YADKIN VALLEY BANK AND TRUST COMPANY 2007 GROUP TERM CARVE OUT PLAN
EXHIBIT 10.7
YADKIN VALLEY BANK AND TRUST COMPANY
2007 GROUP TERM CARVE OUT PLAN
2007 GROUP TERM CARVE OUT PLAN
This 2007 Group Term Carve Out Plan is made and entered into this 31st day of December, 2007,
by and between Yadkin Valley Bank and Trust Company, a North Carolina-chartered commercial bank
located in Elkin, North Carolina (the “Company”), and the participant selected to participate in
this Plan (the “Participant”).
This Plan is separate from and in addition to the Company’s March 1, 2000 Group Term Carve Out
Plan.
Introduction
The Company wishes to attract and retain highly qualified officers. To further this
objective, the Company is willing to divide the death proceeds of certain life insurance policies
which are owned by the Company on the lives of the participating officers with the designated
beneficiary of each insured participating officer. The Company will pay the life insurance
premiums from its general assets.
Article 1
Definitions
Definitions
Whenever used in this Plan, the following terms shall have the meanings specified:
1.1 “Base Annual Salary” means the base annual salary of the Participant on December 31, 2006,
adjusted by 3% on each December 31 thereafter until the earlier of (x) the date of the
Participant’s death or (y) the date the Participant’s employment with the Company terminates.
1.2 “Change of Control” means the transfer of shares of the Company’s voting common stock such
that one entity or one person acquires (or is deemed to acquire when applying section 318 of the
Code) more than 50 percent of the Company’s outstanding voting common stock.
1.3 “Insured” means the individual whose life is insured.
1.4 “Insurer” means the insurance company issuing the life insurance policy on the life of the
insured.
1.5 “Participant” means the employee who is designated by the Board of Directors as eligible
to participate in the Plan, elects in writing to participate in the Plan using the form attached
hereto as Exhibit A, and signs a Split Dollar Endorsement, attached hereto as Exhibit
C, for the Policy in which he or she is insured.
1.6 “Policy” or “Policies” means the individual insurance policy or policies adopted by the
Board of Directors for purposes of insuring a Participant’s life under this Plan.
1.7 “Plan” means this instrument, including all amendments thereto.
1.8 “Termination for Cause” means that the Company has terminated the Participant’s employment
for any of the following reasons:
(a) Gross negligence or gross neglect of duties;
(b) Commission of a felony or of a gross misdemeanor involving moral turpitude; or
(c) Fraud, disloyalty, dishonesty, or willful violation of any law or significant Company
policy committed in connection with the Participant’s employment and resulting in an adverse
effect on the Company.
Article 2
Participation
Participation
2.1 Eligibility to Participate. The Board of Directors in its sole discretion shall designate
from time to time the Participants that are eligible to participate in this Plan.
2.2 Participation. The eligible officer may participate in this Plan by executing an Election
to Participate and a Split Dollar Endorsement. The Split Dollar Endorsement shall bind the
Participant and his or her beneficiaries, assigns, and transferees to the terms and conditions of
this Plan. An officer’s participation is limited to only Policies where he or she is the Insured.
Exhibit B attached hereto sets forth the Insured Participants and the Policies on their
lives.
2.3 Termination of Participation. A Participant’s rights under this Plan shall cease and his
or her participation in this Plan shall terminate if either of the following events occur: (x) if
there is a Termination for Cause or (y) if the Participant voluntarily leaves the employment of the
Company and becomes an employee of or a paid consultant or advisor to any financial institution
with a physical operating presence within 50 miles of any physical office of the Company. In the
event that the Company decides to maintain the Policy after the Participant’s termination of
participation in the Plan, the Company shall be the direct beneficiary of the entire death proceeds
of the Policy.
2.4 Retirement. After the Participant’s employment termination, the Company shall maintain
the Policy in full force and effect and the Company shall not amend, terminate, or otherwise
abrogate the Participant’s interest in the Policy. However, the Company may replace the Policy
with a comparable insurance policy to cover the benefit provided under this Plan. The Policy or
any comparable policy shall be subject to the claims of the Company’s creditors.
