EXHIBIT 10.3
1ST STATE BANK
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EMPLOYMENT AGREEMENT
WITH ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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AGREEMENT entered into and effective this 15th day of September, 1998, by
and between 1/st/ State Bank (the "Bank") and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (the "Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as an
executive officer and is experienced in all phases of the business of the Bank;
and
WHEREAS, the Board of Directors (the "Board") of the Bank believes it is in
the best interests of the Bank to enter into this Agreement with the Employee in
order to assure continuity of management of the Bank and to reinforce and
encourage the continued attention and dedication of the Employee to his assigned
duties; and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Defined Terms
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When used anywhere in this 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) "Company" shall mean 1st State Bancorp.
(c) "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.
(d) "Code Sec. 280G Maximum" shall mean the product of 2.99 and the
Employee's "base amount" as defined in Code Sec. 280G(b)(3).
(e) "Disability" shall mean a physical or mental infirmity which
impairs the Employee's ability to substantially perform his duties under this
Agreement and which results in the Employee becoming eligible for long-term
disability benefits under the Bank's long-term disability plan (or, if the Bank
has no such plan in effect, which impairs the Employee's ability to
substantially perform his duties under this Agreement for a period of 180
consecutive days).
(f) "Effective Date" shall mean the closing date of the Bank's
mutual-to-stock conversion.
(g) "Good Reason" shall mean either the Employee's retirement for any
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reason at or after he attains age 65, or any of the following events, which has
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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 30 miles from his primary office as of the later
of the Effective Date and the most recent voluntary relocation by the Employee;
(ii) a material reduction in the Employee's base compensation under this
Agreement 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 under this Agreement 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 under this Agreement;
(iv) the assignment to the Employee of duties and responsibilities materially
different from those normally associated with his position; (v) a failure to
reelect the Employee to the Board of Directors of the Bank or the Company, if
the Employee has served on such Board at any time during the term of the
Agreement; or (vi) a material diminution or reduction in the Employee's
responsibilities or authority (including reporting responsibilities) in
connection with his employment with the Bank.
(h) "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
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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.
(i) "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 first annual
anniversary of the Change in Control or the expiration date of this Agreement.
(j) "Total Compensation" shall mean the highest sum, during any one
of the three calendar years before this Agreement expires or terminates for any
reason, of the Employee's salary, bonuses, retirement benefit accruals, and
taxable fringe benefits.
(k) "Trust" shall mean a grantor trust that is designed in accordance
with Revenue Procedure 92-64 and has a trustee independent of the Bank and the
Company.
2. Employment. The Employee is employed as an executive officer of the
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Bank. The Employee shall render such administrative and management services for
the Bank as are currently rendered and as are customarily performed by persons
situated in a similar executive capacity. The Employee shall also promote, by
entertainment or otherwise, as and to the extent permitted by law, the business
of the Bank. The Employee's other duties shall be such as the Board may from
time to time reasonably direct, including normal duties as an officer of the
Bank.
3. Base Compensation. The Bank agrees to pay the Employee during the
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term of this Agreement the base salary in effect on the Effective Date, payable
in cash not less frequently than monthly. The Board shall review, not less
often than annually, the rate of the Employee's salary, and in its sole
discretion may decide to increase his salary.
4. Discretionary Bonuses. The Employee shall participate in an
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equitable manner with all other senior management employees of the Bank in
discretionary bonuses that the Board may award from time to time to the Bank's
senior management employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Employee's right to participate
in such discretionary bonuses.
5. Participation in Retirement, Medical and Other Plans.
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(a) Retirement and Welfare Plans. The Employee shall be eligible to
participate in any of the following plans or programs that the Bank may now or
in the future maintain: group hospitalization, disability, health, dental, sick
leave, life insurance, travel and/or accident insurance, auto allowance/auto
lease, retirement, pension, and/or other present or future qualified or
nonqualified plans provided by the Bank, generally which benefits, taken as a
whole, must be at least as favorable as those in effect on the Effective Date.
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(b) Other Plans; Reimbursements. The Employee shall also be eligible
to participate in any fringe benefits which are or may become available to the
Bank's senior management employees, including for example: any stock option or
incentive compensation plans, and any other benefits which are commensurate with
the responsibilities and functions to be performed by the Employee under this
Agreement. The Employee shall be reimbursed for all reasonable out-of-pocket
business expenses which he shall incur in connection with his services
under this Agreement upon substantiation of such expenses in accordance with the
policies of the Bank.
(c) Post-termination Health Insurance. If the Employee's employment
terminates with the Bank for any reason other than Just Cause, the Employee
shall be entitled to receive, solely at the Bank's expense, family medical and
dental insurance under any group plan chosen by the Employee from the plans the
Bank maintains for its officers or employees. Notwithstanding the foregoing,
in the event that coverage under the group health plan chosen by the Employee
pursuant to this Section 5(c) is not permitted under the terms of such plan,
then the Bank shall remit to the Employee, not less frequently than monthly, the
actual cost to the Employee of equivalent insurance. Rights under this Section
5(c) shall be in addition to, and not in lieu of, any other rights that the
Employee has under this Agreement, and shall continue until the Employee first
becomes eligible for participation in Medicare.
