Exhibit 10.7

 

     Severance Agreement with Richard P. Jacobson, dated January 1, 2008

 

 

 

 

                    CHANGE OF CONTROL /SEVERANCE AGREEMENT

                    --------------------------------------

 

 

     THIS CHANGE OF CONTROL/ SEVERANCE AGREEMENT (the "Agreement") is made and

entered into as of this 16th day of July, 2002 (the "Commencement Date") and

amended this the 1st day of January, 2008, by and between HORIZON BANK, a

commercial bank chartered under the laws of the State of Washington (the

"Bank"), and Richard P. Jacobson (the "Executive").

 

     WHEREAS, as of January 1, 2008 the Executive has become the Chief

Executive Officer of the Bank; and has agreed to continue to serve in the

employ of the Bank; and

 

     WHEREAS, the Board of Directors of the Bank  recognizes the substantial

contribution the Executive has made to the Bank and wishes to provide

Executive with certain benefits for the period provided in this Agreement in

the event of  a change of control (as defined herein) of the Bank or of its

holding company, Horizon Financial Corp. (the "Holding Company");

 

     NOW, THEREFORE, in consideration of the foregoing and of the respective

covenants and agreements of the parties herein, the parties hereto agree as

follows:

 

     1.  Certain Definitions.

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          (a)  The term "Change of Control" means: (i) an event of a nature

that would be required to be reported in response to Item 1(a) of the current

report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or

15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act");

(ii) any "person," as such term is used in Sections 13(d) and 14(d) of the

Exchange Act,  other than the Holding Company, any Consolidated Subsidiaries

(as hereinafter defined), is or becomes the beneficial owner (as defined in

Rule 13d-3 under the Exchange Act) directly or indirectly of securities of the

Bank or the Holding Company representing 25% or more of the combined voting

power of the Bank's or Holding Company's outstanding securities; (iii)

individuals who are members of the Board of Directors of the Holding Company

(the "Board") on the Commencement Date (the "Incumbent Board") cease for any

reason to constitute at least a majority thereof, provided that any person

becoming a director subsequent to the Commencement Date whose election was

approved by a vote of at least three-quarters of the directors comprising the

Incumbent Board or whose nomination for election by the Holding Company's

stockholders was approved by the nominating committee serving under an

Incumbent Board or who was appointed as a result of a change at the direction

of the Federal Reserve Board or the Federal Deposit Insurance Corporation

("FDIC"), shall be considered a member of the Incumbent Board; (iv) the

stockholders of the Holding Company approve a merger, consolidation or

acquisition of the Holding Company or the Bank, with or by any other

corporation or entity, other than (1) a merger, consolidation or acquisition

which would result in the voting securities of the Holding Company outstanding

immediately prior thereto continuing to represent (either by remaining

outstanding or by being converted into voting securities of the surviving

entity) more than 50% of the combined voting power of the voting securities of

the Holding Company or such surviving entity outstanding immediately after

such merger or consolidation or (2) a merger or consolidation effected to

implement a recapitalization of the Holding Company or the Bank (or similar

transaction) in which no person (as hereinabove defined) acquires more than

25% of the combined voting power of the Holding Company's then outstanding

securities; or (v) the stockholders of the Holding Company approve a plan of

complete liquidation of the Holding Company or the Bank or an agreement for

the sale or

 

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disposition by the Holding Company of all or substantially all of the Holding

Company's or the Bank's assets (or any transaction having a similar effect);

provided that the term "Change of Control" shall not include an acquisition of

securities by an employee benefit plan of the Bank or the Holding Company or a

change in the composition of the Board at the direction of the Federal Reserve

Board or the FDIC.  Upon a Change of Control, the provisions hereof shall

become immediately operative.

 

          (b)  The term "Consolidated Subsidiaries" means any subsidiary or

subsidiaries of the Holding Company that are part of the affiliated group (as

defined in Section 1504 of the Internal Revenue Code of 1986, as amended (the

"Code"), without regard to subsection (b) thereof) that includes the Bank.