Article 3
Policy Ownership/Interests
Policy Ownership/Interests
3.1 Participant’s Interest. The Participant or the Participant’s assignee shall have the
right to designate the beneficiary of death proceeds of one or more Policies equal in the aggregate
to the lesser of (x) the net death proceeds, meaning total death proceeds of the Policies minus the
cash surrender value of the Policies, or (y) the applicable amount determined under clauses (a)
through (f) as follows:
(a) 2.0 times Base Annual Salary of the Participant upon execution of the Election to
Participate and Split Dollar Endorsement by the eligible officer.
(b) 2.4 times Base Annual Salary of the Participant upon the first anniversary of the
Participant’s election as an officer of the Company by the Board of Directors, provided the
Participant remains an officer of the Company on that date.
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(c) 2.8 times Base Annual Salary of the Participant upon the second anniversary of the
Participant’s election as an officer of the Company by the Board of Directors, provided the
Participant remains an officer of the Company on that date.
(d) 3.2 times Base Annual Salary of the Participant upon the third anniversary of
the Participant’s election as an officer of the Company by the Board of Directors,
provided the Participant remains an officer of the Company on that date.
(e) 3.6 times Base Annual Salary of the Participant upon the fourth anniversary of the
Participant’s election as an officer of the Company by the Board of Directors, provided the
Participant remains an officer of the Company on that date.
(f) 4.0 times Base Annual Salary of the Participant upon the fifth anniversary of the
Participant’s election as an officer of the Company by the Board of Directors, provided the
Participant remains an officer of the Company on that date.
The different amounts of death benefits noted in clauses (a) through (f) are not cumulative;
the Participant’s interest can never exceed 4.0 times Base Annual Salary. Additionally, the
multiple of Base Annual Salary specified in clauses (a) through (f) shall not increase after the
Participant’s employment terminates.
3.2 Company’s Interest. The Company shall own the Policies and shall have the right to
exercise all incidents of ownership, except that the Company shall not sell, surrender, or transfer
ownership of a Policy so long as a Participant has an interest in the Policy as described in
section 3.1 without replacing the Policy with a comparable insurance policy to cover the benefit
provided by this Plan. This provision shall not impair the right of the Company to terminate this
Plan. With respect to each Policy, the Company shall be the direct beneficiary of the remaining
death proceeds of the Policy after the Participant’s interest is determined according to section
3.1.
Article 4
Premiums
Premiums
4.1 Premium Payment. The Company shall pay all premiums due on all Policies.
4.2 Imputed Income. The Bank shall impute income to the Participant in an amount equal to the
current term rate for the Participant’s age multiplied by the net death benefit payable to the
Participant’s beneficiary. The “current term rate” is the minimum amount required to be imputed
under Revenue Rulings 64-328 and 66-110, and the taxes calculated on the imputed income associated
with the Plan using Treasury Reg. §1.61-22(d)(3)(ii) or any subsequent applicable authority.
Article 5
Assignment
Assignment
Any Participant may assign without consideration all interests in his or her Policy and in
this Plan to any person, entity, or trust. If a Participant transfers all of his or her interest
in the Policy, all of that Participant’s interest in his or her Policy and in the Plan shall be
vested in his or her transferee, who shall be substituted as a party hereunder, and the Participant
shall have no further interest in his or her Policy or in this Plan.
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Article 6
Insurer
Insurer
The Insurer shall be bound only by the terms of the corresponding Policy. Any payments the
Insurer makes or actions the Insurer takes in accordance with a Policy shall fully discharge the
Insurer from all claims, suits and demands of all persons relating to that Policy. The Insurer
shall not be bound by the provisions of this Plan. The Insurer shall have the right to rely on the
Company’s representations with regard to any definitions, interpretations, or Policy interests as
specified under this Plan.
Article 7
Claims and Review Procedures
Claims and Review Procedures
7.1 Claims Procedure. A person or beneficiary (“claimant”) who has not received benefits
under this Plan that he or she believes should be paid shall make a claim for such benefits as
follows —
(a) Initiation — written claim. The claimant initiates a claim by submitting to the
Administrator a written claim for the benefits. If the claim relates to the contents of a
notice received by the claimant, the claim must be made within 60 days after the notice was
received by the claimant. All other claims must be made within 180 days after the date of
the event that caused the claim to arise. The claim must state with particularity the
determination desired by the claimant.
(b) Timing of Company response. The Company shall respond to the claimant within 90 days
after receiving the claim. If the Company determines that special circumstances require
additional time for processing the claim, the Company may extend the response period by an
additional 90 days by notifying the claimant in writing before the end of the initial 90-day
period that an additional period is required. The notice of extension must state the
special circumstances and the date by which the Company expects to render its decision.
