CHANGE-IN-CONTROL PROTECTIVE AGREEMENT
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THIS AGREEMENT entered into this 15th day of November, 2001 (the "Effective
Date"), by and between First South Bank (the "Bank"), First South Bancorp, Inc.
(the "Company"), and Xxxx X. Xxxxxx (the "Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as an
executive officer, and the Bank deems it to be in its best interest to enter
into this Agreement as an additional incentive to the Employee to continue as an
executive employee of the Bank; and
WHEREAS, the parties desire by this writing to set forth their
understanding as to their respective rights and obligations in the event a
change of control occurs with respect to the Bank or the Company.
NOW, THEREFORE, the undersigned parties agree as follows:
1. Defined Terms
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When used anywhere in the Agreement, the following terms shall have the
meaning set forth herein.
(a) "Change in Control" shall mean any one of the following events:
(i) the acquisition of ownership, holding or power to vote more than 25% of the
voting stock of the Bank or the Company, (ii) the acquisition of the ability to
control the election of a majority of the Bank's or the Company's directors,
(iii) the acquisition of a controlling influence over the management or policies
of the Bank or of the Company by any person or by persons acting as a "group"
(within the meaning of Section 13(d) of the Securities Exchange Act of 1934), 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 Bank or of the Company (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. Notwithstanding the foregoing,
the Company's ownership of the Bank shall not of itself constitute a Change in
Control for purposes of the Agreement. For purposes of this paragraph only, the
term "person" refers 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) "Code Section 280G Maximum" shall mean the product of 2.99 and the
Employee's "base amount" as defined in Code Section 280G(b)(3).
(d) "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.
(e) "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.
(f) "Protected Period" shall mean the period that begins on the date
six months before a Change in Control and ends on the later of the second annual
anniversary of the Change in Control or the expiration date of this Agreement.
(g) "Trust" shall mean a grantor trust designed in accordance with
Revenue Procedure 92-64 and having a trustee independent of the Bank and the
Company.
2. Trigger Events
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The Employee shall be entitled to collect the severance benefits set forth
in Section 3 of this Agreement in the event that (i) the Employee voluntarily
terminates employment either for any reason within the 30-day period beginning
on the 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.
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3. Amount of Severance Benefit
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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
two times the Employee's base annual salary in effect when the Protected Period
begins. In no event, however, will this amount exceed the difference between (i)
the Code Section 280G Maximum and (ii) the sum of any other "parachute payments"
(as defined under Code Section 280G(b)(2)) that the Employee receives on account
of the Change in Control. 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 the event that the Employee and the Bank agree that the Employee has
collected an amount exceeding the Code Section 280G Maximum, the parties may
jointly agree in writing that such excess shall be treated as a loan ab initio
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which the Employee shall repay to the Bank, on terms and conditions mutually
agreeable to the parties, together with interest at the applicable federal rate
provided for in Section 7872(f)(2)(B) of the Code.
4. Funding of Grantor Trust upon Change in Control
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Not later than ten business days after a Change in Control, the Bank shall
(i) deposit in a Trust an amount equal to the amount of the severance benefit as
defined in Section 3 hereof, unless the Employee has previously provided a
written release of any claims under this Agreement, and (ii) provide the trustee
of the Trust with a written direction to hold said amount and any investment
return thereon in a segregated account for the benefit of the Employee, and to
follow the procedures set forth in the next paragraph as to the payment of such
amounts from the Trust. Upon the earlier of the Trust's final payment of all
amounts due under the following paragraph or the date 27 months after the Change
in Control, the trustee of the Trust shall pay to the Bank the entire balance
remaining in the segregated account maintained for the benefit of the Employee.
The Employee shall thereafter have no further interest in the Trust.
During the 27-consecutive month period after a Change in Control, the
Employee may provide the trustee of the Trust with a written notice requesting
that the trustee pay to the Employee an amount designated in the notice as being
payable pursuant to this Agreement. Within three business days after receiving
said notice, the trustee of the Trust shall send a copy of the notice to the
Bank via overnight and registered mail return receipt requested. On the fifth
(5th) business day after mailing said notice to the Bank, the trustee of the
Trust shall pay the Employee the amount designated therein in immediately
available funds, unless prior thereto the Bank provides the trustee with a
written notice directing the trustee to withhold such payment. In the latter
event, the trustee shall submit the dispute to non-appealable binding
arbitration for a determination of the amount payable to the Employee pursuant
to this Agreement, and the costs of such arbitration shall be paid by the Bank.
The trustee shall choose the arbitrator to settle the dispute, and such
arbitrator shall be bound by the rules of the American Arbitration Association
in making his determination. The parties and the trustee shall be bound by the
results of the arbitration and, within 3 days of the determination by the
arbitrator, the trustee shall pay from the Trust the amounts required to be paid
to the Employee and/or the Bank, and in no event shall the trustee be liable to
either party for making the payments as determined by the arbitrator.
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5. Term of the Agreement
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This Agreement shall remain in effect for the period commencing on the
Effective Date and ending on the earlier of (i) the date 24 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
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(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
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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
judgement 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.
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8. Successors and Assigns
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(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.
9. Amendments
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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
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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
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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
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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.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
ATTEST: FIRST SOUTH BANK
/s/ Xxxxxxx X. Xxxx By: /s/ Xxxxxx X. Xxxx
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Secretary Its President
ATTEST: FIRST SOUTH BANCORP, INC.
/s/ Xxxxxxx X. Xxxx By: /s/ Xxxxxx X. Xxxx
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Secretary Its President
WITNESS: EMPLOYEE
/s/ Xxxxx X. Xxxxxxx /s/ Xxxx X. Xxxxxx
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Xxxx X. Xxxxxx
