If Five Star Bank were to be sold, the new owner would find it quite expensive to remove three of the bank’s top executives for at least a year after the deal.
Five Star’s parent company, Warsaw-based Financial Institutions Inc., outlined terms of its executive agreements in a filing with the Securities and Exchange Commission. The agreements cover Martin K. Birmingham, the chief executive officer; Kevin B. Klotzbach, the chief financial officer; and Richard J. Harrison, the chief operating officer.
The terms point toward ensuring stability in the bank’s top ranks, following significant changes in Financial Institutions’ leadership since last year. Birmingham became CEO in March, after longtime CEO Peter G. Humphrey abruptly retired last year. Klotzbach was named CFO in April, and Harrison was named COO in August 2012. Five Star has more than 50 branches, including three in Erie County.
The executives would collect on the salary and benefits payouts in the agreements if, within 12 months following a “change in control” of the bank, they were either removed or left voluntarily for “good cause,” for specific reasons such as diminished duties. The terms would not apply if the executives were removed from their jobs for cause.
Birmingham’s existing agreement was amended to reflect his new role as CEO, said Charles J. Guarino, senior vice president and director of marketing. Klotzbach and Harrison did not previously have executive agreements; the terms of their agreements also reflect their new positions at the bank, Guarino said.
According to documents, if Birmingham were removed within 12 months after a “change in control,” he would be entitled to three times his base salary for the most recent calendar year ending before when the change in control took place. Birmingham’s salary last year was $275,000. As CEO, he started earning $350,000 annually this year.
Klotzbach and Harrison each would receive twice their base pay if they were removed within 12 months after a change in control. Harrison last year had a base salary of $275,000. Klotzbach’s base salary was set at $210,000 this year when he was named CFO.
Among other benefits pledged in the executive agreements:
• They would receive the average of their incentive compensation for the three most recent calendar years ending before the date on which the change in control occurred.
• Financial Institutions would continue to provide the three executives and each of their covered dependents with health and dental coverage for up to 18 months. And all of their restricted stock awards, stock options and other rights they have to acquire Financial Institutions common stock would immediately become fully vested at the maximum level.
The three executives’ agreements are in effect for as long as they are employed by Financial Institutions, Guarino said.
A purchase of Financial Institutions would be an obvious example of the “change in control” mentioned in the agreements. But the term also applies to situations such as a sweeping change in the board’s makeup, according to the documents filed with the SEC.