Employment Agreement
EXHIBIT
10(iii)
This
Employment
Agreement
(this
“Agreement”)
is
entered into effective as of this 24 day of October, by and among Xxxxxxx X.
Xxxxxxx (the “Executive”),
Crescent Financial Corporation, a North Carolina corporation (the “Corporation”),
and
Crescent State Bank, a North Carolina-chartered bank and wholly owned subsidiary
of Crescent Financial Corporation (the “Bank”).
The
Corporation and the Bank are hereinafter sometimes referred to together or
individually as the “Employer.”
Whereas,
the
Executive is the President and Chief Executive Officer of the Corporation and
the Bank, possessing unique skills, knowledge, and experience relating to their
business, and the Executive has made and is expected to continue to make major
contributions to the profitability, growth and financial strength of the
Corporation and affiliates,
Whereas,
the
Executive and the Employer intend that this Agreement shall supersede and
replace in its entirety the December 31, 2003 Employment Agreement between
the
Executive and the Employer, and
Whereas,
none of
the conditions or events included in the definition of the term “golden
parachute payment” that is set forth in Section 18(k)(4)(A)(ii) of the Federal
Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit
Insurance Corporation Rule 359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists
or,
to the best knowledge of the Employer, is contemplated insofar as the Employer
or any affiliates are concerned.
Now
Therefore,
in
consideration of these premises, the mutual covenants contained herein, and
other good and valuable consideration the receipt and sufficiency of which
are
hereby acknowledged, the parties hereto agree as follows.
Article
1
Employment
1.1 Employment.
The
Employer hereby employs the Executive to serve as President and Chief Executive
Officer according to the terms and conditions of this Agreement and for the
period stated in section 1.3. The Executive hereby accepts employment according
to the terms and conditions of this Agreement and for the period stated in
section 1.3.
1.2 Duties.
As
President and Chief Executive Officer, the Executive shall serve under the
direction of the Employer’s board of directors and in accordance with the
Employer’s Articles of Incorporation and Bylaws, as each may be amended or
restated from time to time. The Executive shall report directly to the board
of
directors. The Executive shall serve the Employer faithfully, diligently,
competently, and to the best of the Executive’s ability. The Executive shall
exclusively devote full time, energy, and attention to the business of the
Employer and to the promotion of the Employer’s interests throughout the term of
this Agreement. Without the written consent of the board of directors of each
of
the Corporation and the Bank, the Executive shall not render services to or
for
any person, firm, corporation, or other entity or organization in exchange
for
compensation, regardless of the form in which such compensation is paid and
regardless of whether it is paid directly or indirectly to the Executive.
Nothing in this section 1.2 shall prevent the Executive from managing personal
investments and affairs, provided that doing so does not interfere with the
proper performance of the Executive’s duties and responsibilities under this
Agreement.
1.3 Term.
The
initial term of this Agreement shall be for a period of three years commencing
on the effective date of this Agreement. On the first anniversary of the
effective date of this Agreement and on each anniversary thereafter, this
Agreement shall be extended automatically for one additional year unless the
Employer’s board of directors determines that the term shall not be extended. If
the board of directors determines not to extend the term, it shall promptly
notify the Executive in writing, and this Agreement shall nevertheless remain
in
force until its term expires. The board’s decision not to extend the term of
this Agreement shall not - by itself - give the Executive any rights under
this
Agreement to claim an adverse change in his position, compensation, or
circumstances or otherwise to claim entitlement to severance benefits under
Articles 4 or 5. References herein to the term of this Agreement mean the
initial term, as the same may be extended. Unless sooner terminated, the
Executive’s employment and the term of this Agreement shall terminate when the
Executive attains age 65.
1.4 Service
on the Board of Directors.
The
Executive is currently serving as a director of each of the Corporation and
the
Bank. The Corporation shall nominate the Executive for election as a director
at
such times as necessary so that the Executive will, if elected by stockholders,
remain a director of the Corporation throughout the term of this Agreement.
The
Executive hereby consents to serving as a director and to being named as a
director of the Corporation in documents filed with the Securities and Exchange
Commission. The board of directors of each of the Corporation and the Bank
shall
undertake every lawful effort to ensure that the Executive continues throughout
the term of this Agreement to be elected or reelected as a director of the
Bank.
The Executive shall be deemed to have resigned as a director of each of the
Corporation and the Bank effective immediately after termination of the
Executive’s employment under Article 3 of this Agreement, regardless of whether
the Executive submits a formal, written resignation as director.
Article
2
Compensation
and Benefits
2.1 Base
Salary.
In
consideration of the Executive’s performance of the obligations under this
Agreement, the Employer shall pay or cause to be paid to the Executive a salary
at the annual rate of not less than $280,000, payable in semi-monthly
installments. No less frequently than annually, the Executive’s salary shall be
reviewed by the Compensation Committee of the Employer’s board of directors or
by the board committee with jurisdiction over executive compensation. The
Executive’s salary shall be increased no more frequently than annually to
account for cost of living increases. The Executive’s salary also may be
increased beyond the amount necessary to account for cost of living increases
at
the discretion of the committee having jurisdiction over executive compensation.
However, the Executive’s salary shall not be reduced. The Executive’s salary, as
the same may be increased from time to time, is referred to in this Agreement
as
the “Base
Salary.”
2.2 Benefit
Plans and Perquisites.
The
Executive shall be entitled throughout the term of this Agreement to participate
in any and all officer or employee compensation, bonus, incentive, and benefit
plans in effect from time to time, including without limitation stock option
and
other stock-based compensation, incentive, bonus, or purchase plans existing
on
the date of this Agreement or adopted during the term of this Agreement and
plans providing pension, medical, dental, disability, and group life benefits,
including the Employer’s 401(k) plan, and to receive any and all other fringe
benefits provided from time to time, provided that the Executive satisfies
the
eligibility requirements for any such plans or benefits. Without limiting the
generality of the foregoing -
(a) Club
dues.
During
the term of this Agreement the Employer shall pay or cause to be paid the
Executive’s membership dues in civic clubs. Without limiting the generality of
the foregoing, the Executive shall be reimbursed for dues and expenses
associated with membership in and use of the XxXxxxxx Down County
Club.
