EXHIBIT 10.12
CHANGE-IN-CONTROL PROTECTIVE AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT (the "Agreement") entered into this
20th day of April, 2006 (the "Effective Date"), by and between FIRST SOUTH BANK
(the "Bank"), FIRST SOUTH BANCORP, INC. (the "Company"), and XXXXXXX X. XXXX
(the "Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as an
executive officer; and
WHEREAS, the Board of Directors of each of the Company, the Bank and
the Employee have determined that it is necessary and appropriate to enter into
this Amended and Restated Agreement to ensure the Employee's continued service
on terms consistent with his role and his importance to the success of the
Company and the Bank;
NOW, THEREFORE, the undersigned parties AGREE as follows:
1. Defined Terms
When used anywhere in the Agreement, the following terms shall have the
meanings set forth herein.
(a) "Change in Control" shall mean any one of the following events: (i)
the acquisition by any person (or persons acting as a group) of ownership,
holding or power to vote more than 25% of the voting stock of the Company or the
Bank, (ii) the acquisition by any person (or persons acting as a group) of the
ability to control the election of a majority of the Company's or the Bank's
directors, (iii) the acquisition of a controlling influence over the management
or policies of the Company or of the Bank, or (iv) during any period of two
consecutive years, individuals (the "Continuing Directors") who at the beginning
of such period constitute the Board of Directors of the Company or of the Bank
(the "Existing Board") cease for any reason to constitute at least two-thirds
thereof, provided that any individual whose election or nomination for election
as a member of the Existing Board was approved by a vote of at least two-thirds
of the Continuing Directors then in office shall be considered a Continuing
Director. For purposes of this paragraph, the terms "person" or "persons acting
as a group" shall be construed within the meaning of Section 13(d) of the
Securities Exchange Act of 1934 and shall refer to an individual or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and as interpreted through applicable rulings and regulations
in effect from time to time.
(c) "Good Reason" shall mean any of the following events, which has
not been consented to in advance by the Employee in writing: (i) the requirement
that the Employee move his personal residence, or perform his principal
executive functions, more than thirty (30) miles from his primary office as of
the date of the Change in Control; (ii) a material reduction in the Employee's
base compensation as in effect on the date of the Change in Control or as the
same may be increased from time to time; (iii) the failure by the Bank or the
Company to continue to provide the Employee with compensation and benefits
provided for on the date of the Change in Control, as the same may be increased
from time to time, or with benefits substantially similar to those provided to
him under any of the employee benefit plans in which the Employee now or
hereafter becomes a participant, or the taking of any action by the Bank or the
Company which would directly or indirectly reduce any of such benefits or
deprive the Employee of any material fringe benefit enjoyed by him at the time
of the Change in Control; (iv) the assignment to the Employee of duties and
responsibilities materially different from those normally associated with his
position; (v) a failure to elect or reelect the Employee to the Board of
Directors of the Bank or the Company, if the Employee is serving on such Board
on the date of the Change in Control; (vi) a material diminution or reduction in
the Employee's responsibilities or authority (including reporting
responsibilities) in connection with his employment with the Bank or the
Company; or (vii) a material reduction in the secretarial or other
administrative support of the Employee.
(d) "Just Cause" shall mean, in the good faith determination of the
Bank's Board of Directors, the Employee's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, 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.
The Employee shall have no right to receive compensation or other benefits for
any period after termination for Just Cause. No act, or failure to act, on the
Employee's part shall be considered "willful" unless he has acted, or failed to
act, with an absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Bank and the Company.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for Just Cause unless there shall have been delivered to the Employee
a copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the membership of the Bank's Board at a meeting called and held for
that purpose (after reasonable notice to the Employee and an opportunity for the
Employee to be heard before the Board), finding that in the good faith opinion
of the Boards the Employee was guilty of conduct and specifying the particulars
thereof in detail.
(e) "Protected Period" shall mean the period that begins on the date
that is six (6) months before a Change in Control and ends on later of the
second anniversary of the effective date of a Change in Control.
2. Trigger Events
The Employee shall be entitled to the severance benefits set forth in
Section 3 of this Agreement in the event that (i) the Employee voluntarily
terminates employment for any reason within the 30-day period beginning on the
effective date of a Change in Control, (ii) the Employee voluntarily terminates
employment within 90 days of an event that both occurs during the Protected
Period and constitutes Good Reason, or (iii) the Bank, the Company, or their
successor(s) in interest terminate the Employee's employment for any reason
other than Just Cause during the Protected Period.