 

          (c)  The term "Good Reason" means the occurrence, without the

Executive's express written consent, of a material diminution of or

interference with the Executive's duties, responsibilities or benefits,

including (without limitation) any of the following circumstances:

 

          (i)   a requirement that the Executive be based at any location not

                within 30 miles of the Executive's then existing job location,

                providing that such new location is not closer to Executive's

                home;

          (ii)  a material demotion, or loss of title or loss of significant

                authority of the Executive;

          (iii) a reduction in the Executive's salary or a material adverse

                change in the Executive's perquisites, benefits or vacation,

                other than as part of an overall program applied uniformly and

                with equitable effect to all members of the senior management

                of the Bank;

          (iv)  a successor bank or company fails or refuses to assume the

                Bank's obligations under this Agreement, as required in

                Section 4(a) hereof; or

          (v)   any purported termination of the Executive's employment,

                except for Termination for Cause that is not effected pursuant

                to a Notice of Termination satisfying the requirements of

                Section 6 hereof (and, if applicable, the requirements of

                Section 1(d) hereof), which termination shall not be effective

                for purposes of this Agreement.

 

          (d)  The term "Termination for Cause" means termination of the

employment of the Executive because of the Executive's personal dishonesty,

incompetence,  willful misconduct, breach of a fiduciary duty involving

personal profit, intentional failure to perform stated duties,

insubordination, willful violation of any law, rule, or regulation (other than

traffic violations or similar offenses) or final cease-and-desist order, or

material breach of any provision of this Agreement or any other agreement

between Executive and the Bank or the Holding Company.  The Executive shall

not be entitled to any payment or benefit hereunder in the event a termination

occurs by reason of a voluntary retirement, voluntary termination other than

for reasons specified in Section 1(c) hereof, disability, or Termination for

Cause.

 

     2.  Term of the Agreement.

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          (a)  The term of this Agreement shall be a period of thirty-six

calendar months beginning on the Commencement Date.  Commencing on the first

anniversary date of this Agreement and continuing on each anniversary

thereafter, the term of the Agreement shall be extended for a period of one

year in addition to the remaining term, unless either party elects not

 

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to extend this Agreement further by giving written notice thereof to the other

party, subject to earlier termination, as provided herein.

 

          (b) Nothing in this Agreement shall be deemed to prohibit the Bank

at any time from terminating the Executive's employment during the term of

this Agreement with or without notice for any reason; provided, however, that

the relative rights and obligations of the Bank and the Executive in the event

of any such termination shall be determined under this Agreement.

 

     3.  Severance Benefits.

         ------------------

 

          (a)  If after a Change of Control, the Bank shall terminate the

Executive's employment other than Termination for Cause, or the Executive

shall terminate employment with the Bank for Good Reason within twelve (12)

months following a Change of Control, the Bank shall: (i) pay the Executive

(or in the event of Executive's subsequent death, Executive's beneficiary or

estate, as the case may be), as severance pay, a sum equal to 2.99 times

Executive's annual compensation.  For purposes of this Agreement, "annual

compensation" shall mean all wages, salary, bonus, and other compensation, if

any, paid by the Bank as consideration for the Executive's services during the

twelve (12) month period ending on the last day of the month preceding the

effective date of a Change of Control which is or would be includable in the

gross income of the Executive receiving the same for federal income tax

purposes.  Such amount shall be paid to Executive in a lump sum no later than

sixty (60) days after the date of Executive's termination; and (ii) cause to

be continued for twelve (12) months after the effective date of a Change of

Control, life, medical, dental, and disability coverage substantially

identical to the coverage maintained by the Bank or the Holding Company for

the Executive prior to the effective date of a Change of Control, except to

the extent such coverage may be changed in its application to all Bank or

Holding Company employees on a nondiscriminatory basis.