(b) Reimbursement
of business expenses.
The
Executive shall be entitled to reimbursement for all reasonable business
expenses incurred performing the Executive’s obligations under this Agreement,
including but not limited to all reasonable business travel and entertainment
expenses incurred while acting at the request of or in the service of the
Employer and reasonable expenses for attendance at annual and other periodic
meetings of trade associations.
(c) Use
of automobile.
The
Employer further agrees to provide the Executive, for both business and personal
use so long as the Executive is actually providing services hereunder, an
automobile selected by the Executive. The Employer agrees to provide the
Executive with an automobile every three years, with the next automobile
anticipated to be provided to the Executive on or about February 1,2008. The
Bank shall be responsible for all automobile expenses (including adequate
insurance), repairs and maintenance thereof; provided,
however,
the
Executive shall be responsible for gas and oil expense for automobile travel
not
related to the business of the Employer. The Employer shall obtain and maintain
or cause to be obtained and maintained adequate insurance coverage on such
automobile, providing at least as much coverage for loss, theft, damage, or
injury on terms as the Employer generally provides for company-owned vehicles.
The Executive shall be entitled to retain the automobile provided for the
Executive’s use at termination of this Agreement.
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2.3 Vacation.
The
Executive shall be entitled to paid annual vacation and sick leave in accordance
with the policies established from time to time by the Employer, but in no
event
fewer than three weeks of vacation per year. The Executive shall schedule at
least five consecutive days of vacation per year. The timing of vacations shall
be scheduled in a reasonable manner by the Executive. The Executive shall not
be
entitled to any additional compensation for failure to use allotted vacation
or
sick leave nor shall the Executive be entitled to accumulate unused sick leave
from one year to the next, unless authorized by the Employer’s board of
directors to do so.
2.4 Supplemental
Retirement Plan.
The
Employer and the Executive have entered into a Salary Continuation Agreement
dated as of October 1, 2003. Unless the Salary Continuation Agreement explicitly
provides otherwise, whether benefits are properly payable to the Executive
under
the Salary Continuation Agreement shall be determined solely by reference to
that agreement, as the same may be amended.
2.5 Indemnification
and Insurance.
(a)
Indemnification.
The
Employer shall indemnify the Executive or cause the Executive to be indemnified
for the Executive’s activities as a director, officer, employee, or agent of the
Employer or as a person who is serving or has served at the request of the
Employer (a “representative”)
as a
director, officer, employee, agent, or trustee of an affiliated corporation,
joint venture, trust or other enterprise, domestic or foreign, in which the
Employer has a direct or indirect ownership interest against expenses (including
without limitation attorneys’ fees, judgments, fines, and amounts paid in
settlement) actually and reasonably incurred (“Expenses”)
in
connection with any claim against the Executive that is the subject of any
threatened, pending, or completed action, suit, or other type of proceeding,
whether civil, criminal, administrative, investigative, or otherwise and whether
formal or informal (a “Proceeding”),
to
which the Executive was, is, or is threatened to be made a party by reason
of
the Executive being or having been such a director, officer, employee, agent,
or
representative.
The
indemnification provided herein shall not be exclusive of any other
indemnification or right to which the Executive may be entitled and shall
continue after the Executive has ceased to occupy a position as an officer,
director, employee, agent or representative with respect to Proceedings relating
to or arising out of the Executive’s acts or omissions during the Executive’s
service in such position. The indemnification provided to the Executive under
this Agreement for the Executive’s service as a representative shall be payable
if and only if and only to the extent that reimbursement to the Executive by
the
affiliated entity with which the Executive has served as a representative,
whether pursuant to agreement, applicable law, articles of incorporation or
association, by-laws or regulations of the entity, or insurance maintained
by
such affiliated entity, is insufficient to compensate the Executive for Expenses
actually incurred and otherwise payable by the Employer under this Agreement.
Any payments in fact made to or on behalf of the Executive directly or
indirectly by the affiliated entity with which the Executive served as a
representative shall reduce the obligation of the Employer
hereunder.
(b) Exclusions.
Despite
anything herein to the contrary however, nothing in this section 2.5 requires
indemnification, reimbursement, or payment by the Employer, and the Executive
shall not be entitled to demand indemnification, reimbursement or payment
–
1) if
and to
the extent indemnification, reimbursement, or payment constitutes a “prohibited
indemnification payment” within the meaning of Federal Deposit Insurance
Corporation Rule 359.1(l)(1) [12 CFR 359.1(l)(1)], or
2) for
any
claim or any part thereof for which the Executive shall have been determined
by
a court of competent jurisdiction, from which no appeal is or can be taken,
by
clear and convincing evidence, to have acted with deliberate intent to cause
injury to the Employer or with reckless disregard for the best interests of
the
Employer, or
3
3) for
any
claim or any part thereof arising under section 16(b) of the Securities Exchange
Act of 1934 as a result of which the Executive is required to pay any penalty,
fine, settlement, or judgment, or
4) for
any
obligation of the Executive based upon or attributable to the Executive gaining
in fact any personal gain, profit, or advantage to which the Executive was
not
entitled, or
5) any
proceeding initiated by the Executive without the consent or authorization
of
the Employer’s board of directors, but this exclusion shall not apply with
respect to any claims brought by the Executive (x)
to
enforce the Executive’s rights under this Agreement, or (y)
in any
Proceeding initiated by another person or entity whether or not such claims
were
brought by the Executive against a person or entity who was otherwise a party
to
such proceeding.
(c) Insurance.
The
Employer shall maintain or cause to be maintained liability insurance covering
the Executive throughout the term of this Agreement.
Article
3
Termination
3.1 Termination
Because of Death or Disability.
(a)
Death.
The
Executive’s employment shall terminate automatically on the date of the
Executive’s death. If the Executive’s employment terminates because of the
Executive’s death, the Executive’s estate shall receive any sums due the
Executive as Base Salary and reimbursement of expenses through the end of the
month in which death occurred, plus any bonus earned or accrued through the
date
of death, including any unvested amounts awarded for previous years. If the
Executive dies in active service to the Employer, for 12 months after the
Executive’s death the Employer shall provide on a cost-free basis the
Executive’s family with continuing health care coverage under COBRA
substantially identical to that provided for the Executive before
death.