(c) Notice of decision. If the Company denies part or all of the claim, the Company shall
notify the claimant in writing of the denial. The Company shall write the notification in a
manner calculated to be understood by the claimant. The notification shall set forth —
(i) the specific reasons for the denial,
(ii) a reference to the specific provisions of the Plan on which the denial is
based,
(iii) a description of any additional information or material necessary for the
claimant to perfect the claim and an explanation of why it is needed,
(iv) an explanation of the Plan’s review procedures and the time limits applicable
to such procedures, and
(v) a statement of the claimant’s right to bring a civil action under ERISA section
502(a) following an adverse benefit determination on review.
7.2 Review Procedure. If the Company denies part or all of the claim, the claimant shall have
the opportunity for a full and fair review by the Company of the denial, as follows —
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(a) Initiation — written request. To initiate the review, the claimant, within 60 days
after receiving the Company’s notice of denial, must file with the Company a written request
for review.
(b) Additional submissions — information access. The claimant shall then have the
opportunity to submit written comments, documents, records, and other information relating
to the claim. The Company shall also provide the claimant, upon request and free of charge,
reasonable access to and copies of all documents, records, and other information relevant
(as defined in applicable ERISA regulations) to the claimant’s claim for benefits.
(c) Considerations on review. In considering the review, the Company shall take into
account all materials and information the claimant submits relating to the claim, without
regard to whether the information was submitted or considered in the initial benefit
determination.
(d) Timing of Company response. The Company shall respond in writing to the claimant within
60 days after receiving the request for review. If the Company determines that special
circumstances require additional time for processing the claim, the Company may extend the
response period by an additional 60 days by notifying the claimant in writing before the end
of the initial 60-day period that an additional period is required. The notice of extension
must state the special circumstances and the date by which the Company expects to render its
decision.
(e) Notice of decision. The Company shall notify the claimant in writing of its decision on
review. The Company shall write the notification in a manner calculated to be understood by
the claimant. The notification shall set forth —
(i) the specific reason for the denial,
(ii) a reference to the specific provisions of the Plan on which the denial is
based,
(iii) a statement that the claimant is entitled to receive, upon request and free of
charge, reasonable access to and copies of all documents, records, and other
information relevant (as defined in applicable ERISA regulations) to the claimant’s
claim for benefits, and
(iv) a statement of the claimant’s right to bring a civil action under ERISA section
502(a).
Article 8
Amendments and Termination
Amendments and Termination
8.1 Amendment or Termination of Plan. Except as otherwise provided in sections 2.3 and 8.2,
the Company may (x) amend or terminate the Plan at any time and (y) amend or terminate a
Participant’s rights under the Plan at any time prior to a Participant’s death by written notice to
the Participant.
8.2 Amendment or Termination of Plan Upon a Change of Control. Notwithstanding the provisions
of section 8.1, in the event of a Change of Control, the Company, or its successor, shall maintain
in full force and effect each Policy that is in existence on the date the Change of Control occurs
and shall not terminate or otherwise abrogate a Participant’s interest in the Policy. However, the
Company may replace the Policy with a comparable insurance policy to cover the benefit provided
under this Agreement. The Policy or any comparable policy shall be subject to the claims to the
Company’s creditors. This section 8.2 shall apply to all Participants in the Plan on the date the
Change of Control occurs, including a Participant whose employment is terminated as a result of a
Change of Control.
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8.3 Participant Waiver. A Participant may, in the Participant’s sole and absolute discretion,
waive his or her rights under the Plan at any time. Any waiver permitted under this section 8.3
shall be in writing and delivered to the Board of Directors of the Company.
Article 9
Miscellaneous
Miscellaneous
9.1 Binding Effect. This Plan in conjunction with each Split Dollar Endorsement shall bind
each Participant and the Company, their beneficiaries, survivors, executors, administrators, and
transferees and any Policy beneficiary.
9.2 No Guarantee of Employment. This Plan is not an employment policy or contract. It does
not give a Participant the right to remain an employee of the Company nor does it interfere with
the Company’s right to discharge a Participant. It also does not require a Participant to remain
an employee or interfere with a Participant’s right to terminate employment at any time.
9.3 Applicable Law. The Plan and all rights hereunder shall be governed by and construed
according to the laws to the State of North Carolina, except to the extent preempted by the laws of
the United States of America.