6. Term. The Bank hereby employs the Employee, and the Employee hereby
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accepts such employment under this Agreement, for the period commencing on the
Effective Date and ending 36 months thereafter (or such earlier date as is
determined in accordance with Section 10 or 12 hereof). Additionally, on each
annual anniversary date from the Effective Date, the Employee's term of
employment shall be extended for an additional one-year period beyond the then
effective expiration date, provided the Board determines in a duly adopted
resolution that the performance of the Employee has met the Board's requirements
and standards, and that this Agreement shall be extended. Only those members of
the Board of Directors who have no personal interest in this Employment
Agreement shall discuss and vote on the approval and subsequent review of this
Agreement. If the Board decides not to renew this Agreement for any reason, and
if the Employee remains an employee of the Bank until the Agreement expires, the
Bank shall thereupon pay the Employee an amount equal to two times his Total
Compensation.
7. Loyalty; Noncompetition.
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(a) During the period of his employment hereunder and except for
illnesses, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder; provided, however, from
time to time, the Employee may serve on the boards of directors of, and hold any
other offices or positions in, companies or organizations, which will not
present any conflict of interest with the Bank or any of its subsidiaries or
affiliates, or unfavorably affect the performance of the Employee's duties
pursuant to this Agreement, or will not violate any applicable statute or
regulation. "Full business time" is hereby defined as that amount of time
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usually devoted to like companies by similarly situated executive officers.
During the term of his employment under this Agreement, the Employee shall not
engage in any business or activity contrary to the business affairs or interests
of the Bank.
(b) Nothing contained in this Section shall be deemed to prevent or
limit the Employee's right to invest in the capital stock or other securities of
any business dissimilar from that of the Bank, or, solely as a passive or
minority investor, in any business.
8. Standards. The Employee shall perform his duties under this Agreement
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in accordance with such reasonable standards as the Board may establish from
time to time. The Bank will provide the Employee with the working facilities
and staff customary for similar executives and necessary for him to perform his
duties.
9. Vacation and Sick Leave. At such reasonable times as the Board shall
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in its discretion permit, the Employee shall be entitled, without loss of pay,
to absent himself voluntarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time, provided that:
(a) The Employee shall be entitled to an annual vacation in
accordance with the policies that the Board periodically establishes for senior
management employees of the Bank.
(b) The Employee shall not receive any additional compensation from
the Bank on account of his failure to take a vacation or sick leave, and the
Employee shall not accumulate unused vacation or sick leave from one fiscal year
to the next, except in either case to the extent authorized by the Board.
(c) In addition to the aforesaid paid vacations, the Employee shall
be entitled without loss of pay, to absent himself voluntarily from the
performance of his employment with the Bank for such additional periods of time
and for such valid and legitimate reasons as the Board may in its discretion
determine. Further, the Board may grant to the Employee a leave or leaves of
absence, with or without pay, at such time or times and upon such terms and
conditions as such Board in its discretion may determine.
(d) In addition, the Employee shall be entitled to an annual sick
leave benefit as established by the Board.
10. Termination and Termination Pay. The Employee's employment hereunder
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may be terminated under the following circumstances with any payments being made
in accordance with Section 10(h) hereof:
(a) Just Cause. The Board may, by written notice to the Employee,
immediately terminate his employment at any time, for Just Cause. The Employee
shall have no right to receive compensation or other benefits for any period
after termination for Just Cause.
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(b) Without Just Cause; Constructive Discharge. The Board may, by
written notice to the Employee, immediately terminate his employment at any time
for a reason other than his Disability or Just Cause, in which event the
Employee shall be entitled to receive three times his Total Compensation as well
as continued medical and dental insurance in accordance with Section 5(c) of
this Agreement.
(c) Good Reason. The Employee shall be entitled to receive any
compensation and benefits provided for under Section 10(b) hereof in the event
that he terminates employment within 90 days of an event that constitutes Good
Reason.
(d) Disability. The Bank may terminate the Employee's employment
after having established his Disability, in which event the Employee shall be
entitled to the compensation and benefits provided for under this Agreement for
(i) any period during the term of this Agreement and prior to the establishment
of the Employee's Disability during which the Employee is unable to work due to
the physical or mental infirmity, and (ii) any period of Disability which is
prior to the Employee's termination of employment pursuant to this Section
10(d); provided that any benefits paid pursuant to the Bank's long term
disability plan will continue as provided in such plan without reduction for
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payments made pursuant to this Agreement. During any period that the Employee
shall receive disability benefits and to the extent that the Employee shall be
physically and mentally able to do so, he shall furnish such information,
assistance and documents so as to assist in the continued ongoing business of
the Bank and, if able, shall make himself available to the Bank to undertake
reasonable assignments consistent with his prior position and his physical and
mental health. The Bank shall pay all reasonable expenses incident to the
performance of any assignment given to the Employee during the disability
period.
(e) Termination or Suspension Under Federal Law. (1) 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) and (g)(1)), all
obligations of the Bank under this Agreement shall terminate, as of the
effective date of the order, but vested rights of the parties shall not be
affected.
(2) 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.
(3) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12
U.S.C. 1818(e)(3) or (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.
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(4) 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.
(f) Voluntary Termination by Employee. The Employee may voluntarily
terminate employment with the Bank during the term of this Agreement, upon at
least 90 days' prior written notice to the Board, in which case the Employee
shall receive only his compensation, vested rights and employee benefits up to
the date of his termination (unless such termination occurs pursuant to Section
10(c) hereof, in which event the benefits and compensation provided for in
Section 10(b) shall apply).
(g) Death. The Employee's employment under this Agreement shall
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive three times his total
Compensation (determined as of the date of his death).
(h) Method of Payment. Any amount payable in cash under this Section
10 shall be paid, at the option of the Employee, either (I) in periodic
payments, through the Expiration Date, or (II) in one lump sum within ten days
of such termination.
11. No Mitigation. The Employee shall not be required to mitigate the
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amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent employment.
