrary, if a Special Circumstance occurs, the Company shall not amend or modify the Payment Schedule, or make or continue an election under Section 2(d) to make benefit payments directly to the Plan participant, without the written consent of the Plan participant or, if after the Plan participant’s death, the Plan participant’s beneficiaries.

(b)           Except as otherwise provided herein, Trustee will make payments to the Plan participant and his beneficiaries in accordance with such Payment Schedule.  Company will perform any tax calculations, withholding, disclosing, reporting, and remitting of any federal, state, or local taxes that may be required to be calculated, withheld, disclosed, reported, and remitted with respect to the payment of Plan benefits.  Trustee will have no responsibility for such tax calculations, withholding, disclosing, reporting, and remitting, except that:

 

(1)           Trustee will make Net Benefit Payments; and

(2)           With respect to payees that are outside directors, independent contractors, or beneficiaries, Trustee will (i) file a Form 1099-MISC or 1099-R, as the case may be, with the Internal Revenue Service (“IRS”) (and any comparable information return with any state or local taxing authority shown for the payee on the Payment Schedule); (ii) remit the portion of the Tax Reserve that relates to such returns to the appropriate taxing authorities; and (iii) furnish the payee with a statement containing the information furnished to the IRS, provided Company has given Trustee all the information that Trustee requires in order to carry out those duties.  With respect to payees that are current or former employees, Company may direct Trustee to distribute their portion of the Tax Reserve to Company to reimburse Company for remittances paid by Company to the appropriate taxing authorities.

(c)           The entitlement of the Plan participant or his beneficiaries to benefits under the Plan will be determined by Company or such party (other than Trustee) as it will designate under the Plan, and any claim for such benefits will be considered and reviewed under the procedures set out in the Plan.

(d)           Company may make payment of benefits directly to the Plan participant or his beneficiaries as they become due under the terms of the Plan.  Company will notify Trustee of Company’s decision to make payment of benefits directly prior to the time amounts would otherwise be payable to participant or his beneficiaries under the Payment Schedule.  In such notice, Company will specify the extent to which Trustee should deviate from the Payment Schedule.  In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plan, Company will make the balance of each such payment as it falls due.  Trustee will notify Company where principal and earnings are not sufficient.

 

  

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SECTION 3.  TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT.

(a)           Trustee will cease payment of benefits to the Plan participant and his beneficiaries if Company is Insolvent. Company will be considered “Insolvent” for purposes of this Agreement if (i) Company is unable to pay its debts as they become due, or (ii) Company is subject to a pending proceeding as a debtor under the Bankruptcy Code.

(b)           At all times during the continuance of this Trust, as provided in Section 1(d) hereof, the principal and income of the Trust will be subject to claims of general creditors of Company under federal and state law as set forth below.

(1)           The Board of Directors of the Company (the “Board”) and the Chief Executive Officer of Company will have the duty to inform Trustee in writing of Company's Insolvency.  If a person claiming to be a creditor of Company alleges in writing to Trustee that Company has become Insolvent, Trustee will determine whether Company is Insolvent and, pending such determination, Trustee will discontinue payment of benefits to the Plan participant or his beneficiaries.

(2)           Unless Trustee has actual knowledge of Company's Insolvency, or has received notice from Company or a person claiming to be a creditor alleging that Company is Insolvent, Trustee will have no duty to inquire whether Company is Insolvent.  Trustee may in all events rely on such evidence concerning Company's solvency as may be furnished to Trustee and that provides Trustee with a reasonable basis for making a determination concerning Company's solvency.

(3)           If at any time Trustee has determined that Company is Insolvent, Trustee will discontinue payments to the Plan participant or his beneficiaries and will hold the assets of the Trust for the benefit of Company's general creditors.  Nothing in this Agreement will in any way diminish any rights of the Plan participant or his beneficiaries to pursue their rights as general creditors of Company with respect to benefits due under the Plan or otherwise.

(4)           Trustee will resume the payment of benefits to the Plan participant or his beneficiaries in accordance with Section 2 of this Agreement only after Trustee has determined that Company is not Insolvent (or is no longer Insolvent).

(c)           Provided that there are sufficient assets, if Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance will include the aggregate amount of all payments due to the Plan participant or his beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to the Plan participant or his beneficiaries by Company in lieu of the payments provided for hereunder during any such period of discontinuance.  Trustee may assume Company has made no such payments unless Company has notified Trustee to the contrary.

SECTION 4.  PAYMENTS TO COMPANY.

Except as provided in Section 3 hereof and except for reimbursement of tax remittances as set forth in Section 2 hereof, after the Trust has become irrevocable, Company will have no right or power to direct Trustee to return to Company or to divert to others any of the Trust assets before all payment of benefits has been made to the Plan participant and his beneficiaries pursuant to the terms of the Plan.

 

  

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SECTION 5.  INVESTMENT AUTHORITY.

a.           Company hereby represents that any third-party investment manager or managers who is appointed to manage (including the power to acquire and dispose of) any part or all of the Trust assets (an “Outside Manager”) (i) has the power to manage, acquire, or dispose of any asset of a plan; (ii) is registered as an investment adviser under the Investment Advisers Act of 1940, as amended, or is a bank as defined in that act or is an insurance company qualified to manage, acquire, or dispose of any asset of a plan under the laws of more than one state; and (iii) has acknowledged in writing that it is a fiduciary with respect to the Plan.  Company (or if applicable, Prior Board, as defined below) will notify Trustee of such appointment by identifying the Outside Manager and by providing a fully-executed copy of the governing investment management agreement.  Trustee may assume that any such appointment is a delegation of Company’s or Prior Board’s authority hereunder to manage all of the Trust assets, except to the extent that such notice expressly limits the Outside Manager’s authority to a particular part of the Trust assets.  Company or Prior Board will monitor the performance of any Outside Manager.  In any event, Trustee will invest Trust assets (including exercising voting rights with respect thereto and entering into securities lending transactions therewith) and dispose of Trust assets, without distinction between principal and income, only as directed by Company, Prior Board, or Outside Manager.  Such directing party or parties will have complete discretion with respect to the investment of trust assets.  Trustee will not invest or dispose of Trust assets without the direction of such a directing party.  The Plan participant will have no right to direct Trustee as to the investment of Trust assets; if the Plan permits participant involvement in the investment process, Company or Prior Board could presumably take such involvement into account, but any resulting direction to Trustee will be deemed to be the direction of Company or the Prior Board (and not the direction of the participant) for purposes of this Agreement.  To the extent that neither Company, Prior Board nor an Outside Manager has directed Trustee as to the investment of any portion of Trust assets before they are contributed to the Trust, Company hereby directs Trustee to invest Trust assets in any sweep fund identified in an exhibit hereto.  Company acknowledges that Trustee will not have “some investment discretion” within the meaning of Revenue Procedure 92-64.

(b)           Prior to the occurrence of a Special Circumstance, Company may appoint an Outside Manager, remove any Outside Manager, and appoint a successor from time to time to any Outside Manager who resigns, is removed, or otherwise ceases to serve hereunder.  Upon termination of an Outside Manager, the Outside Manager’s investment authority hereunder will revert to Company.