(b) Disability.
By
delivery of written notice 30 days in advance to the Executive, the Employer
may
terminate the Executive’s employment if the Executive is disabled. For purposes
of this Agreement the Executive shall be deemed to be “disabled”
if
an
independent physician selected by the Employer and reasonably acceptable to
the
Executive or the Executive’s legal representative determines that, because of
illness or accident, the Executive is unable to perform the Executive’s duties
and will be unable to perform the Executive’s duties for a period of 90
consecutive days. The Executive shall not be deemed to be disabled, however,
if
the Executive returns to work on a full-time basis within 30 days after the
Employer gives notice of termination because of disability. If the Executive
is
terminated by either of the Corporation or the Bank because of disability,
the
Executive’s employment with the other shall also terminate at the same time.
During the period of incapacity leading up to the termination of the Executive’s
employment under this provision, the Employer shall continue to pay the full
Base Salary at the rate then in effect and all perquisites and other benefits
(other than bonus) until the Executive becomes eligible for benefits under
any
disability plan or insurance program maintained by the Employer, provided that
the amount of the Employer’s payments under this section 3.1(b) to the Executive
shall be reduced by the sum of the amounts, if any, payable to the Executive
for
the same period under any disability benefit or pension plan covering the
Executive. Furthermore, the Executive shall receive any bonus earned or accrued
through the date of incapacity, including any unvested amounts awarded for
previous years.
3.2 Involuntary
Termination for Cause.
The
Employer may terminate the Executive’s employment for Cause. If the Executive’s
employment is terminated for Cause by either of the Corporation or the Bank,
the
Executive’s employment with the other shall also terminate at the same time. If
the Executive’s employment terminates for Cause, the Executive shall receive the
Base Salary through the date on which termination becomes effective and
reimbursement of expenses to which the Executive is entitled when termination
becomes effective. The Executive shall not be deemed to have been terminated
for
Cause under this Agreement unless and until there is delivered to the Executive
a copy of a resolution duly adopted at a meeting of the Corporation’s or the
Bank’s board of directors, which resolution shall (x)
contain
findings that, in the good faith opinion of the board, the Executive has
committed an act constituting Cause, and (y)
specify
the particulars thereof. The resolution of the board of directors shall be
deemed to have been duly adopted if and only if it is adopted by the affirmative
vote of 75% of the directors then in office, excluding the Executive, at a
meeting duly called and held for that purpose. Notice of the meeting and the
proposed termination for Cause shall be given to the Executive at least seven
calendar days before the board’s meeting. The Executive and the Executive’s
counsel (if the Executive chooses to have counsel present) shall have a
reasonable opportunity to be heard by the board at the meeting. Nothing in
this
Agreement limits the Executive’s or the Executive’s beneficiaries’ right to
challenge the validity or propriety of the board’s determination of Cause. For
purposes of this Agreement “Cause”
means
any of the following occur -
4
(a) an
act of
fraud, embezzlement, or theft by the Executive in the course of employment,
or
misconduct involving dishonesty, or
(b) intentional
violation of any law or significant policy of the Employer or an affiliate,
which in the Employer’s sole judgement causes material harm to the Employer or
affiliate, regardless of whether the violation leads to criminal prosecution
or
conviction. For purposes of this Agreement applicable laws include any statute,
rule, regulatory order, statement of policy, or final cease-and-desist order
of
any governmental agency or body having regulatory authority over the Employer.
For purposes of this Agreement no act or failure to act on the part of the
Executive shall be deemed to have been intentional if it was due primarily
to an
error in judgment or negligence. An act or failure to act on the Executive’s
part shall be considered intentional if it is not in good faith and if it is
without a reasonable belief that the action or failure to act is in the best
interests of the Employer, or
(c) the
Executive’s gross negligence or gross neglect in the performance of duties,
or
(d) intentional
wrongful damage by the Executive to the business or property of the Employer
or
its affiliates, including without limitation the reputation of the Employer,
which in the Employer’s sole judgment causes material harm to the Employer,
or
(e) a
breach
by the Executive of fiduciary duties as an officer or director of the Employer,
or misconduct involving dishonesty, or
(f) a
breach
by the Executive of this Agreement that in the sole judgment of the Employer
is
a material breach, which breach is not corrected by the Executive within ten
days after receiving written notice of the breach, or
(g) removal
of the Executive from office or permanent prohibition of the Executive from
participating in the Employer’s affairs by an order issued under section 8(e)(4)
or (g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1),
or
(h) the
occurrence of any event that results in the Executive being excluded from
coverage, or having coverage limited for the Executive as compared to other
executives of the Employer, under the Employer’s blanket bond or other fidelity
or insurance policy covering its directors, officers, or employees,
or
(i) conviction
of the Executive for or plea of no contest to a felony or conviction of or
plea
of no contest to a misdemeanor involving moral turpitude, or the actual
incarceration of the Executive for 45 consecutive days or more.
3.3 Voluntary
Termination by the Executive Without Good Reason.
If the
Executive terminates employment without Good Reason, the Executive shall receive
the Base Salary and expense reimbursement to which the Executive is entitled
through the date on which termination becomes effective.
3.4 Involuntary
Termination Without Cause and Voluntary Termination for Good
Reason.
With
written notice to the Executive 90 days in advance, the Employer may terminate
the Executive’s employment without Cause. Termination shall take effect at the
end of the 90-day period. With advance written notice to the Employer as
provided in clause (y),
the
Executive may terminate employment for Good Reason. If the Executive’s
employment terminates involuntarily without Cause or voluntarily but with Good
Reason, the Executive shall be entitled to the benefits specified in Article
4
of this Agreement. For purposes of this Agreement a voluntary termination by
the
Executive shall be considered a voluntary termination with Good Reason if the
conditions stated in both clauses (x)
and
(y)
are
satisfied –
5
(x) a
voluntary termination by the Executive shall be considered a voluntary
termination with Good Reason if any of the following occur without the
Executive’s advance written consent, and the term Good Reason shall mean the
occurrence of any of the following without the Executive’s advance written
consent -
1) a
material diminution of the Executive’s Base Salary,
2) a
material diminution of the Executive’s authority, duties, or
responsibilities,
3) a
material diminution in the authority, duties, or responsibilities of the
supervisor to whom the Executive is required to report, including a requirement
that the Executive report to a corporate officer or employee instead of
reporting directly to the board of directors,
4) a
material diminution in the budget over which the Executive retains
authority,
5) a
material change in the geographic location at which the Executive must perform
services for the Employer, or
6) any
other
action or inaction that constitutes a material breach by the Employer of this
Agreement.