12. Change in Control.
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(a) Trigger Events. The Employee shall be entitled to collect the
severance benefits set forth in Subsection (b) hereof in the event that either
(i) the Employee voluntarily terminates employment 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 or
the Company or their successor(s) in interest terminate the Employee's
employment without his written consent and for any reason other than Just Cause
during the Protected Period.
(b) Amount of Severance Benefit. If the Employee becomes entitled to
collect severance benefits pursuant to Section 12(a) hereof, the Bank shall:
(i) pay the Employee a severance benefit equal to the difference
between the Code Sec. 280G Maximum and the sum of any other "parachute
payments" as defined under Code Sec. 280G(b)(2) that the Employee
receives on account of the Change in Control, and
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(ii) pay for long-term disability and provide such medical
benefits as are available to the Employee under the provisions of
COBRA, for eighteen (18) months (or such longer period, up to 24
months, if COBRA is amended).
The amount payable under this Section 12(b) shall be paid either (i) in one
lump sum within ten 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, or (ii) if
prior to the date which is 90 days before the date on which a Change in Control
occurs, the Employee filed a duly executed irrevocable written election in the
form attached hereto as Exhibit "B", payment of such amount shall be made
according to the elected schedule. Deferred amounts shall bear interest from
the date on which they would otherwise be payable until the date paid at a rate
equal to 120% of the applicable federal rate, compounded semiannually, as
determined under Code Section 1274(d) and the regulations thereunder.
In the event that the Employee, the Bank, and the Company jointly agree
that the Employee has collected an amount exceeding the Code Sec. 280G Maximum,
the parties may 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
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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) Funding of Grantor Trust upon Change in Control. Not later than
ten business days after a Change in Control, the Bank shall (i) deposit in a
Trust an amount equal to the Code Sec. 280G Maximum, 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.
During the 15-consecutive month period after a Change in Control, the
Employee may provide the trustee of the Trust with a written notice directing
the trustee to pay to 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 pay such amount to the Employee, and
coincidentally shall provide the Bank or its successor with notice of such
payment. Upon the earlier of the Trust's final payment of all amounts due under
the preceding paragraph or the date 15 months after the Change in Control of the
Bank, 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.
13. Indemnification. The Bank and the Company agree that their
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respective Bylaws shall continue to provide for indemnification of directors,
officers, employees and agents of the Bank and the Company, including the
Employee during the full term of this Agreement, and to at all times provide
adequate insurance for such purposes.
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14. Reimbursement of Employee for Enforcement Proceedings. In the event
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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 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 obtains either a
written settlement or a final judgement by a court of competent jurisdiction
substantially in his favor. Such reimbursement shall be paid within ten days of
the Employee's furnishing to the Bank 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.
15. Federal Income Tax Withholding. The Bank may withhold all federal and
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state income or other taxes from any benefit payable under this Agreement as
shall be required pursuant to any law or government regulation or ruling.
16. Successors and Assigns.
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(a) Bank. This Agreement shall not be assignable by the Bank,
provided that this Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank.
(b) Employee. 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; provided, however, that nothing in this paragraph shall
preclude (i) the Employee from designating a beneficiary to receive any benefit
payable hereunder upon his death, or (ii) the executors, administrators, or
other legal representatives of the Employee or his estate from assigning any
rights hereunder to the person or persons entitled thereunto.
(c) Attachment. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to exclusion, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect.
17. Amendments. No amendments or additions to this Agreement shall be
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binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
18. Applicable Law. Except to the extent preempted by Federal law, the
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laws of the State of North Carolina shall govern this Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.
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19. Severability. The provisions of this Agreement shall be deemed
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severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
20. Entire Agreement. This Agreement, together with any understanding or
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modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto and shall supersede any prior
agreement between the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
Witnessed By: 1ST STATE BANK
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Its Chairman of the Board
Witnessed By:
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇
10
1ST STATE BANK
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EMPLOYMENT AGREEMENT
WITH A. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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AGREEMENT entered into and effective this 15th day of September, 1998, by
and between 1st State Bank (the "Bank") and A. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the
"Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as an
executive officer and is experienced in all phases of the business of the Bank;
and
WHEREAS, the Board of Directors (the "Board") of the Bank believes it is in
the best interests of the Bank to enter into this Agreement with the Employee in
order to assure continuity of management of the Bank and to reinforce and
encourage the continued attention and dedication of the Employee to his assigned
duties; and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Defined Terms
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When used anywhere in this 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) "Company" shall mean 1st State Bancorp.
(c) "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.
(d) "Code Sec. 280G Maximum" shall mean the product of 2.99 and the
Employee's "base amount" as defined in Code Sec. 280G(b)(3).
(e) "Disability" shall mean a physical or mental infirmity which
impairs the Employee's ability to substantially perform his duties under this
Agreement and which results in the Employee becoming eligible for long-term
disability benefits under the Bank's long-term disability plan (or, if the Bank
has no such plan in effect, which impairs the Employee's ability to
substantially perform his duties under this Agreement for a period of 180
consecutive days).
(f) "Effective Date" shall mean the closing date of the Bank's
mutual-to-stock conversion.
(g) "Good Reason" shall mean either the Employee's retirement for any
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reason at or after he attains age 65, or any of the following events, which has
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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 30 miles from his primary office as of the later
of the Effective Date and the most recent voluntary relocation by the Employee;
(ii) a material reduction in the Employee's base compensation under this
Agreement 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 under this Agreement 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 under this Agreement;
(iv) the assignment to the Employee of duties and responsibilities materially
different from those normally associated with his position; (v) a failure to
reelect the Employee to the Board of Directors of the Bank or the Company, if
the Employee has served on such Board at any time during the term of the
Agreement; or (vi) a material diminution or reduction in the Employee's
responsibilities or authority (including reporting responsibilities) in
connection with his employment with the Bank.