(c)           After the occurrence of a Special Circumstance, only a committee composed of a majority of individuals who served as members of the Board immediately prior to such Special Circumstance (such committee, the “Prior Board”) may appoint an Outside Manager, remove any Outside Manager and appoint a successor from time to time to any Outside Manager who resigns, is removed, or otherwise ceases to serve hereunder.  Upon termination of an Outside Manager, the Outside Manager’s investment authority hereunder will revert to the Prior Board.

(d)           Trustee may invest in securities (including stock or rights to acquire stock) or obligations issued by Company.

(e)           All rights associated with assets of the Trust will be exercised by Trustee or the person designated by Trustee, and will in no event be exercisable by or rest with the Plan participant.  Company will have the right, at anytime, and from time to time in its sole discretion, to substitute assets of equal fair market value for any asset held by the Trust.  This right is exercisable by Company in a non-fiduciary capacity without the approval or consent of any person in a fiduciary capacity.

(f)           Permissible investments under this Agreement include any securities or property in which an individual could invest his own funds, without limitation by any statue, rule of law, or regulation of any governmental body prescribing or limiting the investment of trust assets by corporate or individual trustees, in or to certain kinds, types, or classes of investments or prescribing or limiting the portion of a trust which may be invested in any one property or kind, type, or class of investment, including but not limited to any investment which is administered, advised, custodied, held, issued, offered, sponsored, supported by the credit of, underwritten, or otherwise serviced by Trustee or any of Trustee’s affiliates.  Specifically and without limiting the generality of the foregoing, such permissible investments include real or personal property; preferred or common stocks of any kind or class of any corporation, including but not limited to investment and small business investment companies of all types; voting trust certificates; interests in investment trusts; shares of registered investment companies (whether open-end or closed-end); interests in any limited or general partnership or other business enterprise, however organized and for whatever purpose; interests in common or collective funds maintained by a bank or similar institution (in which case the relevant fund instruments will constitute part of this Agreement); bonds, notes, obligations, securities, and debentures, secured or unsecured; mortgages, leases, or other interests in real or personal property; interests in mineral, gas, oil, or timber properties or other wasting assets; call options; put options; commodity or financial futures contracts; deposits of bank or similar financial institution (such as a deposit account or a certificate of deposit); conditional sales contracts; and insurance contracts and policies.  Notwithstanding any provision herein to the contrary, Trustee will pass through to Company voting rights with respect to a Trust asset that is a security of Trustee or of an affiliate of Trustee.

 

  

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(g)           Trustee may hold cash awaiting investment and pending distribution to the Plan participant or other proper recipients or for other reasonable purposes un-invested in an interest-bearing or non-interest bearing deposit account offered by Trustee or another financial institution, even though Trustee or the other financial institution receives and retains float therefrom.

(h)           Trustee is authorized to enter into securities lending transactions on behalf of the Plan.

SECTION 6.  DISPOSITION OF INCOME.

During the term of this Trust, all income received by the Trust, net of expenses and taxes, will be accumulated and reinvested.

SECTION 7.  ACCOUNTING BY TRUSTEE.

(a)           Trustee will keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as will be agreed upon in writing between Company and Trustee.

(b)           Within 60 days following the close of each calendar year and within 60 days after the removal or resignation of Trustee, Trustee will deliver to Company, to each Outside Manager, and to anyone else Company designates for this purpose a written account of the Trustee’s administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by the Trustee, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation as the case may be.  For any asset not in the control of Trustee, Trustee has the right to exclude the asset from such written accounts, include the asset in such written accounts with or without a notation about control, require Company to enter into a separate written agreement clarifying rights and duties regarding the asset, or take other steps Trustee deems appropriate, and Company hereby acknowledges that the inclusion of the asset in any such written account does not impose or suggest any duties for Trustee with respect to the asset.

(c)           The written accounts described above (including their timing and form) will serve as the sole written notification of any securities transactions effected by Trustee for the Trust.  Even so, Company has the right to demand that Trustee provide written notification of such transactions pursuant to 12 Code of Federal Regulations Sections 12.4(a) or (b) at no additional cost to Company.

(d)           For purposes of reporting the value of an asset on the written accounts described above, Trustee will rely upon fair market value as stated in sources Trustee deems reliable.  Where such fair market value is unavailable, Company will direct Trustee as to the value of an asset, provided the Trust did not acquire the asset through Trustee’s exercise of investment authority.  A valuation made by Trustee in good faith will be binding and conclusive upon all persons interested, or becoming interested, in the Plan or the Trust.  Company hereby acknowledges that the reporting of values on a written account is neither (i) a recommendation as to the advisability of buying, holding, or selling any asset nor (ii) a substitute for investigation by a Trust investment fiduciary of an asset’s value in connection with a decision to buy, hold, or sell (or for such investment fiduciary’s obtaining and ensuring the reliability of a third-party appraisal with respect to such a decision).

 

  

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(e)           Company will be responsible for reviewing the written accounts described above.  Trustee will be released from liability with respect to the propriety of Trustee’s acts or omissions reflected therein, except to the extent (i) Company objects within ninety (90) days after delivery of the written account or (ii) such acts or omissions could not be discovered through reasonable examination of the written account.

SECTION 8.  RESPONSIBILITY OF TRUSTEE.

(a)           Trustee will act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that Trustee will incur no liability to any person for any action taken pursuant to a direction, request or approval given by Company which is contemplated by, and in conformity with, the terms of the Plan or this Trust and is given in writing by Company.  In the event of a dispute between Company and a party, Trustee may apply to a court of competent jurisdiction to resolve the dispute.

(b)           Company will indemnify and release Trustee and Trustee’s affiliates and their directors, officers, employees, successors, and assigns (each, an “Indemnified Person”) and hold each Indemnified Person harmless from and against, and an Indemnified Person will incur no liability to any person for, any claims, costs, damages, expenses (including attorneys’ and other professional fees), fines, interest, liabilities, losses, penalties, and taxes that may be imposed on, incurred by, or asserted against an Indemnified Person by reason of the Indemnified Person’s action or omission in connection with the Trust, this Agreement, or the Plan (including, but not limited to, an action or omission that is consistent with directions provided under this Agreement), except to the extent a court of competent jurisdiction has made a final judgment that such action or omission was negligence or a violation of applicable fiduciary law.  The foregoing provisions will survive the Indemnified Person’s termination as such and the termination of this Agreement.

(c)           Trustee may consult with legal counsel (who may also be counsel for Company generally) with respect to any of its duties and obligations hereunder.

(d)           Trustee may hire or engage in transactions with accountants, actuaries, administrators, agents, appraisers, attorneys, auditors, banks, brokers, consultants, custodians, depositories, financial consultants, insurance brokers, investment advisors, investment managers, lenders, securities brokers, or other service providers to assist it in exercising any of its rights or performing any of its duties hereunder, including any of the foregoing that is affiliated with Trustee, provided such engagement is authorized by law and is based upon reasonable terms, and to rely upon any advice, opinions, records, statements, or other information provided by such service providers.

(e)           Trustee will have, without exclusion, all powers conferred on Trustees by applicable law, which powers are incorporated herein by reference as though set forth verbatim herein, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, Trustee will have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy.

(f)           However, notwithstanding the provisions of Section 8(e) above, Trustee may loan to Company the proceeds of any borrowing against an insurance policy held as an asset of the Trust.