9.4 Notice. Any notice, consent, or demand required or permitted to be given under the
provisions of this Plan by one party to another shall be in writing, shall be signed by the party
giving or making the same, and may be given either by delivering the same to such other party
personally or by mailing the same, by United States certified mail, postage prepaid, to such party,
addressed to his/her last known address as shown on the records or the Company. The date of such
mailing shall be deemed the date of such mailed notice, consent or demand.
9.5 Entire Agreement. This Plan constitutes the entire agreement between the Company and the
Participant as to the subject matter hereof. No rights are granted to the Participant by virtue of
this Plan other than those specifically set forth herein.
9.6 Administration. The Company shall have powers which are necessary to administer this
Plan, including but not limited to:
(a) interpreting the provisions of the Plan;
(b) establishing and revising the method of accounting for the Plan;
(c) maintaining a record of benefit payments; and
(d) establishing rules and prescribing any forms necessary or desirable to administer the
Plan.
9.7 Designated Fiduciary. For the purposes of the Employee Retirement Security Act of 1974,
if applicable, the Company shall be the named fiduciary and plan administrator under the Agreement.
The named fiduciary may delegate to others certain aspects of the management and operation
responsibilities of the Plan, including the employment of advisors and the delegation of
ministerial duties to qualified individuals.
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9.8 Compliance with Internal Revenue Code Section 409A. The Company intends that the exercise
of authority or discretion under this Plan shall comply with section 409A of the Internal Revenue
Code of 1986. If when a Participant’s termination of employment occurs the Participant is a
specified employee within the meaning of section 409A of the Internal Revenue Code of 1986 and if
any payments under this Plan will result in additional tax or interest to the Participant because
of section 409A, then despite any contrary provision of this Plan the Participant shall not be
entitled to the payments until the earliest of (x) the date that is at least six months after the
Participant’s employment termination for reasons other than the Participant’s death, (y) the date
of the Participant’s death, or (z) any earlier date that does not result in additional tax or
interest to the Participant under section 409A. As promptly as possible after the end of the
period during which payments are delayed under this provision, the entire amount of the delayed
payments shall be paid to the Participant in a single lump sum. If any provision of this Plan does
not satisfy the requirements of section 409A, such provision shall nevertheless be applied in a
manner consistent with those requirements. If any provision of this Plan would subject the
Participant to additional tax or interest under section 409A, the Company shall reform the
provision. However, the Company shall maintain to the maximum extent practicable the original
intent of the applicable provision without subjecting the Participant to additional tax or
interest, and the Company shall not be required to incur any additional compensation expense as a
result of the reformed provision.
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Article 3
Policy Ownership/Interests
Policy Ownership/Interests
3.1 Participant’s Interest. The Participant or the Participant’s assignee shall have the
right to designate the beneficiary of death proceeds of one or more Policies equal in the aggregate
to the lesser of (x) the net death proceeds, meaning total death proceeds of the Policies minus the
cash surrender value of the Policies, or (y) the applicable amount determined under clauses (a)
through (g) as follows:
(a) 1.0 times Base Annual Salary of the Participant upon execution of the Election
to Participate and Split Dollar Endorsement by the eligible officer.
Upon termination of service:
(a) 2.0 times Base Annual Salary of the Participant if less than one year of service were completed by the Participant as an eligible officer prior to termination of service.
(a) 2.0 times Base Annual Salary of the Participant if less than one year of service were completed by the Participant as an eligible officer prior to termination of service.
(b) 2.4 times Base Annual Salary of the Participant if at least one year of service were
completed by the Participant as an eligible officer prior to termination of service.
(c) 2.8 times Base Annual Salary of the Participant if at least two years of service were
completed by the Participant as an eligible officer prior to termination of service.
(d) 3.2 times Base Annual Salary of the Participant if at least three years of
service were completed by the Participant as an eligible officer prior to termination
of service.
(e) 3.6 times Base Annual Salary of the Participant if at least four years of service were
completed by the Participant as an eligible officer prior to termination of service.
(f) 4.0 times Base Annual Salary of the Participant if at least five years of service were
completed by the Participant as an eligible officer prior to termination of service.
The different amounts of death benefits noted in clauses (a) through (f) are not cumulative;
the Participant’s interest can never exceed 4.0 times Base Annual Salary. Additionally, the
multiple of Base Annual Salary specified in clauses (a) through (f) shall not increase after the
Participant’s employment terminates.
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