(h) "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
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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.
(i) "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 first annual
anniversary of the Change in Control or the expiration date of this Agreement.
(j) "Total Compensation" shall mean the highest sum, during any one
of the three calendar years before this Agreement expires or terminates for any
reason, of the Employee's salary, bonuses, retirement benefit accruals, and
taxable fringe benefits.
(k) "Trust" shall mean a grantor trust that is designed in accordance
with Revenue Procedure 92-64 and has a trustee independent of the Bank and the
Company.
2. Employment. The Employee is employed as an executive officerof the
----------
Bank. The Employee shall render such administrative and management services for
the Bank as are currently rendered and as are customarily performed by persons
situated in a similar executive capacity. The Employee shall also promote, by
entertainment or otherwise, as and to the extent permitted by law, the business
of the Bank. The Employee's other duties shall be such as the Board may from
time to time reasonably direct, including normal duties as an officer of the
Bank.
3. Base Compensation. The Bank agrees to pay the Employee during the
-----------------
term of this Agreement the base salary in effect on the Effective Date, payable
in cash not less frequently than monthly. The Board shall review, not less
often than annually, the rate of the Employee's salary, and in its sole
discretion may decide to increase his salary.
4. Discretionary Bonuses. The Employee shall participate in an
---------------------
equitable manner with all other senior management employees of the Bank in
discretionary bonuses that the Board may award from time to time to the Bank's
senior management employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Employee's right to participate
in such discretionary bonuses.
5. Participation in Retirement, Medical and Other Plans.
----------------------------------------------------
(a) Retirement and Welfare Plans. The Employee shall be eligible to
participate in any of the following plans or programs that the Bank may now or
in the future maintain: group hospitalization, disability, health, dental, sick
leave, life insurance, travel and/or accident insurance, auto allowance/auto
lease, retirement, pension, and/or other present or future qualified or
nonqualified plans provided by the Bank, generally which benefits, taken as a
whole, must be at least as favorable as those in effect on the Effective Date.
3
(b) Other Plans; Reimbursements. The Employee shall also be eligible
to participate in any fringe benefits which are or may become available to the
Bank's senior management employees, including for example: any stock option or
incentive compensation plans, and any other benefits which are commensurate with
the responsibilities and functions to be performed by the Employee under this
Agreement. The Employee shall be reimbursed for all reasonable out-of-pocket
business expenses which he shall incur in connection with his services under
this Agreement upon substantiation of such expenses in accordance with the
policies of the Bank.
(c) Post-termination Health Insurance. If the Employee's employment
terminates with the Bank for any reason other than Just Cause, the Employee
shall be entitled to receive, solely at the Bank's expense, family medical and
dental insurance under any group plan chosen by the Employee from the plans the
Bank maintains for its officers or employees. Notwithstanding the foregoing,
in the event that coverage under the group health plan chosen by the Employee
pursuant to this Section 5(c) is not permitted under the terms of such plan,
then the Bank shall remit to the Employee, not less frequently than monthly, the
actual cost to the Employee of equivalent insurance. Rights under this Section
5(c) shall be in addition to, and not in lieu of, any other rights that the
Employee has under this Agreement, and shall continue until the Employee first
becomes eligible for participation in Medicare.
6. Term. The Bank hereby employs the Employee, and the Employee hereby
----
accepts such employment under this Agreement, for the period commencing on the
Effective Date and ending 36 months thereafter (or such earlier date as is
determined in accordance with Section 10 or 12 hereof). Additionally, on each
annual anniversary date from the Effective Date, the Employee's term of
employment shall be extended for an additional one-year period beyond the then
effective expiration date, provided the Board determines in a duly adopted
resolution that the performance of the Employee has met the Board's requirements
and standards, and that this Agreement shall be extended. Only those members of
the Board of Directors who have no personal interest in this Employment
Agreement shall discuss and vote on the approval and subsequent review of this
Agreement. If the Board decides not to renew this Agreement for any reason, and
if the Employee remains an employee of the Bank until the Agreement expires, the
Bank shall thereupon pay the Employee an amount equal to two times his Total
Compensation.
7. Loyalty; Noncompetition.
-----------------------
(a) During the period of his employment hereunder and except for
illnesses, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder; provided, however, from
time to time, the Employee may serve on the boards of directors of, and hold any
other offices or positions in, companies or organizations, which will not
present any conflict of interest with the Bank or any of its subsidiaries or
affiliates, or unfavorably affect the performance of the Employee's duties
pursuant to this Agreement, or will not violate any applicable statute or
regulation. "Full business time" is hereby defined as that amount of time
4
usually devoted to like companies by similarly situated executive officers.
During the term of his employment under this Agreement, the Employee shall not
engage in any business or activity contrary to the business affairs or interests
of the Bank.
(b) Nothing contained in this Section shall be deemed to prevent or
limit the Employee's right to invest in the capital stock or other securities of
any business dissimilar from that of the Bank, or, solely as a passive or
minority investor, in any business.
8. Standards. The Employee shall perform his duties under this Agreement
---------
in accordance with such reasonable standards as the Board may establish from
time to time. The Bank will provide the Employee with the working facilities
and staff customary for similar executives and necessary for him to perform his
duties.