(g)           Trustee may register any security in Trustee’s own name, in the name of Trustee’s nominee, or in the name of any custodian of the asset, with or without the addition of words indicating that such security is held in a fiduciary capacity, and Trustee may hold any security in bearer form.

 

  

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(h)           Notwithstanding any powers granted to Trustee pursuant to this Agreement or to applicable law, Trustee will not have any power that could result in the trust being classified as a business entity such as corporation or partnership, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Tax Code.

(i)           Trustee will have no duty to:

 

(i)           prescribe or maintain a plan document or forms (including forms for electing participation, distribution, withdrawal and for providing notices to the Plan participant and his beneficiaries);

(ii)           request or obtain a ruling or other guidance from the Internal Revenue Service or from any other governmental authority as to (or to otherwise determine or monitor) the tax consequences of the form and operation of the Plan, Plan document, Trust or this Agreement, including but not limited to whether the arrangement merits the favorable treatment afforded to safe harbor rabbi trusts under Revenue Procedure 92-64; whether the Plan complies in form or operation with Tax Code Section 409A; and, if the Plan is a 457(f) plan, whether and when rights to payments under the Plan or from the trust are subject to a substantial risk of forfeiture and the treatment under Tax Code Section 72 of any amount made available under the Plan;

(iii)           construe the terms of the Plan, determine eligibility for Plan benefits (including eligibility for participation, vesting, and distribution, as well as the timing, amount, and form thereof), resolve benefit claims or claim appeals, maintain participant-level records, or perform any functions of a plan administrator, regardless of whether a Special Circumstance has occurred;

(iv)           determine, monitor, or collect Plan contributions or otherwise determine whether the Trust is adequately funded;

(v)           determine, conduct a review of, make recommendations with respect to, or otherwise question: any investment policy and guidelines developed by Company; the classes of permissible investments under this Agreement; buying, holding, or selling Trust assets over which anyone other than Trustee has investment authority; and compliance with the investment policy or guidelines with respect to any Trust assets over which anyone other than Trustee has investment authority;

(vi)           give notices or make filings required by applicable law regarding the Trust or regarding any plan funded by the Trust, including calculating, withholding, disclosing, reporting, or remitting to the appropriate taxing authorities, Company, the Plan participant, or Plan beneficiaries any federal, state, or local taxes that may be required to be calculated, withheld, disclosed, reported, or remitted with respect to the administration of the Plan (such as paying Plan benefits) or the Trust, except as required by law to be performed only by a rabbi trustee or as otherwise expressly provided under this Agreement;

(vii)           inquire as to whether the Plan administrator has filed a timely top-hat exemption letter under applicable U.S. Department of Labor Regulations or has otherwise satisfied the reporting and disclosure obligations of ERISA;

(viii)           question the prudence of directions provided to Trustee under this Agreement;

(ix)           monitor service providers hired by Company, including any Outside Manager;

(x)           maintain or defend any legal proceeding in the absence of indemnification, to Trustee’s satisfaction, against all expenses and liabilities which it may sustain or anticipate by reason thereof; or

 

  

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(xi)           make a distribution to the extent that Trust assets, when reduced by taxes applicable to the distribution, when further reduced by expenses payable by the Trust, are less than the amount of the distribution.

SECTION 9.  COMPENSATION AND EXPENSES OF TRUSTEE.

Trustee will be entitled to receive compensation for providing services hereunder.  A schedule of that compensation is attached as Exhibit B (Fee Schedule for Plans) hereto.  Trustee will also be entitled to receive reimbursement for reasonable expenses, fees, costs, and other charges incurred by it or payable by it on account of providing services hereunder (including, but not by way of limitation, amounts payable to service providers hired hereunder by Trustee), and the same will not be offset from Trustee’s compensation unless required by applicable law.

SECTION 10.  RESIGNATION AND REMOVAL OF TRUSTEE.

(a)           Trustee may resign at any time by written notice to Company, which will be effective 30 days after receipt of such notice unless Company and Trustee agree otherwise.

(b)           Trustee may be removed by Company on 30 days’ notice or upon shorter notice accepted by Trustee.

(c)           Upon the occurrence of a Special Circumstance Trustee may not be removed by Company for 12 months.

(d)           Upon resignation or removal of Trustee and appointment of a successor Trustee, all assets will subsequently be transferred to the successor Trustee.  The transfer will be completed within 60 days after receipt of notice of resignation, removal or transfer, unless Company extends the time limit.

(e)           If Trustee resigns or is removed, a successor will be appointed, in accordance with Section 11 hereof, by the effective date of resignation or removal.  If Company has not provided Trustee with a successor’s written acceptance of trusteeship with respect to the Trust on or by such effective date, Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of Trustee in connection with the proceeding will be allowed as administrative expenses of the Trust.

SECTION 11.  APPOINTMENT OF SUCCESSOR.

(a)           If Trustee resigns or is removed in accordance with Section 10(a) or (b) hereof, Company may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace Trustee upon resignation or removal.  The appointment will be effective when accepted in writing by the new Trustee, who will have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets.  The former Trustee will execute any instrument necessary or reasonably requested by Company or the successor Trustee to evidence the transfer.

(b)           The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof.  The successor Trustee will not be responsible for and Company will indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee.

SECTION 12.  AMENDMENT OR TERMINATION.

(a)           Prior to a Special Circumstance, this Agreement may be amended by a written instrument executed by Trustee and Company.  After a Special Circumstance, this Agreement may be amended by a written instrument executed by Trustee and Company, but not without the written consent of the Plan participant, or if after his death, the Plan participant’s beneficiaries.  Notwithstanding the foregoing, 1) after a Special Circumstance this Agreement may be amended by a written instrument executed by Trustee and Company as necessary to comply with any change to applicable laws, and 2) no such amendment will conflict with the terms of the Plan or will make the Trust revocable after it has become irrevocable in accordance with Section 1(b) hereof.

 

  

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(b)           The Trust will not terminate until the date on which the Plan participant and his beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan unless sooner revoked in accordance with Section 1(b) hereof.  Upon termination of the Trust, any assets remaining in the Trust (after payment of any outstanding charges hereunder) will be returned to Company, except that Parent Contributions will be returned to the corporation that contributed them.

 (c)           Upon written approval of the Plan participant or his beneficiaries entitled to payment of benefits pursuant to the terms of the Plan, Company may terminate this Trust prior to the time all benefit payments under the Plan have been made.  All assets in the Trust at termination (after payment of any outstanding charges hereunder) will be returned to Company, except that Parent Contributions will be returned to the corporation that contributed them.

SECTION 13.  DEFINITIONS.

For purposes of this Trust,

(a)           A “Change in Control” will have the meaning ascribed to such term in the employment agreement between Company and Daniel E. Klimas, dated January 28, 2005, as amended from time to time.

(b)           A “Default” will mean a failure by Company, if Company has elected to make the payments pursuant to Section 2(d), to make any payment to the Plan participant or his beneficiaries in accordance with the Payment Schedule, as provided in Section 2(b).  However, a Default will not occur if:

	
  

	
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Company provides written direction to Trustee to make any such missed payment no later than thirty (30) days following the date such payment was otherwise due to the Plan participant under the terms of the Plan; or

	
  

	
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Such failure by Company to make any such payment occurs in connection with a change in Company’s financial health, within the meaning of Tax Code Section 409A(b)(2).

