8-K: Old Second Bancorp Restructures Executive Role, Sets New Employment Terms for Vice Chairman Gary Collins

Old Second Bancorp has entered into a new employment agreement with Vice Chairman Gary Collins, outlining his transition to strategic objectives and setting new compensation terms.

Summary

• Old Second Bancorp has entered into a new employment agreement with Gary Collins, who currently serves as Vice Chairman.
• The agreement supersedes a previous offer letter from 2016 but does not replace his existing Compensation and Benefits Assurance Agreement (CBAA).
• Mr. Collins will transition out of direct management of business lines by June 30, 2024, focusing on strategic objectives and reporting directly to the CEO.
• The employment agreement is effective until July 1, 2027.
• His initial annual base salary remains at $394,012.30, but will be reduced to $300,000 on July 1, 2024.
• Mr. Collins is eligible for a performance-based annual bonus with a target of 50% of his base salary.
• The agreement outlines severance benefits upon termination without cause, including a lump-sum payment, pro-rata bonus, and continued health insurance.
• The agreement includes confidentiality, non-solicitation, and non-interference restrictions for 12 months post-termination.
• The CBAA benefits will be reduced by any severance benefits received under the new employment agreement, and if a change in control occurs, only the CBAA benefits will be paid.

Sentiment

Score: 7

Explanation: The document outlines a structured transition and compensation plan for a key executive, which is generally positive. There are some negative aspects such as the reduction in base salary and restrictive covenants, but overall the agreement appears to be a well-defined plan.

Positives

• The agreement provides clarity on Mr. Collins' future role and responsibilities.
• The terms of the agreement provide a clear framework for compensation and severance.
• The agreement ensures continuity of service and strategic focus from Mr. Collins.
• The company has secured non-compete and non-solicitation agreements to protect its interests.

Negatives

• Mr. Collins' base salary will be reduced on July 1, 2024.
• The agreement includes restrictive covenants that limit Mr. Collins' future employment options.
• The reduction of CBAA benefits by any severance received under the new agreement could be seen as a negative for Mr. Collins.

Risks

• The transition of Mr. Collins out of direct management could impact business line performance.
• The restrictive covenants could lead to potential legal disputes if not adhered to.
• The reduction in base salary could affect Mr. Collins' motivation or performance.

Future Outlook

The document outlines the terms of Mr. Collins' employment through July 1, 2027, including his transition to strategic objectives and the terms of his compensation and potential severance.

Management Comments

• The Company and the Executive desire to enter into this Agreement to continue their employment relationship and to provide certain benefits to the Executive and certain protections for the Bank, subject to and in accordance with this Agreement.
• The Executive acknowledges that the restrictions contained herein are necessary and reasonable in scope and duration and are a material inducement for the Company to enter into this Agreement and continue a relationship with the Executive.

Industry Context

This announcement is typical for executive employment agreements in the financial services industry, which often include non-compete clauses and specific severance terms. The transition of an executive to a strategic role is also a common practice.

Comparison to Industry Standards

• The use of a non-compete clause is standard practice in the banking industry, similar to agreements at companies like JPMorgan Chase and Bank of America.
• The severance package, including a lump-sum payment and continued health benefits, is comparable to those offered to senior executives at other regional banks.
• The transition to a strategic role is similar to moves seen at other financial institutions where executives shift focus as part of succession planning or strategic realignment.

Management Changes

Stakeholder Impact

• Shareholders will be impacted by the changes in executive compensation and the strategic direction of the company.
• Employees may be affected by the transition of Mr. Collins out of direct management.
• Customers and suppliers are unlikely to be directly impacted by this agreement.

Next Steps

• Mr. Collins will transition out of direct management of business lines by June 30, 2024.
• His base salary will be adjusted on July 1, 2024.
• The company will continue to review Mr. Collins' base salary annually.

Key Dates

Keywords

employment agreement, executive compensation, severance, non-compete, strategic objectives, Gary Collins, Old Second Bancorp, management transition, CBAA, base salary