9. Vacation and Sick Leave. At such reasonable times as the Board shall
-----------------------
in its discretion permit, the Employee shall be entitled, without loss of pay,
to absent himself voluntarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time, provided that:
(a) The Employee shall be entitled to an annual vacation in accordance
with the policies that the Board periodically establishes for senior management
employees of the Bank.
(b) The Employee shall not receive any additional compensation from
the Bank on account of his failure to take a vacation or sick leave, and the
Employee shall not accumulate unused vacation or sick leave from one fiscal year
to the next, except in either case to the extent authorized by the Board.
(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled without loss of pay, to absent himself voluntarily from the performance
of his employment with the Bank for such additional periods of time and for such
valid and legitimate reasons as the Board may in its discretion determine.
Further, the Board may grant to the Employee a leave or leaves of absence, with
or without pay, at such time or times and upon such terms and conditions as such
Board in its discretion may determine.
(d) In addition, the Employee shall be entitled to an annual sick
leave benefit as established by the Board.
10. Termination and Termination Pay. The Employee's employment hereunder
-------------------------------
may be terminated under the following circumstances with any payments being made
in accordance with Section 10(h) hereof:
(a) Just Cause. The Board may, by written notice to the Employee,
immediately terminate his employment at any time, for Just Cause. The Employee
shall have no right to receive compensation or other benefits for any period
after termination for Just Cause.
5
(b) Without Just Cause; Constructive Discharge. The Board may, by
written notice to the Employee, immediately terminate his employment at any time
for a reason other than his Disability or Just Cause, in which event the
Employee shall be entitled to receive three times his Total Compensation as well
as continued medical and dental insurance in accordance with Section 5(c) of
this Agreement.
(c) Good Reason. The Employee shall be entitled to receive any
compensation and benefits provided for under Section 10(b) hereof in the event
that he terminates employment within 90 days of an event that constitutes Good
Reason.
(d) Disability. The Bank may terminate the Employee's employment
after having established his Disability, in which event the Employee shall be
entitled to the compensation and benefits provided for under this Agreement for
(i) any period during the term of this Agreement and prior to the establishment
of the Employee's Disability during which the Employee is unable to work due to
the physical or mental infirmity, and (ii) any period of Disability which is
prior to the Employee's termination of employment pursuant to this Section
10(d); provided that any benefits paid pursuant to the Bank's long term
disability plan will continue as provided in such plan without reduction for
-------
payments made pursuant to this Agreement. During any period that the Employee
shall receive disability benefits and to the extent that the Employee shall be
physically and mentally able to do so, he shall furnish such information,
assistance and documents so as to assist in the continued ongoing business of
the Bank and, if able, shall make himself available to the Bank to undertake
reasonable assignments consistent with his prior position and his physical and
mental health. The Bank shall pay all reasonable expenses incident to the
performance of any assignment given to the Employee during the disability
period.
(e) Termination or Suspension Under Federal Law. (1) 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) and (g)(1)), all
obligations of the Bank under this Agreement shall terminate, as of the
effective date of the order, but vested rights of the parties shall not be
affected.
(2) 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.
(3) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12
U.S.C. 1818(e)(3) or (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
(4) 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.
(f) Voluntary Termination by Employee. The Employee may voluntarily
terminate employment with the Bank during the term of this Agreement, upon at
least 90 days' prior written notice to the Board, in which case the Employee
shall receive only his compensation, vested rights and employee benefits up to
the date of his termination (unless such termination occurs pursuant to Section
10(c) hereof, in which event the benefits and compensation provided for in
Section 10(b) shall apply).
(g) Death. The Employee's employment under this Agreement shall
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive three times his total
Compensation (determined as of the date of his death).
(h) Method of Payment. Any amount payable in cash under this Section
10 shall be paid, at the option of the Employee, either (I) in periodic
payments, through the Expiration Date, or (II) in one lump sum within ten days
of such termination.
11. No Mitigation. The Employee shall not be required to mitigate the
-------------
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent employment.
12. Change in Control.
-----------------
(a) Trigger Events. The Employee shall be entitled to collect the
severance benefits set forth in Subsection (b) hereof in the event that either
(i) the Employee voluntarily terminates employment 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 or
the Company or their successor(s) in interest terminate the Employee's
employment without his written consent and for any reason other than Just Cause
during the Protected Period.
(b) Amount of Severance Benefit. If the Employee becomes entitled to
collect severance benefits pursuant to Section 12(a) hereof, the Bank shall:
(i) pay the Employee a severance benefit equal to the difference
between the Code Sec. 280G Maximum and the sum of any other "parachute
payments" as defined under Code Sec. 280G(b)(2) that the Employee
receives on account of the Change in Control, and
7
(ii) pay for long-term disability and provide such medical
benefits as are available to the Employee under the provisions of
COBRA, for eighteen (18) months (or such longer period, up to 24
months, if COBRA is amended).
The amount payable under this Section 12(b) shall be paid either (i) in one
lump sum within ten 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, or (ii) if
prior to the date which is 90 days before the date on which a Change in Control
occurs, the Employee filed a duly executed irrevocable written election in the
form attached hereto as Exhibit "B", payment of such amount shall be made
according to the elected schedule. Deferred amounts shall bear interest from the
date on which they would otherwise be payable until the date paid at a rate
equal to 120% of the applicable federal rate, compounded semiannually, as
determined under Code Section 1274(d) and the regulations thereunder.
In the event that the Employee, the Bank, and the Company jointly agree
that the Employee has collected an amount exceeding the Code Sec. 280G Maximum,
the parties may 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) Funding of Grantor Trust upon Change in Control. Not later than
ten business days after a Change in Control, the Bank shall (i) deposit in a
Trust an amount equal to the Code Sec. 280G Maximum, 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.