(c)           A “Potential Change in Control” will have the following meaning:

i.           Any “Person,” as defined in Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, delivers to Company a statement containing the information required by Schedule 13D under the Exchange Act, or any amendment to any such statement (or Company becomes aware that any such statement or amendment has been filed with the Securities and Exchange Commission pursuant to applicable rules under the Exchange Act), that shows that such Person has acquired, directly or indirectly, the beneficial ownership of:

 

	
  

	
A.

	
twenty percent (20%) or more of any class of equity security of Company entitled to vote as a single class in the election or removal from office of directors, or

 

  

10

  

 

	
  

	
B.

	
twenty percent (20%) or more of the voting power of any group of classes of equity securities of the Company entitled to vote as a single class in the election or removal from office of directors;

 

ii.           Company becomes aware that preliminary or definitive copies of a proxy statement and information statement or other information have been filed with the Securities and Exchange Commission pursuant to Rule 14a-6, Rule 14c-5 or Rule 14f-1 under the Exchange Act relating to a Potential Change in Control of Company;

 

iii.           Any Person delivers a tender offer statement relating to voting securities of Company (or Company becomes aware that any such statement has been filed with the Securities and Exchange Commission pursuant to applicable rules under the Exchange Act) to Company pursuant to Rule 14d-3 under the Exchange Act;

 

iv.           Any Person (other than Company) publicly announces an intention to take actions which if consummated would constitute a Change in Control;

 

v.           Company enters into an agreement or arrangement, the consummation of which would result in the occurrence of a Change in Control;

 

vi.           The Board approves a proposal which, if consummated, would constitute a Change in Control; or

 

vii.           The Board adopts a resolution indicating that, for purposes of this Trust Agreement, a Potential Change in Control has occurred.

 

Notwithstanding the foregoing, a “Potential Change in Control” shall not include an event described in (i) through (vi), if a number of directors (who were serving on the Board immediately prior to such event and who continue to serve on the Board) equal to a majority of the members of the Board as constituted prior to such event make a written determination that the event shall not constitute a Potential Change in Control.

 

(c)           A “Special Circumstance” will mean the occurrence of any of the following (i) a Change in Control; (ii) a Potential Change in Control; or (ii) a Default.  The Board and the Chief Executive Officer of Company will have the duty to inform Trustee in writing of the occurrence of a Special Circumstance.  Trustee will have no duty to inquire whether a Special Circumstance has occurred.

SECTION 14.  MISCELLANEOUS.

(a)           Any provision of this Agreement prohibited by law will be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof.

(b)           Benefits payable to the Plan participant and his beneficiaries under this Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process.

(c)           This Agreement will be governed by and construed in accordance with the laws of Ohio without regard to conflicts of laws, except where pre-empted by federal law.  Each party to this Agreement hereby consents to the exercise of personal jurisdiction of any court located in such state for purposes of resolving controversies hereunder.

(d)           Any direction or other communication provided for in this Agreement will be given in writing and, unless the recipient has timely delivered a superseding address hereunder, addressed as indicated below.  Trustee will not be charged with knowledge of an emailed direction to Trustee’s detriment if the email cannot be shown to have been sent to Trustee return-receipt requested.

 

  

11

  

 

If to Trustee:

U.S. Bank National Association

c/o Christine Poppe, Vice President and Relationship Manager

425 Walnut Street,   Cincinnati, OH  45202

513-632-4272

chris.poppe@usbank.com

If to Company:

LNB BANCORP, INC.

c/o Gary J. Elek, Chief Financial Officer

521 Broadway, Lorain Ohio, 44052

(440) 244-7253

gelek@4lnb.com

(e)           Company represents that (i) it has delivered the Plan document as in effect on the date first written above to Trustee and will provide Trustee with any subsequent amendments thereto and (ii) the Plan document is not, and will not be, inconsistent with this Agreement.  Where there is any inconsistency between this Agreement and the Plan, this Agreement will prevail as to the rights and duties of Trustee.

(f)           This Agreement will bind, and inure to the benefit of, Company, Trustee, and their respective successors and assigns.

(g)           This Agreement will not be deemed to create in any third party any rights or responsibilities with respect to the parties.

(h)           Company will identify each Company employee who is authorized to act on Company’s behalf hereunder, by giving Trustee (i) a certificate of incumbency signed by Company’s corporate secretary indicating which Company offices have such authority and naming the employees holding those offices; and (ii) the specimen signature of such employees.  Company will also identify each employee of a third-party agent who is authorized to act on Company’s behalf hereunder, by giving Trustee an authorization letter setting forth the name of such agent and the names and specimen signatures of such employees.  Trustee may assume that any person so identified continues to be so authorized, until Company gives Trustee written notice to the contrary.  To the extent that no person is currently so identified to act on behalf of the Company, Trustee may assume that any person who purports to be an authorized agent of Company is in fact so authorized.  In any event, Company hereby represents that any person authorized to act on behalf of Company hereunder was duly appointed pursuant to a procedure specified in the Plan; that such person is appropriately monitored; and that Company will furnish such person with a copy of this Agreement, as amended from time to time, and with a copy of any communications given hereunder to Company, and Company hereby acknowledges that any such person’s actions or omissions are binding hereunder upon Company.  The Prior Board will identify its members by giving Trustee an authorization letter setting forth the name and specimen signatures of each such member.

(i)           Company shall be responsible for expenses of Trustee or any Outside Manager.  Company may direct Trustee from time to time to charge any such expense, or other expense or type of expense, against the Trust.  Company hereby directs Trustee to charge the Trust with any fees invoiced to Trustee by any Outside Manager.  Company hereby represents that any expense, or type of expense, so directed to be charged is a permissible Plan expense.

 

  

12

  

 

SECTION 15.  EFFECTIVE DATE.

The effective date of this Agreement will be the date first written above.

[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

  

13

  

IN WITNESS WHEREOF, an authorized officer of each party hereby executes this Agreement on the date first written above.

 

 

 

	 	U.S. BANK NATIONAL ASSOCIATION	 
	 	 	 	 	 
	 	 	By:	/s/ Terry W. Schwartz	 
	 	 	 	 	 
	 	 	Title:	Vice President and Relationship Manager	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

	 	

LNB BANCORP, INC.

	 
	 	 	 	 	 
	 	 	By:	/s/ Gary J. Elek	 
	 	 	 	 	 
	 	 	Title:	Chief Financial Officer	 
	 	 	 	 	 

 

 

  

14

  

RABBI TRUST AGREEMENT

EXHIBIT A

Plan

	
  

	
·

	
LNB Bancorp, Inc. Supplemental Executive Retirement Agreement, dated as of March 26, 2013, by and between LNB Bancorp, Inc. and Daniel E. Klimas.