(y) the
Executive must give notice to the Employer of the existence of one or more
of
the conditions described in clause (x)
within
90 days after the initial existence of the condition, and the Employer shall
have 30 days thereafter to remedy the condition. In addition, the Executive’s
voluntary termination because of the existence of one or more of the conditions
described in clause (x)
must
occur within 24 months after the initial existence of the
condition.
Article
4
Severance
4.1 Continued
Salary after Termination Without Cause or Termination for Good
Reason.
(a)
Subject to the possibility that continued Base Salary for the first six months
after employment termination might be delayed because of section 4.1(b), if
the
Executive’s employment terminates involuntarily but without Cause or if the
Executive voluntarily terminates employment with Good Reason, the Executive
shall continue to receive in accordance with the Employer’s regular pay
practices Base Salary for 24 months from the date of termination, but the
Executive shall not be entitled to continued participation in the Employer’s or
a subsidiary’s retirement plan(s) or any stock-based plans. The Employer and the
Executive acknowledge and agree that the compensation and benefits under this
section 4.1 shall not be payable if compensation and benefits are payable or
shall have been paid to the Executive under Article 5 of this
Agreement.
(b) If
when
employment termination occurs the Executive is a specified employee within
the
meaning of section 409A of the Internal Revenue Code of 1986, and if continued
Base Salary under section 4.1(a) would be considered deferred compensation
under
section 409A, and finally if an exemption from the six-month delay requirement
of section 409A(a)(2)(B)(i) is not available, the Executive’s continued Base
Salary under section 4.1(a) for the first six months after employment
termination shall be paid to the Executive in a single lump sum on the first
day
of the seventh month after the month in which the Executive’s employment
terminates. References in this Agreement to section 409A of the Internal Revenue
Code of 1986 include rules, regulations, and guidance of general application
issued by the Department of the Treasury under Internal Revenue Code section
409A.
4.2 Post-Termination
Insurance Coverage.
(a)
Subject to section 4.2(b), if the Executive’s employment terminates
involuntarily but without Cause, voluntarily but with Good Reason, or because
of
disability, the Employer shall continue or cause to be continued at the
Employer’s expense and for the Executive’s benefit life and medical insurance
coverage in effect during and in accordance with the same schedule prevailing
in
the two years preceding the date of the Executive’s termination. The benefits
provided by this section 4.2 shall continue until the first to occur of
(w)
the
Executive’s return to employment with the Employer or another employer,
(x)
the
Executive’s attainment of age 65, (y)
the
Executive’s death, or (z)
the end
of the term remaining under this Agreement at the time of the Executive’s
termination.
6
(b) If
(x)
under
the terms of the applicable policy or policies for the insurance benefits
specified in section 4.2(a) it is not possible to continue the Executive’s
coverage, or (y)
when
employment termination occurs the Executive is a specified employee within
the
meaning of section 409A of the Internal Revenue Code of 1986, if any of the
continued insurance coverage benefits specified in section 4.2(a) would be
considered deferred compensation under section 409A, and finally if an exemption
from the six-month delay requirement of section 409A(a)(2)(B)(i) is not
available for that particular insurance benefit, instead of continued insurance
coverage under section 4.2(a) the Employer shall pay to the Executive in a
single lump sum an amount in cash equal to the present value of the Employer’s
projected cost to maintain that particular insurance benefit had the Executive’s
employment not terminated, assuming continued coverage for the lesser of 36
months or the number of months until the Executive attains age 65. The lump-sum
payment shall be made 30 days after employment termination or, if section 4.1(b)
applies and a six-month payment delay is required by Internal Revenue Code
section 409A, on the first day of the seventh month after the month in which
the
Executive’s employment terminates.
4.3 Additional
Severance Benefits.
(a)
Cash-out
of the value of unvested stock options.
If the
Employer terminates the Executive’s employment without Cause or if the Executive
terminates employment with Good Reason before full vesting of stock options
then
held by the Executive, the Executive shall be entitled to receive from the
Employer an amount in cash equal to the intrinsic value of the unvested stock
options as of the effective date of termination. For this purpose intrinsic
value means the per share fair market value of the Corporation common stock
minus the option exercise price per share, multiplied by the number of shares
acquirable by the unvested options. If the common stock is traded on an exchange
or over the counter, fair market value shall mean the closing price on the
trading day immediately before the date of termination. If the common stock
is
not traded on an exchange or over the counter, the per share fair market value
of the Corporation common stock shall be determined by the Corporation’s board
of directors in good faith. Amounts payable under this paragraph (a) shall
be
paid in a single lump sum 30 days after termination of the Executive’s
employment or, if section 4.1(b) applies and a six-month payment delay is
required by Internal Revenue Code section 409A, on the first day of the seventh
month after the month in which the Executive’s employment
terminates.
(b) Outplacement
and support.
If the
Employer terminates the Executive’s employment without Cause or if the Executive
terminates employment with Good Reason, the Employer shall pay or cause to
be
paid to the Executive reasonable outplacement expenses in an amount up to
$25,000 and for one year after termination the Employer shall provide the
Executive with the use of office space and reasonable office support facilities,
including secretarial assistance.
Article
5
Change
in Control Benefits
5.1 Change
in Control Benefits.