During the 15-consecutive month period after a Change in Control, the
Employee may provide the trustee of the Trust with a written notice directing
the trustee to pay to 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 pay such amount to the Employee, and
coincidentally shall provide the Bank or its successor with notice of such
payment. Upon the earlier of the Trust's final payment of all amounts due under
the preceding paragraph or the date 15 months after the Change in Control of the
Bank, 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.
13. Indemnification. The Bank and the Company agree that their
---------------
respective Bylaws shall continue to provide for indemnification of directors,
officers, employees and agents of the Bank and the Company, including the
Employee during the full term of this Agreement, and to at all times provide
adequate insurance for such purposes.
8
14. Reimbursement of Employee for Enforcement Proceedings. 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 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 obtains either a
written settlement or a final judgement by a court of competent jurisdiction
substantially in his favor. Such reimbursement shall be paid within ten days of
the Employee's furnishing to the Bank 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.
15. Federal Income Tax Withholding. The Bank may withhold all federal and
------------------------------
state income or other taxes from any benefit payable under this Agreement as
shall be required pursuant to any law or government regulation or ruling.
16. Successors and Assigns.
----------------------
(a) Bank. This Agreement shall not be assignable by the Bank,
provided that this Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank.
(b) Employee. 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; provided, however, that nothing in this paragraph shall
preclude (i) the Employee from designating a beneficiary to receive any benefit
payable hereunder upon his death, or (ii) the executors, administrators, or
other legal representatives of the Employee or his estate from assigning any
rights hereunder to the person or persons entitled thereunto.
(c) Attachment. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to exclusion, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect.
17. 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.
18. 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.
9
19. 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.
20. 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 and shall supersede any prior
agreement between the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
Witnessed By: 1ST STATE BANK
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------- ------------------------------
Its Chairman of the Board
Witnessed By:
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ /s/ A. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
--------------------------------- ------------------------------
A. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
10
1ST STATE BANK
-----------------------------
EMPLOYMENT AGREEMENT
WITH FAIRFAX ▇. ▇▇▇▇▇▇▇▇
-----------------------------
AGREEMENT entered into and effective this 15th day of September, 1998, by
and between 1st State Bank (the "Bank") and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (the "Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as an
executive officer and is experienced in all phases of the business of the Bank;
and
WHEREAS, the Board of Directors (the "Board") of the Bank believes it is in
the best interests of the Bank to enter into this Agreement with the Employee in
order to assure continuity of management of the Bank and to reinforce and
encourage the continued attention and dedication of the Employee to his assigned
duties; and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Defined Terms
-------------
When used anywhere in this 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) "Company" shall mean 1st State Bancorp.
(c) "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.
(d) "Code Sec. 280G Maximum" shall mean the product of 2.99 and the
Employee's "base amount" as defined in Code (S)280G(b)(3).
(e) "Disability" shall mean a physical or mental infirmity which
impairs the Employee's ability to substantially perform his duties under this
Agreement and which results in the Employee becoming eligible for long-term
disability benefits under the Bank's long-term disability plan (or, if the Bank
has no such plan in effect, which impairs the Employee's ability to
substantially perform his duties under this Agreement for a period of 180
consecutive days).
(f) "Effective Date" shall mean the closing date of the Bank's
mutual-to-stock conversion.
(g) "Good Reason" shall mean either the Employee's retirement for any
------
reason at or after he attains age 65, or 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 30 miles from his primary office as of the later
of the Effective Date and the most recent voluntary relocation by the Employee;
(ii) a material reduction in the Employee's base compensation under this
Agreement 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 under this Agreement 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 under this Agreement;
(iv) the assignment to the Employee of duties and responsibilities materially
different from those normally associated with his position; (v) a failure to
reelect the Employee to the Board of Directors of the Bank or the Company, if
the Employee has served on such Board at any time during the term of the
Agreement; or (vi) a material diminution or reduction in the Employee's
responsibilities or authority (including reporting responsibilities) in
connection with his employment with the Bank.
(h) "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
2
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.
(i) "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 first annual
anniversary of the Change in Control or the expiration date of this Agreement.
(j) "Total Compensation" shall mean the highest sum, during any one
of the three calendar years before this Agreement expires or terminates for any
reason, of the Employee's salary, bonuses, retirement benefit accruals, and
taxable fringe benefits.
(k) "Trust" shall mean a grantor trust that is designed in accordance
with Revenue Procedure 92-64 and has a trustee independent of the Bank and the
Company.
2. Employment. The Employee is employed as an executive officer of the
----------
Bank. The Employee shall render such administrative and management services for
the Bank as are currently rendered and as are customarily performed by persons
situated in a similar executive capacity. The Employee shall also promote, by
entertainment or otherwise, as and to the extent permitted by law, the business
of the Bank. The Employee's other duties shall be such as the Board may from
time to time reasonably direct, including normal duties as an officer of the
Bank.
3. Base Compensation. The Bank agrees to pay the Employee during the
-----------------
term of this Agreement the base salary in effect on the Effective Date, payable
in cash not less frequently than monthly. The Board shall review, not less
often than annually, the rate of the Employee's salary, and in its sole
discretion may decide to increase his salary.
4. Discretionary Bonuses. The Employee shall participate in an
---------------------
equitable manner with all other senior management employees of the Bank in
discretionary bonuses that the Board may award from time to time to the Bank's
senior management employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Employee's right to participate
in such discretionary bonuses.