 

  

15

  

 

RABBI TRUST AGREEMENT

EXHIBIT B

Institutional Trust & Custody Fee Schedule for Plans

 

 

 

 

  

16

  

RABBI TRUST AGREEMENT

EXHIBIT C

Shareholder Communications Act Election

Under the Shareholder Communications Act of 1985, as amended, Trustee must try to permit direct communications between a company that issues a security held in the Trust (the “Securities-Issuer”) and any person who has or shares the power to vote, or the power to direct the voting of, that security (the “Voter”).  Unless the Voter registers its objection with Trustee, Trustee must disclose the Voter’s name, address, and securities positions held in the Trust to the Securities-Issuer upon the Securities-Issuer’s request (“Disclosure”).  With that in mind, the entity named below hereby (i) represents that it is the Voter and (ii) mindful that failing to check one and only line below will cause the Voter to be deemed to have consented to Disclosure, registers its

 

	  	 	
 

	
consent to Disclosure.

	  	 	  	  
	  	 	
 

	
objection to Disclosure.

An authorized officer of the Voter hereby executes this form.

	
LNB BANCORP, INC.

	 
	  	  	  	 
	  	
By:

	
 

	 
	  	  	  	 
	  	  	  	 
	  	
Its:

	
 

	 
	  	  	  	 
	  	  	  	 
	
 

	
Dated:

	
 

	 

17a50600265ex10_3.htm

Exhibit 10.3

 

CHANGE IN CONTROL

 

SUPPLEMENTAL EXECUTIVE COMPENSATION AGREEMENT

 

This Agreement, effective as of the 28th day of March, 2013, by and between LNB Bancorp, Inc., an Ohio corporation (the "Company"), and Gary J. Elek ("Executive"), is to EVIDENCE THAT:

WHEREAS the Company considers the establishment and maintenance of a sound and vital management team for the Company and its Subsidiaries (as defined in Section 1) to be essential to protecting and enhancing the best interests of the Company and its shareholders; and

WHEREAS the Company recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may arise and that such possibility may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders; and

WHEREAS the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to secure Executive's continued services for the Company and/or its Subsidiaries and to ensure Executive's continued and undivided dedication to Executive's duties in the event of any occurrence of a Change in Control (as defined in Section 1) involving the Company; and

WHEREAS Executive and the Company acknowledge that the terms and conditions of this Agreement shall apply only if a Change in Control occurs, except for the covenants contained in Section 11 which shall apply in all circumstances; and

WHEREAS Executive further acknowledges and agrees that this Agreement does not alter Executive's status as an "employee at will" with the Company;

NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the Company and Executive (collectively, the "Parties" and, individually, a "Party") hereby agree as follows:

1.           Definitions.  As used in this Agreement, the following terms shall have the respective meanings set forth below:

	
  

	
(a)

	
"Bonus Amount" means the highest annual incentive bonus earned by Executive from the Company (or its Subsidiaries) during the last three (3) completed fiscal years of the Company immediately preceding Executive’s Date of Termination.

	
  

	
(b)

	
"Cause" means any one or more of the following:  (i) the willful and continued failure of Executive to perform substantially Executive's duties with the Company or its Subsidiaries (other than any such failure resulting from Executive's Disability or any such failure subsequent to Executive being delivered a Notice of Termination without Cause by the Company or its Subsidiaries or after Executive delivering a Notice of Termination for Good Reason to the Company or its Subsidiaries) after a written demand for substantial performance is delivered to Executive by the Board which specifically identifies the manner in which the Board believes that Executive has not substantially performed Executive's duties and provides Executive with ten (10) business days to correct such failure; or (ii) the willful engaging by Executive in illegal conduct or gross misconduct which is injurious to the Company or its Subsidiaries; or (iii) the conviction of Executive of, or a plea by Executive of nolo contendere to, a felony; or (iv) Executive's breach of or failure to perform any of the non-competition and non-disclosure covenants contained in Section 11 of this Agreement or contained in any other document signed by Executive and by the Company (or any Subsidiary).  For purposes of this paragraph (b), no act or failure to act by Executive shall be considered "willful" unless done or omitted to be done by Executive in bad faith and without reasonable belief that Executive's action or omission was in the best interests of the Company and its Subsidiaries.  Any act or failure to act based upon authority given pursuant to a resolution duly adopted by the Board, based upon the advice of counsel for the Company, or based upon the instructions of the Company's chief executive officer or another senior officer of the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company and its Subsidiaries.

 

  

  

  

 

	
  

	
(c)

	
"Change in Control" means the occurrence of any one of the following events:

	
  

	
(i)

	
if individuals who, on the date of this Agreement, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; provided, however, that: (A) any person becoming a director subsequent to the date of this Agreement, whose election or nomination for election was approved by a vote of at least two-thirds (2/3) of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection by such Incumbent Directors to such nomination), shall be deemed to be an Incumbent Director; and (B) no individual elected or nominated as a director of the Company initially as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director;

	
  

	
(ii)

	
if any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then-outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that the events described in this clause (ii) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions:  (A) by the Company or any Subsidiary; (B) by any employee benefit plan sponsored or maintained by the Company or any Subsidiary or by any employee stock benefit trust created by the Company or any Subsidiary; (C) by any underwriter temporarily holding securities pursuant to an offering of such securities; (D) pursuant to a Non-Qualifying Transaction (as defined in clause (iii) of this paragraph (c), below); (E) pursuant to any acquisition by Executive or by any group of persons including Executive (or any entity controlled by Executive or any group of persons including Executive); or (F) a transaction (other than one described in clause (iii) of this paragraph (c), below) in which Company Voting Securities are acquired from the Company, if a majority of the Incumbent Directors approves a resolution providing expressly that the acquisition pursuant to this subparagraph (F) does not constitute a Change in Control under this clause (ii);

 

  

- 2 -

  

 

	
  

	
(iii)

	
upon the consummation of a merger, consolidation, share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company's shareholders, whether for such transaction or the issuance of securities in the transaction (a "Business Combination"), unless immediately following such Business Combination: (A) more than fifty percent (50%) of the total voting power of either (1) the corporation resulting from the consummation of such Business Combination (the "Surviving Corporation") or, if applicable, (2) the ultimate parent corporation that directly or indirectly has beneficial ownership of one hundred percent (100%) of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation") is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination; (B) no person (other than any employee benefit plan sponsored or maintained by the Surviving Corporation or the Parent Corporation or any employee stock benefit trust created by the Surviving Corporation or the Parent Corporation) is or becomes the beneficial owner, directly or indirectly, of thirty percent (30%) or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation); and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a "Non-Qualifying Transaction"); or

	
  

	
(iv)

	
upon liquidation or dissolution of the Company or consummation of the sale of all or substantially all of the Company's assets but only if, pursuant to such liquidation or sale, the assets of the Company are transferred to an entity not owned (directly or indirectly) by the Company's shareholders.

Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any person acquires beneficial ownership of more than thirty percent (30%) of Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, however, that if (after such acquisition by the Company) such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control shall then occur.  Notwithstanding anything in this Agreement to the contrary, if (A) Executive's employment is terminated prior to a Change in Control for reasons that would have constituted a Qualifying Termination if they had occurred following a Change in Control, (B) Executive reasonably demonstrates that such termination (or event constituting Good Reason) was at the request of a third party who had indicated an intention or taken steps reasonably calculated to effect a Change in Control, and (C) a Change in Control involving such third party (or a party competing with such third party to effectuate a Change in Control) does occur, then (for purposes of this Agreement) the date immediately prior to the date of such termination of employment (or event constituting Good Reason) shall be treated as a Change in Control.