(a) If
a Change in Control occurs during the term of this Agreement, the Employer
shall
make or cause to be made a lump-sum cash payment to the Executive in the amount
equal to three times the Executive’s annual compensation. For this purpose
annual compensation means (x)
the
Executive’s Base Salary when the Change in Control occurs plus (y)
any
cash bonuses or cash incentive compensation awarded for the calendar year ended
immediately before the year in which the Change in Control occurs, regardless
of
when the bonus or incentive compensation earned for the preceding calendar
year
is paid and regardless of whether all or part of the bonus or incentive
compensation is subject to elective deferral or vesting. Annual compensation
shall be calculated without regard to any deferrals under qualified or
nonqualified plans, but annual compensation shall not include interest or other
earnings credited to the Executive under qualified or nonqualified plans. The
amount payable to the Executive hereunder shall not be reduced to account for
the time value of money or discounted to present value. The payment required
under this paragraph (a) is payable within 15 business days after the Change
in
Control occurs. If the Executive receives payment under this section 5.1 the
Executive shall not be entitled to continued Base Salary under section 4.1
of
this Agreement. The Executive shall be entitled to benefits under this section
5.1(a) on no more than one occasion during the term of this
Agreement.
(b) In
addition to insurance benefits under section 4.2 to which the Executive may
be
entitled after employment termination, the outplacement and other benefits
specified in section 4.3, and any benefits to which the Executive may be
entitled under the Salary Continuation Agreement referred to in section 2.4,
if
after a Change in Control the Executive’s employment terminates involuntarily
without Cause or voluntarily but for Good Reason the Employer shall cause the
Executive to become fully vested in any non-qualified plans, programs, or
arrangements in which the Executive participated if the plan, program, or
arrangement does not address the effect of a change in control or termination
after a change in control.
7
5.2 Change
in Control Defined.
For
purposes of this Agreement “Change
in Control”
means
a
change in control as defined in Internal Revenue Code section 409A and rules,
regulations, and guidance of general application thereunder issued by the
Department of the Treasury, including -
(a) Change
in ownership:
a
change in ownership of the Corporation occurs on the date any one person or
group accumulates ownership of Corporation stock constituting more than 50%
of
the total fair market value or total voting power of Corporation
stock,
(b) Change
in effective control:
(x)
any one
person or more than one person acting as a group acquires within a 12-month
period ownership of Corporation stock possessing 30% or more of the total voting
power of Corporation stock, or (y)
a
majority of the Corporation’s board of directors is replaced during any 12-month
period by directors whose appointment or election is not endorsed in advance
by
a majority of the Corporation’s board of directors, or
(c) Change
in ownership of a substantial portion of assets:
a change
in ownership of a substantial portion of the Corporation’s assets occurs if in a
12-month period any one person or more than one person acting as a group
acquires from the Corporation assets having a total gross fair market value
equal to or exceeding 40% of the total gross fair market value of all of the
Corporation’s assets immediately before the acquisition or acquisitions. For
this purpose, gross fair market value means the value of the Corporation’s
assets, or the value of the assets being disposed of, determined without regard
to any liabilities associated with the assets.
5.3 Gross-Up
for Taxes.
(a)
Additional
payment to account for Excise Taxes.
If the
Executive receives the lump sum payment under section 5.1 of this Agreement
and
acceleration of benefits under any other benefit, compensation, or incentive
plan or arrangement with the Employer (collectively, the “Total
Benefits”),
and
if any part of the Total Benefits is subject to the Excise Tax under section
280G and section 4999 of the Internal Revenue Code (the “Excise
Tax”),
the
Employer shall pay to the Executive the following additional amounts, consisting
of (x)
a
payment equal to the Excise Tax payable by the Executive under section 4999
on
the Total Benefits (the “Excise
Tax Payment”)
and
(y)
a
payment equal to the amount necessary to provide the Excise Tax Payment net
of
all income, payroll, and excise taxes. Together, the additional amounts
described in clauses (x)
and
(y)
are
referred to in this Agreement as the “Gross-Up
Payment Amount.”
Payment of the Gross-Up Payment Amount shall be made in addition to the amount
set forth in section 5.1.
Calculating
the Excise Tax.
For
purposes of determining whether any of the Total Benefits will be subject to
the
Excise Tax and for purposes of determining the amount of the Excise
Tax,
|
1)
|
Determination
of “parachute payments” subject to the Excise Tax:
any other payments or benefits received or to be received by the
Executive
in connection with a Change in Control or the Executive’s termination of
employment (whether under the terms of this Agreement or any other
agreement or any other benefit plan or arrangement with the Employer,
any
person whose actions result in a Change in Control, or any person
affiliated with the Employer or such person) shall be treated as
“parachute
payments”
within the meaning of section 280G(b)(2) of the Internal Revenue
Code, and
all “excess
parachute payments”
within the meaning of section 280G(b)(1) shall be treated as subject
to
the Excise Tax, unless in the opinion of the certified public accounting
firm that is retained by the Employer as of the date immediately
before
the Change in Control (the “Accounting
Firm”)
such other payments or benefits do not constitute (in whole or in
part)
parachute payments, or such excess parachute payments represent (in
whole
or in part) reasonable compensation for services actually rendered
within
the meaning of section 280G(b)(4) of the Internal Revenue Code in
excess
of the base amount (as defined in section 280G(b)(3) of the Internal
Revenue Code), or are otherwise not subject to the Excise
Tax,
|
|
2)
|
Calculation
of benefits subject to the Excise Tax:
the amount of the Total Benefits that shall be treated as subject
to the
Excise Tax shall be equal to the lesser of (x)
the total amount of the Total Benefits reduced by the amount of such
Total
Benefits that in the opinion of the Accounting Firm are not parachute
payments, or (y)
the amount of excess parachute payments within the meaning of section
280G(b)(1) (after applying clause (1), above),
and
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8
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3)
|
Value
of noncash benefits and deferred payments:
the value of any noncash benefits or any deferred payment or benefit
shall
be determined by the Accounting Firm in accordance with the principles
of
sections 280G(d)(3) and (4) of the Internal Revenue
Code.
|
Assumed
Marginal Income Tax Rate.
For
purposes of determining the Gross-Up Payment Amount, the Executive shall be
deemed to pay federal income taxes at the highest marginal rate of federal
income taxation in the calendar years in which the Gross-Up Payment Amount
is to
be made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive’s residence on the date of
termination of employment, net of the reduction in federal income taxes that
can
be obtained from deduction of state and local taxes (calculated by assuming
that
any reduction under section 68 of the Internal Revenue Code in the amount of
itemized deductions allowable to the Executive applies first to reduce the
amount of state and local income taxes that would otherwise be deductible by
the
Executive, and applicable federal FICA and Medicare withholding
taxes).