3. Severance Benefit
If the Employee becomes entitled to collect severance benefits pursuant
to Section 2 hereof, the Bank shall pay the Employee a severance benefit equal
to one (1) times the Employee's base annual salary at the rate in effect when
the Protected Period begins. Said sum shall be paid in one lump sum within ten
(10) days of the later of the date of the Change in Control and the Employee's
last day of employment with the Bank or the Company. In addition, upon the
Employee's termination of employment during the Protected Period for any reason
other than Just Cause, the Employee and his spouse shall continue to participate
in the Bank's group health insurance program for the remainder of their
respective lives on the terms set forth herein. The Bank shall fund the cost of
such continuation coverage on the same terms as the Bank funded the cost of
coverage for the Employee and his spouse immediately prior to the Employee's
termination of employment (i.e., the Employee will pay the same dollar amount
toward the premium costs as he paid immediately prior to his termination of
employment), and the Bank shall fund the balance of such costs. If, for any
reason, the Employee or his spouse cannot be continued under the Bank's group
health insurance program for the period contemplated by this subparagraph, the
Bank shall reimburse the Employee or his spouse for the cost of any substitute
coverage obtained by the Employee or his spouse that provides substantially
similar benefits. Such reimbursement shall be in an amount determined by
reference to the dollar amount paid by the Employee immediately prior to his
termination of employment, with the remaining amount paid by the Bank.
4. Excise Tax Indemnification
(a) For purposes of this Agreement, "Covered Benefits" shall mean any
payment or benefit paid or provided to the Employee by the Company, the Bank or
any affiliate or any successor in interest to the Company or the Bank (whether
pursuant to this Agreement or otherwise) that will be (or in the opinion of Tax
Counsel (as defined below) might reasonably be expected to be) subject to any
excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"). In the event that at any time during or
after the Term of Employment the Employee shall receive any Covered Benefits,
the Company shall pay to the Employee an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Employee from the Gross-Up
Payment, after deduction of any federal, state and local income taxes, Excise
Tax, and FICA and Medicare withholding taxes on the Gross-Up Payment, shall be
equal to the Excise Tax on the Covered Benefits. For purposes of determining the
amount of such Excise Tax on the Covered Benefits, the amount of the Covered
Benefits that shall be taken into account in calculating the Excise Tax shall be
equal to (i) the Covered Benefits, less (ii) the amount of such Covered Benefits
that, in the opinion of tax counsel selected by the Company and reasonably
acceptable to the Employee ("Tax Counsel"), are not parachute payments (within
the meaning of Section 280G(b)(1) of the Code).
(b) For purposes of this Section 4, the Employee shall be deemed to pay
federal income taxes at the highest marginal rate of federal income taxation in
the calendar year in which the Excise Tax is payable and state and local income
taxes at the highest marginal rate of taxation in the state and locality of the
Employee's residence on the effective date of the Employee's termination, net of
the reduction in federal income taxes which could be obtained from deduction of
such state and local taxes. Except as otherwise provided herein, all
determinations required to be made under this Section 13 shall be made by Tax
Counsel, which determinations shall be conclusive and binding on the Employee
and Company, absent manifest error.
(c) The Company shall indemnify and hold the Employee harmless from any
and all losses, costs and expenses (including without limitation, reasonable
attorney's fees, reasonable accountant's fees, interest, fines and penalties of
any kind) which the Employee incurs as a result of any administrative or
judicial review of the Employee's liability under Section 4999 of the Code by
the Internal Revenue Service or any comparable state agency through and
including a final judicial determination or final administrative settlement of
any dispute arising out of the Employee's liability for the Excise Tax or
otherwise relating to the classification for purposes of Section 280G of the
Code of any of the Covered Benefits or other payment or benefit in the nature of
compensation made or provided to the Employee by the Company. The Employee shall
promptly notify the Company in writing whenever the Employee receives notice of
the commencement of any judicial or administrative proceeding, formal or
informal, in which the federal tax treatment under Section 4999 of the Code of
any amount paid or payable under this Agreement or otherwise is being reviewed
or is in dispute (including a notice of audit or other inquiry concerning the
reporting of the Employee's liability under Section 4999). The Company may
assume control at its expense over all legal and accounting matters pertaining
to such federal or state tax treatment (except to the extent necessary or
appropriate for the Employee to resolve any such proceeding with respect to any
matter unrelated to the Covered Benefits or other payment or benefit in the
nature of compensation made or provided to the Employee by the Company) and the
Employee shall cooperate fully with the Company in any such proceeding. The
Employee shall not enter into any compromise or settlement or otherwise
prejudice any rights the Company may have in connection therewith without prior
consent of the Company. In the event that the Company elects not to assume
control over such matters, the Company shall promptly reimburse the Employee for
all expenses related thereto as and when incurred upon presentation of
appropriate documentation relating thereto.