 

  

- 3 -

  

 

	
  

	
(d)

	
"Date of Termination" means (1) the effective date on which Executive's employment by the Company and its Subsidiaries terminates as specified in a prior written notice by the Company, a Subsidiary or Executive (as the case may be) to the other, delivered pursuant to Section 9, or (2) if Executive's employment by the Company terminates by reason of death, the date of death of Executive, or (3) if the Executive incurs a Disability, the date of such Disability as determined by a physician chosen by the Company. For purposes of determining the timing of payments and benefits to Executive under Section 4, the date of the actual Change in Control shall be treated as Executive's Date of Termination.

	
  

	
(e)

	
"Disability" means Executive's inability to perform Executive's then-existing duties with the Company or its Subsidiaries on a full-time basis for at least one hundred eighty (180) consecutive days as a result of Executive's incapacity due to physical or mental illness.

	
  

	
(f)

	
"Good Reason" means, without Executive's express written consent, the occurrence of any of the following events after a Change in Control:

	
  

	
(i)

	
(A) any change in the duties or responsibilities (including reporting responsibilities) of Executive that is inconsistent in any material and adverse respect with Executive's positions, duties, responsibilities or status with the Company or its Subsidiaries immediately prior to such Change in Control (including any material and adverse diminution of such duties or responsibilities), or (B) a material and adverse change in Executive's titles or offices (including, if applicable, membership on the Board) with the Company or its Subsidiaries as existing immediately prior to such Change in Control;

	
  

	
(ii)

	
(A) a reduction by the Company or its Subsidiaries in Executive's rate of annual base salary as in effect immediately prior to such Change in Control (or as such annual base salary may be increased from time to time thereafter), or (B) the failure by the Company or its Subsidiaries to pay Executive an annual bonus (if any) in respect of the year in which such Change in Control occurs;

 

  

- 4 -

  

 

	
  

	
(iii)

	
any requirement of the Company or its Subsidiaries that Executive:  (A) be based anywhere more than fifty (50) miles from the Executive's residence at the time of the Change in Control, or (B) travel on Company or Subsidiary business to an extent substantially greater than the travel obligations of Executive immediately prior to such Change in Control;

	
  

	
(iv)

	
the failure of the Company or its Subsidiaries to continue in effect any material employee benefit plan, compensation plan, welfare benefit plan or other material fringe benefit plan in which Executive is participating immediately prior to such Change in Control or the taking of any action by the Company or its Subsidiaries which would materially and adversely affect Executive's participation in or reduce Executive's benefits under any such plan, unless Executive is permitted to participate in other plans providing Executive with substantially equivalent benefits in the aggregate; or

	
  

	
(v)

	
the failure of the Company to obtain the assumption (and, if applicable, guarantee) agreement from any successor (and Parent Corporation) as contemplated in Section 8(b).

Notwithstanding any contrary provision in this Agreement:  (A) an isolated, insubstantial and inadvertent action taken in good faith and which is remedied by the Company within ten (10) days after receipt of notice thereof given by Executive shall not constitute Good Reason; and (B) Executive's right to terminate employment for Good Reason shall not be affected by Executive's Disability; and (C) Executive's continued employment shall not constitute a consent to, or a waiver of rights with respect to, any event or condition constituting Good Reason (provided, however, that Executive must provide notice of termination of employment within thirty (30) days following Executive's knowledge of an event constituting Good Reason or such event shall not constitute Good Reason under this Agreement).

	
  

	
(g)

	
“Highest Base Salary” means Executive’s highest annual base salary (excluding any bonuses) paid to Executive by the Company and by any Subsidiary during the Company’s last three (3) fiscal years completed immediately prior to the Date of Termination.

	
  

	
(h)

	
"Qualifying Termination" means a termination of Executive's employment after a Change in Control and during the Termination Period (as defined herein) (i) by the Company or its Subsidiaries other than for Cause, or (ii) by Executive for Good Reason.  Termination of Executive's employment on account of death or Disability shall not constitute a Qualifying Termination.

	
  

	
(i)

	
"Retirement" means the termination of Executive's employment with the Company and its Subsidiaries:  (A) on or after the first of the month coincident with or next following Executive's attainment of age sixty-five (65), or (B) on such later date as may be provided in a written agreement between the Company or its Subsidiaries and Executive.

	
  

	
(j)

	
"Subsidiary" means any corporation or other entity in which the Company:  (A) has a direct or indirect ownership interest of fifty percent (50%) or more of the total combined voting power of the then-outstanding securities or interests of such corporation or other entity entitled to vote generally in the election of directors, or (B) has the right to receive fifty percent (50%) or more of the distribution of profits or fifty percent (50%) of the assets upon liquidation or dissolution.

 

  

- 5 -

  

 

	
  

	
(k)

	
"Termination Period" means the two (2) year period beginning with a Change in Control and ending two (2) years following such Change in Control.

2.           Obligation of Executive.  In the event of a tender or exchange offer, proxy contest, or the execution of any agreement which, if consummated, would constitute a Change in Control, Executive agrees (as a condition to receiving any payments and benefits hereunder) not to voluntarily leave the employ of the Company (other than as a result of Disability, Retirement or an event which would constitute Good Reason if a Change in Control had occurred) until the Change in Control occurs or, if earlier, such tender or exchange offer, proxy contest, or agreement is terminated or abandoned.

3.           Term of Agreement.  The term of this Agreement shall be effective on the date hereof and shall continue in effect until the Company shall have given two (2) years' written notice of cancellation; provided, however, that (notwithstanding the delivery of any such notice) the term of this Agreement shall continue in effect for a period of two (2) years after a Change in Control, if such Change in Control shall have occurred during the term of this Agreement. Notwithstanding anything in this Agreement to the contrary, the term of this Agreement shall terminate if Executive or the Company terminates Executive's employment prior to a Change in Control.

4.           Benefits Upon Qualifying Termination of Employment. 

	
  

	
(a)

	
Qualifying Termination — Cash Payment.  If, during the Termination Period, Executive's employment with the Company and its Subsidiaries terminates pursuant to a Qualifying Termination, then the Company shall pay to Executive, within twenty (20) days following the Date of Termination, a lump sum cash amount equal to the sum of (i) two hundred percent (200%) of Executive's Highest Base Salary, as defined in Section 1(g), through the Date of Termination and any base salary and bonuses which have been earned and are payable, to the extent not theretofore paid or deferred, plus (ii) two hundred percent (200%) of Executive's Bonus Amount.

	
  

	
(b)

	
Qualifying Termination ― Continued Coverage.  If, during the Termination Period, Executive's employment with the Company and its Subsidiaries terminates pursuant to a Qualifying Termination, the Company shall continue to provide, for a period of twenty-four (24) months following the Date of Termination, Executive (and Executive's dependents, if applicable) with the same level of medical insurance benefits upon substantially the same terms and conditions (including contributions required by Executive for such benefits) as existed immediately prior to Executive's Date of Termination (or, if more favorable to Executive, as such benefits and terms and conditions existed immediately prior to the Change in Control); provided, however, that if Executive is not eligible to continue to participate in the Company plan providing such benefits, the Company shall otherwise provide such benefits on the same after-tax basis as if continued participation had been permitted.  Notwithstanding the foregoing, in the event Executive becomes re-employed with another employer and becomes eligible to receive medical insurance benefits from such employer, the medical insurance benefits described herein shall be secondary to such benefits during the period of such eligibility but only if (and to the extent that) the Company reimburses Executive for any increased cost and provides any additional benefits necessary to give Executive the benefits provided hereunder. Executive's accrued benefits as of the Date of Termination under the Company's medical insurance plan shall be payable in accordance with the terms of such plan.