5. Participation in Retirement, Medical and Other Plans.
----------------------------------------------------
(a) Retirement and Welfare Plans. The Employee shall be eligible to
participate in any of the following plans or programs that the Bank may now or
in the future maintain: group hospitalization, disability, health, dental, sick
leave, life insurance, travel and/or accident insurance, auto allowance/auto
lease, retirement, pension, and/or other present or future qualified or
nonqualified plans provided by the Bank, generally which benefits, taken as a
whole, must be at least as favorable as those in effect on the Effective Date.
3
(b) Other Plans; Reimbursements. The Employee shall also be eligible
to participate in any fringe benefits which are or may become available to the
Bank's senior management employees, including for example: any stock option or
incentive compensation plans, and any other benefits which are commensurate with
the responsibilities and functions to be performed by the Employee under this
Agreement. The Employee shall be reimbursed for all reasonable out-of-pocket
business expenses which he shall incur in connection with his services
under this Agreement upon substantiation of such expenses in accordance with the
policies of the Bank.
(c) Post-termination Health Insurance. If the Employee's employment
terminates with the Bank for any reason other than Just Cause, the Employee
shall be entitled to receive, solely at the Bank's expense, family medical and
dental insurance under any group plan chosen by the Employee from the plans the
Bank maintains for its officers or employees. Notwithstanding the foregoing,
in the event that coverage under the group health plan chosen by the Employee
pursuant to this Section 5(c) is not permitted under the terms of such plan,
then the Bank shall remit to the Employee, not less frequently than monthly, the
actual cost to the Employee of equivalent insurance. Rights under this Section
5(c) shall be in addition to, and not in lieu of, any other rights that the
Employee has under this Agreement, and shall continue until the Employee first
becomes eligible for participation in Medicare.
6. Term. The Bank hereby employs the Employee, and the Employee hereby
----
accepts such employment under this Agreement, for the period commencing on the
Effective Date and ending 36 months thereafter (or such earlier date as is
determined in accordance with Section 10 or 12 hereof). Additionally, on each
annual anniversary date from the Effective Date, the Employee's term of
employment shall be extended for an additional one-year period beyond the then
effective expiration date, provided the Board determines in a duly adopted
resolution that the performance of the Employee has met the Board's requirements
and standards, and that this Agreement shall be extended. Only those members of
the Board of Directors who have no personal interest in this Employment
Agreement shall discuss and vote on the approval and subsequent review of this
Agreement. If the Board decides not to renew this Agreement for any reason, and
if the Employee remains an employee of the Bank until the Agreement expires, the
Bank shall thereupon pay the Employee an amount equal to two times his Total
Compensation.
7. Loyalty; Noncompetition.
-----------------------
(a) During the period of his employment hereunder and except for
illnesses, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder; provided, however, from
time to time, the Employee may serve on the boards of directors of, and hold any
other offices or positions in, companies or organizations, which will not
present any conflict of interest with the Bank or any of its subsidiaries or
affiliates, or unfavorably affect the performance of the Employee's duties
pursuant to this Agreement, or will not violate any applicable statute or
regulation. "Full business time" is hereby defined as that amount of time
4
usually devoted to like companies by similarly situated executive officers.
During the term of his employment under this Agreement, the Employee shall not
engage in any business or activity contrary to the business affairs or interests
of the Bank.
(b) Nothing contained in this Section shall be deemed to prevent or
limit the Employee's right to invest in the capital stock or other securities of
any business dissimilar from that of the Bank, or, solely as a passive or
minority investor, in any business.
8. Standards. The Employee shall perform his duties under this Agreement
---------
in accordance with such reasonable standards as the Board may establish from
time to time. The Bank will provide the Employee with the working facilities
and staff customary for similar executives and necessary for him to perform his
duties.
9. Vacation and Sick Leave. At such reasonable times as the Board shall
-----------------------
in its discretion permit, the Employee shall be entitled, without loss of pay,
to absent himself voluntarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time, provided that:
(a) The Employee shall be entitled to an annual vacation in
accordance with the policies that the Board periodically establishes for senior
management employees of the Bank.
(b) The Employee shall not receive any additional compensation from
the Bank on account of his failure to take a vacation or sick leave, and the
Employee shall not accumulate unused vacation or sick leave from one fiscal year
to the next, except in either case to the extent authorized by the Board.
(c) In addition to the aforesaid paid vacations, the Employee shall
be entitled without loss of pay, to absent himself voluntarily from the
performance of his employment with the Bank for such additional periods of time
and for such valid and legitimate reasons as the Board may in its discretion
determine. Further, the Board may grant to the Employee a leave or leaves of
absence, with or without pay, at such time or times and upon such terms and
conditions as such Board in its discretion may determine.
(d) In addition, the Employee shall be entitled to an annual sick
leave benefit as established by the Board.
10. Termination and Termination Pay. The Employee's employment hereunder
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may be terminated under the following circumstances with any payments being made
in accordance with Section 10(h) hereof:
(a) Just Cause. The Board may, by written notice to the Employee,
immediately terminate his employment at any time, for Just Cause. The Employee
shall have no right to receive compensation or other benefits for any period
after termination for Just Cause.
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(b) Without Just Cause; Constructive Discharge. The Board may, by
written notice to the Employee, immediately terminate his employment at any time
for a reason other than his Disability or Just Cause, in which event the
Employee shall be entitled to receive three times his Total Compensation as well
as continued medical and dental insurance in accordance with Section 5(c) of
this Agreement.
(c) Good Reason. The Employee shall be entitled to receive any
compensation and benefits provided for under Section 10(b) hereof in the event
that he terminates employment within 90 days of an event that constitutes Good
Reason.