Return
of Reduced Excise Tax Payment or Payment of Additional Excise
Tax.
If the
Excise Tax is later determined to be less than the amount taken into account
hereunder when the Executive’s employment terminated, the Executive shall repay
to the Employer - when the amount of the reduction in Excise Tax is finally
determined - the portion of the Gross-Up Payment Amount attributable to the
reduction (plus that portion of the Gross-Up Payment Amount attributable to
the
Excise Tax, federal, state and local income taxes and FICA and Medicare
withholding taxes imposed on the Gross-Up Payment Amount being repaid by the
Executive to the extent that the repayment results in a reduction in Excise
Tax,
FICA and Medicare withholding taxes and/or a federal, state or local income
tax
deduction).
If
the
Excise Tax is later determined to be more than the amount taken into account
hereunder when the Executive’s employment terminated (due, for example, to a
payment whose existence or amount cannot be determined at the time of the
Gross-Up Payment Amount), the Employer shall make an additional payment to
the
Executive for that excess (plus any interest, penalties or additions payable
by
the Executive for the excess) when the amount of the excess is finally
determined.
(b) Responsibilities
of the Accounting Firm and the Employer.
Determinations
Shall Be Made by the Accounting Firm.
Subject
to the provisions of section 5.3(a), all determinations required to be made
under this section 5.3(b) – including whether and when a Gross-Up Payment
Amount is required, the amount of the Gross-Up Payment Amount and the
assumptions to be used to arrive at the determination (collectively, the
“Determination”)
–
shall be made by the Accounting Firm, which shall provide detailed supporting
calculations both to the Employer and the Executive within 15 business days
after receipt of notice from the Employer or the Executive that there has been
a
Gross-Up Payment Amount, or such earlier time as is requested by the
Employer.
Fees
and Expenses of the Accounting Firm and Agreement with the Accounting
Firm.
All
fees and expenses of the Accounting Firm shall be borne solely by the Employer.
The Employer shall enter into any agreement requested by the Accounting Firm
in
connection with the performance of its services hereunder.
Accounting
Firm’s Opinion.
If the
Accounting Firm determines that no Excise Tax is payable by the Executive,
the
Accounting Firm shall furnish the Executive with a written opinion to that
effect and to the effect that failure to report Excise Tax, if any, on the
Executive’s applicable federal income tax return will not result in the
imposition of a negligence or similar penalty.
Accounting
Firm’s Determination Is Binding; Underpayment and Overpayment.
The
Determination by the Accounting Firm shall be binding on the Employer and the
Executive. Because of the uncertainty when the Determination is made whether
any
of the Total Benefits will be subject to the Excise Tax, it is possible that
a
Gross-Up Payment Amount that should have been made will not have been made
by
the Employer (“Underpayment”)
or
that a Gross-Up Payment Amount will be made that should not have been made
by
the Employer (“Overpayment”).
If
after a Determination by the Accounting Firm the Executive is required to make
a
payment of additional Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment. The Underpayment (together with interest at the rate
provided in section 1274(d)(2)(B) of the Internal Revenue Code) shall be paid
promptly by the Employer to or for the benefit of the Executive. If the Gross-Up
Payment Amount exceeds the amount necessary to reimburse the Executive for
the
Excise Tax according to section 5.3(a), the Accounting Firm shall determine
the
amount of the Overpayment. The Overpayment (together with interest at the rate
provided in section 1274(d)(2)(B) of the Internal Revenue Code) shall be paid
promptly by the Executive to or for the benefit of the Employer. Provided that
the Executive’s expenses are reimbursed by the Employer, the Executive shall
cooperate with any reasonable requests by the Employer in any contests or
disputes with the Internal Revenue Service relating to the Excise
Tax.
9
Accounting
Firm Conflict of Interest.
If the
Accounting Firm is serving as accountant or auditor for the individual, entity,
or group effecting the Change in Control, the Executive may appoint another
nationally recognized public accounting firm to make the Determinations required
hereunder (in which case the term “Accounting Firm” as used in this Agreement
shall be deemed to refer to the accounting firm appointed by the
Executive).
Article
6
Confidentiality
and Creative Work
6.1 Non-disclosure.
The
Executive covenants and agrees not to reveal to any person, firm, or corporation
any confidential information of any nature concerning the Employer or its
business. As used in this Article 6, the term “confidential
information”
means
all of the Employer’s and its affiliates’ confidential and proprietary
information and trade secrets in existence on the date hereof or existing at
any
time during the term of this Agreement, including but not limited to
–
(a) the
whole
or any portion or phase of any business plans, financial information, purchasing
data, supplier data, accounting data, or other financial
information,
(b) the
whole
or any portion or phase of any research and development information, design
procedures, algorithms or processes, or other technical
information,
(c) the
whole
or any portion or phase of any marketing or sales information, sales records,
customer lists, prices, sales projections, or other sales information,
and
(d) trade
secrets, as defined from time to time by the laws of the State of North
Carolina.
Despite
the foregoing, confidential information excludes information that - as of the
date hereof or at any time after the date hereof - is published or disseminated
without obligation of confidence or that becomes a part of the public domain
(x)
by or
through action of the Employer or (y)
otherwise than by or at the Executive’s direction. This section 6.1 does not
prohibit disclosure required by an order of a court having jurisdiction or
a
subpoena from an appropriate governmental agency or disclosure made by the
Executive in the ordinary course of business and within the scope of the
Executive’s authority.
6.2 Return
of Materials.
The
Executive agrees to deliver or return to the Employer upon employment
termination, upon expiration of this Agreement, or as soon thereafter as
possible, all written information and any other similar items furnished by
the
Employer or prepared by the Executive in connection with the Executive’s
services hereunder. The Executive will retain no copies thereof after
termination of this Agreement or termination of the Executive’s
employment.
6.3 Injunctive
Relief.
The
Executive acknowledges that it is impossible to measure in money the damages
that will accrue to the Employer if the Executive fails to observe the
obligations imposed by this Article 6. Accordingly, if the Employer institutes
an action to enforce the provisions hereof, the Executive hereby waives the
claim or defense that an adequate remedy at law is available to the Employer,
and the Executive agrees not to urge in any such action the claim or defense
that an adequate remedy at law exists.