 

  

- 6 -

  

 

Notwithstanding any contrary provision set forth in this Agreement, Company's payments to Executive shall be reduced to the extent that such payments (together with all other payments by Company to Executive under all other written or verbal agreements between Company and Executive) constitute an "excess parachute payment" under Section 280G of the Internal Revenue Code (as may be periodically amended).

5.           Withholding Taxes.  The Company shall withhold from all payments due to Executive hereunder all taxes which, by applicable Federal, State, local or other law, the Company is required to withhold therefrom.

6.           Reimbursement of Expenses.  If any contest or dispute shall arise under this Agreement involving the alleged failure or refusal of the Company or any of its Subsidiaries to perform fully in accordance with the terms hereof, the Company shall reimburse Executive for all reasonable legal fees and expenses, if any, incurred by Executive with respect to such contest or dispute, together with interest in an amount equal to the prime rate of Lorain National Bank from time to time in effect (but in no event higher than the legal rate permissible under applicable law), such interest to accrue from the date the Company becomes obligated to pay such fees and expenses through the date of payment thereof; provided, however, that this Section 6 shall apply only if (and to the extent that) the Company is held to have breached or violated its duties and obligations hereunder to Executive.

7.           Scope of Agreement.  Executive acknowledges that Executive is employed by the Company as an "employee at will" and that nothing in this Agreement shall be deemed to change Executive's status as an employee at will or to entitle Executive to continued employment with the Company or its Subsidiaries. If Executive's employment with the Company and its Subsidiaries terminates prior to a Change in Control or the term of this Agreement expires, Executive shall have no further rights under this Agreement (except as otherwise expressly provided hereunder).

8.           Successors; Binding Agreement.

	
  

	
(a)

	
This Agreement shall not be terminated by any Business Combination.  In the event of any Business Combination, the provisions of this Agreement shall be binding upon the Surviving Corporation, and such Surviving Corporation shall be treated as the Company hereunder.

	
  

	
(b)

	
The Company agrees that, in connection with any Business Combination, Company will cause any successor entity to the Company unconditionally to assume (and, for any Parent Corporation in such Business Combination, to guarantee), by written instrument delivered to Executive (or Executive's beneficiaries or estate), all of the obligations of the Company hereunder.  Failure of the Company to obtain such assumption or guarantee prior to the effectiveness of any such Business Combination that constitutes a Change in Control shall be a breach of this Agreement and shall constitute Good Reason hereunder and, further, shall entitle Executive to compensation from the Company in the same amount and on the same terms as Executive would be entitled hereunder as if Executive's employment were terminated following a Change in Control by reason of a Qualifying Termination.  For purposes of implementing this Section 8(b), the date on which any such Business Combination becomes effective shall be deemed the date Good Reason occurs and shall be the Date of Termination, if so requested by Executive.

 

  

- 7 -

  

 

	
  

	
(c)

	
This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.  If Executive dies while any amounts would be payable to Executive hereunder if Executive had continued to live, all such amounts (unless otherwise provided herein) shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by Executive to receive such amounts or, if no person is so appointed, to Executive's estate.

9.           Notice.

	
  

	
(a)

	
For purposes of this Agreement, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been properly given when delivered or three (3) days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed as follows (or to such other address as either Party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt):

	
  ―        

	
If to the Executive, at the address set forth below in the signatory provision below; and

	
  ―        

	
If to the Company:

	
  

	
LNB Bancorp, Inc.

	
  

	
457 Broadway

	
  

	
Lorain, OH 44052

	
  

	
Attn:  Mary E. Miles, Senior Vice President of Human Resources

	
  

	
(b)

	
A written notice of Executive's Date of Termination by the Company or Executive, as the case may be, to the other Party shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, 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, and (iii) specify the Date of Termination, which date shall be not less than fifteen (15) days (thirty (30) days, if termination is by the Company for Disability) nor more than sixty (60) days after the giving of such notice.  The failure by Executive or the Company to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of either Party or preclude either Party from asserting such fact or circumstance in enforcing such Party's rights hereunder.

 

  

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10.           Full Settlement; Resolution of Disputes.  The Company's obligation to make payment under this Agreement and otherwise to perform its obligations hereunder shall be in lieu and in full settlement of all other severance payments to Executive (payable because of a Change in Control) under any other severance or employment agreement between Executive and the Company and its Subsidiaries (if any) and under any severance plan of the Company and its Subsidiaries (if any). In no event shall Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and, except as provided in Section 4, such amounts shall not be reduced whether or not Executive obtains other employment. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Lorain County, Ohio, by three arbitrators in accordance with the rules of the American Arbitration Association then in effect.  Judgment may be entered on the arbitrators' award in any State court having jurisdiction in Lorain County, Ohio.  Except as otherwise provided in Section 6, each Party shall pay such Party's costs and expenses incurred in connection with any arbitration proceeding pursuant to this Section and the Parties shall each pay fifty percent (50%) of the costs of the arbitration proceedings.

11.           Executive's Non-Disclosure and Non-Solicitation Promises.

11.1           Definitions.  For purposes of this Section 11, the Parties agree to and understand the following definitions:

	
  

	
(a)

	
"Competitive Activity" means the performance or rendering of any banking services; trust services and investment services; portfolio management; retirement planning; administration of employee benefit plans; administration of decedents' estates and court-supervised accounts, guardianships, and custodial arrangements; personal tax and estate tax planning; financial consulting services; investment advising services; and any other business activity, service or product which competes with any existing or future business activity, service or product of the Company.

	
  

	
(b)

	
"Confidential Information" means all of the following (whether written or verbal) pertaining to the Company:  (i) trade secrets (as defined by Ohio law); customer lists, records and other information regarding the Company's customers (whether or not evidenced in writing); customer fee or price schedules and fee or price policies; financial books, plans, records, ledgers and information; business development plans; sales and marketing plans; research and development plans; employment and personnel manuals, records, data and policies; business manuals, methods and operations; business forms, correspondence, memoranda and other records; computer records and related data; and any other confidential or proprietary data and information of the Company or its customers which Executive encounters during the Employment Term; and (ii) all products, technology, ideas, inventions, discoveries, developments, devices, processes, business notes, forms and documents, business products, computer programs, and other creations (and improvements of any of the foregoing), whether patentable or copyrightable, which Employee has acquired, developed, conceived or made (whether directly or indirectly, whether solicited or unsolicited, or whether during normal work hours or during off-time) during the Employment Term and which relate to any business activity of the Company or are derived from the Confidential Information designated in Subitem (i) of this Section 11.1(b).