5. Term of the Agreement
This Agreement shall remain in effect for the period commencing on the
Effective Date and ending on the earlier of (i) the date 12 months after the
Effective Date, and (ii) the date on which the Employee terminates employment
with the Bank; provided that the Employee's rights hereunder shall continue
following the termination of this employment with the Bank under any of the
circumstances described in Section 2 hereof. Additionally, on each annual
anniversary date from the Effective Date, the term of this Agreement shall be
extended for an additional one-year period beyond the then effective expiration
date provided the Board of Directors of the Bank determines in a duly adopted
resolutions that the performance of the Employee has met the requirements and
standards of the Board, and that this Agreement shall be extended.
6. Termination or Suspension Under Federal Law
(a) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
(b) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) or (g)(1)), all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.
(c) If the Bank is in default (as defined in Section 3(x)(1) of FDIA),
all obligations under this Agreement shall terminate as of the date of default;
however, this Paragraph shall not affect the vested rights of the parties.
(d) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12
U.S.C. 1818(e)(3) and (g)(1)) suspends and/or temporarily prohibits the Employee
from participating in the conduct of the Bank's affairs, the Bank's obligations
under this Agreement shall be suspended as of the date of such service, unless
stayed by appropriate proceedings. If the charges in the notice are dismissed,
the Bank may in its discretion (i) pay the Employee all or part of the
compensation withheld while its contract obligations were suspended, and (ii)
reinstate (in whole or in part) any of its obligations which were suspended.
7. Expense Reimbursement
In the event that any dispute arises between the Employee and the Bank
as to the terms or interpretation of this Agreement, whether instituted by
formal legal proceedings or otherwise, including any action that the Employee
takes to enforce the terms of this Agreement or to defend against any action
taken by the Bank or the Company, the Employee shall be reimbursed for all costs
and expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, provided that the Employee shall obtain a final judgment
in favor of the Employee in a court of competent jurisdiction or in binding
arbitration under the rules of the American Arbitration Association. Such
reimbursement shall be paid within ten (10) days of Employee's furnishing to the
Bank or the Company written evidence, which may be in the form, among other
things, of a cancelled check or receipt, of any costs or expenses incurred by
the Employee.
8. Successors and Assigns; Source of Payments
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank or Company which shall acquire,
directly or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank or Company.
(b) Since the Bank is contracting for the unique and personal skills of
the Employee, the Employee shall be precluded from assigning or delegating his
rights or duties hereunder without first obtaining the written consent of the
Bank.
(c) The payments and benefits due the Employee under this Agreement, if
any, shall be paid or provided by the Bank; provided, however, that the Company
agrees that it shall be jointly and severally liable with the Bank for the
payment of all amounts and the provision of all benefits due the Employee under
any provision of this Agreement.
9. Amendments
No amendments or additions to this Agreement shall be binding unless
made in writing and signed by all of the parties, except as herein otherwise
specifically provided.
10. Applicable Law
Except to the extent preempted by federal law, the laws of the State of
North Carolina shall govern this Agreement in all respects, whether as to its
validity, construction, capacity, performance or otherwise.
11. 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.
12. Entire Agreement
This Agreement, together with any understanding or modifications
thereof as agreed to in writing by the parties, shall constitute the entire
agreement between the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Agreement on the day and year first hereinabove written.
ATTEST: FIRST SOUTH BANK
/s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxxx X. Xxxx
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Assistant Secretary Its President
ATTEST: FIRST SOUTH BANCORP, INC.
/s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxxx X. Vann_
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Assistant Secretary Its President
WITNESS:
/s/ Xxxxxxx X. Xxxxxxx /s/ Xxxxxxx X. Xxxx
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Xxxxxxx X. Xxxx