6.4 Affiliates’
Confidential Information is Covered; Confidentiality Obligation Survives
Termination.
For
purposes of this Article 6, the term “affiliate”
of
the
Employer includes the Bank and any entity that directly, or indirectly through
one or more intermediaries, controls, is controlled by, or is under common
control with the Corporation. The rights and obligations set forth in this
Article 6 shall survive termination of this Agreement.
10
6.5 Creative
Work.
The
Executive agrees that all creative work and work product, including but not
limited to all technology, business management tools, processes, software,
patents, trademarks, and copyrights developed by the Executive during the term
of this Agreement, regardless of when or where such work or work product was
produced, constitutes work made for hire, all rights of which are owned by
the
Employer. The Executive hereby assigns to the Employer all rights, title, and
interest, whether by way of copyrights, trade secret, trademark, patent, or
otherwise, in all such work or work product, regardless of whether the same
is
subject to protection by patent, trademark, or copyright laws.
Article
7
Miscellaneous
7.1 Successors
and Assigns.
(a)
This
Agreement is binding on the Employer’s successors.
This
Agreement shall be binding upon the Employer and any successor to the Employer,
including any persons acquiring directly or indirectly all or substantially
all
of the business or assets of the Employer by purchase, merger, consolidation,
reorganization, or otherwise. But this Agreement and the Employer’s obligations
under this Agreement are not otherwise assignable, transferable, or delegable
by
the Employer. By agreement in form and substance satisfactory to the Executive,
the Employer shall require any successor to all or substantially all of its
business or assets expressly to assume and agree to perform this Agreement
in
the same manner and to the same extent the Employer would be required to perform
had no succession occurred.
(b) This
Agreement is enforceable by the Executive’s heirs.
This
Agreement shall inure to the benefit of and be enforceable by the Executive’s
personal or legal representatives, executors, administrators, successors, heirs,
distributees, and legatees.
(c) This
Agreement is personal in nature and is not assignable.
This
Agreement is personal in nature. Without written consent of the other parties,
no party shall assign, transfer, or delegate this Agreement or any rights or
obligations under this Agreement except as expressly permitted. Without limiting
the generality or effect of the foregoing, the Executive’s right to receive
payments hereunder is not assignable or transferable, whether by pledge,
creation of a security interest, or otherwise, except for a transfer by the
Executive’s will or by the laws of descent and distribution. If the Executive
attempts an assignment or transfer that is contrary to this section 7.1, the
Employer shall have no liability to pay any amount to the assignee or
transferee.
7.2 Governing
Law, Jurisdiction and Forum.
This
Agreement shall be construed under and governed by the internal laws of the
State of North Carolina, without giving effect to any conflict of laws provision
or rule (whether of the State of North Carolina or any other jurisdiction)
that
would cause the application of the laws of any jurisdiction other than North
Carolina. By entering into this Agreement, the Executive acknowledges that
the
Executive is subject to the jurisdiction of both the federal and state courts
in
North Carolina. Any actions or proceedings instituted under this Agreement
shall
be brought and tried solely in courts located in the Wake County, North
Carolina, or in the federal court having jurisdiction in Cary, North Carolina.
The Executive expressly waives the right to have any such actions or proceedings
brought or tried elsewhere.
7.3 Entire
Agreement.
This
Agreement sets forth the entire agreement of the parties concerning the
employment of the Executive. Any oral or written statements, representations,
agreements, or understandings made or entered into before or contemporaneously
with the execution of this Agreement are hereby rescinded, revoked, and rendered
null and void by the parties. Benefits payable under this Agreement shall not
be
reduced by any benefits payable under the Salary Continuation Agreement between
the Executive and the Bank, as that agreement may be amended, and benefits
payable under the Salary Continuation Agreement likewise shall not be reduced
by
any benefits payable under this Agreement. This Agreement supersedes and
replaces in its entirety the December 31, 2003 Employment Agreement entered
into
by the Executive, the Bank, and the Corporation.
7.4 Notices.
Any
notice under this Agreement shall be deemed to have been effectively made or
given if in writing and personally delivered, delivered by mail properly
addressed in a sealed envelope, postage prepaid by certified or registered
mail,
delivered by a reputable overnight delivery service, or sent by facsimile.
Unless otherwise changed by notice, notice shall be properly addressed to the
Executive if addressed to the address of the Executive on the books and records
of the Employer at the time of the delivery of such notice, and properly
addressed to the Employer if addressed to Crescent Financial Corporation, 0000
Xxxx Xxxxx Xxxx, Xxxx, Xxxxx Xxxxxxxx 00000, Attention: Corporate
Secretary.
11
7.5 Severability.
In the
case of conflict between any provision of this Agreement and any statute,
regulation, or judicial precedent, the latter shall prevail, but the affected
provisions of this Agreement shall be curtailed and limited solely to the extent
necessary to bring them within the requirements of law. If any provision of
this
Agreement is held by a court of competent jurisdiction to be indefinite,
invalid, void or voidable, or otherwise unenforceable, the balance of this
Agreement shall continue in full force and effect unless such construction
would
clearly be contrary to the intentions of the parties or would result in an
injustice.
7.6 Captions
and Counterparts.
The
captions in this Agreement are solely for convenience. The captions do not
define, limit, or describe the scope or intent of this Agreement. This Agreement
may be executed in several counterparts, each of which shall be deemed to be
an
original but all of which together shall constitute one and the same
instrument.
7.7 No
Duty to Mitigate.
The
Employer hereby acknowledges that it will be difficult and could be impossible
(x)
for the
Executive to find reasonably comparable employment after employment termination
and (y)
to
measure the amount of damages the Executive may suffer as a result of
termination. Additionally, the Employer acknowledges that its general severance
pay plans do not provide for mitigation, offset, or reduction of any severance
payment received thereunder. The Employer further acknowledges that the payment
of severance benefits under this Agreement is reasonable and shall be liquidated
damages. The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment. Moreover,
the amount of any payment provided for in this Agreement shall not be reduced
by
any compensation earned or benefits provided as the result of employment of
the
Executive or as a result of the Executive being self-employed after employment
termination.