 

  

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(c)

	
"Customer" means a person, sole proprietorship, partnership, association, organization, corporation, limited liability company, or other entity (governmental or otherwise), wherever located:  (i) to or for which the Company sells any products or renders or performs services either during the 180-day period immediately preceding commencement of the Restricted Period or during the Restricted Period, or (ii) which the Company solicits or (as demonstrated by plans, strategies or other tangible preparation) intends to solicit to purchase products or services from the Company either during the 180-day period immediately preceding commencement of the Restricted Period or during the Restricted Period.

	
  

	
(d)

	
"Employment Term" means, for purposes of this Section 11, the period of time starting on the date Executive's employment with the Company commenced and terminating at the close of business on the date Executive's employment with the Company terminates.

	
  

	
(e)

	
"Restricted Period" means a period of two (2) years (or, if shorter, the duration of the Employment Term) commencing on the date the Employment Term is terminated by either Party (for any reason, with or without cause); provided, however, that such period shall be extended to include any period of time during which Employee engages in any activity constituting a breach of this Agreement and any period of time during which litigation transpires wherein Employee is held to have breached this Agreement.

	
  

	
(f)

	
"Company" means, for purposes of this Section 11, LNB Bancorp, Inc. and The Lorain National Bank (a national bank association), all direct and indirect parent and subsidiary entities thereof, and all entities related to LNB Bancorp, Inc., The Lorain National Bank or to such parent and subsidiary entities by common ownership.

 

11.2           Executive's Promises.  Expressly in consideration for the Company's promises made in this Agreement, Executive promises and agrees that:

	
  

	
(a)

	
Confidentiality.  The Confidential Information is and, at all times, shall remain the exclusive property of the Company, and Executive  (i) shall hold the Confidential Information in strictest confidence and in a position of trust for the Company, and (ii) except as may be necessary to perform Executive's employment duties with the Company, shall not (directly or indirectly) use for any purpose, copy, duplicate, disclose, convey to any third-party or convert any Confidential Information, either during the Employment Term or at any time following termination of the Employment Term (by either Party, for any reason, with or without cause), and (iii) upon the request of the Company at any time during or after the Employment Term, shall immediately deliver to the Company all the Confidential Information in Executive's possession and shall neither convey to any third-party nor retain any copies or duplicates thereof.

 

  

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(b)

	
Customers.  During the Restricted Period, Executive (or any entity owned or controlled by Executive) shall not directly or indirectly (i) solicit from or perform for any Customer a Competitive Activity, wherever such Customer is located, or (ii) influence (or attempt to influence) any Customer to transfer such Customer's patronage or business from the Company, or (iii) otherwise interfere with any business relationship of the Company with any Customer.

	
  

	
(c)

	
Employees.  During the Restricted Period, Executive (or any entity owned or controlled by Executive) shall not directly or indirectly (i) employ, engage, contract for the services of, or solicit or otherwise induce the services of any person who, during the one hundred eighty (180) day period immediately preceding commencement of the Restricted Period or during the Restricted Period, is or was an employee of the Company, or (ii) otherwise interfere with (or attempt to interfere with) any employment relationship of the Company with any employee of Bank.

	
  

	
(d)

	
Other Employment.  During the Employment Term, Executive shall not perform services (whether or not for compensation) as an employee, independent contractor, consultant, representative or agent of any person, sole proprietorship, partnership, limited liability company, corporation, association (other than the Company), organization, or other entity (governmental or otherwise) without the prior written consent of the President of the Company (or any person expressly designated by the President).

	
  

	
(e)

	
Costs of Enforcement.  Executive shall pay all reasonable legal fees, court costs, expert fees, investigation costs, and other expenses incurred by the Company in the enforcement of this Section 11.

11.3           Importance of Executive's Promises.  Executive understands and agrees that:

	
  

	
(a)

	
during the Employment Term, Executive will materially assist the Company in the generation, development or enhancement of certain Confidential Information and certain other business assets and activities for Company; and

	
  

	
(b)

	
Executive's promises in this Section 11:  (1) were negotiated at arm's-length and with ample time for Executive to seek the advice of legal counsel, (2) are required for the fair and reasonable protection of the Company and the Confidential Information, and (3) do not constitute an unreasonable hardship to Executive in working for the Company or in subsequently earning a livelihood in Executive's field of expertise; and

 

  

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(c)

	
if Executive breaches (or threatens to breach) any or all of the promises in this Section 11:  the secrecy and thereby the value of the Confidential Information will be significantly jeopardized; the Company will be subject to the immediate risk of material, immeasurable, and irreparable damage and harm; the remedies at law for Executive's breach shall be inadequate; the Company shall therefore be entitled to injunctive relief against Executive in addition to any and all other legal or equitable remedies; and

	
  

	
(d)

	
if Executive had not agreed to the restrictive promises in this Agreement, the Company would not have signed this Agreement.

11.4           Extent and Continuation of Executive's Promises. Executive's promises, duties and obligations made in this Section 11 shall apply to Executive irrespective of whether a Change in Control occurs and shall survive the voluntary or involuntary cessation or termination of the Employment Term by either Party (for any reason, with or without cause).  If any of the restrictions contained in this Section 11 are ever judicially held to exceed the limitations permitted by law, then such restrictions shall be deemed to be reformed to comply with the maximum limitations permitted by law.  The existence of any claim or cause of action by Executive against the Company (whether or not derived from or based upon Executive's employment with the Company) shall not constitute a defense to the Company's enforcement of any covenant, duty or obligation of Executive in this Section 11.

12.           Employment with Subsidiaries.  For purposes of this Agreement, any and all references to Executive's employment with the Company shall be deemed to include Executive's employment by any Subsidiary and, with respect to such employment by a Subsidiary, the term "Company" as used in this Agreement shall be deemed to include any Subsidiary which employs Executive.

13.           Survival.  The respective obligations and benefits afforded to the Company and Executive as provided in Sections 4 (to the extent that payments or benefits are owed as a result of the termination of employment that occurs during the Termination Period), 5, 6, 8, 10 and 11 shall survive the termination of this Agreement and the term of this Agreement.

14.           Governing Law; Validity.  The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Ohio without regard to the principle of conflicts of laws.  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 other provisions shall remain in full force and effect.  The Parties hereby agree that exclusive venue for all litigation arising hereunder lies solely with the State Courts of Lorain County, Ohio and each Party hereby submits and agrees to the personal jurisdiction of such Lorain County State Courts.

15.           Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.

16.           Miscellaneous.  No provision of this Agreement may be modified or waived unless such modification or waiver is agreed to in writing and signed by Executive and by a duly authorized officer of the Company. No waiver by either Party (at any time) of any breach by the other Party of, or compliance with, any condition or provision of this Agreement to be performed by such other Party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Except as otherwise expressly set forth in this Agreement, the failure by Executive or the Company to insist upon strict compliance with any provision of this Agreement or to assert any right Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

 

  

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer of the Company and Executive has executed this Agreement as of the day and year first above written.

 

 

	 	LNB Bancorp, Inc.	 
	 	 	 	 	 
	 	 	 	 	 
	 	By:	/s/  Daniel E. Klimas	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	

- Company -

	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	/s/ Gary J. Elek	 
	 	 	 	 
	 	 	 	 
	 	 	

- Executive -

	 

 

 

 

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