(d) Disability. The Bank may terminate the Employee's employment
after having established his Disability, in which event the Employee shall be
entitled to the compensation and benefits provided for under this Agreement for
(i) any period during the term of this Agreement and prior to the establishment
of the Employee's Disability during which the Employee is unable to work due to
the physical or mental infirmity, and (ii) any period of Disability which is
prior to the Employee's termination of employment pursuant to this Section
10(d); provided that any benefits paid pursuant to the Bank's long term
disability plan will continue as provided in such plan without reduction for
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payments made pursuant to this Agreement. During any period that the Employee
shall receive disability benefits and to the extent that the Employee shall be
physically and mentally able to do so, he shall furnish such information,
assistance and documents so as to assist in the continued ongoing business of
the Bank and, if able, shall make himself available to the Bank to undertake
reasonable assignments consistent with his prior position and his physical and
mental health. The Bank shall pay all reasonable expenses incident to the
performance of any assignment given to the Employee during the disability
period.
(e) Termination or Suspension Under Federal Law. (1) 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) and (g)(1)), all
obligations of the Bank under this Agreement shall terminate, as of the
effective date of the order, but vested rights of the parties shall not be
affected.
(2) 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.
(3) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12
U.S.C. 1818(e)(3) or (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.
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(4) 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.
(f) Voluntary Termination by Employee. The Employee may voluntarily
terminate employment with the Bank during the term of this Agreement, upon at
least 90 days' prior written notice to the Board, in which case the Employee
shall receive only his compensation, vested rights and employee benefits up to
the date of his termination (unless such termination occurs pursuant to Section
10(c) hereof, in which event the benefits and compensation provided for in
Section 10(b) shall apply).
(g) Death. The Employee's employment under this Agreement shall
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive three times his total
Compensation (determined as of the date of his death).
(h) Method of Payment. Any amount payable in cash under this Section
10 shall be paid, at the option of the Employee, either (I) in periodic
payments, through the Expiration Date, or (II) in one lump sum within ten days
of such termination.
11. No Mitigation. The Employee shall not be required to mitigate the
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amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent employment.
12. Change in Control.
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(a) Trigger Events. The Employee shall be entitled to collect the
severance benefits set forth in Subsection (b) hereof in the event that either
(i) the Employee voluntarily terminates employment 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 or
the Company or their successor(s) in interest terminate the Employee's
employment without his written consent and for any reason other than Just Cause
during the Protected Period.
(b) Amount of Severance Benefit. If the Employee becomes entitled to
collect severance benefits pursuant to Section 12(a) hereof, the Bank shall:
(i) pay the Employee a severance benefit equal to the difference
between the Code (S)280G Maximum and the sum of any other "parachute
payments" as defined under Code (S)280G(b)(2) that the Employee
receives on account of the Change in Control, and
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(ii) pay for long-term disability and provide such medical
benefits as are available to the Employee under the provisions of
COBRA, for eighteen (18) months (or such longer period, up to 24
months, if COBRA is amended).
The amount payable under this Section 12(b) shall be paid either (i) in one
lump sum within ten 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, or (ii) if
prior to the date which is 90 days before the date on which a Change in Control
occurs, the Employee filed a duly executed irrevocable written election in the
form attached hereto as Exhibit "B", payment of such amount shall be made
according to the elected schedule. Deferred amounts shall bear interest from
the date on which they would otherwise be payable until the date paid at a rate
equal to 120% of the applicable federal rate, compounded semiannually, as
determined under Code Section 1274(d) and the regulations thereunder.
In the event that the Employee, the Bank, and the Company jointly agree
that the Employee has collected an amount exceeding the Code (S)280G Maximum,
the parties may 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
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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) Funding of Grantor Trust upon Change in Control. Not later than
ten business days after a Change in Control, the Bank shall (i) deposit in a
Trust an amount equal to the Code (S)280G Maximum, 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.
During the 15-consecutive month period after a Change in Control, the
Employee may provide the trustee of the Trust with a written notice directing
the trustee to pay to 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 pay such amount to the Employee, and
coincidentally shall provide the Bank or its successor with notice of such
payment. Upon the earlier of the Trust's final payment of all amounts due under
the preceding paragraph or the date 15 months after the Change in Control of the
Bank, 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.
13. Indemnification. The Bank and the Company agree that their
---------------
respective Bylaws shall continue to provide for indemnification of directors,
officers, employees and agents of the Bank and the Company, including the
Employee during the full term of this Agreement, and to at all times provide
adequate insurance for such purposes.
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14. Reimbursement of Employee for Enforcement Proceedings. In the event
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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 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 obtains either a
written settlement or a final judgement by a court of competent jurisdiction
substantially in his favor. Such reimbursement shall be paid within ten days of
the Employee's furnishing to the Bank 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.
15. Federal Income Tax Withholding. The Bank may withhold all federal and
------------------------------
state income or other taxes from any benefit payable under this Agreement as
shall be required pursuant to any law or government regulation or ruling.
16. Successors and Assigns.
----------------------
(a) Bank. This Agreement shall not be assignable by the Bank,
provided that this Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank.
(b) Employee. 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; provided, however, that nothing in this paragraph shall
preclude (i) the Employee from designating a beneficiary to receive any benefit
payable hereunder upon his death, or (ii) the executors, administrators, or
other legal representatives of the Employee or his estate from assigning any
rights hereunder to the person or persons entitled thereunto.
(c) Attachment. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to exclusion, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect.
17. 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.
18. 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.
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19. 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.
20. 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 and shall supersede any prior
agreement between the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
Witnessed By: 1ST STATE BANK
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Its Chairman of the Board
Witnessed By:
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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