CHANGE-IN-CONTROL PROTECTIVE AGREEMENT
EXHIBIT
10.1
THIS
AGREEMENT entered into this 3rd
day of
October, 2008 (the “Effective Date”), by and between FIRST
SOUTH BANK
(the
“Bank”), FIRST
SOUTH BANCORP, INC.
(the
“Company”), and J.
XXXXXXX XXXXXXX
(the
“Employee”).
WHEREAS,
the Bank and the Company recognize the value of the Employee’s contribution to
the Bank and the Company and wish to protect his position therewith for the
period provided in this Agreement in the event of a Change in Control (as
defined herein); 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.
NOW,
THEREFORE, in consideration of the foregoing and upon the other terms and
conditions hereinafter provided, the parties hereto agree as
follows:
1. Defined
Terms
When
used
anywhere in the Agreement, the following terms shall have the meaning set forth
herein.
(a) “Change
in Control”
means a
change in control as defined in Section 409A of the Code and the rules,
regulations and guidance of general application thereunder issued by the
Department of Treasury, including: (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 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, 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. 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
§280G Maximum”
shall
mean the product of 2.99 and the Employee’s “base amount” as defined in Code
§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. 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 of Directors 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 Board
the
Employee was guilty of conduct and specifying the particulars thereof in
detail.
(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.
2. Trigger
Events
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 within 90 days of an event that both occurs during the
Protected Period and constitutes Good Reason, or (ii) 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.
Notwithstanding
the foregoing, the Employee must give notice to the Bank or the Company of
the
existence of one or more of the conditions that qualify as Good Reason within
sixty (60) days after the initial existence of the condition, and the Bank
or
the Company shall have thirty (30) days thereafter to remedy the condition.
In
addition, the Employee’s voluntary termination due to Good Reason must occur
within six (6) months after the initial existence of a condition qualifying
as a
Good Reason.
3. Severance
Benefit
(a) 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 or the Employee’s last day of
employment with the Bank or the Company. In no event, however, will this amount
the Employee receives under this Agreement exceed the difference between (i)
the
Code §280G Maximum and (ii) the sum of any other “parachute payments” (as
defined under Code §280G(b)(2)) that the Employee receives on account of the
Change in Control.
(b) In
the
event that the Employee and the Bank agree that the Employee has collected
an
amount exceeding the Code §280G Maximum, the parties may jointly agree in
writing that such excess shall be treated as a loan ab initio
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.
(c) If
when
employment termination occurs the Employee is a “specified employee” within the
meaning of Section 409A of the Code, if the cash severance payment under Section
3(a) would be considered deferred compensation under Section 409A of the Code,
and finally if an exemption from the six-month delay requirement of Section
409A(a)(2)(B)(i) of the Code is not available, the Employee’s continued base
salary under Section 3(a) for the first six months after employment termination
shall be paid to the Employee in a single lump sum without interest on the
first
day of the seventh (7th)
month
after the month in which the Employee’s employment terminates. References in
this Agreement to Section 409A of the Code include rules, regulations, and
guidance of general application issued by the Department of the Treasury under
Section 409A of the Code.
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4. 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,
or
(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 resolution
that
the performance of the Employee has met the requirements and standards of the
Board, and that this Agreement shall be extended.
5. 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 FDIC Regulation 12 C.F.R. Part 359, Golden Parachute and Indemnification
Payouts.
(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.
6. 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.
7. 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.
3
(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 or 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.
8. 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.
9. 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.
10. 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.
11. 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 Agreement on October 3,
2008.
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ATTEST:
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FIRST
SOUTH BANK
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/s/
Xxxxxxx X. Xxxx
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By:
/s/
Xxxxxx X. Xxxx
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Secretary
|
President
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ATTEST:
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FIRST
SOUTH BANCORP, INC.
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/s/
Xxxxxxx X. Xxxx
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By:
/s/ Xxxxxx X. Xxxx
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Secretary
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President
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WITNESS:
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EMPLOYEE
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/s/
Xxxxxxx X. Xxxxxxx
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/s/
J. Xxxxxxx Xxxxxxx
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J.
Xxxxxxx Xxxxxxx
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