7.8 Amendment
and Waiver.
This
Agreement may not be amended, released, discharged, abandoned, changed, or
modified except by an instrument in writing signed by each of the parties
hereto. The failure of any party hereto to enforce at any time any of the
provisions of this Agreement shall not be construed to be a waiver of any such
provision nor in any way to affect the validity of this Agreement or any part
thereof or the right of any party thereafter to enforce each and every
provision. No waiver or any breach of this Agreement shall be held to be a
waiver of any other or subsequent breach.
7.9 Payment
of Legal Fees.
The
Employer is aware that after a Change in Control management of the Employer
could cause or attempt to cause the Employer to refuse to comply with its
obligations under this Agreement, or could institute or cause or attempt to
cause the Employer to institute litigation seeking to have this Agreement
declared unenforceable, or could take or attempt to take other action to deny
Executive the benefits intended under this Agreement. In these circumstances
the
purpose of this Agreement would be frustrated. The Employer desires that the
Executive not be required to incur the expenses associated with the enforcement
of rights under this Agreement, whether by litigation or other legal action,
because the cost and expense thereof would substantially detract from the
benefits intended to be granted to the Executive hereunder. The Employer desires
that the Executive not be forced to negotiate settlement of rights under this
Agreement under threat of incurring expenses. Accordingly, if after a Change
in
Control occurs it appears to the Executive that (x)
the
Employer has failed to comply with any of its obligations under this Agreement,
or (y)
the
Employer or any other person has taken any action to declare this Agreement
void
or unenforceable, or instituted any litigation or other legal action designed
to
deny, diminish, or to recover from the Executive the benefits intended to be
provided to the Executive hereunder, the Employer irrevocably authorizes the
Executive from time to time to retain counsel of the Executive’s choice, at the
Employer’s expense as provided in this section 7.9, to represent the Executive
in the initiation or defense of any litigation or other legal action, whether
by
or against the Employer or any director, officer, stockholder, or other person
affiliated with the Employer, in any jurisdiction. Despite any existing or
previous attorney-client relationship between the Employer and any counsel
chosen by the Executive under this section 7.9, the Employer irrevocably
consents to the Executive entering into an attorney-client relationship with
that counsel, and the Employer and the Executive agree that a confidential
relationship shall exist between the Executive and that counsel. The fees and
expenses of counsel selected from time to time by the Executive as provided
in
this section shall be paid or reimbursed to the Executive by the Employer on
a
regular, periodic basis upon presentation by the Executive of a statement or
statements prepared by such counsel in accordance with such counsel’s customary
practices, up to a maximum aggregate amount of $250,000, whether suit be brought
or not, and whether or not incurred in trial, bankruptcy, or appellate
proceedings. The Employer’s obligation to pay the Executive’s legal fees
provided by this section 7.9 operates separately from and in addition to any
legal fee reimbursement obligation the Employer may have with the Executive
under any separate employment, severance, or other agreement between the
Executive and the Employer. Despite anything in this section 7.9 to the contrary
however, the Employer shall not be required to pay or reimburse the Executive’s
legal expenses if doing so would violate section 18(k) of the Federal Deposit
Insurance Act [12 U.S.C. 1828(k)] and Rule 359.3 of the Federal Deposit
Insurance Corporation [12 CFR 359.3].
12
7.10 Consultation
with Counsel and Interpretation of this Agreement.
The
Executive acknowledges and agrees that the Executive has had the assistance
of
counsel of the Executive’s choosing in the negotiation of this Agreement, or the
Executive has chosen not to have the assistance of counsel. Both parties hereto
having participated in the negotiation and drafting of this Agreement, they
hereby agree that there shall not be strict interpretation against either party
in any review of this Agreement in which interpretation thereof is an
issue.
7.11 Compliance
with Internal Revenue Code Section 409A.
The
Employer and the Executive intend that their exercise of authority or discretion
under this Agreement shall comply with section 409A of the Internal Revenue
Code
of 1986. If when the Executive’s employment terminates the Executive is a
specified employee, as defined in section 409A of the Internal Revenue Code
of
1986, and if any payments under this Agreement, including Articles 4 or 5,
will
result in additional tax or interest to the Executive because of section 409A,
then despite any contrary provision of this Agreement the Executive shall not
be
entitled to the payments until the earliest of (x)
the
date that is at least six months after termination of the Executive’s employment
for reasons other than the Executive’s death, (y)
the
date of the Executive’s death, or (z)
any
earlier date that does not result in additional tax or interest to the Executive
under section 409A. As promptly as possible after the end of the period during
which payments are delayed under this provision, the entire amount of the
delayed payments shall be paid to the Executive in a single lump sum. If any
provision of this Agreement does not satisfy the requirements of section 409A,
such provision shall nevertheless be applied in a manner consistent with those
requirements. If any provision of this Agreement would subject the Executive
to
additional tax or interest under section 409A, the Employer shall reform the
provision. However, the Employer shall maintain to the maximum extent
practicable the original intent of the applicable provision without subjecting
the Executive to additional tax or interest, and the Employer shall not be
required to incur any additional compensation expense as a result of the
reformed provision.
In
Witness Whereof,
the
parties have executed this Employment Agreement as of the date first written
above.
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WITNESSES
|
CRESCENT
FINANCIAL CORPORATION
|
||
|
By:
|
|||
|
Its:
|
|||
|
WITNESSES
|
CRESCENT
STATE BANK
|
||
|
By:
|
|||
|
Its:
|
|||
|
WITNESSES
|
EXECUTIVE
|
||
|
/s/
Xxxxxxx X. Xxxxxxx
|
|||
|
Xxxxxxx
X. Xxxxxxx
|
|||
13
|
County
of Wake
|
)
|
|
)
ss:
|
|
|
State
of North Carolina
|
)
|
Before
me
this
day
of ,
2007,
personally appeared the above named and
Xxxxxxx X. Xxxxxxx, who acknowledged that they did sign the foregoing instrument
and that the same was their free act and deed.
|
(Notary
Seal)
|
Notary
Public
|
|
My
Commission Expires:
|
14