 

          (b)  Notwithstanding the provisions of Section 3(a) above, if a

payment to the Executive who is a "disqualified individual" shall be in an

amount which includes an "excess parachute payment," the payment hereunder to

the Executive shall be reduced to the maximum amount which does not include an

"excess parachute payment."  The terms "disqualified individual" and "excess

parachute payment" shall have the meaning defined in Section 280G of the Code.

 

          (c)  The Executive shall not be required to mitigate the amount of

any payment or benefit  provided for in Section 3(a) of this Agreement by

seeking other employment or otherwise, nor shall the amount of any payment or

benefit provided for in Section 3(a) of this Agreement be reduced by any

compensation earned or benefit received  by the Executive as the result of

employment by another employer.   This Agreement shall not be construed as a

contract of employment or as providing the Executive any right to be retained

in the employ of the Holding Company or the Bank or any affiliate thereof.

 

     4.  Assignment.

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          (a)  This Agreement is personal to each of the parties hereto, and

neither party may assign or delegate any of its rights or obligations

hereunder without first obtaining the written consent of the other party;

provided, however, that the Bank shall require any successor or assignee of

(whether direct or indirect, by purchase, merger, consolidation, operation of

law or otherwise) to all or substantially all of the business and/or assets of

the Bank, to expressly assume and agree to perform the Bank's obligations

under this Agreement.

 

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          (b)  This Agreement shall be binding upon and inure to the benefit

of the Executive, Bank, and Holding Company, and their respective successors

and assigns.

 

     5.  Required Regulatory Provisions.  Any payments made to Executive

         ------------------------------

pursuant to this Agreement, or otherwise, are subject to and conditioned upon

compliance with 12 U.S.C. Section 1828(k) and any rules and regulations

promulgated thereunder, including 12 C.F.R. Part 359.

 

     6.  Delivery of Notices.

         -------------------

 

     For the purposes of this Agreement, all notices and other communications

to any party hereto shall be in writing and shall be deemed to have been duly

given when delivered or sent by certified mail, return receipt requested,

postage prepaid, to the party's address identified herein.  Any purported

termination by the Bank or the Executive in connection with a Change of

Control shall be communicated by a Notice of Termination to the other party.

For purposes of this Agreement, a "Notice of Termination" shall mean a written

notice which indicates the specific termination provision in this Agreement

and shall set forth in reasonable detail the facts and circumstances claimed

to provide a basis for the termination of Executive's employment under the

provision so indicated.

 

     7.  Amendments.  No amendments or additions to this Agreement shall be

         ----------

binding unless in writing and signed by both parties, except as herein

otherwise provided.

 

     8.  Headings.  The headings used in this Agreement are included solely

         --------

for convenience and shall not affect, or be used in connection with, the

interpretation of this Agreement.

 

     9.  Severability. The provisions of this Agreement shall be deemed

         ------------

severable and the invalidity or unenforceability of any provision shall not

affect the validity or enforceability of the other provisions hereof.

 

     10.  Governing Law. This Agreement shall be governed by the laws of the

          -------------

State of Washington.

 

     11.  Arbitration.  Any dispute or controversy arising under or in

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connection with this Agreement shall be settled exclusively by binding

arbitration, conducted before a panel of three arbitrators in a location

selected by the Executive within 50 miles of the location of the Bank, in

accordance with the rules of the American Arbitration Association then in

effect.  Judgment may be entered on the arbitrators' award in any court having

jurisdiction.

 

     12.  Reimbursement of Fees.  All reasonable legal fees and expenses paid

          ---------------------

or incurred by Executive pursuant to any dispute or question of interpretation

relating to this Agreement shall be paid or reimbursed by the Bank if

Executive is successful on the merits pursuant to an arbitration award or

legal judgment.

 

<PAGE>

 

 

 

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the

day and year first above written.

 

     THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE

ENFORCED BY THE PARTIES.

 

Attest:                            HORIZON BANK

 

 

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                                   By:

                                       -------------------------------

                                   Its:

                                       -------------------------------

                                   Address: 1500 Cornwall Avenue, Bellingham

                                   Washington, 98225

 

                                   EXECUTIVE

 

 

 

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                                   Address:

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